As filed with the Securities and Exchange Commission on September 3, 2003
Securities Act File No. 333-_____
Investment Company Act File No. 811-04656
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[ ] Post-Effective Amendment No.
and
(973) 631-1177
(Registrant's Telephone Number, including Area Code)
Thomas H. Dinsmore, Chairman and Chief Executive Officer
Ellsworth Convertible Growth and Income Fund, Inc.
65 Madison Avenue
Morristown, New Jersey 07960
(Name and Address (Number, Street, City, State, Zip Code) of Agent for Service)
Copies to:
Martha J. Hays, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
It is proposed that this filing will become effective (check appropriate box)
[X] when declared effective pursuant to section 8(c)
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
=============================================================================================================
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Per Aggregate Offering Amount of
Being Registered Registered(1) Unit(1) Price(1) Registration Fee
Common Stock $ 0.01 par value 1,751,657 shares $8.05 $14,100,839 $1,140.76
=============================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933. Based on the average of the high and low prices reported on the American Stock Exchange on August 28, 2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion
Preliminary Prospectus Dated
September 3, 2003
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
_________ Shares of Common Stock
Issuable upon Exercise of Non-Transferable Rights to Subscribe for such Shares of Common Stock
The Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund") is
offering to its common stockholders of record as of October 14, 2003 non-
transferable rights ("Rights"). These Rights will allow you to subscribe for
one share of the Fund's Common Stock for each six Rights held (the "Offer").
You will receive one Right for each whole share of Common Stock that you hold of
record as of October 14, 2003, rounded up to the nearest number of Rights evenly
divisible by six. The Rights will not be listed for trading on the American
Stock Exchange ("AMEX") or any other exchange. The subscription price (the
"Subscription Price") will be the lesser of 95% of (a) the net asset value per
share of the Fund's Common Stock on November 20, 2003, (the "Pricing Date") or
(b) the average of the volume-weighted average sales prices of a share of the
Fund's Common Stock on the AMEX on the Pricing Date and the four preceding
trading days.
Rights may be exercised at any time prior to 5:00 p.m., Eastern time, on November 19, 2003 (the "Expiration Date"), unless extended. Since the Offer closes prior to the Pricing Date, stockholders who exercise their Rights will not know the Subscription Price at the time they exercise their Rights. Payment of the estimated Subscription Price of $_____ per share must be made when a stockholder exercises the Rights.
The Fund is a closed-end, diversified management investment company, whose shares of Common Stock are listed and traded on the AMEX under the symbol "ECF." The Fund 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). The Fund will invest, under normal circumstances, at least 80% of the value of its assets (consisting of net assets plus the amount of any borrowings for investment purposes) in convertible securities. The net asset value per share of the Fund's Common Stock at the close of business on October __, 2003 was $__________, and the last reported sales price of a share of the Fund's Common Stock on the AMEX on that date was $__________.
Neither the Securities and Exchange Commission ("SEC") nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Estimated Proceeds, before
Subscription expenses, to
Price (1) Sales Load the Fund (2)
------------ ---------- ----------------
Per Share None
Total None
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(1) Estimated based on an estimated Subscription Price per share of 95% of [the net asset value per share of the Fund's Common Stock on October __, 2003 or the average of the volume-weighted average sales prices of a share on the AMEX on October ___, 2003 and the four preceding trading days.]
(2) Before deduction of expenses payable by the Fund, estimated at $________, which will be charged against paid-in capital of the Fund.
Stockholders who do not fully exercise their Rights should expect that they will, at the completion of the Offer, own a smaller proportional interest in the Fund than if they exercised their Rights. As a result of the Offer, you may experience an immediate dilution of the aggregate net asset value of your shares, which under certain circumstances may be substantial. This is because the Subscription Price per share and/or the net proceeds to the Fund for each new share sold will be less than the Fund's net asset value per share on the Expiration Date. The Fund cannot state precisely the extent of this dilution at this time because it does not know what the net asset value or market price per share will be when the Offer expires or what proportion of the Rights will be exercised.
This Prospectus contains information you should know before exercising your Rights, including information about risks. Please read it before you invest and keep it for future reference. A Statement of Additional Information, dated October ___, 2003, containing additional information about the Fund, has been filed with the SEC and is incorporated by reference in its entirety into this Prospectus. The table of contents of the Statement of Additional Information appears on page ____ of this Prospectus, and a copy is available at no charge by calling the Information Agent at (888) 705-1032 or at the SEC's internet website (http://www.sec.gov).
Shares will be ready for delivery on or about December ___, 2003.
The date of this Prospectus is October ___, 2003.
PROSPECTUS SUMMARY
You should consider the matters discussed in this summary before investing in the Fund through the Offer. This summary is qualified in its entirety by reference to the detailed information included in this Prospectus and the related Statement of Additional Information.
Purpose of the Offer
The Board of Directors of the Fund has determined that it would be in the best interest of the Fund and its stockholders to increase the assets of the Fund available for investment so that it may be in a better position to take advantage of investment opportunities that may arise. The Offer seeks to reward existing stockholders in the Fund by giving them the opportunity to purchase additional shares at a price below market and/or net asset value and without incurring any brokerage commissions. See "The Offer - Purposes of the Offer."
The Board of Directors believes that a larger number of outstanding shares could increase the level of market interest in and visibility of the Fund and improve the trading liquidity of the Fund's shares on the American Stock Exchange ("AMEX").
Important Terms of the Offer
Offer.......................... The Fund is offering to its
stockholders non-transferable
rights ("Rights") to subscribe
for shares of the Fund's Common
Stock (the "Offer").
Total number of shares
available for primary
subscription................. [ ] Shares of the
Fund's Common Stock (the "Shares").
Number of Rights you will
receive for each outstanding
share you own on October 14,
2003 (the "Record Date")..... One Right for every one share,
rounded up to the nearest number
of Rights evenly divisible by six.
Number of Shares you may
purchase with your Rights at
Subscription Price per Share. One Share for every six Rights.
Subscription Price (the
"Subscription Price")........ The lesser of 95% of (A) the net
asset value per share of the Fund's
Common Stock on November 20, 2003,
(the "Pricing Date") or (B) the
average of the volume-weighted
average sales prices of a share on
the AMEX on the Pricing Date and
the four preceding trading days.
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Additional Terms of the Offer
The Rights will not be listed for trading on the AMEX or any other exchange. Rights may be exercised at any time from October 17, 2003 through 5:00 p.m., Eastern time, on November 19, 2003 (the "Expiration Date"), unless extended. Since the Expiration Date is prior to the Pricing Date, stockholders who exercise their Rights will not know the Subscription Price at the time they
exercise their Rights. Payment of the estimated Subscription Price of $_____ per Share must be made when a stockholder exercises the Rights.
Over-Subscription Privilege
If you fully exercise all Rights issued to you, you will be entitled to subscribe for additional Shares that were not subscribed for by other stockholders. If sufficient Shares are available, all stockholders' over-subscription requests will be honored in full. If these requests for additional Shares exceed the Shares available, the available Shares will be allocated pro rata among stockholders who over-subscribe based on the number of Rights originally issued to them by the Fund. See "The Offer - Over- Subscription Privilege."
Method of Exercising Rights
The Rights will be evidenced by subscription certificates ("Subscription Certificates"). If you are a stockholder of record, your Subscription Certificate will be sent to you. If your shares are held by a nominee, such as a bank, broker, trust company or other financial institution ("Nominee"), your Subscription Certificate will be sent to your Nominee.
Stockholders who are record owners can choose between either option below to exercise rights. Stockholders whose shares are held by a Nominee, must choose option (2) below to exercise their Rights. You may exercise your Rights in the following ways:
(1) Complete and sign the Subscription Certificate. Mail it in the
envelope provided or deliver it, together with payment of the Estimated
Subscription Price of $___ per Share, to American Stock Transfer & Trust Company
("Subscription Agent") at the address indicated on the Subscription Certificate.
Your completed and signed Subscription Certificate and payment in good funds of
the Estimated Subscription Price of $___ per Share must be received prior to
5:00 p.m. Eastern time on the Expiration Date. Final payment of the actual
Subscription Price per Share must be received by the Subscription Agent within
(10) days after November __, 2003 (the "Confirmation Date").
(2) Contact your Nominee, which can arrange, on your behalf, to guarantee delivery of payment and delivery of a properly completed and executed Subscription Certificate pursuant to a notice of guaranteed delivery ("Notice of Guaranteed Delivery"). A stockholder who is a record owner may also contact a bank, broker, trust company or financial institution, which can arrange for a Notice of Guaranteed Delivery. A fee may be charged for this service. The Notice of Guaranteed Delivery must be received by the Expiration Date. A properly completed and executed Subscription Certificate, together with payment of the Estimated Subscription Price of $_____ per Share, must be received by the Subscription Agent by the close of business on the third (3rd) business day after the Expiration Date (November 24, 2003, unless the Offer is extended) or the Subscription Agent will not honor a Notice of Guaranteed Delivery. Final payment of the actual Subscription Price per share must be received by the Subscription Agent within (10) days after the Confirmation Date.
Since the Expiration Date is prior to the Pricing Date, stockholders who choose to exercise their Rights will not know the Subscription Price at the time they exercise such Rights. Stockholders will have no right to rescind their subscription after receipt of their payment for Shares by the Subscription Agent. See "The Offer - Method of Exercising Rights" and "The Offer - Payment for Shares." Subscription payments will be held by the Subscription Agent pending completion of the processing of the subscription. No interest on subscription payments will be paid to subscribers.
The Rights are not transferable. Therefore, only the underlying Shares, and not the Rights, will be admitted for trading on the AMEX. Fractional shares will not be issued on exercise of Rights.
Obtaining Subscription Information
Stockholders' inquiries about the Offer should be directed to their broker, bank or trust company, or to:
Georgeson Shareholder Communications Inc. (888) 705-1032
You may also call the Fund at (973) 631-1177.
Important Dates to Remember
Event Date
----- ----
Record Date................................................ October 14, 2003
Subscription Period........................................ October 17, 2003 through
November 19, 2003*
Expiration Date (Deadline for delivery of Subscription
Certificate together with payment of Estimated
Subscription Price, or for delivery of Notice of
Guaranteed Delivery)..................................... November 19, 2003*
Pricing Date............................................... November 20, 2003*
Nominee Subscription Certificate and Payment of
Estimated Subscription Price for
Shares Due Pursuant to Notice of
Guaranteed Delivery...................................... November 24, 2003*
Confirmation to Participants............................... November ___, 2003*
Final Payment for Shares................................... December ___, 2003*
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*Unless the Offer is extended.
Tax Consequences
For Federal income tax purposes, neither the receipt nor the exercise of the Rights will result in taxable income to you. You will not realize a taxable loss if your Rights expire without being exercised. See "The Offer - Federal Income Tax Consequences of the Offer."
Information about the Fund
The Fund is a closed-end, diversified management investment company, incorporated under the laws of the State of Maryland on April 30, 1986.
The Fund 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 due to the nature of the securities in which it invests). These investment objectives may be changed in the future by the Fund's Board of Directors without the approval of a majority of the Fund's outstanding voting securities.
The Fund expects that a substantial majority of its invested assets will consist of convertible securities. The Fund has adopted a non-fundamental investment policy providing that the Fund will invest, under normal circumstances, at least 80% of the value of its assets (consisting of net assets plus the amount of any borrowings for investment purposes) in convertible securities. This investment policy may be changed in the future by the Fund's Board of Directors without the approval of a majority of the Fund's outstanding voting securities.
In addition to the non-fundamental policy respecting convertible securities, the Fund has also adopted a fundamental policy that under normal market conditions it will invest at least 65% of its total assets in convertible securities (i.e., bonds, debentures, corporate notes, preferred stock or other securities that are convertible into common stock) and common stock received upon conversion or exchange of securities and retained in the Fund's portfolio to permit orderly disposition or to establish long-term holding periods for federal income tax purposes. This investment policy cannot be changed without the approval of a majority of the Fund's outstanding voting securities. The remainder of the Fund's total assets may be invested in other securities, including non-convertible equity and debt securities, options, warrants, U.S. Government or agency obligations, or repurchase agreements or they may be held as cash or cash equivalents. The Fund is not required to sell securities for the purpose of assuring that 65% of its total assets are invested in convertible securities.
An investment in the Fund is not appropriate for all investors. There can be no assurance that the Fund's investment objectives will be realized. See "Investment Objectives and Policies."
Capital Stock
The Fund's Common Stock is listed and traded on the AMEX under the symbol "ECF". As of October ___, 2003, the Fund had ____________ shares of Common Stock issued and outstanding. See "Description of Capital Stock."
Investment Adviser
Davis-Dinsmore Management Company (the "Adviser") provides investment advisory services to the Fund. For its services, the Fund pays the Adviser 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. For purposes of calculation of the fee, the net asset value for a month will be the average of the Fund'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. See "Management of the Fund."
Risk Factors and Special Considerations
The following summarizes some of the matters that you should consider before subscribing for Shares of the Fund through the Offer.
Dilution ........................ Stockholders who do not fully exercise their Rights should
expect that they will, at the completion of the Offer, own
a smaller proportional interest in the Fund than if they
exercised their Rights. As a result of the Offer, you may
experience an immediate dilution of the aggregate net asset
value of your shares, which, under certain circumstances,
may be substantial. This is because the Subscription Price
per share and/or the net proceeds to the Fund for each new
Share sold will be less than the Fund's net asset value per
share on the Expiration Date. It is not possible to state
precisely the amount of such dilution because it is not
known at this time how many Shares will be subscribed for
or what the net asset value or market price per share will
be on the Pricing Date.
4
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For example, if the Fund's shares are trading at a discount
from their net asset value of ______% (the average discount
for the five-month period ended ____________, 2003), and
assuming all Rights are exercised, the Subscription Price
would be _____% below the Fund's net asset value per share,
resulting in a reduction of such net asset value of
approximately $______ per share, or approximately ______%.
Further, if you do not submit subscription requests
pursuant to the Over-Subscription Privilege, you may
experience further dilution in your holdings. See "Risk
Factors and Special Considerations - Dilution."
Risk of Trading Discounts ....... The Fund's shares have generally traded in the market below
(a discount from) net asset value since the commencement of
the Fund's operations in April 1986. The Fund's shares have
traded at discounts of as much as 26.50% since the Fund's
inception. The possibility that shares of the Fund will
trade at a discount from net asset value is a risk separate
and distinct from the risk that the Fund's net asset value
will decrease. The risk of purchasing shares of a closed-end
fund, such as the Fund, that might trade at a discount is
more pronounced for investors who wish to sell their shares
in a relatively short period of time because, for those
investors, realization of a gain or loss on their investments
is likely to be more dependent upon the existence of a
premium or discount than upon portfolio performance. See
"Risk Factors and Special Considerations - Risk of Trading
Discounts."
For the fiscal year ended September 30, 2003, the Fund's
shares traded in the market at an average daily discount to
net asset value of _____%. As of October __, 2003, the
discount to net asset value was _____%. There can be no
assurance that the current discount level will not change.
See "Description of Capital Stock - Net Asset Values and
Sales Prices."
Risk of Decline in NAV........... The Fund is subject to market risk - the possibility that
the securities it holds will decline over short or extended
periods of time. As a result, the value of an investment in
the Fund's Common Stock will fluctuate with the market, and
you could lose money over short or long periods of time. 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 in their underlying securities.
Thus, they expose the Fund to greater downside risk than
traditional convertible securities, but still less than
that of the underlying common stock. See "Investment
Objectives and Policies - Discussion of Convertible
Securities."
5
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Credit Risk ..................... Credit risk is the risk that an issuer will fail to pay
interest or dividends and principal in a timely manner.
Companies that issue conveible securities may be small
to medium-size, and they often have low credit ratings.
In addition, the credit rating of a company's
convertible securities is generally lower than that of
its conventional debt securities. Convertible
securities are normally considered "junior"
securities - that is, the company usually must pay
interest on its conventional debt before it can make
payments on its convertible securities. Credit risk
could be high for the Fund, because it could invest in
securities with low credit quality.
Interest Rate Risk .............. Interest rate risk is the possibility that prices of
securities will decline along with overall bond prices,
over short or even long periods, because of rising
interest rates. Convertible securities are particularly
sensitive to interest rate changes when their
predetermined conversion price is much higher than the
issuing company's common stock.
Sector Risk ..................... Sector risk is the risk that returns from the economic
sectors in which convertible securities are concentrated
will trail returns from other economic sectors. As a
group, sectors tend to go through cycles of doing better-
or-worse-than the convertible securities market in
general. These periods have, in the past, lasted for as
long as several years. Moreover, the sectors that
dominate this market change over time.
Manager Risk .................... Manager risk is the risk that poor security selection
will cause the Fund to underperform other funds with a
similar investment objective.
Anti-Takeover Provisions ........ The Fund has provisions in its Charter, which could
have the effect of limiting the ability of other
entities or persons to acquire control of the Fund, to
cause it to engage in certain transactions or to modify
its structure. See "Certain Charter Provisions."
Ineligibility of Shares Issued
to Receive Next Dividend ........ Historically, the Fund has paid quarterly dividends to
its stockholders. It is likely that the Fund's Board
of Directors will declare a dividend during the
Subscription Period. Because the record date for such
dividend would be prior to the Expiration Date, any
Shares issued pursuant to the Offer would not be
eligible to receive such dividend.
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FUND EXPENSES
The following tables are intended to assist investors in understanding the various costs and expenses that a stockholder of the Fund will bear, directly or indirectly.
Stockholder Transaction Expenses
Sales Load ........................................ None
Cash Payment Plan Fee ............................. $1.25(1)
Annual Expenses (as a percentage of average net assets
attributable to the Fund's Common Stock)
Management Fees .................................. 0.75%
Other Expenses (2)................................ 0.55%
---------
Total Annual Expenses ................................. 1.30%
=========
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(1) Represents the bank service charge per transaction for the Cash Payment Plan.
(2) Other Expenses are based on estimated amounts for the current year.
Example
The following Example demonstrates the projected dollar amount of total cumulative expense that would be incurred over various periods with respect to a hypothetical investment in the Fund's Common Stock. These amounts are based upon payment by the Fund of management fees and other expenses at the levels set forth in the above table.
An investor would directly or indirectly pay the following expenses on a $1,000 investment in shares of the Fund's Common Stock, assuming (i) the market price at the time of investment was equal to the net asset value ("NAV") per share, (ii) a 5% annual return and (iii) reinvestment of all distributions at NAV:
One Year Three Years Five Years Ten Years $13 $41 $71 $157
This Example assumes that the percentage amounts listed under Annual Expenses remain the same in the years shown. The above tables and the assumption in the Example of a 5% annual return and reinvestment at NAV are required by regulation of the SEC and are applicable to all investment companies, and the assumed 5% annual return is not a prediction of, and does not represent, the projected performance of the Fund's Common Stock. Actual expenses and annual rates of return may be more or less than those allowed for purposes of this Example. In addition, while the Example assumes reinvestment of all distributions at NAV, the Fund's Automatic Dividend Investment and Cash Payment Plan contemplates reinvestment of net investment income dividends and capital gain distributions in shares of the Fund's Common Stock, based on the lower of the market price or NAV on the valuation date, except that distributions may not be reinvested for less than 95% of the market price.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance for the periods presented and reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information for the six months ended March 31, 2003 has not been audited. The information for each of the ten fiscal years in the period ended September 30, 2002 has been audited by PricewaterhouseCoopers LLP, independent accountants. The audited financial statements included in the Annual Report to the Fund's Stockholders for the fiscal year ended September 30, 2002, together with the report of PricewaterhouseCoopers LLP thereon, and the unaudited financial statements included in the Semi-Annual Report to the Fund's Stockholders for the six months ended March 31, 2003 are incorporated by reference into the Statement of Additional Information. Further information about the performance of the Fund is available in the Fund's 2002 Annual Report to Stockholders and the Fund's Semi-Annual Report to Stockholders dated March 31, 2003. The Statement of Additional Information, the Fund's 2002 Annual Report to Stockholders and the Fund's Semi-Annual Report to Stockholders dated March 31, 2003 may be obtained from the Fund free of charge by calling (973) 631-1177.
Six Months Ended
March 31,2003 Years Ended September 30,
(unaudited) 2002 2001 2000 1999
---------------- ----------- ----------- ----------- -----------
Operating Performance:
Net asset value, beginning of period....... $7.81 $8.67 $11.82 $11.23 $11.18
---------------- ----------- ----------- ----------- -----------
Net investment income...................... .12 .34 .47 .42 .33
Net realized and unrealized gain (loss).... .13 (.76) (1.88) 1.71 1.40
---------------- ----------- ----------- ----------- -----------
Total from investment operations......... .25 (.42) (1.41) 2.13 1.73
Less Distributions:
Dividends from net investment income....... (.16) (.44) (.42) (.35) (.32)
Distributions from realized gains.......... --- --- (1.32) (1.23) (1.36)
---------------- ----------- ----------- ----------- -----------
Total distributions...................... (.16) (.44) (1.74) (1.58) (1.68)
Capital share repurchases.................. --- --- --- .04 ---
---------------- ----------- ----------- ----------- -----------
Net asset value, end of period............. $7.90 $7.81 $8.67 $11.82 $11.23
================ =========== =========== =========== ===========
Market value, end of period................ $7.52 $7.55 $8.35 $9.88 $9.38
Total Net Asset Value Return(%)(a)......... 3.23 (5.20) (13.34) 21.85 16.42
Total Investment Return(%)(b).............. 1.71 (4.54) 2.21 25.72 10.39
Ratios/Supplemental Data:
Net assets, end of year (in thousands)..... $82,649 $81,125 $88,901 $109,180 $96,040
Ratio of expenses to average net assets(%). 1.3(c) 1.2 1.2 1.2 1.1
Ratio of net investment income to average
net assets(%)............................ 3.2(c) 3.9 5.0 3.8 3.0
Portfolio turnover rate (%)................ 38 89 82 98 67
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Years Ended September 30,
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
Operating Performance:
Net asset value, beginning of period....... $13.33 $11.80 $10.76 $9.72 $10.39 $9.31
--------- --------- --------- --------- --------- ---------
Net investment income...................... .35 .40 .43 .48 .51 .53
Net realized and unrealized gain (loss).... (.65) 2.59 1.37 1.30 (.58) 1.14
--------- --------- --------- --------- --------- ---------
Total from investment operations......... (.30) 2.99 1.80 1.78 (.07) 1.67
Less Distributions:
Dividends from net investment income....... (.37) (.40) (.47) (.51) (.53) (.50)
Distributions from realized gains.......... (1.48) (1.06) (.29) (.23) (.07) (.09)
--------- --------- --------- --------- --------- ---------
Total distributions...................... (1.85) (1.46) (.76) (.74) (.60) (.59)
Capital share repurchases.................. --- --- --- --- --- ---
--------- --------- --------- --------- --------- ---------
Net asset value, end of period............. $11.18 $13.33 $11.80 $10.76 $9.72 $10.39
========= ========= ========= ========= ========= =========
Market value, end of period................ $10.00 $11.25 $9.88 $9.13 $8.38 $9.38
Total Net Asset Value Return(%)(a)......... (2.39) 27.77 17.43 19.50 (0.61) 18.60
Total Investment Return(%)(b).............. 5.21 30.93 17.13 18.95 (4.46) 19.73
Ratios/Supplemental Data:
Net assets, end of year (in thousands)..... $87,438 $94,822 $78,395 $69,769 $61,316 $64,457
Ratio of expenses to average net assets(%). 1.1 1.2 1.2 1.2 1.1 1.2
Ratio of net investment income to average
net assets(%)............................ 3.0 3.4 3.9 5.0 5.2 5.5
Portfolio turnover rate (%)................ 59 71 70 44 45 99
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INVESTMENT PERFORMANCE
The table below presents average annual total returns of the Fund's Common Stock on two separate bases. The NAV Return is the compound average annual rate of return, using NAVs, on an amount invested in the Fund from the beginning to the end of the stated period and assumes reinvestment of net investment income dividends and capital gains distributions. The Market Value Return presents the same information, but values the Fund at market rather than NAV and, therefore, reflects the actual experience of a stockholder, before commission costs, who bought and sold shares of the Fund at the beginning and ending dates.
The record of the Credit Suisse First Boston Convertible Securities Index (the "CSFB Index") has been included so that the Fund's results may be compared with an index of convertible securities. The CSFB Index is an unmanaged index which generally includes 250-300 issues representing convertible issues, U.S. dollar-denominated debentures and preferred stock which can be converted into a specified number of shares of common stock. The record of the Standard & Poor's Composite Stock Price 500 Index ("S&P 500 Index") has been included so that the Fund's results may be compared with a widely recognized, unmanaged, benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The record of the Russell 2000(r) Index has been included so that the Fund's results may be compared with an unmanaged index reflecting the performance of the 2,000 smallest companies in the Russell 3000(r) Index (which represent the 3,000 largest U.S. companies based on total market capitalization). The Fund primarily invests in convertible securities. The figures for each Index assume reinvestment of dividends.
From June 30,
One Year Three Years Five Years Ten Years 1986 (day trading
Ended Ended Ended Ended began) to
September 30, September 30, September 30, September 30, September 30,
2003(%) 2003(%) 2003(%) 2003(%) 2003(%)
------------- ------------- ------------- ------------- -----------------
Fund NAV Return
Fund Market Value
Return
Credit Suisse First
Boston Convertible
Securities Index
S&P 500 Index
Russell 2000(r)
Index
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It should be noted that the NAV Return for the period from June 30, 1986 through September 30, 2003 is based on the Fund's initial NAV of $9.30 per share, rather than the initial public offering price of $10.00 per share. Accordingly, that figure does not reflect underwriting commissions and discounts or expenses of the offering paid by stockholders who purchased the Fund's shares in the initial public offering.
The above results represent past performance and should not be considered an indication of future performance from an investment in the Fund today. They are provided only to give an historical perspective of the Fund. The investment
return and net asset and market prices will fluctuate, so that shares of Common Stock may be worth more or less than their original cost when sold.
THE OFFER
Terms of the Offer
The Fund is offering to common stockholders of record, as of the close of business on the Record Date, Rights to subscribe for an aggregate of __________ Shares of the Common Stock of the Fund.
Each stockholder is being issued one Right for each whole share of Common Stock owned on the Record Date rounded up to the nearest number of Rights evenly divisible by six. The Rights entitle a stockholder to acquire at the subscription price one Share for each six Rights held. Fractional Shares will not be issued upon the exercise of Rights. In the case of shares held of record by a Nominee, the number of Rights issued to such Nominee will be adjusted to permit rounding up (to the nearest number of Rights evenly divisible by six) of the Rights to be received by each of the beneficial owners for whom it is the holder of record only if the Nominee provides to the Fund, on or before the close of business on November 18, 2003, a written representation of the number of Rights required for such rounding.
Rights may be exercised at any time during the subscription period, which commences on October 17, 2003 and ends as of 5:00 p.m., Eastern time, on November 19, 2003 (the "Subscription Period") unless extended by the Fund (such date, as it may be extended, is referred to in this Prospectus as the "Expiration Date"). A stockholder's right to acquire one additional Share for each six Rights held during the Subscription Period at the subscription price is referred to as the "Primary Subscription." The Rights are evidenced by subscription certificates ("Subscription Certificates"), which will be mailed to stockholders or their Nominee.
The subscription price (the "Subscription Price") will be the lesser of 95% of (A) the net asset value per share of the Fund's Common Stock on November 20, 2003, (the "Pricing Date") or (B) the average of the volume-weighted average sales prices of a share on the AMEX on the Pricing Date and the four preceding trading days. Since the time of the close of the Offer on the Expiration Date is prior to the Pricing Date, holders who choose to exercise their Rights will not know the Subscription Price at the time they exercise their Rights.
In addition, any stockholder who fully exercises all Rights issued to him or her is entitled to subscribe for additional Shares, which were not otherwise subscribed for in the Primary Subscription, at the Subscription Price (the "Over-Subscription Privilege"). Shares acquired pursuant to the Over- Subscription Privilege are subject to allotment, which is more fully discussed below under "The Offer - Over-Subscription Privilege."
The Rights are non-transferable. Therefore, only the underlying Shares, and not the Rights, will be listed for trading on the AMEX.
Purposes of the Offer
The Board of Directors of the Fund has determined that (i) it would be in the best interests of the Fund and its stockholders to increase the assets of the Fund available for investment thereby permitting the Fund to be in a better position to more fully take advantage of investment opportunities that may arise, and (ii) the potential benefits of the Offer to the Fund and its stockholders will outweigh the dilution to stockholders who do not fully exercise their Rights. The proceeds of the Offer will enable the Fund's portfolio managers to take advantage of perceived investment opportunities without having to sell existing portfolio holdings which they otherwise would retain. Increasing the size of the Fund also might result in lowering the
Fund's expenses as a percentage of average net assets. The Offer seeks to reward investors by giving existing stockholders the opportunity to purchase additional Shares at a price below market and/or net asset value and without brokerage commissions.
Currently, the majority of new convertible offerings are made pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"). In order to participate in these offerings, a buyer must qualify as a Qualified Institutional Buyer ("QIB") which requires $100 million under management. Although the assets of the Fund are less than $100 million, the Fund is able to participate in these offerings because its investment adviser, Davis-Dinsmore Management Company (the "Adviser"), is a QIB (it is an investment adviser registered under the Investment Advisers Act of 1940, as amended, and invests on a discretionary basis at least $100 million in securities). If the Adviser no longer qualified as a QIB, the Fund would no longer be able to participate in Rule 144A offerings. However, if the Offer is successful, the Fund would independently qualify as a QIB and thus be able to participate in Rule 144A offerings.
The Adviser will benefit from the Offer because its fees are based on the average weekly net assets of the Fund. See "Management of the Fund-Management Fees." It is not possible to state precisely the amount of additional compensation the Adviser will receive as a result of the Offer because it is not known how many Shares will be subscribed for and because the net proceeds of the Offer will be invested in additional portfolio securities that will fluctuate in value. Two of the Fund's Directors who voted to authorize the Offer are "interested persons," within the meaning of the Investment Company Act of 1940 as amended, (the "1940 Act"), of the Adviser, and therefore could benefit indirectly from the Offer. The other seven Directors are not "interested persons" of the Fund or the Adviser.
The Fund may, in the future, choose to make additional rights offerings from time to time for a number of shares and on terms that may or may not be similar to this Offer. Any such future rights offerings will be made in accordance with the then applicable requirements of the 1940 Act and the Securities Act.
There can be no assurance that the Fund or its stockholders will achieve any of the foregoing objectives or benefits through the Offer.
Over-Subscription Privilege
If some stockholders do not exercise all of the Rights initially issued to them, any Shares for which subscriptions have not been received from stockholders will be offered by means of the Over-Subscription Privilege to those stockholder who have exercised all of the Rights initially issued to them and who wish to acquire additional Shares. Stockholders who exercise all of the Rights initially issued to them should indicate on the Subscription Certificate how many Shares they are willing to acquire through this Over-Subscription Privilege. If sufficient Shares remain after completion of the Primary Subscription, all over-subscription requests will be honored in full. However, if sufficient Shares are not available to honor all over-subscription requests, the available Shares will be allocated among those who over-subscribe based on the number of Rights originally issued to them by the Fund, so that the number of Shares issued to stockholders who subscribe through the Over-Subscription Privilege will generally be in proportion to the number of shares of the Fund owned by them on the Record Date. The percentage of remaining Shares each over- subscribing Stockholder may acquire may be rounded up or down to result in delivery of whole Shares. The allocation process may involve a series of allocations in order to ensure that the total number of Shares available for over-subscriptions is distributed, as nearly as may be practicable, on a pro rata basis. The Fund will not offer or sell any Shares which are not subscribed for through the Primary Subscription or the Over-Subscription Privilege. The
Over-Subscription Privilege may result in additional dilution of interest and voting rights to stockholders, and additional reduction in the Fund's NAV per share.
Thomas H. Dinsmore and Jane D. O'Keeffe (control persons of the Adviser) and certain other officers and employees of the Adviser may purchase shares of Common Stock in the Primary Subscription and the Over-Subscription Privilege. Any such purchases will be made on the same terms applicable to other stockholders.
Subscription Price
The Subscription Price for the Shares to be issued pursuant to the Offer will be the lesser of 95% of (A) the net asset value per share of the Fund's Common Stock on the Pricing Date or (B) the average of the volume-weighted average sales prices of a share on the AMEX on the Pricing Date and the four preceding trading days. For example, if the net asset value per Share on the Pricing Date is $___________ and the average of the volume-weighted average sale prices of a Share on the AMEX on the Pricing Date and the four preceding trading days is $_______, the Subscription Price would be $________ (95% of net asset value). If, however, the net asset value per Share on the Pricing Date is $______ and the average of the volume-weighted average sale prices of a Share on the AMEX on the Pricing Date and the four preceding trading days is $_____, the Subscription Price would be $_____ (95% of the average sale prices).
The actual Subscription Price will not be determined until the Pricing Date. Therefore, stockholders wishing to exercise Rights must send to American Stock Transfer & Trust Company prior to the Expiration Date either: (i) the Estimated Subscription Price of $______ per Share, together with a completed Subscription Certificate, or (ii) a Notice of Guaranteed Delivery guaranteeing delivery of a properly completed and executed Subscription Certificate and payment for the Shares. see "The Offer - Methods of Exercising Rights" and "The Offer - Payment For Shares" on pages ___.
The Fund announced the proposed Offer on July 18, 2003. The NAV per share of the Fund's Common Stock at the close of business on July 17, 2003 and October __, 2003 were $8.54 and $__________, respectively, and the last reported sales prices of a share of the Fund's Common Stock on the AMEX on those dates were $8.30 and $__________, respectively.
Expiration of the Offer
The Expiration Date is 5:00 p.m., Eastern time, on November 19, 2003, unless extended by the Fund. The Rights will expire on the Expiration Date and may not be exercised after that date. Since the close of the Offer on the Expiration Date is prior to the Pricing Date, stockholders who choose to exercise their Rights will not know the Subscription Price when they decide whether to acquire Shares on Primary Subscription or through the Over- Subscription Privilege.
Subscription Agent
The Subscription Agent for the Offer is American Stock Transfer & Trust Company ("Subscription Agent"), which will receive, for its administrative, processing, invoicing and other services as Subscription Agent, an estimated fee of $25,000 and reimbursement for all out-of-pocket expenses related to the Offer. The Subscription Agent is also the Fund's Transfer Agent. Stockholder inquiries may be directed to Georgeson Shareholder Communications Inc., the Information Agent (toll free) at (888) 705-1032. SIGNED SUBSCRIPTION CERTIFICATES SHOULD BE SENT TO AMERICAN STOCK TRANSFER & TRUST COMPANY, BY ONE OF THE FOLLOWING METHODS:
(1) BY FIRST CLASS MAIL:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(2) BY EXPRESS MAIL OR OVERNIGHT COURIER:
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(3) BY HAND:
(9:00 a.m. - 5:00 a.m. New York City Time)
59 Maiden Lane
Plaza Level
New York, NY 10038
DELIVERY TO AN ADDRESS OTHER THAN THE ABOVE DOES NOT CONSTITUTE GOOD
DELIVERY.
Information Agent
Any questions or requests for assistance may be directed to the Information Agent at its telephone number listed below:
Georgeson Shareholder Communications Inc. (888) 705-1032
Stockholders may also call the Fund at (973) 631-1177 or contact their Nominees, who hold shares for the account of others, for information with respect to the Offer.
The Fund will pay a fee of $7,500 to Georgeson Shareholder Communications Inc. and reimbursement for all out-of-pocket expenses related to its services as Information Agent.
Method of Exercising Rights
Stockholders of record may exercise their Rights by filling in and signing the accompanying Subscription Certificate and mailing it in the envelope provided or by delivering the completed and signed Subscription Certificate to the Subscription Agent, together with any required payment for the Shares as described below under "Payment for Shares." Stockholders of record may also exercise Rights by contacting a broker, bank, trust company or financial institution ("Intermediary") which can arrange, on a stockholder's behalf, to guarantee delivery (using a "Notice of Guaranteed Delivery") of a properly completed and executed Subscription Certificate and payment for the Shares.
Rights may also be exercised by a stockholder whose shares are held by a Nominee, by contacting such Nominee, which can arrange, on the stockholder's behalf, to guarantee delivery (using a "Notice of Guaranteed Delivery") of a properly completed and executed Subscription Certificate and payment for the Shares.
The Nominee or Intermediary may charge a fee for this service. Fractional Shares will not be issued. Completed Subscription Certificates must be received by the Subscription Agent prior to 5:00 p.m., Eastern time, on the Expiration Date (unless payment is to be effected by means of a notice of guaranteed delivery (see "Payment for Shares")) at the offices of the Subscription Agent.
STOCKHOLDERS WHO ARE RECORD OWNERS. Stockholders who are record owners can choose between either option set forth below under "Payment for Shares." If time is of the essence, option (2) will permit delivery of the Subscription Certificate and payment after the Expiration Date.
INVESTORS WHOSE SHARES ARE HELD THROUGH A NOMINEE. Stockholders whose shares are held by a Nominee, such as a broker, bank, trust company or financial institution, must contact that Nominee to exercise their Rights. In that case, the Nominee will complete the Subscription Certificate on behalf of the stockholder and arrange for proper payment by one of the methods set forth below under "Payment for Shares."
NOMINEES. Nominees who hold shares for the account of others should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the Nominee should complete the Subscription Certificate and submit it to the Subscription Agent, together with the proper payment described below under "Payment for Shares."
Payment for Shares
Stockholders who acquire Shares in the Primary Subscription or pursuant to the Over-Subscription Privilege may choose between the following methods of payment:
(1) A record owner can send payment for the Shares acquired in the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege, together with the Subscription Certificate, to the Subscription Agent based on the Estimated Subscription Price of $__________ per Share. To be accepted, such payment, together with the Subscription Certificate, must be received by the Subscription Agent prior to 5:00 p.m., Eastern time, on the Expiration Date.
(2) If your Nominee or Intermediary delivered a Notice of Guaranteed Delivery to the Subscription Agent prior to the Expiration Date, your Nominee or Intermediary must send payment for the Shares acquired in the Primary Subscription and any additional Shares subscribed for pursuant to the Over-Subscription Privilege, together with the Subscription Certificate, to the Subscription Agent based on the Estimated Subscription Price of $__________ per Share. To be accepted, such payment together with the Subscription Certificate must be received by the Subscription Agent prior to 5:00 pm., Eastern time, on the third (3rd) business day after the Expiration Date (November 24, 2003, unless the Offer is extended).
IF THE FIRST METHOD DESCRIBED ABOVE IS USED, PAYMENT BY MONEY ORDER, PERSONAL CHECK, CERTIFIED CHECK OR BANK CASHIER'S CHECK MUST ACCOMPANY ANY SUBSCRIPTION CERTIFICATE FOR THE SUBSCRIPTION CERTIFICATE TO BE ACCEPTED.
STOCKHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS PROVIDED BELOW UNDER "RISK FACTORS AND SPECIAL CONSIDERATIONS - POSSIBLE SUSPENSION OF THE OFFER."
The method of delivery of Subscription Certificates and payment of the Subscription Price to the Fund will be at the election and risk of the stockholders, but if sent by mail it is recommended that such Subscription Certificates and payment be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the Fund and clearance of payment prior to 5:00 p.m., Eastern time, on the Expiration Date. If you pay directly, you have a choice of paying by money order, personal check, certified check, bank cashier's check, or by wire transfer. If you choose to pay by personal check, you will need to deliver your check to the Subscription Agent not less than 5 business days before the Expiration Date, since your check must clear before the Expiration Date.
A confirmation will be sent by the Subscription Agent to each subscribing stockholder (or, if the Fund's Shares on the Record Date are held by a Nominee, to such Nominee) by November __, 2003 (the "Confirmation Date"), showing (i) the number of Shares acquired pursuant to the Primary Subscription; (ii) the number of Shares, if any, acquired through the Over-Subscription Privilege; (iii) the per Share and total purchase price for the Shares; and (iv) any additional amount payable by the stockholder to the Fund or any excess to be refunded by the Fund to the stockholder, in each case based on the Subscription Price as determined on the Pricing Date. In the case of any stockholder who exercises his or her right to acquire Shares pursuant to the Over-Subscription Privilege, any excess payment which would otherwise be refunded to the stockholder will be applied by the Fund toward payment for additional Shares acquired pursuant to exercise of the Over-Subscription Privilege. Any additional payment required from a stockholder must be received by the Subscription Agent within ten (10) days after the Confirmation Date. Any excess payment to be refunded by the Fund to a stockholder will be mailed by the Subscription Agent to such stockholder as promptly as possible within ten (10) business days after the Confirmation Date. All payments by a stockholder must be made in United States dollars by money order or check drawn on a bank located in the United States of America and payable to AMERICAN STOCK TRANSFER & TRUST COMPANY.
Issuance and delivery of certificates for the Shares purchased are subject to collection of checks and actual payment through any Notice of Guaranteed Delivery.
If a stockholder who acquires Shares pursuant to the Primary Subscription or Over-Subscription Privilege does not make payment of all amounts due by the tenth (10th) day after the Confirmation Date, the Fund reserves the right to (i) find other purchasers for such subscribed and unpaid Shares; (ii) apply any payment actually received by it toward the purchase of the greatest number of whole Shares which could be acquired by such stockholder upon exercise of the Primary Subscription and/or Over-Subscription Privilege; and/or (iii) exercise any and all other rights and/or remedies to which it may be entitled, including, without limitation, the right to set-off against payments actually received by it with respect to such subscribed Shares.
All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Fund, whose determinations will be final and binding. The Fund in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Fund determines in its sole discretion. The Fund will not be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification.
Delivery of Share Certificates
Participants in the Fund's Automatic Dividend Investment and Cash Payment Plan (the "Plan") will have any Shares acquired in the Primary Subscription and pursuant to the Over-Subscription Privilege credited to their accounts in the Plan. Stock certificates will not be issued for Shares credited to Plan accounts. Stockholders whose Shares are held of record by a Nominee on their behalf will have any Shares acquired in the Primary Subscription and pursuant to the Over-Subscription Privilege credited to the account of such Nominee. For all other stockholders, stock certificates for all Shares acquired will be mailed promptly after full payment for the subscribed Shares has been received and cleared.
Federal Income Tax Consequences of the Offer
Stockholders who receive Rights pursuant to the Offer will not recognize taxable income for U.S. Federal income tax purposes upon their receipt of the Rights. If Rights issued to a Stockholder expire without being exercised, no basis will be allocated to such Rights, and such Stockholder will not recognize any gain or loss for U.S. Federal income tax purposes upon such expiration.
The tax basis of a stockholder's Common Stock will remain unchanged, and the stockholder's basis in the Rights will be zero. Notwithstanding this general rule, each stockholder may elect, with respect to all Rights issued to him, to allocate the tax basis of all shares of Common Stock that he holds on the Record Date between such shares and the Rights issued to him in proportion to their fair market values on the Record Date. To be valid, this election must be made by the stockholder in a statement attached to his timely-filed Federal income tax return for the taxable year that includes the Record Date and, once made, is irrevocable. However, if on the Record Date the fair market value of the Rights is 15% or more of the fair market value of the Common Stock, each stockholder will be required to allocate the tax basis of his shares of Common Stock in the manner described above in determining gain or loss on any subsequent sales of Common Stock or Rights. A stockholder who exercises Rights will not recognize any gain or loss for U.S. Federal income tax purposes upon the exercise. The basis of the newly acquired Common Stock will equal the Subscription Price paid for the Common Stock. Upon a sale or exchange of the Common Stock so acquired, the stockholder will recognize gain or loss measured by the difference between the proceeds of the sale or exchange and the cost basis of such Common Stock. Assuming the stockholder holds the Common Stock as a capital asset, any gain or loss realized upon its sale will generally be treated as a capital gain or loss, which gain or loss will be short-term or long-term, depending on the length of the stockholder's holding period for such Common Stock. However, any loss recognized upon the sale of shares of Common Stock with a tax holding period of 12 months or less will be treated as a long-term capital loss to the extent of any capital gain distribution previously received by the stockholder with respect to such Shares, and a loss may be disallowed under wash sale rules to the extent that the stockholder purchases additional Common Stock (including by reinvestment of distributions) within 30 days before or after the sale date. The holding period for Common Stock acquired upon the exercise of Rights will begin on the date of exercise of the Rights.
The foregoing is a summary of the material U.S. Federal income tax consequences of the Offer under the provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), and applicable existing and proposed regulations thereunder, all as currently in effect and all subject to change at any time, perhaps with retroactive effect. It does not include any state, local or foreign tax consequences of the Offer. This summary is generally applicable to stockholders that are United States persons as defined in the Code. Further, this summary is not intended to be, nor should it be, construed as legal or tax advice, and stockholders are urged to consult their own tax advisors to determine the tax consequences to them of the Offer and their ownership of Rights and Common Stock.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution
If you do not exercise all of your Rights during the Subscription Period, when the Offering is over you will own a relatively smaller percentage of the Fund than if you had exercised all of your Rights. The Fund cannot tell you precisely how much smaller the percentage of the Fund that you would own will be because the Fund does not know how many of the Fund's stockholders will exercise their Rights and how many of their Rights they will exercise. Further, if you do not submit subscription requests pursuant to the Over-Subscription Privilege, you may experience further dilution in your holdings.
Stockholders will experience an immediate dilution of the aggregate NAV of Shares as a result of the completion of the Offer because (i) the Subscription Price per Share will be less than the Fund's NAV per Share on the Expiration Date, (ii) the Fund will incur expenses in connection with the Offer, and (iii) the number of Shares outstanding after the Offer will increase in a greater percentage than the increase in the size of the Fund's assets. Such dilution may, under certain circumstances, be substantial. This dilution also will affect stockholders to a greater extent if they do not exercise their Rights in full. It is not possible to state precisely the amount of any decreases in either NAV or in ownership interests, because it is not known at this time what the NAV per Share will be at the Expiration Date or what proportion of the Shares will be subscribed. Finally, there may be a dilution of earnings per Share due to the increase in the number of Shares outstanding, but only to the extent that investments of the proceeds of the Offer do not achieve the same return as current investments held by the Fund. To the extent such investments achieve a better return than current investments, earnings per Share will experience appreciation.
The following example assumes that all of the Shares are sold at the Estimated Subscription Price of [$ ] and after deducting all expenses related to the issuance of the Shares.
NAV per Share on Dilution per Share in
October ____, 2003 Dollars Percentage Dilution
Primary $ $ $
Subscription or
[ ] Shares
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As of October ___, 2003, the Fund's shares traded at a _____% discount from NAV. If the Fund's Common Stock trades at a premium above NAV as of the Pricing Date, the Fund estimates that such dilution would be minimal. If, however, the Fund's Common Stock trades at a discount below NAV as of the Pricing Date, the Fund estimates that such dilution would increase with the size of the discount and may, under certain circumstances, be substantial. See "Prospectus Summary - Risk Factors and Special Considerations - Dilution" and "Description of Capital Stock - Net Asset Values and Sales Prices." Except as described in this Prospectus, you will have no right to rescind your subscription requests after receipt of your payment for Shares by the Subscription Agent.
Risk of Trading Discounts
The shares of closed-end investment companies frequently trade at a discount from net asset value. This characteristic of shares of a closed-end
fund is a risk separate and distinct from the risk that the Fund's net asset value may decrease. Since the commencement of the Fund's operations, the Fund's Shares have generally traded in the market at a discount to net asset value. The risk of purchasing shares of a closed-end fund that might trade at a discount is more pronounced if you wish to sell your shares in a relatively short period of time. If you do so, realization of a gain or loss on your investment is likely to be more dependent upon the existence of a premium or discount than upon portfolio performance. The Fund's Shares are not subject to redemption. Investors desiring liquidity may, subject to applicable securities laws, trade their Shares in the Fund on any exchange where such Shares are then trading at current market value, which may differ from the then current net asset value. Moreover, stockholders expecting to sell their Shares during the course of the Offer should be aware that there is a greater risk that the potential discount referred to above, which may increase during the Offer, will adversely affect them. This increased risk is because, among other things, the market price per Share may reflect the anticipated dilution that will result from this Offer. The Fund cannot predict whether the Shares will trade at a discount or premium to NAV after completion of the Offer.
Risk of Decline in NAV
As with any investment company that invests in convertible securities, the Fund is subject to market risk - the possibility that convertible securities will decline over short or extended periods of time. As a result, the value of an investment in the Fund's Common Stock will fluctuate with the market, and you could lose money over short or long periods of time. 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 in their underlying securities. Thus, they expose the Fund to greater downside risk than traditional convertible securities, but still less than that of the underlying common stock. See "Investment Objectives and Policies - Discussion of Convertible Securities."
Risk Factors of Convertible Securities
Convertible debt securities and preferred stocks may depreciate in value if the market value of the underlying equity security declines or if rates of interest increase. In addition, although debt securities are liabilities of a corporation which the corporation is generally obligated to repay at a specified time, debt securities, particularly convertible debt securities, are often subordinated to the claims of some or all of the other creditors of the corporation.
Mandatory conversion securities may limit the potential for capital appreciation and, in some instances, are subject to complete loss of invested capital. Other innovative convertibles include "equity-linked" securities, which are securities or derivatives that may have fixed, variable, or no interest payments prior to maturity, may convert (at the option of the holder or on a mandatory basis) into cash or a combination of cash and equity securities, and may be structured to limit the potential for capital appreciation. Equity- linked securities may be illiquid and difficult to value and may be subject to greater credit risk than that of other convertibles. Moreover, mandatory conversion securities and equity-linked securities have increased the sensitivity of the convertible securities market to the volatility of the equity markets and to the special risks of those innovations, which may include risks different from, and possibly greater than, those associated with traditional convertible securities.
Preferred stocks are equity securities in the sense that they do not represent a liability of the corporation. In the event of liquidation of the corporation, and after its creditors have been paid or provided for, holders of preferred stock are generally entitled to a preference as to the assets of the corporation before any distribution may be made to the holders of common stock. Debt securities normally do not have voting rights. Preferred stocks may have no voting rights or may have voting rights only under certain circumstances. For a more detailed description of Preferred Stock, see "Risk Factors and
Special Considerations - Other Investments" in the Statement of Additional Information.
Credit Risk
Credit risk is the risk that an issuer will fail to pay interest or dividends and principal in a timely manner. Companies that issue convertible securities may be small to medium-size, and they often have low credit ratings. In addition, the credit rating of a company's convertible securities is generally lower than that of its conventional debt securities. Convertible securities are normally considered "junior" securities - that is, the company usually must pay interest on its conventional debt before it can make payments on its convertible securities. Credit risk could be high for the Fund, because it could invest in securities with low credit quality.
Interest Rate Risk
Interest rate risk is the possibility that prices of securities will decline along with overall bond prices, over short or even long periods, because of rising interest rates. Convertible securities are particularly sensitive to interest rate changes when their predetermined conversion price is much higher than the issuing company's common stock.
Sector Risk
Sector risk is the risk that returns from the economic sectors in which convertible securities are concentrated will trail returns from other economic sectors. As a group, sectors tend to go through cycles of doing better-or-worse than the convertible securities market in general. These periods have, in the past, lasted for as long as several years. Moreover, the sectors that dominate this market change over time.
Manager Risk
Manager risk is the risk that poor security selection will cause the Fund to underperform other funds with a similar investment objective.
Ineligibility of Shares Issued to Receive Next Dividend
Historically, the Fund has paid quarterly dividends to its stockholders. It is likely that the Fund's Board of Directors will declare a dividend during the Subscription Period. Because the record date for such dividend would be prior to the Expiration Date, any Shares issued pursuant to the Offer would not be eligible to receive such dividend.
Possible Suspension of the Offer
The Fund has, as required by the Securities and Exchange Commission's ("SEC") registration form, undertaken to suspend the Offer until it amends this Prospectus if, subsequent to October , 2003, the effective date of the Fund's Registration Statement, the Fund's net asset value declines more than 10% from its net asset value as of October ___, 2003. The Fund will notify stockholders of any such decline and suspension and thereby permit them to cancel their exercise of Rights.
USE OF PROCEEDS
The Fund estimates the net proceeds of the Offer to be approximately $__________. These figures assume (i) all Rights are exercised in full, (ii) a Subscription Price of $__________ and (iii) payment of offering expenses of approximately $__________. The Adviser anticipates that investment of the net proceeds of the Offer in accordance with the Fund's investment objectives and policies will take up to _________ months from October ___, 2003 depending on market conditions and the availability of appropriate securities. Pending investment, the net proceeds of the Offer will be held in the types of short- term debt securities and instruments in which the Fund may invest. As a result of this short-term investment of the proceeds, a lower yield may be realized.
INVESTMENT OBJECTIVES AND POLICIES
Investment Objectives
The Fund 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 due to the nature of the securities in which it invests). These investment objectives may be changed by the Fund's Board of Directors without the approval of a majority of the Fund's outstanding voting securities. There are market risks inherent in any investment, and there is no assurance that the Fund's primary investment objectives will be achieved.
Investment Policies
The Fund expects that a substantial majority of its invested assets will consist of convertible securities. The Fund has adopted a non-fundamental investment policy providing that the Fund will invest, under normal circumstances, at least 80% of the value of its assets (consisting of net assets plus the amount of any borrowings for investment purposes) in convertible securities. This investment policy may be changed in the future by the Fund's Board of Directors without the approval of a majority of the Fund's outstanding voting securities. The Fund will provide stockholders with at least 60 days prior notice of any change to this investment policy.
In addition to the non-fundamental policy respecting convertible securities, the Fund has also adopted a fundamental policy that, under normal market conditions it will invest at least 65% of its total assets in convertible securities (i.e., bonds, debentures, corporate notes, preferred stock or other securities that are convertible into common stock) and common stock received upon conversion or exchange of securities and retained in the Fund's portfolio to permit orderly disposition or to establish long-term holding periods for federal income tax purposes. This investment policy cannot be changed without the approval of a majority of the Fund's outstanding voting securities. The remainder of the Fund's total assets may be invested in other securities, including non-convertible equity and debt securities, options, warrants, U.S. Government or agency obligations, or repurchase agreements or they may be held as cash or cash equivalents. The Fund is not required to sell securities for the purpose of assuring that 65% of its total assets are invested in convertible securities.
The Fund's investment policies are subject to certain restrictions. For a complete list of the Fund's investment restrictions, see "Investment Restrictions" in the Statement of Additional Information.
Discussion of Convertible Securities
The Fund will invest primarily in convertible securities, including bonds, debentures, corporate notes, preferred stock or other securities which may be
exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the Fund during a specified time period. Prior to their conversion, convertible securities have the same overall characteristics as non-convertible debt securities insofar as they generally provide a stable stream of income with generally higher yields than those of equity securities of the same or similar issuers. Convertible securities rank senior to common stock in an issuer's capital structure. They are of higher credit quality and entail less risk than an issuer's common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security.
The Fund is also permitted to invest in securities with innovative structures, which have become more common in the convertible securities market. These include "mandatory conversion" securities, which consist of debt securities or preferred stocks that convert automatically into equity securities of the same or a different issuer at a specified date and conversion ratio.
The market value of a convertible security may be viewed as comprised of two components: its "investment value," which is its value based on its yield without regard to its conversion feature; and its "conversion value," which is its value attributable to the underlying common stock obtainable on conversion. The investment value of a convertible security is influenced by changes in interest rates and the yield of similar non-convertible securities, with investment value declining as interest rates increase and increasing as interest rates decrease. The conversion value of a convertible security is influenced by changes in the market price of the underlying common stock. If, because of a low price of the underlying common stock, the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the convertible security will be increasingly influenced by its conversion value, and the convertible security may sell at a premium over its conversion value to the extent investors place value on the right to acquire the underlying common stock while holding a fixed income security.
Accordingly, convertible securities have unique investment characteristics because (i) they have relatively high yields as compared to common stocks, (ii) they have defensive characteristics since they provide a fixed return even if the market price of the underlying common stock declines, and (iii) they provide the potential for capital appreciation if the market price of the underlying common stock increases.
A convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision or indenture pursuant to which the convertible security is issued. If a convertible security held by the Fund is called for redemption, the Fund will be required to surrender the security for redemption, convert it into the underlying common stock or sell it to a third party. Before the Fund purchases a convertible security it will review carefully the redemption provisions of the security.
There may be additional types of convertible securities with features not specifically referred to herein in which the Fund may invest consistent with its investment objectives and policies. For a discussion of risk factors of convertible securities see "Risk Factors and Special Considerations - Risks of Convertible Securities."
Other Investment Techniques
SHORT SALES. Although the Fund does not generally do so, the Fund may make short sales of securities which it owns or which it has the right to acquire through conversion or exchange of other securities it owns. In a short sale, the Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. The Fund is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. The Fund may not make short sales or maintain a short position if, after giving effect to such short sale, or if, as a result of maintaining such short position, more than 25% of the Fund's total assets, taken at market value, are held as collateral for such sales. For a more detailed description of the Fund's use of Short Sales see "Risk Factors and Special Considerations - Other Investment Techniques" in the Statement of Additional Information.
LENDING OF PORTFOLIO SECURITIES. Although the Fund does not presently intend to do so, the Fund may lend securities representing up to 10% of its total assets, taken at market value, to securities firms and financial institutions such as banks and trust companies and receive therefor collateral in cash or securities issued or guaranteed by the United States Government ("Government Securities") which are maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. For a more detailed description of the Fund's Lending of Portfolio Securities, see "Risk Factors and Special Considerations - Other Investment Techniques" in the Statement of Additional Information.
Other Investments
OPTIONS. Although the Fund does not presently intend to do so, the Fund may, and to a limited extent, (i) sell (write) covered call options on common stocks which it owns or has an immediate right to acquire through conversion or exchange of other securities; or (ii) purchase put options on such common stocks or on broadly based stock market indices. The Fund may also enter into closing transactions with respect to such options. All options written or purchased by the Fund must be listed on a national securities exchange. The Fund may not sell (write) call options on more than 25% of its total assets, taken at market value, and then only if such options are "covered," i.e., they are written on common stocks owned by the Fund or which the Fund has an immediate right to acquire through conversion or exchange of other securities; or invest more than 2% of its total assets, taken at market value, in the purchase of put options on common stocks owned by the Fund or which it has an immediate right to acquire through conversion or exchange of other securities and in the purchase of put options on one or more broadly based stock market indices. The Fund may enter into closing transactions with respect to call options which it has written. The Fund may only write or purchase options listed on a national securities exchange. Except as stated above the Fund may not engage in options transactions. For a more detailed description of the Fund's use of Options see "Risk Factors and Special Considerations - Other Investments" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Fund may invest up to 20% of its net assets in securities that are illiquid. Illiquid securities include securities that have no readily available market quotations and cannot be disposed of promptly (within seven days) in the normal course of business at a price at which they are valued. Illiquid securities may include securities that are subject to restrictions on resale ("restricted securities") because they have not been registered under the Securities Act. For a more detailed description of Illiquid Securities see "Risk Factors and Special Considerations - Other Investments - Illiquid Securities" in the Statement of Additional Information.
FOREIGN SECURITIES. Although the Fund does not generally do so, the Fund may invest up to 10% of its total assets, taken at market value, in securities of foreign issuers. Foreign securities involve certain additional risks, such as political or economic instability of the issuer or of the country of issue, fluctuating exchange rates and the possibility of imposition of exchange controls. For a more detailed description of Foreign Securities see "Risk Factors and Special Considerations - Other Investments" in the Statement of Additional Information.
TEMPORARY INVESTMENTS. The assets of the Fund are normally invested in convertible securities. However, for temporary defensive purposes (i.e., when
the Adviser determines that market conditions warrant) or when it has uncommitted cash balances, the Fund may hold cash or cash equivalents or invest without limit in: (1) Government Securities; (2) certificates of deposit, bankers' acceptances and interest-bearing savings deposits of banks having total assets of more than $1 billion and which are members of the Federal Deposit Insurance Corporation; (3) commercial paper rated Prime 1 or higher by Moody's Investors Service, Inc. ("Moody's") or A-1 or higher by Standard & Poor's Corporation ("S&P") or, if not rated, issued by companies which have an outstanding debt issue rated Aa or higher by Moody's or AA or higher by S&P; (4) other debt securities rated Baa or higher by Moody's or BBB or higher by S&P; and (5) repurchase agreements as described below. Accordingly, the composition of the Fund's portfolio may vary from time to time.
REPURCHASE AGREEMENTS. Although the Fund does not presently intend to do so, as part of its strategy for the temporary investment of cash balances, the Fund may enter into "repurchase agreements" with maturities of not more than seven days, pertaining to Government Securities with member banks of the Federal Reserve System or "primary dealers" (as designated by the Federal Reserve Bank of New York) in such securities. The Fund will not invest more than 5% of its total assets, taken at market value, in repurchase agreements with any single vendor. For a more detailed description of Repurchase Agreements see "Risk Factors and Special Considerations - Other Investments" in the Statement of Additional Information.
The Fund's investment objectives and policies are subject to certain restrictions. See "Investment Restrictions" in the Statement of Additional Information.
MANAGEMENT OF THE FUND
Directors and Officers
The overall management of the business and affairs of the Fund is vested in the Board of Directors. The Board of Directors approves all significant agreements between the Fund and persons or companies furnishing services to the Fund. The day-to-day operations of the Fund are delegated to the officers of the Fund and to the Adviser, subject always to the objectives, restrictions and policies of the Fund and to the general supervision of the Board of Directors. Certain directors and officers of the Fund are affiliated with the Adviser.
Investment Adviser
Davis-Dinsmore Management Company, 65 Madison Avenue, Morristown, New Jersey 07960 (the "Adviser"), serves as the Fund's investment adviser pursuant to an investment advisory agreement dated January 12, 2001 (the "Advisory Agreement"). The stockholders of the Fund approved the Advisory Agreement on January 12, 2001. Most recently, the Advisory Agreement was continued for a one-year term by the Board of Directors at a meeting held on November 18, 2002, for the period ending December 31, 2003. The Adviser has served in this
capacity since inception of the Fund's business in 1986. The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. The Adviser also serves as the investment adviser to Bancroft Convertible Fund, Inc. (the "Bancroft Fund"), a closed-end, management investment company whose shares have traded on the AMEX since 1972. Thomas H. Dinsmore and Jane D. O'Keeffe, the Fund's Chairman and President, respectively, each own more than 25% of the outstanding voting stock of the Adviser and are deemed to be control persons of the Adviser.
Advisory Agreement
Pursuant to the Advisory Agreement, the Adviser supervises all aspects of the Fund's operations, including the investment and reinvestment of cash, securities or other properties comprising the Fund's assets. In carrying out its obligations the Adviser (a) supervises all aspects of the operations of the Fund; (b) obtains and evaluates 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 Fund or any issuer of securities held or to be purchased by the Fund; (c) determines which issuers and securities shall be represented in the Fund's investment portfolio and regularly reports thereon to the Board of Directors; (d) places orders for the purchase and sale of securities for the Fund; and (e) takes, on behalf of the Fund, such other action as may be necessary or appropriate in connection with the foregoing.
The Adviser pays for the Fund's office space and facilities and the salaries of the Fund's executive officers and furnishes clerical, bookkeeping and statistical services to the Fund. The costs associated with personnel and certain non-personnel expenses of the office of the Fund's Treasurer, up to a maximum of $25,000 a year, are reimbursed by the Fund. The Fund pays all of its expenses not assumed by the Adviser including expenses in connection with the offering of its securities, fees and expenses of unaffiliated directors, salaries of employees other than executive officers, taxes, fees and commissions of all types, fees of its custodian, registrar, transfer agents and dividend disbursing agents, and interest, brokerage commissions, legal and accounting expenses and the like. The Fund pays or reimburses the Adviser for the direct costs of postage, printing, copying and travel expenses attributable to the conduct of the business of the Fund.
Portfolio Management
The persons primarily responsible for the day-to-day management of the Fund's portfolio are Thomas H. Dinsmore and Jane D. O'Keeffe, Chairman and President, respectively, of the Adviser.
Mr. Dinsmore has served as the Senior Analyst of the Adviser since February 1983, and as Chairman and Chief Executive Officer since August 1996. In addition, Mr. Dinsmore has served as Chairman and Chief Executive Officer of the Fund and the Bancroft Fund since August 1996. Mr. Dinsmore is a Chartered Financial Analyst. Mr. Dinsmore has been a director of the Fund since 1986 and is also a director of the Bancroft Fund and the Adviser.
Ms. O'Keeffe has served as President of the Adviser since August 1996. Ms. O'Keeffe has served as President of the Fund and the Bancroft Fund since August 1996. Ms. O'Keeffe has been in the investment business since 1980. Ms. O'Keeffe has been a director of the Fund since 1995 and is also a director of the Bancroft Fund and the Adviser.
Management Fees
As compensation for its services under the Advisory Agreement, the Adviser receives 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. For purposes of calculation of the fee, the net asset value for a month is the average of the Fund's net asset value 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.
For the fiscal years ended September 30, 2003, 2002 and 2001, the Adviser received investment advisory fees from the Fund of $________, $666,000 and $717,000, respectively.
Code of Ethics
The Fund and the Adviser's Board of Directors approved separate Codes of Ethics under Rule 17j-1 of the 1940 Act for the Fund and the Adviser (collectively, the "Codes"). The Codes establish procedures for personal investing and restrict certain transactions. See "Code of Ethics" in the Statement of Additional Information.
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Fund has authorized capital consisting of 20,000,000 shares of Common Stock, par value $.01 per share. As of October ___, 2003, __________ shares were outstanding, none of which was held by the Fund for its account. Each share of Common Stock has equal dividend, voting and liquidation rights. The shares of Common Stock are fully paid and non-assessable when issued. The shares of Common Stock are not redeemable and have no pre-emptive or conversion rights. There is no sinking fund provision. There are no restrictions on the repurchase or redemption of the Common Stock. All voting rights for the election of directors are non-cumulative, which means that the holders of more than 50% of the shares of Common Stock can elect 100% of the directors then nominated for election if they choose to do so and, in such event, the holders of the remaining shares of Common Stock will not be able to elect any directors.
The following table shows the number of shares of (i) capital stock authorized and (ii) capital stock outstanding for each class of authorized securities of the Fund as of October __, 2003 and as adjusted for the Offer.
Amount
Amount Amount Outstanding,
Title of Class Authorized Outstanding* As Adjusted
-------------- ---------- ------------ -----------
Common Stock 20,000,000
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Net Asset Values and Sales Prices
The Fund's shares of Common Stock are publicly held and are listed and traded on the AMEX under the symbol "ECF." The following table sets forth for the periods indicated the high and low sales prices on the AMEX per share of Common Stock of the Fund, the NAV per share on the dates of the market highs and lows and the number of shares traded.
Market Price Per Share Net Asset Value
and Related Per Share on Date of
Discount(-)/Premium(+) (1)(2) Market High and Low (3)
----------------------------- -----------------------
Quarter Ended High Low High Low
------------- ------------- ---------- ----------
December 31, 2001 $8.90 +0.5% $7.85 -9.3% $8.95 $8.63
March 31, 2002 8.95 +0.3 8.05 -8.6 8.94 8.49
June 30, 2002 8.39 -4.1 7.95 -8.0 8.84 8.42
September 30, 2002 8.24 -1.7 7.00 -9.9 8.38 7.62
December 31, 2002 7.90 -1.5 6.95 -7.5 8.06 7.51
March 31, 2003 7.96 -1.2 7.41 -3.8 8.16 7.69
June 30, 2003 8.42 -3.0 7.52 -5.4 8.71 7.95
September 30, 2003
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(1) Highest and lowest market price per share reported on the AMEX.
(2) "Related Discount (-) / Premium (+)" represents the discount or premium
from NAV of the shares on the date of the high and low market price for the
respective quarter.
(3) Based on the Fund's computations.
As evidenced by the above table, the Common Stock has generally traded in the market below NAV. On July 18, 2003, when the proposed Offer was publicly announced, the NAV per share of Common Stock was $8.59, and the closing price on the AMEX was $8.45, representing a discount of 1.63% below NAV. On October __, 2003, such NAV was $__________, and such closing price was $__________, representing a [premium of _____% above] [discount of _____% below] NAV.
There can be no assurance that the Common Stock will trade in the future at, above or below NAV.
CERTAIN CHARTER PROVISIONS
The Fund has provisions in its Amended and Restated Articles of Incorporation, as amended (the "Charter"), which could have the effect of limiting the ability of other entities or persons to acquire control of the Fund, to cause it to engage in certain transactions or to modify its structure. The Charter provides for three classes of directors. Directors in each class serve for a term of three years, with one class expiring each year. In addition, directors may be removed only for cause and only by the affirmative vote of at least two-thirds of the outstanding shares of the Fund's Common Stock.
The Charter provides that the affirmative vote of two-thirds of the outstanding shares of the Fund is necessary to authorize any of the following actions: (i) a merger or consolidation with any other company, (ii) the dissolution of the Fund, (iii) the sale of all or substantially all of the assets of the Fund, (iv) a change in the classification of the Fund from a diversified to a non-diversified management investment company as defined under the 1940 Act, (v) a change in the nature of the business of the Fund so that it would cease to be an investment company registered under the 1940 Act, and (vi) any amendment to the Charter which makes the Common Stock a redeemable security (as such term is defined in the 1940 Act) or reduces the two-thirds vote required to authorize any of the actions in this paragraph.
The Charter also provides that, to the fullest extent that limitations on the liability of directors and officers is permitted by the Maryland General Corporation Law, no director or officer of the Fund shall be liable to the Fund or its stockholders for damages. The foregoing should not be construed to protect or purport to protect any director or officer of the Fund against any liability to the Fund or its stockholders to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such office. The Fund will indemnify and advance expenses to its currently acting and former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Fund will indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may, by by- law, resolution or agreement make further provision for indemnification of directors, officers, employees and agents of the Fund to the fullest extent permitted by the Maryland General Corporation Law.
REPURCHASES OF SECURITIES
General
The Fund is a closed-end, diversified management investment company and, as such, its stockholders generally do not, and will not, have the right to redeem their shares of the Fund. Although the Fund will not offer to repurchase its shares of Common Stock on a periodic basis, it may repurchase its shares from time to time at such times, and in such amounts, as may be deemed advantageous to the Fund or otherwise as required by the Charter, although nothing herein shall be considered a commitment to repurchase such shares. Any such repurchases shall be subject to the Maryland General Corporation Law and to limitations imposed by the 1940 Act. The Fund may incur debt to finance share repurchase transactions. See "Investment Restrictions" in the Statement of Additional Information.
Under the 1940 Act, the Fund may repurchase its securities (i) on a securities exchange or such other open market designated by the SEC (provided that the Fund has, in the case of purchases of its stock, informed holders of the class of stock involved within the preceding six months of its intention to repurchase such stock), (ii) by a tender offer open to all holders of the class of securities involved or (iii) as otherwise permitted by the SEC. Where a repurchase of shares of the Fund is to be made that is not to be effected on a securities exchange or an open market or by the making of a tender offer, the 1940 Act provides that certain conditions must be met regarding, among other things, distribution of net income, identity of the seller, price paid, brokerage commissions, prior notice to holders of the class of its securities involved of an intention to purchase such securities and the purchase not being made in a manner or on a basis which discriminates unfairly against the other holders of such class.
If the Fund repurchases its shares of Common Stock for a price below their NAV, the NAV of those shares of Common Stock that remain outstanding would be enhanced, but this does not necessarily mean that the market price of those outstanding shares would be affected, either positively or negatively. Repurchases of shares of Common Stock by the Fund would also decrease its total assets and accordingly may increase its expenses as a percentage of average net assets.
Charter Provisions Pertaining to Share Repurchases
The Charter requires the Board of Directors to adopt a proposal, to the extent consistent with the 1940 Act, to submit a charter amendment to stockholders if shares of the Fund's Common Stock have traded at an average discount from net asset value of more than 5%, determined on the basis of the discount as of the end of the last trading day in each week during the period of 12 calendar weeks next preceding November 15 in each year. The charter amendment must provide that, upon the adoption of such amendment by the holders of two-thirds of the Fund's outstanding shares of Common Stock, each share of the Fund's Common Stock may be presented to the Fund as of the last trading day of each fiscal quarter in that year for payment to the holder at net asset value per share at the close of business on the date of presentment.
Open Market Purchases
The Board of Directors of the Fund has authorized management to engage in open market purchases from time to time of the Fund's Common Stock, up to a maximum of 5% of its outstanding shares in any calendar year. Such open market purchases ("share repurchases") will be funded through uninvested cash and cash received upon the maturity, redemption or sale of the Fund's portfolio securities. Management does not intend to borrow funds to finance share repurchases. Management does not believe that share repurchases would likely result in an increase in the Fund's expense ratio or in any material change to the Fund's portfolio turnover rate or investment objectives because of the overall limit on the number of shares that may be repurchased. Share repurchases may result in a reduction of the market discount. Management does not intend to engage in share repurchases if the market price of the Fund's shares exceeds such shares' net asset value or if the sale of the Fund's portfolio securities would jeopardize the qualification of the Fund as a "regulated investment company" under Subchapter M of the Code in any taxable year.
DIVIDENDS, DISTRIBUTIONS AND REINVESTMENT PLAN
Historically, the Fund has paid quarterly distributions to its stockholders.
The Fund has an Automatic Dividend Investment and Cash Payment Plan (the "Plan"). Any stockholder may elect to join the Plan by sending an application to American Stock Transfer & Trust Company, P.O. Box 922, Church Street Station, NY 10269-0560 (the "Plan Agent"). You may also obtain additional information about the Plan by calling the Plan Agent at (800) 937-5449. If your shares are held by a broker or other nominee, you should instruct the nominee to join the Plan on your behalf. Some brokers may require that your shares be taken out of the broker's "street name" and re-registered in your own name.
Stockholders may participate in the Plan whereby all dividends and distributions are automatically invested in additional Fund shares. Depending on the circumstances, shares may either be issued by the Fund or acquired through open market purchases at the current market price or net asset value, whichever is lower (but not less than 95% of market price). When the market price is lower, the Plan Agent will combine your dividends with those of other Plan participants and purchase shares in the market, thereby taking advantage of the lower commissions on larger purchases. There is no other charge for this service.
Plan participants may also voluntarily send cash payments of $100 to $10,000 per month to the Plan Agent, to be combined with other Plan monies, for purchase of additional Fund shares in the open market. You pay only a bank service charge of $1.25 per transaction, plus your proportionate share of the brokerage commission. All shares and fractional shares purchased will be held by the Plan Agent in your dividend reinvestment account.
At any time, a Plan participant may instruct the Plan Agent to liquidate all or any portion of such Plan participant's account. To do so, a Plan participant must deliver written notice to the Plan Agent prior to the record date of any dividend or distribution requesting either liquidation or a stock certificate. The Plan Agent or the Fund may terminate the Plan for any reason at any time by sending written notice addressed to Plan participant's address as shown on the Plan Agent's records. Such termination shall be effective as to all dividends and distributions payable to stockholders of record on any date more than 30 days after mailing of such notice and shall be effective 30 days after the mailing of such notice as to cash purchases. Following the date of termination, the Plan Agent shall send the Plan participant at such participant's address shown on Plan Agent's records either the proceeds of liquidation, or a stock certificate or certificates for the full shares held by Plan Agent in Plan participant's account and a check for the value of any
fractional interest in Plan participant's account based on the market price of the Fund's Common Stock on that date.
The Plan Agent will combine all liquidation requests it receives from Plan participants on a particular day and will then sell shares of the Fund that are subject to liquidation requests in the open market. The amount of proceeds a Plan participant will receive shall be determined by the average sales price per share, after deducting brokerage commissions, of all shares sold by the Plan Agent for all Plan participants who have given the Plan Agent liquidation requests.
You may deposit with the Plan Agent any Fund stock certificates you hold, for a one-time fee of $7.50.
Participation in the Plan does not relieve a Plan participant of any income tax which may be payable by a Plan participant on such dividends and distributions and on expenses incurred by the Fund on a Plan participant's behalf.
TAXATION
The Fund has qualified and intends to continue to qualify as a regulated investment company under the Code. The Fund currently intends to distribute all or substantially all its investment company taxable income (all taxable net investment income and net short-term capital gains) and its net capital gains each year, thereby avoiding the imposition on the Fund of Federal income and excise taxes on such distributed income and gain.
Dividends paid by the Fund from its ordinary income or from an excess of net short-term capital gains over net long-term capital losses (together "ordinary income dividends") are taxable to stockholders as ordinary income. However, certain ordinary income dividends paid to individual and other noncorporate shareholders and constituting qualified dividend income are taxable at lower rates. Distributions made from an excess of net long-term gains over net short-term losses (including gains or losses from certain transactions in warrants and options) ("capital gain dividends") are taxable to stockholders as long-term capital gains, regardless of the length of time the stockholder has owned Fund shares. After the end of each taxable year, the Fund will notify stockholders of the Federal income tax status of any distributions or deemed distributions made by the Fund during such year.
Ordinary income dividends paid to stockholders who are nonresident aliens or foreign entities will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Nonresident stockholders are urged to consult their own tax advisors concerning the applicability of the United States withholding tax.
It is anticipated that stockholders that hold shares of the Fund's Common Stock as capital assets and have such shares repurchased by the Fund will generally recognize capital gain or loss. Stockholders should, however, consult with their tax advisers to determine the tax consequences of such share repurchases in their particular circumstances.
Any capital gain or loss recognized by a stockholder with respect to a share repurchase by the Fund will be long-term capital gain or loss if the shares repurchased have been held for more than one year.
Under certain Code provisions, some stockholders may be subject to a backup withholding tax on certain ordinary income dividends and on capital gain
dividends ("backup withholding"). Generally, stockholders subject to backup withholding are those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number.
This section summarizes some of the consequences under current Federal income tax law of an investment in the Fund. It is not a substitute for personal tax advice. Fund stockholders are urged to consult their own tax advisors to determine the Federal income tax as well as state and local tax consequences to them of the ownership of stock of the Fund. See "Taxation" in the Statement of Additional Information.
CUSTODIAN, TRANSFER AGENT AND REGISTRAR
The Bank of New York, 100 Church Street, 10th Floor, New York, NY 10286,
acts as custodian of the cash and other assets of the Fund. American Stock
Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038, acts as transfer
agent and registrar for the Fund's shares and as Plan Agent under its Plan.
Stockholder inquiries should be directed to American Stock Transfer & Trust
Company, P.O. Box 922, Church Street Station, New York, NY 10269-0560 (Tel. No.
(800) 937-5449).
EXPERTS
PricewaterhouseCoopers LLP ("PwC") are the independent auditors of the Fund. The audited financial statements of the Fund and certain of the information appearing under the caption "Financial Highlights" included in this Prospectus have been audited by PwC for the periods indicated in their reports with respect thereto, and are included in reliance upon such reports and upon the authority of such firms as experts in accounting and auditing. PwC has an office at 1177 Avenue of the Americas, New York, NY 10036-2798, and also performs limited tax services for the Fund.
ADDITIONAL INFORMATION
A Statement of Additional Information dated October ___, 2003 has been filed with the SEC and is incorporated by reference in this Prospectus. The Table of Contents of the Statement of Additional Information is as follows:
Page
----
Risk Factors and Special Considerations..................
Investment Restrictions..................................
Portfolio Turnover.......................................
Principal Stockholders...................................
Directors and Officers...................................
Code of Ethics...........................................
Proxy Voting.............................................
Taxation.................................................
Custodian................................................
Independent Accountants..................................
Brokerage Allocation and Other Practices.................
Net Asset Value..........................................
Financial Statements.....................................
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You should rely only on the information __________ Shares of
contained in this Prospectus and the related Common Stock Issuable
Statement of Additional Information. We have Upon Exercise of
not authorized any other person to provide you Non-Transferable Rights
with different information. If anyone provides to Subscribe for such
you with different or inconsistent information, you Shares of Common Stock
should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where
the offer or sale is not permitted. You should
assume that the information appearing in this
prospectus and the related Statement of Additional
Information is accurate only as of the date on the
front covers of this Prospectus and the related
Statement of Additional Information. Our
business, financial condition, results of operations
and prospects may have changed since that date.
____________________
Table of contents ELLSWORTH CONVERTIBLE GROWTH
AND INCOME FUND, INC.
Page
----
Prospectus Summary............................ 1
Fund Expenses................................. 7
Financial Highlights.......................... 8
Investment Performance........................ 10
The Offer..................................... 11
Risk Factors And Special Considerations....... 18
Use of Proceeds............................... 21
Investment Objectives and Policies............ 21 _______________
Management of the Fund........................ 24
Description of Capital Stock.................. 26 PROSPECTUS
Certain Charter Provisions.................... 27 _______________
Repurchases of Securities..................... 28
Dividends, Distributions and
Reinvestment Plan........................... 29
Taxation...................................... 30
Custodian, Transfer Agent and Registrar....... 31
Experts....................................... 31
Additional Information........................ 32 October ___, 2003
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THE INFORMATION CONTAINED IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
Subject to Completion Preliminary Statement of Additional Information Dated September 3, 2003
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund") is a closed-end, diversified management investment company, whose shares of Common Stock are listed on the American Stock Exchange under the symbol "ECF." The Fund 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 due to the nature of the securities in which it invests).
This Statement of Additional Information is not a prospectus, but should be read in conjunction with the Fund's Prospectus dated October __, 2003. Please retain this document for future reference. To obtain a copy of the Prospectus or the Fund's Annual Report to Stockholders for the fiscal year ended September 30, 2002, Semi-Annual Report to Stockholders for the six months ended March 31, 2003 or Annual Report to Stockholders for the fiscal year ended September 30, 2003 (which is expected to be mailed to stockholders and available on the Fund's website (http://www.ellsworthfund.com) on or around November 26, 2003), please call the Fund at (973) 631-1177.
TABLE OF CONTENTS
Page
Risk Factors and Special Considerations.................... 2
Investment Restrictions.................................... 8
Portfolio Turnover......................................... 10
Principal Stockholders..................................... 10
Directors and Officers..................................... 11
Code of Ethics............................................. 17
Proxy Voting............................................... 17
Taxation................................................... 18
Custodian.................................................. 20
Independent Accountants.................................... 20
Brokerage Allocation and Other Practices................... 20
Net Asset Value............................................ 22
Financial Statements....................................... 22
October __, 2003
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RISK FACTORS AND SPECIAL CONSIDERATIONS
Other Investment Techniques
Although at least 80% of the Fund's investments will normally be invested in convertible securities, the Fund may from time to time use any of the following investment techniques to increase income and reduce risk.
Short Sales
Although the Fund does not generally do so, the Fund may make short sales of securities which it owns or which it has the right to acquire through conversion or exchange of other securities it owns. In a short sale the Fund does not immediately deliver the securities sold and does not receive the proceeds from the sale. The Fund is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. The Fund may not make short sales or maintain a short position if, after giving effect to such short sale, or if, as a result of maintaining such short position, more than 25% of the Fund's total assets, taken at market value, are held as collateral for such sales.
To secure its obligation to deliver the securities sold short, the Fund will deposit in escrow in a separate account with its custodian an equal amount of the securities sold short or securities convertible or exchangeable into such securities. The Fund will normally close out a short position by purchasing and delivering an equal amount of the securities sold short, rather than by delivering securities already held by the Fund.
The Fund may make a short sale in order to hedge against market risks when it believes that the price of a security may decline, causing a decline in the value of a long position the Fund may have in such security or a security convertible into or exchangeable for such security, or when, for tax or other reasons, the Fund does not want to sell the security it owns. In such case, any future losses in the Fund's long position should be reduced by a gain in the short position. Conversely, any gain in the long position should be reduced by a loss in the short position. The extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes with the conversion premiums.
Lending of Portfolio Securities
Although the Fund does not presently intend to do so, the Fund may lend securities representing up to 10% of its total assets, taken at market value, to securities firms and financial institutions such as banks and trust companies and receive therefor collateral in cash or securities issued or guaranteed by the United States Government ("Government Securities") which are maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The purpose of such loans, generally, is to permit the borrower to use such securities for delivery to purchasers when such borrower has sold short. If cash collateral is received by the Fund, it is invested in short-term money market securities, and a portion of the yield received in respect of such investment is retained by the Fund. Alternatively, if securities are delivered to the Fund as collateral, the Fund and the borrower negotiate a rate for the loan premium to be received by the Fund for lending its portfolio securities. In either event, the total yield on the Fund's portfolio is increased by loans of its portfolio securities. The Fund will retain record ownership of loaned securities in order to exercise beneficial rights such as voting rights, subscription rights and rights to dividends, interest or other distributions. Such loans are terminable at any time. The Fund may pay reasonable finder's, administrative and custodial fees in connection with such loans. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. In determining whether
the Fund will lend securities to a particular borrower, the Fund will consider all relevant facts and circumstances, including the creditworthiness of the borrower.
Other Investments
In addition to investing in convertible securities and employing the investment techniques discussed above, the Fund may acquire other securities, including non-convertible equity and debt securities, Government Securities or short-term repurchase agreements and other money market instruments. The Fund is restricted in its ability to invest in some of these securities which involve special risks.
Common Stock
The Fund may invest in common stock received upon conversion or exchange of securities. Common stock is issued by companies principally to raise cash for business purposes and represents a residual interest in the issuing company. The Fund participates in the success or failure of any company in which it holds stock. The prices of equity securities change in response to many factors including the historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity.
Preferred Stock
The Fund may invest in preferred stock. Preferred stock, unlike common stock, often offers a stated dividend rate payable from a corporation's earnings. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline. Dividends on some preferred stock may be "cumulative," requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer's common stock. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. In some cases an issuer may offer auction rate preferred stock, which means that the interest to be paid is set by auction and will often be reset at stated intervals. The rights of preferred stocks on the distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt securities.
U.S. Government Obligations
The Fund may invest in securities of the U.S. Government, its agencies, and instrumentalities. Obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities include bills, notes and bonds issued by the U.S. Treasury, as well as "stripped" or "zero coupon" U.S. Treasury obligations representing future interest or principal payments on U.S. Treasury notes or bonds. Stripped securities are sold at a discount to their "face value," and may exhibit greater price volatility than interest- bearing securities since investors receive no payment until maturity. Obligations of certain agencies and instrumentalities of the U.S. Government, such as the Government National Mortgage Association ("GNMA"), are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal National Mortgage Association ("FNMA"), are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Student Loan Marketing Association ("SLMA"), are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, though issued by an instrumentality chartered by the U.S. Government, like the Federal Farm Credit Bureau ("FFCB"), are
supported only by the credit of the instrumentality. The U.S. Government may choose not to provide financial support to U.S. Government-sponsored agencies or instrumentalities if it is not legally obligated to do so.
Investment Grade Debt Securities
The Fund may also invest in higher rated investment grade non- convertible debt securities. Such securities include those rated Aaa by Moody's Investor's Services, Inc. ("Moody's") or AAA by Standard and Poor's Corporation ("S&P") (which are considered to be of the highest credit quality and where the capacity to pay interest and repay principal is extremely strong), those rated Aa by Moody's or AA by S&P (where the capacity to pay interest and repay principal is considered very strong, although elements may exist that make risks appear somewhat larger than expected with securities rated Aaa or AAA), securities rated A by Moody's or A by S&P (which are considered to possess adequate factors giving security to principal and interest) and securities rated Baa by Moody's or BBB by S&P (which are considered to have an adequate capacity to pay interest and repay principal, but may have some speculative characteristics).
Unseasoned Issuers
The Fund may invest in unseasoned issuers (issuers which, with their predecessors, have less than three years' continuous operations) so long as such purchase would not cause more than 5% of the market value of the Fund's total assets to be invested in the securities of such companies. Investments in the equity securities of unseasoned companies involve more risk than investments in the securities of more established companies because unseasoned issuers have only a brief operating history and may have more limited markets and financial resources. As a result, securities of unseasoned issuers tend to be more volatile than securities of more established companies.
Options
Although the Fund does not presently intend to do so, the Fund may from time to time, and to a limited extent, (i) sell (write) covered call options on common stocks which it owns or has an immediate right to acquire through conversion or exchange of other securities; or (ii) purchase put options on such common stocks or on broadly based stock market indices. The Fund may also enter into closing transactions with respect to such options. All options written or purchased by the Fund must be listed on a national securities exchange.
Many currently traded convertible securities are convertible into common stocks against which call options may be written. A call option gives the purchaser the right to buy, and the writer has the obligation to sell, the underlying security at the exercise price during the option period. The Fund may only write "covered" call options, that is, options on common stock which it holds in its portfolio or which it has an immediate right to acquire through conversion or exchange of securities currently held in its portfolio. The Fund may write call options on up to 25% of its total assets, taken at market value, determined as of the date the options are written.
The Fund will write covered call options in order to receive additional income in the form of premiums which it is paid for writing options, and for hedging purposes in order to protect against possible declines in the market values of the stocks or convertible securities held in its portfolio. If, for example, the market price of a common stock underlying a convertible security held by the Fund declines and the convertible security also declines in value, such decline will be offset in part (or wholly) by the receipt of
the premium for writing the call options on such stock. However, if the market price of the underlying common stock increases and the convertible security held by the Fund also increases in value, such increase will be offset in part (or wholly) by any loss resulting from the cancellation of the Fund's position through closing purchase transactions on covered call options written by the Fund or through the lost opportunity for additional capital appreciation if the option is exercised.
In addition to writing covered call options, the Fund may invest up to 2% of its total assets, taken at market value, determined as of the date the options are written, in the purchase of put options on common stock which it owns or which it may acquire through the conversion or exchange of other securities which it owns, or in the purchase of put options on one or more broadly based stock market indices.
The Fund may purchase put options on particular securities in order to protect against a decline in the market value of the underlying security below the exercise price less the premium paid for the option. The ability to purchase put options will allow the Fund to protect the unrealized gain in an appreciated security in its portfolio without actually selling the security. In addition, the Fund will continue to receive interest or dividend income on the security. The Fund may sell a put option which it has previously purchased prior to the sale of the securities underlying such option. Such sales will result in a net gain or loss depending on whether the amount received on the sale is more or less than the premium and other transaction costs paid on the put option which is sold.
The Fund may also purchase put options on one or more broadly based stock market indices when it wishes to protect all or part of its portfolio securities against a general market decline. The put on the index will increase in value if the level of the index declines; any such increase in value would serve to offset in whole or in part any decline in the value of the Fund's portfolio.
The Fund's purchase and sale of put options on stock indices will be subject to the same risks described above with respect to transactions in stock options on individual stocks. In addition, the distinctive characteristics of options on indices create certain risks that are not present with stock options.
The Fund's ability to effectively hedge all or a portion of the securities in its portfolio in anticipation of or during a market decline through transactions in put options on stock indices depends on the degree to which price movements in the underlying index correlate with the price movements in the Fund's portfolio securities. Since the Fund's portfolio securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, the Fund will bear the risk that the prices of its portfolio securities being hedged will not move in the same amount as the prices of the Fund's put options on the stock indices. It is also possible that there may be a negative correlation between the index and the Fund's portfolio securities which would result in a loss on both such portfolio securities and the put options on stock indices acquired by the Fund. Successful use by the Fund of put options on stock indices will be subject to the ability of the Adviser to correctly predict movements in the directions of the stock market. This requires different skills and techniques than predicting changes in the price of individual securities.
Warrants
The Fund may invest in warrants. Warrants are, in effect, longer-term call options. They give the holder the right to purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price of the warrant, thus giving him a profit. Since the market price may never exceed the exercise price before the expiration date of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant
varies with the exercise price of the warrant, the current market value of the underlying security, the life of the warrant and various other investment factors.
Foreign Securities
Although the Fund does not generally do so, the Fund may invest up to 10% of its total assets, taken at market value, in securities of foreign issuers. Securities convertible or exchangeable for common stock of U.S. companies, and U.S. dollar-denominated securities convertible or exchangeable for American Depositary Receipts that at the time of purchase (i) are listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (ii) the underlying issuers of which meet the then prevailing earnings requirement for listing on the New York Stock Exchange are not subject to this limitation. Foreign investments may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. Securities of some foreign companies may be less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Investments in foreign securities may also be subject to other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments.
Repurchase Agreements
Although the Fund does not presently intend to do so, as part of its strategy for the temporary investment of cash balances, the Fund may enter into "repurchase agreements" with maturities of not more than seven days, pertaining to Government Securities with member banks of the Federal Reserve System or "primary dealers" (as designated by the Federal Reserve Bank of New York) in such securities. A repurchase agreement arises when the Fund purchases a security and simultaneously agrees to resell it to the vendor at an agreed upon future date. The resale price is greater than the purchase price, reflecting an agreed upon market rate of return which is effective for the period of time the Fund's money is invested in the security and which is not related to the coupon rate on the purchased security. Such agreements permit the Fund to earn interest on all of its assets while retaining "overnight" flexibility in pursuit of investments of a longer term nature. The Fund requires continuous maintenance by its Custodian for its account in the Federal Reserve/Treasury Book Entry System of collateral in an amount equal to, or in excess of, the market value of the securities which are the subject of a repurchase agreement. In the event a vendor defaults on its repurchase obligation, the Fund could suffer delays, collection expenses and losses to the extent that the proceeds from the sale of the collateral are less than the repurchase price. The Fund will not invest more than 5% of its total assets, taken at market value, in repurchase agreements with any single vendor. The Fund will consider all relevant facts and circumstances, including the creditworthiness of the vendor in determining whether to enter into a repurchase agreement. Under the Investment Company Act of 1940, as amended (the "1940 Act"), repurchase agreements are considered loans by the Fund.
Illiquid Securities
The Fund may invest up to 20% of its net assets in securities that are illiquid. Illiquid securities include securities that have no readily available market quotations and cannot be disposed of promptly (within seven days) in the normal course of business at a price at which they are valued. Illiquid securities may include securities that are subject to restrictions on resale ("restricted securities") because they have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). Restricted securities may, in certain circumstances, be resold pursuant to Rule 144A of the Securities Act, and thus may or may not constitute illiquid securities. The Fund's Board of Directors is responsible for determining the liquidity of a restricted security. Limitations on the resale of restricted securities may have an adverse effect on their marketability, which may prevent the Funds disposing of them promptly at reasonable prices. The Fund may have to bear the expense of registering such securities for resale, and bear the risk of substantial delays in effecting such registrations.
American Depositary Receipts
The Fund may invest in American Depositary Receipts ("ADRs"). The Fund's investment in ADRs is subject to the 10% limitation of investments in foreign securities, unless certain conditions pertaining to ADRs are met. Such investments may entail certain risks similar to foreign securities. ADRs are certificates representing an ownership interest in a security or a pool of securities issued by a foreign issuer and deposited with the depositary, typically a bank, and held in trust for the investor. The economies of many of the countries in which the issuer of a security underlying an ADR principally engages in business may not be as developed as the United States' economy and may be subject to significantly different forces. Political or social instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could adversely affect the value of the Fund's investments in such securities. The value of the securities underlying ADRs could fluctuate as exchange rates change between U.S. dollars and the currency of the country in which the foreign company is located. In addition, foreign companies are not registered with the Securities and Exchange Commission ("SEC") and are generally not subject to the regulatory controls imposed on United States issuers and, as a consequence, there is generally less publicly available information about foreign companies than is available about domestic companies. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic companies.
Loans, Participation Interests and Assignments
Although the Fund does not presently intend to do so, the Fund may invest in loans, including assignments and participation interests. A loan in which the Fund may invest typically is originated, negotiated and structured by a syndicate of lenders consisting of commercial banks, thrift institutions, insurance companies, finance companies or other financial institutions, which is administered on behalf of the syndicate by an agent bank. The investment by the Fund in a loan may take the form of participation interests or assignments. Participation interests may be acquired from a lender or other participants. If the Fund purchases a participation interest either from a lender or a participant, the Fund will not have established any direct contractual relationship with the borrower. The Fund would be required to rely on the lender or the participant that sold the participation interest not only for the enforcement of the Fund's rights against the borrower but also for the receipt and processing of payments due to the Fund under the loans. The Fund is thus subject to the credit risk of both the borrower and a participant. Lenders and participants interposed between the Fund and a borrower, together with agent banks, are referred to herein as "Intermediate Participants."
On the other hand, if the Fund purchases an assignment from a lender, the Fund will generally become a "lender" for purposes of the relevant loan agreement, with direct contractual rights thereunder and under any related collateral security documents in favor of the lenders. An assignment from a lender gives the Fund the right to receive payments of principal and interest and other amounts directly from the borrower and to enforce its rights as a lender directly against the borrower. The Fund will not act as an agent bank guarantor, sole negotiator or sole structurer with respect to a loan.
Because it may be necessary to assert through an Intermediate Participant such rights as may exist against the borrower, in the event the Borrower fails to pay principal and interest when due, the Fund may be subject to delays, expenses and risks that are greater than those that would be involved if the Fund could enforce its rights directly against the borrower. Moreover, under the terms of a participation, the Fund may be regarded as a creditor of the Intermediate Participant (rather than of the borrower), so that the Fund may also be subject to the risk that the Intermediate Participant may become insolvent. Further, in the event of the bankruptcy or insolvency of the borrower, the obligation of the borrower to repay the loan may be subject to certain defenses that can be asserted by such borrower as a result of improper conduct by the agent bank or Intermediate Participant.
INVESTMENT RESTRICTIONS
Fundamental Restrictions and Policies. The Fund has adopted the following fundamental restrictions and policies which may not be changed without the approval of the holders of a majority of the Fund's outstanding voting securities (as defined in the 1940 Act). The Fund will not:
1. with respect to 85% of its total assets, taken at market value, invest in securities of any one issuer (other than the United States or its agencies or instrumentalities) if immediately after and as a result of such investment more than 5% of the total assets of the Fund, taken at market value, would be invested in the securities of such issuer, or more than 10% of the outstanding securities, or more than 10% of the outstanding voting securities, of such issuer would be owned by the Fund.
2. invest more than 25% of its total assets, taken at market value, in the securities of issuers in any particular industry. This restriction does not apply to Government Securities, which the Fund may purchase temporarily and for defensive purposes.
3. make personal loans or loans to persons who control or are under common control with the Fund, or lend its portfolio securities in excess of 10% of its total assets, taken at market value. This restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, or investing in loans, including assignments and participation interests.
4. invest in repurchase agreements maturing in more than seven days or invest more than 5% of its total assets, taken at market value, in repurchase agreements with any single vendor.
5. purchase any securities on margin, except that the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales of portfolio securities.
6. borrow money or issue senior securities (as defined in the 1940 Act), except that the Fund may borrow from banks for temporary or emergency purposes in amounts not exceeding 5% of the value of its total assets (not including the amount borrowed). Subject to this limitation the Fund may borrow for the
purpose of financing repurchases of its shares. See "Repurchase of Securities" in the Prospectus.
7. underwrite securities of other issuers except insofar as the Fund may be deemed an underwriter under the Securities Act in selling portfolio securities.
8. sell (write) call options on more than 25% of its total assets,
taken at market value, and then only if such options are "covered,"
i.e., they are written on common stocks owned by the Fund or which
the Fund has an immediate right to acquire through conversion or
exchange of other securities; or invest more than 2% of its total
assets, taken at market value, in the purchase of put options on
common stocks owned by the Fund or which it has an immediate right
to acquire through conversion or exchange of other securities and
in the purchase of put options on one or more broadly based stock
market indices. The Fund may enter into closing transactions with
respect to call options which it has written. The Fund may only
write or purchase options listed on a national securities exchange.
Except as stated above the Fund may not engage in options
transactions.
9. make short sales of securities or maintain a short position, unless at all times when a short position is open the Fund owns, or has the immediate right to acquire through conversion or exchange, an equal amount of such securities, and not more than 25% of its total assets, taken at market value, are held as collateral for such sales.
10. invest more than 10% of its total assets, taken at market value, in the securities of foreign issuers, except that this limitation shall not apply to (a) securities convertible into or exchangeable for common stock of U.S. companies, or (b) U.S. dollar-denominated securities convertible into or exchangeable for American Depositary Receipts that at the time of purchase (i) are listed on the New York Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or (ii) the underlying issuers of which met the then prevailing earnings requirement for listing on the New York Stock Exchange and also file Form 20-F (or comparable form) with the SEC.
11. make investments for the purpose of exercising control or management, except in connection with a merger of the Fund and another investment company or the acquisition by the Fund of all or substantially all of the assets or voting securities of another investment company.
12. purchase securities (i) of companies which, with their predecessors, or (ii) which are guaranteed by companies which, with their predecessors, have a record of less than three years' continuous operations, if such purchase would cause more than 5% of the market value of the Fund's total assets to be invested in the securities of such companies. This restriction does not apply to Government Securities.
13. purchase or sell commodities or commodity contracts.
14. purchase real estate or sell real estate unless acquired as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from investing in issuers that invest, deal or otherwise engage in transactions in real estate or interests therein, including without limitation real estate investment trusts, or investing in securities that are secured by real estate or interests therein.
The percentage restrictions on investments set forth above apply only at the time an investment is made. Thus, a later increase or decrease in percentage resulting from a change in values of portfolio securities or amount of total assets will not be considered a violation of any of the foregoing restrictions.
Non-Fundamental Restrictions and Policies. The Fund has adopted the following non-fundamental restrictions and policies which may be changed by the Fund's Board of Directors without the approval of a majority of the Fund's outstanding voting securities as defined in the 1940 Act. The Fund will:
1. not purchase the securities of an issuer if, after giving effect to such purchase, more than 20% of its net assets would be invested in illiquid securities.
2. not purchase or sell interests in oil, gas or other mineral exploration or development programs. This policy does not prevent the Fund from investing in issuers that invest, deal or otherwise engage in transactions involving oil, gas or other mineral exploration or development programs or interests therein, or investing in securities that are secured by oil, gas or other mineral exploration or development programs or interests therein.
The percentage restrictions on investments set forth above apply only at the time an investment is made. Thus, a later increase or decrease in percentage resulting from a change in values of portfolio securities or amount of total assets will not be considered a violation of any of the foregoing restrictions.
PORTFOLIO TURNOVER
For the fiscal years ended September 30, 2003, 2002 and 2001, the Fund's portfolio turnover rates were ___%, 89% and 82%, respectively.
PRINCIPAL STOCKHOLDERS
As of October __ 2003, there were __________ shares of Common Stock of the Fund outstanding. There are no persons known to the Fund to be control persons of the Fund. The following persons were known to the Fund to be beneficial owners or owners of record of 5% or more of its outstanding shares of Common Stock as of October __, 2003:
Name and Address Amount and Nature Percent of of Owner Class/Series of Stock of Ownership Class/Series ---------------- --------------------- ----------------- ------------ Cede & Co.* Common Stock _______ shares - _____% Depository Trust Company Record P.O. Box #20 Bowling Green Station New York, NY 10028 |
DIRECTORS AND OFFICERS
Structure of the Board of Directors
The Fund's Board of Directors is divided into three classes. 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 1940 Act. Two of the Fund's directors are "interested persons" because of their business and financial relationships with the Fund and the Adviser.
Directors and Officers
The business address of each director and officer is 65 Madison Avenue, Suite 550, Morristown, NJ 07960-7308. Each director is also a director of Bancroft Convertible Fund, Inc. (the "Bancroft Fund") (a closed-end diversified management investment company). The Adviser is also the investment adviser to the Bancroft Fund. Because of this connection, the Fund and the Bancroft Fund make up a Fund Complex. Therefore, each director oversees two investment companies in the Fund Complex.
Directors
INTERESTED DIRECTORS. Certain biographical and other information
concerning the Directors who are "interested persons," as defined in the 1940
Act, of the Fund is set forth below.
Other
Term of Office and Principal Occupation(s) Directorship(s)
Length of Time During Past 5 Years Held by Director
Name and Age Served
Thomas H. Dinsmore,(1)(2)(3) Term as Director Chairman and Chief None
(50) expires 2005. Executive Officer of the
Director since 1986. Fund, the Bancroft Fund
and the Adviser.
Jane D. O'Keeffe, (1)(2)(3) Term as Director President of the Fund, the None
(48) expires 2006. Bancroft Fund and the
Director since 1995. Adviser.
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2 Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister.
3 H. Tucker Lake, Jr., an officer of the Fund, is the cousin of Thomas H.
Dinsmore and Jane D. O'Keeffe.
INDEPENDENT DIRECTORS. Certain biographical and other information concerning the Fund Directors who are not "interested persons," as defined in the 1940 Act, of the Fund is set forth below.
Term of Office and Other
Length of Time Principal Occupation(s) Directorship(s)
Name and Age Served During Past 5 Years Held by Director
------------------ ---------------- ------------------------- ----------------
Gordon F. Ahalt Term as Director Retired. Prior to 2001, CalDive
(75) expires 2004. President of G.F.A. Inc. International
Director since (petroleum industry and The
1986. consulting company). Houston
Prior to 1999, Consultant Exploration
with W.H. Reaves & Co. Company
(asset management
company).
William A. Benton Term as Director Retired. Prior to 2001, None
(70) expires 2006. Partner of BE Partners
Director since (small options market
1986. maker). Prior to 2000,
Limited Partner of Gavin,
Benton & Co. (NYSE
specialist).
Elizabeth C. Bogan, Term as Director Senior Lecturer in None
Ph.D. expires 2004. Economics at Princeton
(59) Director since University.
1986.
Donald M. Halsted, Term as Director Retired Business None
Jr. expires 2005. Executive.
(76) Director since
1986.
George R. Lieberman Term as Director Retired Advertising None
(81) expires 2006. Executive.
Director since
1990.
Duncan O. McKee Term as Director Retired Attorney. None
(72) expires 2005.
Director since
1996.
Nicolas W. Platt Term as Director Since January 2003, None
(50) expires 2004. President of CNC-US (an
Director since international consulting
1997. company). Prior to
January 2003, Senior
Partner of Platt &
Rickenbach (public
relations firm). Prior to
May 2001, with WPP Group,
UK, as Exec. Vice Pres. of
Ogilvy Public Relations
Worldwide and Managing
Director of the Corporate
Financial Practice at
Burson-Marsteller (public
relations firm).
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Officers
Certain biographical and other information concerning the officers of the Fund is set forth below. Officers are elected by and serve at the pleasure of the Board of Directors. Each officer holds office until the annual meeting to be held in 2004, and thereafter until his or her respective successor is duly elected and qualified.
Principal Occupation(s)
Name and Age Positions with the Fund Officer Since During Past 5 Years
------------------------- ----------------------- ------------- -----------------------
Thomas H. Dinsmore (1)(2) Director, Chairman and 1986 Chairman and Chief Executive
(50) Chief Executive Officer Officer of the Fund, the
Bancroft Fund and the
Adviser
Jane D. O'Keeffe (1)(2) Director and President 1994 President of the Fund, the
(48) Bancroft Fund and the
Adviser
Sigmund Levine (3) Secretary 1986 Secretary of the Fund, the
(79) Bancroft Fund and the
Adviser
H. Tucker Lake, Jr. (1) Vice President 1994 Since 2002, Vice President,
(56) and prior thereto, Vice
President, Trading, of the
Fund, the Bancroft Fund and
the Adviser
Gary I. Levine (3) Vice President, 1993 Since 2002, Vice President,
(46) Treasurer and Chief Treasurer and Chief
Financial Officer Financial Officer, and prior
thereto, Treasurer and
Assistant Secretary of the
Fund, the Bancroft Fund and
the Adviser
Germaine Ortiz Vice President 1996 Since 1999, Vice President,
(33) and prior thereto, Assistant
Vice President of the Fund,
the Bancroft Fund and the
Adviser
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1 H. Tucker Lake, Jr. is the cousin of Thomas H. Dinsmore and Jane D.
O'Keeffe.
2 Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister.
3 Sigmund Levine is the father of Gary I. Levine.
Ownership of Securities
The Adviser is also the investment adviser to the Bancroft Fund. Because of this connection, the Bancroft Fund and the Fund make up a "fund complex." Set forth below is the dollar range of equity securities beneficially owned in both the Fund and Fund Complex by each director of the Fund as of December 31, 2002.
Aggregate Dollar Range
of Equity Securities in
Dollar Range of All Funds Overseen or
Equity Securities to be Overseen by the
in the Director or Nominee
Name Fund(1)(2)(3) in Fund Complex(4)
------------------------- ----------------- -----------------------
Interested Directors
Thomas H. Dinsmore.............. over $100,000 over $100,000
Jane D. O'Keeffe................ $50,001-$100,000 over $100,000
Independent Directors
Gordon F. Ahalt................. $10,001-$50,000 $10,001-$50,000
William A. Benton............... $10,001-$50,000 $50,001-$100,000
Elizabeth C. Bogan, Ph.D........ $50,001-$100,000 $50,001-$100,000
Donald M. Halsted, Jr........... $10,001-$50,000 $50,001-$100,000
George R. Lieberman............. $10,001-$50,000 over $100,000
Duncan O. McKee................. $10,001-$50,000 $50,001-$100,000
Nicolas W. Platt................ $1-$10,000 $10,001-$50,000
1 Beneficial ownership has been determined based upon the director's
direct or indirect pecuniary interest in the equity securities.
2 The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-
$100,000, or over $100,000.
3 The dollar range of equity securities owned in the Fund is based on the
closing price of $7.45 on December 31, 2002 on the American Stock
Exchange.
4 The dollar range of equity securities owned in the Fund Complex is based
on the closing price of $7.45 for the Fund and $17.69 for the Bancroft
Fund on December 31, 2002 on the American Stock Exchange.
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Committees of the Board of Directors
The Board of Directors has three committees: an Audit Committee, a Nominating and Administration Committee and a Pricing Committee.
Audit Committee
The Audit Committee is comprised entirely of independent directors (Mr. Benton, Dr. Bogan, Mr. Halsted and Mr. Lieberman, with Dr. Bogan serving as Chairperson). All such members are independent as such term is defined by the American Stock Exchange's listing standards and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee oversees the Fund's accounting and financial reporting policies and practices, as well as the quality and objectivity of the Fund's financial statements and the independent audit of the financial statements. Among other duties, the
Committee selects independent accountants for the Fund, evaluates their independence and meets with them to review the scope and results of the audit.
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 Fund 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 stockholder's suggestion for a nominee for director, but the final decision for all nominees will be made by the Committee.
A stockholder may nominate an individual for election to the Board of Directors at the 2004 Annual Meeting of shareholders if the stockholder: (1) is a stockholder of record at the time of giving notice to the Fund; (2) is a stockholder of record at the time of the 2004 Annual Meeting; (3) is entitled to vote at the 2004 Annual Meeting; and (4) has complied with the notice procedures in the Fund's Bylaws. The notice procedures require that a stockholder submit the nomination in writing to the Secretary of the Fund no earlier than September 12, 2003 but no later than October 12, 2003. The notice must contain all information relating to the nominee required for proxy solicitations by Regulation 14A under the Exchange Act (including the individual's written consent to being named in the proxy statement as a nominee and to serving as a director if elected). The notice must also contain the stockholder's name and address as they appear on the Fund's books (and the name and address of any beneficial owner, on whose behalf the nomination is made) and the number of shares of stock owned beneficially and of record by such stockholder and beneficial owner.
Pricing Committee
The Pricing Committee is comprised of three members, two of whom are independent directors (Mr. Ahalt and Mr. Platt, with Mr. Ahalt serving as Chairman) and one of whom is an interested person (Mr. Dinsmore). In accordance with its charter, the Committee assists the Adviser in its valuation of the Fund's portfolio of securities when pricing anomalies arise and the full Board is not available to assist the Adviser in making a fair value determination.
It is anticipated that the Committee will meet only as pricing anomalies or issues arise that cannot be resolved by the entire Board due to time constraints.
Board and Committee Meetings
During the 2003 fiscal year, the Board of Directors met eight times, the Audit Committee met three times and the Nominating and Administration Committee met three times. The Pricing Committee did not meet.
Directors' Compensation
Mr. Dinsmore and Ms. O'Keeffe are the only officers of the Fund or the Adviser who serve on the Board of Directors. Each director who is not an officer of the Fund or the Adviser currently receives (1) an annual fee of $5,000, (2) $1,000 plus expenses for each Board meeting attended, (3) $1,000 for each stockholders' 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. The chairperson of each committee receives an additional $200 per committee meeting.
The Adviser is also the investment adviser to the Bancroft Fund. Because of this connection, the Bancroft Fund and the Fund make up a "fund complex." The following table shows the compensation that was paid to the directors solely by the Fund as well as by the fund complex as a whole during the 2003 fiscal year.
Pension or
Retirement Total
Aggregate Benefits Accrued Estimated Annual Compensation
Compensation as Part of Fund Benefits upon From Fund
Name of Director From the Fund Expense Retirement Complex
------------------------- ------------- ---------------- ---------------- ------------
Thomas H. Dinsmore(1) None None None None
Jane D. O'Keeffe(2) None None None None
Gordon F. Ahalt $14,500 None None $29,000
William A. Benton $15,500 None None $31,500
Elizabeth C. Bogan, Ph.D. $15,100 None None $30,700
Donald M. Halsted, Jr. $17,600 None None $35,700
George R. Lieberman $17,000 None None $34,500
Duncan O. McKee $14,000 None None $28,000
Nicolas W. Platt $14,000 None None $28,000
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1 Thomas H. Dinsmore is also Chairman and Chief Executive Officer of the
Fund. Mr. Dinsmore receives no compensation from the Fund for serving
in such positions.
2 Jane D. O'Keeffe is also President of the Fund. Ms. O'Keeffe receives
no compensation from the Fund for serving in such position.
Directors' Retirement Policy
The Board of Directors has adopted a retirement policy for the directors of the Fund.
The retirement policy permits each person serving as a director and, if applicable, committee member of the Fund to serve until no later than December 31 in the year that is the later of (a) the year in which such
director has his/her 75th birthday, or (b) the year that is five years after February 10, 2003, the date as of when the retirement policy was adopted. Each person who is first appointed or elected as a director of the Fund after February 10, 2003 must retire from his/her position as a director and, if applicable, committee member of the Fund no later than December 31 in the year in which such director has his/her 75th birthday. The retirement date of a director may be deferred from time to time, upon the recommendation of the Nominating and Administration Committee, and with the approval of the Board of Directors.
The Board of Directors may amend or terminate the retirement policy at any time.
Directors' Consideration of Investment Advisory Agreement
The Fund's Board of Directors determined at a meeting held on November
18, 2002 to approve the Fund's current Investment Advisory Agreement. In
making their determinations, the Directors considered a wide range of
information in determining whether to continue the Fund's advisory
arrangement as in effect from year to year. The Directors paid particular
attention to the detailed statement of Income and Expense of the Adviser for
its then most recent fiscal period ended June 30, 2002, as well as an
analysis of the performance and the investment advisory fees of the Fund and
of comparable investment companies and also information regarding the
Adviser's personnel. After careful review of the information presented, the
Directors discussed in detail the fee structure including the Treasurer's
office reimbursement and reviewed among other things, (i) the nature and
extent of the advisory and administrative services provided by the Adviser,
(ii) the quality of past services rendered by the Adviser, (iii) the value of
benefits received by the Adviser, (iv) the profitability and financial
condition of the Adviser, (v) the performance of the Fund, particularly in
light of recent market conditions, (vi) the fees paid by the Fund in
comparison to other similarly situated closed-end investment companies with
comparable investment objectives and policies, (vii) comparative expense
ratios as adjusted for total assets and economies of scale, and (viii) the
structure of the Adviser's fee schedule, including its breakpoints.
CODE OF ETHICS
The Adviser and the Fund have each adopted a separate Code of Ethics
under which directors, officers, employees and other affiliated persons of
the Adviser, and directors, directors emeritus, officers and employees of the
Fund are generally prohibited from personal trading in any security which is
then being purchased or sold or considered for purchase or sale by the Fund
(collectively, the "Codes of Ethics"). The Codes of Ethics permit such
persons to engage in other personal securities transactions if (i) the
securities involved are certain debt securities, money market instruments,
shares of registered open-end investment companies or shares acquired from an
issuer in a rights offering or under an automatic dividend reinvestment,
(ii) the transactions are either non-volitional, or with respect to the
Adviser's Code of Ethics only, are effected in an account over which such
person has no direct or indirect influence or control, or (iii) under certain
circumstances, they first obtain permission to trade from the appropriate
Compliance Officer. The Codes of Ethics contain standards for the granting
of such permission, and permission to trade will usually be granted only in
accordance with such standards.
The Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. In addition, such Codes of Ethics are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of the Codes of Ethics may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102.
PROXY VOTING
The Fund's Board of Directors has adopted Proxy Voting Guidelines (the "Guidelines") in accordance with Rule 30b1-4 under the 1940 Act. The Guidelines have been designed with the overall goal of maximizing the value
of the Fund's investments. The Guidelines generally assign proxy voting responsibilities for the Fund to the Adviser. The portfolio managers at the Adviser oversee the voting policies and decisions for the Fund. If a conflict of interest arises with respect to a proxy voting matter, the portfolio manager will promptly notify the Fund's Audit Committee and counsel for the Fund's independent directors and the proxies will be voted in accordance with the direction received from the Audit Committee.
The Guidelines are available without charge, by calling (973) 631-1177. The Guidelines are also posted on the Fund's website at http://www.ellsworthfund.com and are available on the SEC's website at http://www.sec.gov.
TAXATION
General
The Fund intends to continue to qualify for the special tax treatment afforded regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Code"). As long as it so qualifies, the Fund (but not its stockholders) will not be subject to Federal income tax to the extent that it distributes its net investment income and net realized capital gains. The Fund intends to distribute substantially all of such income.
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar year basis, and 98% of its capital gains, determined, in general, on an October 31 year end, plus certain undistributed amounts from previous years. While the Fund intends to distribute its income and capital gains in the manner necessary to minimize imposition of the 4% excise tax, there can be no assurance that sufficient amounts of the Fund's taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In such event, the Fund will be liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
Dividends paid by the Fund from its ordinary income or from an excess of net short-term capital gains over net long-term capital losses (together referred to hereafter as "ordinary income dividends") are taxable to stockholders as ordinary income. Ordinary income dividends paid to individual and other noncorporate shareholders will be treated as qualified dividend income (currently subject to tax at a maximum rate of 15%) to the extent of the dividends received by the Fund in any taxable year from domestic corporations and certain qualified foreign corporations. However, if the qualified dividends received by the Fund are 95% (or more) of the Fund's gross income (exclusive of any net capital gain) in any taxable year, then all of the ordinary income dividends paid by the Fund for that taxable year will be treated as qualified dividend income. A portion of the Fund's ordinary income dividends may be eligible for the dividends received deduction allowed to corporations under the Code, if certain requirements are met.
Distributions made from an excess of net long-term capital gains over net short-term capital losses (including gains or losses from certain transactions in warrants and options) ("capital gain dividends") are taxable to stockholders as long-term capital gains, regardless of the length of time the stockholder has owned Fund shares. Any loss upon the sale or exchange of Fund shares held for twelve months or less will be treated as long-term capital loss to the extent of any capital gain dividends received by the stockholder. Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a holder's shares and, after such adjusted tax basis is reduced to zero, will constitute capital gains to such
holder (assuming the shares are held as a capital asset). Certain categories of capital gains are taxable at different rates.
Generally not later than 60 days after the close of its taxable year, the Fund will provide its stockholders with a written notice designating the amounts of ordinary income dividends constituting qualified dividend income, the amount of ordinary income dividends eligible for the dividends received deduction, and the amounts of any capital gain dividends including designation of any amounts of capital gain dividends in the different categories of capital gain referred to above. Dividends are taxable to stockholders even though they are reinvested in additional shares of the Fund.
A loss realized on a sale or exchange of shares of the Fund will be disallowed under the wash sale rules if other Fund shares are acquired (whether through the automatic reinvestment of dividends or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date that the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
Ordinary income dividends paid to stockholders who are non-resident aliens or foreign entities will be subject to a 30% United States withholding tax under existing provisions of the Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided under applicable treaty law. Non-resident stockholders are urged to consult their own tax advisers concerning the applicability of the United States withholding tax.
Under certain provisions of the Code, some stockholders may be subject to a withholding tax on ordinary income dividends and capital gain dividends ("backup withholding"). Generally, stockholders subject to backup withholding will be those for whom no certified taxpayer identification number is on file with the Fund or who, to the Fund's knowledge, have furnished an incorrect number. When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor is not otherwise subject to backup withholding.
Dividends and interest received by the Fund may give rise to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes.
The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect. For the complete provisions, reference should be made to the pertinent Code sections and the Treasury regulations promulgated thereunder. The Code and the Treasury regulations are subject to change by legislative, judicial or administrative action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and local taxes.
Certain states exempt from state income taxation dividends paid by RICs which are derived from interest on United States Government obligations. State law varies as to whether dividend income attributable to United States Government obligations is exempt from state income tax.
Stockholders are urged to consult their own tax advisers regarding specific questions as to Federal, foreign, state or local taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in the Fund.
CUSTODIAN
The Bank of New York ("Custodian"), 100 Church Street, 10th Floor, New York, NY 10286, is the custodian of the portfolio securities and cash of the Fund. As such, the Custodian holds the Fund's portfolio securities and cash in separate accounts on the Fund's behalf and receives and delivers portfolio securities and cash in connection with portfolio transactions initiated by the Fund's portfolio managers, collects income due on its portfolio securities and disburses funds in connection with the payment of distributions and expenses.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, 21st Floor, New York, NY 10036-2798, are the independent accountants of the Fund. The independent accountants audit and report on the annual financial statements and also perform limited tax services for the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
In placing orders for the purchase and sale of securities for the Fund, the Adviser is guided by the Funds' investment objectives, policies and limitations as delineated by statements contained in the various documents filed by the Fund with the SEC, as such documents may, from time to time, be amended.
The Adviser is obligated, in placing orders for the purchase and sale of securities for the Fund, 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 orders 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.
The Adviser currently places portfolio transactions for the Bancroft Fund (together with the Fund, the "Funds"), and may in the future place portfolio transactions for other investment companies and advised accounts. The Adviser seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell securities by the Fund and such other advisory accounts. In some cases this procedure could have an adverse effect on the price or amount of securities available to the Fund.
The Funds have established procedures that are intended to apply whenever the Funds simultaneously purchase or sell the same securities. The Adviser may, but is under no obligation to, aggregate securities sold or purchased in order to obtain the best price and execution. In such event, allocation of the securities purchased or sold, as well as the expenses incurred in the transaction, will be made by the Adviser as follows:
(a) the Funds will pay or receive the average of the prices paid or received by the Funds;
(b) the Funds will share pro-rata the transaction costs incurred based on the dollar amount of each fund's trade.
(c) if an aggregated order is partially filled, the amount of shares that the Funds purchase or sell will be allocated pro-rata based on the dollar amount of each fund's intended trade or, if the aggregated order is subject to a minimum lot size, as closely as practicable to pro rata.
(d) the Adviser may allocate an order on a basis different from that specified above if (i) the Funds are treated fairly and equitably, (ii) neither of the Funds is given preferential treatment, and (iii) the procedures set forth in Paragraph (b) are followed.
When entering an aggregated order, the portfolio manager for the Funds
will indicate on the transaction order for each fund how the portfolio
manager intends to allocate the order between the Funds. An aggregated order
may be allocated on a basis different from that set forth in Paragraphs (a)-
(d) hereof only if the portfolio manager includes a written explanation of
such deviation in each fund's transaction order. Each such transaction order
shall be submitted to the chief compliance officer, Chairman or other
designated officer for review no later than one hour after the opening of the
applicable market on the trading day following the day the order was
executed.
In the case of securities that are not traded on a national securities exchange, purchases and sales are made through firms that regularly make a market in such securities, unless, in the Fund's opinion, another firm can obtain the best price and make the best execution of the order. Portfolio transactions placed through dealers serving as primary market makers are effected at net prices, without commissions as such, but which include compensation in the form of mark up or mark down. In certain instances, the Fund purchases underwritten issues at prices which include underwriting fees.
Brokerage commissions paid by the Fund during its fiscal years ended September 30, 2001, 2002 and 2003 were $23,000, $25,000, and $______, respectively.
During the fiscal year ended September 30, 2003, the Fund purchased securities issued by ___________________________, one of the Fund's regular brokers. The aggregate value of the securities of this issuer held at September 30, 2003, was $_________.
NET ASSET VALUE
The Net Asset Value (the "NAV") of the Fund's shares of Common Stock is calculated at the close of regular trading on the New York Stock Exchange (the "NYSE") (generally 4:00 p.m. Eastern time) every day that the NYSE is open. The Fund makes this information available daily, via its web site (http://www.ellsworthfund.com) and through electronic distribution for media publication, including major internet-based financial services web sites and portals (bloomberg.com, yahoo.com, cbsmarketwatch.com, etc.). Currently, The Wall Street Journal, The New York Times and Barron's publish NAVs for closed- end investment companies weekly.
The NAV per share of the Common Stock is calculated by dividing the value of the Fund's assets (including interest and dividends accrued but not collected), less its liabilities (including accrued expenses), by the number of outstanding shares. Each listed security will be valued at the last sale price or the mean of the reported closing bid and asked prices if there are no sales. Unlisted securities will be valued at the mean of the latest available bid and asked prices. Securities for which quotations are not readily available, restricted securities and other assets will be valued at fair value as determined in good faith by the Board of Directors. Notwithstanding the foregoing, short-term debt securities with maturities of 60 days or less are valued at amortized cost.
Shares of closed-end investment companies frequently trade at a discount from net asset value, but in some cases trade at a premium. Since the market
price of the Fund's shares will be determined by factors including trading volume of such shares, general market and economic conditions and other factors beyond the control of the Fund, the Fund cannot predict whether its shares will trade at, below or above net asset value.
FINANCIAL STATEMENTS
The audited financial statements included in the Annual Report to the Fund's Stockholders for the fiscal year ended September 30, 2002, together with the report of PricewaterhouseCoopers LLP thereon, and the unaudited financial statements included in the Semi-Annual Report to the Fund's Stockholders for the six months ended March 31, 2003 are incorporated herein by reference. It is expected that the audited financial statements included in the Annual Report to the Fund's Stockholders for the fiscal year ended September 30, 2003, together with the report of PricewaterhouseCoopers LLP thereon, will be mailed to stockholders and available on the Fund's website (http://www.ellsworthfund.com) on or around November 26, 2003.
Part C
Other Information
Item 24. Financial Statements and Exhibits
1. a. The following audited financial statements of Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund") are included in the Fund's Annual Report to Stockholders for the fiscal year ended September 30, 2002, filed with the Securities and Exchange Commission ("SEC") under Section 30(b)(1) of the Investment Company Act of 1940, as amended ("1940 Act"), and are incorporated in Part B hereof by reference:
Portfolio of Investments, September 30, 2002;
Statement of Assets and Liabilities, September 30, 2002;
Statement of Operations for the fiscal year ended
September 30, 2002;
Statement of Changes in Net Assets for the years ended
September 30, 2002 and 2001;
Financial Highlights for the five fiscal years ended
September 30, 2002;
Notes to Financial Statements;
Report of Independent Accountants.
b. The following unaudited financial statements of the Fund are included in the Fund's Semi-Annual Report to Stockholders for the six months ended March 31, 2003, filed with the SEC under Section 30(b)(1) of the 1940 Act, and are incorporated in Part B hereof by reference:
Portfolio of Investments, March 31, 2003;
Statement of Assets and Liabilities, March 31, 2003;
Statement of Operations for the six months ended March
31, 2003;
Statement of Changes in Net Assets for the six months
ended March 31, 2003; and for the year ended September
30, 2002;
Financial Highlights for the five fiscal years ended
September 30, 2002 and for the six months ended March
31, 2003;
Notes to Financial Statements.
2. Exhibits
(a) (1) Amended and Restated Articles of Incorporation dated
June 25, 1986.
(2) Articles of Amendment dated January 30, 1987.
(3) Articles of Amendment dated January 18, 1989.
(b) Third Amended and Restated Bylaws dated August 21, 2002.
(c) None
(d) (1) Form of Specimen Share Certificate for Common Stock.(1)
(2) Form of Subscription Certificate.
(3) Form of Notice of Guaranteed Delivery
(e) Automatic Dividend Investment and Cash Payment Plan.
(f) None
(g) Investment Advisory Agreement dated January 12, 2001.
(h) None
(i) None
(j) (1) Custodian Agreement with The Bank of New York dated
June 13, 1986.
(2) Amendment to Custodian Agreement dated July 26, 1999.
(3) Amendment to Custodian Agreement dated June 1, 2001.
(k) (1) Registrar, Transfer Agency and Service Agreement with
American Stock Transfer & Trust Company dated
January 4, 2002.
(2) Form of Subscription Agent Agreement.(1)
(3) Form of Information Agent Agreement.(1)
(l) Opinion and Consent of Ballard Spahr Andrews & Ingersoll,
LLP(1)
(m) None
(n) Consent of PricewaterhouseCoopers, LLP
(o) None
(p) None
(q) None
(r) (1) Code of Ethics of the Fund.
(2) Code of Ethics of Davis-Dinsmore Management Company.
Item 25. Marketing Arrangements
Not applicable.
Item 26. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this Registration Statement:
Estimated
Category Expenses
-------- ----------
Registration fees....................................... $ 1,141
American Stock Exchange listing fees....................
Printing expenses....................................... 5,000
Subscription Agent fees and expenses.................... 25,000
Information Agent fees and expenses..................... 8,000
Accounting fees and expenses............................ 8,000
Legal fees and expenses................................. 50,000
Miscellaneous...........................................
---------
Total................................................... $
=========
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Item 27. Person Controlled by or Under Common Control with Fund
None.
Item 28. Number of Holders of Securities
The following information is given as of October __, 2003:
Number of
Title of Class Record Holders
--------------- ---------------
Common Stock, $0.01 par value.............................. *
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Item 29. Indemnification
Reference is made to Section 2-418 of the Maryland General Corporation Law, and Articles VI, and XI of the Fund's Amended and Restated Articles of Incorporation, as amended, each of which provide for indemnification.
The Fund's Amended and Restated Articles of Incorporation, as amended (the "Charter"), provide that each director and each officer of the Fund shall be indemnified by the Fund to the full extent permitted by the General Laws of the State of Maryland and the 1940 Act, now or hereafter in force, including advance of related expenses.
The Charter also provides that, to the fullest extent that limitations on the liability of directors and officers is permitted by the Maryland General Corporation Law, no director or officer of the Fund will be liable to the Fund or its shareholders for damages. The foregoing shall not be construed to protect or purport to protect any director or officer of the Fund against any liability to the Fund or its stockholders to which such director or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such office. The Fund will indemnify and advance expenses to its currently acting and former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Fund will indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may, by by-law, resolution or agreement make further provision for indemnification of directors, officers, employees and agents of the Fund to the fullest extent permitted by the Maryland General Corporation Law.
Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers and controlling persons of the Fund pursuant to the foregoing provisions or otherwise, the Fund has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Fund of expenses incurred or paid by a director, officer or controlling person of the Fund in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Fund will, unless in the opinion of its counsel the matter has been settled by controlling precedent or such claim is to be paid under insurance policies, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Fund has obtained for its directors and officers errors and omissions insurance in the amount of $2,000,000 with a deductible amount of $100,000. The effect of such insurance is to insure against liability for any act, error, omission, misstatement, misleading statement, neglect or certain breaches of duty by the insureds as directors and/or officers of the Fund.
Item 30. Business and other Connections of Investment Adviser
The Adviser is also the investment adviser to Bancroft Convertible
Fund, Inc., a closed-end, management investment company. During the past
two fiscal years, neither the Adviser nor any of its directors or officers
engaged in any other business, profession, vocation or employment of a
substantial nature.
Item 31. Location of Accounts and Records
Records are located at:
1. Ellsworth Convertible Growth and Income Fund, Inc.
65 Madison Avenue, Suite 550
Morristown, NJ 07960
(Corporate records and records relating to the function of Davis-Dinsmore Management Company as investment adviser)
2. The Bank of New York 100 Church Street 10th Floor New York, NY 10286 Attention: Ellsworth Convertible Growth and Income Fund, Inc.
(Records relating to its functions as Custodian for the Fund)
3. American Stock Transfer & Trust Company 59 Maiden Lane New York, NY 10038 Attention: Ellsworth Convertible Growth and Income Fund, Inc.
(Records relating to its functions as Registrar and Transfer Agent and Dividend Paying Agent for the Fund)
Item 32. Management Services
Not applicable.
Item 33. UNDERTAKINGS
(1) The Fund undertakes to suspend the offering of its shares until it amends its prospectus if (a) subsequent to the effective date of its Registration Statement, the net asset value of its shares declines more than 10% from its net asset value as of the effective date of the Registration Statement or (b) the net asset value of its shares increase to an amount greater than its net proceeds as stated in the prospectus.
(2) Not applicable.
(3) Not applicable.
(4) Not applicable.
(5) The Fund hereby undertakes that:
a. for the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance on Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act of 1933 shall be deemed to be part of the Registration Statement as of the time it was declared effective.
b. for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) The Fund undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Fund has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Morristown and State of New Jersey on the 2nd day of September, 2003.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(Fund)
By: /s/ Thomas H. Dinsmore
-------------------------------------------
Thomas H. Dinsmore, Chief Executive Officer
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Each person whose signature appears below hereby authorizes Jane D. O'Keeffe, Thomas H. Dinsmore and Gary I. Levine, or any of them, as attorney- in-fact, to sign on his behalf, individually and in each capacity stated below, any amendments to this Registration Statement (including post- effective amendments) and to file the same, with all exhibits thereto, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Thomas H. Dinsmore Chairman, Chief Executive September 2, 2003 -------------------------- Officer, and Director Thomas H. Dinsmore (Principal Executive Officer) /s/ Jane D. O'Keeffe President and Director September 2, 2003 -------------------------- Jane D. O'Keeffe /s/ Gordon F. Ahalt Director September 2, 2003 -------------------------- Gordon F. Ahalt /s/ William A. Benton Director September 2, 2003 -------------------------- William A. Benton /s/ Elizabeth C. Bogan Director September 2, 2003 -------------------------- Elizabeth C. Bogan /s/ Donald M. Halsted, Jr. Director September 2, 2003 -------------------------- Donald M. Halsted, Jr. /s/ George R. Lieberman Director September 2, 2003 -------------------------- George R. Lieberman /s/ Duncan O. McKee Director September 2, 2003 -------------------------- Duncan O. McKee /s/ Nicolas W. Platt Director September 2, 2003 -------------------------- Nicolas W. Platt /s/ Gary I. Levine Vice President and Treasurer September 2, 2003 -------------------------- (Principal Financial Officer) Gary I. Levine |
Exhibit Index
Exhibit Number Document
(a)(1) Amended and Restated Articles of Incorporation dated
June 25, 1986.
(2) Articles of Amendment dated January 30, 1987.
(3) Articles of Amendment dated January 18, 1989.
(b) Third Amended and Restated Bylaws dated August 21, 2002.
(d)(2) Form of Subscription Certificate
(3) Form of Notice of Guaranteed Delivery
(e) Automatic Dividend Investment and Cash Purchase Plan.
(g) Investment Advisory Agreement dated January 12, 2001.
(i) Directors' Retirement Policy adopted February 10, 2003
(j)(1) Custodian Agreement with The Bank of New York dated June
13, 1986.
(2) Amendment to Custodian Agreement dated July 26, 1999.
(3) Amendment to Custodian Agreement dated June 1, 2001.
(k)(1) Registrar, Transfer Agency and Service Agreement with
American Stock Transfer & Trust Company dated January 4,
2002.
(n) Consent of PricewaterhouseCoopers, LLP.
(r)(1) Code of Ethics of the Fund.
(2) Code of Ethics of Davis-Dinsmore Management Company.
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Exhibit (a)(1)
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
Ellsworth Convertible Growth and Income Fund, Inc., a Maryland corporation (the "Corporation"), having its principal office at 32 South Street, Baltimore, Maryland 21202 and having The Corporation Trust Incorporated, a Maryland corporation, as its resident agent located at 32 South Street, Baltimore, Maryland 21202, in the manner prescribed by Section 2-609 of the Maryland General Corporation Law, hereby certifies to the State of Maryland Department of Assessments and Taxation, that:
FIRST: The Charter of the Corporation is hereby amended by:
(a) striking out Article I of the articles of incorporation and by redesignating Article II through Article IX as Article I through Article VIII, inclusive.
(b) striking out Article VI, Section 1 of the redesignated
articles of incorporation and inserting in lieu thereof the
following:
(1) The number of directors of the Corporation shall be seven (7),
which number may be increased or decreased pursuant to the By-Laws
of the Corporation but shall never be less than three (3)except for
any period during which shares of the Corporation are held by less
than three stockholders and in such instance such number shall not
be less than the number of stockholders. The name of the directors
who shall not until the first annual meeting or their successors
are duly chosen and qualify are:
Ronald E. Dinsmore
Thomas E. Dinsmore
Gordon F. Ahalt
William A. Benton
Elizabeth Bogan
Donald M. Halsted, Jr.
Duncan O. McKee
(c) adding to the articles of incorporation a new Article IX which shall be as follows:
ARTICLE IX
Commencing with the fiscal year of the Corporation which begins on October 1, 1991, and is each fiscal year thereafter, if (i) the Corporation has not adopted for said fiscal year the amendment described in this Article, and (ii) shares of the Corporation's
common stock have traded on the principal securities exchange where listed at an average discount from net asset value of more than 5%, determined on the basis of the discount as of the end of the last trading day in each week during the period of 12 calendar weeks next preceding November 15 in each year, the Corporation will submit to its stockholders at the next succeeding annual meeting of stockholders a proposal, to the extent consistent with the Investment Company Act of 1940, to amend the Charter of the Corporation to provide that, upon the adoption of such amendment by the holders of two-thirds of the Corporation's outstanding shares of common stock, each share of the Corporation's common stock may be presented to the Corporation as of the last trading day of each fiscal quarter, upon written notice delivered to the Corporation's transfer agent not less than 30 days prior thereto, for payment to the holder at net asset value per share at the close of business on the date of presentment.
(d) striking out Article X, Section 5 of the articles of incorporation and inserting in lieu thereof the following:
(1) The affirmative vote or consent of the holders of two-thirds of the outstanding shares of the Corporation is required to authorize any of the following actions:
(A) merger or consolidation of the Corporation with an open-end investment company;
(B) dissolution of the Corporation;
(C) sale of all or substantially all of the assets of the Corporation;
(D) provision for any future presentment of shares by stockholders, as set forth in Article IX of this Charter; or
(E) amendment to the Charter of the Corporation which makes the Common Stock a redeemable security (as such term is defined in the Investment Company Act of 1940) or which reduces the two-thirds vote required to authorize the actions in (A) through (D) above.
The Charter of the Corporation is hereby restated to read as follows:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ARTICLE I
The name of the Corporation is:
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ARTICLE II
The purposes for which the Corporation is formed are to act as a closed-end management investment company under the Investment Company Act of 1940 and to engage in any or all lawful business for which corporations may be organized under the Maryland General Corporation Law.
ARTICLE III
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in securities and other investments including assets in cash.
(2) The issue and sell shares of its capital stock in such amounts and on such terms and conditions and for such purposes and for such amount or kind of consideration as may now or hereafter be permitted by law.
(3) To purchase or otherwise acquire, hold, dispose of, resell, transfer, reissue or cancel (all without the vote or consent of the stockholders of the Corporation) shares of its capital stock, in any manner and to the extent now or hereafter permitted by law and by the Charter of the Corporation.
(4) To enter into a written contract or contracts with any person or persons providing for a delegation of the management of all or part of this Corporation's securities portfolio and also for the delegation of the performance of various administrative or corporate functions, subject to the direction of the Board of Directors. Any such contract or contracts may be made with any person even though such person may be an officer, other employee, director or stockholder of this Corporation or a corporation, partnership, trust or association in which any such officer, other employee, director or stockholder may be interested.
(5) To enter into a written contract or contracts employing such custodian or custodians for the safekeeping of the property of the Corporation and of its shares, such dividend disbursing agent
or agents and such transfer agent or agents for its shares, on such terms and conditions as the Board of Directors of this Corporation may deem reasonable and proper for the conduct of the affairs of the Corporation, and to pay the fees and disbursements of such custodians, dividend disbursing agents and transfer agents out of this income and/or any other property of the Corporation. Notwithstanding any other provisions of the Charter or the By-Laws of the Corporation, the Board of Directors may cause any or all of the property of the Corporation to be transferred to, or to be acquired and held in the name of, a custodian so appointed or any nominee or nominees of such custodian satisfactory to the Board of Directors.
(6) To do any and all such further acts or things and to exercise any and all such further powers or rights as may be necessary, incidental, relative, conducive, appropriate or desirable for the accomplishment, carrying out or attainment of the purposes stated in Article III hereof. The corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to, or conferred upon, corporation by the General Laws of the State of Maryland now or hereafter in force, and the enumeration of the foregoing shall not be deemed to exclude any powers, rights or privileges so granted or conferred.
ARTICLE IV
The post office address of the principal office of the Corporation in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland 21202. The name of the resident agent of the Corporation in this State is The Corporation Trust Incorporated, a corporation of this State, and the post office address of the resident agent is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
(1) The total number of shares of capital stock which the corporation shall have the authority to issue is Twenty Million (20,000,000) shares, of the par value of One Cent ($0.01) per share and of the aggregate par value of Two Hundred Thousand Dollars ($200,000), all of which shares are designated common stock.
(2) Any fractional share will carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends.
(3) All persons who shall acquire stock in the Corporation shall acquire the same subject to the provisions of the Charter and the By-Laws of the Corporation.
ARTICLE VI
(1) The number of directors of the Corporation shall be seven(7), which number may be increased or decreased pursuant to the By- Laws of the Corporation but shall never be less than three (3) except for any period during which shares of the Corporation are held by less than three stockholders and in such instance such number shall not be less than the number of stockholders. The name of the directors who shall act until the first annual meeting or until their successors are duly chosen and qualify are:
Ronald E. Dinsmore
Thomas H. Dinsmore
Gordon F. Ahalt
William A. Benton
Elizabeth Bogan
Donald M. Halshed, Jr.
Duncan O. McKee
(2) No holder of stock of the Corporation shall, as such holder, have any preemptive right to purchase or subscribe for any shares of the capital stock of the Corporation or any other security of the Corporation which it may issue or sell (whether out of the number of shares authorized by the Charter, or out of any shares of the capital stock of the Corporation acquired by it after the issue thereof, or otherwise) other than such right, if any, as the Board of Directors, in its discretion, may determine.
(3) Each director and each officer of the Corporation shall be
indemnified by the Corporation to the full extent permitted by
the General Laws of the State of Maryland and the Investment
Company Act of 1940, now or hereafter in force, including advance
of related expenses.
ARTICLE VII
Any determination made in good faith, so far as accounting matters are involved, in accordance with accepted accounting practices by or pursuant to the direction of the Board of Directors, as to the amount of assets, obligations or liabilities of the Corporation, as to the amount of net income of the Corporation from dividends and interest for any period or amounts at any time legally available for the payment of dividends, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating reserves or as to the use, alteration or cancellation of any reserves or charges (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged) as to the value of any security owned by the Corporation or as to any other matters relating to the issuance, sale or other acquisition or disposition of securities or shares of capital stock of the Corporation, and any reasonable determination made in good faith by the Board of Directors as to whether any transaction constitutes a purchase of securities on "margin," a sale of securities "short," or any underwriting of the sale of, or a participation in any underwriting or selling group in connection with the public distribution of, any securities, shall be final and conclusion, and shall be binding upon the Corporation and all holders of its capital stock, past, present and future, and shares of the capital stock of the Corporation evidenced by the purchase of shares of capital stock or acceptance of share certificates, that any and al such determination shall be binding as aforesaid. No provision of the Charter of the Corporation shall be effective to (i) require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder or (ii) protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
ARTICLE VIII
The duration of this Corporation shall be perpetual.
ARTICLE IX
Commencing with the fiscal year of the Corporation which begins on October 1, 1991, and in each fiscal year thereafter, if (i) the Corporation has not adopted for said fiscal year the amendment described in this Article, and (ii) shares of the Corporation's common stock have traded on the principal securities exchange where listed at an average discount from net asset value of more than 5%, determined on the basis of the discount as of the end of the last trading day in each week during the period of 12 calendar weeks next preceding November 15 in each year, the Corporation will submit to its stockholders at the next succeeding annual meeting of stockholders a proposal, to the extent consistent with the Investment Company Act of 1940, to amend the Charter of the Corporation to provide that, upon the adoption of such amendment by the holders of two-thirds of the Corporation's outstanding shares of common stock, each share of the Corporation's common stock may be presented to the Corporation as of the last trading day of each fiscal quarter, upon written notice delivered to the Corporation's transfer agent not less than 30 days prior thereto, for payment to the holder at net asset value per share at the close of business on the date of presentment.
ARTICLE X
(1) The Corporation reserves the right from time to time to make any amendments to its Charter which may now or hereafter be authorized by law, including any amendment which alters the contract rights, as expressly set forth in its Charter, of any outstanding stock.
(2) Notwithstanding any provision of the General laws of the State of Maryland requiring any action to be taken or authorized by the affirmative vote of a greater proportion than the majority of the total number of shares of the holders of a majority or other designated proportion of the votes of all classes or of any class of stock of the Corporation, such action shall be effective and valid if taken or authorized by the affirmative vote of the holders of a majority of the total number of shares outstanding and entitled to vote thereon, except as otherwise provided in the Charter of the Corporation.
(3) So long as permitted by Maryland law, the books of the Corporation may be kept outside of the State of Maryland at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation.
(4) In furtherance, and not in limitation, of the powers conferred by the laws of the State of Maryland, the Board of Directors is expressly authorized;
(A) To make, alter or repeal the By-laws of the Corporation, except where such power is reserved by the By-Laws to the stockholders, and except as otherwise required by the Investment Company Act of 1940, as amended.
(B) From time to time to determine whether and to what extent and at what times and places and under what conditions and regulations the books and accounts of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by law or authorized by resolution of the Board of Directors.
(C) Without the assent or vote of the stockholders, to authorize and issue obligations of the Corporation, secured and unsecured, as the Board of Directors may determine, and to authorize and cause to be executed mortgages and liens upon the property of the Corporation, real and personal.
(D) In addition to the powers and authorities granted herein and by statute expressly conferred upon it, the Board of Directors is authorized to execute all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of Maryland law, the Charter and the By-Laws of the Corporation.
(5) The affirmative vote or consent of the holders of two-thirds of the outstanding shares of the Corporation is required to authorize any of the following actions:
(A) merger or consolidation of the Corporation with an open-end investment company;
(B) dissolution of the Corporation;
(C) sale of all or substantially all of the assets of the Corporation;
(D) provision for any future presentment of shares by stockholders, as set forth in Article IX of this Charter; or
(E) amendment to the Charter of the Corporation which makes the Common Stock a redeemable security (as such term is defined in the Investment Company Act of 1940) or which reduces the two- thirds vote required to authorize the actions in (A) through (D) above.
IN WITNESS WHEREOF, Ellsworth Convertible Growth and Income Fund, Inc. has caused these Amended and Restated Articles of Incorporation to be signed in its name and on its behalf by its duly authorized officers who acknowledge that these Articles are the act of the Corporation, and further acknowledge that, to the best of their knowledge the matters and facts set forth therein are true in all material respects under the penalties of perjury.
Dated the 24th day of June, 1986.
Attest:
SECOND: The number of directors of the corporation is seven (7). The names of the directors are:
Ronald E. Dinsmore
Thomas H. Dinsmore
Gordon F. Ahalt
William A. Benton
Elizabeth Bogan
Donald M. Halshed, Jr.
Duncan O. McKee
The Board of Directors of the Corporation, at a meeting duly convened and held by telephone on June 18, 1986, adopted resolutions in which were set forth the foregoing amendments to the Charter, declaring that said amendments and restatement of the Charter was advisable and directing that it be submitted for action thereon by the stockholders.
THIRD: The amendments and restatements of the Charter of the Corporation as hereinbefore set forth were approved by a consent in writing setting forth said amendments and restatement of the Charter, signed by all the stockholders entitled to vote on said amendment, such consent having been filed with the records of stockholders' meetings.
IN WITNESS WHEREOF, Ellsworth Convertible Growth and Income Fund, Inc. has caused these presents to be signed in its name and on its behalf by its President and attested by its Secretary, on June 24, 1986.
ELLSWORTH CONVERTIBLE GROWTH
AND INCOME FUND, INC.
By: /s/ Thomas H. Dinsmore
Thomas H. Dinsmore
President
Attest:
/s/ Sigmund Levine
Sigmund Levine
Secretary
|
Exhibit (a)(2)
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ARTICLES OF AMENDMENT
Ellsworth Convertible Growth and Income Fund, Inc., a Maryland corporation having its principal office at c/o The Corporation Trust Incorporated, 32 South Street, City of Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended as follows:
(a) Paragraph (1) of Article VI of the Amended and Restated Articles of Incorporation is amended and restated to read in full as follows:
(1) The number of directors of the Corporation shall be seven (7), which number may be increased or decreased pursuant to the By-Laws of the Corporation but shall never be less than three (3) except for any period during which shares of the Corporation are held by less than three stockholders and in such instance such number shall not be less than the number of stockholders. The directors shall be classified, with respect to the time for which the severally hold office, into three classes, as nearly equal in number as reasonably possible, with the directors in each class to hold office until their successors are elected and qualified. Each member of the Board of Directors in the first class of directors shall hold office until the Annual Meeting of Stockholders in 1988, each member of the Board of Directors in the second class of directors shall hold office until the Annual Meeting of Stockholders in 1989, and each member of the Board of Directors in the third class of directors shall hold office until the Annual Meeting of Stockholders in 1990. At each Annual Meeting of the Stockholders of the Corporation, the successors to the class of directors whose terms expire at that meeting shall be elected to hold office for terms expiring at the later of the annual meeting of stockholders held in the third year following the year of their election or the election and qualification of the successors to such class of directors.
(b) Paragraphs (4) and (5) are added to Article VI of the Amended and
Restated Articles of Incorporation of the Corporation, which Paragraphs (4) and
(5) read in full as follows:
(4) Any one or more directors may be removed only for cause by the stockholders as provided herein. At any annual meeting of stockholders of the Corporation or at any special meeting of
stockholders of the Corporation, the notice of which shall state that the removal of a director or directors is among the purposes of the meeting, the holders of the outstanding shares of the Corporation
entitled to vote thereon, present in person or by proxy, by the affirmative vote of at least two-thirds of the outstanding shares of the Corporation entitled to vote, may remove such director or directors for cause.
(5) The affirmative vote or consent of the holders of two-thirds of the outstanding shares of the Corporation is required to amend paragraph (1),(4) and this paragraph (5) of Article VI of the Charter of the Corporation.
(c) Paragraph (5) of Article X of the Amended and Restated Articles of Incorporation of the Corporation is amended by amending and restating Subparagraph (E) and redesignating Subparagraph (E) as Subparagraph (G), by deleting the word "or" at the end of Subparagraph (D), and by adding new Subparagraphs (E) and (F) to Paragraph (5), which Subparagraphs (E), (F)and(G) read in full as follows:
(E) change in the classification of the Corporation from a diversified to a non-diversified management investment company as defined under the Investment Company Act of 1940;
(F) change in the nature of the business of the Corporation so that it would cease to be an investment company registered under the Investment Company Act of 1940; or
(G) amendment to the Charter of the Corporation which makes the Common Stock a redeemable security (as such term is defined in the Investment Company Act of 1940) or which reduces the two-thirds vote required to authorize the actions in (A) through (F) above or this subparagraph (G).
SECOND: The board of directors of the Corporation by unanimous written consent pursuant to Section 2-408 of the Corporation and Associations Article of the Annotated Code of Maryland, on December 2, 1986, duly adopted a resolution in which was set forth the foregoing amendments to the charter, declaring that the said amendments of the charter as proposed were advisable and directing that they be submitted for action thereon by the stock-holders of the Corporation at the annual meeting of stockholders to be held on January 23, 1987.
THIRD: Notice setting forth the said amendments to the charter and stating that a purpose of the meeting of the stockholders would be to take action thereon, was given, as required by law, to all stockholders entitled to vote thereon. The amendments to the charter of the Corporation as hereinabove set forth were approved by the stockholders of the Corporation at said meeting by the affirmative vote of a majority of all the votes entitled to be cast thereon.
FOURTH: The amendments to the charter of the Corporation as hereinabove set forth have been duly advised by the board of directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, Ellsworth Convertible Growth and Income Fund, Inc. has caused these presents to be signed in its name and on its behalf by its President and attested by its Secretary on January 30, 1987.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
By: /s/ Thomas H. Dinsmore
President
Thomas H. Dinsmore
|
[SEAL]
Attest: /s/ Sigmund Levine
Secretary
Sigmund Levine
|
THE UNDERSIGNED, President of Ellsworth Convertible Growth and Income Fund, Inc., who executed on behalf of said corporation the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Amendment to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
/s/ Thomas H. Dinsmore Thomas H. Dinsmore |
Exhibit (a)(3)
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
ARTICLES OF AMENDMENT
Ellsworth Convertible Growth and Income Fund, Inc., a Maryland corporation having its principal office at c/o The Corporation trust Incorporated, 32 South Street, City of Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended as follows:
(a) Paragraph (3) of Article VI of the Amended and Restated Articles of Incorporation of the Corporation (the "Amended Articles") is deleted.
(b) The last sentence of Article VII of the Amended Articles is amended and restated so that it reads in full as follows:
No provision of the charter of the Corporation shall be effected to require a waiver of compliance with any provision of the Securities Act of 1933, as amended, or the Investment Company Act of 1940, as amended, or of any valid rule, regulation or order of the Securities and Exchange Commission thereunder.
(c) The Amended Articles hereby are amended further by adding a new Article XI, which shall read in full as follows:
ARTICLE XI
Section 1. To the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of the Corporation shall have any liability to the Corporation or its shareholders for damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Corporation whether or not such person is a director or officer at the time of any proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Corporation shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with law. The Board of Directors may by By-law, resolution or agreement make further provision for indemnification of directors, officers, employees and agents to the fullest extent permitted by the Maryland General Corporation Law.
Section 3. No provision of this Article shall be effective to protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this Article are to the law as from time to time amended. No further amendment of the Articles of Incorporation of the Corporation shall decrease, but may expand, any right of any person under this Article based on any event, omission or proceeding prior to such amendment.
SECOND: The Board of Directors of the Corporation on October 21, 1988, unanimously adopted a resolution which set forth the foregoing amendments to the charter, declaring that the said amendments of the charter as proposed were advisable and directing that they be submitted for action thereon by the shareholders of the Corporation at the annual meeting of shareholders to be held on January 13, 1989.
THIRD: Notice setting forth the said amendments to the charter and stating that a purpose of the meeting of the shareholders would be to take action thereon, was given, as required by law, to all shareholders entitled to vote thereon. The amendments to the charter of the Corporation as hereinabove set forth were approved by the shareholders of the Corporation at said meeting by the affirmative vote of a majority of the shares outstanding and entitled to vote thereon.
FOURTH: The amendments to the charter of the Corporation as hereinabove set forth have been duly advised by the Board of Directors and approved by the shareholders of the Corporation.
IN WITNESS WHEREOF, Ellsworth Convertible Growth and Income Fund, Inc. has caused these presents to be signed in its name and on its behalf by its President and attested by its Secretary on January 18, 1989.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
By:/s/ Thomas H. Dinsmore
President
Thomas H. Dinsmore
[SEAL]
Attest:/s/ Sigmund Levine
Secretary
Sigmund Levine
|
THE UNDERSIGNED, President of Ellsworth Convertible Growth and Income Fund, Inc., who executed on behalf of said corporation the foregoing Articles of Amendment, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Amendment to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth therein with respect to the approval thereof are true in all material respects, under the penalties of perjury.
/s/ Thomas H. Dinsmore Thomas H. Dinsmore |
Exhibit (b)
THIRD AMENDED AND RESTATED BYLAWS
OF
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(Adopted Effective August 21, 2002)
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Maryland as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. Annual meetings of stockholders shall be held on such day during the month of January and at such time as shall be designated by the Board of Directors and stated in the notice of the meeting, at which stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting.
Section 2. Special Meetings. Special meetings of the stockholders, unless otherwise provided by law or by the Corporation's Charter, may be called for any purpose or purposes by a majority of the Board of Directors or the President, and shall be called by the President or Secretary on the written request of the stockholders entitled to cast at least 50% of the votes entitled to be cast at the special meeting. Such request shall state the purpose or purposes of the proposed meeting and the matters proposed to be acted on at it. The Secretary shall inform such stockholders of the reasonably estimated cost of preparing and making notice of the meeting and, upon payment to the Corporation by such stockholders of such costs, the Secretary shall give notice to each stockholder entitled to notice of the meeting.
Section 3. Place of Meetings. The annual meeting and any special meeting of the stockholders shall be held at such place in or out of the State of Maryland as the Board of Directors may from time to time determine and set forth in the notice of the meeting.
Section 4. Notice of Meetings, Waiver of Notice, Stockholder List. Notice of the place, date and time of the holding of each annual and special meeting of
the stockholders and, if the meeting is a special meeting or notice of the meeting is required by statute, the purpose or purposes shall be given personally, by telex, by mail or by electronic mail or any other electronic means, not less than ten (10) nor more than ninety (90) days before the date of such meeting, to each stockholder entitled to notice of the meeting. Notice by mail shall be deemed to be duly given when deposited in the United States mail addressed to the stockholder at his or her address as it appears on the records of the Corporation, with postage thereon prepaid. Notice by electronic mail shall be deemed to be duly given when sent to any electronic mail address of the stockholder. The notice of every meeting of stockholders may be accompanied by a form of proxy approved by the Board of Directors in favor of such actions or persons as the Board of Directors may select.
Notice of any meeting of stockholders shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy or who shall, either before or after the meeting, submit a signed waiver of notice which is filed with the records of the meeting. A meeting of stockholders convened on the date for which it was called may be adjourned from time to time without further notice to a date not more than 120 days after the original record date.
At least five (5) days prior to each meeting of stockholders, the officer or agent having charge of the share transfer books of the Corporation shall make a complete list of stockholders entitled to vote at such meeting, in alphabetical order with the address of and the number of shares held by each stockholder.
Section 5. Quorum. At any meeting of stockholders the presence in person or by proxy of stockholders entitled to cast a majority of the votes thereat shall constitute a quorum, but this section shall not affect any requirement under the statute or under the Charter of the Corporation for the vote necessary for the adoption of any measure. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. When a quorum is once present to organize a meeting, it is not broken by the subsequent withdrawal of any stockholders.
Section 6. Voting. Except as otherwise provided by statute or the Charter
of the Corporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every share of such stock standing in his or her name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 4 of Article VI of these Bylaws or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth day before the
meeting. All voting rights for the election of Directors are non-cumulative.
Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him or her by a proxy signed by such stockholder or his or her duly authorized attorney-in-fact. Signing may be accomplished by the stockholder or the stockholder's authorized attorney-in-fact
signing the proxy or causing the stockholder's signature to be affixed to the proxy by any reasonable means, including facsimile signature. A stockholder also may duly authorize another person to act as proxy by transmitting, or authorizing the transmission of, a telegram, cablegram, datagram, electronic mail or any other electronic or telephonic means to the person authorized to act as proxy or to a proxy solicitation firm, proxy support service organization or other person authorized by the person who will act as proxy to receive the transmission. No proxy shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the person executing it, except in those cases where such proxy is permitted by law to be irrevocable and where an irrevocable proxy is coupled with an interest. Except as otherwise provided by statute, the Charter of the Corporation or these Bylaws, any corporate action to be taken by vote of the stockholders, except with respect to the election of Directors, shall be authorized by a majority of the total votes cast at a meeting of stockholders at which a quorum is present by the holders of shares present in person or represented by proxy and entitled to vote on such action. Action to be taken by vote of the stockholders with respect to the election of Directors shall be authorized by a plurality.
If a vote shall be taken on any question other than the election of Directors, which shall be by written ballot, then unless required by statute or these Bylaws, or determined by the chairman of the meeting to be advisable, any such vote need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his or her proxy, if there be such proxy, and shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairman of the meeting may, and on the request of any stockholder entitled to vote at the meeting shall, appoint inspectors. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector at such meeting with strict impartiality and according to the best of his or her ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairman of the meeting or any stockholder entitled to vote at it, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate or any fact found by them. The report of the inspector on the number of votes represented at the meeting and the result of the voting shall be prima facie evidence thereof. No Director or candidate for the office of Director shall act as inspector of an election of Directors. Inspectors need not be stockholders.
Section 8. Nominations and Proposals by Stockholders.
(a) Annual Meetings of Stockholders. (1) Nominations of persons for election
to the Board of Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Corporation who was a stockholder
of record both at the time of giving of notice provided for in this Section 8(a) and at the time of the annual meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 8(a).
(2) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this
Section 8, the stockholder must have given timely notice thereof in writing to
the secretary of the Corporation and such other business must otherwise be a
proper matter for action by stockholders. To be timely, a stockholder's notice
shall be delivered to the secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 30 days or delayed by
more than 60 days from such anniversary date or if the Corporation has not
previously held an annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the 120th day prior to
such annual meeting and not later than the close of business on the later of the
90th day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of a postponement or
adjournment of an annual meeting to a later date or time commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (y) the number of shares of each class of stock of
the Corporation which are owned beneficially and of record by such stockholder
and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this
Section 8 to the contrary, in the event that the number of directors to be
elected to the Board of Directors is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 100 days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section 8(a) shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth day following the
day on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by any stockholder of the Corporation who is a stockholder of record both at the time of giving of notice provided for in this Section 8(b) and at the time of the special meeting, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 8(b). In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position as specified in the Corporation's notice of meeting, if the stockholder's notice containing the information required by paragraph (a)(2) of this Section 8 shall be delivered to the secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of a postponement or adjournment of a special meeting to a later date or time commence a new time period for the giving of a stockholder's notice as described above.
(c) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 8 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 8. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 8 and, if any proposed nomination or business is not in compliance with this Section 8, to declare that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 8, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 8, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 8. Nothing in this Section 8 shall be deemed to affect any rights of stockholders to request inclusion of proposals in, nor any rights of the Corporation to omit a proposal from, the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 9. Consent of Stockholders in Lieu of Meeting. Except as otherwise provided by statute or the Charter of the Corporation, any action required or permitted to be taken at any meeting of stockholders may be taken without a
meeting, if the following are filed with the records of stockholders' meetings:
(i) a unanimous written consent which sets forth such action, and is signed by
each stockholder entitled to vote on the matter and (ii) a written waiver of any
right to dissent is signed by each stockholder entitled to notice of the meeting
but not entitled to vote at it.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. Except as otherwise provided in the Charter of the Corporation, the business and affairs of the Corporation shall be managed under the direction of the Board of Directors. All powers of the Corporation may be exercised by or under authority of the Board of Directors except as conferred on or reserved to the stockholders by law or by the Charter of the Corporation or these Bylaws.
Section 2. Number of Directors. The number of Directors shall be fixed from time to time by resolution of the Board of Directors adopted by a majority of the Directors then in office; provided, however, that the number of Directors shall in no event be less than three (except for any period during which shares of the Corporation are held by fewer than three stockholders). Any vacancy created by an increase in Directors may be filled in accordance with Section 8 of this Article III. No reduction in the number of Directors shall have the effect of removing any Director from office prior to the expiration of his or her term unless such Director is specifically removed pursuant to Section 7 of this Article III at the time of such decrease. Until the first annual meeting of stockholders or until successors are duly elected and qualify, the Board shall consist of the persons named as such in the Charter of the Corporation. Unless the Board of Directors adopts a policy that provides otherwise, Directors need not be stockholders.
Section 3. First Meeting of Directors. The first meeting of each newly elected Board of Directors shall be held immediately following and at the same place as the annual meeting of stockholders and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at the said time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the Directors.
Section 4. Election and Term of Directors. At the first annual meeting of
stockholders and at each annual meeting thereafter, the stockholders shall elect
Directors to hold office. For purposes of this Article III, a potential
Director will not be deemed to be qualified to serve as a Director unless, after
giving effect to his or her election to the Board of Directors, at least two-
thirds of the Board of Directors would be Independent Directors, as defined in
Section 5 below. The Directors shall be classified, with respect to the time
for which they severally hold office, into three classes, with the Directors in
each class to hold office until their successors are elected and qualified, or
until their death, or until they shall have resigned, or have been removed as
hereinafter provided in these Bylaws, or as otherwise provided by statute or the
Charter of the Corporation. At each annual meeting of the stockholders of the
Corporation, the successors to the class of Directors whose terms expire at that
meeting shall be elected to hold office for terms expiring at the later of the
annual meeting of stockholders held in the third year following the year of
their election or the election and qualification of the successors to such class of Directors. Directors elected at an annual meeting of stockholders to fill a vacancy in a class of Directors whose terms do not expire at such annual meeting shall be elected to hold office for terms expiring at the later of the annual meeting of stockholders as of which the terms of such class expire or the election and qualification of the successors to such class of Directors.
Section 5. Independent Directors. For purposes of these Bylaws, a Director shall be deemed to be an "Independent Director" if he or she: (i) is not an "interested person" of the Corporation within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder and (ii) is not a former officer or director of the Corporation's investment adviser or its subsidiary.
Section 6. Resignation. A Director of the Corporation may resign at any time by giving written notice of his or her resignation to the Board or the Chairman of the Board or the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 7. Removal of Directors. A Director of the Corporation may be removed, only as provided in the Charter of the Corporation or, if the Charter of the Corporation does not so provide, then only as provided by the Maryland General Corporation Law.
Section 8. Vacancies. The stockholders may elect a successor to fill a vacancy on the Board of Directors which results from a removal of a Director pursuant to Section 7 of Article III of these Bylaws. A majority of the remaining Directors, whether or not sufficient to constitute a quorum, may fill a vacancy which results from any cause except an increase in the number of Directors, and a majority of the entire Board of Directors may fill a vacancy which results from an increase in the number of Directors; provided, that: (i) the Independent Director requirements specified in Section 4 above are satisfied, and (ii) after the filling of said vacancy or vacancies, at least two-thirds of the Directors then holding office shall have been elected by the stockholders of the Corporation. In the event that at any time there is a vacancy in any office of a Director which vacancy may not be filled by the remaining Directors, a special meeting of the stockholders shall be held as promptly as possible and in any event within sixty days, for the purpose of filling said vacancy or vacancies. Further, if at any time fewer than two- thirds of the Directors are Independent Directors, the Board of Directors shall, at the next regularly scheduled meeting or any special meeting, consider electing additional Independent Directors to the Board. A Director elected by the Board of Directors to fill a vacancy serves until the next annual meeting of stockholders and until his or her successor is elected and qualifies. A Director elected by the stockholders to fill a vacancy which results from the removal of a Director serves for the balance of the term of the removed Director.
Section 9. Regular Meetings. Regular meetings of the Board may be held without notice at such times and places in or out of the State of Maryland as shall from time to time be determined by the Board of Directors.
Section 10. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board, the President, or by a majority of the Directors either in writing or by vote at a meeting, and may be held at any place in or out of the State of Maryland as the Board may from time to time determine.
Section 11. Notice of Special Meetings. Notice of each special meeting of the Board shall be given by the Secretary as hereinafter provided, in which notice shall be stated the time and place of the meeting. Notice of each such meeting shall be delivered to each Director, either personally or by telephone, facsimile, telegraph, telex, cable or wireless, at least twenty-four hours before the time at which such meeting is to be held, or by first-class mail, postage prepaid, addressed to him or her at his or her residence or usual place of business, at least three days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Special Meetings. Notice of any special meeting need not be given to any Director who shall, either before or after the meeting, sign a written waiver of notice which is filed with the records of the meeting or who shall attend such meeting. Except as otherwise specifically required by these Bylaws, a notice or waiver of notice of any meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. A majority of the entire Board of Directors shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and except as otherwise expressly required by statute, the Charter of the Corporation, these Bylaws, the Investment Company Act of 1940, as amended, or other applicable statute. The act of a majority of the Directors present at any meeting at which a quorum is present shall be the act of the Board; provided, however, that the approval of any contract with an investment adviser or principal underwriter, as such terms are defined in the Investment Company Act of 1940, as amended, which the Corporation enters into or any renewal or amendment thereof, the approval of the fidelity bond required by the Investment Company Act of 1940, as amended, and the selection of the Corporation's independent public accountants shall each require the affirmative vote of a majority of the Directors who are Independent Directors. If a quorum shall not be present at any meeting of Directors, the Directors present thereat may by a majority vote of the Directors present adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.
Section 14. Written Consent of Directors in Lieu of a Meeting. Except to the extent otherwise specifically prohibited by applicable law, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board or committee.
Section 15. Meeting by Conference Telephone. Members of the Board of Directors, or any committee of the Board of Directors, may participate in a meeting by means of a conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means constitutes presence in person at a meeting, except as otherwise provided by statute
Section 16. Compensation. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors. A Director may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director, or both such fixed sum and stated salary. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings
Section 17. Investment Policies. It shall be the duty of the Board of Directors to ensure that the purchase, sale, retention and disposal of portfolio securities and the other investment practices of the Corporation are at all times consistent with the investment policies and restrictions with respect to securities investments and otherwise of the Corporation. The Board, however, may delegate the duty of management of the assets and the administration of its day-to-day operations to an individual or corporate management company or investment adviser pursuant to a written contract or contracts which have obtained the requisite approvals, including the requisite approvals or renewals thereof, of the Board of Directors or the stockholders of the Corporation in accordance with the provisions of the Investment Company Act of 1940, as amended.
Section 18. Use of Assets by Independent Directors. The Independent Directors of the Corporation, as defined in Section 5 above, or a committee consisting of one or more Independent Directors, may use the assets of the Corporation to retain experts, including legal counsel other than regular legal counsel to the Corporation and the Independent Directors, when they deem it necessary to further the interests of the Corporation's stockholders.
ARTICLE IV
COMMITTEES
Section 1. Audit and Nominating and Administration Committees. The Board shall, by resolution adopted by a majority of the entire Board, designate an Audit Committee and a Nominating and Administration Committee, each consisting of one or more Directors and having such powers and duties as the Board of Directors may, by resolution and in the Charter of such Committee, prescribe.
Section 2. Other Committees of the Board. The Board may from time to time, by resolution adopted by a majority of the entire Board, designate one or more other committees of the Board, each consisting of one or more Directors and having such powers and duties as the Board of Directors may, by resolution and in the Charter of such Committee, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board shall
have power or authority to:
(a) recommend to stockholders any action requiring authorization of
stockholders pursuant to statute or the Charter of the Corporation;
(b) approve or terminate any contract with an investment adviser or principal underwriter, as such terms are defined in the Investment Company Act of 1940, as amended, or take any other action required to be taken by the Board of Directors by the Investment Company Act of 1940, as amended;
(c) amend or repeal these Bylaws or adopt new Bylaws;
(d) declare dividends or other distributions or issue capital stock of the Corporation; or
(e) approve any merger or share exchange which does not require stockholder approval.
Section 4. General. A majority of the members of any committee shall be present in person at any meeting of such committee in order to constitute a quorum for the transaction of business at such meeting, and the act of a majority present shall be the act of such committee; any member of any committee shall be deemed to be present in person if such member participates in the meeting by conference telephone or similar communications equipment if all persons participating in the meeting can hear each other at the same time. The Board may designate a chairman of any committee and such chairman or any two members of any committee may fix the time and place of its meetings unless the Board shall otherwise provide. In the absence of disqualification of any member or any committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The Board shall have the power at any time to change the membership of any committee, to fill all vacancies, to designate alternate members, to replace any absent or disqualified member, or to dissolve any such committee. All committees shall keep written minutes of their proceedings and shall report such minutes to the Board. Each committee shall have a Charter which shall be adopted by the Board.
ARTICLE V
OFFICERS, AGENTS AND EMPLOYEES
Section 1. Number and Qualifications. The Officers of the Corporation shall be a Chairman of the Board, a President, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. None of the officers, except the Chairman of the Board and the President, need be members of the Board of Directors. The Board of Directors may elect or appoint one or more Vice Presidents and may also appoint such other officers, agents and employees as it may deem necessary or proper. Any two or more offices may be held by the same person, except the offices of President and Vice President, but no officer shall execute, acknowledge or verify any instrument in more than one capacity. Such officers shall be elected by the Board of Directors each year at its first meeting held after the annual meeting of stockholders, each to hold office until the meeting of the Board following the next annual meeting of the stockholders and until his or her successor shall have been duly elected and shall have qualified, or until his or her death, or until he or she shall have resigned, or have been removed, as hereinafter provided in these Bylaws. The Board may from time to time elect or appoint or delegate to the Chairman of the Board or the
President the power to appoint such officers (including one or more Assistant Vice Presidents, one or more Assistant Treasurers and one or more Assistant Secretaries), and such agents, as may be necessary or desirable for the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at any time by giving written notice of his or her resignation to the Board, the Chairman of the Board, the President or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein immediately upon its receipt; unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or employee of the Corporation may be removed by the Board of Directors if in its judgment it finds that the best interests of the Corporation will be served. The Board may delegate such power of removal as to agents and employees not elected or appointed by the Board of Directors. Such removal shall be without prejudice to such person's contract rights, if any, but the appointment of any person as an officer, agent or employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from death, resignation, removal or any other cause, may be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these Bylaws for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the Corporation shall be fixed by the Board of Directors, but this power may be delegated to any committee or to any officer in respect of other officers under his or her control. No officer shall be precluded from receiving such compensation by reason of the fact that he or she is also a Director of the Corporation.
Section 6. Bonds or other Security. If required by the Board, any officer, agent or employee of the Corporation shall give a bond or other security for the faithful performance of his or her duties, in such amount and with such surety or sureties as the Board may require.
Section 7. Chairman of the Board. The Chairman of the Board shall be the chief executive officer of the Corporation and shall have the general and active management of the business of the Corporation and general and active supervision and direction over the other officers, agents and employees and shall see that their duties are properly performed. He or she shall, if present, preside at each meeting of the stockholders and the Board and shall be an ex officio member of all committees of the Board. He or she shall perform all duties incident to the office of Chairman of the Board and chief executive officer and such other duties as may from time to time be assigned to him or her by the Board. In the case of the absence of the President or his or her inability to act, the Chairman of the Board shall perform the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. He or she shall perform all duties incident to the office
of President and such other duties as from time to time may be assigned to him or her by the Board or these Bylaws.
Section 8. President. The President shall be the chief administrative officer of the Corporation and shall have general and active supervision and direction over the business and affairs of the Corporation and over its several officers, subject, however, to the direction of the Chairman of the Board and the control of the Board. At the request of the Chairman of the Board, or in the case of his or her absence or inability to act, the President shall perform the duties of the Chairman of the Board and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board.
Section 9. Vice Presidents. In the absence of the President or in the event of his or her refusal to act, and if a Vice President has been appointed by the Board of Directors, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board or the President.
Section 10. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has placed in
the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934)
pursuant to a written agreement designating such bank or trust company or member
of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation except that such functions may be delegated to the custodian of the property of the Corporation pursuant to a written agreement;
(c) cause all moneys and other valuables to be deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and
(f) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board or the President.
Section 11. Assistant Treasurers. In the absence or disability of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. Each Assistant Treasurer shall perform all such other duties as from time to time may be conferred upon or assigned to him or her by the Board of Directors, the President or the Treasurer.
Section 12. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the purpose, the
minutes of all meetings of the Board, the committees of the Board and the
stockholders;
(b) see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation, if any, (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the Board, the Chairman of the Board or the President.
Section 13. Assistant Secretaries. In the absence or disability of the Secretary, or when so directed by the Secretary, any Assistant Secretary may perform any or all of the powers of, and be subject to all restrictions upon, the Secretary. Each Assistant Secretary shall perform such other duties as from time to time may be conferred upon or assigned to him or her by the Board of Directors, the President or the Secretary.
Section 14. Delegation of Duties. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may confer for the time being the powers or duties, or any of them, of such officer upon any other officer or upon any Director.
ARTICLE VI
CAPITAL STOCK
Section 1. Stock Certificates. Each stockholder shall be entitled to have a certificate or certificates, in such form as shall be approved by the Board which shall represent and certify the number of shares of stock of the Corporation owned by him or her; provided, however, that certificates for fractional shares will not be delivered in any case. The certificates representing shares of stock shall be signed by the Chairman of the Board, the President or a Vice President and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation. Any or all of the signatures or the seal on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate shall be issued, it may be issued by the Corporation with the same effect as if such officer, transfer agent or registrar were still in office at the date of issue.
Section 2. Transfer of Shares. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions and to vote as such owner, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such share or shares on the part of any other person.
Section 3. Transfer Agents and Registrars. The Corporation may have one or more transfer agents and one or more registrars of its stock, whose respective duties the Board of Directors may, from time to time, define. No certificate of stock shall be valid until countersigned by a transfer agent, if the Corporation shall have a transfer agent or until registered by a registrar, if the Corporation shall have a registrar. The duties of transfer agent and registrar may be combined.
Section 4. Record Date and Closing of Transfer Books. The Board of
Directors may fix, in advance, a date as the record date for the purpose of
determining stockholders entitled to notice of, or to vote at, any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or the
allotment of any rights, or in order to make a determination of stockholders for
any other proper purpose. Such date, in any case, shall be not more than ninety
(90) days, and in case of a meeting of stockholders not less than ten (10) days,
prior to the date on which the particular action requiring such determination of
stockholders is to be taken. Shares of the Corporation's stock acquired by the
Corporation between the record date and the time of the applicable meeting may
be voted at the meeting by the holder of record as of the record date and shall
be counted in determining the total number of outstanding shares entitled to be
voted at the meeting. In lieu of fixing a record date, the Board of Directors
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, twenty (20) days. If the stock transfer books
are closed for the purpose of determining stockholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting. Only
stockholders of record on such date shall be entitled to notice of and to vote
at such meeting or by consent or to receive such dividends or rights, as the
case may be.
Section 5. Regulations. The Board may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.
Section 6. Lost, Stolen, Destroyed or Mutilated Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to have been stolen, lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be stolen, lost or destroyed or upon receipt of other satisfactory evidence of such loss or destruction. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such stolen, lost or destroyed certificate or certificates, or his or her legal representative, to advertise the same in such manner as it shall require and to give the Corporation a bond, with sufficient surety, to indemnify it against any loss or claim which may arise by reason of the issuance of a new certificate.
Section 7. Stock Ledgers. The Corporation shall not be required to keep original or duplicate stock ledgers at its principal office in the City of Baltimore, Maryland, but stock ledgers shall be kept at the offices of the transfer agent of the Corporation's capital stock. Such stock ledger may be in written form or any other form capable of being converted into written form within a reasonable time for visual inspection.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Seal. The Board of Directors shall provide a suitable seal, bearing the name of the Corporation, which shall be in charge of the Secretary. The Board of Directors may authorize one or more duplicate seals and provide for the custody thereof If the Corporation is required to place its corporate seal on a document, it is sufficient to meet any requirement of any law, rule, or regulation relating to a corporate seal to place the word "Seal" adjacent to the signature of the person authorized to sign the document on behalf of the Corporation.
Section 2. Fiscal Year. Unless otherwise determined by the Board, the fiscal year of the Corporation shall end on the 30th day of September in each year.
Section 3. Depositories. The funds of the Corporation shall be deposited with such banks or other depositories as the Board of Directors of the Corporation may from time to time determine.
Section 4. Custodians. All securities and other investments shall be deposited in the safekeeping of such banks or other companies as the Board of Directors of the Corporation may from time to time determine. Every arrangement entered into with any bank or other company for the safekeeping of the securities and investments of the Corporation shall contain provisions complying with the Investment Company Act of 1940, as amended, and the general rules and regulations thereunder.
Section 5. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Charter of the Corporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in its own shares, subject to the provisions of the Maryland General Corporation Law and of the Charter of the Corporation, and further subject to the provisions if any of an automatic dividend investment plan or other similar plan which the Board of Directors may adopt, which may give stockholders the right to receive dividends
and distributions in cash and/or shares at their option, and may provide that such shares shall be issued at net asset value notwithstanding that the same is below market value.
Section 6. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money issued in the name of the Corporation shall be signed by such officer or officers or person or persons as the Board of Directors shall from time to time designate.
Section 7. Reports. The Corporation shall transmit to its stockholders semi- annual unaudited or audited reports of its financial condition and annual reports audited by independent public accountants.
Section 8. Amendments. These Bylaws or any of them may be amended, altered or repealed and new Bylaws adopted, only by the Directors of the Corporation by the affirmative vote of a majority of the Directors at any regular or special meeting of the Board of Directors or by unanimous written consent of the Directors.
Exhibit (d)(2)
RIGHTS CERTIFICATE NUMBER CUSIP NUMBER
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
COMPANY'S PROSPECTUS DATED OCTOBER ___, 2003 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM GEORGESON SHAREHOLDER COMMUNICATIONS INC., THE INFORMATION AGENT.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
INCORPORATED UNDER THE LAWS OF THE
STATE OF MARYLAND
SUBSCRIPTION CERTIFICATE
VOID IF NOT RECEIVED BY THE SUBSCRIPTION AGENT BEFORE 5:00 P.M.,
EASTERN TIME, ON NOVEMBER 19, 2003 UNLESS THE OFFER IS EXTENDED
REGISTERED OWNER:
The registered owner of this Subscription Certificate is entitled to subscribe for one share ("Share") of the Common Stock of Ellsworth Convertible Growth and Income Fund, Inc. for every six rights ("Rights") held, one of which has been issued (such issuance includes rounding up to the nearest number of Rights evenly divisible by six) for each share of Common Stock owned of record on October 14, 2003 (the "Record Date"). If such registered owner subscribes for the maximum number of Shares to which he or she is entitled through the Primary Subscription, he or she is entitled to subscribe for an unlimited number of additional Shares not otherwise subscribed for pursuant to the Over- Subscription Privilege, subject to allocation as described in the Prospectus dated October ___, 2003, if there are sufficient available Shares. All subscriptions are subject to the terms and conditions set forth herein and in the Prospectus.
THE NON-TRANSFERABLE RIGHTS REPRESENTED BY THIS SUBSCRIPTION CERTIFICATE MAY
BE EXERCISED BY DULY COMPLETING THE REVERSE SIDE HEREOF AND SUBMITTING FULL
PAYMENT OF THE ESTIMATED SUBSCRIPTION PRICE FOR EACH SHARE OF COMMON STOCK
SUBSCRIBED FOR.
FOR FINAL PRICING OF SHARES PURSUANT TO THE RIGHTS OFFERING PLEASE READ THE
BACK OF THIS CERTIFICATE.
________________________________ _____________________________
Thomas H. Dinsmore, Chairman Gary I. Levine, Treasurer
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
(New York, NY) TRANSFER AGENT
AND REGISTRAR
By: AUTHORIZED SIGNATURE
|
DELIVERY OPTIONS FOR SUBSCRIPTION RIGHTS CERTIFICATE
For delivery by mail, hand delivery or overnight courier:
American Stock Transfer & Trust Company 59 Maiden Lane, Plaza Level
New York, NY 10038
Delivery other than in the manner or to the address listed above will not constitute valid delivery.
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY.
Primary Subscription Entitlement
Number of Rights Issued: __________ /6 = __________ new Shares
A. YOU HAVE FOUR CHOICES:
1. You can subscribe for all the new Shares listed in the box above (the "Primary Subscription");
2. You can subscribe for more than the number of new Shares listed in the box above (the "Over-Subscription Privilege"). Certain stockholders may choose not to subscribe, and their shares may be available to you subject to an allocation process as described in the Prospectus;
3. You can subscribe for less than the number of new Shares listed in the box above; or
4. If you do not wish to purchase additional Shares, disregard this material.
B. INSTRUCTIONS:
In order to purchase shares of the Ellsworth Convertible Growth and Income Fund, Inc. pursuant to the rights offering, please be sure to:
1. Complete the information below under Section C and Section D.
2. Sign below under Section F.
3. Return this completed and signed Subscription Certificate together with payment by the method marked in Section D as calculated in Section C of this Subscription Certificate to American Stock Transfer & Trust Company in the envelope provided before 5:00 p.m., Eastern time, on November 19, 2003, (the "Expiration Date").
4. Alternatively, you may contact your broker and complete a Notice of Guaranteed Delivery form.
C. ENTER ONE CHOICE ONLY:
[ ] 1. I wish to apply for the Primary Subscription (6 Rights = 1 share) see box above:
________ x $___________ = Total Due $__________
(Shares) (estimated price)
[ ] 2. I wish to apply for the Primary Subscription plus the Over- Subscription Privilege:
Primary Subscription Shares: ______ x $____________ = $__________
(Shares) (estimated price)
Plus Additional Shares: ______ x $____________ = $__________
(Shares) (estimated price)
Total Shares: ______ Total Due $__________
[ ] 3. I wish to apply for less than the number of new Shares listed in the box above.
Enter number of Shares:______ x $____________ = Total Due $_________
(Shares) (estimated price)
Control No. ___________ Account No. ___________
D. METHOD OF PAYMENT (CHECK ONE)
[ ] Check or bank draft drawn on a U.S. bank, or postal telegraphic or express money order payable to "American Stock Transfer & Trust Company, as Subscription Agent." Funds paid by an uncertified check may take at least five business days to clear.
[ ] Wire transfer of immediately available funds directly to the account maintained by American Stock Transfer & Trust Company, as Subscription Agent, for purposes of accepting subscriptions in this Rights Offering at JP Morgan Chase Bank, 55 Water Street, New York, New York 10005, ABA #21000021, Account #323-890113.
E. FINAL PRICING (SUBSCRIPTION PRICE):
The actual subscription price (the "Subscription Price") will be the lesser of 95% of (a) the net asset value per share of the Fund's Common Stock on November 20, 2003, (the "Pricing Date") or (b) the average of the volume- weighted average sales prices of a share of the Fund's Common Stock on the American Stock Exchange on the Pricing Date and the four preceding trading days. This will be your final Subscription Price for the new shares. The Estimated Subscription Price for purposes of exercising Rights is $_____ per Share.
It is possible that stockholders will receive a refund or be required to pay an additional amount equal to the difference between the Estimated Subscription Price of $_____, and the final Subscription Price.
F. I acknowledge that I have received the Prospectus for this rights offering, and I hereby irrevocably subscribe for the number of new Shares indicated in Section C of this Subscription Certificate upon the terms and conditions specified in the Prospectus. I understand and agree that I will be obligated to pay any additional amount to the Fund if the Subscription Price, as determined on the Expiration Date, is in excess of $_____ per Share, the Estimated Subscription Price per Share.
I hereby agree that if I fail to pay in full for the Shares for which I have subscribed, the Fund may exercise any of the remedies provided for in the Prospectus.
Telephone number (including area code): ______________________________________
G. If you wish to have your Shares and refund check (if any) delivered to another address other than that listed on this Subscription Certificate you must have your signature(s) guaranteed in Section F. Appropriate signature guarantors include: banks and savings associations, credit unions, member firms of a national securities exchange, municipal securities dealers and government securities dealers. Please provide delivery address below and please note if it is a permanent change.
Other Address:
PLEASE CALL GEORGESON SHAREHOLDER COMMUNICATIONS INC., THE FUND'S INFORMATION AGENT AT (888) 705-1032 IF YOU HAVE ANY QUESTIONS ABOUT THE RIGHTS OFFERING.
Exhibit (d)(3)
NOTICE OF GUARANTEED DELIVERY
For Shares of Common Stock of
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
Subscribed for under the Primary Subscription and the Over-Subscription Privilege
(together, the "Rights Offering")
Ellsworth Convertible Growth and Income Fund, Inc. (the "Fund") issued to its shareholders of record, as of the close of business on October 14, 2003 ("Record Date"), non-transferable rights ("Rights") in the ratio of one Right for each whole share of the Fund's common stock held on the Record Date, rounded up to the nearest number of Rights evenly divisible by six, entitling the holders thereof to subscribe for new Shares (the "Shares") at a rate of one new Share of common stock of the Fund for each six Rights held (the "Primary Subscription") with the right to subscribe for additional Shares not subscribed for by others in the Primary Subscription (the "Over-Subscription Privilege"). The terms and conditions of the Rights Offering are set forth in the Prospectus, which is incorporated into this document by reference. Capitalized terms herein shall have the same meaning as defined in the Prospectus. As set forth in the Prospectus, this form, or one substantially equivalent hereto, may be used as a means of effecting subscription and payment for all Shares subscribed for under the Primary Subscription and the Over-Subscription Privilege. This form may be delivered by hand or sent by facsimile transmission, overnight courier or first class mail to the Subscription Agent.
The Subscription Agent is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
By First-Class Mail: By Facsimile:
59 Maiden Lane (718) 236-2641
Plaza Level
New York, NY 10038
Confirm by telephone to:
(800) 937-5449 or (718) 921-8200
By Express Mail or Overnight Courier: By Hand:
59 Maiden Lane (9:00 a.m. - 5:00 p.m.)
Plaza Level 59 Maiden Lane
New York, NY 10038 Plaza Level
|
New York, NY 10038
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A TELECOPY FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
The New York Stock Exchange member firm, bank or trust company or other
nominee that completes this form must communicate this guarantee and
the number of Shares subscribed for in connection with this guarantee
(separately disclosed as to the Primary Subscription and the Over-
Subscription Privilege) to the Subscription Agent and must deliver this
Notice of Guaranteed Delivery of Payment to the Subscription Agent
prior to 5:00 p.m., Eastern time, on the Expiration Date, November 19,
2003, unless the Offer is extended by the Fund. This Notice of
Guaranteed Delivery guarantees delivery to the Subscription Agent of
(a) payment in full for all subscribed Shares, and (b) a properly
completed and signed Subscription Certificate (which certificate and
payment of the Estimated Subscription Price per Share must then be
received no later than the close of business on November 24, the third
business day after the Expiration Date, unless the offer is extended,
and final payment of the actual Subscription Price no later than the
close of business December __, 2003, ten days after the Confirmation
Date). Failure to deliver this Notice or to make the delivery
guaranteed will result in a forfeiture of the Rights.
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or trust company having an office or correspondent in the United States, hereby guarantees delivery to the Subscription Agent by no later than 5:00 p.m., Eastern time, on November 24, 2003 (unless extended as described in the Prospectus) of (a) a properly completed and executed Subscription Certificate and (b) payment of the full Estimated Subscription Price for Shares subscribed for on Primary Subscription and for any additional Shares subscribed for pursuant to the Over-Subscription Privilege, as subscription for such Shares is indicated herein or in the Subscription Certificate.
(continued on other side)
Broker Assigned Control#_____
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
1. Primary Number of Number of Shares pursuant to Primary Payment to be made in
Subscription Rights Subscription requested for which you connection
to be are guaranteeing delivery of Rights With Shares from Primary
exercised and payment Subscription
_______Rights = ______________Shares $_________________
(Rights / by 6)
2. Over- Number of Shares pursuant to Over- Payment to be made in
Subscription Subscription Requested for which connection with Shares
you are guaranteeing payment from Over-Subscription
______________Shares $__________________
3. Totals Total Number Total Number of Shares Requested
of Rights to
be Delivered
_______Rights ______________Shares $__________________
Total Payment
|
Method of delivery (circle one)
A. Through Depository Trust Company ("DTC")
B. Direct to American Stock Transfer & Trust Company, as Subscription Agent. Please indicate below how the Rights to be delivered should be registered.
Please sign a unique control number for each guarantee submitted. This number needs to be referenced on any direct delivery of Rights or any delivery through DTC. In addition, please note that if you are guaranteeing for Shares subscribed pursuant to the Over-Subscription Privilege and you are a DTC participant, you must also execute and forward to American Stock Transfer & Trust Company a DTC Participant Over-Subscription Exercise form.
----------------------------- ----------------------------------- Name of Firm Authorized Signature ----------------------------- ----------------------------------- DTC Participant Number Title ----------------------------- ----------------------------------- Address Name (Please Type or Print) ----------------------------- ----------------------------------- Zip Code Phone Number ----------------------------- ----------------------------------- Contact Name Date |
Exhibit (e)
Ellsworth Convertible Growth and Income Fund, Inc.
Automatic Dividend Investment and Cash Payment Plan
Plan and Authorization Form
American Stock Transfer & Trust Company
P.O. Box 922, Church Street Station
New York, NY 10269-0560
I own, registered in my name . . . . . . . . . . . . . . . . . . . . . . . . .
shares of Common Stock of Ellsworth Convertible Growth and Income Fund, Inc.
(the "Company").
I wish to invest all the dividends and distributions paid by the Company on my
shares automatically in additional shares from the date hereof until this
arrangement is terminated as stated below. As a participant in this plan (the
"Plan"), I may also wish to purchase additional shares of the Company through
the Plan.
Authorization. You are authorized to act as my agent as follows:
A. Establish an Account in my name.
B. Take into my Account all dividends and distributions paid by the
Company on all its Common Stock held in my name now or in the future and on
all additional shares of the Company (including fractions) held by you in my
Account.
C. In connection with any fiscal year-end distribution of capital gains
or dividend from net investment income, take the distribution or dividend in
Common Stock issued at the lower of market price or net asset value as
determined on the fifth trading day preceding the date of payment.
D. In connection with the Company's first three quarterly dividends in
each fiscal year from net investment income (and any other dividends or
distributions declared by the Company, other than those paid pursuant to
paragraph C):
1. If the net asset value as determined by the Company as of the
close of business on the fifth trading day preceding the date of payment is
equal to or lower than the closing market price of the Common Stock on the
American Stock Exchange on that trading day plus brokerage commissions, take
the dividend or distribution in Common Stock issued at that net asset value;
2. If the net asset value as determined by the Company as of the
close of business on the fifth trading day preceding the date of payment is
higher than the closing market price of the Common Stock on the American Stock
Exchange on that trading day plus brokerage commissions, take the dividend or
distribution in cash and add it to my Account.
E. As soon as practicable after each cash payment is made to my Account
in accordance with paragraph D above, use the funds in my Account to buy on
the American Stock Exchange as many additional full shares of the Company's
Common Stock (plus a fractional interest in one share computed to three
decimal places) as are available at prices which are less than net asset
value. If, before you have completed the purchase of all shares for the
distribution at prices less than net asset value, the market price equals or
exceeds the net asset value of such shares, then you shall pay the remaining
proceeds of the distribution to the Company and take the balance of the
distribution in shares of Common Stock at net asset value.
F. I understand that as a Plan participant I may also voluntarily
purchase additional shares through the Plan by delivering a check payable to
American Stock Transfer & Trust Company for at least $100, but not more than
$10,000 in any month for deposit into my Account. Within 30 days, American
Stock Transfer & Trust Company (AST) will combine all similar monies received
and purchase Company shares in the open market. Checks drawn on foreign banks
are subject to collection and collection fees and will be invested the next
investment date after funds have been collected.
G. You may mingle the cash in my Account with similar funds of other
stockholders of the Company for whom you act as agent under the Plan. The cost
of the shares and any fractional interests you buy for my Account in
connection with a particular dividend, distribution or cash purchase shall be
determined by the average cost per share, including brokerage commission, of
all shares bought by you for all shareholders for whom you act under the Plan
in connection with that dividend, distribution or cash purchase.
H. Whenever you receive or purchase shares or fractional interests for
my Account, you will send me confirmation of the transaction as soon as
practicable. You will hold such shares and fractional interests as my agent in
your name or the name of your nominee. Do not send me stock certificates for
full shares until I so request in writing or until my Account is terminated as
stated below. You will vote any shares so held for me in accordance with any
proxy returned to the Company by me in respect of the shares of which I am a
record owner.
I. I may instruct you at any time to liquidate all or any portion of the
shares of the Company then held in my Account. I understand that AST will
combine all liquidation requests it receives from Plan participants on a
particular day and will then sell shares of the Company that are subject to
liquidation requests in the open market. The amount of proceeds I receive
shall be determined by the average sales price per share, after deducting
brokerage commissions, of all shares sold by you for all Plan participants who
have given you liquidation requests.
J. I understand that there is presently no service charge for you
serving as my agent and maintaining my Account, except that my Account will be
charged a $1.25 service fee for each cash purchase transaction on my behalf
pursuant to paragraph F. You may, in addition, charge me for extra services
performed at my request I further understand that the Company reserves the right
to amend the Plan in the future to impose an additional service charge.
K. As a Plan participant I may deposit with AST Common Stock certificates of
the Company that I now hold, to be added to my Account. A one-time fee of
$7.50 is charged for this service.
L. You will be liable only for willful misconduct or gross negligence in
acting as my agent under the Plan.
Name and Address. My name as shown on my Common Stock certificate or
certificates (including all names if more than one) and my address, are as
follows:
Please Print (print names exactly as on stock certificate):
NAME OR NAMES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NUMBER AND STREET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CITY, STATE AND ZIP CODE . . . . . . . . . . . . . . . . . . . . . . . . . .
SOCIAL SECURITY NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Certificates. I understand that if I hold more than one Common Stock certificate registered in similar but not identical names or if more than one address is shown for me on the Company's Common Stock records, all my shares of Common Stock must be put into the same name and address if all of them are to be covered by one Account. I understand that additional shares subsequently acquired by me otherwise than through the Plan will be covered by my Account if and when they are registered in the same name and address as the shares in my Account.
Income Tax. I understand that participation in the Plan for automatic investment of dividends and distributions and cash purchase of shares does not relieve me of any income tax which may be payable by me on such dividends and distributions and on expenses incurred by the Company on my behalf.
Amendments and Change of Agent.
1. I understand that the company may amend the terms of the Plan and
reserves the right to change the agent which acts for all participants in the
Plan at any time by giving written notice thereof to each participant at his
address as shown on your records. Any such change shall be effective as to
all dividends and distributions payable to shareholders of record on any date
more than 30 days after mailing of such notice and shall be effective 30 days
after the mailing of such notice as to cash purchases.
2. In connection with any dividend or distribution under Paragraphs C or
D above, I understand that the Company will change the price at which shares
of its Common Stock are issued to participants in the Plan if the net asset
value of the shares is less than 95% of the market price of such shares on the
fifth trading day preceding the payment date of any distribution of net
investment income or net capital gain, unless the Board obtains a legal
opinion from independent counsel that the issuance of shares at net asset
value under these circumstances will not have a material adverse effect upon
the federal income tax liability of the Company.
3. In connection with the distribution of shares of Common Stock at net
asset value under Paragraph E above, I understand that the Company will change
the price at which shares of its Common Stock are issued to participants in
the Plan if the net asset value of the shares is less than 95% of the market
price of such shares on any trading day in which shares of Common Stock are
distributed at net asset value, unless the Board obtains a legal opinion from
independent counsel that the issuance of shares at net asset value under these
circumstances will not have a material adverse effect upon the federal income
tax liability of the Company.
4. The Board may not authorize issuance of shares offered to Plan
participants only, if such issuance is at a price less than net asset value,
without the prior specific approval of the Company's stockholders or of the
Securities and Exchange Commission.
Termination. I may terminate my Account at any time by delivering written notice to you prior to the record date of any dividend or distribution requesting either liquidation or a stock certificate. I understand that you or the Company may terminate all authorizations for any reason at any time by sending written notice addressed to participants at their address as shown on your records, such termination to be effective as to all dividends and distributions payable to stockholders of record on any date more than 30 days after mailing of such notice and shall be effective 30 days after the mailing of such notice as to cash purchases. Following the date of termination, you shall send me at my address shown on your records either the proceeds of liquidation, or a stock certificate or certificates for the full shares held by you in my Account and a check for the value of any fractional interest in my Account based on the market price of the Company's Common Stock on that date.
Signature(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Date . . . . . . . . . . . . . . . . . . . . . . . . . . .
(if shares are in more than one name, all must sign.)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit (g)
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into this 12th 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 (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.
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.
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 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 /s/Thomas H. Dinsmore (Chairman) |
DAVIS-DINSMORE MANAGEMENT COMPANY
By /s/Jane D. O'Keeffe (President) |
Exhibit (j)(1)
CUSTODY AGREEMENT
Agreement made as of this 13th day of June, 1986, between ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC., a corporation organized and existing under the laws of the State of Maryland, having its principal office and place of business at 42 Broadway, New York, NY 10004 (hereinafter called the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized to do a banking business, having its principal office and place of business at 48 Wall Street, New York, New York 10015 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth the Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include any person, whether or not such person is an Officer or employee of the Fund, duly authorized by the Board of Directors of the Fund to give Oral Instructions and Written Instructions on behalf of the Fund and listed in the Certificate annexed hereto as Appendix A or such other Certificate as may be received by the Custodian from time to time.
2. "Book-Entry System" shall mean the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees.
3. "Certificate" shall mean any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Custodian which is actually received by the Custodian and signed on behalf of the Fund by any two Officers.
4. "Call Option" shall mean an exchange traded option with respect to Securities other than Stock Index Options, Futures Contracts, and Futures Contract options entitling the holder, upon timely exercise and payment of the exercise price, as specified therein, to purchase from the writer thereof the specified underlying Securities.
5. "Covered Call Option" shall mean an exchange trade option entitling the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities (excluding Futures Contracts) which are owned by the writer thereof and subject to appropriate restrictions.
6. "Clearing Member" shall mean a registered broker-dealer which is a clearing member under the rules of O.C.C. and a member of a national securities exchange qualified to act as a custodian for an investment company, or any broker-dealer reasonably believed by the Custodian to be such a clearing member.
7. "Collateral Account" shall mean a segregated account so denominated which is specifically allocated to a Series and pledged to the Custodian as security for, and in consideration of, the Custodian's issuance of (a) any Put Option guarantee letter or similar document described in paragraph 8 of Article V herein, or (b) any receipt described in Article V or VIII herein.
8. "Depository" shall mean The Depository Trust Company ("DTC"), a clearing agency registered with the Securities and Exchange Commission, its successor or successors and its nominee or nominees. The term "Depository" shall further mean and include any other person authorized to act as a depository under the Investment Company Act of 1940, its successor or successors and its nominee or nominees, specifically identified in a certified copy of a resolution of the Fund's Board of Directors specifically approving deposits therein by the Custodian.
9. "Financial Futures Contract" shall mean the firm commitment to buy or sell fixed income securities including, without limitation, U.S. Treasury Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of deposit, and Eurodollar certificates of deposit, during a specified month at an agreed upon price.
10. "Futures Contract" shall mean a Financial Futures Contract and/or Stock Index Futures Contracts.
11. "Futures Contract Option" shall mean an option with respect to a Futures Contract.
12. "Margin Account" shall mean a segregated account in the name of a broker, dealer, futures commission merchant, or a Clearing Member, or in the name of the Fund for the benefit of a broker, dealer, futures commission merchant, or Clearing Member, or otherwise, in accordance with an agreement between the Fund, the Custodian and a broker, dealer, futures commission merchant or a Clearing Member (a "Margin Account Agreement"), separate and distinct from the custody account, in which certain Securities and/or money of the Fund shall be deposited and withdrawn from time to time in connection with such transactions as the Fund may from time to time determine. Securities held in the Book-Entry System or the Depository shall be deemed to have been deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting an appropriate entry in its books and records.
13. "Money Market Security" shall be deemed to include, without limitation, certain Reverse Repurchase Agreements, debt obligations issued or guaranteed as to interest and principal by the government of the United States or agencies or instrumentalities thereof, any tax, bond or revenue anticipation note issued by
any state or municipal government or public authority, commercial paper, certificates of deposit and bankers' acceptances, repurchase agreements with respect to the same and bank time deposits, where the purchase and sale of such securities normally requires settlement in federal funds on the same day as such purchase or sale.
14. "O.C.C." shall mean the Options Clearing Corporation, a clearing agency registered under Section 17A of the Securities Exchange Act of 1934, its successor or successors, and its nominee or nominees.
15. "Officers" shall be deemed to include the President, any Vice President, the Secretary, the Treasurer, the Controller, any Assistant Secretary, any Assistant Treasurer, and any other person or persons, whether or not any such other person is an officer of the Fund, duly authorized by the Board of Directors of the Fund to execute any Certificate, instruction, notice or other instrument on behalf of the Fund and listed in the Certificate annexed hereto as Appendix B or such other Certificate as may be received by the Custodian from time to time.
16. "Option" shall mean a Call Option, Covered Call Option, Stock Index Option and/or a Put Option.
17. "Oral Instructions" shall mean verbal instructions actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person.
18. "Put Option" shall mean an exchange traded option with respect to Securities other than Stock Index Options, Futures Contracts, and Futures Contract Options entitling the holder, upon timely exercise and tender of the specified underlying Securities, to sell such Securities to the writer thereof for the exercise price.
19. "Reverse Repurchase Agreement" shall mean an agreement pursuant to which the Fund sells Securities and agrees to repurchase such Securities at a described or specified date and price.
20. "Security" shall be deemed to include, without limitation, Money Market Securities, Call Options, Put Options, Stock Index Options, Stock Index Futures Contracts, Stock Index Futures Contract Options, Financial Futures Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements, common stocks and other securities having characteristics similar to common stocks, preferred stocks, debt obligations issued by state or municipal governments and by public authorities, (including, without limitation, general obligation bonds, revenue bonds and industrial bonds and industrial development bonds), bonds, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase, sell or subscribe for the same, or evidencing or representing any other rights or interest therein, or any property or assets.
21. "Senior Security Account" shall mean an account maintained and specifically allocated to a Series under the terms of this Agreement as a segregated account, by recordation or otherwise, within the custody account in which certain Securities and/or other assets of the Fund specifically allocated to such Series shall be deposited and withdrawn from time to time in accordance with Certificates received by the Custodian in connection with such transactions as the Fund may from time to time determine.
22. "Series" shall mean the various portfolios, if any, of the Fund as described from time to time in the current and effective prospectus for the Fund.
23. "Stock Index Futures Contract" shall mean a bilateral agreement pursuant to which the parties agree to take or make delivery of an amount of cash equal to a specified dollar amount times the difference between the value of a particular stock index at the close of the last business day of the contract and the price at which the futures contract is originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling the holder, upon timely exercise, to receive an amount of cash determined by reference to the difference between the exercise price and the value of the index on the date of exercise.
25. "Shares" shall mean the shares of capital stock of the Fund, each of which is in the case of a Fund having Series allocated to a particular Series.
26. "Written Instructions" shall mean written communications actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person by telex or any other such system whereby the receiver of such communications is able to verify by codes or otherwise with a reasonable degree of certainty the identity of the sender of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian of the Securities and moneys at any time owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such custodian and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in Article VIII, the Fund will deliver or cause to be delivered to the Custodian all Securities and all moneys owned by it, at any time during the period of this Agreement, and shall specify with respect to such Securities and money the Series to which the same are specifically allocated. The Custodian shall segregate, keep and maintain the assets of the Series separate and apart. The Custodian will not be responsible for any Securities and moneys not actually received by it. The Custodian will be entitled to reverse any credits made on the Fund's behalf where such credits have been previously made and moneys are not finally collected. The Fund shall deliver to the Custodian a certified resolution of the Board of Directors of the Fund, substantially in the form of Exhibit A hereto, approving, authorizing and instructing the Custodian on a continuous and on-going basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are specifically allocated and to utilize the Book-Entry System to the extent possible in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of Securities collateral. Prior to a deposit of Securities specifically allocated to a Series in the Depository, the Fund shall deliver to the Custodian a certified resolution of the Board of Directors of the Fund, substantially in the form of Exhibit B hereto, approving, authorizing and instructing the Custodian on a continuous and ongoing basis until instructed to the contrary by a Certificate actually received by the Custodian to deposit in the Depository all Securities specifically allocated to such Series eligible for deposit therein, and to utilize the Depository to the extent possible with respect to such Securities in connection with its performance hereunder, including, without limitation, in connection with settlements of purchases and sales of Securities, loans of Securities, and deliveries and returns of Securities collateral. Securities and moneys deposited in either the Book-Entry System or the Depository will be represented in accounts which include only assets held by the Custodian for customers, including, but not limited to, accounts in which the Custodian acts in a fiduciary or representative capacity. Prior to the Custodian's accepting, utilizing and acting with respect to Clearing Member confirmations for Options and transactions in Options for a Series as provided in this Agreement, the Custodian shall have received a certified resolution of the Fund's Board of Directors, substantially in the form of Exhibit C hereto, approving, authorizing and instructing the Custodian on a continuous and on-going basis, until instructed to the contrary by a Certificate actually received by the Custodian, to accept, utilize and act in accordance with such confirmations as provided in this Agreement with respect to such Series.
2. The Custodian shall establish and maintain separate accounts, in the name of each Series, and shall credit to the separate account for each Series all moneys received by it for the account of the Fund with respect to such Series. Money credited to a separate account for a Series shall be disbursed by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and address of the person to whom the payment is to be made, the Series account from which payment is to be made, and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day the Custodian shall furnish the Fund with confirmations and a summary, on a per Series basis, of all transfers to or from the account of the Fund for a Series, either hereunder or with any co-custodian or sub-custodian appointed in accordance with this Agreement during said day. Where Securities are transferred to the account of the Fund for a Series, the Custodian shall also by book-entry or otherwise identify as belonging to such Series a quantity of Securities in a fungible bulk of Securities registered in the name of the Custodian (or its nominee) or shown on the Custodian's account on the books of the Book-Entry System or the Depository. At least monthly and from time to time, the Custodian shall furnish the Fund with a detailed statement, on a per Series basis, of the Securities and moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in Article VIII, all Securities held by the Custodian hereunder, which are issued or issuable only in bearer form, except such Securities as are held in the Book- Entry System, shall be held by the Custodian in that form; all other Securities held hereunder may be registered in the name of the Fund, in the name of any duly appointed registered nominee of the Custodian as the Custodian may from time to time determine, or in the name of the Book-Entry System or the Depository or their successor or successors, or their nominee or nominees. The Fund agrees to furnish to the Custodian appropriate instruments to enable the Custodian to hold or deliver in proper form for transfer, or to register in the name of its registered nominee or in the name of the Book-Entry System or the Depository any Securities which it may hold hereunder and which may from time to time be registered in the name of the Fund. The Custodian shall hold all such Securities specifically allocated to a Series which are not held in the Book- Entry System or in the Depository in a separate account in the name of such Series physically segregated at all times from those of any other person or persons.
5. Except as otherwise provided in this Agreement and unless otherwise instructed to the contrary by a Certificate, the Custodian by itself, or through the use of the Book-Entry System or the Depository with respect to Securities held hereunder and therein deposited, shall with respect to all Securities held for the Fund hereunder in accordance with preceding paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon such Securities which are called, but only if either (i) the Custodian receives a written notice of such call, or (ii) notice of such call appears in one or more of the publications listed in Appendix C annexed hereto, which may be amended at any time by the Custodian without the prior notification or consent of the Fund;
(c) Present for payment and collect the amount payable upon all Securities which mature;
(d) Surrender Securities in temporary form for definitive Securities;
(e) Execute, as custodian, any necessary declarations or certificates of ownership under the Federal Income Tax Laws or the laws or regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the Depository with respect to Securities therein deposited, for the account of a Series, all rights and similar securities issued with respect to any Securities held by the Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian, directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated in such Certificate proxies, consents, authorizations, and any other instruments whereby
the authority of the Fund as owner of any Securities held by the Custodian hereunder for the Series specified in such Certificate may be exercised;
(b) Deliver any Securities held by the Custodian hereunder for the Series specified in such Certificate in exchange for other Securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege and receive and hold hereunder specifically allocated to such Series any cash or other Securities received in exchange;
(c) Deliver any Securities held by the Custodian hereunder for the Series specified in such Certificate to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, and receive and hold hereunder specifically allocated to such Series such certificates of deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Series specified in such Certificate, and take such other steps as shall be stated in such Certificate to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon Securities not described in preceding paragraph 5(b) of this Article which may be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the Custodian shall not be required to obtain possession of any instrument or certificate representing any Futures Contract, any Option, or any Futures Contract Option until after it shall have determined, or shall have received a Certificate from the Fund stating, that any such instruments or certificates are available. The Fund shall deliver to the Custodian such a Certificate no later than the business day preceding the availability of any such instrument or certificate. Prior to such availability, the Custodian shall comply with Section 17f of the Investment Company Act of 1940, as amended, in connection with the purchase, sale, settlement, closing out or writing of Futures Contracts, Options, or Futures Contract Options by making payments or deliveries specified in Certificates received by the Custodian in connection with any such purchase, sale, writing, settlement or closing out upon its receipt from a broker, dealer, or futures commission merchant of a statement or confirmation reasonably believed by the Custodian to be in the form customarily used by brokers, dealers, or future commission merchants with respect to such Futures Contracts, Options, or Futures Contract Options, as the case may be, confirming that such Security is held by such broker, dealer or futures commission merchant, in book- entry form or otherwise, in the name of the Custodian (or any nominee of the (custodian) as custodian for the Fund, provided, however, that notwithstanding the foregoing, payments to or deliveries from the Margin Account, and payments with respect to Securities to which a Margin Account relates, shall be made in accordance with the terms and conditions of the Margin Account Agreement. Whenever any such instruments or certificates are available, the Custodian shall, notwithstanding any provision in this Agreement to the contrary, make payment for any Futures Contract, Option, or Futures Contract Option for which such instruments or such certificates are available only against the delivery to the Custodian of such instrument or such certificate, and deliver any Future
Contract, Option or Futures Contract Option for which such instruments or such certificates are available only against receipt by the Custodian of payment therefor. Any such instrument or certificate delivered to the Custodian shall be held by the Custodian hereunder in accordance with, and subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS
AND FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect to each such
purchase: (a) the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the Securities; (c) the
number of shares or the principal amount purchased and accrued interest, if any;
(d) the date of purchase and settlement; (e) the purchase price per unit;
(f) the total amount payable upon such purchase; (g) the name of the person from
whom or the broker through whom the purchase was made, and the name of the
clearing broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of Securities purchased by or for the
Fund, pay to the broker specified in the Certificate out of the moneys held for
the account of such Series the total amount payable upon such purchase, provided
that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
2. Promptly after each sale of Securities by the Fund, other than a sale of
any option, Futures Contract, Futures Contract Option, or any Reverse Repurchase
Agreement, the Fund shall deliver to the Custodian (i) with respect to each sale
of Securities which are not Money Market Securities, a Certificate, and (ii)
with respect to each sale of Money Market Securities, a Certificate, Oral
Instructions or Written Instructions, specifying with respect to each such sale:
(a) the Series to which such Securities were specifically allocated; (b) the
name of the issuer and the title of the Security; (c) the number of shares or
principal amount sold, and accrued interest, if any; (d) the date of sale; (e)
the sale price per unit; (f) the total amount payable to the Fund upon such
sale; (g) the name of the broker through whom or the person to whom the sale was
made, and the name of the clearing broker, if any; and (h) the name of the
broker to whom the Securities are to be delivered. The Custodian shall deliver
the Securities specifically allocated to such Series to the broker specified in
the Certificate upon the total amount payable to the Fund upon such sale,
provided that the same conforms to the total amount payable as set forth in such
Certificate, Oral Instructions or Written Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund shall deliver to the Custodian a Certificate specifying with respect to each Option purchased: (a) the Series to which such option is specifically allocated; (b) the type of Option (put or call); (c) the name of the issuer and the title and number of shares subject to such Option or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Stock Index Options purchased; (d) the expiration date; (e) the exercise price; (f) the dates of purchase and settlement; (g) the total amount payable by the Fund in connection with such purchase; (h) the name of the Clearing Member through whom such option was purchased; and (i) the name of the broker to whom payment is to be made. The Custodian shall pay, upon receipt of a Clearing Member's statement confirming the purchase of such option held by such Clearing Member for the account of the Custodian (or any duly appointed and registered nominee of the Custodian) as custodian for the Fund, out of moneys held for the account of the Series to which such Option is to be specifically allocated, the total amount payable upon such purchase to the Clearing Member through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to each such sale: (a) the Series to which such Option was specifically allocated; (b) the type of Option (put or call); (c) the name of the issuer and the title and number of shares subject to such Option or, in the case of a Stock Index Option, the stock index to which such Option relates and the number of Stock Index Options sold; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the total amount payable to the Fund upon such sale; and (h) the name of the Clearing Member through whom the sale was made. The Custodian shall consent to the delivery of the Option sold by the Clearing Member which previously supplied the confirmation described in preceding paragraph 1 of this Article with respect to such Option against payment to the Custodian of the total amount payable to the Fund, provided that the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased by the
Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Call Option: (a) the Series to
which such Call Option was specifically allocated; (b) the name of the issuer
and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay out of the moneys held for the account of the Series to
which such Call Option was specifically allocated the total amount payable to
the Clearing Member through whom the Call Option was exercised, provided that
the same conforms to the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a
Certificate specifying with respect to such Put Option: (a) the Series to which
such Put Option was specifically allocated; (b) the name of the issuer and the
title and number of shares subject to the Put Option; (c) the expiration date;
(d) the date of exercise and settlement; (e) the exercise price per share; (f)
the total amount to be paid to the Fund upon such exercise; and (g) the name of
the Clearing Member through whom such Put Option was exercised. The Custodian
shall, upon receipt of the amount payable upon the exercise of the Put Option,
deliver or direct the Depository to deliver the Securities specifically
allocated to such Series, provided the same conforms to the amount payable to
the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series to which such Stock Index Option was specifically allocated; (b) the type of Stock Index Option (put or call); (c) the number of Options being exercised; (d) the stock index to which such Option relates; (e) the expiration date; (f) the exercise price; (g) the total amount to be received by the Fund in connection with such exercise; and (h) the Clearing Member from whom such payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Covered
Call Option: (a) the Series for which such Covered Call Option was written; (b)
the name of the issuer and the title and number of shares for which the Covered
Call Option was written and which underlie the same; (c) the expiration date;
(d) the exercise price; (e) the premium to be received by the Fund; (f) the date
such Covered Call Option was written; and (g) the name of the Clearing Member
through whom the premium is to be received. The Custodian shall deliver or
cause to be delivered, in exchange for receipt of the premium specified in the
Certificate with respect to such Covered Call Option, such receipts as are
required in accordance with the customs prevailing among Clearing Members
dealing in Covered Call Options and shall impose, or direct the Depository to
impose, upon the underlying Securities specified in the Certificate specifically
allocated to such Series such restrictions as may be required by such receipts.
Notwithstanding the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any receipts for
Securities in the possession of the Custodian and not deposited with the
Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in the preceding paragraph of this Article is exercised, the Fund shall promptly deliver to the Custodian a Certificate instructing the Custodian to deliver, or to direct, the Depository to deliver, the Securities subject to such Covered Call Option and specifying: (a) the Series for which such Covered Call Option was written; (b) the name of the issuer and the title and number of shares subject to the Covered Call Option; (c) the Clearing Member to whom the underlying Securities are to be delivered; and (d) the total amount payable to the Fund upon such delivery. Upon the return and/or cancellation of any receipts delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver, or direct the Depository to deliver, the underlying Securities as specified in the Certificate against payment of the amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Put Option: (a) the Series for which such Put Option was written; (b) the name of the issuer and the
title and number of shares for which the Put Option is written and which underlie the same; (c) the expiration date; (d) the exercise price; (e) the premium to be received by the Fund; (f) the date such Put Option is written; (g) the name of the Clearing Member through whom the premium is to be received and to whom a Put Option guarantee letter is to be delivered; (h) the amount of cash, and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Senior Security Account for such Series; and (i) the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be deposited into the Collateral Account for such Series. The Custodian shall, after making the deposits into the Collateral Account specified in the Certificate, issue a Put Option guarantee letter substantially in the form utilized by the Custodian on the date hereof, and deliver the same to the Clearing Member specified in the Certificate against receipt of the premium specified in said Certificate. Notwithstanding the fore going, the Custodian shall be under no obligation to issue any Put Option guarantee letter or similar document if it is unable to make any of the representations contained there in.
9. Whenever a Put Option written by the Fund and described in the preceding
paragraph is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Put Option was written;
(b) the name of the issuer and title and number of shares subject to the Put
Option; (c) the Clearing Member from whom the underlying Securities are to be
received; (d) the total amount payable by the Fund upon such delivery; (e) the
amount of cash and/or the amount and kind of Securities specifically allocated
to such Series to be withdrawn from the Collateral Account for such Series and
(f) the amount of cash and/or the amount and kind of Securities, specifically
allocated to such Series, if any, to be withdrawn from the Senior Security
Account. Upon the return and/or cancellation of any Put Option guarantee letter
or similar document issued by the Custodian in connection with such Put Option,
the Custodian shall pay out of the moneys held for the account of the Series to
which such Put Option was specifically allocated the total amount payable to the
Clearing Member specified in the Certificate as set forth in such Certificate
against delivery of such Securities, and shall make the withdrawals specified in
such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series for which such Stock Index Option was written; (b) whether such Stock Index Option is a put or a call; (c) the number of options written; (d) the stock index to which such Option relates; (e) the expiration date; (f) the exercise price; (g) the Clearing Member through whom such Option was written; (h) the premium to be received by the Fund; (i) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Senior Security Account for such Series; (j) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in the Collateral Account for such Series; and (k) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in a Margin Account, and the name in which such account is to be or has been established. The Custodian shall, upon receipt of the premium specified in the Certificate, make the deposits, if any, into the Senior Security Account specified in the Certificate, and either (1) deliver such receipts, if any, which the Custodian has specifically agreed to issue, which are in accordance with the customs prevailing among Clearing Members in Stock Index Options and make the deposits into the Collateral Account specified in the Certificate, or (2) make the deposits into the Margin Account specified in the Certificate.
11. Whenever a Stock Index Option written by the Fund and described in the preceding paragraph of this Article is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Stock Index Option: (a) the Series for which such Stock Index Option was written; (b) such information as may be necessary to identify the Stock Index Option being exercised; (c) the Clearing Member through whom such Stock Index Option is being exercised; (d) the total amount payable upon such exercise, and whether such amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the amount of cash and/or amount and kind of Securities, if any, to be withdrawn from the Senior Security Account for such Series; and the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Collateral Account for such Series. Upon the return and/or cancellation of the receipt, if any, delivered pursuant to the preceding paragraph of this Article, the Custodian shall pay out of the moneys held for the account of the Series to which such Stock Index Option was specifically allocated to the Clearing Member specified in the Certificate the total amount payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to a previously written
Option described in paragraphs, 6, 8 or 10 of this Article in a transaction
expressly designated as a "Closing Purchase Transaction" in order to liquidate
its position as a writer of an Option, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to the Option being purchased:
(a) that the transaction is a Closing Purchase Transaction; (b) the Series for
which the Option was written; (c) the name of the issuer and the title and
number of shares subject to the Option, or, in the case of a Stock Index Option,
the stock index to which such Option relates and the number of Options held; (d)
the exercise price; (e) the premium to be paid by the Fund; (f) the expiration
date; (g) the type of Option (put or call) (h) the date of such purchase; (i)
the name of the Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the amount and kind of Securities, if any, to be withdrawn
from the Collateral Account, a specified Margin Account, or the Senior Security
Account for such Series. Upon the Custodian's payment of the premium and the
return and/or cancellation of any receipt issued pursuant to paragraphs 6, 8 or
10 of this Article with respect to the Option being liquidated through the
Closing Purchase Transaction, the Custodian shall remove, or direct the
Depository to remove, the previously imposed restrictions on the Securities
underlying the Call Option.
13. Upon the expiration, exercise, or consummation of a Closing Transaction with respect to, any Option purchased or written by the Fund and described in this Article, the Custodian shall delete such Option from the statements delivered to the Fund pursuant to paragraph 3 Article III herein, and upon the return and/or cancellation of any receipts issued by the Custodian, shall make such withdrawals from the Collateral Account, and the Margin Account and/or the Senior Security Account as may be specified in a Certificate received in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund shall deliver to the Custodian a Certificate specifying with respect to such Futures Contract, (or with respect to any number of identical Futures Contracts)): (a) the Series for which the Futures Contract is being entered; (b) the category of Futures Contract (the name of the underlying stock index or financial instrument); (c) the number of identical Futures Contracts entered into; (d) the delivery or settlement date of the Futures Contracts); (e) the date the Futures Contract(s) was (were) entered into and the maturity date; (f) whether the Fund is buying (going long) or selling (going short) on such Futures Contract(s); (g) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in the Senior Security Account for such Series; (h) the name of the broker, dealer, or futures commission merchant through whom the Futures Contract was entered into; and (i) the amount of fee or commission, if any, to be paid and the name of the broker, dealer, or futures commission merchant to whom such amount is to be paid. The Custodian shall make the deposits, if any, to the Margin Account in accordance with the terms and conditions of the Margin Account Agreement. The Custodian shall make payment out of the moneys specifically allocated to such Series of the fee or commission, if any, specified in the Certificate and deposit in the Senior Security Account for such Series the amount of cash and/or the amount and kind of Securities specified in said Certificate.
2.(a) Any variation margin payment or similar payment required to be made by
the Fund to a broker, dealer, or futures commission merchant with respect to an
outstanding Futures Contract, shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a broker, dealer, or
futures commission merchant to the Fund with respect to an outstanding Futures
Contract, shall be received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is retained by the Fund until delivery or settlement is made on such Futures Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a) the Futures Contract and the Series to which the same relates; (b) with respect to a Stock Index Futures Contract, the total cash settlement amount to be paid or received, and with respect to a Financial Futures Contract, the Securities and/or amount of cash to be delivered or received; (c) the broker, dealer, or futures commission merchant to or from whom payment or delivery is to be made or received; and (d) the amount of cash and/or Securities to be withdrawn from the Senior Security Account for such Series. The Custodian shall make the payment or delivery specified in the Certificate, and delete such Futures Contract from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a Futures Contract held by the Custodian hereunder, the Fund shall deliver to the Custodian a Certificate specifying: (a) the items of information required in a Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money specifically allocated to such Series of the fee or commission, if any, specified in the Certificate and delete the Futures Contract being offset from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein, and make such withdrawals from the Senior Security Account for such Series as may be specified in such Certificate. The withdrawals, if any, to be made from the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the Fund, the
Fund shall promptly deliver to the Custodian a Certificate specifying with
respect to such Futures Contract Option: (a) the Series to which such Option is
specifically allocated; (b) the type of Futures Contract Option (put or call);
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Contract Option
purchased; (d) the expiration date; (e) the exercise price; (f) the dates of
purchase and settlement; (g) the amount of premium to be paid by the Fund upon
such purchase; (h) the name of the broker or futures commission merchant through
whom such option was purchased; and (i) the name of the broker, or futures
commission merchant, to whom payment is to be made. The Custodian shall pay out
of the moneys specifically allocated to such Series, the total amount to be paid
upon such purchase to the broker or futures commissions merchant through whom
the purchase was made, provided that the same conforms to the amount set forth
in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such sale: (a) the Series to which such Futures Contract Option was specifically allocated; (b) the type of Future Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract Option; (d) the date of sale; (e) the sale price; (f) the date of settlement; (g) the total amount payable to the Fund upon such sale; and (h) the name of the broker of futures commission merchant through whom the sale was made. The Custodian shall consent to the cancellation of the Futures Contract Option being closed against payment to the Custodian of the total amount payable to the Fund, provided the same conforms to the total amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Futures Contract Option was specifically allocated; (b) the particular Futures Contract Option (put or call) being exercised; (c) the type of Futures Contract underlying the Futures Contract Option; (d) the date of exercise; (e) the name of the broker or futures commission merchant through whom the Futures Contract Option is exercised; (f) the net total amount, if any, payable by the Fund; (g) the amount, if any, to be received by the Fund; and (h) the amount of cash and/or the amount and kind of Securities to be deposited in the Senior Security Account for such Series. The Custodian shall make, out of the moneys and Securities specifically allocated to such Series, the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to such Futures Contract Option: (a) the Series for which such Futures Contract Option was written; (b) the type of Futures Contract Option (put or call); (c) the type of Futures Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Contract Option; (d) the expiration date; (e) the exercise price; (f) the premium to be received by the Fund; (g) the name of the broker or futures commission merchant through whom the premium is to be received; and (h) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in the Senior Security Account for such Series. The Custodian shall, upon receipt of the premium specified in the Certificate, make out of the moneys and Securities specifically allocated to such Series the deposits into the Senior Security Account, if any, as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a call is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Futures Contract Option was specific ally allocated; (b) the particular Futures Contract Option exercised; (c) the type of Futures Contract underlying the Futures Contract Option; (d) the name of the broker or futures commission merchant through whom such Futures Contract Option was exercised; (e) the net total amount, if any, payable to the Fund upon such exercise; (f) the net total amount, if any, payable by the Fund upon such exercise; and (g) the amount of cash and/or the amount and kind of Securities to be deposited in the Senior Security Account for such Series. The Custodian shall, upon its receipt of the net total amount payable to the Fund, if any, specified in such Certificate make the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits, if any, to be made to the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and which is a put is exercised, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series to which such Option was specifically allocated; (b) the particular Futures Contract Option exercised; (c) the type of Futures Contract underlying such Futures Contract Option; (d) the name of the broker or futures com mission merchant through whom such Futures Contract Option is exercised; (e) the net total amount, if any, payable to the Fund upon such exercise; (f) the net total amount, if any, payable by the Fund upon such exercise; and (g) the amount and kind of Securities and/or cash to be withdrawn from or deposited in, the Senior Security Account for such Series, if any. The Custodian shall, upon its receipt of the net total amount payable to the Fund, if any, specified in the Certificate, make out of the moneys and Securities specifically allocated to such Series, the payments, if any, and the deposits, if any, into the Senior Security Account as specified in the Certificate. The deposits to and/or withdrawals from the Margin Account, if any, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to a previously written Futures Contract Option described in this Article in order to liquidate its position as a writer of such Futures Contract Option, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to the Futures Contract Option being purchased: (a) the Series to which such Option is specifically allocated; (b) that the transaction is a closing transaction; (c) the type of Future Contract and such other information as may be necessary to identify the Futures Contract underlying the Futures Option Contract; (d) the exercise price; (e) the premium to be paid by the Fund; (f) the expiration date; (g) the name of the broker or futures commission merchant to whom the premium is to be paid; and (h) the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Senior Security Account for such Series. The Custodian shall effect the withdrawals from the Senior Security Account specified in the Certificate. The withdrawals, if any, to be made from the Margin Account shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing transaction with respect to, any Futures Contract Option written or purchased by the Fund and described in this Article, the Custodian shall (a) delete such Futures Contract Option from the statements delivered to the Fund pursuant to paragraph 3 of Article III herein and, (b) make such withdrawals from and/or in the case of an exercise such deposits into the Senior Security Account as may be specified in a Certificate. The deposits to and/or withdrawals from the Margin Account, if any, shall be made by the Custodian in accordance with the terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a Futures Contract Option described in this Article shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying: (a) the Series for which such short sale was made; (b) the name of the issuer and the title of the Security; (c) the number of shares or principal amount sold, and accrued interest or dividends, if any; (d) the dates of the sale and settlement; (e) the sale price per unit; (f) the total amount credited to the Fund upon such sale, if any, (g) the amount of cash and/or the amount and kind of Securities, if any, which are to be deposited in a Margin Account and the name in which such Margin Account has been or is to be established; (h) the amount of cash and/or the amount and kind of Securities, if any, to be deposited in a Senior Security Account, and (i) the name of the broker through whom such short sale was made. The Custodian shall upon its receipt of a statement from such broker confirming such sale and that the total amount credited to the Fund upon such sale, if any, as specified in the Certificate is held by such broker for the account of the Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a receipt or make the deposits into the Margin Account and the Senior Security Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall promptly deliver to the Custodian a Certificate specifying with respect to each such closing-out: (a) the Series for which such transaction is being made; (b) the name of the issuer and the title of the Security; (c) the number of shares or the principal amount, and accrued interest or dividends, if any, required to effect such closing-out to be delivered to the broker; (d) the dates of closing- out and settlement; (e) the purchase price per unit; (f) the net total amount payable to the Fund upon such closing-out; (g) the net total amount payable to the broker upon such closing-out; (h) the amount of cash and the amount and kind of Securities to be withdrawn, if any, from the Margin Account; (i) the amount of cash and/or the amount and kind of Securities, if any, to be withdrawn from the Senior Security Account; and (j) the name of the broker through whom the Fund is effecting such closing-out. The Custodian shall, upon receipt of the net total amount payable to the Fund upon such closing-out, and the return and/ or cancellation of the receipts, if any, issued by the Custodian with respect to the short sale being closed-out, pay out of the moneys held for the account of the Fund to the broker the net total amount payable to the broker, and make the withdrawals from the Margin Account and the Senior Security Account, as the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with respect to Securities and money held by the Custodian hereunder, the Fund shall deliver to the Custodian a Certificate or in the event such Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral Instructions, or Written Instructions specifying: (a) the Series for which the Reverse Repurchase Agreement is entered; (b) the total amount payable to the Fund in connection with such Reverse Repurchase Agreement and specifically allocated to such Series; (c) the broker or dealer through or with whom the Reverse Repurchase Agreement is entered; (d) the amount and kind of Securities to be delivered by the Fund to such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and (f) the amount of cash and/or the amount and kind of Securities, if any, specifically allocated to such Series to be deposited in a Senior Security Account for such Series in connection with such Reverse Repurchase Agreement. The Custodian shall, upon receipt of the total amount payable to the Fund specified in the Certificate, Oral Instructions, or Written Instructions make the delivery to the broker or dealer, and the deposits, if any, to the Senior Security Account, specified in such Certificate, Oral Instructions, or Written Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in preceding paragraph 1 of this Article, the Fund shall promptly deliver a Certificate or, in the event such Reverse Repurchase Agreement is a Money Market Security, a Certificate, Oral Instructions, or Written Instructions to the Custodian specifying: (a) the Reverse Repurchase Agreement being terminated and the Series for which same was entered; (b) the total amount payable by the Fund in connection with such termination; (c) the amount and kind of Securities to be received by the Fund and specifically allocated to such Series in connection with such termination; (d) the date of termination; (e) the name of the broker or dealer with or through whom the Reverse Repurchase Agreement is to be terminated; and (f) the amount of cash and/or the amount and kind of Securities to be withdrawn from the Senior Securities Account for such Series. The
Custodian shall, upon receipt of the amount and kind of Securities to be received by the Fund specified in the Certificate, Oral Instructions, or Written Instructions, make the payment to the broker or dealer, and the withdrawals, if any, from the Senior Security Account, specified in such Certificate; Oral Instructions, or Written Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically allocated to
a Series held by the Custodian hereunder, the Fund shall deliver or cause to be
delivered to the Custodian a Certificate specifying with respect to each such
loan: (a) the Series to which the loaned Securities are specifically allocated;
(b) the name of the issuer and the title of the Securities, (c) the number of
shares or the principal amount loaned, (d) the date of loan and delivery, (e)
the total amount to be delivered to the Custodian against the loan of the
Securities, including the amount of cash collateral and the premium, if any,
separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank cashier's check payable to
the order of the Fund or the Custodian drawn on New York Clearing House funds
and may deliver Securities in accordance with the customs prevailing among
dealers in securities.
2. Promptly after each termination of the loan of Securities by the Fund, the
Fund shall deliver or cause to be delivered to the Custodian a Certificate
specifying with respect to each such loan termination and return of Securities:
(a) the Series to which the loaned Securities are specifically allocated; (b)
the name of the issuer and the title of the" Securities to be returned, (c) the
number of shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Custodian (including
the cash collateral for such Securities minus any offsetting credits as
described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or withdrawals from, a Senior Security Account as specified in a Certificate received by the Custodian. Such Certificate shall specify the Series for which such deposit or withdrawal is to be made, and the amount of cash and/or the amount and kind of Securities specifically allocated to such Series to be deposited in, or withdrawn from, such Senior Security Account for such Series. In the event that the Fund fails to specify in a Certificate the Series, the name of the issuer, the title and the number of shares or the principal amount of any particular Securities to be deposited by the Custodian into, or withdrawn from, a Senior Securities Account, the Custodian shall be under no obligation to make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin Account to the broker, dealer, futures commission merchant or Clearing Member in whose name, or for whose benefit, the account was established as specified in the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with respect to Securities deposited in any Margin Account shall be dealt with in accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in and to any property at any time held by the Custodian in any Collateral Account described herein. In accordance with applicable law the Custodian may enforce its lien and realize on any such property whenever the Custodian has made payment or delivery pursuant to any Put Option guarantee letter or similar document or any receipt issued hereunder by the Custodian. In the event the Custodian should realize on any such property net proceeds which are less than the Custodian's obligations under any Put Option guarantee letter or similar document or any receipt, such deficiency shall be a debt owed the Custodian by the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a statement with respect to each Margin Account in which money or Securities are held specifying as of the close of business on the previous business day: (a) the name of the Margin Account; (b) the amount and kind of Securities held therein; and (c) the amount of money held therein. The Custodian shall make available upon request to any broker, dealer, or futures commission merchant specified in the name of a Margin Account a copy of the statement furnished the Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which cash and/or Securities are maintained in a Collateral Account for any Series, the Custodian shall furnish the Fund with a Statement with respect to such Col lateral Account specifying the amount of cash and/or the amount and kind of Securities held therein. No later than the close of business next succeeding the delivery to the Fund of such statement, the Fund shall furnish to the Custodian a Certificate or Written Instructions specifying the then market value of the Securities described in such statement. In the event such then market
value is indicated to be less than the Custodian's obligation with respect to any outstanding Put Option guarantee letter or similar document, the Fund shall promptly specify in a Certificate the additional cash and/or Securities to be deposited in such Collateral Account to eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of the
Board of Directors of the Fund, certified by the Secretary or any Assistant
Secretary, either (i) setting forth with respect to the Series specified therein
the date of the declaration of a dividend or distribution, the date of payment
thereof, the record date as of which shareholders entitled to payment shall be
determined, the amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund on the payment date, or
(ii) authorizing with respect to the Series specified therein the declaration of
dividends and distributions on a daily basis and authorizing the Custodian to
rely on Oral Instructions, Written Instructions or a Certificate setting forth
the date of the declaration of such dividend or distribution, the date of
payment thereof, the record date as of which share holders entitled to payment
shall be determined, the amount payable per Share of such Series to the
shareholders of record as of that date and the total amount payable to the
Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral Instructions, Written Instructions or Certificate, as the case may be, the Custodian shall pay out of the moneys held for the account of each Series the total amount payable to the Dividend Agent, and any sub-dividend agent or co-dividend agent of the Fund with respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and price; and
(b) The amount of money to be received by the Custodian for the sale of such Shares and specifically allocated to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian shall credit such money to the separate account in the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing provisions of this Article, the Custodian shall pay, out of the money held for the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the Custodian to make payment out of the money held by the Custodian hereunder in connection with a redemption of any Shares, it shall furnish to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the Series and number of Shares received by the Transfer Agent for redemption and that such Shares are in good form for redemption, the Custodian shall make payment to the Transfer Agent out of the moneys held in the separate account in the name of the Series the total amount specified in the Certificate issued pursuant to the fore going paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any Shares, whenever any Shares are redeemed pursuant to any check redemption privilege which may from time to time be offered by the Fund, the Custodian, unless otherwise instructed by a Certificate, shall, upon receipt of an advice from the Fund or its agent setting forth that the redemption is in good form for redemption in accordance with the check redemption procedure, honor the check presented as part of such check redemption privilege out of the moneys held in the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian should in its sole discretion advance funds on behalf of any Series which results in an overdraft because the moneys held by the Custodian in the separate account for such Series shall be insufficient to pay the total amount payable upon a purchase of Securities specifically allocated to such Series, as set forth in a Certificate, Oral Instructions, or Written Instructions or which results in an overdraft in the separate account of such Series for some other reason, or if the Fund is for any other reason indebted to the Custodian with respect to a Series (except a borrowing for investment or for temporary or emergency purposes using Securities as collateral pursuant to a separate agreement and subject to the provisions of paragraph 2 of this Article), such overdraft or indebtedness shall be deemed to be a loan made by the Custodian to the Fund for such Series payable on demand and shall bear interest from the date incurred at a rate per annum (based on a 360-day year for the actual number of days involved) equal to 1/2% over Custodian's prime commercial lending rate in effect from time to time, such rate to be adjusted on the effective date of any change in such prime commercial lending rate but in no event to be less than 6% per annum. In addition, the Fund hereby agrees that the Custodian shall have a continuing lien and security interest in and to any property specifically allocated to such Series at any time held by it for the benefit of such Series or in which the Fund may have an interest which is then in the Custodian's possession or control or in possession or control of any third party acting in the Custodian's behalf. The Fund authorizes the
Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Series' credit on the Custodian's books.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned directly to the Custodian, and the Custodian
shall receive from time to time such return of collateral as may be tendered to
it. In the event that the Fund fails to specify in a Certificate the Series,
the name of the issuer, the title and number of shares or the principal amount
of any particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities.
ARTICLE XV
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, neither the Custodian nor its nominee shall be liable for any loss or damage, including counsel fees, resulting from its action or omission to act or otherwise, either hereunder or Under any Margin Account Agreement, except for any such loss or damage arising out of its own negligence or willful misconduct. The Custodian may, with respect to questions of law arising hereunder or under any Margin Account Agreement, apply for and obtain the advice and opinion of counsel to the Fund or of its own counsel, at the expense of the Fund, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. The Custodian shall be liable to the Fund for any loss or damage resulting from
the use of the Book-Entry System or any Depository arising by reason of any negligence, misfeasance or willful misconduct on the part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian shall be
under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased, sold, or written
by or for the Fund, the legality of the purchase, sale or writing thereof, or
the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or the propriety of
the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend by the Fund;
(d) The legality of any borrowing by the Fund using Securities as collateral;
(e) The legality of any loan of portfolio Securities, nor shall the Custodian
be under any duty or obligation to see to it that any cash collateral delivered
to it by a broker, dealer, or financial institution or held by it at any time as
a result of such loan of portfolio Securities of the Fund is adequate collateral
for the Fund against any loss it might sustain as a result of such loan. The
Custodian specifically, but not by way of limitation, shall not be under any
duty or obligation periodically to check or notify the Fund that the amount of
such cash collateral held by it for the Fund is sufficient collateral for the
Fund, but such duty or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obligation to see that any
broker, dealer or financial institution to which portfolio Securities of the
Fund are lent pursuant to Article XIV of this Agreement makes payment to it of
any dividends or interest which are payable to or for the account of the Fund
during the period of such loan or at the termination of such loan, provided,
however, that the Custodian shall promptly notify the Fund in the event that
such dividends or interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of money and/or Securities held
in any Margin Account, Senior Security Account, Exempt Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or non-
receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the Custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by it on behalf of the Fund until the Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest at the Book-Entry System or the Depository.
4. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Fund from the Transfer Agent of the Fund nor to take any action to effect payment or distribution by the Transfer Agent of the Fund of any amount paid by the Custodian to the Transfer Agent of the Fund in accordance with this Agreement.
5. The Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the Securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until (i) it shall be directed to take such action by a Certificate and (ii) it shall be assured to its satisfaction of reimbursement of its costs and expenses in connection with any such action.
6. The Custodian may appoint one or more banking institutions as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as Co-Custodian or Co- Custodians including, but not limited to, banking institutions located in foreign countries, of Securities and moneys at any time owned by the Fund, upon such terms and conditions as may be approved in a Certificate or contained in an agreement executed by the Custodian, the Fund and the appointed institution.
7. The Custodian shall not be under any duty or obligation (a) to ascertain whether any Securities at any time delivered to/ or held by it, for the account of the Fund and specifically allocated to a Series are such as properly may be held by the Fund or such Series under the provisions of its then current prospectus, or (b) to ascertain whether any transactions by the Fund, whether or not involving the Custodian, are such transactions as may properly be engaged in by the Fund.
8. The Custodian shall be entitled to receive and the Fund agrees to pay to the Custodian all out-of-pocket expenses and such compensation as may be agreed upon from time to time between the Custodian and the Fund. The Custodian may charge such compensation and any expenses with respect to a series incurred by the Custodian in the performance of its duties pursuant to such agreement against any money specifically allocated to such Series. Unless and until the Fund instructs the Custodian by a Certificate to apportion any loss, damage, liability or expense among the Series in a specified manner, the Custodian shall also be entitled to charge against any money held by it for the account of a Series such Series' pro rata share (based on such Series net asset value at the time of the charge to the aggregate net asset value of all Series at that time) of the amount of any loss, damage, liability or expense, including counsel fees, for which it shall be entitled to reimbursement under the provisions of this Agreement. The expenses for which the Custodian shall be entitled to reimbursement hereunder shall include, but are not limited to, the expenses of sub-custodians and foreign branches of the Custodian incurred in settling outside of New York City transactions involving the purchase and sale of Securities of the Fund.
9. The Custodian shall be entitled to rely upon any Certificate, notice or other instrument in writing received by the Custodian and reasonably believed by the Custodian to be a Certificate. The Custodian shall be entitled to rely upon any Oral Instructions and any Written Instructions actually received by the Custodian hereinabove provided for. The Fund agrees to forward to the Custodian a Certificate or facsimile thereof confirming such Oral Instructions or Written Instructions in such manner so that such Certificate or facsimile thereof is received by the Custodian, whether by hand delivery, telecopier or other,
similar device, or otherwise, by the close of business of the same day that such Oral Instructions or Written Instructions are given to the Custodian. The Fund agrees that the fact that such confirming instructions are not received by the Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Fund. The Fund agrees that the Custodian shall incur no liability to the Fund in acting upon Oral Instructions or Written Instructions given to the Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from an Authorized Person.
10. The Custodian shall be entitled to rely upon any instrument/ instruction or notice received by the Custodian and reasonably believed by the Custodian to be given in accordance with the terms and conditions of any Margin Account Agreement. Without limiting the generality of the foregoing, the Custodian shall be under no duty to require into, and shall not be liable for, the accuracy of any statements or representations contained in any such instrument or other notice including, without limitation, any specification of any amount to be paid to a broker, dealer, futures commission merchant or Clearing Member.
11. The books and records pertaining to the Fund which are in the possession of the Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the Investment Company Act of 1940, as amended, and other applicable securities laws and rules and regulations. The Fund, or the Fund's authorized representatives, shall have access to such books and records during the Custodian's normal business hours. Upon the reasonable request of the Fund, copies of any such books and records shall be provided by the Custodian to the Fund or the Fund's authorized representative, and the Fund shall reimburse the Custodian its expenses of providing such copies.
12. The Custodian shall provide the Fund with any report obtained by the Custodian on the system of internal accounting control of the Book-Entry System, the Depository, or O.C.C., and with such reports on its own systems of internal accounting control as the Fund may reasonably request from time to time.
13. The Fund agrees to indemnify the Custodian against and save the Custodian harmless from all liability, claims, losses and demands whatsoever, including attorney's fees, howsoever arising or incurred because of or in connection with the Custodian's payment or non-payment of checks pursuant to paragraph 6 of Article XIII as part of any check redemption privilege program of the Fund, except for any such liability, claim, loss and demand arising out of the Custodian's own negligence or willful misconduct.
14. Subject to the foregoing provisions of this Agreement, the Custodian may deliver and receive Securities, and receipts with respect to such Securities, and arrange for payments to be made and received by the Custodian in accordance with the customs prevailing from time to time among brokers or dealers in such Securities.
15. The Custodian shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against the Custodian.
ARTICLE XVI
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. In the event such notice is given by the Fund, it shall be accompanied by a copy of a resolution of the Board of Directors of the Fund, certified by the Secretary or any Assistant Secretary, electing to terminate this Agreement and designating a successor custodian or custodians, each of which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. In the event such notice is given by the Custodian, the Fund shall, on or before the termination date, deliver to the Custodian a copy of a resolution of the Board of Directors of the Fund, certified by the Secretary or any Assistant Secretary, designating a successor custodian or custodians. In the absence of such designation by the Fund, the Custodian may designate a successor custodian which shall be a bank or trust company having not less than $2,000,000 aggregate capital, surplus and undivided profits. Upon the date set forth in such notice this Agreement shall terminate, and the Custodian shall upon receipt of a notice of acceptance by the successor custodian on that date deliver directly to the successor custodian all Securities and moneys then owned by the Fund and held by it as Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the Custodian in accordance with the preceding paragraph, the Fund shall upon the date specified in the notice of termination of this Agreement and upon the delivery by the Custodian of all Securities (other than Securities held in the Book-Entry System which cannot be delivered to the Fund) and moneys then owned by the Fund be deemed to be its own custodian and the Custodian shall thereby be relieved of all duties and responsibilities pursuant to this Agreement, other than the duty with respect to Securities held in the Book Entry System which cannot be delivered to the Fund to hold such Securities hereunder in accordance with this Agreement.
ARTICLE XVII
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the present Officers of the Fund under its corporate seal, setting forth the names and the signatures of the present Authorized Persons. The Fund agrees to furnish to the Custodian a new Certificate in similar form in the event that any such present Authorized Person ceases to be an Authorized Person or in the event that other or additional Authorized Persons are elected or appointed. Until such new Certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon Oral Instructions or signatures of the present Authorized Persons as set forth in the last delivered Certificate.
2. Annexed hereto as Appendix B is a Certificate signed by two of the present Officers of the Fund under its corporate seal, setting forth the names and the signatures of the present Officers of the Fund. The Fund agrees to furnish to the Custodian a new Certificate in similar form in the event any such present
Officer ceases to be an Officer of the Fund, or in the event that other or additional Officers are elected or appointed. Until such new Certificate shall be received, the Custodian shall be fully protected in acting under the provisions of this Agreement upon the signatures of the Officers as set forth in the last delivered Certificate.
3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Custodian, shall be sufficiently given if addressed to the Custodian and mailed or delivered to it at its offices at 90 Washington Street, New York, New York 10015, or at such other place as the Custodian may from time to time designate in writing.
4. Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Fund shall be sufficiently given if addressed to the Fund and mailed or delivered to it at its office at the address for the Fund first above written, or at such other place as the Fund may from time to time designate in writing.
5. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the same formality as this Agreement and approved by a resolution of the Board of Directors of the Fund.
6. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided, however, that this Agreement shall not be assignable by the Fund without the written consent of the Custodian, or by the Custodian without the written consent of the Fund, authorized or approved by a resolution of the Fund's Board of Directors.
7. This Agreement shall be construed in accordance with the laws of the State of New York.
8. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective corporate Officers/ thereunto duly authorized and their respective corporate seals to be hereunto affixed, as of the day and year first above written.
By:/s/ Thomas H. Dinsmore
Attest:
/s/ Sigmund Levine
THE BANK OF NEW YORK
By: /s/ Steve Grunston
Attest:
/s/ Not Legible
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APPENDIX C
I, ________________________________, an Assistant Vice President with THE BANK OF NEW YORK do hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
Exhibit (j)(2)
AMENDMENT TO CUSTODY AGREEMENT
between
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
and
THE BANK OF NEW YORK
This Amendment Agreement made this 26th day of July, 1999, by and between ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC., a Maryland corporation (the "Fund"), and THE BANK OF NEW YORK, a New York corporation authorized to do a banking business (the "Custodian").
WHEREAS, the Fund and the Custodian entered into a Custody Agreement dated
as of February, 1990 (the "Custody Agreement"); and
WHEREAS, the Fund and the Custodian wish to amend the Custody Agreement to
provide for the duties of the Custodian with respect to property of the Fund
held outside of the United States and to foreign currency transactions.
W I T N E S S E T H:
In consideration of the mutual covenants herein contained, and other good
and valuable consideration, the receipt whereof is hereby acknowledged, the
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parties hereto, intending to be legally bound, agree as follows:
I. Definitions. Capitalized terms which are used herein without definition and which are defined in the Custody Agreement shall have the same meanings herein as in the Custody Agreement.
II. Amendment to Custody Agreement. The Fund and the Custodian agree to amend
the Custody Agreements as follows:
A. Article I of the Custody Agreement is hereby amended by adding the
following definitions to such Article:
"Composite Currency Unit" shall mean the European Currency Unit or any other composite unit consisting of the aggregate of specified amounts of specified Currencies as such unit may be constituted from time to time.
"Currency" shall mean money denominated in a lawful currency of any country or the European Currency Unit.
"FX Transaction" shall mean any transaction for the purchase by one party of an agreed amount in one Currency against the sale by it to the other party of an agreed amount in another Currency.
B. The following two articles are hereby added to the end of the Custody Agreement:
ARTICLE XVIII
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to employ, as sub-custodian for each Series' Securities for which the primary market is outside the United States ("Foreign Securities") and other assets, the foreign banking institutions and foreign securities depositories and clearing agencies designated on Schedule I hereto ("Foreign Sub-Custodians"). The Fund may designate any additional foreign sub-custodian with which the Custodian has an agreement for such entity to act as the Custodian's agent, as its sub-custodian and any such additional foreign sub-custodian shall be deemed added to Schedule I. Upon receipt of a Certificate from the Fund, the Custodian shall cease the employment of any one or more Foreign Sub-Custodians for maintaining custody of the Fund's assets and such Foreign Sub-Custodian shall be deemed deleted from Schedule I.
2. Each delivery of a Certificate to the Custodian in connection with a transaction involving the use of a Foreign Sub-Custodian shall constitute a representation and warranty by the Fund that its Board of Directors, or its third party foreign custody manager as defined in Rule 17f-5 under the Investment Company Act of 1940, as amended, if any, has determined that use of such Foreign Sub-Custodian satisfies the requirements of such Investment Company Act of 1940 and such Rule 17f-5 thereunder.
3. The Custodian shall identify on its books as belonging to each Series of tile Fund the Foreign Securities of such Series held by each Foreign Sub- Custodian. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims by the Fund or any Series against a Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense, liability or claim sustained or incurred by the Fund or any Series if and to the extent that the Fund or such Series has not been made whole for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will, consistent with the terms of the applicable Foreign Sub-Custodian agreement use reasonable efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any Foreign Sub-Custodian insofar as such books and records relate to the performance of such Foreign Sub-Custodian under its agreement with the Custodian on behalf of the Fund.
5. The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of each Series held by Foreign Sub-Custodians, including but not limited to an identification of entities having possession of each Series' Foreign Securities and other assets, and advices or notifications of any transfers of Foreign Securities to or from each custodial account maintained by a Foreign Sub-Custodian for the Custodian on behalf of the Series.
6. The Custodian shall transmit promptly to the Fund all notices, reports or other written information received pertaining to the Fund's Foreign Securities, including without limitation, notices of corporate action, proxies and proxy solicitation materials.
7. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for securities received for the account of any Series and delivery of securities maintained for the account of such Series may be effected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer.
8. Notwithstanding any other provision in this Agreement to the contrary, with
respect to any losses or damages arising out of or relating to any actions or
omissions of any Foreign Sub-Custodian the sole responsibility and liability of
the Custodian shall be to take appropriate action at the Fund's expense to
recover such loss or damage from the Foreign Sub-Custodian. It is expressly
understood and agreed that the Custodian's sole responsibility and liability
shall be limited to amounts so recovered from the Foreign Sub-Custodian.
ARTICLE XIX
FX TRANSACTIONS
1. Whenever the Fund shall enter into an FX Transaction, the Fund shall promptly deliver to the Custodian a Certificate or Oral Instructions specifying with respect to such FX Transaction: (a) the Series to which such FX Transaction is specifically allocated; (b) the type and amount of Currency to be purchased by the Fund; (c) the type and amount of Currency to be sold by the Fund; (d) the date on which the Currency to be purchased is to be delivered; (e) the date on which the Currency to be sold is to be delivered; and (f) the name of the person from whom or through whom such currencies are to be purchased and sold. Unless otherwise instructed by a Certificate or Oral Instructions, the Custodian shall deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to be sold on the date on which such delivery is to be made, as set forth in the Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on the date as set forth in the Certificate.
2. Where the Currency to be sold is to be delivered on the same day as the Currency to be purchased, as specified in the Certificate or Oral Instructions, the Custodian or a Foreign Sub-Custodian may arrange for such deliveries and receipts to be made in accordance with the customs prevailing from time to time among brokers or dealers in Currencies, and such receipt and delivery may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with such receipts and deliveries, which responsibility and liability shall continue until the Currency to be received by the Fund has been received in full.
3. Any FX Transaction effected by the Custodian in connection with this Agreement may be entered with the Custodian, any office, branch or subsidiary of The Bank of New York Company, Inc., or any Foreign Sub-Custodian acting as principal or otherwise through customary banking channels. The Fund may issue a standing Certificate with respect to FX Transaction but the Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. The Fund shall bear all risks of investing in Securities or holding Currency. Without limiting the foregoing, the Fund shall bear the risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign depositories, exchange controls, asset freezes or other laws, rules, regulations or orders shall prohibit or impose burdens or costs on the transfer to, by or for the account of the Fund of Securities or any cash held outside the Fund's jurisdiction or denominated in Currency other than its home jurisdiction or the conversion of cash from one Currency into another currency. The Custodian shall not be obligated to substitute another Currency for a Currency (including a Currency that is a component of a Composite Currency Unit) whose transferability, convertibility or availability has been affected by such law, regulation, rule or procedure. Neither the Custodian nor any Foreign Sub- Custodian shall be liable to the Fund for any loss resulting from any of the foregoing events.
III. Effect of Amendment. Except as hereinabove modified and amended, the Custody Agreement will remain unaltered and in fall force and effect and is hereby ratified and confirmed in all respects as amended.
IV. Governing Law. This Amendment shall be governed by and construed according to the laws of the State of New York without giving effect to conflicts of laws principles thereof IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed in duplicate on the day and year first above written.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
Attest: /s/ Mercedes A. Pierre By: /s/ Sigmund Levine Name: Mercedes A. Pierre Name: Sigmund Levine Title: Asst. Treas. Title: Senior Vice President |
THE BANK OF NEW YORK
Attest: /s/ Marjorie McLaughlin By: /s/ Jorge E. Ramos Name: Marjorie McLaughlin Name: Jorge E. Ramos Title: Vice President Title: Vice President |
Exhibit (j)(3)
AMENDMENT
AMENDMENT made as of June 1, 2001 to that certain Custody Agreement dated as of June 13, 1986 as amended on July 26, 1999 between Ellsworth Convertible Growth & Income Fund, Inc. (the "Fund") and The Bank of New York ("Custodian") (such Custody Agreement hereinafter referred to as the "Custody Agreement").
WITNESSETH:
WHEREAS, Rule 17f-7 under the Investment Company Act of 1940, as amended (the "Rule"), was adopted on June 12, 2000 by the Securities and Exchange Commission;
WHEREAS, the Fund and Custodian desire to amend the Custody Agreement to conform to the Rule;
NOW, THEREFORE, the Fund and Custodian hereby agree as follows:
A. The following new Article XXI is hereby added to the Custody Agreement:
FOREIGN DEPOSITORIES
1. As used in this Article, the term "Foreign Depository" shall mean each Eligible Securities Depository as defined in Rule l7f-7 under the Investment Company Act of 1940, as amended (the "Rule"), identified by Custodian to the Fund from time to time, and their respective successors and nominees.
2. Notwithstanding any other provision in this Agreement, the Fund hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon any delivery of a Certificate or any giving of Oral Instructions, Instructions, or Written Instructions, as the case may be, that the Fund or its investment adviser has determined that the custody arrangements of each Foreign Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Foreign Depository within the meaning of the Rule.
3. With respect to each Foreign Depository, Custodian shall exercise reasonable care, prudence, and diligence such as a person having responsibilities for the safekeeping of the Fund's assets would exercise (i) to provide the Fund or its investment adviser with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. The Fund acknowledges and agrees that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from Subcustodians, trade associations of which Custodian is a member from time to time, or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks. Custodian will endeavor to include in its analysis and monitoring, among other things, a Foreign Depository's expertise and market reputation, the quality of its services, its financial strength, any insurance or indemnification arrangements, the extent and quality of regulation and independent examination of the depository, its standing in published ratings, its internal controls and other procedures for safeguarding investments, and any
related legal protections. In the event that the Fund reasonably believes that
there is a discrepancy between Custodian's performance of its obligations in (i)
or (ii) and the requirements of paragraphs (a)(l)(i)(A) or (B) of the Rule,
respectively, and provides a detailed notification to Custodian, Custodian shall
reasonably cooperate with the Fund and endeavor to resolve any such discrepancy.
As used herein the term "Country Risks" shall mean with respect to any Foreign
Depository: (a) the financial infrastructure of the country in which it is
organized, but not of any Foreign Depository to the extent covered by an
analysis described in clause (i) of this Section, (b) such country's prevailing
settlement practices, (c) nationalization, expropriation or other governmental
actions, (d) such country's regulation of the banking or securities industry,
(e) currency controls, restrictions, devaluations or fluctuations, and
(f) market conditions which affect the order execution of securities
transactions or affect the value of securities.
B. Each party represents to the other that this Amendment has been duly executed.
C. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts, shall, together, constitute only one amendment. IN WITNESS WHEREOF, the Fund and Custodian have caused this Amendment to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
By:/s/ Gary Levine Name: Gary Levine Title: Treasurer |
Tax Identification No: 13-3345139
THE BANK OF NEW YORK
By:/s/ Ira R. Rosner Name: Ira R. Rosner Title: Vice President |
Exhibit (k)(1)
American
Stock Transfer & Trust Company
Mr. Gary Levine
Re: Ellsworth Convertible Growth & Income Fund
American Stock Transfer & Trust Company
January 3, 2002
Mr. Gary Levine
Bancroft Convertible Fund, Inc.
65 Madison Avenue
Morristown, NJ 07960
Dear Mr. Levine:
This will confirm our agreement whereby American Stock Transfer & Trust Company will provide Ellsworth Convertible Growth and Income Fund with complete Registrar and Transfer Agent services for a flat monthly fee of $1,000.00. The flat monthly fee covers all services you require including unlimited transfers, reports and mailings to shareholders (stock splits, re-org for new acquisitions and secondary distributions are excluded). The only other fees will be for out- of-pocket expenses such as postage and stationery for mailings to all your shareholders. We guarantee this rate for a period of three years.
The following services are included in American Stock Transfer & Trust Company's flat monthly fee:
- Issuing and registering all stock certificates.
- Issuing stock options through the DWAC system.
- Processing legal transfers and transactions requiring special handling.
- Requesting opinion from company's counsel for restricted shares.
- Mailing certificates to shareholders as a result of transfers.
- Providing e-mail access for the same day issuance of stock options.
- Providing daily reports of processed transfers.
- Maintaining all shareholder accounts.
- Placing, maintaining and removing stop transfers.
- Social Security solicitation.
- Providing a general 800 number for shareholder inquiries.
- Handling shareholder/broker inquiries, including Internet correspondence.
- Issuing audit confirmations to company's auditors.
- Soliciting proxy votes for routine meetings.
- Imprinting shareholders' names on proxy cards.
- Mailing material to shareholders.
- Enclosing multiple proxy cards to same household in one envelope.
- Receiving remote electronic transmissions from ADP/IECA.
- Transmitting daily proxy tabulation reports to the company via facsimile or
telephone.
- Verifying broker bills.
- Tabulating proxies.
- Internet proxy voting (voteproxy.com). AST can be contacted via the
Internet at our website: www.amstock.com and can receive e-mail at
info@amstock.com.
- Preparing final Proxy Tabulation Reports.
- Monitoring and suppressing undeliverable mail until correct address is
located.
- Furnishing unlimited shareholder lists, in any sequence.
- Providing geographical detail reports of all stocks issued and surrendered
over a specific period.
- Preparing and mailing checks to shareholders.
- Inserting all required enclosures.
- Issuing replacements.
- Maintaining Postal return items.
- Providing check reconciliation detail to company.
- Opening and maintaining participant accounts.
- Acknowledging and processing reinvestment, direct debit and optional cash
payments.
- Mailing quarterly dividend reinvestment statements.
- Corresponding with plan participants.
- Mailing proceeds to plan participants liquidating or terminating the plan.
- Mailing year-end tax information to plan participants and the IRS.
- Providing periodic investment reports to the company.
- Mailing year-end 1099 forms to shareholders.
- Furnishing year-end 1099 forms to shareholders.
- Replacing lost 1099 forms to shareholders.
- Escheatment reports furnished to various state agencies.
Any information on our system is available to your company through the Internet and your shareholders can access information pertaining to their accounts either through the Internet or on IVR.
All certificate issuances, reports, mailings, labels, transfers and transactions, described above will be provided to you and your shareholders on an unlimited basis.
If the above meets with your approval, please sign below. Retain one copy for your files and return one signed copy to AST along with a fully executed copy of our appointment forms (enclosed).
Very truly yours,
AMERICAN STOCK TRANSFER & TRUST COMPANY
/s/ Michael Karfunkel Michael Karfunkel President |
AGREED TO AND ACCEPTED THIS
4th DAY OF JANUARY, 2002.
By /s/ Gary Levine
Gary Levine, Treasurer
(Print Name & Title)
|
Exhibit (n)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration Statement on Form N-2 of our report dated October 14, 2002, relating to the financial statements and financial highlights which appears in the September 30, 2002 Annual Report to Shareholders of Ellsworth Convertible Growth and Income Fund, Inc., which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Experts", "Independent Accountants" and "Financial Statements" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
September 2, 2003
Exhibit (r)(1)
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
RESTATED CODE OF ETHICS
(Adopted April 14, 2003)
I. Preamble
The officers, directors, directors emeritus, certain employees and other affiliated persons (as that term is defined in the Investment Company Act of 1940) of Ellsworth Convertible Growth and Income Fund, Inc. (the "Company") will in varying degrees participate in or be aware of decisions made to implement the investment policies of the Company. Accordingly, the officers, directors, directors emeritus, certain employees and other affiliated persons of the Company act as fiduciaries of the Company who must at all times place the interests of shareholders of the Company first. All conduct of such individuals should comport with the highest standards of ethics to avoid any actual or potential conflicts of interest. Specifically, the officers, directors, directors emeritus, certain employees and other affiliated persons of the Company must not take inappropriate advantage of their respective positions with or on behalf of the Company, especially with regard to personal investing. This Code of Ethics has therefore been adopted by the Board of Directors of the Company with the intent of preventing any intentional or unintentional transgression by establishing high standards for conduct, without unduly interfering with the privacy and freedom of the individuals concerned.
II. Scope
It is intended that all investments or investment practices involving a possible conflict of interest will be avoided so as to prevent any impairment of a person's ability to be disinterested in making investment decisions and any use for the benefit of a Personal Account of information relating to transactions being or to be recommended to the Company. It is also intended that this Code of Ethics provide appropriate protection of Nonpublic Material Information received by officers, directors, directors emeritus, employees and other affiliated persons of the Company.
III. Applicability
Except as otherwise provided in Section VI hereof, the provisions of this Code shall apply to all directors, directors emeritus, officers, employees and other affiliated persons of the Company.
IV. Definitions
A. "Access Person" shall mean any director, director emeritus, officer or Advisory Person of the Company.
B. "Act" shall mean the Investment Company Act of 1940.
C. "Advisory Person" of the Company shall mean: (i) Any employee of the Company who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the purchase or sale of a Security by the Company, or whose functions relate to the making of any recommendations with respect to such purchases or sales, including security
analysts and traders who provide information and advice to a Portfolio Manager or who help execute a Portfolio Manager's decisions; and (ii) Any natural person in a Control relationship to the Company who obtains information concerning recommendations made to the Company with regard to the purchase or sale of a Security.
D. "Beneficial Ownership" of Securities by any person subject to this Code shall mean ownership of record and beneficially and also direct or indirect beneficial interest in Securities, including all Securities in the name of or for the direct or indirect benefit of such person's spouse, minor children, or any individual living with him or her or to whose support such person substantially contributes.
E. "Compliance Officer" shall mean the person(s) designated by the Board of Directors and/or the President of the Company to administer this Code.
F. "Control" shall have the same meaning as that set forth in section 2(a)(9) of the Act.
G. "Covered Persons" shall include officers, directors, directors emeritus, employees and other affiliated persons of the Company.
H. "Interested Person" shall have the same meaning as that set forth in
Section (2)(a)(19) of the Act.
I. "Investment Person" shall mean any Access Person who occupies the position of Portfolio Manager for the Company, any Access Person who provides or supplies information and/or advice to any Portfolio Manager or who executes or helps execute any Portfolio Manager's decisions, and any Access Person who, in connection with his or her regular functions, obtains contemporaneous information regarding the purchase or sale of a Security by the Company.
J. "Material Information" is generally defined as information that a
reasonable investor would be likely to consider important in making his or her
investment decisions, or information that is reasonably certain to have a
substantial effect on the price of the Securities of a company or other issuer.
Information that should be considered material includes, but is not limited to:
dividend changes; earnings estimates; changes in previously released earnings
estimates; the threat, commencement or resolution of litigation; significant
merger or acquisition proposals or agreements; undisclosed or threatened
regulatory actions; significant product or resource discoveries; proposed new
business activities and extraordinary management developments.
K. "Nonpublic Information" is broadly defined as information that is not generally available to ordinary investors in the marketplace, or disseminated in a manner making it available to investors in the public, e.g., through newspapers or the financial press.
L. "Nonpublic Material Information" shall mean Material Information that is Nonpublic Information.
M. "Personal Account" of any person subject to this Code shall mean: (i) accounts as to which such person has Beneficial Ownership; (ii) accounts of any other individual or entity whose accounts are managed or Controlled by or through such person; and (iii) accounts of any other individual or entity to whom such person gives advice with regard to the acquisition or disposition of Securities, other than the Company; provided, however, that the term "Personal Account" shall not be construed in a manner which would impose a limitation or restriction upon the normal conduct of business by directors, directors emeritus, officers, employees and affiliates of the Company.
N. "Portfolio Manager" shall mean any employee entrusted with the direct responsibility and authority to make investment decisions affecting the Company.
O. "Purchase or sale of a Security" shall include, among other things, the writing of an option to purchase or sell a Security.
P. "SEC" shall mean the Securities and Exchange Commission.
Q. "Security" shall have the meaning set forth in Section 2(a)(36) of the Act, except that it shall not include securities issued by the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and shares of registered open-end investment companies.
R. "Security Held or to be Acquired" by the Company shall mean any Security which, within the most recent 15 days, (i) is or has been held by the Company, or (ii) is being or has been considered by the Company or its investment adviser for purchase by the Company and any option to purchase or sell, and any security convertible into or exchangeable for such Security.
V. Standards of Conduct
A. Conflict of Interest - General Rule. In any matter involving both the Personal Account of a person to whom this Code is applicable and Securities Held or to be Acquired by the Company, the person subject to this Code shall resolve any known or reasonably to be anticipated conflict of interest in favor of the Company.
B. Fraudulent Purchase or Sale. No Access Person shall, in connection with
the purchase or sale, directly or indirectly, by such person of a Security Held
or to be Acquired by the Company: (i) employ any device, scheme or artifice to
defraud the Company; (ii) make to the Company any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
(iii) engage in any act, practice or course of business which would operate as a
fraud or deceit upon the Company; or (iv) engage in any manipulative practice
with respect to the Company.
C. Prohibited Transactions
1. Purchase of Securities. Except as otherwise provided in Section VI hereof,
no Access Person of the Company may purchase or sell any Security of an issuer
or any shares issued by the Company for his or her Personal Account without the prior written approval of the Compliance Officer, upon request of the potential purchaser or seller, on a preclearance form (attached hereto as Exhibit A). In determining whether to give such prior written approval, the Compliance Officer shall take into account whether the proposed transaction is likely to (i) impair the potential purchaser's ability to be disinterested in making investment decisions, (ii) affect the market price for the Security in question, or (iii) benefit from market reaction to the portfolio transactions of the Company. The Board of Directors of the Company shall implement appropriate procedures to monitor personal investment activity by Access Persons after preclearance has been granted. The procedure to be followed by each Access Person to obtain the prior written approval required by this paragraph is set forth in Schedule I to this Code.
2. Blackout Periods and Short-Term Trading. Except as otherwise provided in
Section VI hereof, no Access Person may execute a securities transaction in a
Security for his or her Personal Account on a day during which the Company has a
pending buy or sell order in that same Security, until that order is executed or
withdrawn. No Portfolio Manager may buy or sell a Security for his or her
Personal Account within seven calendar days before or after the Company trades
in that Security. No Investment Person may profit for his or her Personal
Account from the purchase and sale, or sale and repurchase, within 60 calendar
days of the same Security (or equivalent Security), if at the time of such
purchase or sale, or sale or repurchase, the Security is held by the Company.
Any profits realized by any person on trades proscribed by this paragraph shall
be returned to the Company.
3. Initial Public Offerings and New Issues. No Investment Person may acquire any Securities in an initial public offering for his or her Personal Account, absent prior authorization by the Board of Directors of the Company, or such officers as the Board of Directors may designate, based upon a determination by the Board of Directors, or such designated officers, of whether the investment opportunity should be reserved for the Company and its shareholders, and whether the opportunity is being offered to such individual by virtue of his or her position with the Company. Purchases of new issues in an initial public offering shall be made with the spirit and intent of purchases made under an investment letter and shall be avoided if the individual involved feels that in any way he or she is receiving preferential treatment because of his or her association with the Company.
4. Private Placements. No Investment Person may acquire Securities in a private placement for his or her Personal Account, absent prior authorization by the Board of Directors of the Company, or such officers as the Board of Directors may designate, based upon a determination by the Board of Directors, or such designated officers, of whether the investment opportunity should be reserved for the Company and its shareholders, and whether the opportunity is being offered to such individual by virtue of his or her position with the Company. Any Investment Person who has acquired Securities in a private placement must notify the Compliance Officer when he or she is involved in a subsequent consideration of an investment in the issuer of such Security on behalf of the Company. The Company shall not purchase or sell Securities of such an issuer without independent review of such purchase or sale by an Investment Person with no personal interest in the issuer.
5. Disclosure of Nonpublic Material Information. Covered Persons of the Company shall not disclose or tip, trade on or appear to use any Nonpublic Material Information obtained in the course of or as a result of his or her relationship with the Company relating to (i) any Security (or Security which is convertible into such Security) Held or to be Acquired by the Company or (ii) the Company itself.
6. Reports. Written reports relating to a particular Security or to an industry prepared by the Company's staff shall not go outside the office without written permission of an officer.
7. Gifts and Other Benefits. No Investment Person shall accept a gift of more than de minimis value from any person or entity that does business with or on behalf of the Company. In any event, the value of such gifts may not exceed $100 per giver per year.
8. Service as a Director or Trustee. No Investment Person may accept a position as a director or trustee of a publicly traded company other than the Company absent prior authorization by the Board of Directors of the Company based upon a determination by the Board of Directors that such service as a director or trustee would be consistent with the interests of the Company and its shareholders. The Board of Directors of the Company shall implement safeguards to address any potential conflicts of interests that may arise in the event it approves of any Investment Person serving as a director or trustee of a publicly traded company; any Investment Person serving as a director or trustee of a publicly traded company normally shall be isolated from those making investment decisions relating to such company through "Chinese Wall" or other procedures.
VI. Exempted Transactions
A. Non-Volitional Transactions. The prohibitions of Sections V(C)(1) and (2) shall not apply to purchases or sales which are non-volitional on the part of either the Access Person or Investment Person, as applicable, or the Company.
B. Reinvestment Plans. The prohibitions of Sections V(C)(1) and (2) shall not apply to purchases which are part of an automatic dividend reinvestment plan.
C. Rights. The prohibitions of Sections V(C)(1) and (2) shall not apply to purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its Securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired.
D. The prohibitions of Sections V(C)(1) and (2) shall not apply to a director or director emeritus of the Company who is subject to this Code solely by reason of being a director or director emeritus of the Company unless the director or director emeritus knew, or in the course of fulfilling his or her official duties as a director or director emeritus of the Company, should have known that during the 15-day period immediately preceding or after the date of the transaction in a Security by the director or director emeritus, the Company purchased or sold such Security or that the Company considered purchasing or selling such Security.
E. The prohibitions of Section V(C)(2) shall not apply if the Compliance Officer grants an exception therefrom, in whole or in part, upon such conditions as the Compliance Officer may impose; provided, however, that the Compliance Officer may grant an exception only if he or she determines that no harm will result to the Company and that to require the return of profits, if any, derived from the prohibited conduct to the Company would be inequitable or result in undue hardship to the individual requesting the exception.
VII. Reporting Requirements
A. Initial and Annual Holdings Reports. Subject to the provisions of Section VII(D) hereof, within ten (10) days of becoming an Access person, each Access Person shall disclose to the Company in the form attached hereto as Exhibit B the title, number of shares and principal amount of each Security in which the Access Person had any direct or indirect beneficial ownership at the time he or she became an Access Person, and the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person at the time he or she became an Access Person. As of December 31 of each year thereafter, each Access Person must update the information contained in the initial holdings report, which disclosure shall be made no later than 30 days after each December 31.
B. Quarterly Transaction Reports. Subject to the provisions of Section VII(D) hereof, and except as otherwise provided herein, each Access Person of the Company shall make a report containing the information described in Section VII(C) hereof to the Company with respect to transactions in any Security in which such Access Person has, or by reason of such transaction acquires, any Beneficial Ownership. The Company shall identify all Access Persons who are under a duty to make such reports to it and shall inform such persons of such duty.
C. Required Information. Each report required to be made hereunder, in the
form attached hereto as Exhibit C, shall be delivered to the Company to the
attention of its Compliance Officer not later than ten (10) days after the end
of the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
1. the date of the transaction, the title, the interest and maturity date (if
applicable), the number of shares, and the principal amount of each Security
involved;
2. the nature of the transaction (i.e. purchase, sale or any other type of
acquisition or disposition);
3. the price at which the transaction was effected;
4. the name of the broker, dealer or bank with or through whom the transaction
was effected; and
5. the date that the report is submitted by the Access Person.
Such reports will be reviewed regularly by the Compliance Officer. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or
indirect Beneficial Ownership in the Security. If required by law, the reports will also be available for inspection by the SEC staff, but will otherwise be afforded confidential treatment.
D. Exceptions. Notwithstanding Section VII(A) and (B) hereof, no person shall
be required to make a report:
1. with respect to transactions effected for any account over which such
person does not have any direct or indirect influence or Control;
2. if such person is not an Interested Person of the Company and would be
required to make such a report solely by reason of being a director or director
emeritus of the Company, except where such director or director emeritus knew
or, in the ordinary course of fulfilling his or her official duties as a
director or director emeritus of the Company, should have known that during the
15-day period immediately preceding or after the date of the transaction in a
Security by the director or director emeritus the Company purchased or sold such
Security (or a Security which is convertible into such Security) or the Company
or its investment adviser considered purchasing or selling such Security; or
3. if the report would duplicate information contained in broker trade
confirmations or account statements received by the Company with respect to the
Access Person in the time period required by Section VII(C) hereof.
VIII. Sanctions
Any officer or employee who violates or attempts to violate any provision of this Code may be subject to sanctions which may include, among other things, restrictions on such person's personal securities transactions; a letter of admonition, education or formal censure; fines; suspension, reassignment, demotion or termination of employment; or other significant remedial action. The statutory penalties for use of Nonpublic Material Information may include civil fines of up to three times the amount of any profit made or any loss avoided by trading, and criminal penalties of up to five years' imprisonment and $100,000 in fines.
IX. Interpretations and Exceptions
Any questions regarding the applicability, meaning or administration of the Code shall be referred by the person concerned in advance of a contemplated transaction to the Compliance Officer. Exemptions will be granted (in addition to those pursuant to Section VI hereof) by said officer if, in his or her judgment, the fundamental obligation of the person involved is not compromised.
X. Acceptance
Each person to whom this Code is applicable shall receive a copy of the same. Any amendments to this Code shall be furnished similarly to each person to whom this Code is applicable. Each Access Person shall certify by January 31 of each year that (i) he or she has read and understood this Code and will abide by it, (ii) he or she has complied with the requirements of this Code as of the date of signing, and (iii) that he or she has disclosed and reported
all personal securities transactions required to be disclosed or reported under this Code. A form of the statement is attached hereto as Exhibit D.
XI. Recordkeeping.
The Company shall maintain the following in an easily accessible place:
A. a copy of this Code and any other Code which is, or at any time within the past five years has been in effect;
B. records of any violations of this Code and actions taken as a result of such violations for at least five years after the end of the fiscal year in which the violation occurs;
C. copies of each report made under this Code (i.e., reports required by
Section VII of this Code) for at least five years after the end of the fiscal
year in which the report is made;
D. a list of all persons who are, or have been, required to make reports pursuant to this Code;
E. a copy of each report described in Section XII(C) of this Code for at least five years after the end of the fiscal year in which the report is made;
F. a record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Persons of Securities in an initial public offering or a private placement for at least five years after the end of the fiscal year in which the approval is granted.
XII. Miscellaneous
A. Confidentiality. All reports of securities transactions and any other information filed with the Company pursuant to this Code shall be treated as confidential.
B. Code Approval. The Board of Directors of the Company, including a majority of the disinterested Directors, must approve this Code, and the code of ethics of the investment adviser and any principal underwriter to the Company, and any material changes to these codes. Before approving a code or any amendment to a code, the Board of Directors must receive a certification from the Company, investment adviser or principal underwriter that it has adopted procedures reasonably necessary to prevent Access Persons from violating its code of ethics. The Board of Directors must approve a material change to a code no later than six months after adoption of the material change.
C. Periodic Review and Reporting. At least annually, the President of the
Company shall furnish a written report to the Board of Directors of the Company
that:
1. provides a summary of the Company's existing procedures concerning personal
investing by officers, directors, directors emeritus and employees of the
Company and any changes in such procedures made during the preceding year,
2. describes any issues arising under this Code or the Company's Procedures
since the last report, including, but not limited to, information about material
violations of the Code or Procedures and sanctions imposed in response to the
material violations;
3. describes any recommended changes to this Code; and
4. certifies that the Company has adopted procedures reasonably necessary to
prevent Access Persons from violating this Code.
D. Effective Date. The provisions of this Code shall be effective as of April 14, 2003, and amendments shall become effective when promulgated.
SCHEDULE I
PROCEDURES FOR IMPLEMENTATION OF CODE OF ETHICS
The following procedures have been adopted by the Board of Directors of Ellsworth Convertible Growth and Income Fund, Inc. (the "Company") to ensure compliance with its Code of Ethics
I. Designation of Compliance Officer
- The President of the Company is hereby designated as the Compliance Officer for the Code of Ethics.
- The Compliance Officer shall oversee compliance by officers, directors,
directors emeritus and employees of the Company and its investment adviser with
the Code of Ethics.
- The Compliance Officer may designate an employee of the Company's
investment adviser to assist in administrative matters relating to the Code of
Ethics.
II. Preclearance
- The Compliance Officer shall be responsible for preclearing the purchase or sale of a Security by any Access Person.
III. Education
- The Compliance Officer shall be responsible for educating all officers,
directors, directors emeritus and employees of the Company and its investment
adviser regarding the Company's Code of Ethics.
- The Compliance Officer shall distribute to all directors, directors
emeritus, officers and employees, upon their commencement of service with the
Company or its investment adviser, and thereafter on an annual basis, a copy of
the Company's Code of Ethics.
- The Compliance Officer shall explain to each officer, director, director
emeritus and employee of the Company and its investment adviser all applicable
provisions of the Code of Ethics: (i) upon commencement of such individual's
service with the Company, and (ii) thereafter, on an annual basis. This annual
requirement may be satisfied by an informational meeting that is attended by all
officers, directors, directors emeritus and employees.
- The Compliance Officer shall obtain from all officers, directors, directors
emeritus and employees a signed statement that they have reviewed and understand
the Code of Ethics, in substantially the form of Exhibit D to the Code of
Ethics: (i) upon commencement of such individual's service with the Company or its investment adviser, (ii) upon any amendment to the Code of Ethics, and (iii) in any event, on an annual basis. The Compliance Officer shall maintain a file that contains such statements.
IV. Confidential Information
- The Compliance Officer shall maintain all preclearance forms, written reports and other confidential information submitted pursuant to the Code of Ethics in a locked, secure area, and shall require that all persons who have access to such information sign a statement agreeing that they shall maintain such information in confidence.
V. Reports under the Code of Ethics
- The Compliance Officer shall promptly review all preclearance forms, initial, quarterly and annual reports, confirmations, periodic reports and any other materials submitted pursuant to the Code of Ethics (collectively, the "Required Reports").
- The Compliance Officer shall make a record of all Required Reports that have not been submitted or have not been submitted on a timely basis and shall submit such record to the Company's Board of Directors, together with the report required by Section VII of these Procedures.
VI. Monitoring Conflicts of Interest
- The Compliance Officer shall document conflicts and shall submit information relating to such conflict to the Company's Board of Directors. Securities involved will be placed on a watchlist and the Compliance Officer will apprise Access Persons of the potential conflict and will advise them against further trading in that Security.
VII. Annual Review of Code of Ethics
- The Compliance Officer shall review the Code of Ethics and all statements signed by Access Persons regarding the Code of Ethics on an annual basis and shall certify to the Company's Board of Directors that he/she has conducted such a review and, if applicable, that no violations of the Code of Ethics occurred during the preceding year and that the Company has adopted procedures reasonably necessary to prevent Access Persons from violating the Code of Ethics.
VIII. Violations of the Code of Ethics
- The Compliance Officer shall submit a written report to the Company's Board of Directors upon the occurrence of a violation of the Code of Ethics. The report shall contain recommendations for possible disciplinary action, the
details of any investigation and the resolution of the violation. The report shall detail what steps were taken to prevent a recurrence, an evaluation of the current procedures and any recommendation for improvement.
IX. Amendments to these Procedures
- These Procedures may be amended from time to time by the Board of Directors of the Company.
Adopted: January 1, 2000
EXHIBIT A
PERSONAL SECURITY TRANSACTION PRE-CLEARANCE AND APPROVAL FORM
Date: ___________________
Pre-clearance is requested for a transaction involving
for my personal account, or an account in which I have a direct or indirect beneficial interest, or an account with respect to which I exercise investment discretion and have a beneficial interest. Pre-clearance for this transaction is requested for the account of __________________________
(name)
This transaction will be effected through
I hereby represent that this transaction does not involve the acquisition of securities in an initial public offering or in a private placement. I hereby further represent I have no material nonpublic information with respect to the issuer of such security.
I understand this pre-clearance is valid only for transactions on the date shown below.
(signature)
Date
The foregoing transaction is hereby approved.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
By:
Date:
Exhibit B
CONFIDENTIAL
Report to
Ellsworth Convertible Growth and Income Fund, Inc. of Securities Holdings
NAME: For the Year Ended Initial Report
Names of Security Type of Security Quantity/Principal Amount Held
Name of any Broker, Dealer or Bank in Which any Securities are Held for Your Direct or Indirect Benefit:
I hereby represent that I had no material nonpublic information with respect to the issuers of the securities covered by this report and that I have reported all holdings that I am required to report.
Signature Date
Please return to the Compliance Officer of the Company.
Exhibit C
CONFIDENTIAL
Report to
Ellsworth Convertible Growth and Income Fund, Inc.
of Securities Transactions
NAME: For the Quarter Ended
Interest Date of
Rate and Transaction
Quantity or Maturity Nature of Unit Broker, Dealer
Principal Date Transaction Price or Bank
Name of Type of Amount Effecting
Security Security Transaction
|
I hereby represent that I had no material nonpublic information with respect to the issuers of the securities covered by this report.
Check if the following is applicable:
____ This report shall not be construed as an admission that I have any direct or any indirect beneficial ownership in the security.
I have reported all transactions which I am required to report. I have omitted any transactions in thrift plans, federal government securities, money market instruments, open-end mutual funds (note: transactions in shares issued by the Company and in closed-end funds must be reported) or automatic reinvestment plans, or purchases through the exercise of pro-rata rights.
Signature Date
Please return to the Compliance Officer of the Company.
Date Report Submitted _______________________
EXHIBIT D
Statement Regarding Code of Ethics of
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
The undersigned hereby certifies that he or she has read and will
abide by the Code of Ethics effective as of April 14, 2003, or as subsequently
amended, and that he or she knows such failure may constitute a violation of
federal securities laws and regulations which may subject him or her to civil
liabilities and criminal penalties. The undersigned acknowledges that (i) he or
she has read and understood the Code and will abide by it, (ii) he or she has
complied with the requirements of this Code as of the date set forth below, and
(iii) that he or she has disclosed and reported all personal securities
transactions required to be disclosed or reported under the Code. The
undersigned further acknowledges that failure to observe the provisions of said
Code shall be a basis for dismissal for cause.
Name
Date
Exhibit (r)(2)
DAVIS-DINSMORE MANAGEMENT COMPANY
AMENDED AND RESTATED CODE OF ETHICS
I. Preamble.
The officers, directors, certain employees and other affiliated
persons (as that term is defined in the Investment Company Act of 1940) of
Davis-Dinsmore Management Company (the "Adviser") will in varying degrees
participate in or be aware of decisions made to implement the investment
policies of Bancroft Convertible Fund, Inc. and Ellsworth Convertible Growth and
Income Fund, Inc. (individually, a "Fund," and collectively, the "Funds").
Accordingly, the officers, directors, certain employees and other affiliated
persons of the Adviser act as fiduciaries to the Funds who must at all times
place the interests of shareholders of the Funds first. All conduct of such
individuals should comport with the highest standards of ethics to avoid any
actual or potential conflicts of interest. Specifically, the officers,
directors, certain employees and other affiliated persons of the Adviser must
not take inappropriate advantage of their respective positions with or on behalf
of the Adviser or the Funds, especially with regard to personal investing. This
Code of Ethics has therefore been adopted by the Board of Directors of the
Adviser with the intent of preventing any intentional or unintentional
transgression by establishing high standards for conduct, without unduly
interfering with the privacy and freedom of the individuals concerned.
II. Scope.
It is intended that all investments or investment practices involving
a possible conflict of interest will be avoided so as to prevent any impairment
of a person's ability to be disinterested in making investment decisions and any
use for the benefit of a Personal Account of information relating to
transactions being or to be recommended to the Funds. It is also intended that
this Code of Ethics provide appropriate protection of Nonpublic Material
Information received by officers, directors, employees and other affiliated
persons of the Adviser.
III. Applicability.
Except as otherwise provided in Section VI hereof, the provisions of
this Code shall apply to all directors, officers, employees and other affiliated
persons of the Adviser.
IV. Definitions.
A. "Access Person" shall mean any director, officer or Advisory
Person of the Adviser.
B. "Act" shall mean the Investment Company Act of 1940.
C. "Advisory Person" of the Adviser shall mean:
(i) Any employee of the Adviser (or of any company in a Control
relationship to the Adviser) who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a Security by the Funds, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and
(ii) Any natural person in a Control relationship to the Adviser
who obtains information concerning recommendations made to the Funds with
regard to the purchase or sale of a Security.
D. "Beneficial Ownership" of securities by any person subject to
this Code shall mean ownership of record and beneficially and also direct or
indirect beneficial interest in securities, including all securities in the name
of or for the direct or indirect benefit of such person's spouse, minor
children, or any individual living with him or her or to whose support such
person substantially contributes.
E. "Compliance Officer" means the person designated by the Board of
Directors of the Adviser to administer this Code of Ethics.
F. "Control" shall have the meaning set forth in Section 2(a)(9) of
the Act.
G. "Covered Persons" shall include officers, directors, employees
and other affiliated persons of the Adviser.
G. "Interested Person" shall have the meaning set forth in
Section (2)(a)(19) of the Act.
H. "Investment Company" means a company registered as such under the
Investment Company Act of 1940 and for which the Adviser acts as the investment
adviser.
I. "Investment Person" shall mean any Access Person who occupies the
position of Portfolio Manager for a Fund, any Access Person who provides or
supplies information and/or advice to any Portfolio Manager or who executes or
helps execute any Portfolio Manager's decisions, and any Access Person who, in
connection with his or her regular functions, obtains contemporaneous
information regarding the purchase or sale of a Security by a Fund.
J. "Material Information" is generally defined as information that a
reasonable investor would be likely to consider important in making his or her
investment decisions, or information that is reasonably certain to have a
substantial effect on the price of the Securities of a company or other issuer.
Information that should be considered material includes, but is not limited to:
dividend changes; earnings estimates; changes in previously released earnings
estimates; the threat, commencement or resolution of litigation; significant
merger or acquisition proposals or agreements; undisclosed or threatened
regulatory actions; significant product or resource discoveries; proposed new
business activities and extraordinary management developments.
K. "Nonpublic Information" is broadly defined as information that is
not generally available to ordinary investors in the marketplace, or
disseminated in a manner making it available to investors in the public, e.g.,
through newspapers or the financial press.
L. "Nonpublic Material Information" shall mean Material Information
that is Nonpublic Information.
M. "Personal Account" of any person subject to this Code shall mean:
(i) accounts as to which such person has Beneficial Ownership; (ii) accounts of
any other individual or entity whose accounts are managed or controlled by or
through such person; and (iii) accounts of any other individual or entity to
whom such person gives advice with regard to the acquisition or disposition of
securities, other than the Funds; provided, however, that the term "Personal
Account" shall not be construed in a manner which would impose a limitation or
restriction upon the normal conduct of business by directors, officers,
employees and affiliates of the Funds.
N. "Portfolio Manager" shall mean any employee of the Adviser
entrusted with the direct responsibility and authority to make investment
decisions affecting a Fund.
O. "Purchase or sale of a Security" shall include, among other
things, the writing of an option to purchase or sell a Security.
P. "SEC" shall mean the Securities and Exchange Commission.
Q. "Security" shall have the meaning set forth in section 2(a)(36)
of the Act, except that it shall not include securities issued by the Government
of the United States, bankers' acceptances, bank certificates of deposit,
commercial paper, shares of registered open-end Investment Companies, short term
debt securities which are "government" securities within the meaning of Section
2(a)(16) of the Act and such other money market instruments as are designated by
the Adviser's Board of Directors from time to time as excluded from the
definition of "Security" under this Code.
R. "Security Held or to be Acquired" by a Fund shall mean any
Security which, within the most recent 15 days, (i) is or has been held by a
Fund, or (ii) is being or has been considered by a Fund or the Adviser for
purchase by a Fund and any option to purchase or sell, and any security
convertible into or exchangeable for such Security.
V. Standards of Conduct.
A. Conflict of Interest - General Rule. In any matter involving
both the Personal Account of a person to whom this Code is applicable and
securities held or to be acquired by a Fund, the person subject to this Code
shall resolve any known or reasonably anticipated conflict of interest in favor
of such Fund.
B. Fraudulent Purchase or Sale. No Access Person shall, in
connection with the purchase or sale, directly or indirectly, by such person of
a Security Held or to be Acquired by a Fund: (i) employ any device, scheme or
artifice to defraud such Fund; (ii) make to a Fund any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they are made, not
misleading; (iii) engage in any act, practice or course of business which would
operate as a fraud or deceit upon a Fund; or (iv) engage in any manipulative
practice with respect to a Fund.
C. Prohibited Transactions.
1. Purchase/Sale of Securities. Except as otherwise provided
in Section VI hereof, no Access Person may purchase or sell any Security of an
issuer for his or her Personal Account without the prior written approval of the
Compliance Officer, upon request of the potential purchaser or seller, on a
preclearance form (attached hereto as Exhibit A). In determining whether to
give such prior written approval, the Compliance Officer shall take into account
whether the proposed transaction is likely to (i) impair the potential
purchaser's ability to be disinterested in making investment decisions, (ii)
affect the market price for the Security in question or (iii) benefit from
market reaction to the portfolio transactions of a Fund. The Board of Directors
of the Adviser shall implement appropriate procedures to monitor personal
investment activity by Access Persons after preclearance has been granted. The
procedure to be followed by each Access Person to obtain the prior written
approval required by this paragraph is set forth in Schedule I to this Code.
2. Blackout Periods and Short-Term Trading. Except as
otherwise provided in Section VI hereof, no Access Person may execute a
securities transaction in a Security for his or her Personal Account on a day
during which a Fund has a pending buy or sell order in that same Security, until
that order is executed or withdrawn. No Portfolio Manager may buy or sell a
Security for his or her Personal Account within seven calendar days before or
after a Fund trades in that Security. No Investment Person may profit for his
or her Personal Account from the purchase and sale, or sale and repurchase,
within 60 calendar days of the same Security (or equivalent Security), if at the
time of such purchase or sale, or sale or repurchase, the Security is held by a
Fund. Any profits realized by any person on trades proscribed by this paragraph
shall be returned to the applicable Fund.
3. Initial Public Offerings and New Issues. No Investment
Person may acquire any Securities in an initial public offering for his or her
Personal Account, absent prior authorization by the Board of Directors of the
Adviser, or such officers as the Board of Directors may designate, based upon a
determination by the Board of Directors, or such designated officers, of whether
the investment opportunity should be reserved for a Fund and its shareholders,
and whether the opportunity is being offered to such individual by virtue of his
or her position with the Adviser or relationship to a Fund. Purchases of new
issues in an initial public offering shall be made with the spirit and intent of
purchases made under an investment letter and shall be avoided if the individual
involved feels that in any way he or she is receiving preferential treatment
because of his or her association with the Adviser or a Fund.
4. Private Placements. No Investment Person may acquire
Securities in a private placement for his or her Personal Account, absent prior
authorization by the Board of Directors of the Adviser, or such officers as the
Board of Directors may designate, based upon a determination by the Board of
Directors, or such designated officers, of whether the investment opportunity
should be reserved for a Fund and its shareholders, and whether the opportunity
is being offered to such individual by virtue of his or her position with the
Adviser or relationship to a Fund. Any Investment Person who has acquired
Securities in a private placement must notify the Compliance Officer when he or
she is involved in a subsequent consideration of an investment in the issuer of
such Security on behalf of a Fund. Such Investment Person shall not purchase or
sell Securities of such an issuer on behalf of a Fund without independent review
of such purchase or sale by an Investment Person with no personal interest in
the issuer.
5. Disclosure of Nonpublic Material Information. Covered
Persons of the Adviser shall not disclose or tip, trade on or appear to use any
Nonpublic Material Information obtained in the course of or as a result of his
or her relationship with the Adviser relating to (i) any Security (or Security
which is convertible into such Security) Held or to be Acquired by a Fund or
(ii) a Fund itself.
6. Reports. Written reports or other confidential information
relating to a particular Security or to an industry prepared by the Adviser's or
a Fund's staff shall not be removed from the office without written permission
of an officer. The contents of such reports shall not be communicated to any
person who is not subject to this Code of Ethics. Such reports and information
shall be maintained in a locked, secure area and the responsibility for
nondisclosure shall fall with the Compliance Officer.
7. Other Securities Firm Interests. No director, officer or
employee of the Adviser shall have a direct or indirect interest in any firm or
corporation engaged in the securities business.
8. Gifts and Other Benefits. No Investment Person shall accept
a gift of more than de minimis value from any person or entity that does
business with or on behalf of the Adviser or a Fund. In any event, the value of
such gifts may not exceed $100 per giver per year.
9. Service as a Director or Trustee. No Investment Person may
accept a position as a director or trustee of a publicly traded company, absent
prior authorization by the Board of Directors of the Adviser based upon a
determination by the Board of Directors that such service as a director or
trustee would be consistent with the interests of a Fund and its shareholders.
The Board of Directors of the Adviser shall implement safeguards to address any
potential conflicts of interests that may arise in the event it approves of any
Investment Person serving as a director or trustee of a publicly traded company;
any Investment Person serving as a director or trustee of a publicly traded
company normally shall be isolated from those making investment decisions
relating to such company through "Chinese Wall" or other procedures.
VI. Exempted Transactions.
A. Non-Volitional Transactions. The prohibitions of Sections
V(C)(1) and (2) shall not apply to purchases or sales which are non-volitional
on the part of either the Access Person or Investment Person, as applicable, or
a Fund.
B. Reinvestment Plans. The prohibitions of Sections V(C)(1) and (2)
shall not apply to purchases which are part of an automatic dividend
reinvestment plan.
C. Rights. The prohibitions of Sections V(C)(1) and (2) shall not
apply to purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such rights were
acquired from such issuer, and sales of such rights so acquired.
D. No Control. The prohibitions of Sections V(C)(1) and (2) shall
not apply to purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
E. Not Eligible for Fund Purchase. The prohibitions of Sections
V(C)(1) and (2) shall not apply to purchases or sales which are not eligible for
purchase or sale by a Fund.
F. Certain Directors. The prohibitions of Sections V(C)(1) and (2)
shall not apply to a director of the Adviser who is subject to this Code solely
by reason of being a director of the Adviser unless the director knew, or in the
course of fulfilling his or her official duties as a director, should have known
that during the 15-day period immediately preceding or after the date of the
transaction in a Security by the director, a Fund purchased or sold such
Security or that a Fund considered purchasing or selling such Security.
G. Other Exceptions. The prohibitions of Sections V(C)(2) shall not
apply if the Compliance Officer grants an exception therefrom, in whole or in
part, upon such conditions as the Compliance Officer may impose; provided,
however, that the Compliance Officer may grant an exception only if he or she
determines that no harm will result to a Fund and that to require the return of
profits, if any, derived from the prohibited conduct to the applicable Fund
would be inequitable or result in undue hardship to the individual requesting
the exception.
VII. Reporting Requirements.
A. Initial and Annual Holdings Reports. Within 10 days of becoming
an Access person, each Access Person shall disclose to the Adviser in the form
attached hereto as Exhibit B the title, number of shares and principal amount of
each Security in which the Access Person had any direct or indirect beneficial
ownership at the time he or she became an Access Person, and the name of any
broker, dealer or bank with whom the Access Person maintained an account in
which any Securities were held for the direct or indirect benefit of the Access
Person at the time he or she became an Access Person. As of December 31 of each
year thereafter, each Access Person must update the information contained in the
initial holdings report, which disclosure shall be made no later than 30 days
after each December 31.
B. Quarterly Transaction Reports. Except as otherwise provided
herein, each Access Person of the Adviser shall make a report containing the
information described in Section VII(C) hereof to the Adviser with respect to
transactions in any Security in which such Access Person has, or by reason of
such transaction acquires, any Beneficial Ownership. The Adviser shall identify
all Access Persons who are under a duty to make such reports to it and shall
inform such persons of their duty.
C. Required Information. Each report required to be made hereunder,
in the form attached hereto as Exhibit C, shall be delivered to the Adviser to
the attention of its Compliance Officer not later than 10 days after the end of
the calendar quarter in which the transaction to which the report relates was
effected, and shall contain the following information:
(i) the date of the transaction, the title, the interest and
maturity date (if applicable), the number of shares, and the principal amount of
each Security involved;
(ii) the nature of the transaction (i.e. purchase, sale or any
other type of acquisition or disposition);
(iii) the price at which the transaction was effected;
(iv) the name of the broker, dealer or bank with or through whom
the transaction was effected; and
(v) the date that the report is submitted by the Access Person.
Such reports will be reviewed regularly by the Compliance
Officer. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has any
direct or indirect Beneficial Ownership in the Security. If required by law,
the reports will also be available for inspection by the SEC staff, but will
otherwise be afforded confidential treatment.
D. Exceptions. Notwithstanding paragraph VII (A) and (B) hereof, no
person shall be required to submit a report: (1) with respect to transactions
effected for any account over which such person does not have any direct or
indirect influence or control; (2) if such person is not an Interested Person of
the Adviser and would be required to make such a report solely by reason of
being a director of the Adviser, except where such director knew or, in the
ordinary course of fulfilling his or her official duties as a director of the
Adviser, should have known that during the 15-day period immediately preceding
or after the date of the transaction in a Security by the director a Fund
purchased or sold such Security (or a Security which is convertible into such
Security), or a Fund considered purchasing or selling such Security; or (3) if
the report would duplicate information contained in broker trade confirmations
or account statements received by the Adviser with respect to the Access Person
in the time period required by Section VII(C) hereof.
VIII. Sanctions.
All material violations of this Code and any sanctions imposed with
respect thereto shall be reported immediately to the Board of Directors of the
Adviser. Violation of this Code or any section hereof is grounds for censure,
suspension, dismissal of the violator or other such sanctions that the Adviser
deems appropriate. After each violation, the Compliance Officer will devise a
procedure to prevent a similar violation. The procedure will be discussed with
and approved by the Board of Directors.
IX. Interpretations and Exceptions.
Any questions regarding the applicability, meaning or administration
of the Code shall be referred by the person concerned in advance of any
contemplated transaction to the Compliance Officer. Exemptions will be granted
(in addition to those pursuant to Section VI hereof) by said Officer if, in
his/her judgment, the fundamental obligation of the person involved is not
compromised.
X. Acceptance.
Each person to whom this Code is applicable shall receive a copy of
the same. Any amendments to this Code shall be furnished similarly to each
person to whom this Code is applicable. Each Access Person shall certify by
January 31 of each year that (i) he or she has read and understood this Code and
will abide by it, (ii) he or she has complied with the requirements of this Code
as of the date of signing, and (iii) that he or she has disclosed and reported
all personal securities transactions required to be disclosed or reported under
this Code. A form of this statement is attached hereto as Exhibit C.
XI. Recordkeeping.
The Adviser shall maintain the following in an easily accessible
place:
- a copy of this Code and any other Code which is, or at any time
within the past five years has been in effect;
- records of any violations of this Code and actions taken as a
result of such violations for at least five years after the end
of the fiscal year in which the violation occurs;
- copies of each report made under this Code (i.e., reports
required by Section VII of this Code) for at least five years
after the end of the fiscal year in which the report is made;
- a list of all persons who are, or have been, required to make
reports pursuant to this Code;
- a copy of each report described in Section XII C of this Code for
at least five years after the end of the fiscal year in which the
report is made;
- a record of any decision, and the reasons supporting the
decision, to approve the acquisition by Investment Persons of
Securities in an initial public offering or a private placement
for at least five years after the end of the fiscal year in which
the approval is granted.
XII. Miscellaneous.
A. Confidentiality. All reports of securities transactions and any
other information filed with the Adviser pursuant to this Code shall be treated
as confidential.
B. Code Approval. The Boards of Directors of the Funds, including a
majority of the disinterested Directors, must approve this Code, and any
material changes to this Code. Before approving this Code or any amendment to
this Code, the Boards of Directors of the Funds must receive a certification
from the Adviser that it has adopted procedures reasonably necessary to present
Access Persons from violating this Code. The Boards of Directors of the Funds
must approve a material change to this Code no later than six months after
adoption of the material change.
C. Periodic Review and Reporting. At least annually, the President
of the Adviser shall furnish a written report to the Board of Directors of the
Adviser who shall provide such report to the Boards of Directors of the Funds,
that:
(i) provides a summary of the Adviser's existing procedures
concerning personal investing by officers, directors and employees of the
Adviser and any changes in such procedures made during the preceding year,
(ii) describes any issues arising under this Code or the
Adviser's Procedures since the last report, including but not limited to,
information about material violations of the Code or Procedures and sanctions
imposed in response to the material violations;
(iii) describes any recommended changes to this Code; and
(iv) certifies that the Adviser has adopted procedures reasonably
necessary to prevent Access Persons from violating this Code.
XIII. Effective Date.
The provisions of this Code shall be effective on and after January 1,
2000, and amendments shall become effective when promulgated.
SCHEDULE I
PROCEDURES FOR IMPLEMENTATION OF CODE OF ETHICS
The following procedures have been adopted by the Board of Directors of Davis-Dinsmore Management Company (the "Company") to ensure compliance with its Code of Ethics
I. Designation of Compliance Officer
The President of the Company is hereby designated as the Compliance Officer for the Code of Ethics.
The Compliance Officer shall oversee compliance by officers, directors, and employees of the Company with the Code of Ethics.
The Compliance Officer may designate an employee of the Company to assist in administrative matters relating to the Code of Ethics.
II. Preclearance
The Compliance Officer shall be responsible for preclearing the purchase or sale of a Security by any Access Person.
III. Education
The Compliance Officer shall be responsible for educating all officers, directors and employees of the Company regarding the Company's Code of Ethics.
The Compliance Officer shall distribute to all directors, officers and employees, upon their commencement of service with the Company, and thereafter on an annual basis, a copy of the Company's Code of Ethics.
The Compliance Officer shall explain to each officer, director and employee of the Company all applicable provisions of the Code of Ethics (i) upon commencement of such individual's service with the Company, and (ii) thereafter, on an annual basis. This annual requirement may be satisfied by an informational meeting that is attended by all officers, directors and employees.
The Compliance Officer shall obtain from all officers, directors and employees a signed statement that they have reviewed and understand the Code of Ethics, in substantially the form of Exhibit D to the Code of Ethics, (i) upon commencement of such individual's service with the Company, (ii) upon any amendment to the Code of Ethics and (iii) in any event, on an annual basis. The Compliance Officer shall maintain a file that contains such statements.
IV. Confidential Information
The Compliance Officer shall maintain all preclearance forms, written reports and other confidential information submitted pursuant to the Code of Ethics in a locked, secure area, and shall require that all persons who have access to such information sign a statement agreeing that they shall maintain such information in confidence.
V. Reports under the Code of Ethics
The Compliance Officer shall promptly review all preclearance forms, initial, quarterly and annual reports, confirmations, periodic reports and any other materials submitted pursuant to the Code of Ethics (collectively, the "Required Reports").
The Compliance Officer shall make a record of all Required Reports that have not been submitted or have not been submitted on a timely basis and shall submit such record to the Company's Board of Directors, together with the report required by Section VII of these Procedures.
VI. Monitoring Conflicts of Interest
The Compliance Officer shall document conflicts and shall submit information relating to such conflict to the Company's Board of Directors. Securities involved will be placed on a watchlist and the Compliance Officer will apprise Access Persons of the potential conflict and will advise them against further trading in that Security.
VII. Annual Review of Code of Ethics
The Compliance Officer shall review the Code of Ethics and all statements signed by Access Persons regarding the Code of Ethics on an annual basis and shall certify to the Company's Board of Directors that he or she has conducted such a review and, if applicable, that no violations of the Code of Ethics occurred during the preceding year and that the Company has adopted procedures reasonably necessary to prevent Access Persons from violating the Code of Ethics.
VIII. Violations of the Code of Ethics
The Compliance Officer shall submit a written report to the Company's Board of Directors upon the occurrence of a violation of the Code of Ethics. The report shall contain recommendations for possible disciplinary action, the details of any investigation and the resolution of the violation. The report shall detail what steps were taken to prevent a recurrence, an evaluation of the current procedures and any recommendation for improvement.
IX. Amendments to these Procedures
These Procedures may be amended from time to time by the Board of Directors of the Company.
Adopted: January 1, 2000
EXHIBIT A
PERSONAL SECURITY TRANSACTION PRE-CLEARANCE AND APPROVAL FORM
Date: ___________________
Pre-clearance is requested for a transaction involving
(name of issuer and type of security)
for my personal account, or an account in which I have a direct or indirect beneficial interest, or an account with respect to which I exercise investment discretion and have a beneficial interest. Pre-clearance for this transaction is requested for the account of _______________________________
(name)
I hereby represent that this transaction does not involve the acquisition of securities in an initial public offering or in a private placement. I hereby further represent I have no material nonpublic information with respect to the issuer of such security.
I understand this pre-clearance is valid only for transactions on the date shown below.
(signature)
Date
The foregoing transaction is hereby approved.
DAVIS-DINSMORE MANAGEMENT COMPANY
By:
Date:
EXHIBIT B
CONFIDENTIAL
Report to
Davis-Dinsmore Management Company of Securities Holdings
NAME: _____________________ For the Year Ended ___________ Initial Report __________
Name of Security Type of Security Quantity/Principal Amount Held
Name of any Broker, Dealer or Bank in Which any Securities are Held for Your Direct or Indirect Benefit:
I hereby represent that I had no material nonpublic information with respect to the issuers of the securities covered by this report and that I have reported all holding that I am required to report.
Signature Date
Please return to the Compliance Officer.
Exhibit C
CONFIDENTIAL
Report to
Davis-Dinsmore Management Company
of Securities Transactions
NAME: _____________________________ For the Quarter Ended _______________
Name of Type of Quantity or Interest Nature Unit Broker, Dealer Date of
Security Security Principal Rate of Price or Bank Transac-
Amount and Transact Effecting tion
Maturity ion Transaction
Date
|
I hereby represent that I had no material nonpublic information with respect to the issuers of the securities covered by this report.
Check if the following is applicable:
__ This report shall not be construed as an admission that I have any direct or any indirect beneficial ownership in the security.
I have reported all transactions which I am required to report. I have omitted any transactions in thrift plans, federal government securities, money market instruments, open-end mutual funds (note: transactions in shares issued by the Company and in closed-end funds must be reported) or automatic reinvestment plans, or purchases through the exercise of pro-rata rights.
Please return to the Compliance Officer of the Company.
Date Report Submitted _______________________
EXHIBIT D
Statement Re Code of Ethics of
DAVIS-DINSMORE MANAGEMENT COMPANY
The undersigned hereby certifies that he or she has read and will abide by the
Code of Ethics effective as of January 1, 1995, or as subsequently amended, and
that he or she knows such failure may constitute a violation of federal
securities laws and regulations which may subject him or her to civil
liabilities and criminal penalties. The undersigned acknowledges that (i) he or
she has read and understood the Code and will abide by it, (ii) he or she has
complied with the requirements of this Code as of the date set forth below, and
(iii) that he or she has disclosed and reported all personal securities
transactions required to be disclosed or reported under the Code. The
undersigned further acknowledges that failure to observe the provisions of said
Code shall be a basis for dismissal for cause.