Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
|
|
Common
Share
Market Price
|
|
Corresponding
Net Asset
Value
(“NAV”) Per
Share
|
|
Corresponding
Premium or
Discount as a %
of NAV
|
|
Quarter
Ended
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
December
31, 2019
|
$11.83
|
|
$10.09
|
|
$11.84
|
|
$11.17
|
|
(0.08)%
|
|
(9.66)%
|
|
March
31, 2020
|
$12.93
|
|
$7.00
|
|
$12.66
|
|
$8.92
|
|
(2.68)%
|
|
(21.52)%
|
|
June
30, 2020
|
$11.72
|
|
$8.02
|
|
$12.34
|
|
$9.58
|
|
(5.02)%
|
|
(16.28)%
|
|
September
30, 2020
|
$12.77
|
|
$11.25
|
|
$13.43
|
|
$12.95
|
|
(4.91)%
|
|
(13.91)%
|
|
December
31, 2020
|
$14.33
|
|
$11.23
|
|
$14.63
|
|
$13.01
|
|
(2.05)%
|
|
(13.68)%
|
|
March
31, 2021
|
$17.05
|
|
$13.16
|
|
$15.91
|
|
$14.16
|
|
(7.16)%
|
|
(7.06)%
|
|
June
30, 2021
|
$15.00
|
|
$13.62
|
|
$15.14
|
|
$14.45
|
|
(0.92)%
|
|
(5.74)%
|
|
September
30, 2021
|
$15.37
|
|
$13.22
|
|
$14.99
|
|
$14.64
|
|
(2.53)%
|
|
(9.69)%
|
The
last reported price for our common shares on September 30, 2021 was $13.36 per share. As of September 30, 2021, the net asset
value per share of the Fund’s common shares was $14.57 Accordingly, the Fund’s common shares traded at a discount
to net asset value of 8.3% on September 30, 2021.
Unresolved
SEC Staff Comments
The
Fund does not believe that there are any material unresolved written comments, received 180 days or more before September 30,
2021 from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act
of 1934 or the Investment Company Act of 1940, or its registration statement.
CHANGES
OCCURRING DURING THE PRIOR FISCAL PERIOD
The
following information is a summary of certain changes during the most recent fiscal year ended September 30, 2021. This information
may not reflect all of the changes that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objective or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
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, over the long term, due to the nature of the securities in which
it invests).
These
investment objectives may be modified in the future by the Board without the approval of a majority, as defined in the 1940 Act,
of the outstanding voting securities of the Fund. The Fund will provide stockholders with at least 60 days’ written notice
prior to implementation of any changes to these investment objectives. There can be no assurance that the Fund will achieve its
investment objectives.
Investment
Policies
As
a fundamental investment policy, the Fund will invest, under normal market conditions, at least 65% of its total assets in convertible
securities (that is, bonds, debentures, corporate notes or preferred stock 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 U.S. federal income tax purposes.
The
Fund is not required to sell securities for the purpose of assuring that 65% of its total assets are invested in convertible securities.
Convertible
securities include debt securities and preferred stocks which are convertible into, or carry the right to purchase, common stock.
The debt security or preferred stock may itself be convertible into or exchangeable for common stock, or the conversion privilege
may be evidenced by warrants attached to the security or acquired as part of a unit with the security. A convertible security
may also be structured so that it is convertible at the option of the holder or of the issuer, or subject to mandatory conversion.
The
Fund may invest in convertible securities rated below investment grade by the established rating services (“Ba” or
lower by Moody’s Investors Service, Inc. (“Moody’s”) or “BB” or lower by Standard & Poor’s
Ratings Services (“Standard & Poor’s” or “S&P”)) or in unrated securities which are in the
judgment of the Fund’s investment adviser of equivalent quality. Securities rated below investment grade, commonly referred
to as “junk bonds,” or “high yield” securities, are predominantly speculative, involve major risk exposure
to adverse conditions and include securities of issuers in default, which are likely to have the lowest rating. The average maturity
and average duration of the Fund’s investments in debt securities is expected to vary and the Fund does not target any particular
average maturity or average duration.
Under
normal market conditions, the remaining 35% or less 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 may invest in non-convertible equity securities of any market capitalization.
The Fund does not intend to participate in derivative transactions other than options transactions as described herein. See “Investment
Objectives and Policies—Certain Investment Practices—Options.”
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
The
Fund may invest up to 10% of its total assets, taken at market value, in securities of foreign issuers, including issuers located
in emerging markets. 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 NYSE, NYSE American
or the NASDAQ National Market, or (ii) the underlying issuers of which meet the then prevailing earnings requirement for listing
on the NYSE and also file Form 20-F (or comparable form) with the SEC are not subject to this limitation.
The
Fund may invest up to 20% of its net assets in securities that are illiquid. An illiquid investment is a security or other investment
that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has
valued the investment.
While
the Fund does not, as a matter of investment policy, seek to gain exposure to any particular sectors, it has recently had significant
exposure to the healthcare and information technology sectors.
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 Fund may lend its portfolio securities in accordance with its investment
policies and restrictions.
The
Fund’s investment policy of investing at least 65% of its total assets in normal circumstances in convertible securities
is a fundamental policy that cannot be changed without the affirmative vote of a majority, as defined in the 1940 Act, of the
outstanding voting securities (voting together as a single class) of the Fund (which for this purpose and under the 1940 Act means
the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented
or (ii) more than 50% of the outstanding shares). The Fund has issued preferred shares and may in the future issue additional
series of preferred shares. Accordingly, the affirmative vote of the holders of a majority, as defined in the 1940 Act, of the
outstanding preferred shares of the Fund voting as a separate class (which for this purposes and under the 1940 Act means the
lesser of (i) 67% of the preferred shares, as a single class, represented at a meeting at which more than 50% of the Fund’s
outstanding preferred shares are represented or (ii) more than 50% of the outstanding preferred shares) would also be required
to change a fundamental policy. Unless specifically stated as such, no other policy of the Fund is fundamental and each policy
may be changed by the Board without shareholder approval. The percentage and ratings limitations stated herein and in the SAI
apply only at the time an investment is made. Thus, a later increase or decrease in percentage resulting from a change in the
values of portfolio securities or amount of total assets will not be considered a violation of any of the foregoing restrictions.
Gabelli
Funds, LLC, a New York limited liability company, with offices at One Corporate Center, Rye, New York 10580-1422, serves as investment
adviser to the Fund.
Principal
Investment Practices and Policies
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 during a specified
time period. Prior to their conversion,
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
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 a 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 certain other securities with innovative structures in the convertible securities market.
These include “mandatory conversion” securities, which consist of debt securities or preferred stocks that convert
automatically into common stock 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—Convertible Securities Risk.”
Equity
Securities. The Fund invests
in equity securities (such as common stock and preferred stock).
Common
stocks represent the residual ownership interest in the issuer and holders of common stock are entitled to the income and increase
in the value of the assets and business of the issuer after all of its debt obligations and obligations to preferred shareholders
are satisfied. Common stocks generally have voting rights. Common
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
stocks
fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets,
general economic conditions, interest rates, investor perceptions and market liquidity.
Equity
securities also include preferred stock (whether or not convertible into common stock) and debt securities convertible into or
exchangeable for common or preferred stock. Preferred stock has a preference over common stock in liquidation (and generally dividends
as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule the market value of preferred
stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while
the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock
is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause
greater changes in the value of a preferred stock than in a more senior debt security with similarly stated yield characteristics.
The market value of preferred stock will also generally reflect whether (and if so when) the issuer may force holders to sell
their preferred stock back to the issuer and whether (and if so when) the holders may force the issuer to buy back their preferred
stock. Generally speaking, the right of the issuer to repurchase the preferred stock tends to reduce any premium at which the
preferred stock might otherwise trade due to interest rate or credit factors, while the right of the holders to require the issuer
to repurchase the preferred stock tends to reduce any discount at which the preferred stock might otherwise trade due to interest
rate or credit factors. In addition, some preferred stocks are non-cumulative, meaning that the dividends do not accumulate and
need not ever be paid. A portion of the portfolio may include investments in non-cumulative preferred stocks, whereby the issuer
does not have an obligation to make up any arrearages to its shareholders. There is no assurance that dividends or distributions
on non-cumulative preferred stocks in which the Fund invests will be declared or otherwise made payable.
Securities
that are convertible into or exchangeable for preferred or common stock are liabilities of the issuer but are generally subordinated
to more senior elements of the issuer’s balance sheet. Although such securities also generally reflect an element of conversion
value, their market value also varies with interest rates and perceived credit risk. Many convertible securities are not investment
grade, that is, not rated “BBB” or better by S&P or “Baa” or better by Moody’s or considered
by the Investment Adviser to be of similar quality. Preferred stocks and convertible securities may have many of the same characteristics
and risks as nonconvertible debt securities.
Non-Investment
Grade Securities. The
Fund may invest in securities rated below investment grade by recognized statistical rating agencies or unrated securities of
comparable quality, including securities of issuers in default, which are likely to have the lowest rating. These securities,
which may be preferred shares or debt, are predominantly speculative and involve major risk exposure to adverse conditions. Securities
that are rated lower than “BBB” by S&P or lower than “Baa” by Moody’s or unrated securities
considered by the Investment Adviser to be of comparable quality are referred to in the financial press as “junk bonds”
or “high yield” securities.
Generally,
such non-investment grade securities and unrated securities of comparable quality offer a higher current yield than is offered
by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions, and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. In addition, such comparable unrated securities generally present
a
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
higher
degree of credit risk. The risk of loss due to default by these issuers is significantly greater because such non-investment grade
securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment
of senior indebtedness. In light of these risks, the Investment Adviser, in evaluating the creditworthiness of an issue, whether
rated or unrated, will take various factors into consideration, which may include, as applicable, the issuer’s operating
history, financial resources and its sensitivity to economic conditions and trends, the market support for the facility financed
by the issue, the perceived ability and integrity of the issuer’s management and regulatory matters.
In
addition, the market value of non-investment grade securities is more volatile than that of higher quality securities, and the
markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities
are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value.
Moreover,
the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also have the
effect of limiting the ability of the Fund to sell securities at their fair value in order to respond to changes in the economy
or the financial markets.
Non-investment
grade securities and unrated securities of comparable quality also present risks based on payment expectations. If an issuer calls
the obligation for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Also, as the principal value of nonconvertible bonds and preferred
stocks moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held
by the Fund may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon
bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay
interest currently.
The
Fund may purchase securities of companies that are experiencing significant financial or business difficulties, including companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant
financial returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial
and legal, necessary for successful investments in issuers experiencing significant business and financial difficulties is unusually
high. There can be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments
or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to
a portfolio investment, the Fund may lose all or part of its investment or may be required to accept collateral with a value less
than the amount of the Fund’s initial investment.
As
part of its investments in non-investment grade securities, the Fund may invest in securities of issuers in default. The Fund
will make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers will honor
their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing in securities
of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from
bankruptcy protection or that the value of the securities will not otherwise appreciate.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
In
addition to using statistical rating agencies and other sources, the Investment Adviser also performs its own analysis of issues
in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition of the
issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed
income securities, including lower grade securities, frequently have call or buy-back features that permit their issuers to call
or repurchase the securities from their holders, such as the Fund. If an issuer exercises these rights during periods of declining
interest rates, the Fund may have to replace the security with a lower yielding security, thus resulting in a decreased return
for the Fund.
The
market for non-investment grade and comparable unrated securities has experienced periods of significantly adverse price and liquidity
several times, particularly at or around times of economic recession. Past market recessions have adversely affected the value
of such securities and the ability of certain issuers of such securities to repay principal and pay interest thereon or to refinance
such securities. The market for those securities may react in a similar fashion in the future.
Investment
Grade Securities. The
Fund may also invest in investment grade non-convertible securities. Such securities include those rated at “Baa”
and higher by Moody’s or at “BBB” and higher by S&P.
Leverage.
As provided in the 1940
Act and subject to certain exceptions, the Fund may issue senior securities (which may be stock, such as preferred shares, and/or
securities representing debt) so long as its total assets, less certain ordinary course liabilities, exceed 300% of the amount
of the debt outstanding and exceed 200% of the amount of preferred shares and debt outstanding. Any such preferred shares may
be convertible in accordance with the SEC staff guidelines, which may permit the Fund to obtain leverage at attractive rates.
The
use of leverage magnifies the impact of changes in net asset value, which means that, all else being equal, the use of leverage
results in outperformance on the upside and underperformance on the downside. In addition, if the cost of leverage exceeds the
return on the securities acquired with the proceeds of leverage, the use of leverage will diminish rather than enhance the return
to the Fund. The use of leverage generally increases the volatility of returns to the Fund. Such volatility may increase the likelihood
of the Fund having to sell investments in order to meet its obligations to make distributions on the preferred shares or principal
or interest payments on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so.
The Fund’s use of leverage may require it to sell portfolio investments at inopportune times in order to raise cash to redeem
preferred shares or otherwise de-leverage so as to maintain required asset coverage amounts or comply with any mandatory redemption
terms of any outstanding preferred shares. See “Risk Factors and Special Considerations—Special Risks to Holders of
Common Shares—Leverage Risk.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
In
the event the Fund had both outstanding preferred shares and senior securities representing debt at the same time, the Fund’s
obligations to pay dividends or distributions and, upon liquidation of the Fund, liquidation payments in respect of its preferred
shares would be subordinate to the Fund’s obligations to make any principal and/or interest payments due and owing with
respect to its outstanding senior debt securities. Accordingly, the Fund’s issuance of senior securities representing debt
would have the effect of creating special risks for the Fund’s preferred shareholders that would not be present in a capital
structure that did not include such securities.
Additionally,
the Fund may enter into derivative transactions that have economic leverage embedded in them. Economic leverage exists when the
Fund achieves the right to a return on a capital base that exceeds the investment which the Fund has contributed to the instrument
achieving a return. Derivative transactions that the Fund may enter into and the risks associated with them are described elsewhere
in this Annual Report. The Fund cannot assure you that investments in derivative transactions that have economic leverage embedded
in them will result in a higher return on its common shares.
To
the extent the terms of such transactions obligate the Fund to make payments, the Fund may earmark or segregate cash or liquid
assets in an amount at least equal to the current value of the amount then payable by the Fund under the terms of such transactions
or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. If the current value
of the amount then payable by the Fund under the terms of such transactions is represented by the notional amounts of such investments,
the Fund would segregate or earmark cash or liquid assets having a market value at least equal to such notional amounts, and if
the current value of the amount then payable by the Fund under the terms of such transactions is represented by the market value
of the Fund’s current obligations, the Fund would segregate or earmark cash or liquid assets having a market value at least
equal to such current obligations. To the extent the terms of such transactions obligate the Fund to deliver particular securities
to extinguish the Fund’s obligations under such transactions the Fund may “cover” its obligations under such
transactions by either (i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate
right to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is
required, having earmarked or segregated an appropriate amount of cash or liquid assets). Such earmarking, segregation or cover
is intended to provide the Fund with available assets to satisfy its obligations under such transactions. As a result of such
earmarking, segregation or cover, the Fund’s obligations under such transactions will not be considered senior securities
representing indebtedness for purposes of the 1940 Act, or considered borrowings subject to the Fund’s limitations on borrowings
discussed above, but may create leverage for the Fund. To the extent that the Fund’s obligations under such transactions
are not so earmarked, segregated or covered, such obligations may be considered “senior securities representing indebtedness”
under the 1940 Act and therefore subject to the 300% asset coverage requirement.
These
earmarking, segregation or cover requirements can result in the Fund maintaining securities positions it would otherwise liquidate,
segregating or earmarking assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management.
Foreign
Securities. The Fund may
invest up to 10% of its total assets, taken at market value, in securities of foreign issuers, including issuers located in emerging
markets. Foreign investments may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations.
There may be less publicly
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
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.
American
Depositary Receipts. The
Fund may invest in American Depositary Receipts (“ADRs”). The Fund’s investment in ADRs is subject to its overall
limitation on investing in foreign securities, unless certain conditions pertaining to ADRs are met. Such investment 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 SEC and are generally not subject to the regulatory controls imposed on U.S. 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.
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.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
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.
Restricted
and Illiquid Securities. The
Fund may invest up to 20% of its net assets in securities that are illiquid. Illiquid securities include securities legally restricted
as to resale, such as commercial paper issued pursuant to Section 4(a)(2) of the Securities Act of 1933 (the “Securities
Act”) and securities eligible for resale pursuant to Rule 144A thereunder. Section 4(a)(2) and Rule 144A securities may,
however, be treated as liquid by the Investment Adviser pursuant to procedures adopted by the Board, which require consideration
of factors such as trading activity, availability of market quotations and number of dealers willing to purchase the security.
If the Fund invests in Rule 144A securities, the level of portfolio illiquidity may be increased to the extent that eligible buyers
become uninterested in purchasing such securities.
It
may be difficult to sell such securities at a price representing the fair value until such time as such securities may be sold
publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time
when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time
of the decision to sell. The Fund may also acquire securities through private placements under which it may agree to contractual
restrictions on the resale of such securities. Such restrictions might prevent their sale at a time when such sale would otherwise
be desirable.
Other
Investment Practices
U.S.
Government Obligations.
U.S. government securities in which the Fund invests include debt obligations of varying maturities issued by the U.S. Treasury
or issued or guaranteed by an agency or instrumentality of the U.S. government. Some U.S. government securities, such as U.S.
Treasury bills, Treasury Notes, and Treasury Bonds, which differ only in their interest rates, maturities and times of issuance,
are supported by the full faith and credit of the United States. Others are supported only by: (i) the right of the issuer to
borrow from the U.S. Treasury, such as securities of the Federal Home Loan Banks; (ii) the discretionary authority of the U.S.
government to purchase the agency’s obligations, such as securities of the Federal National Mortgage Association; or (iii)
only the credit of the issuer. No assurance can be given that the U.S. government will provide financial support in the future
to U.S. government agencies, authorities or instrumentalities that are not supported by the full faith and credit of the United
States. Securities guaranteed as to principal and interest by the U.S. government, its agencies, authorities or instrumentalities
include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government or any of its agencies, authorities or instrumentalities; and (ii) participations in loans made to non-U.S.
governments or other entities that are so guaranteed. The secondary market for certain of these participations is limited and,
therefore, may be regarded as illiquid.
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Short
Sales. 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, however, close out any short sale of common stock through the conversion or
exchange of securities or the exercise of warrants or rights it owns, or through the delivery of common stock already held by
the Fund.
The
short sale of a security is considered a speculative investment technique. 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. When the Fund makes a short sale, it must borrow the security sold short and deliver it to the broker-dealer
through which it made the short sale in order to satisfy its obligation to deliver the security upon conclusion of the sale. The
Fund may have to pay a fee to borrow particular securities and is often obligated to deliver any payments received on such borrowed
securities, such as dividends.
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.
If
the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be
decreased, and any loss will be increased, by the transaction costs incurred by the Fund, including the costs associated with
providing collateral to the broker-dealer (usually cash, U.S. government securities or other highly liquid debt securities) and
the maintenance of collateral with its custodian.
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Although
the Fund’s gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
Lending
of Portfolio Securities. 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 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 intends
to 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.
Repurchase
Agreements. 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. Repurchase agreements may be seen as loans by the
Fund collateralized by underlying securities. Under the terms of a typical repurchase agreement, the Fund acquires an underlying
security for a relatively short period (not more than one week) subject to an obligation of the seller to repurchase, and the
Fund to resell, the security at an agreed price and time. This arrangement results in a fixed rate of return to the Fund that
is not subject to market fluctuations during the holding period. The Fund bears a risk of loss in the event that the other party
to a repurchase agreement defaults on its obligations and the Fund is delayed in or prevented from exercising its rights to dispose
of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period
in which it seeks to assert these rights. The Fund will not invest more than 5% of its total assets, taken at market value, in
repurchase agreements with any single vendor. The Adviser, acting under the supervision of the Board, reviews the creditworthiness
of those banks and dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing
basis the value of the securities subject to repurchase agreements to ensure that the value is maintained at the required level.
The Fund does not enter into repurchase agreements with the Investment Adviser or any of its affiliates.
Temporary
Defensive Investments. The
assets of the Fund are normally invested in convertible securities. However, when a temporary defensive posture is believed by
the Investment Adviser to be warranted (“temporary defensive periods”), the Fund may without limitation hold cash
or invest all or a portion of its assets in money market instruments and repurchase agreements in respect of those instruments.
The money market instruments in which the Fund may invest are obligations of the U.S. government, its agencies or
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instrumentalities;
commercial paper rated “A-1” or higher by S&P or “Prime-1” by Moody’s; and certificates of deposit
and bankers’ acceptances issued by domestic branches of U.S. banks that are members of the Federal Deposit Insurance Corporation.
During temporary defensive periods, the Fund may also invest to the extent permitted by applicable law in shares of money market
mutual funds. Money market mutual funds are investment companies and the investments in those companies by the Fund are in some
cases subject to certain fundamental investment restrictions and applicable law. As a shareholder in a mutual fund, the Fund will
bear its ratable share of its expenses, including management fees, and will remain subject to payment of the fees to the Investment
Adviser, with respect to assets so invested. The Fund may find it more difficult to achieve its investment objectives during temporary
defensive periods.
Options.
The Fund may from time
to time, to a limited extent, invest its net assets in put options on common stock or market indices and may write covered call
options and may purchase call options to close out written covered call options. 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, 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 the conversion or exchange of other securities which it owns, or on one or more broadly based
stock market indices. The Fund may only write or purchase options listed on a national securities exchange. Except as stated herein,
the Fund may not engage in options transactions.
A
call option is a contract that gives the holder of the option the right to buy from the writer of the call option, in return for
a premium, the security underlying the option at a specified exercise price at any time during the term of the option. The writer
of the call option has the obligation, upon exercise of the option, to deliver the underlying security upon payment of the exercise
price during the option period.
A
put option is a contract that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying
security at a specified price. The seller of the put option has the obligation to buy the underlying security upon exercise at
the exercise price.
The
Fund may 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. A call option is “covered” if the Fund owns the underlying instrument covered by
the call or has an immediate right to acquire that instrument upon conversion or exchange of other instruments held in its portfolio.
If
the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise
notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it
may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series
as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected
when the Fund so desires.
The
Fund realizes a profit from a closing transaction if the price of the transaction is less than the premium received from writing
the option or is more than the premium paid to purchase the option; the Fund realizes a loss from a closing transaction if the
price of the transaction is more than the premium received from writing the option or is less than the premium paid to purchase
the option. Since call option prices generally reflect
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increases
in the price of the underlying security, any loss resulting from the repurchase of a call option may also be wholly or partially
offset by unrealized appreciation of the underlying security. Other principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current market price and price volatility of the underlying security
and the time remaining until the expiration date. Gains and losses on investments in options depend, in part, on the ability of
the Investment Adviser to predict correctly the effect of these factors. The use of options cannot serve as a complete hedge since
the price movement of securities underlying the options will not necessarily follow the price movements of the portfolio securities
subject to the hedge.
An
option position may be closed out only on an exchange which provides a secondary market for an option of the same series or in
a private transaction. Although the Fund generally purchases or writes only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In
such event it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise
its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option writer,
is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise or otherwise covers the position.
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.
There
are several risks associated with transactions in options. For example, there are significant differences between the securities
markets and the options markets that could result in an imperfect correlation among these markets, causing a given transaction
not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. The
ability of the Fund to utilize options successfully will depend on the Investment Adviser’s ability to predict pertinent
market investments, which cannot be assured. Although the Investment Adviser will attempt to take appropriate measures to minimize
the
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risks
relating to the Fund’s writing of put and call options, there can be no assurance that the Fund will succeed in any option-writing
program it undertakes.
Investment
Restrictions. The Fund
has adopted certain fundamental investments policies designed to limit investment risk and maintain portfolio diversification.
Fundamental policies may not be changed without the vote of a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Fund (voting together as a single class subject to class approval rights of any preferred shares). The Fund
may become subject to rating agency guidelines that are more limiting than its current investment restrictions in order to obtain
and maintain a desired rating on its preferred shares, if any.
The
Fund’s investment objectives are not fundamental and may be modified by the Board without shareholder approval.
Portfolio
Turnover. The Fund will
buy and sell securities to accomplish its investment objectives. The investment policies of the Fund may lead to frequent changes
in investments, particularly in periods of rapidly fluctuating interest or currency exchange rates.
Portfolio
turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the
lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the
year (excluding securities whose maturities at acquisition were one year or less). Higher portfolio turnover may decrease the
after-tax return to individual investors in the Fund to the extent it results in a decrease of the long term capital gains portion
of distributions to shareholders.
The
Fund anticipates that its annual portfolio turnover rate will generally not exceed 100%. For the fiscal years ended September
30, 2020 and September 30, 2021, the portfolio turnover rates of the Fund were 51.6% and 34%, respectively.
Further
information on the investment objectives and policies of the Fund is set forth in the SAI.
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors
should consider the following risk factors and special considerations associated with investing in the Fund, each of which is
noted as either a “principal” risk or a “non-principal” risk:
General
Risks
Market
Risk (Principal). The
market price of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in
value due to factors affecting securities markets generally or particular industries represented in the securities markets. The
value of a security may decline due to general market conditions which are not specifically related to a particular company, such
as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or
currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security may also decline
due to factors which affect a particular industry or industries, such as labor shortages or increased
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production
costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes
may decline in value simultaneously. Equity securities generally have greater price volatility than fixed income securities. Credit
ratings downgrades may also negatively affect securities held by the Fund. Even when markets perform well, there is no assurance
that the investments held by the Fund will increase in value along with the broader market.
In
addition, market risk includes the risk that geopolitical and other events will disrupt the economy on a national or global level.
For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic
developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental
disasters can all negatively impact the securities markets, which could cause the Fund to lose value. These events could reduce
consumer demand or economic output, result in market closures, travel restrictions or quarantines, and significantly adversely
impact the economy. The current contentious domestic political environment, as well as political and diplomatic events within
the United States and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit
reduction plan, has in the past resulted, and may in the future result, in a government shutdown, which could have an adverse
impact on the Fund’s investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect
investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a
significant degree. Governmental and quasi-governmental authorities and regulators throughout the world have previously responded
to serious economic disruptions with a variety of significant fiscal and monetary policy changes, including, but not limited to,
direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or sudden
reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could
adversely affect the Fund’s investments. Any market disruptions could also prevent the Fund from executing advantageous
investment decisions in a timely manner. To the extent that the Fund focuses its investments in a region enduring geopolitical
market disruption, it will face higher risks of loss, although the increasing interconnectivity between global economies and financial
markets can lead to events or conditions in one country, region or financial market adversely impacting a different country, region
or financial market. Thus, investors should closely monitor current market conditions to determine whether the Fund meets their
individual financial needs and tolerance for risk.
Current
market conditions may pose heightened risks with respect to the Fund’s investment in fixed income securities. Interest rates
in the U.S. are at or near historically low levels. Any interest rate increases in the future could cause the value of the Fund
to decrease. Recently, there have been some modest signs of inflationary price movements. As such, fixed income securities markets
may experience heightened levels of interest rate, volatility and liquidity risk.
Exchanges
and securities markets may close early, close late or issue trading halts on specific securities or generally, which may result
in, among other things, the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time
or accurately price its portfolio investments.
Coronavirus
(“COVID-19") and Global Health Event Risk (Principal). As of the filing date of this Annual Report, there
is an outbreak of a highly contagious form of a novel coronavirus known as “COVID-19.” COVID-19 has been declared
a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary declared
a public health emergency in the United States. COVID-19 had
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a
devastating impact on the global economy, including the U.S. economy, and resulted in a global economic recession. Many states
have issued orders requiring the closure of non-essential businesses and/or requiring residents to stay at home. The COVID-19
pandemic and preventative measures taken to contain or mitigate its spread have caused, and are continuing to cause, business
shutdowns, cancellations of events and travel, significant reductions in demand for certain goods and services, reductions in
business activity and financial transactions, supply chain interruptions and overall economic and financial market instability
both globally and in the United States. Such effects will likely continue for the duration of the pandemic, which is uncertain,
and for some period thereafter. While several countries, as well as certain states, counties and cities in the United States,
began to relax the early public health restrictions with a view to partially or fully reopening their economies, many cities,
both globally and in the United States, experienced a surge in the reported number of cases and hospitalizations related to the
COVID-19 pandemic. This increase in cases led to the re-introduction of restrictions and business shutdowns in certain states,
counties and cities in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere.
Additionally, vaccines produced by Moderna and Johnson & Johnson are currently authorized for emergency use, and in August
2021, the U.S. Food and Drug Administration (“FDA”) granted full approval to the vaccines produced by Pfizer-BioNTech,
which will now be marketed as Comirnaty. However, it remains unclear how quickly the vaccines will be distributed nationwide and
globally or when “herd immunity” will be achieved and the restrictions that were imposed to slow the spread of the
virus will be lifted entirely. The delay in distributing the vaccines could lead people to continue to self-isolate and not participate
in the economy at pre-pandemic levels for a prolonged period of time. Even after the COVID-19 pandemic subsides, the U.S. economy
and most other major global economies may continue to experience a substantial economic downturn or recession, and our business
and operations, as well as the business and operations of our portfolio companies, could be materially adversely affected by a
prolonged economic downtown or recession in the United States and other major markets.
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Potential
consequences of the current unprecedented measures taken in response to the spread of COVID-19, and current market disruptions
and volatility that may impact the Fund include, but are not limited to:
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sudden,
unexpected and/or severe declines in the market price of our common stock or net asset
value;
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inability
of the Fund to accurately or reliably value its portfolio;
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inability
of the Fund to comply with certain asset coverage ratios that would prevent the Fund
from paying dividends to our common stockholders;
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inability
of the Fund to pay any dividends and distributions;
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inability
of the Fund to maintain its status as a RIC under the Code;
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potentially
severe, sudden and unexpected declines in the value of our investments;
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increased risk of default or bankruptcy by the companies in which we invest;
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increased
risk of companies in which we invest being unable to weather an extended cessation of
normal economic activity and thereby impairing their ability to continue functioning
as a going concern;
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reduced
economic demand resulting from mass employee layoffs or furloughs in response to governmental
action taken to slow the spread of COVID-19, which could impact the continued viability
of the companies in which we invest;
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companies
in which we invest being disproportionally impacted by governmental action aimed at slowing
the spread of COVID-19;
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limited
availability of new investment opportunities; and
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general
threats to the Fund’s ability to continue investment operations and to operate
successfully as a diversified, closed-end investment company.
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Despite
actions of the U.S. federal government and foreign governments, the uncertainty surrounding the COVID-19 pandemic and other factors
has contributed to significant volatility in the global public equity markets and global debt capital markets. These events could
have, and/or have had, a significant impact on the Fund’s performance, net asset value, income, operating results and ability
to pay distributions, as well as the performance, income, operating results and viability of issuers in which it invests.
It
is virtually impossible to determine the ultimate impact of COVID-19 at this time. Further, the extent and strength of any economic
recovery after the COVID-19 pandemic abates, including following any “second wave,” “third wave” or other
intensifying of the pandemic, is uncertain and subject to various factors and conditions. Accordingly, an investment in the Fund
is subject to an elevated degree of risk as compared to other market environments.
Convertible
Securities Risk (Principal). Convertible
securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values
of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. In
the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of the Fund’s holding
may occur in the event the underlying stock is subdivided, additional equity securities are issued for below market value, a stock
dividend is declared or the issuer enters into another type of corporate transaction that has a similar effect.
The
value of a convertible security is influenced by the value of the underlying equity security. Convertible debt securities and
preferred stocks may depreciate in value if the market value of the underlying equity security
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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 (securities that automatically convert into equity securities at a future date) 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 common stock, 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.
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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 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. The lower
a debt security is rated, the greater its default risk. As a result, the Fund may incur
cost and delays in enforcing its rights against the issuer.
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Market
Risk. 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, the Fund’s mandatory convertible securities include features
which render them more sensitive to price changes of their underlying securities. Thus
they expose the Fund to greater downside risk than traditional convertible securities,
but generally less than that of the underlying common stock.
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Interest
Rate Risk for Convertible Securities. The Fund may be subject to a greater risk of
rising interest rates due to the current period of historically low interest rates. There
is a possibility that interest rates may rise, which would likely drive down the prices
of convertible securities held by the Fund. Convertible securities are particularly sensitive
to interest rate changes when their predetermined conversion price is much higher than
the issuing company’s common stock. See “—Fixed Income Securities Risks—Duration
and Maturity Risk.”
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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,
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Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
in
the past, lasted for as long as several years. Moreover, the sectors that dominate this market change over time.
Equity
Risk (Principal). Investing
in the Fund involves equity risk, which is the risk that the securities held by the Fund will fall in market value due to adverse
market and economic conditions, perceptions regarding the industries in which the issuers of securities held by the Fund participate
and the particular circumstances and performance of particular companies whose securities the Fund holds. An investment in the
Fund represents an indirect economic stake in the securities owned by the Fund, which are for the most part traded on securities
exchanges or in the OTC markets. The market value of these securities, like other market investments, may move up or down, sometimes
rapidly and unpredictably. The net asset value of the Fund may at any point in time be worth less than the amount at the time
the shareholder invested in the Fund, even after taking into account any reinvestment of distributions.
Common
Stock Risk (Principal). Common
stock of an issuer in the Fund’s portfolio may decline in price for a variety of reasons, including if the issuer fails
to make anticipated dividend payments because, among other reasons, the issuer of the security experiences a decline in its financial
condition. Common stock in which the Fund invests is structurally subordinated as to income and residual value to preferred stock,
bonds and other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore
will be subject to greater dividend risk than preferred stock or debt instruments of such issuers. In addition, while common stock
has historically generated higher average returns than fixed income securities, common stock has also experienced significantly
more volatility in those returns.
Preferred
Stock Risk (Principal). There
are special risks associated with the Fund’s investing in preferred securities, including:
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Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion,
to defer dividends or distributions for a stated period without any adverse consequences
to the issuer. If the Fund owns a preferred security that is deferring its dividends
or distributions, the Fund may be required to report income for tax purposes although
it has not yet received such income.
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Non-Cumulative
Dividends. Some preferred securities are non-cumulative, meaning that the dividends
do not accumulate and need not ever be paid. A portion of the portfolio may include investments
in non-cumulative preferred securities, whereby the issuer does not have an obligation
to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred
security held by the Fund determine not to pay dividends or distributions on such security,
the Fund’s return from that security may be adversely affected. There is no assurance
that dividends or distributions on non-cumulative preferred securities in which the Fund
invests will be declared or otherwise made payable.
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Subordination.
Preferred securities are subordinated to bonds and other debt instruments in an issuer’s
capital structure in terms of priority to corporate income and liquidation payments,
and therefore will be subject to greater credit risk than more senior debt security instruments
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Liquidity.
Preferred securities may be substantially less liquid than many other securities,
such as common stocks or U.S. government securities.
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Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have no voting
rights with respect to the issuing company unless preferred dividends have been in arrears
for a specified number
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Growth and Income Fund Ltd.
Additional
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of
periods, at which time the preferred security holders may be entitled to elect a number of directors to the issuer’s board.
Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights.
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Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities
may redeem the securities prior to a specified date. For instance, for certain types
of preferred securities, a redemption may be triggered by a change in U.S. federal income
tax or securities laws. A redemption by the issuer may negatively impact the return of
the security held by the Fund.
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Warrants
and Rights (Non-Principal). The
Fund may invest in warrants and rights (including those acquired in units or attached to other securities) which entitle the holder
to buy equity securities at a specific price for or at the end of a specific period of time. The Fund will do so only if the underlying
equity securities are deemed appropriate by the Investment Adviser for inclusion in the Fund’s portfolio.
Investing
in rights and warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security,
and thus can be a riskier investment. The value of a right or warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or other policies of the Fund whose equity underlies
the warrant, a change in the perception as to the future price of the underlying security, or any combination thereof. Rights
and warrants generally pay no dividends and confer no voting or other rights other than the right to purchase the underlying security.
Fixed
Income Securities Risks (Principal). Fixed
income securities in which the Fund may invest are generally subject to the following risks:
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Interest
Rate Risk. The market value of bonds and other fixed-income or dividend-paying securities
changes in response to interest rate changes and other factors. Interest rate risk is
the risk that prices of bonds and other income- or dividend-paying securities will increase
as interest rates fall and decrease as interest rates rise.
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The
Fund may be subject to a greater risk of rising interest rates due to the current period of historically low interest rates. The
magnitude of these fluctuations in the market price of bonds and other income- or dividend-paying securities is generally greater
for those securities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect
interest income derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value.
The Fund may lose money if short term or long term interest rates rise sharply in a manner not anticipated by Fund management.
To the extent the Fund invests in debt securities that may be prepaid at the option of the obligor, the sensitivity of such securities
to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on
certain floating rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly
sudden and significant changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that
it invests in floating rate debt securities. These basic principles of bond prices also apply to U.S. government securities. A
security backed by the “full faith and credit” of the U.S. government is guaranteed only as to its stated interest
rate and face value at maturity, not its current market price. Just like other income- or dividend-paying securities, government-guaranteed
securities will fluctuate in value when interest rates change.
Ellsworth
Growth and Income Fund Ltd.
Additional
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The
Fund’s use of leverage will tend to increase the Fund’s interest rate risk. The Fund may invest in variable and floating
rate debt instruments, which generally are less sensitive to interest rate changes than longer duration fixed rate instruments,
but may decline in value in response to rising interest rates if, for example, the rates at which they pay interest do not rise
as much, or as quickly, as market interest rates in general. Conversely, variable and floating rate instruments generally will
not increase in value if interest rates decline. The Fund also may invest in inverse floating rate debt securities, which may
decrease in value if interest rates increase, and which also may exhibit greater price volatility than fixed rate debt obligations
with similar credit quality. To the extent the Fund holds variable or floating rate instruments, a decrease (or, in the case of
inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities,
which may adversely affect the net asset value of the Fund’s common shares.
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Issuer
Risk. Issuer risk is the risk that the value of an income- or dividend-paying security
may decline for a number of reasons which directly relate to the issuer, such as management
performance, financial leverage, reduced demand for the issuer’s goods and services,
historical and prospective earnings of the issuer and the value of the assets of the
issuer.
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Credit
Risk. Credit risk is the risk that one or more income- or dividend-paying securities
in the Fund’s portfolio will decline in price or fail to pay interest/distributions
or principal when due because the issuer of the security experiences a decline in its
financial status. Credit risk is increased when a portfolio security is downgraded or
the perceived creditworthiness of the issuer deteriorates. To the extent the Fund invests
in below investment grade securities, it will be exposed to a greater amount of credit
risk than a fund which only invests in investment grade securities. See “—Non-Investment
Grade Securities.” The degree of credit risk depends on the issuer’s financial
condition and on the terms of the securities.
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Prepayment
Risk. Prepayment risk is the risk that during periods of declining interest rates,
borrowers may exercise their option to prepay principal earlier than scheduled. For income-
or dividend-paying securities, such payments often occur during periods of declining
interest rates, forcing the Fund to re-invest in lower yielding securities, resulting
in a possible decline in the Fund’s income and distributions to shareholders. This
is known as prepayment or “call” risk. Below investment grade securities
frequently have call features that allow the issuer to redeem the security at dates prior
to its stated maturity at a specified price (typically greater than par) only if certain
prescribed conditions are met (“call protection”). For premium bonds (bonds
acquired at prices that exceed their par or principal value) purchased by the Fund, prepayment
risk may be enhanced.
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Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will
decline if the Fund invests the proceeds from matured, traded or called fixed income
securities at market interest rates that are below the Fund portfolio’s current
earnings rate.
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Duration
and Maturity Risk. The Fund has no set policy regarding portfolio maturity or duration
of the fixed-income securities it may hold. The Investment Adviser may seek to adjust
the duration or maturity of the Fund’s fixed-income holdings based on its assessment
of current and projected market conditions and all other factors that the Investment
Adviser deems relevant. In comparison to maturity (which is the date on which the issuer
of a debt instrument is obligated to repay the principal amount), duration is a measure
of the price volatility of a debt instrument as a result in changes in market rates of
interest, based on the weighted average timing of the instrument’s expected principal
and interest payments.
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Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Specifically,
duration measures the anticipated percentage change in NAV that is expected for every percentage point change in interest rates.
The two have an inverse relationship. Duration can be a useful tool to estimate anticipated price changes to a fixed pool of income
securities associated with changes in interest rates. For example, a duration of five years means that a 1% decrease in interest
rates will increase the NAV of the portfolio by approximately 5%; if interest rates increase by 1%, the NAV will decrease by 5%.
However, in a managed portfolio of fixed income securities having differing interest or dividend rates or payment schedules, maturities,
redemption provisions, call or prepayment provisions and credit qualities, actual price changes in response to changes in interest
rates may differ significantly from a duration-based estimate at any given time. Actual price movements experienced by a portfolio
of fixed income securities will be affected by how interest rates move (i.e., changes in the relationship of long term interest
rates to short term interest rates), the magnitude of any move in interest rates, actual and anticipated prepayments of principal
through call or redemption features, the extension of maturities through restructuring, the sale of securities for portfolio management
purposes, the reinvestment of proceeds from prepayments on and from sales of securities, and credit quality-related considerations
whether associated with financing costs to lower credit quality borrowers or otherwise, as well as other factors. Accordingly,
while duration maybe a useful tool to estimate potential price movements in relation to changes in interest rates, investors are
cautioned that duration alone will not predict actual changes in the net asset or market value of the Fund’s shares and
that actual price movements in the Fund’s portfolio may differ significantly from duration-based estimates. Duration differs
from maturity in that it takes into account a security’s yield, coupon payments and its principal payments in addition to
the amount of time until the security matures. As the value of a security changes over time, so will its duration. Prices of securities
with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. In general, a
portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio
with a shorter duration. Any decisions as to the targeted duration or maturity of any particular category of investments will
be made based on all pertinent market factors at any given time. The Fund may incur costs in seeking to adjust the portfolio average
duration or maturity. There can be no assurance that the Investment Adviser’s assessment of current and projected market
conditions will be correct or that any strategy to adjust duration or maturity will be successful at any given time.
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LIBOR
Risk. The Fund may be exposed to financial instruments that are tied to the London
Interbank Offered Rate (“LIBOR”) to determine payment obligations, financing
terms, hedging strategies or investment value. The Fund’s investments may pay
interest at floating rates based on LIBOR or may be subject to interest caps or floors
based on LIBOR. The Fund may also obtain financing at floating rates based on LIBOR.
Derivative instruments utilized by the Fund may also reference LIBOR.
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The
United Kingdom’s Financial Conduct Authority announced a phase out of LIBOR such that after December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings will cease to be published
or will no longer be representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar
LIBOR settings will cease to be published or will no longer be representative. The Fund may have investments linked to other interbank
offered rates, such as the Euro Overnight Index Average (“EONIA”), which may also cease to be published. Various financial
industry groups have begun planning for the transition
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
away
from LIBOR, but there are challenges to converting certain securities and transactions to a new reference rate (e.g., the Secured
Overnight Financing Rate, which is intended to replace the U.S. dollar LIBOR).
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of, new hedges placed against, instruments whose terms
currently include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of
any such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting
provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions
in certain existing instruments. Moreover, these alternative rate-setting provisions may not be designed for regular use in an
environment where LIBOR ceases to be published, and may be an ineffective fallback following the discontinuation of LIBOR.
In
addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. There
may also be challenges for the Fund to enter into hedging transactions against such newly-issued instruments until a market for
such hedging transactions develops. All of the aforementioned may adversely affect the Fund’s performance or net asset value.
Corporate
Bonds Risk (Principal). The
market value of a corporate bond generally may be expected to rise and fall inversely with interest rates. The market value of
intermediate and longer-term corporate bonds is generally more sensitive to changes in interest rates than is the market value
of shorter term corporate bonds. The market value of a corporate bond also may be affected by factors directly related to the
issuer, such as investors’ perceptions of the creditworthiness of the issuer, the issuer’s financial performance,
perceptions of the issuer in the market place, performance of management of the issuer, the issuer’s capital structure and
use of financial leverage and demand for the issuer’s goods and services. Certain risks associated with investments in corporate
bonds are described elsewhere in this Annual Report in further detail, including under “—Fixed Income Securities Risks—Credit
Risk,” “—Fixed Income Securities Risks—Interest Rate Risk,” “—Fixed Income Securities
Risks—Prepayment Risk,” and “—General Risks—Inflation Risk.” There is a risk that the issuers
of corporate bonds may not be able to meet their obligations on interest or principal payments at the time called for by an instrument.
Corporate bonds of below investment grade quality are often high risk and have speculative characteristics and may be particularly
susceptible to adverse issuer-specific developments. Corporate bonds of below investment grade quality are subject to the risks
described herein under “—Non-Investment Grade Securities.”
Non-Investment
Grade Securities (Principal). The
Fund may invest in below investment-grade securities, also known as “junk bonds” or “high-yield securities.”
These securities, which may be preferred stock or debt, are predominantly speculative and involve major risk exposure to adverse
conditions. Securities that are rated lower than “BBB” by S&P or lower than “Baa” by Moody’s
(or unrated securities of comparable quality) are referred to in the financial press as “junk bonds” or “high
yield” securities and generally pay a premium above the yields of
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
U.S.
government securities or securities of investment grade issuers because they are subject to greater risks than these securities.
These risks, which reflect their speculative character, include the following:
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potentially
greater sensitivity to general economic or industry conditions;
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potential
lack of attractive resale opportunities (illiquidity); and
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additional
expenses to seek recovery from issuers who default.
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In
addition, the prices of these non-investment grade securities are more sensitive to negative developments, such as a decline in
the issuer’s revenues or a general economic downturn, than are the prices of higher grade securities. Non-investment grade
securities tend to be less liquid than investment grade securities. The market value of non-investment grade securities may be
more volatile than the market value of investment grade securities and generally tends to reflect the market’s perception
of the creditworthiness of the issuer and short term market developments to a greater extent than investment grade securities,
which primarily reflect fluctuations in general levels of interest rates.
Ratings
are relative and subjective and not absolute standards of quality. Securities ratings are based largely on the issuer’s
historical financial condition and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned
to any particular security is not necessarily a reflection of the issuer’s current financial condition. In light of these
risks, the Investment Adviser, in evaluating the creditworthiness of an issuer, whether rated or unrated, will take various factors
into consideration, which may include, as applicable, the issuer’s operating history, financial resources and its sensitivity
to economic conditions and trends, the market support for the facility financed by the issue, the perceived ability and integrity
of the issuer’s management and regulatory matters.
Non-investment
grade rated securities also present risks based on payment expectations. If an issuer calls the obligation for redemption (often
a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security, resulting in
a decreased return for investors. Also, as the principal value of bonds and dividend-paying securities moves inversely with movements
in interest rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately
more than a portfolio consisting of higher rated securities. Investments in zero coupon bonds may be more speculative and subject
to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently. The Fund may be subject
to a greater risk of rising interest rates due to the current period of historically low interest rates. Recently, there have
been some modest signs of inflationary price movements and there is a possibility that interest rates may rise in the future.
The
Fund may purchase securities of companies that are experiencing significant financial or business difficulties, including companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant
financial returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial
and legal, necessary for successful investments in issuers experiencing significant business and financial difficulties is unusually
high. There can be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments
or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to
a portfolio
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
investment,
the Fund may lose all or part of its investment or may be required to accept collateral with a value less than the amount of the
Fund’s initial investment.
As
a part of its investments in non-investment grade securities, the Fund may invest in the securities of issuers in default. The
Fund invests in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their
obligations and emerge from bankruptcy protection and that the value of such issuers’ securities will appreciate. By investing
in the securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations
or emerge from bankruptcy protection or that the value of these securities will not otherwise appreciate.
In
addition to using statistical rating agencies and other sources, the Investment Adviser will also perform its own analysis of
issues in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition
of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed
income securities, including non-investment grade securities and comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises
these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return for the Fund.
The
market for non-investment grade and comparable unrated securities has at various times, particularly during times of economic
recession, experienced substantial reductions in market value and liquidity. Past recessions have adversely affected the ability
of certain issuers of such securities to repay principal and pay interest thereon. The market for those securities could react
in a similar fashion in the event of any future economic recession.
Inflation
Risk (Non-Principal). Inflation
risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the
value of money. Recently, there have been market indicators of a rise in inflation. As inflation increases, the real value of
the Fund’s shares and distributions therefore may decline. In addition, during any periods of rising inflation, dividend
rates of any debt securities issued by the Fund would likely increase, which would tend to further reduce returns to common shareholders.
Inflation rates may change frequently and significantly as a result of various factors, including unexpected shifts in the domestic
or global economy and changes in economic policies, and the Fund’s investments may not keep pace with inflation, which may
result in losses to Fund shareholders. This risk is greater for fixed-income instruments with longer maturities.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
U.S.
Government Securities and Credit Rating Downgrade Risk (Non-Principal). The
Fund may invest in direct obligations of the government of the United States or its agencies. Obligations issued or guaranteed
by the U.S. government, its agencies, authorities and instrumentalities and backed by the full faith and credit of the U.S. guarantee
only that principal and interest will be timely paid to holders of the securities. These entities do not guarantee that the value
of such obligations will increase, and, in fact, the market values of such obligations may fluctuate. In addition, not all U.S.
government securities are backed by the full faith and credit of the United States; some are the obligation solely of the entity
through which they are issued. There is no guarantee that the U.S. government would provide financial support to its agencies
and instrumentalities if not required to do so by law.
In
2011, S&P lowered its long term sovereign credit rating on the U.S. to “AA+” from “AAA.” The downgrade
by S&P increased volatility in both stock and bond markets, resulting in higher interest rates and higher Treasury yields,
and increased the costs of all kinds of debt. Repeat occurrences of similar events could have significant adverse effects on the
U.S. economy generally and could result in significant adverse impacts on issuers of securities held by the Fund itself. The Investment
Adviser cannot predict the effects of similar events in the future on the U.S. economy and securities markets or on the Fund’s
portfolio. The Investment Adviser monitors developments and seeks to manage the Fund’s portfolio in a manner consistent
with achieving the Fund’s investment objectives, but there can be no assurance that it will be successful in doing so and
the Investment Adviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Smaller
Companies Investment Risk (Non-Principal). The
Fund may invest in the securities of smaller, less seasoned companies. Smaller companies offer investment opportunities and additional
risks. They may not be well known to the investing public, may not be significantly owned by institutional investors and may not
have steady earnings growth. These companies may have limited product lines and markets, as well as shorter operating histories,
less experienced management and more limited financial resources than larger companies. In addition, the securities of such companies
may be more vulnerable to adverse general market or economic developments, more volatile in price, have wider spreads between
their bid and ask prices and have significantly lower trading volumes than the securities of larger capitalization companies.
As such, securities of these smaller companies may be less liquid than those of larger companies, and may experience greater price
fluctuations than larger companies. In addition, small-cap or mid-cap company securities may not be widely followed by investors,
which may result in reduced demand.
As
a result, the purchase or sale of more than a limited number of shares of the securities of a smaller company may affect its market
price. The Investment Adviser may need a considerable amount of time to purchase or sell its positions in these securities, particularly
when other Investment Adviser-managed accounts or other investors are also seeking to purchase or sell them.
The
securities of smaller capitalization companies generally trade in lower volumes and are subject to greater and more unpredictable
price changes than larger capitalization securities or the market as a whole. In addition, smaller capitalization securities may
be particularly sensitive to changes in interest rates, borrowing costs and earnings. Investing in smaller capitalization securities
requires a longer-term view.
Securities
of emerging companies may lack an active secondary market and may be subject to more abrupt or erratic price movements than securities
of larger, more established companies or stock market averages in
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
general.
Competitors of certain companies, which may or may not be in the same industry, may have substantially greater financial resources
than the companies in which the Fund may invest.
Foreign
Securities Risk (Principal). Investments
in the securities of foreign issuers involve certain considerations and risks not ordinarily associated with investments in securities
of domestic issuers and such securities may be more volatile than those of issuers located in the United States. Foreign companies
are not generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable
to U.S. companies. Foreign securities exchanges, brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be subject to withholding and other foreign taxes,
which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing a court judgment
abroad. In addition, it may be difficult to effect repatriation of capital invested in certain countries. In addition, with respect
to certain countries, there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments
that could affect assets of the Fund held in foreign countries. Dividend income the Fund receives from foreign securities may
not be eligible for the special tax treatment applicable to qualified dividend income. Moreover, certain equity investments in
foreign issuers classified as passive foreign investment companies may be subject to additional taxation risk.
There
may be less publicly available information about a foreign company than a U.S. company. Foreign securities markets may have substantially
less volume than U.S. securities markets and some foreign company securities are less liquid than securities of otherwise comparable
U.S. companies. A portfolio of foreign securities may also be adversely affected by fluctuations in the rates of exchange between
the currencies of different nations and by exchange control regulations. Foreign markets also have different clearance and settlement
procedures that could cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result
in the Fund missing attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities
can expect to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased
costs of maintaining the custody of foreign securities.
The
Fund also may purchase ADRs or U.S. dollar denominated securities of foreign issuers. ADRs are receipts issued by U.S. banks or
trust companies in respect of securities of foreign issuers held on deposit for use in the U.S. securities markets. While ADRs
may not necessarily be denominated in the same currency as the securities into which they may be converted, many of the risks
associated with foreign securities may also apply to ADRs. In addition, the underlying issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications
to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.
The
following provides more detail on certain pronounced risks with foreign investing:
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Foreign
Currency Risk. The Fund may invest in companies whose securities are denominated
or quoted in currencies other than U.S. dollars or have significant operations or markets
outside of the United States. In such instances, the Fund will be exposed to currency
risk, including the risk of fluctuations in the exchange rate between U.S. dollars (in
which the Fund’s shares are denominated) and such foreign currencies, the risk
of currency devaluations and the risks of non-exchangeability and blockage. As non-U.S.
securities may be purchased with and payable in currencies of countries other than the
U.S. dollar, the value of these assets measured in U.S. dollars may be affected favorably
or unfavorably by changes
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Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
in
currency rates and exchange control regulations. Fluctuations in currency rates may adversely affect the ability of the Investment
Adviser to acquire such securities at advantageous prices and may also adversely affect the performance of such assets.
Certain
non-U.S. currencies, primarily in developing countries, have been devalued in the past and might face devaluation in the future.
Currency devaluations generally have a significant and adverse impact on the devaluing country’s economy in the short and
intermediate term and on the financial condition and results of companies’ operations in that country. Currency devaluations
may also be accompanied by significant declines in the values and liquidity of equity and debt securities of affected governmental
and private sector entities generally. To the extent that affected companies have obligations denominated in currencies other
than the devalued currency, those companies may also have difficulty in meeting those obligations under such circumstances, which
in turn could have an adverse effect upon the value of the Fund’s investments in such companies. There can be no assurance
that current or future developments with respect to foreign currency devaluations will not impair the Fund’s investment
flexibility, its ability to achieve its investment objectives or the value of certain of its foreign currency-denominated investments.
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Tax
Consequences of Foreign Investing. The Fund’s transactions in foreign currencies,
foreign currency-denominated debt obligations and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise to ordinary
income or loss to the extent such income or loss results from fluctuations in the value
of the foreign currency concerned. This treatment could increase or decrease the Fund’s
ordinary income distributions to you, and may cause some or all of the Fund’s previously
distributed income to be classified as a return of capital. In certain cases, the Fund
may make an election to treat gain or loss attributable to certain investments as capital
gain or loss.
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EMU
and Redenomination Risk. As the European debt crisis progressed, the possibility
of one or more Eurozone countries exiting the European Monetary Union (“EMU”),
or even the collapse of the Euro as a common currency, arose, creating significant volatility
at times in currency and financial markets generally. The effects of the collapse of
the Euro, or of the exit of one or more countries from the EMU, on the U.S. and global
economy and securities markets are impossible to predict and any such events could have
a significant adverse impact on the value and risk profile of the Fund’s portfolio.
Any partial or complete dissolution of the EMU could have significant adverse effects
on currency and financial markets, and on the values of the Fund’s portfolio investments.
If one or more EMU countries were to stop using the Euro as its primary currency, the
Fund’s investments in such countries may be redenominated into a different or newly
adopted currency. As a result, the value of those investments could decline significantly
and unpredictably. In addition, securities or other investments that are redenominated
may be subject to foreign currency risk, liquidity risk and valuation risk to a greater
extent than similar investments currently denominated in Euros. To the extent a currency
used for redenomination purposes is not specified in respect of certain EMU-related investments,
or should the Euro cease to be used entirely, the currency in which such investments
are denominated may be unclear, making such investments particularly difficult to value
or dispose of. The Fund may incur additional expenses to the extent it is required to
seek judicial or other clarification of the denomination or value of such securities.
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Emerging
Markets Risk. The considerations noted above in “Foreign Securities Risk”
are generally intensified for investments in emerging market countries. Emerging market
countries typically have economic and political systems that are less fully developed,
and can be expected to be less stable than those of
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more
developed countries. Investing in securities of companies in emerging markets may entail special risks relating to potential political
and economic instability and the risks of expropriation, nationalization, confiscation or the imposition of restrictions on foreign
investment, the lack of hedging instruments and restrictions on repatriation of capital invested. Economies of such countries
can be subject to rapid and unpredictable rates of inflation or deflation. Emerging securities markets are substantially smaller,
less developed, less liquid and more volatile than the major securities markets. The limited size of emerging securities markets
and limited trading volume compared to the volume of trading in U.S. securities could cause prices to be erratic for reasons apart
from factors that affect the quality of the securities. For example, limited market size may cause prices to be unduly influenced
by traders who control large positions. Adverse publicity and investors’ perceptions, whether or not based on fundamental
analysis, may decrease the value and liquidity of portfolio securities, especially in these markets. Other risks include high
concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries,
as well as a high concentration of investors and financial intermediaries; overdependence on exports, including gold and natural
resources exports, making these economies vulnerable to changes in commodity prices; overburdened infrastructure and obsolete
or unseasoned financial systems; environmental problems; less developed legal systems; and less reliable securities custodial
services and settlement practices. Certain emerging markets may also face other significant internal or external risks, including
the risk of war and civil unrest. For all of these reasons, investments in emerging markets may be considered speculative.
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Eurozone
Risk. A number of countries in the EU have experienced, and may continue to experience,
severe economic and financial difficulties. In particular, many EU nations are susceptible
to economic risks associated with high levels of debt, notably due to investments in
sovereign debt of countries such as Greece, Italy, Spain, Portugal, and Ireland. As a
result, financial markets in the EU have been subject to increased volatility and declines
in asset values and liquidity. Responses to these financial problems by European governments,
central banks, and others, including austerity measures and reforms, may not work, may
result in social unrest, and may limit future growth and economic recovery or have other
unintended consequences. Further defaults or restructurings by governments and others
of their debt could have additional adverse effects on economies, financial markets,
and asset valuations around the world. Greece, Ireland, and Portugal have already received
one or more “bailouts” from other Eurozone member states, and it is unclear
how much additional funding they will require or if additional Eurozone member states
will require bailouts in the future. One or more other countries may also abandon the
euro and/or withdraw from the EU, placing its currency and banking system in jeopardy.
The impact of these actions, especially if they occur in a disorderly fashion, is not
clear but could be significant and far-reaching.
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Brexit
Risk. On June 23, 2016, the United Kingdom held a referendum in which voters approved
an exit from the EU, commonly referred to as “Brexit.” The United Kingdom’s
withdrawal from the EU occurred on January 31, 2020, and the United Kingdom remained
in the EU’s customs union and single market until December 31, 2020. The United
Kingdom and the EU have entered into a Trade and Cooperation Agreement (the “TCA”).
While the TCA regulates a number of important areas, significant parts of the United
Kingdom economy are not addressed in detail by the TCA, including in particular the services
sector, which represents the largest component of the United Kingdom’s economy.
A number of issues,
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Growth and Income Fund Ltd.
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particularly
in relation to the financial services sector, remain to be resolved through further bilateral negotiations. As a result, the
new relationship between the United Kingdom and the EU could in the short-term, and possibly for longer, cause disruptions to
and create uncertainty in the United Kingdom and European economies, prejudice to financial services businesses that are conducting
business in the EU and which are based in the United Kingdom, legal uncertainty regarding achievement of compliance with applicable
financial and commercial laws and regulations, and the unavailability of timely information as to expected legal, tax and other
regimes.
In
addition, certain European countries have recently experienced negative interest rates on certain fixed-income instruments. A
negative interest rate policy is an unconventional central bank monetary policy tool where nominal target interest rates are set
with a negative value (i.e., below zero percent) intended to help create self-sustaining growth in the local economy. Negative
interest rates may result in heightened market volatility and may detract from the Fund’s performance to the extent the
Fund is exposed to such interest rates. Among other things, these developments have adversely affected the value and exchange
rate of the euro and pound sterling, and may continue to significantly affect the economies of all EU countries, which in turn
may have a material adverse effect on the Fund’s investments in such countries, other countries that depend on EU countries
for significant amounts of trade or investment, or issuers with exposure to debt issued by certain EU countries.
To
the extent the Fund has exposure to European markets or to transactions tied to the value of the euro, these events could negatively
affect the value and liquidity of the Fund’s investments. All of these developments may continue to significantly affect
the economies of all EU countries, which in turn may have a material adverse effect on the Fund’s investments in such countries,
other countries that depend on EU countries for significant amounts of trade or investment, or issuers with exposure to debt issued
by certain EU countries.
Restricted
and Illiquid Securities Risk (Principal). Unregistered
securities are securities that cannot be sold publicly in the United States without registration under the Securities Act. An
illiquid investment is a security or other investment that cannot be disposed of within seven days in the ordinary course of business
at approximately the value at which the Fund has valued the investment. Unregistered securities often can be resold only in privately
negotiated transactions with a limited number of purchasers or in a public offering registered under the Securities Act. Considerable
delay could be encountered in either event and, unless otherwise contractually provided for, the Fund’s proceeds upon sale
may be reduced by the costs of registration or underwriting discounts. The difficulties and delays associated with such transactions
could result in the Fund’s inability to realize a favorable price upon disposition of unregistered securities, and at times
might make disposition of such securities impossible. The Fund may be unable to sell illiquid investments when it desires to do
so, resulting in the Fund obtaining a lower price or being required to retain the investment. Illiquid investments generally must
be valued at fair value, which is inherently less precise than utilizing market values for liquid investments, and may lead to
differences between the price a security is valued for determining the Fund’s net asset value and the price the Fund actually
receives upon sale.
Special
Risks Related to Investment in Derivatives (Non-Principal). The
Fund may participate in certain derivative transactions, as described herein. Such transactions entail certain execution, market,
liquidity, hedging and tax risks. Participation in derivatives transactions involves investment risks and transaction costs to
which the Fund would not be subject absent the use of these strategies. If the Investment Adviser’s prediction
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of
movements in the direction of the securities or other referenced instruments or markets is inaccurate, the consequences to the
Fund may leave the Fund in a worse position than if it had not used such strategies. Risks inherent in the use of derivative transactions
include:
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dependence
on the Investment Adviser’s ability to predict correctly movements in the direction
of the relevant measure;
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imperfect
correlation between the price of the derivative instrument and movements in the prices
of the referenced assets;
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the
fact that skills needed to use these strategies are different from those needed to select
portfolio securities;
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the
possible absence of a liquid secondary market for any particular instrument at any time;
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the possible need to defer closing out certain positions to avoid adverse
tax consequences;
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the
possible inability of the Fund to purchase or sell a security or instrument at a time
that otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a security or instrument at a disadvantageous time due to a need for the Fund
to maintain “cover” or to segregate securities in connection with the hedging
techniques; and
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the
creditworthiness of counterparties.
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Certain
derivatives may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions
in the United States, may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected
by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data
on which to make trading decisions, (iii) delays in the ability of the Fund to act upon economic events occurring in the foreign
markets during non-business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States and (v) less trading volume. Exchanges on which derivatives are traded may impose
limits on the positions that the Fund may take in certain circumstances.
Many
over-the-counter (“OTC”) derivatives are valued on the basis of dealers’ pricing of these instruments. However,
the price at which dealers value a particular derivative and the price which the same dealers would actually be willing to pay
for such derivative should the Fund wish or be forced to sell such position may be materially different. Such differences can
result in an overstatement of the Fund’s net asset value and may materially adversely affect the Fund in situations in which
the Fund is required to sell derivative instruments. Exchange-traded derivatives and OTC derivative transactions submitted for
clearing through a central counterparty have become subject to minimum initial and variation margin requirements set by the relevant
clearinghouse, as well as possible margin requirements mandated by the SEC or the Commodity Futures Trading Commission (the “CFTC”).
These regulators also have broad discretion to impose margin requirements on non-cleared OTC derivatives. These margin requirements
will increase the overall costs for the Fund.
While
hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and the underlying security, and there can be no assurance that the Fund’s hedging transactions will
be effective.
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Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Derivatives
may give rise to a form of leverage and may expose the Fund to greater risk and increase its costs. Recent legislation calls for
new regulation of the derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some
time. New regulation may make derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect
the value or performance of derivatives.
Counterparty
Risk (Non-Principal). The
Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased by the Fund. If a
counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties,
the Fund may experience significant delays in obtaining any recovery under the derivative contract in bankruptcy or other reorganization
proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances.
The
counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivative transactions since generally a
clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the
parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance
of financial obligations under the derivative contract. However, there can be no assurance that a clearing organization, or its
members, will satisfy its obligations to the Fund, or that the Fund would be able to recover the full amount of assets deposited
on its behalf with the clearing organization in the event of the default by the clearing organization or the Fund’s clearing
broker. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and
minimum capital requirements applicable to intermediaries. Uncleared OTC derivative transactions generally do not benefit from
such protections. This exposes the Fund to the risk that a counterparty will not settle a transaction in accordance with its terms
and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity
problem, thus causing the Fund to suffer a loss. Such “counterparty risk” is accentuated for contracts with longer
maturities where events may intervene to prevent settlement, or where the Fund has concentrated its transactions with a single
or small group of counterparties.
Short
Sales Risk (Non-Principal). Short-selling
involves selling securities which may or may not be owned and borrowing the same securities for delivery to the purchaser, with
an obligation to replace the borrowed securities at a later date. If the price of the security sold short increases between the
time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction
costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer (usually cash and liquid
securities) and the maintenance of collateral with its Custodian. Although the Fund’s gain is limited to the price at which
it sold the security short, its potential loss is theoretically unlimited.
Short
selling necessarily involves certain additional risks. However, if the short seller does not own the securities sold short (an
uncovered short sale), the borrowed securities must be replaced by securities purchased at market prices in order to close out
the short position, and any appreciation in the price of the borrowed securities would result in a loss. Uncovered short sales
expose the Fund to the risk of uncapped losses until a position can be closed out due to the lack of an upper limit on the price
to which a security may rise. Purchasing securities to close out the short position can itself cause the price of the securities
to rise further, thereby exacerbating the loss. There is the risk that the securities borrowed by the Fund in connection with
a short-sale must be returned to the securities lender on short notice. If a request for return of borrowed securities occurs
at a time when other short-sellers of the security are receiving similar requests, a “short squeeze” can occur, and
the Fund may
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Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
be
compelled to replace borrowed securities previously sold short with purchases on the open market at the most disadvantageous time,
possibly at prices significantly in excess of the proceeds received at the time the securities were originally sold short.
In
September 2008, in response to spreading turmoil in the financial markets, the SEC temporarily banned short selling in the stocks
of numerous financial services companies, and also promulgated new disclosure requirements with respect to short positions held
by investment managers. The SEC’s temporary ban on short selling of such stocks has since expired, but should similar restrictions
and/or additional disclosure requirements be promulgated, especially if market turmoil occurs, the Fund may be forced to cover
short positions more quickly than otherwise intended and may suffer losses as a result. Such restrictions may also adversely affect
the ability of the Fund to execute its investment strategies generally. Similar emergency orders were also instituted in non-U.S.
markets in response to increased volatility. The Fund’s ability to engage in short sales is also restricted by various regulatory
requirements relating to short sales.
Significant
Holdings Risk (Non-Principal). The
Fund may invest up to 25% of its total assets in securities of a single industry. Should the Fund choose to do so, the net asset
value of the Fund will be more susceptible to factors affecting those particular types of companies, which, depending on the particular
industry, may include, among others: governmental regulation; inflation; cost increases in raw materials, fuel and other operating
expenses; technological innovations that may render existing products and equipment obsolete; and increasing interest rates resulting
in high interest costs on borrowings needed for capital investment, including costs associated with compliance with environmental
and other regulations. In such circumstances, the Fund’s investments may be subject to greater risk and market fluctuation
than a fund that had securities representing a broader range of industries.
Healthcare
Sector Risk (Principal). The
Fund has in the past invested, and may in the future invest, a significant portion of its total assets in securities issued by
companies in the healthcare sector. The profitability of companies in the healthcare sector may be affected by legislative activities
and extensive government regulations, restrictions on government reimbursement for medical expenses, rising costs of medical products
and services, pricing pressure, an increased emphasis on outpatient services, limited number of products, industry innovation,
changes in technologies and other market developments. Many healthcare companies are heavily dependent on patent protection. The
expiration of a company’s patents may adversely affect that company’s profitability. Many healthcare companies are
subject to extensive civil litigation based on product liability and similar claims. Healthcare companies are subject to competitive
forces that may make it difficult to raise prices and, in fact, may result in price discounting. Many new products in the healthcare
sector may be subject to regulatory approvals. The process of obtaining such approvals may be long and costly, and such efforts
ultimately may be unsuccessful. Companies in the healthcare sector may be thinly capitalized and may be susceptible to product
obsolescence.
Information
Technology Sector Risk (Principal). The
Fund has in the past invested, and may in the future invest, a significant portion of its total assets in securities issued by
information technology companies. Information technology companies face intense competition, both domestically and internationally,
which may have an adverse effect on profit margins. These companies are heavily dependent on patent protection and the expiration
of or infringement on patents may adversely affect the profitability of such companies.
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Additional
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The
securities of information technology companies tend to exhibit a greater degree of market risk and sharp price fluctuations than
other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling
and dramatically lower market prices. Technology securities also may be affected adversely by changes in technology, consumer
and business purchasing patterns, government regulation, product and/or service obsolescence, unpredictable changes in growth
rates and competition for the services of qualified personnel. In addition, a rising interest rate environment tends to negatively
affect information technology companies. These companies having high market valuations may appear less attractive to investors,
which may cause sharp decreases in their market prices. Further, those information technology companies seeking to finance expansion
would have increased borrowing costs, which may negatively impact earnings.
Financial
Services Company Risk (Principal). The
Fund has in the past invested, and may in the future invest, a significant portion of its total assets in securities issued by
financial services companies. Financial services are generally involved in banking, mortgage finance, consumer finance, specialized
finance, investment banking and brokerage, asset management and custody, corporate lending, insurance, financial investments,
or real estate.
Leverage
Risk (Principal). The
Fund currently uses financial leverage for investment purposes by issuing preferred shares. As of September 30, 2021, the amount
of leverage represented approximately 13% of the Fund’s net assets. The Fund’s leveraged capital structure creates
special risks not associated with unleveraged funds that have a similar investment objective and policies. These include the possibility
of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset coverage for any preferred
shares or debt outstanding. Such volatility may increase the likelihood of the Fund having to sell investments in order to meet
its obligations to make distributions on the preferred shares or principal or interest payments on debt securities, or to redeem
preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use of leverage may require it to sell
portfolio investments at inopportune times in order to raise cash to redeem preferred shares or otherwise de-leverage so as to
maintain required asset coverage amounts or comply with the mandatory redemption terms of any outstanding preferred shares. The
use of leverage magnifies both the favorable and unfavorable effects of price movements in the investments made by the Fund. To
the extent the Fund is leveraged in its investment operations, the Fund will be subject to substantial risk of loss. The Fund
cannot assure that borrowings or the issuance of preferred shares or notes will result in a higher yield or return to the holders
of the common shares. Also, to the extent the Fund utilizes leverage, a decline in net asset value could affect the ability of
the Fund to make common share distributions and such a failure to make distributions could result in the Fund ceasing to qualify
as a RIC under the Code. For more information regarding the risks of a leverage capital structure to holders of the Fund’s
common shares, see “—Special Risks to Holders of Common Shares—Leverage Risk.”
Market
Discount Risk (Principal). The
Fund is a diversified, closed-end management investment company. Whether investors will realize gains or losses upon the sale
of additional securities of the Fund will depend upon the market price of the securities at the time of sale, which may be less
or more than the Fund’s net asset value per share or the liquidation value of any Fund preferred shares issued. Since the
market price of any additional securities the Fund may issue will be affected by such factors as the Fund’s dividend and
distribution levels (which are in turn affected by expenses), dividend and distribution stability, net asset value, market liquidity,
the
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Growth and Income Fund Ltd.
Additional
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relative
demand for and supply of such securities in the market, general market and economic conditions and other factors beyond the control
of the Fund, we cannot predict whether any such securities will trade at, below or above net asset value or at, below or above
their public offering price or at, below or above their liquidation value, as applicable. For example, common shares of closed-end
funds often trade at a discount to their net asset values and the Fund’s common shares may trade at such a discount. This
risk may be greater for investors expecting to sell their securities of the Fund soon after the completion of a public offering
for such securities. The risk of a market price discount from net asset value is separate and in addition to the risk that net
asset value itself may decline. The Fund’s securities are designed primarily for long term investors, and investors in the
shares should not view the Fund as a vehicle for trading purposes.
Long
Term Objective; Not a Complete Investment Program (Principal). The
Fund is intended for investors seeking long term growth of capital. The Fund is not meant to provide a vehicle for those who wish
to play short term swings in the stock market. An investment in shares of the Fund should not be considered a complete investment
program. Each shareholder should take into account the Fund’s investment objectives as well as the shareholder’s other
investments when considering an investment in the Fund.
Management
Risk (Principal). The
Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser will apply investment techniques
and risk analyses in making investment decisions for the Fund, but there can be no guarantee that these will produce the desired
results.
Decision-Making
Authority Risk (Principal). Investors
have no authority to make decisions or to exercise business discretion on behalf of the Fund, except as set forth in the Fund’s
governing documents. The authority for all such decisions is generally delegated to the Board, who in turn, has delegated the
day-to-day management of the Fund’s investment activities to the Investment Adviser, subject to oversight by the Board.
Dependence
on Key Personnel (Principal). The
Investment Adviser is dependent upon the expertise of Mr. Thomas Dinsmore, Mr. James Dinsmore and Ms. Jane O’Keeffe, who
serve as the Fund’s portfolio managers, in providing advisory services with respect to the Fund’s investments. If
the Investment Adviser were to lose the services of Mr. Thomas Dinsmore, Mr. James Dinsmore or Ms. Jane O’Keeffe, its ability
to service the Fund could be adversely affected. There can be no assurance that a suitable replacement could be found for Mr.
Thomas Dinsmore, Mr. James Dinsmore or Ms. Jane O’Keeffe in the event of their death, resignation, retirement or inability
to act on behalf of the Investment Adviser.
Market
Disruption and Geopolitical Risk (Principal).
The occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics
(such as COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, natural/environmental
disasters, terrorist attacks in the United States and around the world, social and political discord, debt crises sovereign
debt downgrades, increasingly strained relations between the United States and a number of foreign countries, new and
continued political unrest in various countries, the exit or potential exit of one or more countries from the EU or the EMU,
continued changes in the balance of political power among and within the branches of the U.S. government, government
shutdowns, among others, may result in market volatility, may have long term effects on the U.S. and worldwide financial
markets, and may cause further economic uncertainties in the United States and worldwide.
The
current contentious domestic political environment, as well as political and diplomatic events within the United States and abroad,
such as the U.S. government’s inability to agree on a long-term budget and deficit
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Growth and Income Fund Ltd.
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reduction
plan, may in the future result in additional government shutdowns, which could have a material adverse effect on the Fund’s
investments and operations. In addition, the Fund’s ability to raise additional capital in the future through the sale of
securities could be materially affected by a government shutdown. Additional and/or prolonged U.S. government shutdowns may affect
investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a
significant degree.
While
the extreme volatility and disruption that U.S. and global markets experienced for an extended period of time beginning in 2007
and 2008 had, until the recent coronavirus (COVID-19) outbreak, generally subsided, uncertainty and periods of volatility still
remain, and risks to a robust resumption of growth persist. Federal Reserve policy, including with respect to certain interest
rates, may adversely affect the value, volatility and liquidity of dividend and interest paying securities. Market volatility,
dramatic changes to interest rates and/or a return to unfavorable economic conditions may lower the Fund’s performance or
impair the Fund’s ability to achieve its investment objective.
The
occurrence of any of the above events could have a significant adverse impact on the value and risk profile of the Fund’s
portfolio. The Fund does not know how long the securities markets may be impacted by similar events and cannot predict the effects
of similar events in the future on the U.S. economy and securities markets. There can be no assurance that similar events and
other market disruptions will not have other material and adverse implications.
As
previously discussed, Brexit has led to volatility in the financial markets of the UK and more broadly across Europe and may also
lead to weakening in consumer, corporate and financial confidence in such markets. The decision made in the British referendum
may also lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility
in the European and global markets. This mid- to long-term uncertainty may have an adverse effect on the economy generally and
on the ability of the Fund and its investments to execute its respective strategies and to receive attractive returns. In particular,
currency volatility may mean that the returns of the Fund and its investments are adversely affected by market movements and may
make it more difficult, or more expensive, for the Fund to execute prudent currency hedging policies. Potential decline in the
value of the British Pound and/or the Euro against other currencies, along with the potential downgrading of the United Kingdom’s
sovereign credit rating, may also have an impact on the performance of portfolio companies or investments located in the UK or
Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have on the
Fund, its investments or its organization more generally.
In
addition, the rules dealing with the U.S. federal income taxation are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Treasury Department. The Tax Cuts and Jobs Act made substantial changes to the Code. Among
those changes were a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of
individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject
to “sunset” provisions, the elimination or modification of various previously allowed deductions (including substantial
limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes),
certain additional limitations on the deduction of net operating losses, certain preferential rates of taxation on certain dividends
and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers,
and significant changes to the international tax rules. In addition, the
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Biden
administration has indicated that it intends to modify key aspects of the Code, including by increasing corporate and individual
tax rates. The effect of these and other changes is uncertain, both in terms of the direct effect on the taxation of an investment
in the Fund’s shares and their indirect effect on the value of the Fund’s assets, the Fund’s shares or market
conditions generally.
Economic
Events and Market Risk (Principal). Periods
of market volatility remain, and may continue to occur in the future, in response to various political, social and economic events
both within and outside of the United States. These conditions have resulted in, and in many cases continue to result in, greater
price volatility, less liquidity, widening credit spreads and a lack of price transparency, with many securities remaining illiquid
and of uncertain value. Such market conditions may adversely affect the Fund, including by making valuation of some of the Fund’s
securities uncertain and/or result in sudden and significant valuation increases or declines in the Fund’s holdings. If
there is a significant decline in the value of the Fund’s portfolio, this may impact the asset coverage levels for the Fund’s
outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and our business, financial condition and results of operation. Market and economic
disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels
of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S.
or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results
of operations could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased
borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect
to certain interest rates, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities.
Market volatility, rising interest rates and/or a return to unfavorable economic conditions could impair the Fund’s ability
to achieve its investment objectives.
Regulation
and Government Intervention Risk (Principal).
The global financial crisis led the U.S. government and certain foreign governments to take a number of unprecedented actions
designed to support certain financial institutions and segments of the financial markets that experienced extreme volatility,
and in some cases a lack of liquidity, including through direct purchases of equity and debt securities. Federal, state and
other governments and certain foreign governments and their regulatory agencies or self-regulatory organizations may take
legislative and regulatory actions that affect the regulation of the instruments in which the Fund invests, or the issuers of
such instruments, in ways that are unforeseeable. Such legislation or regulation may change the way in which the Fund is
regulated and could limit or preclude the Fund’s ability to achieve its investment objective.
The
SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory
structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas,
including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, valuation, enhanced
regulatory and public reporting requirements and the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives
resulting from these efforts could increase the Fund’s expenses and impact its returns to shareholders or, in the extreme
case, impact or limit its use of various portfolio management strategies or techniques and adversely impact the Fund.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
On
October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule
18f-4"). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4
will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used
by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities so that a failure to comply with the
limits would result in a statutory violation and require funds whose use of derivatives is more than a limited specified exposure
amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
In
the aftermath of the global financial crisis, there appears to be a renewed popular, political and judicial focus on finance related
consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case
of transactions between financial institutions and the general public, there may be a greater tendency toward strict interpretation
of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk
allocation and/or where consumers are perceived as not having had an opportunity to exercise informed consent to the transaction.
In the event of conflicting interests between retail investors holding common shares of a closed-end investment company such as
the Fund and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of
retail investors.
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the United
States. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and
infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare
and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and
have, been effectuated through executive order. For example, the current administration has taken steps to address the COVID-19
pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline and change immigration enforcement priorities.
Other potential changes that could be pursued by the current presidential administration could include an increase in the corporate
income tax rate; changes to regulatory enforcement priorities; and spending on clean energy and infrastructure. It is not possible
to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities markets or the
financial stability of the United States. The Fund may be affected by governmental action in ways that are not foreseeable, and
there is a possibility that such actions could have a significant adverse effect on the Fund and its ability to achieve its investment
objective.
Additional
risks arising from the differences in expressed policy preferences among the various constituencies in the branches of the U.S.
government have led in the past, and may lead in the future, to short term or prolonged policy impasses, which could, and have,
resulted in shutdowns of the U.S. federal government. U.S. federal government shutdowns, especially prolonged shutdowns, could
have a significant adverse impact on the economy in general and could impair the ability of issuers to raise capital in the securities
markets. Any of these effects could have an adverse impact on companies in the Fund’s portfolios and consequently on the
value of their securities and the Fund’s net asset values.
Deflation
Risk (Non-Principal). Deflation
risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers
and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Loans
of Portfolio Securities Risk (Non-Principal). Consistent
with applicable regulatory requirements and the Fund’s investment restrictions, the Fund may lend its portfolio securities
to securities broker-dealers or financial institutions, provided that such loans are callable at any time by the Fund (subject
to notice provisions described below), and are at all times collateralized by cash or cash equivalents which are maintained at
all times in an amount equal to at least 100% of the market value, determined daily, of the loaned securities. The advantage of
such loans is that the Fund continues to receive the income on the loaned securities while at the same time earning interest on
the cash amounts deposited as collateral, which will be invested in short term highly liquid obligations. The Fund will not lend
its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its shares are qualified
for sale. The Fund’s loans of portfolio securities will be collateralized in accordance with applicable regulatory requirements,
which means that “cash equivalents” accepted as collateral will be limited to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities or irrevocable letters of credit issued by a bank (other than a borrower
of the Fund’s portfolio securities or any affiliate of such borrower) which qualifies as a custodian bank for an investment
company under the 1940 Act. The Fund’s ability to lend portfolio securities may be limited by rating agency guidelines (if
any).
A
loan may generally be terminated by the borrower on one business days’ notice, or by the Fund at any time thereby requiring
the borrower to redeliver the borrowed securities within the normal and customary settlement time for securities transactions.
If the borrower fails to deliver the loaned securities within the normal and customary settlement time for securities transactions,
the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost
over the value of the collateral pledged by the borrower. As with any extensions of credit, there are risks of delay in recovery
and in some cases even loss of rights in the collateral should the borrower of the securities violate the terms of the loan or
fail financially. However, these loans of portfolio securities will only be made to firms deemed by the Investment Adviser to
be creditworthy and when the income which can be earned from such loans justifies the attendant risks. The Board will oversee
the creditworthiness of the contracting parties on an ongoing basis. Upon termination of the loan, the borrower is required to
return the securities to the Fund. Any gain or loss in the market price during the loan period would inure to the Fund.
The
risks associated with loans of portfolio securities are substantially similar to those associated with repurchase agreements.
Thus, if the counterparty to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy Code, the law
regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may be a restriction on the Fund’s
ability to sell the collateral and the Fund would suffer a loss. Moreover, because the Fund will reinvest any cash collateral
it receives, as described above, the Fund is subject to the risk that the value of the investments it makes will decline and result
in losses to the Fund. These losses, in extreme circumstances such as the 2007-2009 financial crisis, could be substantial and
have a significant adverse impact on the Fund and its shareholders. When voting or consent rights which accompany loaned securities
pass to the borrower, the Fund will follow the policy of calling the loaned securities, to be delivered within one day after notice,
to permit the exercise of such rights if the matters involved would have a material effect on the Fund’s investment in such
loaned securities. The Fund will pay reasonable finder’s, administrative and custodial fees in connection with a loan of
its securities, and may also pay fees to one or more securities lending agents and/or pay other fees or rebates to borrowers.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Investment
Dilution Risk (Principal). The
Fund’s investors do not have preemptive rights to any shares the Fund may issue in the future. The Fund’s Declaration
of Trust authorizes it to issue an unlimited number of shares. The Board may make certain amendments to the Declaration of Trust.
After an investor purchases shares, the Fund may sell additional shares or other classes of shares in the future or issue equity
interests in private offerings. To the extent the Fund issues additional equity interests after an investor purchases its shares,
such investor’s percentage ownership interest in the Fund will be diluted.
Legal,
Tax and Regulatory Risks (Principal). Legal,
tax and regulatory changes could occur that may have material adverse effects on the Fund or its shareholders. For example, the
regulatory and tax environment for derivative instruments in which the Fund may participate is evolving, and such changes in the
regulation or taxation of derivative instruments may have material adverse effects on the value of derivative instruments held
by the Fund and the ability of the Fund to pursue its investment strategies. Similarly, the Biden administration has indicated
that it intends to modify key aspects of the Code, including by increasing corporate and individual tax rates. Changes to the
U.S. federal tax laws and interpretations thereof could adversely affect an investment in the Fund.
We
cannot assure you what percentage of the distributions paid on the Fund’s shares, if any, will consist of tax-advantaged
qualified dividend income or long term capital gains or what the tax rates on various types of income will be in future years.
To
qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, the Fund must, among other things, meet
certain asset diversification tests, derive in each taxable year at least 90% of its gross income from certain prescribed sources
and distribute for each taxable year at least 90% of its “investment company taxable income.” Statutory limitations
on distributions on the common shares if the Fund fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize
the Fund’s ability to meet such distribution requirements. While the Fund presently intends to purchase or redeem notes
or preferred shares, if any, to the extent necessary in order to maintain compliance with such asset coverage requirements, there
can be no assurance that such actions can be effected in time to meet the Code requirements. If for any taxable year the Fund
does not qualify as a RIC, all of its taxable income for that year (including its net capital gain) would be subject to tax at
regular corporate rates without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary
dividends to the extent of the Fund’s current and accumulated earnings and profits. The resulting corporate taxes would
materially reduce the Fund’s net assets and the amount of cash available for distribution to shareholders. For a more complete
discussion of these and other U.S. federal income tax considerations.
1940
Act Regulation (Non-Principal). The
Fund is a registered closed-end investment company and as such is subject to regulations under the 1940 Act. Generally speaking,
any contract or provision thereof that is made, or where performance involves a violation of the 1940 Act or any rule or regulation
thereunder is unenforceable by either party unless a court finds otherwise.
Legislation
Risk (Non-Principal). At
any time after the date of this Annual Report, legislation may be enacted that could negatively affect the assets of the Fund.
Legislation or regulation may change the way in which the Fund itself is regulated. The Investment Adviser cannot predict the
effects of any new governmental regulation that may be implemented and there can be no assurance that any new governmental regulation
will not adversely affect the Fund’s ability to achieve its investment objectives.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Reliance
on Service Providers Risk (Non-Principal). The
Fund must rely upon the performance of service providers to perform certain functions, which may include functions that are integral
to the Fund’s operations and financial performance. Failure by any service provider to carry out its obligations to the
Fund in accordance with the terms of its appointment, to exercise due care and skill or to perform its obligations to the Fund
at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Fund’s performance
and returns to shareholders. The termination of the Fund’s relationship with any service provider, or any delay in appointing
a replacement for such service provider, could materially disrupt the business of the Fund and could have a material adverse effect
on the Fund’s performance and returns to shareholders.
Cyber
Security Risk (Principal). The
Fund and its service providers are susceptible to cyber security risks that include, among other things, theft, unauthorized monitoring,
release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial of service attacks; unauthorized
access to relevant systems, compromises to networks or devices that the Fund and its service providers use to service the Fund’s
operations; or operational disruption or failures in the physical infrastructure or operating systems that support the Fund and
its service providers. Cyber attacks are becoming increasingly common and more sophisticated, and may be perpetrated by computer
hackers, cyber-terrorists or others engaged in corporate espionage. Cyber attacks against or security breakdowns of the Fund or
its service providers may adversely impact the Fund and its stockholders, potentially resulting in, among other things, financial
losses; the inability of Fund stockholders to transact business and the Fund to process transactions; inability to calculate the
Fund’s NAV; violations of applicable privacy and other laws; regulatory fines, penalties, reputational damage, reimbursement
or other compensation costs; and/or additional compliance costs. The Fund may incur additional costs for cyber security risk management
and remediation purposes. In addition, cyber security risks may also impact issuers of securities in which the Fund invests, which
may cause the Fund’s investment in such issuers to lose value. There have been a number of recent highly publicized cases
of companies reporting the unauthorized disclosure of client or customer information, as well as cyberattacks involving the dissemination,
theft and destruction of corporate information or other assets, as a result of failure to follow procedures by employees or contractors
or as a result of actions by third parties, including actions by terrorist organizations and hostile foreign governments. Although
service providers typically have policies and procedures, business continuity plans and/or risk management systems intended to
identify and mitigate cyber incidents, there are inherent limitations in such plans and systems including the possibility that
certain risks have not been identified. Furthermore, the Fund cannot control the cyber security policies, plans and systems put
in place by its service providers or any other third parties whose operations may affect the Fund or its shareholders. There can
be no assurance that the Fund or its service providers will not suffer losses relating to cyber attacks or other information security
breaches in the future.
Because
technology is consistently changing, new ways to carry out cyber attacks are always developing. Therefore, there is a chance that
some risks have not been identified or prepared for, or that an attack may not be detected, which puts limitations on the Fund’s
ability to plan for or respond to a cyber attack. In addition to deliberate cyber attacks, unintentional cyber incidents can occur,
such as the inadvertent release of confidential information by the Fund or its service providers. Like other funds and business
enterprises, the Fund and its service providers are subject to the risk of cyber incidents occurring from time to time.
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Misconduct
of Employees and of Service Providers Risk (Non-Principal). Misconduct
or misrepresentations by employees of the Investment Adviser or the Fund’s service providers could cause significant losses
to the Fund. Employee misconduct may include binding the Fund to transactions that exceed authorized limits or present unacceptable
risks and unauthorized trading activities, concealing unsuccessful trading activities (which, in any case, may result in unknown
and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions
by the Fund’s service providers, including, without limitation, failing to recognize trades and misappropriating assets.
In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation
or serious financial harm, including limiting the Fund’s business prospects or future marketing activities. Despite the
Investment Adviser’s due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully
comprehended, thereby potentially undermining the Investment Adviser’s due diligence efforts. As a result, no assurances
can be given that the due diligence performed by the Investment Adviser will identify or prevent any such misconduct.
Anti-Takeover
Provisions (Principal). The
Agreement and Declaration of Trust and By-Laws of the Fund include provisions that could limit the ability of other entities or
persons to acquire control of the Fund or convert the Fund to an open-end fund.
Special
Risks to Holders of Common Shares (Principal)
Dilution
Risk. If the Fund determines
to conduct a rights offering to subscribe for common shares, holders of common shares may experience dilution or accretion of
the aggregate net asset value of their common shares. Such dilution or accretion will depend upon whether (i) such shareholders
participate in the rights offering and (ii) the Fund’s net asset value per common share is above or below the subscription
price on the expiration date of the rights offering.
Shareholders
who do not exercise their subscription rights may, at the completion of such an offering, own a smaller proportional interest
in the Fund than if they exercised their subscription rights. As a result of such an offering, a shareholder may experience dilution
in net asset value per share if the subscription price per share is below the net asset value per share on the expiration date.
If the subscription price per share is below the net asset value per share of the Fund’s shares on the expiration date,
a shareholder will experience an immediate dilution of the aggregate net asset value of such shareholder’s shares if the
shareholder does not participate in such an offering and the shareholder will experience a reduction in the net asset value per
share of such shareholder’s shares whether or not the shareholder participates in such an offering. The Fund cannot state
precisely the extent of this dilution (if any) if the shareholder does not exercise such shareholder’s subscription rights
because the Fund does not know what the net asset value per share will be when the offer expires or what proportion of the subscription
rights will be exercised.
Leverage
Risk. The Fund currently
uses financial leverage for investment purposes by issuing preferred shares and is also permitted to use other types of financial
leverage, such as through the issuance of debt securities or additional preferred shares and borrowing from financial institutions.
As provided in the 1940 Act and subject to certain exceptions, the Fund may issue additional senior securities (which may be stock,
such as preferred shares, and/or securities representing debt) only if immediately after such issuance the value of the Fund’s
Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
total
assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount
of preferred shares and debt outstanding. As of September 30, 2021, the amount of leverage represented approximately 781% of the
Fund’s net assets.
The
Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment
objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset
value of the Fund and the asset coverage for the preferred shares. Such volatility may increase the likelihood of the Fund having
to sell investments in order to meet its obligations to make distributions on the preferred shares or principal or interest payments
on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use
of leverage may require it to sell portfolio investments at inopportune times in order to raise cash to redeem preferred shares
or otherwise de-leverage so as to maintain required asset coverage amounts or comply with the mandatory redemption terms of any
outstanding preferred shares. The use of leverage magnifies both the favorable and unfavorable effects of price movements in the
investments made by the Fund. To the extent that the Fund employs leverage in its investment operations, the Fund is subject to
substantial risk of loss. The Fund cannot assure you that borrowings or the issuance of preferred shares or notes will result
in a higher yield or return to the holders of the common shares. Also, since the Fund utilizes leverage, a decline in net asset
value could affect the ability of the Fund to make common share distributions and such a failure to make distributions could result
in the Fund ceasing to qualify as a RIC under the Code.
Any
decline in the net asset value of the Fund’s investments would be borne entirely by the holders of common shares. Therefore,
if the market value of the Fund’s portfolio declines, the leverage will result in a greater decrease in net asset value
to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause
a greater decline in the market price for the common shares. The Fund might be in danger of failing to maintain the required asset
coverage of the borrowings, notes or preferred shares, or of losing its ratings on its notes or preferred shares or, in an extreme
case, the Fund’s current investment income might not be sufficient to meet the distribution or interest requirements on
the preferred shares, or notes. In order to counteract such an event, the Fund might need to liquidate investments in order to
fund a redemption of some or all of the preferred shares or notes.
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Preferred
Share and Note Risk. The issuance of preferred shares or notes causes the net asset
value and market value of the common shares to become more volatile. If the dividend
rate on the preferred shares or the interest rate on the notes approaches the net rate
of return on the Fund’s investment portfolio, the benefit of leverage to the holders
of the common shares would be reduced. If the dividend rate on the preferred shares or
the interest rate on the notes plus the management fee annual rate of 0.80% of the first
$100,000,000 of average weekly net assets and 0.55% of average weekly net assets in excess
of $100,000,000 exceeds the net rate of return on the Fund’s portfolio, the leverage
will result in a lower rate of return to the holders of common shares than if the Fund
had not issued preferred shares or notes. (The Fund’s “net” assets
for this purpose includes the liquidation of any preferred shares outstanding.) If the
Fund has insufficient investment income and gains, all or a portion of the distributions
to preferred shareholders or interest payments to note holders would come from the common
shareholders’ capital. Such distributions and interest payments reduce the net
assets attributable to common shareholders and do not reduce the principal due to noteholders
on maturity or the liquidation preference to
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Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
which
preferred shareholders are entitled. The Prospectus Supplement relating to any sale of preferred shares will set forth dividend
rate on such preferred shares.
In
addition, the Fund would pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and
ongoing maintenance of the preferred shares or notes, including the advisory fees on the incremental assets attributable to the
preferred shares or notes.
Holders
of preferred shares and notes may have different interests than holders of common shares and may at times have disproportionate
influence over the Fund’s affairs. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior
securities (which may be stock, such as preferred shares, and/or securities representing debt, such as notes) only if immediately
after such issuance the value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the
amount of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding, which is referred to as
the “asset coverage” required by the 1940 Act. In the event the Fund fails to maintain an asset coverage of 100% for
any notes outstanding for certain periods of time, the 1940 Act requires that either an event of default be declared or that the
holders of such notes have the right to elect a majority of the Fund’s Trustees until asset coverage recovers to 110%. In
addition, holders of preferred shares, voting separately as a single class, have the right (subject to the rights of noteholders)
to elect two members of the Board at all times and in the event dividends become two full years in arrears would have the right
to elect a majority of the Trustees until such arrearage is completely eliminated. In addition, preferred shareholders have class
voting rights on certain matters, including changes in fundamental investment restrictions and conversion of the Fund to open-end
status, and accordingly can veto any such changes. Further, interest on notes will be payable when due as described in a Prospectus
Supplement and if the Fund does not pay interest when due, it will trigger an event of default and the Fund expects to be restricted
from declaring dividends and making other distributions with respect to common shares and preferred shares. Upon the occurrence
and continuance of an event of default, the holders of a majority in principal amount of a series of outstanding notes or the
trustee will be able to declare the principal amount of that series of notes immediately due and payable upon written notice to
the Fund. The 1940 Act also generally restricts the Fund from declaring distributions on, or repurchasing, common or preferred
shares unless notes have an asset coverage of 300% (200% in the case of declaring distributions on preferred shares). The Fund’s
common shares are structurally subordinated as to income and residual value to any preferred shares or notes in the Fund’s
capital structure, in terms of priority to income and payment in liquidation.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and
preferred shares, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to
maintain its qualification as a RIC for U.S. federal income tax purposes. While the Fund intends to redeem its preferred shares
or notes to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification as a RIC
under the Code, there can be no assurance that such actions can be effected in time to meet the Code requirements.
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Portfolio
Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility. In order
to obtain and maintain attractive credit quality ratings for preferred shares or notes,
the Fund must comply with
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Ellsworth
Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
investment
quality, diversification and other guidelines established by the relevant rating agencies. These guidelines could affect portfolio
decisions and may be more stringent than those imposed by the 1940 Act. In the event that a rating on the Fund’s preferred
shares or notes is lowered or withdrawn by the relevant rating agency, the Fund may also be required to redeem all or part of
its outstanding preferred shares or notes, and the common shares of the Fund will lose the potential benefits associated with
a leveraged capital structure.
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Impact
on Common Shares. Assuming that leverage will (1) be equal in amount to approximately
13% of the Fund’s total net assets (the Fund’s average amount of outstanding
financial leverage during the fiscal year ended September 30, 2021), and (2) charge interest
or involve dividend payments at a projected blended annual average leverage dividend
or interest rate of 5.25% (the average interest rate on the Fund’s outstanding
financial leverage during the fiscal year ended September 30, 2021), then the annual
return generated by the Fund’s portfolio (net of estimated expenses) must exceed
approximately 0.74% of the Fund’s total net assets in order to cover such interest
or dividend payments and other expenses specifically related to leverage. Of course,
these numbers are merely estimates, used for illustration. Actual dividend rates, interest
or payment rates may vary frequently and may be significantly higher or lower than the
rate estimated above.
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The
following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on common
share total return, assuming investment portfolio total returns (comprised of net investment income of the Fund, realized gains
or losses of the Fund and changes in the value of the securities held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and
10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment
portfolio returns experienced or expected to be experienced by the Fund. The table further reflects leverage representing 13%
of the Fund’s total net assets (the Fund’s average amount of outstanding financial leverage during the fiscal year
ended September 30, 2021), the Fund’s current projected blended annual average leverage dividend or interest rate of 5.25%
(the average interest rate on the Fund’s outstanding financial leverage during the fiscal year ended September 30, 2021),
a management fee at an annual rate of 0.76% of the liquidation preference of any outstanding preferred shares and estimated annual
incremental expenses attributable to any outstanding preferred shares of 0.04% of the Fund’s net assets attributable to
common shares. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment
portfolio returns experienced or expected to be experienced by the Fund. See “Risk Factors and Special Considerations.”
|
Assumed
Return on Portfolio (Net of Expenses)
|
|
|
(10
|
)%
|
|
|
(5
|
)%
|
|
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0
|
%
|
|
|
5
|
%
|
|
|
10
|
%
|
|
Corresponding
Return to Common Shareholder
|
|
|
(12.45
|
)%
|
|
|
(6.69
|
)%
|
|
|
(0.92
|
)%
|
|
|
4.84
|
%
|
|
|
10.60
|
%
|
Common
share total return is composed of two elements—the common share distributions paid by the Fund (the amount of which is largely
determined by the taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or dividends
on any preferred shares) and unrealized gains or
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Growth and Income Fund Ltd.
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Fund Information (Continued) (Unaudited)
losses
on the value of the securities the Fund owns. As required by SEC rules, the table assumes that the Fund is more likely to suffer
capital losses than to enjoy total return. For example, to assume a total return of 0% the Fund must assume that the income it
receives on its investments is entirely offset by expenses and losses in the value of those investments.
Market
Discount Risk. As described
above in “–General Risks—Market Discount Risk,” common shares of closed-end funds often trade at a discount
to their net asset values and the Fund’s common shares may trade at such a discount. This risk may be greater for investors
expecting to sell their common shares of the Fund soon after completion of a public offering. The common shares of the Fund are
designed primarily for long-term investors and investors in the shares should not view the Fund as a vehicle for trading purposes.
Special
Risks to Holders of Preferred Shares (Principal)
Illiquidity
Prior to Exchange Listing.
Prior to an offering, there will be no public
market for any series of fixed rate preferred shares. In the event any series of fixed rate preferred shares are issued, we expect
to apply to list such shares on a national securities exchange, which will likely be the NYSE American. However, during an initial
period, which is not expected to exceed 30 days after the date of its initial issuance, such shares may not be listed on any securities
exchange. During such period, the underwriters may make a market in such shares, though they will have no obligation to do so.
Consequently, an investment in such shares may be illiquid during such period.
Market
Price Fluctuation.
Fixed rate preferred shares may trade at
a premium to or discount from liquidation value for various reasons, including changes in interest rates, perceived credit quality
and other factors.
Special
Risks to Holders of Notes (Principal)
An
investment in our notes is subject to special risks. Our notes are not likely to be listed on an exchange or automated quotation
system. We cannot assure you that any market will exist for our notes or if a market does exist, whether it will provide holders
with liquidity. Broker-dealers that maintain a secondary trading market for the notes are not required to maintain this market,
and the Fund is not required to redeem notes if an attempted secondary market sale fails because of a lack of buyers. To the extent
that our notes trade, they may trade at a price either higher or lower than their principal amount depending on interest rates,
the rating (if any) on such notes and other factors.
Special
Risks of Notes to Holders of Preferred Shares (Principal)
As
provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue notes. In
the event the Fund were to issue such securities, the Fund’s obligations to pay dividends or make
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Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
distributions
and, upon liquidation of the Fund, liquidation payments in respect of its preferred shares would be subordinate to the Fund’s
obligations to make any principal and interest payments due and owing with respect to its outstanding notes. Accordingly, the
Fund’s issuance of notes would have the effect of creating special risks for the Fund’s preferred shareholders that
would not be present in a capital structure that did not include such securities.
Special
Risks to Holders of Notes and Preferred Shares (Principal)
Common
Share Repurchases. Repurchases of common shares by the Fund may reduce the net asset coverage of the notes and preferred
shares, which could adversely affect their liquidity or market prices.
Common
Share Distribution Policy. In the event the Fund does not generate a total return from dividends and interest received
and net realized capital gains in an amount at least equal to its distributions for a given year, the Fund may return capital
as part of its distribution. This would decrease the asset coverage per share with respect to the Fund’s notes or preferred
shares, which could adversely affect their liquidity or market prices.
For
the fiscal year ended September 30, 2021, the Fund made distributions of $1.33 per common share, none of which constituted a return
of capital. The composition of each distribution is estimated based on earnings as of the record date for the distribution. The
actual composition of each distribution may change based on the Fund’s investment activity through the end of the calendar
year.
Credit
Quality Ratings. The Fund may obtain credit quality ratings for its preferred shares or notes; however, it is not required
to do so and may issue preferred shares or notes without any rating. If rated, the Fund does not impose any minimum rating necessary
to issue such preferred shares or notes. In order to obtain and maintain attractive credit quality ratings for preferred shares
or notes, if desired, the Fund’s portfolio must satisfy over-collateralization tests established by the relevant rating
agencies. These tests are more difficult to satisfy to the extent the Fund’s portfolio securities are of lower credit quality,
longer maturity or not diversified by issuer and industry.
These
guidelines could affect portfolio decisions and may be more stringent than those imposed by the 1940 Act. A rating (if any) by
a rating agency does not eliminate or necessarily mitigate the risks of investing in our preferred shares or notes, and a rating
may not fully or accurately reflect all of the securities’ credit risks. A rating (if any) does not address liquidity or
any other market risks of the securities being rated. A rating agency could downgrade the rating of our notes or preferred shares,
which may make such securities less liquid in the secondary market. If a rating agency downgrades the rating assigned to notes
or preferred shares, we may alter our portfolio or redeem the preferred securities or notes under certain circumstances.
Special
Risk to Holders of Subscription Rights (Principal)
There
is a risk that changes in market conditions may result in the underlying common or preferred shares purchasable upon exercise
of the subscription rights being less attractive to investors at the conclusion of the subscription period. This may reduce or
eliminate the value of the subscription rights. Investors who receive subscription rights may find that there is no market to
sell rights they do not wish to exercise. If investors
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Growth and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
exercise
only a portion of the rights, the number of common or preferred shares issued may be reduced, and the common or preferred shares
may trade at less favorable prices than larger offerings for similar securities.
HOW
THE FUND MANAGES RISK
Investment
Restrictions
The
Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio diversification. These
limitations are fundamental and may not be changed without the approval of the holders of a majority, as defined in the 1940 Act,
of the outstanding voting securities of the Fund (voting together as a single class subject to class approval rights of any preferred
shares). The Fund may become subject to rating agency guidelines that are more limiting than its current investment restrictions
in order to obtain and maintain a desired rating on its preferred shares, if any.
INVESTMENT
RESTRICTIONS
Fundamental
Restrictions and Policies
The
Fund operates under the following restrictions that constitute fundamental policies under the 1940 Act that, except as otherwise
noted, cannot be changed without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding voting securities
(voting together as a single class) of the Fund. The Fund has issued preferred shares and may in the future issue additional series
of preferred shares. Accordingly, the affirmative vote of the holders of a majority, as defined in the 1940 Act, of the outstanding
preferred shares of the Fund voting as a separate class would also be required to change a fundamental policy. Except as otherwise
noted, all percentage limitations set forth below apply immediately after a purchase or initial investment and any subsequent
change in any applicable percentage resulting from market fluctuations does not require any action. The Fund may 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;
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Growth and Income Fund Ltd.
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(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 to the extent such borrowing or issuance would violate the 1940 Act;
(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 (“NYSE”), the NYSE American or the NASDAQ National Market, or (ii) the underlying issuers
of which met the then prevailing earnings requirement for listing on the NYSE 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 or sell commodities or commodity contracts; or
(13)
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.
For
purposes of restriction (2) above, assets allocated to any bank loan where the Fund does not assume a contractual lending relationship
with the borrower will be treated as being invested in the industry of the applicable financial intermediary and the industry
of the borrower.
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Growth and Income Fund Ltd.
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Fund Information (Continued) (Unaudited)
With
respect to investment restriction (6), the 1940 Act permits the Fund to borrow money in amounts of up to one-third of the
Fund’s total assets from banks for any purpose, and to borrow up to 5% of the Fund’s total assets from banks or
other lenders for temporary purposes. The Fund’s total assets include the amounts being borrowed. To limit the risks
attendant to borrowing, the 1940 Act requires the Fund to maintain at all times an “asset coverage” of at least
300% of the amount of its borrowings. Asset coverage means the ratio that the value of the Fund’s total assets
(including amounts borrowed), minus liabilities other than borrowings, bears to the aggregate amount of all borrowings.
Borrowing money to increase portfolio holdings is known as “leveraging.” Certain trading practices and
investments, such as reverse repurchase agreements, may be considered to be borrowings or involve leverage and thus are
subject to the 1940 Act restrictions. In accordance with SEC staff guidance and interpretations, when the Fund engages in
certain such transactions, other than reverse repurchase agreements, the Fund, instead of maintaining asset coverage of at
least 300%, may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to the
Fund’s exposure to the transaction (as calculated pursuant to requirements of the SEC). From the outset of the
transaction, in accordance with Investment Company Act Release 10666, “Securities Trading Practices of Registered
Investment Companies” (April 18, 1979), for reverse repurchase agreements, the Fund will segregate the full amount of
the Fund’s actual or potential cash payment obligations that the Fund will owe at settlement. The
investment restriction regarding borrowing money, described above, will be interpreted to permit the Fund to (a) engage in
trading practices and investments that may be considered to be borrowing or to involve leverage to the extent permitted by
the 1940 Act, (b) segregate or earmark liquid assets or enter into offsetting positions in accordance with SEC staff guidance
and interpretation, (c) engage in securities lending in accordance with the SEC staff guidance and interpretations and (d)
settle securities transactions within the ordinary settlement cycle for such transactions.
Also
with respect to investment restriction (6), the 1940 Act permits the Fund to issue senior securities (which may be stock, such
as preferred shares, and/or securities representing debt, such as notes) only if immediately after such issuance the value of
the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding and
exceeds 200% of the amount of preferred shares (measured by liquidation value) and debt outstanding, which is referred to as the
“asset coverage” required by the 1940 Act. The 1940 Act also generally restricts the Fund from declaring cash distributions
on, or repurchasing, common or preferred shares unless outstanding debt securities have an asset coverage of 300% (200% in the
case of declaring distributions on preferred shares), or from declaring cash distributions on, or repurchasing, common shares
unless preferred shares have an asset coverage of 200% (in each case, after giving effect to such distribution or repurchase).
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 Trustees
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;
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Growth and Income Fund Ltd.
Additional
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(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; and
(3)
not make loans to any persons; this policy does not prevent the Fund from lending its portfolio securities to the extent permitted
by its fundamental restrictions and policies, or prevent the Fund from purchasing debt obligations, entering into repurchase agreements,
or investing in loans, including assignments and participation interests.
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. Although restriction (3), above, is non-fundamental, the Fund will not modify
the non-fundamental policy set forth in restriction (3) above unless such modification is authorized by a majority of the Fund’s
outstanding voting securities (voting together as a single class) as defined in the 1940 Act (including separate authorization
by the holders of a majority, as defined in the 1940 Act, of the outstanding preferred shares of the Fund voting as a separate
class).
Additionally,
the Fund is and may become subject to rating agency guidelines that are more limiting than its current investment restrictions
in order to obtain and maintain a desired rating on its preferred shares. Neither the Fund’s investment objectives nor,
except as expressly stated above or elsewhere in the prospectus or this SAI, any of its policies are fundamental, and each may
be modified by the Board without shareholder approval.
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and Income Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
MANAGEMENT
OF THE FUND