UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04656
ELLSWORTH FUND LTD.
(Exact name of registrant as specified in charter)
65 Madison Avenue, Morristown, New Jersey 07960-7308
(Address of principal executive offices) (Zip code)
Thomas H. Dinsmore
ELLSWORTH FUND LTD.
65 Madison Avenue
Morristown, New Jersey 07960-7308
(Name and address of agent for service)
Copy to:
Steven B. King, Esq.
Ballard Spahr LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Registrant’s telephone number, including area code: (973) 631-1177
Date of fiscal year end: September 30, 2013
Date of reporting period: March 31, 2013
ITEM 1.
REPORTS TO STOCKHOLDERS.
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ELLSWORTH FUND LTD. |
2013 Semi-Annual Report
March 31, 2013
2013 Semi-Annual Report
March 31, 2013
March 31, 2013
Ellsworth Fund Ltd. operates as a closed-end, diversified
management investment company and invests primarily in convertible securities, with the objectives of providing income and the potential for capital
appreciation; which objectives the Fund considers to be relatively equal, over the long-term, due to the nature of the securities in which it
invests.
Highlights
Performance through March 31, 2013 with dividends
reinvested
| Calendar | Annualized | 10 Year | ||||||||||||||||||||||||
| YTD |
1 Year |
3 Years |
5 Years |
10 Years |
Volatility * |
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Ellsworth market price |
7.90 | % | 7.84 | % | 7.66 | % | 4.34 | % | 5.76 | % | 15.44 | % | ||||||||||||||
Ellsworth net asset value |
7.17 | 10.13 | 8.80 | 5.40 | 6.45 | 12.27 | ||||||||||||||||||||
Bank of America Merrill Lynch All U.S. Convertibles Index |
7.59 | 12.21 | 9.03 | 6.81 | 7.77 | 12.44 | ||||||||||||||||||||
S&P 500® Index |
10.60 | 13.95 | 12.68 | 5.81 | 8.52 | 14.94 | ||||||||||||||||||||
Bank of America Merrill Lynch All U.S. Convertibles Index and
S&P 500® Index performance in the table above are from the Bloomberg L.P. pricing service.
Ellsworth’s 10-year performance in the table above has not
been adjusted for the fiscal 2004 rights offering; net asset value dilution was 2.21%. Performance data represents past results and does not reflect
future performance.
* Volatility is a measure of risk based on the standard deviation
of the return. The greater the volatility, the greater the chance of a profit or risk of a loss.
Quarterly History of NAV and Market Price
| Net Asset Values | Market Prices (NYSE MKT symbol: ECF) | ||||||||||||||||||||||||||
| Qtr. Ended |
High |
Low |
Close |
High |
Low |
Close |
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6/30/12 |
$ | 8.52 | $ | 7.80 | $ | 8.15 | $ | 7.40 | $ | 6.72 | $ | 7.03 | |||||||||||||||
9/30/12 |
8.57 | 8.06 | 8.48 | 7.35 | 7.00 | 7.35 | |||||||||||||||||||||
12/31/12 |
8.56 | 8.10 | 8.44 | 7.42 | 6.81 | 7.14 | |||||||||||||||||||||
3/31/13 |
8.97 | 8.55 | 8.97 | 7.66 | 7.28 | 7.64 | |||||||||||||||||||||
Dividend Distributions (12 Months)
| Record Date |
Payment Date |
Income |
Capital Gains |
Total |
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5/16/12 |
5/30/12 | $ | 0.0625 | $ | — | $ | 0.0625 | |||||||||||
8/16/12 |
8/30/12 | 0.0625 | — | 0.0625 | ||||||||||||||
10/26/12 |
11/21/12 | 0.0750 | — | 0.0750 | ||||||||||||||
2/13/13 |
2/27/13 | 0.0630 | — | 0.0630 | ||||||||||||||
| $ | 0.2630 | $ | — | $ | 0.2630 | |||||||||||||
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
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| To Our Shareholders |
May 13, 2013
The goal of Ellsworth Fund Ltd.
is to provide shareholders with income and the potential for capital gains. To achieve this goal, Ellsworth invests primarily in convertible securities
and, to a lesser extent, in dividend paying common stocks. Management seeks a balanced portfolio of convertibles and other securities that provide a
mix of income and equity sensitivity. The best performance in the convertible securities marketplace this calendar year has come from equity sensitive
convertibles and the worst from fixed income (or credit sensitive) equivalent issues. The largest group of convertible issues held in the Ellsworth
portfolio falls into the total return category (a middle category with some yield and some equity sensitivity); the portfolio is less represented by
equity sensitive issues than the convertible indices are. This is also true in the case of many convertible mutual funds, so while Ellsworth was not
able to beat the Bank of America Merrill Lynch All U.S. Convertibles Index (BAML Index) for the twelve months ended March 31, 2013, the Fund’s
performance did exceed that of the Lipper average of convertible mutual funds.
A convertible portfolio dominated
by total return issues carries less risk of significant decline in an equity bear market than a convertible portfolio overweighted with equity
sensitive securities. Further, the portfolio’s common stocks are of a very high quality with good yields and have so far enhanced the Fund’s
returns. Consequently, we believe the current portfolio represents a mix of securities that can meet the Fund’s objectives in all
markets.
As of May 1, 2013 Barclay’s
research calculated the cumulative value of the 503 U.S. Convertible securities outstanding at $219 billion with 78% of the issues in the form of
cash-pay bonds. 44% of the market represented large capitalization issuers, 36% small capitalization, and 20% mid-capitalization issuers. The large
capitalization issues in the BAML Index have achieved the best performance this year.
Issuance of new convertible securities in 2013 (through May 10)
has improved over any period of comparable length in 2012. There have been 38 new issues with proceeds of $13.7 billion and an average size of $360
million. All of these statistics are up from last year and well ahead of all of 2012’s 68 issues with proceeds of $21 billion and average issue
size of $306 million. This is a welcome change as the convertible securities market has been enduring reduced issuance since 2007.
Ellsworth’s portfolio at
quarter end consisted of 59.9% in cash-pay convertible bonds, 9.9% in mandatory convertible issues, 11.9% in preferred stock and 14.5% in dividend
paying common stock. The bonds yielded an average of 2.74%, the mandatories yielded 6.04%, the preferred shares yielded 5.67%, and the common shares,
4.85%. The Fund’s median to conversion value was 26.2%. Equity sensitive convertibles and common stock holdings made up 29.5% of the portfolio
with credit sensitive issues accounting for 23.8% and total return issues at 46.7%.
Performance for Ellsworth’s
second fiscal quarter of 2013 ended March 31, 2013 was enhanced by exposure to the Health Care and Industrials sectors. Performance was held back,
however, by the Fund’s exposure to the Utility and Information Technology sectors. When adjusted for expenses and dilution to make performance
comparable to the BAML Index, the Fund’s net assets outperformed the index for the three- and ten-year periods, but underperformed for the
three-month, and one- and five-year periods ended March 31, 2013. The Fund’s market return also outperformed the BAML Index for the three-month
period ended March 31, 2013.
Ellsworth invests in convertible
securities to provide total returns to shareholders that compare favorably to those provided by equity markets, but with less volatility. We therefore
note that the Fund’s NAV was less volatile than the S&P 500® Index as measured by their 10-year standard deviations. Moreover, the
Fund’s NAV outperformed that common stock index over five years.
continued on the following page
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
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| To Our Shareholders (continued) |
The results of the 2013 annual
meeting of shareholders are shown in the Miscellaneous Notes section of this report. We thank you for your participation and support. At its April
meeting, the Board of Trustees of the Fund declared a distribution of $0.06 per share, consisting of undistributed net investment income. The
distribution is payable on May 30, 2013, to shareholders of record on May 16, 2013.
Thomas H. Dinsmore
Chairman of the Board
Chairman of the Board
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| Largest Investment Holdings by underlying common stock |
| Value (Note 1) |
% Total Net Assets |
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Gilead Sciences, Inc. |
$ | 3,800,474 | 3.1 | % | ||||||
Gilead Sciences is a research-based biopharmaceutical company that discovers, develops and commercializes medicines. Gilead’s primary areas
of focus include human immunodeficiency virus (HIV)/AIDS, liver diseases, and cardiovascular/metabolic and respiratory
conditions. |
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Verizon Communications Inc. |
2,949,000 | 2.4 | ||||||||
Verizon is a provider of communications services. The company has two segments: domestic wireless and wireline. Its domestic wireless
communications products and services include wireless voice and data services and equipment sales, which are provided to consumer, business and
government customers across the U.S. The wireline communications products and services include voice, Internet access, broadband video and data,
Internet protocol network services and other services. |
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Wells Fargo & Co. |
2,577,500 | 2.1 | ||||||||
Wells Fargo is a diversified financial services company, providing retail, commercial and corporate banking services through banking stores
located in 39 states and the District of Columbia. |
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AT&T Inc. |
2,568,300 | 2.1 | ||||||||
AT&T is a provider of telecommunications services in the U.S. and worldwide. These include wireless communications, local exchange services,
long-distance services, data/broadband and Internet services, and video services. It operates in four segments: wireless, which provides both wireless
voice and data communications services across the U.S. and in foreign countries; wireline, which provides landline voice and data communication
services and managed networking to business customers; advertising solutions; and other, which provides results from customer information services and
all corporate and other operations. |
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United Technologies Corp. |
2,394,000 | 2.0 | ||||||||
United Technologies provides high technology products and services to the building systems and aerospace industries
worldwide. |
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Intel Corp. |
2,141,875 | 1.8 | ||||||||
Intel is a semiconductor chip maker. The company is engaged in developing advanced integrated digital technology products, primarily integrated
circuits, for industries such as computing and communications. |
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EMC Corp. |
2,090,382 | 1.7 | ||||||||
EMC and its subsidiaries develop, deliver and support the information technology (IT) industry’s range of information infrastructure
technologies and solutions. |
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Bank of America Corp. |
1,949,056 | 1.6 | ||||||||
Bank of America is a bank holding company, a financial holding company, and a financial institution, serving individual consumers, small and
middle market businesses, corporations and Governments with a range of banking, investing, asset management and other financial and risk management
products and services. |
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Total |
$ | 20,470,587 | 16.8 | % | ||||||
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| Major Industry Exposure |
| % Total Net Assets |
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Semiconductors & Semiconductor Equipment |
7.8 | % | ||||
Software |
6.9 | |||||
Pharmaceuticals |
6.8 | |||||
Diversified Telecommunications Services |
5.1 | |||||
Biotechnology |
5.0 | |||||
Oil, Gas & Consumable Fuels |
5.0 | |||||
Commercial Banks |
4.6 | |||||
Insurance |
4.3 | |||||
Metals & Mining |
4.2 | |||||
Real Estate Investment Trusts |
3.6 | |||||
Total |
53.3 | % | ||||
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Major Portfolio Changes by underlying common stock |
Six months ended March 31, 2013
| ADDITIONS | REDUCTIONS | |||||
|---|---|---|---|---|---|---|
Bottomline Technologies, Inc. |
Amgen Inc. |
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Bristow Group Inc. |
Chesapeake Energy Corp. |
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Cliffs Natural Resources Inc. |
Cliffs Natural Resources Inc. |
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DFC Global Corp. |
Endo Health Solutions Inc. |
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Eli Lilly & Co. |
Intel Corp. |
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Encore Capital Group, Inc. |
Interpublic Group of Companies, Inc. |
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Huntington Bancshares, Inc. |
ISIS Pharmaceuticals, Inc. |
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Invesco Mortgage Capital Inc. |
Linear Technology Corp. |
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Iconix Brand Group, Inc. |
Medicis Pharmaceutical Corp. |
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International Game Technology |
SBA Communications Corp. |
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Ixia |
TIBCO Software Inc. |
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Lifepoint Hospitals, Inc. |
Titan International, Inc. |
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OPKO Health Inc. |
Trina Solar Ltd. |
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Stillwater Mining Company |
Ultrapetrol |
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Volcano Corp. |
Vertex Pharmaceuticals Inc. |
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WellPoint, Inc. |
WellPoint, Inc. |
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| Portfolio of Investments March 31, 2013 (unaudited) |
| Principal Amount |
Value (Note 1) |
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CONVERTIBLE BONDS AND NOTES – 59.9% |
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Airlines – 1.2% |
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Hawaiian Holdings, Inc., 5.00%, Due 3/15/16, (BB) |
$ | 1,375,000 | $ | 1,476,406 | ||||||
Biotechnology – 5.0% |
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Exelixis, Inc., 4.25%, Due 8/15/19, (BB) |
500,000 | 499,375 | ||||||||
Gilead Sciences, Inc., 1.00%, Due 5/1/14, (A) |
750,000 | 1,627,969 | ||||||||
Gilead Sciences, Inc., 1.625%, Due 5/1/16, (A) |
1,000,000 | 2,172,505 | ||||||||
OPKO Health Inc., 3.00%, Due 2/1/33, (AA) (1) |
625,000 | 693,750 | ||||||||
Regeneron Pharmaceuticals, Inc., 1.875%, Due 10/1/16, (A) |
250,000 | 538,906 | ||||||||
Theravance, Inc., 2.125%, Due 1/15/23, (BBB) |
500,000 | 550,312 | ||||||||
| 6,082,817 | ||||||||||
Capital Markets – 1.7% |
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Knight Capital Group, Inc., 3.50%, Due 3/15/15, (NR) |
500,000 | 498,750 | ||||||||
Prospect Capital Corp., 5.75%, Due 3/15/18, (BBB) (1) |
1,500,000 | 1,562,812 | ||||||||
| 2,061,562 | ||||||||||
Commercial Services & Supplies – 0.9% |
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Encore Capital Group, Inc., 3.00%, Due 11/27/17, (NR) (1) |
1,000,000 | 1,146,250 | ||||||||
Communications Equipment – 1.3% |
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Finisar Corp., 5.00%, Due 10/15/29, (NR) |
75,000 | 122,109 | ||||||||
Ixia, 3.00%, Due 12/15/15, (A) |
250,000 | 330,625 | ||||||||
InterDigital, Inc., 2.50%, Due 3/15/16, (BBB) |
1,000,000 | 1,121,875 | ||||||||
| 1,574,609 | ||||||||||
Computers & Peripherals – 2.5% |
||||||||||
EMC Corp., 1.75%, Due 12/1/13, (A) |
1,400,000 | 2,090,382 | ||||||||
NetApp Inc., 1.75%, Due 6/1/13, (BBB) |
250,000 | 273,281 | ||||||||
SanDisk Corp., 1.50%, Due 8/15/17, (BB) |
500,000 | 646,875 | ||||||||
| 3,010,538 | ||||||||||
Construction Materials – 0.8% |
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CEMEX S.A.B. de C.V., 4.875%, Due 3/15/15, (NR) |
750,000 | 924,844 | ||||||||
Consumer Finance – 1.1% |
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DFC Global Corp., 3.25%, Due 4/15/17, (B) (1) |
1,250,000 | 1,307,812 | ||||||||
Diversified Telecommunications Services – 0.6% |
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Alaska Communications Systems, Inc., 6.25%, Due 5/1/18, (BB) |
1,000,000 | 724,375 | ||||||||
Electrical Equipment – 0.8% |
||||||||||
General Cable Corp., 4.50%, Due 11/15/29, (B) (2) |
750,000 | 938,438 | ||||||||
Energy Equipment & Services – 1.8% |
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Bristow Group Inc., 3.00%, Due 6/15/38, (BB) |
1,155,000 | 1,330,416 | ||||||||
Hornbeck Offshore Services, Inc., 1.50%, Due 9/1/19, (BB) (1) |
750,000 | 876,094 | ||||||||
| 2,206,510 | ||||||||||
Food Products – 0.5% |
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Chiquita Brands International, 4.25%, Due 8/15/16, (B) |
700,000 | 642,250 | ||||||||
Health Care Equipment & Supplies – 2.0% |
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Chemed Corp., 1.875%, Due 5/15/14, (NR) |
890,000 | 981,781 | ||||||||
Insulet Corp., 3.75%, Due 6/15/16, (A) |
750,000 | 889,688 | ||||||||
Volcano Corp., 1.75%, Due 12/1/17, (A) |
500,000 | 495,000 | ||||||||
| 2,366,469 | ||||||||||
Health Care Providers & Services – 1.3% |
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Lifepoint Hospitals, Inc., 3.50%, Due 5/15/14, (B) |
1,000,000 | 1,095,625 | ||||||||
Molina Healthcare Inc., 1.125%, Due 1/15/20, (NR) (1) |
500,000 | 502,500 | ||||||||
| 1,598,125 | ||||||||||
Hotels, Restaurants & Leisure – 2.1% |
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International Game Technology, 3.25%, Due 5/1/14, (BBB) (1) |
500,000 | 540,312 | ||||||||
MGM Resorts International, 4.25%, Due 4/15/15, (B) |
1,000,000 | 1,088,125 | ||||||||
Morgans Hotel Group Co., 2.375%, Due 10/15/14, (BB) |
1,000,000 | 947,500 | ||||||||
| 2,575,937 | ||||||||||
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| Portfolio of Investments March 31, 2013 (continued) |
| Principal Amount |
Value (Note 1) |
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CONVERTIBLE BONDS AND NOTES – CONTINUED |
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Household Durables – 1.2% |
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Jarden Corp., 1.875%, Due 9/15/18, (B) (1) |
$ | 1,250,000 | $ | 1,430,469 | ||||||
Insurance – 3.3% |
||||||||||
AmTrust Financial Services, Inc., 5.50%, Due 12/15/21, (AAA) |
1,250,000 | 1,775,000 | ||||||||
National Financial Partners Corp., 4.00%, Due 6/15/17, (AAA) |
500,000 | 926,562 | ||||||||
Tower Group, Inc., 5.00%, Due 9/15/14, (A) |
1,250,000 | 1,319,531 | ||||||||
| 4,021,093 | ||||||||||
Internet & Catalog Retail – 1.3% |
||||||||||
Priceline.com Inc., 1.25%, Due 3/15/15, (BBB) |
450,000 | 1,025,156 | ||||||||
Priceline.com Inc., 1.00%, Due 3/15/18, (BBB) |
500,000 | 554,050 | ||||||||
| 1,579,206 | ||||||||||
Internet Software & Services – 2.1% |
||||||||||
Digital River, Inc., 2.00%, Due 11/1/30, (BBB) |
1,100,000 | 1,082,125 | ||||||||
Equinix, Inc., 3.00%, Due 10/15/14, (B) |
750,000 | 1,509,375 | ||||||||
| 2,591,500 | ||||||||||
IT Services – 0.6% |
||||||||||
CSG Systems International, Inc., 3.00%, Due 3/1/17, (A) |
650,000 | 731,250 | ||||||||
Machinery – 0.8% |
||||||||||
Chart Industries, Inc., 2.00%, Due 8/1/18, (B) |
750,000 | 1,019,062 | ||||||||
Metals & Mining – 3.6% |
||||||||||
A.M. Castle & Co., 7.00%, Due 12/15/17, (BBB) |
250,000 | 466,250 | ||||||||
Kaiser Aluminum Corp., 4.50%, Due 4/1/15, (BB) |
1,000,000 | 1,401,870 | ||||||||
Northgate Minerals Corp., 3.50%, Due 10/1/16, (NR) (convertible into AuRico Gold Inc. common stock) |
600,000 | 620,625 | ||||||||
RTI International Metals, Inc., 3.00%, Due 12/1/15, (BBB) |
600,000 | 697,125 | ||||||||
Stillwater Mining Company, 1.75%, Due 10/15/32, (B) |
500,000 | 598,750 | ||||||||
United States Steel Corp., 4.00%, Due 5/15/14, (BB) |
500,000 | 522,812 | ||||||||
| 4,307,432 | ||||||||||
Oil, Gas & Consumable Fuels – 1.2% |
||||||||||
Goodrich Petroleum Corp., 5.00%, Due 10/1/29, (CCC) |
1,000,000 | 999,375 | ||||||||
Ship Finance International Ltd., 3.25%, Due 2/1/18, (B) |
500,000 | 515,312 | ||||||||
| 1,514,687 | ||||||||||
Pharmaceuticals – 2.0% |
||||||||||
Mylan Inc., 3.75%, Due 9/15/15, (BBB) |
750,000 | 1,665,469 | ||||||||
Salix Pharmaceuticals Ltd., 2.75%, Due 5/15/15, (A) |
600,000 | 777,000 | ||||||||
| 2,442,469 | ||||||||||
Real Estate Investment Trusts – 3.1% |
||||||||||
Annaly Capital Management, Inc., 4.00%, Due 2/15/15, (BB) |
750,000 | 937,972 | ||||||||
Corporate Office Properties, L.P., 4.25%, Due 4/15/30, (NR) (exchangeable for Corporate Office Properties Trust common stock) |
500,000 | 521,875 | ||||||||
IAS Operating Partnership LP, 5.00%, Due 3/15/18, (NR) (1) (exchangeable for Invesco Mortgage Capital Inc. common stock) |
1,000,000 | 1,004,375 | ||||||||
Lexington Realty Trust, 6.00%, Due 1/15/30, (AAA) |
750,000 | 1,309,219 | ||||||||
| 3,773,441 | ||||||||||
Semiconductors & Semiconductor Equipment – 7.4% |
||||||||||
GT Advanced Technologies, Inc., 3.00%, Due 10/1/17, (B) |
750,000 | 577,031 | ||||||||
Intel Corp., 2.95%, Due 12/15/35, (A) (2) |
1,500,000 | 1,595,625 | ||||||||
JinkoSolar Holding Co. Ltd., 4.00%, Due 5/15/16, (NR) |
250,000 | 156,250 | ||||||||
Micron Technology, Inc., 3.125%, Due 5/1/32, (BB) |
750,000 | 939,375 | ||||||||
Micron Technology, Inc., 1.50%, Due 8/1/31, (BB) |
625,000 | 728,125 | ||||||||
Micron Technology, Inc., 1.625%, Due 2/15/33, (BB) (1) |
50,000 | 57,500 | ||||||||
Photronics, Inc., 3.25%, Due 4/1/16, (BBB) |
1,000,000 | 1,056,875 | ||||||||
ReneSola Ltd., 4.125%, Due 3/15/18, (NR) |
500,000 | 260,000 | ||||||||
Rudolph Technologies Inc., 3.75%, Due 7/15/16, (A) |
500,000 | 587,500 | ||||||||
SunPower Corp., 4.75%, Due 4/15/14, (BB) |
500,000 | 502,500 | ||||||||
SunPower Corp., 4.50%, Due 3/15/15, (BB) |
1,250,000 | 1,258,594 | ||||||||
Xilinx, Inc., 2.625%, Due 6/15/17, (BBB) |
866,000 | 1,232,426 | ||||||||
| 8,951,801 | ||||||||||
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| Portfolio of Investments March 31, 2013 (continued) |
| Principal Amount |
Value (Note 1) |
|||||||||
CONVERTIBLE BONDS AND NOTES – CONTINUED |
||||||||||
Software – 5.5% |
||||||||||
Bottomline Technologies, Inc., 1.50%, Due 12/1/17, (A) |
$ | 750,000 | $ | 877,500 | ||||||
Electronic Arts, 0.75%, Due 7/15/16, (BBB) |
500,000 | 486,875 | ||||||||
Mentor Graphics Corp., 4.00%, Due 4/1/31, (A) |
500,000 | 589,688 | ||||||||
Nuance Communications, Inc., 2.75%, Due 8/15/27, (BB) |
1,500,000 | 1,829,062 | ||||||||
Rovi Corp., 2.625%, Due 2/15/40, (BB) |
1,000,000 | 1,021,875 | ||||||||
Take-Two Interactive Software, Inc., 1.75%, Due 12/1/16, (BBB) |
750,000 | 864,844 | ||||||||
TeleCommunications Systems, Inc., 4.50%, Due 11/1/14, (BB) |
1,000,000 | 970,000 | ||||||||
| 6,639,844 | ||||||||||
Textiles, Apparel & Luxury Goods – 1.6% |
||||||||||
Iconix Brand Group, Inc., 2.50%, Due 6/1/16, (A) |
1,000,000 | 1,115,625 | ||||||||
Iconix Brand Group, Inc., 1.50%, Due 3/15/18, (A) (1) |
750,000 | 811,875 | ||||||||
| 1,927,500 | ||||||||||
Trading Companies & Distributors – 1.3% |
||||||||||
Kaman Corp., 3.25%, Due 11/15/17, (A) |
500,000 | 617,188 | ||||||||
Titan Machinery Inc., 3.75%, Due 5/1/19, (BB) (1) |
1,000,000 | 1,010,625 | ||||||||
| 1,627,813 | ||||||||||
Wireless Telecommunications – 1.2% |
||||||||||
SBA Communications Corp., 4.00%, Due 10/1/14, (AA) |
600,000 | 1,433,625 | ||||||||
TOTAL CONVERTIBLE BONDS AND NOTES |
72,628,134 | |||||||||
CONVERTIBLE PREFERRED STOCKS – 11.9% |
||||||||||
Commercial Banks – 4.6% |
Shares |
|||||||||
Fifth Third Bancorp, 8.50%, (BB) |
12,000 | 1,720,200 | ||||||||
Huntington Bancshares, Inc., 8.50%, (BBB) |
1,000 | 1,275,000 | ||||||||
Wells Fargo & Co., 7.50%, (BBB) |
2,000 | 2,577,500 | ||||||||
| 5,572,700 | ||||||||||
Diversified Financial Services – 1.6% |
||||||||||
Bank of America Corp., 7.25%, (BB) |
1,600 | 1,949,056 | ||||||||
Food Products – 1.1% |
||||||||||
Post Holdings, Inc., 3.75%, (B) (1) |
5,000 | 542,500 | ||||||||
Bunge Ltd., 4.875%, (BB) |
7,500 | 798,750 | ||||||||
| 1,341,250 | ||||||||||
Machinery – 1.0% |
||||||||||
Stanley Black & Decker, Inc., 4.75%, (BBB) |
10,000 | 1,265,900 | ||||||||
Oil, Gas & Consumable Fuels – 1.3% |
||||||||||
Chesapeake Energy Corp., 5.75%, (B) |
1,550 | 1,588,750 | ||||||||
Real Estate Investment Trusts – 0.5% |
||||||||||
Health Care REIT, Inc., 5.50%, (BB) |
10,000 | 621,100 | ||||||||
Specialty Retail – 0.8% |
||||||||||
Amerivon Holdings LLC, 4.00%, (NR) (1,3,4) |
610,778 | 886,850 | ||||||||
Amerivon Holdings LLC, common equity units, (NR) (1,3,4) |
272,728 | 32,727 | ||||||||
| 919,577 | ||||||||||
Thrift & Mortgage Finance – 1.0% |
||||||||||
New York Community Capital Trust V, 6.00%, (BB) |
24,000 | 1,179,600 | ||||||||
TOTAL CONVERTIBLE PREFERRED STOCKS |
14,437,933 | |||||||||
MANDATORY CONVERTIBLE SECURITIES – 9.9% (5) |
||||||||||
Aerospace & Defense – 2.0% |
||||||||||
United Technologies Corp., 7.50%, Due 8/1/22, (BBB) |
40,000 | 2,394,000 | ||||||||
- 7 -
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
|
| Portfolio of Investments March 31, 2013 (continued) |
| Shares |
Value (Note 1) |
|||||||||
MANDATORY CONVERTIBLE SECURITIES – CONTINUED |
||||||||||
Automobiles – 1.4% |
||||||||||
General Motors Co., 4.75%, Due 12/1/13, (NR) |
40,000 | $ | 1,717,600 | |||||||
Electric Utilities – 2.4% |
||||||||||
NextEra Energy, Inc., 5.599%, Due 6/1/17, (NR) |
7,500 | 411,075 | ||||||||
NextEra Energy, Inc., 5.889%, Due 9/1/18, (BBB) |
20,000 | 1,093,200 | ||||||||
PPL Corp., 8.75%, Due 5/1/19, (NR) |
25,000 | 1,393,750 | ||||||||
| 2,898,025 | ||||||||||
Insurance – 1.0% |
||||||||||
MetLife, Inc., 5.00%, Due 10/8/14, (BBB) |
25,000 | 1,235,000 | ||||||||
IT Services – 0.5% |
||||||||||
Unisys Corp., 6.25%, Due 3/1/14, (B) |
10,000 | 652,100 | ||||||||
Oil, Gas & Consumable Fuels – 1.1% |
||||||||||
Apache Corp., 6.00%, Due 8/1/13, (A) |
30,000 | 1,336,200 | ||||||||
Road & Rail – 1.4% |
||||||||||
Genesee & Wyoming, Inc., 5.00%, Due 10/1/15, (NR) |
10,000 | 1,290,400 | ||||||||
2010 Swift Mandatory Common Exchange Security Trust, 6.00%, Due 12/31/13, (NR) |
30,000 | 383,907 | ||||||||
| 1,674,307 | ||||||||||
TOTAL MANDATORY CONVERTIBLE SECURITIES (5) |
11,907,232 | |||||||||
COMMON STOCKS – 14.5% |
||||||||||
Diversified Financial Services – 0.7% |
||||||||||
Citigroup Inc. |
19,546 | 864,715 | ||||||||
Diversified Telecommunications Services – 4.6% |
||||||||||
AT&T Inc. |
70,000 | 2,568,300 | ||||||||
Verizon Communications Inc. |
60,000 | 2,949,000 | ||||||||
| 5,517,300 | ||||||||||
Media – 0.7% |
||||||||||
Walt Disney Co. |
15,000 | 852,000 | ||||||||
Metals & Mining – 0.6% |
||||||||||
Newmont Mining Corp. |
18,000 | 754,020 | ||||||||
Oil, Gas & Consumable Fuels – 1.3% |
||||||||||
ConocoPhillips |
26,782 | 1,609,598 | ||||||||
Pharmaceuticals – 4.8% |
||||||||||
Abbott Laboratories |
18,000 | 635,760 | ||||||||
AbbVie Inc. |
18,000 | 734,040 | ||||||||
Bristol Myers Squibb Co. |
30,000 | 1,235,700 | ||||||||
Eli Lilly & Co. |
10,000 | 567,900 | ||||||||
Merck & Co., Inc. |
32,651 | 1,444,154 | ||||||||
Pfizer Inc. |
40,000 | 1,154,400 | ||||||||
| 5,771,954 | ||||||||||
Semiconductors & Semiconductor Equipment – 0.5% |
||||||||||
Intel Corp. |
25,000 | 546,250 | ||||||||
Software – 1.4% |
||||||||||
Microsoft Corp. |
58,600 | 1,676,546 | ||||||||
TOTAL COMMON STOCKS |
17,592,383 | |||||||||
- 8 -
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
|
| Portfolio of Investments March 31, 2013 (continued) |
| Value (Note 1) |
||||||
Total Convertible Bonds and Notes – 59.9% |
$ | 72,628,134 | ||||
Total Convertible Preferred Stocks – 11.9% |
14,437,933 | |||||
Total Mandatory Convertible Securities – 9.9% |
11,907,232 | |||||
Total Common Stocks – 14.5% |
17,592,383 | |||||
Total Investments – 96.2% |
116,565,682 | |||||
Other Assets and Liabilites, Net – 3.8% |
4,661,246 | |||||
Total Net Assets – 100.0% |
$ | 121,226,928 | ||||
(1) |
Security not registered under the Securities Act of 1933, as amended (the “Securities Act”) (e.g., the security was purchased in a Rule 144A or a Regulation D transaction). The security may be resold only pursuant to an exemption from registration under the Securities Act, typically to qualified institutional buyers. The Fund generally has no rights to demand registration of such securities. The aggregate market value of these unregistered securities at March 31, 2013 was $12,406,452, which represented 10.2% of the Fund’s net assets. |
(2) |
Contingent payment debt instrument which accrues contingent interest. See Note 1(e). |
(3) |
Investment is valued at fair value as determined in good faith pursuant to procedures adopted by the Board of Trustees. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized in the near term, and the difference could be material. The fair value of these securities amounted to $919,577 at March 31, 2013, which represented 0.8% of the Fund’s net assets. See Note 1(c). |
(4) |
Restricted securities include securities that have not been registered under the Securities Act, and securities that are subject to restrictions on resale. The Fund may invest in restricted securities that are consistent with the Fund’s investment objective and investment strategies. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer’s expense either upon demand by the Fund or in connection with another registered offering of the securities. Investments in restricted securities are valued at fair value as determined in good faith in accordance with procedures adopted by the Board of Trustees. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized in the near term, and the difference could be material. As of March 31, 2013, the Fund was invested in the following restricted securities: |
| Security | Acquisition Date |
Shares |
Cost |
Price per Share |
Value |
% Net Assets |
||||||||||||||||||||
Amerivon Holdings LLC series A cv. pfd. |
April 1, 2010 |
610,778 | $ | 1,500,000 | $ | 1.452 | $ | 886,850 | 0.73 | % | ||||||||||||||||
Amerivon Holdings LLC common equity units |
April 1, 2010 |
272,728 | 0 | 0.010 | 32,727 | 0.03 | % | |||||||||||||||||||
(5) |
Mandatory Convertible Securities are required to be converted on the dates listed; they generally may be converted prior to these dates at the option of the holder. See Note 1(h). |
Portfolio Ratings: | Summary of Portfolio Ratings * | |
|
| % of |
Where a security is rated by Standard & Poor’s (S&P), such rating appears in parentheses next to such security (but without any applicable + or - that might apply). |
| Portfolio |
AAA | 4 | |
Where a security is rated by S&P and at least one other rating agency and the Fund believes the ratings to be functionally equivalent to one another, the S&P rating appears in parentheses next to such security (but without any applicable + or - that might apply). | AA | 3 |
A | 20 | |
BBB | 23 | |
Where a security is rated by S&P and at least one other rating agency and the Fund believes the ratings not to be functionally equivalent to one another, the Fund puts in parentheses next to such security the S&P rating which it believes approximates the average of all such ratings (but without any applicable + or - that might apply). | BB | 24 |
B | 14 | |
CCC & below | 1 | |
Where a security is not rated by S&P, but is rated by at least one other rating agency, the Fund puts in parentheses next to such security the S&P rating which it believes approximates the average of all such ratings (but without any applicable + or - that might apply). NR is used whenever a rating is unavailable. | Not Rated | 11 |
* Excludes common stock and cash. | ||
S e e a c c o m p a n y i n
g n o t e s t o f i n a n c i a l s t a t e m e n t
s
- 9 -
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
|
| Statement of Assets and Liabilities (unaudited) |
| March 31, 2013 |
||||||
|---|---|---|---|---|---|---|
Assets: |
||||||
Investments at value (cost $100,719,728) (Note 1) |
$ | 116,565,682 | ||||
Cash |
2,936,156 | |||||
Receivable for securities sold |
1,172,576 | |||||
Dividends and interest receivable |
650,156 | |||||
Other assets |
2,352 | |||||
Total assets |
121,326,922 | |||||
Liabilities: |
||||||
Accrued management fee (Note 2) |
76,253 | |||||
Other liabilities |
23,741 | |||||
Total liabilities |
99,994 | |||||
Net Assets |
$ | 121,226,928 | ||||
Net assets consist of: |
||||||
Capital shares (unlimited shares of $0.01 par value authorized) (Note 3) |
$ | 135,079 | ||||
Additional paid-in capital |
118,066,361 | |||||
Undistributed net investment income |
(822,006 | ) | ||||
Accumulated net realized loss from investment transactions |
(11,998,460 | ) | ||||
Unrealized appreciation on investments |
15,845,954 | |||||
Net Assets |
$ | 121,226,928 | ||||
Net asset value per share ($121,226,928 ÷ 13,507,882 outstanding shares) |
$ | 8.97 | ||||
|
|
|
|
|
Statement of Operations(unaudited)
|
For the Six Months Ended March 31,
2013
Investment Income (Note 1): |
||||||
Interest |
$ | 921,427 | ||||
Dividends |
1,185,500 | |||||
Total income |
2,106,927 | |||||
Expenses (Note 2): |
||||||
Management fee |
414,770 | |||||
Custodian |
6,038 | |||||
Transfer agent |
15,983 | |||||
Legal fees |
48,739 | |||||
Audit fees |
21,165 | |||||
Trustees’ fees |
52,416 | |||||
Administrative services fees |
30,342 | |||||
Reports to shareholders |
26,603 | |||||
Insurance |
14,088 | |||||
Other |
31,414 | |||||
Total expenses |
661,558 | |||||
Net Investment Income |
1,445,369 | |||||
Realized and Unrealized Gain on Investments: |
||||||
Net realized loss from investment transactions |
(402,463 | ) | ||||
Net unrealized appreciation of investments |
7,516,297 | |||||
Net gain on investments |
7,113,834 | |||||
Net Increase in Net Assets Resulting from Operations |
$ | 8,559,203 |
S e e a c c o m p a n y i n
g n o t e s t o f i n a n c i a l s t a t e m e n t
s
- 10 -
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
|
| Statement of Changes in Net Assets |
| Six Months Ended March 31, 2013(a) |
Year Ended September 30, 2012 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Change in net assets from operations: |
||||||||||
Net investment income |
$ | 1,445,369 | $ | 2,571,950 | ||||||
Net realized loss from investment transactions |
(402,463 | ) | (2,147,504 | ) | ||||||
Net change in unrealized appreciation (depreciation) of investments |
7,516,297 | 16,769,222 | ||||||||
Net change in net assets resulting from operations |
8,559,203 | 17,193,668 | ||||||||
Dividends to shareholders from: |
||||||||||
Net investment income |
(1,860,030 | ) | (3,340,636 | ) | ||||||
Capital share transactions (Note 3) |
373,862 | 293,079 | ||||||||
Change in net assets |
7,073,035 | 14,146,111 | ||||||||
Net assets at beginning of period |
114,153,893 | 100,007,782 | ||||||||
Net assets at end of period |
$ | 121,226,928 | $ | 114,153,893 | ||||||
Undistributed net investment income at end of period |
$ | (822,006 | ) | $ | (407,345 | ) | ||||
|
|
|
|
| Financial Highlights Selected data for a share of beneficial interest outstanding |
| Six Months Ended March 31, |
Years Ended September 30, |
|||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2013(a) |
2012 |
2011 |
2010 |
2009 |
2008 |
|||||||||||||||||||||||||
Operating Performance: |
||||||||||||||||||||||||||||||
Net asset value, beginning of period |
$ | 8.48 | $ | 7.46 | $ | 7.95 | $ | 7.15 | $ | 7.18 | $ | 10.27 | ||||||||||||||||||
Net investment income |
0.11 | 0.19 | 0.22 | 0.26 | 0.33 | 0.31 | ||||||||||||||||||||||||
Net realized and unrealized gain (loss) |
0.52 | 1.08 | (0.46 | ) | 0.84 | (0.04 | ) | (2.24 | ) | |||||||||||||||||||||
Total from investment operations |
0.63 | 1.27 | (0.24 | ) | 1.10 | 0.29 | (1.93 | ) | ||||||||||||||||||||||
Less Distributions: |
||||||||||||||||||||||||||||||
Dividends from net investment income |
(0.14 | ) | (0.25 | ) | (0.25 | ) | (0.30 | ) | (0.32 | ) | (0.33 | ) | ||||||||||||||||||
Distributions from realized gains |
— | — | — | — | — | (0.83 | ) | |||||||||||||||||||||||
Total distributions |
(0.14 | ) | (0.25 | ) | (0.25 | ) | (0.30 | ) | (0.32 | ) | (1.16 | ) | ||||||||||||||||||
Net asset value, end of period |
$ | 8.97 | $ | 8.48 | $ | 7.46 | $ | 7.95 | $ | 7.15 | $ | 7.18 | ||||||||||||||||||
Market value, end of period |
$ | 7.64 | $ | 7.35 | $ | 6.43 | $ | 7.17 | $ | 6.16 | $ | 5.30 | ||||||||||||||||||
Total Market Value Return (%)(b) |
5.96 | 18.41 | (7.13 | ) | 21.9 | 23.9 | (33.3 | ) | ||||||||||||||||||||||
Total Net Asset Value Return (%)(b) |
7.82 | 17.75 | (2.82 | ) | 16.4 | 6.1 | (21.0 | ) | ||||||||||||||||||||||
Ratios/Supplemental Data: |
||||||||||||||||||||||||||||||
Net assets, end of period (in thousands) |
$ | 121,227 | $ | 114,154 | $ | 100,008 | $ | 106,233 | $ | 94,973 | $ | 94,497 | ||||||||||||||||||
Ratio of expenses to average net assets (%) |
1.1 | (c) | 1.1 | 1.1 | 1.1 | 1.2 | 1.1 | |||||||||||||||||||||||
Ratio of net investment income to average net assets (%) |
2.5 | (c) | 2.3 | 2.6 | 3.5 | 5.5 | 3.6 | |||||||||||||||||||||||
Portfolio turnover rate (%) |
23 | 39 | 47 | 62 | 71 | 61 | ||||||||||||||||||||||||
(a) |
Unaudited. |
(b) |
Market value total return is calculated assuming a purchase of Fund shares on the opening of the first business day and a sale on the closing of the last business day of each period reported. Dividends and distributions are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s Automatic Dividend Investment and Cash Payment Plan. Net asset value total return is calculated on the same basis, except that the Fund’s net asset value is used on the purchase and sale dates instead of market value. |
(c) |
Annualized. |
S e e a c c o m p a n y i n
g n o t e s t o f i n a n c i a l s t a t e m e n t
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
|
Notes to Financial Statements
(unaudited)
|
NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES
(a) Organization – Ellsworth Fund
Ltd. (the “Fund”), is registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment
company.
(b) Indemnification – Under the
Fund’s organizational documents, each trustee, officer or other agent of the Fund (including the Fund’s investment adviser) is indemnified
against certain liabilities that may arise out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund
enters into contracts that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this
would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss as a result of such indemnification
is considered remote.
(c) Security Valuation – Investments
in securities traded on a national securities exchange are valued at market price using the last reported sales price, supplied by an independent
pricing service, as of the close of regular trading. Listed securities, for which no sales were reported, are valued at the mean between closing
reported bid and asked prices as of the close of regular trading. Unlisted securities traded in the over-the-counter market are valued using an
evaluated quote provided by the independent pricing service, or, if an evaluated quote is unavailable, such securities are valued using prices received
from dealers, provided that if the dealer supplies both bid and asked prices, the price to be used is the mean of the bid and asked prices. The
independent pricing service derives an evaluated quote by obtaining dealer quotes, analyzing the listed markets, reviewing trade execution data and
employing sensitivity analysis. Evaluated quotes may also reflect appropriate factors such as individual characteristics of the issue, communications
with broker-dealers, and other market data. Securities for which quotations are not readily available, restricted securities and other assets are
valued at fair value as determined in good faith pursuant to procedures approved by the Board of Trustees. Short-term debt securities with original
maturities of 60 days or less are valued at amortized cost.
The Fund has adopted authoritative fair valuation
accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards
require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion in
changes in valuation techniques and related inputs during the period. These inputs are summarized in the three broad levels listed below:
Level 1 – Quoted unadjusted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-driven valuation in which
all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for which there are few
transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered
market makers, and those received from an independent pricing service.
Level 3 – Model-derived valuations in which
one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Fund’s own
assumptions that market participants would use to price an asset or liability based on the best available information.
The availability of observable inputs can vary from
security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not
yet established in the marketplace, the liquidity of the markets, and other characteristics particular to the security. To the extent that valuation is
based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly,
the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The net change in unrealized appreciation from Level 3
investments held as of March 31, 2013 was $1,181 and is included in net unrealized appreciation of investments on the Statement of Operations.
Transfers into, or out of, Level 3 are valued utilizing values as of the end of the period.
- 12 -
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
|
Notes to Financial Statements
(continued)
|
NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES (continued)
The following is a summary of the inputs used to value the net
assets of Ellsworth Fund Ltd. as of March 31, 2013:
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||||
Investments in Securities: |
||||||||||||||||||
Common Stock: |
||||||||||||||||||
Diversified Financial Services |
$ | 864,715 | $ | — | $ | — | $ | 864,715 | ||||||||||
Diversified Telecommunication Services |
5,517,300 | — | — | 5,517,300 | ||||||||||||||
Media |
852,000 | — | — | 852,000 | ||||||||||||||
Metals & Mining |
754,020 | — | — | 754,020 | ||||||||||||||
Oil, Gas & Consumable Fuels |
1,609,598 | — | — | 1,609,598 | ||||||||||||||
Pharmaceuticals |
5,771,954 | — | — | 5,771,954 | ||||||||||||||
Semiconductors & Semiconductor Equipment |
546,250 | — | — | 546,250 | ||||||||||||||
Software |
1,676,546 | — | — | 1,676,546 | ||||||||||||||
Total Common Stocks |
17,592,383 | — | — | 17,592,383 | ||||||||||||||
Convertible Bonds and Notes |
— | 72,628,134 | — | 72,628,134 | ||||||||||||||
Convertible Preferred Stock |
— | 13,518,356 | 919,577 | 14,437,933 | ||||||||||||||
Mandatory Convertible Securities |
— | 11,907,232 | — | 11,907,232 | ||||||||||||||
Total Investments |
$ | 17,592,383 | $ | 98,053,722 | $ | 919,577 | $ | 116,565,682 | ||||||||||
The following is a reconciliation of assets for which Level 3
inputs were used in determining value:
| Convertible Preferred Stock |
Total |
|||||||||||||||||
Beginning balance |
$ | 918,396 | $ | 918,396 | ||||||||||||||
Change in unrealized appreciation (depreciation) |
1,181 | 1,181 | ||||||||||||||||
Ending balance |
$ | 919,577 | $ | 919,577 | ||||||||||||||
In May 2011, the Financial Accounting Standards Board
issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”)”. ASU 2011-04 includes common requirements for
measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 will require reporting to entities to disclose the following
information for fair value measurements categorized within Level 3 of the fair value hierarchy: quantitative information about the unobservable inputs
used in the fair value measurement, the valuation processes used by the reporting entity, and a narrative description of the sensitivity of the fair
value measurement to changes in observable inputs and the interrelationships between those unobservable inputs. In addition, ASU 2011-04 will require
reporting to entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. The
new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. At this time, management is
evaluating the implications of ASU 2011-04 and its impact on the financial statements.
In December 2011, FASB issued ASU No. 2011-11 related to
disclosures about offsetting assets and liabilities. The amendments in this ASU require an entity to disclose information about offsetting and related
arrangements to enable users of its financial statements to understand the effect of those arrangements
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|
|
Notes to Financial Statements
(continued)
|
NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES (continued)
on its financial position. The ASU is effective for annual
reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective
application for all comparative periods presented. The Fund is currently evaluating the impact ASU 2011-11 will have on the financial statement
disclosures.
(d) Federal Income Taxes – The
Fund’s policy is to distribute substantially all of its taxable income within the prescribed time and to otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. Therefore, no provision for federal income or excise taxes is believed
necessary.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained
assuming examination by taxing authorities. Management of the Fund has analyzed the Fund’s tax positions and has concluded that no liability for
unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2009-2011), or expected to
be taken in the Fund’s 2012 tax returns. The major tax authority for the Fund is the Internal Revenue Service. The Fund is not aware of any tax
positions for which it is reasonably likely that the total amounts of unrecognized tax benefits will significantly change in the next six
months.
(e) Securities Transactions and Related Investment
Income – Securities transactions are accounted for on the trade date (the date the order to buy or sell is executed) with gain or
loss on the sale of securities being determined based upon identified cost. Dividend income is recorded on the ex-dividend date and interest income is
recorded on the accrual basis, including accretion of discounts and amortization of non-equity premium. For certain securities, known as
“contingent payment debt instruments,” Federal tax regulations require the Fund to record non-cash, “contingent” interest income in
addition to interest income actually received. Contingent interest income amounted to approximately $0.03 per share for the six months ended March 31,
2013. In addition, Federal tax regulations require the Fund to reclassify realized gains on contingent payment debt instruments to interest income. At
March 31, 2013, there were unrealized losses of approximately $0.03 per share on contingent payment debt instruments.
(f) Distributions to
Shareholders – Distributions to shareholders from net investment income are recorded by the Fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the ex-dividend date and paid annually.
The amount and character of income and capital gains to be
distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. The tax character
of distributions paid during the fiscal years ended September 30, 2012 and 2011 were as follows:
| 2012 |
2011 |
|||||||||
Ordinary income |
$ | 3,340,636 | $ | 3,402,358 | ||||||
Net realized gain on investments |
— | — | ||||||||
| $ | 3,340,636 | $ | 3,402,358 | |||||||
At March 31, 2013, the components of distributable earnings
and federal tax cost were as follows:
Unrealized appreciation |
$ | 17,640,713 | ||||||||
Unrealized depreciation |
(3,167,457 | ) | ||||||||
Net unrealized appreciation |
14,473,256 | |||||||||
Cost for federal income tax purposes |
$ | 102,096,941 |
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|
|
Notes to Financial Statements
(continued)
|
NOTE 1 – ORGANIZATION AND SIGNIFICANT
ACCOUNTING POLICIES (continued)
The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable to differing methods of recognizing interest and ordinary income on bonds and notes for tax
purposes.
(g) Use of Estimates – The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
(h) Market Risk – It is the
Fund’s policy to invest at least 65% of its assets in convertible securities. Although convertible securities do derive part of their value from
that of the securities into which they are convertible, they are not considered derivative financial instruments. However, 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. The market value of those
securities was $11,907,232 at March 31, 2013, representing approximately 9.9% of net assets.
NOTE 2 – MANAGEMENT FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
The Fund has entered into an investment advisory agreement
with Dinsmore Capital Management Co. (“Dinsmore Capital”). Pursuant to the investment advisory agreement, Dinsmore Capital provides the Fund
with investment advice, office space and facilities. Under the terms of the investment advisory agreement, the Fund pays Dinsmore Capital on the last
day of each month an advisory fee for such month computed at an annual rate of 0.75% of the first $100,000,000 and 0.50% of the excess over
$100,000,000 of the Fund’s net asset value in such month.
The Fund, pursuant to an administrative services agreement
with Dinsmore Capital, has agreed to pay Dinsmore Capital for certain accounting and other administrative services provided to the Fund. Under the
administrative services agreement, the Fund pays Dinsmore Capital on the last day of each month a fee for such month computed at an annual rate of
0.05% of the Fund’s net asset value in such month.
Certain officers and trustees of the Fund are officers and
directors of Dinsmore Capital.
NOTE 3 – PORTFOLIO
ACTIVITY
At March 31, 2013, there were 13,507,882 shares of
beneficial interest outstanding, with a par value of $0.01 per share. During the six months ended March 31, 2013, 54,105 shares were issued in
connection with reinvestment of dividends from net investment income, resulting in an increase in paid-in capital of $373,862.
Purchases and sales of investments, exclusive of corporate
short-term notes, aggregated $26,400,897 and $26,355,599, respectively, for the six months ended March 31, 2013.
NOTE 4 – SUBSEQUENT EVENTS
In preparing the financial statements as of March 31, 2013,
management considered the impact of subsequent events for potential recognition or disclosure in these financial statements.
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
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|
Board Approval of Advisory Contract
|
The independent trustees of the Fund renewed the
advisory contract with Dinsmore Capital Management Co. in November 2012. The following are the material factors and conclusions that formed the basis
for that approval.
The nature and extent of the advisory services provided
by Dinsmore Capital - The Board of Trustees (the “Board”) of the Fund and the independent trustees reviewed the services to be provided
by Dinsmore Capital under the Advisory Agreement. The Board noted that under the Advisory Agreement, Dinsmore Capital would supervise all aspects of
the Fund’s operations including the investment and reinvestment of cash, securities or other properties comprising the Fund’s assets. In this
regard, the Board noted that under the Advisory Agreement Dinsmore Capital is responsible to, among other things, (a) supervise all aspects of the
operations of the Fund; (b) obtain and evaluate pertinent information about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or any industry or the Fund or any issuer of securities held or to be purchased
by the Fund; (c) determine which issuers and securities will be represented in the Fund’s investment portfolio and regularly report thereon to the
Board; (d) place orders for the purchase and sale of securities for the Fund; (e) take all appropriate actions regarding mergers, consolidations,
elections, conversions, exchanges, etc. in connection with portfolio securities; and (f) take, on behalf of the Fund, such other action as Dinsmore
Capital deems to be necessary or appropriate in connection with the above. Based on such review, both the Board and the independent trustees concluded
that the range of services to be provided by Dinsmore Capital under the Advisory Agreement was appropriate and that Dinsmore Capital currently has been
providing services in accordance with the terms of the Advisory Agreement.
The quality of services provided by Dinsmore Capital
- In reviewing the qualifications of Dinsmore Capital to provide investment advisory services, both the Board and the independent trustees reviewed
the credentials and experience of Dinsmore Capital’s investment personnel who will provide investment advisory services to the Fund, and
considered Dinsmore Capital’s (i) portfolio and product review process, particularly its adherence to the Fund’s investment mandate, (ii)
compliance function and its culture of compliance, (iii) use of technology, including the use, from time to time, of internet links to issuer
interviews, webinars and conferences, (iv) investment research operations (which involves meetings with issuers and analysts, attendance at investment
seminars and visits to issuers, and the review of: (a) financial websites, newspapers, industry literature, publications and periodicals, (b) research
materials prepared by others, (c) issuer annual reports and prospectuses, and (d) issuer websites which include press releases and presentations) and
trading operations (which involves computerized execution of orders), and (v) focus on providing high quality services while keeping the Fund’s
fees and expenses as low as possible. The Board and the independent trustees also took into consideration the presentations made by Dinsmore Capital at
prior Board meetings pertaining to its management of the Fund. Based on the review of these and other factors, both the Board and the independent
trustees determined and concluded that the quality of services provided by Dinsmore Capital has been exemplary, that Dinsmore Capital currently is
providing services to the Fund in accordance with the terms of the Advisory Agreement, and that the independent trustees were confident that such
services would continue in a similar fashion in 2013.
The performance of the Fund relative to comparable funds
- Both the Board and the independent trustees reviewed the performance of the Fund (at net asset value) during the past one, three, five and ten
years ended August 31, 2012 against the performance of other closed-end and open-end funds investing in convertible securities and believed by
management to be in the Fund’s peer group. Mr. Dinsmore pointed out that some funds against which the Fund compared itself were of such a large
size that they were required to make some investments in non-convertible securities (because of the limited size of the convertible securities market),
which meant, in turn, that the comparison of such funds to the Fund was not perfect. Both the Board and the independent trustees noted that the
Fund’s performance was superior to the Advent Claymore Convertibles Securities Fund, one of the two most similar peer funds, for the one- and
five-year periods, while the Fund underperformed this fund for the three-year period. The Board and the independent trustees noted that
the
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Board Approval of Advisory Contract
(continued)
|
Fund’s performance was superior to that of the Gabelli
Convertible & Income Fund, the other of the two most similar peer funds, for the three-, five-, and ten-year periods, while underperforming
relative to this fund for the one-year period. The Fund’s performance exceeded the mean of 75 open-end convertible funds tracked by Lipper, Inc.
for the one-year and three-year periods, but was lower than the mean for the five-year and ten years periods. However, in evaluating the Fund’s
performance against funds in this group, the Board and the independent trustees took into account the fact the closed-end fund competitors engage in
leverage, which has increased their returns, but has done so with increased risk of loss. Because of this increased risk of loss, the Fund has
traditionally not engaged in leverage. The Board and the independent trustees also noted that the portfolio manager’s investment approach is to
make equity investments utilizing convertible securities to provide a total return similar to that of equity securities, but with lower volatility and
higher income. Accordingly, the Board and the independent trustees concluded that performance of the Fund was satisfactory.
The performance of the Fund relative to indices -
Both the Board and the independent trustees reviewed the performance of the Fund (at net asset value) during the past one, three, five and ten years
ended August 31, 2012 against the performance of the Bank of America Merrill Lynch All Convertibles Index (“VXA0”), the Bank of America
Merrill Lynch Investment Grade Convertibles Index (“VXA1”), and the S&P 500® Index. The Board and the independent trustees noted
that the Fund’s performance was superior to that of the VXA0 for the one-, three-, and five-year periods, while the Fund underperformed for the
ten-year period. In addition, the Fund’s performance was superior to that of the S&P 500® Index for the five- and ten-year periods.
However, the Fund underperformed the S&P 500® Index for the one- and three-year periods. The Fund’s standard deviation was less than that
of the S&P 500® Index for the relevant time periods. Based on this review and taking into account all of the other factors that the Board and
the independent trustees considered in determining whether to renew the Advisory Agreement, the Board and the independent trustees concluded that
performance was satisfactory.
Meetings with the Fund’s portfolio manager and
investment personnel - Both the Board and the independent trustees noted that they meet regularly with the Fund’s portfolio manager and
investment personnel, and believe that such individuals are extremely competent and able to carry out their responsibilities under the Advisory
Agreement. Moreover, the Board noted with approval the increased portfolio management responsibilities being shared with newer members of Dinsmore
Capital.
Overall performance of Dinsmore Capital - After
considering the overall performance of Dinsmore Capital in providing investment advisory and administrative services to the Fund, both the Board and
the independent trustees concluded that such performance was satisfactory.
Fees relative to those of clients of Dinsmore Capital
with comparable investment strategies - Both the Board and the independent trustees noted that the Fund and Bancroft Fund Ltd. (the
“Funds”) are the only clients of Dinsmore Capital, and that the advisory fee rates for the Funds are the same. Both the Board and the
independent trustees concluded that, because the fee rates are the same for both Funds, the current advisory fee rate of the Fund was fair as compared
to the rate for Bancroft Fund Ltd.
Fees relative to those of comparable funds with other
advisors - After reviewing the advisory fee rate and expense ratio for the Fund against the advisory fee rates and expense ratios for funds advised
by other advisors in the Fund’s comparison group, both the Board and the independent trustees determined that the Fund’s expense ratio was
lower than that of the other funds in the comparison group. Accordingly, the Board concluded that the current advisory fee rate and other Fund fees and
costs were fair and reasonable.
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Board Approval of Advisory Contract
(continued)
|
Expense limitations and fee waivers - Both the Board
and the independent trustees noted that, although there are no contractual expense limitations or fee waivers in effect for the Fund, Dinsmore Capital
is very diligent in its efforts to keep expenses of the Fund as low as possible. The independent trustees also noted that the cost of compliance with
regulatory initiatives was increasing. Both the Board and the independent trustees concluded that the current level of expenses for the Fund was fair
and reasonable.
Breakpoints and economies of scale - Both the Board
and the independent trustees reviewed the structure of the Fund’s advisory fee under the Advisory Agreement, and noted that the fee includes one
breakpoint when the Fund’s assets reach $100 million. Both the Board and the independent trustees noted that the Fund’s assets were above the
$100 million breakpoint. Both the Board and the independent trustees concluded that the Fund’s fee levels under the Advisory Agreement, therefore,
reflect economies of scale and that it was not necessary to implement any further changes to the structure of the advisory fee for the
Fund.
Profitability of Dinsmore Capital - Both
the Board and the independent trustees reviewed information concerning the profitability and financial condition of Dinsmore Capital. In particular,
the Board reviewed Dinsmore Capital’s financial statements including its statement of income and retained earnings, statement of cash flows, and
audited balance sheet. The Board also reviewed Dinsmore Capital’s costs in providing services to the Funds. The Board noted that currently
Dinsmore Capital’s sole source of revenue was fees from the Funds for providing advisory and administrative services to the Funds. The Board and
the independent trustees noted that Dinsmore Capital’s operations were at approximately break even during its most recent four fiscal years,
despite the severe market downturn. Some independent trustees expressed concern about whether Dinsmore Capital would be able to maintain its high level
of services to the Funds unless it was able to increase assets under management in future years. As a result, the independent trustees reiterated their
prior advice that Dinsmore Capital increase its efforts to grow its assets under management. Based on the review of the profitability of Dinsmore
Capital and its financial condition, both the Board and the independent trustees concluded that the compensation to be paid by the Fund to Dinsmore
Capital under the Advisory Agreement was not excessive.
Dinsmore Capital’s financial soundness in light of
the Fund’s needs - Both the Board and the independent trustees considered whether Dinsmore Capital is financially sound and has the
resources necessary to perform its obligations under the Advisory Agreement, and concluded that it does.
Benefits of soft dollars to Dinsmore
Capital - Both the Board and the independent trustees discussed the fact that there are no third-party soft dollar arrangements in effect
with respect to the Fund. Both the Board and the independent trustees recognized that Dinsmore Capital does receive proprietary research from brokers
with whom it executes portfolio transactions on behalf of the Fund. This research is used by Dinsmore Capital in making investment decisions for the
Fund. Both the Board and the independent trustees also considered representations made by Dinsmore Capital that portfolio transactions received best
execution. Because such research ultimately benefits the Fund, the Board and the independent trustees concluded that it was appropriate to receive
proprietary research.
Historical relationship between the Fund and Dinsmore
Capital - In determining whether to continue the Advisory Agreement for the Fund, both the Board and the independent trustees also
considered the prior relationship among Dinsmore Capital and the Fund, as well as the independent trustees’ knowledge of Dinsmore Capital’s
operations, and concluded that it was beneficial to maintain the current relationship, in part, because of such knowledge. Both the Board and the
independent trustees also reviewed the general nature of the non-investment advisory services currently performed by Dinsmore Capital, such as
administrative services, and the
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Board Approval of Advisory Contract
(continued)
|
fees received by Dinsmore Capital for performing such
services. In addition to reviewing such services, both the Board and the independent trustees also considered the organizational structure employed by
Dinsmore Capital to provide those services. Based on the review of these and other factors, both the Board and the independent trustees concluded that
Dinsmore Capital was qualified to provide non-investment advisory services to the Fund, including administrative services, and that Dinsmore Capital
currently is providing satisfactory non-investment advisory services to the Fund.
Other factors and current trends - Both
the Board and the independent trustees considered the culture of compliance and high ethical standards at Dinsmore Capital, and the efforts
historically and currently undertaken by Dinsmore Capital to engage in best practices. Both the Board and the independent trustees noted Dinsmore
Capital’s historical adherence to compliance procedures, as well as the Fund’s investment objectives, policies and restrictions. Both the
Board and the independent trustees concluded that this commitment to adhere to the highest ethical standards was an important factor in their
determination that they should approve the continuance of the Advisory Agreement for the Fund.
After considering all of the above factors and based on
informed business judgment, the Board determined that the Advisory Agreement is in the best interests of the Fund and its shareholders and that the
compensation to Dinsmore Capital under the Advisory Agreement is fair and reasonable. As a result, the Board concluded to renew the Advisory Agreement
for an additional year.
- 19 -
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E L L S W O R T H F U N D L T D . 2 0 1 3 S E M I - A N N U A L R E P O R T T O S H A R E H O L D E R S |
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Miscellaneous Notes
|
Results of the 2013 Annual Shareholders
Meeting
The Annual Meeting of Shareholders of the Fund was held on
January 18, 2013. The results of the shareholder vote were:
1. |
All persons nominated were elected. |
| Terms expiring in 2016 | Shares voted for |
Shares withheld |
||||||||
Elizabeth C. Bogan Ph.D. |
11,092,999 | 783,627 | ||||||||
Nicolas W. Platt |
11,070,986 | 805,640 | ||||||||
2. |
The Audit Committee’s appointment of Tait, Weller & Baker LLP as independent registered public accountants was ratified, as 11,191,848 shares voted for, 634,672 shares voted against and 50,106 shares abstained. |
Notice of Privacy Policy
The Fund has adopted a privacy policy in order to protect
the confidentiality of nonpublic personal information that we have about our shareholders. We receive personal information, such as the name, address
and account balances of our shareholders, when transactions occur in Fund shares registered in their name.
We may disclose this information to companies that perform
services for the Fund, such as the Fund’s transfer agent or proxy solicitors. These companies may only use this information in connection with the
services they provide to the Fund, and not for any other purpose. We will not otherwise disclose any nonpublic personal information about our
shareholders or former shareholders to anyone else, except as required by law.
Access to nonpublic information about our shareholders is
restricted to our employees and service providers who need that information in order to provide services to them. We maintain physical, electronic and
procedural safeguards that comply with federal standards to guard nonpublic personal information.
For More Information About Portfolio
Holdings
In addition to the annual and semi-annual reports that
Ellsworth delivers to shareholders and makes available through the Fund’s public website, the Fund files a complete schedule of portfolio holdings
with the Securities and Exchange Commission (SEC) for the Fund’s first and third fiscal quarters on Form N-Q. Ellsworth does not deliver the
schedule of portfolio holdings for the first and third fiscal quarters to shareholders, however, the schedules are available without charge, upon
request, by calling (800) 914-1177 or at the Fund’s public website, www.ellsworthfund.com. You may obtain the Form N-Q filings by accessing the
SEC’s website at www.sec.gov. You may also review and copy them at the SEC’s Public Reference Room in Washington, DC. Information on the
operation of the SEC’s Public Reference Room may be obtained by calling the SEC at (800) SEC-0330.
Proxy Voting Policies and Procedures / Proxy Voting
Record
The Fund’s policies and procedures with respect to the
voting of proxies relating to the Fund’s portfolio securities is available without charge, upon request, by calling (800) 914-1177, or at the
Fund’s website at www.ellsworthfund.com. This information is also available on the SEC’s website at www.sec.gov. In addition, information on
how the Fund voted such proxies relating to portfolio securities during the most recent twelve-month period ended June 30, is available without charge
at the above sources.
The Fund is a member of the Closed-End Fund Association
(CEFA), a non-profit national trade association (www.cefa.com). Thomas H. Dinsmore, Chairman and Chief Executive Officer of the Fund, is on its
executive board.
Pursuant to Section 23 of the Investment Company Act of
1940, notice is hereby given that the Fund may in the future purchase beneficial shares of the Fund from time to time, at such times, and in such
amounts, as may be deemed advantageous to the Fund. Nothing herein shall be considered a commitment to purchase such shares.
- 20 -
Board of Trustees |
| Internet |
KINCHEN C. BIZZELL, CFA |
| www.ellsworthfund.com |
ELIZABETH C. BOGAN, Ph.D. |
| email: info@ellsworthfund.com |
THOMAS H. DINSMORE, CFA |
|
|
DANIEL D. HARDING, CFA |
| Shareholder Services and Transfer Agent |
JANE D. O’KEEFFE |
| American Stock Transfer & Trust Company, LLC |
NICOLAS W. PLATT |
| 6201 15th Avenue |
|
| Brooklyn, NY 11219 |
Officers |
| (888) 888-0314 |
THOMAS H. DINSMORE, CFA |
| www.amstock.com |
Chairman of the Board |
|
|
and Chief Executive Officer |
| Investment Adviser |
|
| Dinsmore Capital Management Co. |
JANE D. O’KEEFFE |
| 65 Madison Avenue, Suite 550 |
President |
| Morristown, NJ 07960 |
|
| (973) 631-1177 |
JAMES A. DINSMORE, CFA |
|
|
Executive Vice President |
| Custodian of Securities |
|
| Brown Brothers Harriman & Co. |
GARY I. LEVINE |
|
|
Executive Vice President, Chief Financial Officer |
| Beneficial Share Listing |
and Secretary |
| NYSE MKT Symbol: ECF |
|
|
|
H. TUCKER LAKE, JR. |
| Legal Counsel |
Vice President |
| Ballard Spahr LLP |
|
|
|
GERMAINE M. ORTIZ |
| Independent Registered Public Accounting Firm |
Vice President |
| Tait, Weller & Baker LLP |
|
|
|
MERCEDES A. PIERRE |
|
|
Vice President and Chief Compliance Officer |
|
|
|
|
|
JUDITH M. DOUGHERTY |
|
|
Assistant Vice President and Assistant Secretary |
|
|
|
|
|
JOANN VENEZIA |
|
|
Assistant Vice President |
|
|
