Ellsworth Growth and Income Fund Ltd. Declares Distribution of $0.13 Per Share

Rhea-AI Summary

Ellsworth Growth and Income Fund Ltd. (ECF) declared a $0.13 per share cash distribution for common shareholders, aiming to meet the minimum distribution requirement of the Internal Revenue Code. The Fund's distribution policy allows for adjustments based on income, capital gains, and market conditions. Shareholders may receive long-term capital gains, qualified dividend income, or a return of capital, subject to tax implications. The 2024 distribution is estimated to consist of 52% net investment income and 48% return of capital.

Financial Analyst

Examining the declared distribution of $0.13 per share by Ellsworth Growth and Income Fund Ltd., it's crucial to analyze the sustainability of such distributions. The policy of paying the greater of an annual distribution of 5% of the Fund’s trailing 12-month average month-end market price or the amount that meets the Internal Revenue Code requirements for regulated investment companies indicates a structured approach to shareholder returns. However, the potential for an adjusting distribution in December to align with income and realized gains suggests variability in returns, which could affect investor sentiment.

The mention of distributions potentially being treated as a return of capital is significant for shareholders. This implies that if the Fund’s earnings are insufficient, part of the distribution could effectively reduce an investor's cost basis rather than being a reflection of the Fund's performance. This could lead to a misperception of yield and should be carefully considered when evaluating the Fund's true income-generating ability.

Tax Expert

The tax implications of the distributions from Ellsworth Growth and Income Fund Ltd. are multifaceted. For individuals, the classification of distributions as long-term capital gain or qualified dividend income, each subject to a maximum federal income tax rate, could offer favorable tax treatment compared to ordinary income. However, the additional 3.8% Medicare surcharge on 'net investment income' for certain U.S. shareholders above specific income thresholds adds a layer of complexity to the after-tax return calculations.

Investors should also be aware that the return of capital portion of the distribution is not taxable and reduces the cost basis, impacting the capital gains calculation upon sale of the shares. The Fund's notice that the current distribution includes an estimated 52% from net investment income and 48% as a return of capital emphasizes the need for shareholders to understand the tax consequences of their investments and not solely rely on headline distribution figures.

Market Research Analyst

From a market perspective, the Fund's distribution policy, while subject to modification or termination by the Board of Trustees, provides a predictable income stream, which could be attractive to income-focused investors. However, the reliance on quarterly reviews and the possibility of an adjusting distribution indicate that the Fund's ability to maintain its distribution could be influenced by market volatility and the performance of underlying investments. The disclosure that the distribution policy is not a guarantee and the rate should not be considered the dividend yield or total return on an investment in the Fund is a critical distinction for investors seeking to understand the risk-return profile of the Fund.

It is also important to note that the Fund's strategy of ensuring a minimum distribution might appeal to a certain investor demographic, potentially impacting the stock's demand. However, investors should be cautious about the long-term implications of such distributions on the Fund's net asset value, especially if a significant portion is consistently deemed a return of capital.

RYE, N.Y., Feb. 14, 2024 (GLOBE NEWSWIRE) -- The Board of Trustees of Ellsworth Growth and Income Fund Ltd. (NYSE American: ECF) (the “Fund”) declared a $0.13 per share cash distribution payable on March 21, 2024 to common shareholders of record on March 14, 2024.

The Fund intends to pay the greater of either an annual distribution of 5% of the Fund’s trailing 12-month average month-end market price or an amount that meets the minimum distribution requirement of the Internal Revenue Code for regulated investment companies.

Each quarter, the Board of Trustees reviews the amount of any potential distribution from the income, realized capital gain, or capital available. The Board of Trustees will continue to monitor the Fund’s distribution level, taking into consideration the Fund’s net asset value and the financial market environment. If necessary, the Fund pays an adjusting distribution in December, which includes any additional income and net realized capital gains in excess of the quarterly distributions. The Fund’s distribution policy is subject to modification or termination by the Board of Trustees at any time, and there can be no guarantee that the policy will continue. The distribution rate should not be considered the dividend yield or total return on an investment in the Fund.

All or part of the distribution may be treated as long-term capital gain or qualified dividend income (or a combination of both) for individuals, each subject to the maximum federal income tax rate for long term capital gains, which is currently 20% in taxable accounts for individuals (or less depending on an individual’s tax bracket). In addition, certain U.S. shareholders who are individuals, estates or trusts and with income that exceeds certain thresholds will be required to pay a 3.8% Medicare surcharge on their "net investment income", which includes dividends received from the Fund and capital gains from the sale or other disposition of shares of the Fund.

If the Fund does not generate sufficient earnings (dividends and interest income, less expenses, and realized net capital gain) equal to or in excess of the aggregate distributions paid by the Fund in a given year, then the amount distributed in excess of the Fund’s earnings would be deemed a return of capital. Since this would be considered a return of a portion of a share-holder’s original investment, it is generally not taxable and would be treated as a reduction in the shareholder’s cost basis.

Long-term capital gains, qualified dividend income, investment company taxable income and return of capital, if any, will be allocated on a pro-rata basis to all distributions to common shareholders for the year. Based on the accounting records of the Fund currently available, the current distribution paid in 2024 to common shareholders with respect to the Fund’s fiscal year ending September 30, 2024 would include approximately 52% from net investment income and 48% would be deemed a return of capital on a book basis. This information does not represent information for tax reporting purposes. The estimated components of each distribution are updated and provided to shareholders of record in a notice accompanying the distribution and are available on our website. The final determination of the sources of all distributions in 2024 will be made after year end and can vary from the quarterly estimates. Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the current distribution. All individual shareholders with taxable accounts will receive written notification regarding the components and tax treatment for all 2024 distributions in early 2025 via Form 1099-DIV.

Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. For more information regarding the Fund’s distribution policy and other information about the Fund, call:

Bethany Uhlein
(914) 921-5546

About Ellsworth Growth and Income Fund
Ellsworth Growth and Income Fund Ltd. is a diversified, closed-end management investment company with $172 million in total net assets. ECF invests primarily in convertible securities and common stock with the objectives of providing income and the potential for capital appreciation, objectives the Fund considers to be relatively equal over the long-term due to the nature of the securities in which it invests. The Fund is managed by Gabelli Funds, LLC, a subsidiary of GAMCO Investors, Inc. (OTCQX: GAMI).

NYSE American: ECF
CUSIP – 289074106

Investor Relations Contact:
Bethany Uhlein
914.921.5546
buhlein@gabelli.com

FAQ

What is the cash distribution per share declared by Ellsworth Growth and Income Fund Ltd. (ECF)?

Ellsworth Growth and Income Fund Ltd. (ECF) declared a $0.13 per share cash distribution for common shareholders.

When will the cash distribution be payable to common shareholders of Ellsworth Growth and Income Fund Ltd. (ECF)?

The cash distribution will be payable on March 21, 2024, to common shareholders of Ellsworth Growth and Income Fund Ltd. (ECF) who are on record on March 14, 2024.

What factors determine the amount of distribution by Ellsworth Growth and Income Fund Ltd. (ECF)?

The amount of distribution by Ellsworth Growth and Income Fund Ltd. (ECF) is determined based on income, realized capital gain, and market conditions, with adjustments made as necessary.

How are distributions from Ellsworth Growth and Income Fund Ltd. (ECF) taxed?

Distributions from Ellsworth Growth and Income Fund Ltd. (ECF) may be treated as long-term capital gain, qualified dividend income, or return of capital, subject to tax implications.

What is the estimated distribution composition for Ellsworth Growth and Income Fund Ltd. (ECF) in 2024?

The estimated distribution composition for Ellsworth Growth and Income Fund Ltd. (ECF) in 2024 is approximately 52% net investment income and 48% return of capital.