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
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ELLSWORTH FUND LTD.
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(Exact name of registrant as specified in charter)
65 Madison Avenue, Morristown, New Jersey 07960-7308
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(Address of principal executive offices) (Zip code)
Thomas H. Dinsmore
ELLSWORTH FUND LTD.
65 Madison Avenue
Morristown, New Jersey 07960-7308
(Name and address of agent for service)
Copy to:
Martha J. Hays, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
Registrant's telephone number, including area code: (973)631-1177
Date of fiscal year end: September 30
Date of reporting period: March 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
ELLSWORTH FUND LTD.
[LOGO]
2006 SEMI-ANNUAL REPORT
MARCH 31, 2006
Ellsworth Fund Ltd. (successor to Ellsworth Convertible Growth and Income Fund,
Inc.) operates as a closed-end, diversified management investment company and
invests primarily in convertible securities, with the objectives of providing
income and the potential for capital appreciation -- which objectives the fund
considers to be relatively equal, over the long-term, due to the nature of the
securities in which it invests.
HIGHLIGHTS
PERFORMANCE THROUGH MARCH 31, 2006 with dividends reinvested
Calendar Cumulative Cumulative
YTD 1 Year 5 Years 10 Years
---------- --------- ---------- ----------
Ellsworth market price (a) ...................... 5.27% 11.05% 20.12% 142.92%
Ellsworth net asset value (b) ................... 5.29 12.22 26.94 117.68
Closed-end convertible fund average (b) ......... 4.46 10.96 30.88 102.09
S&P 500 (a) ..................................... 4.21 11.73 21.46 135.67
Merrill Lynch All Convertibles Index (a) ........ 5.32 11.60 37.81 130.62
Lehman Aggregate Bond Total Return Index (b) .... (0.65) 2.26 28.27 83.98
Performance data represent past results and do not reflect future performance.
Ellsworth's performance in the table above has not been adjusted for the fiscal
2004 rights offering; net asset value dilution was 2.21%.
(a) From Bloomberg L.P. pricing service.
(b) From Lipper, Inc. Closed-End Fund Performance Analysis, dated
March 31, 2006.
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QUARTERLY HISTORY OF NAV AND MARKET PRICE
Net Asset Values Market Prices (AMEX, symbol ECF)
Qtr. Ended High Low Close High Low Close
------------ ------ ------ ------- ------ ------ -------
Jun. 05 $8.80 $8.35 $8.79 $7.74 $7.25 $7.74
Sep. 05 9.29 8.82 9.29 7.90 7.57 7.84
Dec. 05 9.29 8.82 9.10 7.89 7.42 7.80
Mar. 06 9.52 9.19 9.51 8.19 7.72 8.14
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DIVIDEND DISTRIBUTIONS (12 MONTHS)
Record Payment Capital
Date Date Income Gains Income
--------- --------- -------- --------- --------
5/13/05 5/27/05 $0.0700 -- $0.0700
8/16/05 8/30/05 0.0700 -- 0.0700
10/27/05 11/23/05 0.0975 -- 0.0975
2/13/06 2/27/06 0.0700 -- 0.0700
-------- --------
$0.3075 $0.3075
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TO OUR SHAREHOLDERS ------------------------------------------------------------
May 10, 2006
This is the Fund's first shareholder report since the Fund reorganized as a
Delaware statutory trust, and changed its name to Ellsworth Fund Ltd. In
a previous mailing to shareholders, we discussed in detail the name change
as well as other changes to the Fund's investment policies. As a result of
these changes, the Fund is no longer required to invest at least 80% of its
assets in convertible securities, but, as mandated by our charter, will invest
at least 65% in convertibles. These changes provide the flexibility required
in an investment environment where new forms of convertible securities are
being created, which may not meet the traditional definition. This will be
helpful if we experience a market similar to that seen in 2003 and 2004 when
most convertible issues had such large premiums that they moved more with the
bond market than with their underlying stocks. Also, we will have the ability
to buy more attractive non-convertible bonds and straight preferred stocks.
Many of our peers who outperformed Ellsworth during this period had significant
positions in these types of securities.
The convertible securities market has undergone substantial changes over the
last two years. According to Citigroup, the average premium-to-conversion
value (the positive difference between the market price of a convertible
security and the value of the underlying common stock) for April 2004
was 45.9%; by April 2005 it had fallen to 38.4% and this April it was 27%.
Citigroup also measured a decline in current yield from 4% in 2004 and 2005 to
3.1% in April 2006. Much of this premium compression and current yield decline
was due to rising equity prices. The higher premium and current yield levels
in 2004 indicate that the overall convertible market was less equity sensitive
and more interest rate sensitive than it is now. In our opinion, the
convertible market has mostly returned to being the equity alternative it was
in the past, which fits in historically with the equity focus of the Fund. The
convertible market also appears to have ended its decline in market value over
the last three years. New issues and market appreciation were greater than
redemptions as Merrill Lynch measured a rise in the market value from $263
billion in 2005 to $273 billion in 2006.
The Fund's performance based on industry exposure has changed recently. While
positive returns continue to come from the energy sector, we have also seen
better performance in our aerospace and defense exposure. Underperforming
industries have been health care and pharmaceuticals. We believe these
underperforming industries lagged due to the perception that the government is
going to continue to get more involved in these businesses.
For the quarter, one-year and ten-year periods ended March 31, 2006,
Ellsworth's net asset value (NAV) had outperformed the average NAV performance
of the closed-end funds included in the closed-end convertible fund category
tracked by Lipper, Inc. and published in the Lipper Closed-End Performance
Analysis. However, for the three years and five years ended March 31, 2006,
the Fund underperformed the average NAV of the eleven funds in its category.
continued on the following page
Page 1
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TO OUR SHAREHOLDERS (continued)-------------------------------------------------
Visit our website, www.ellsworthfund.com, for additional information on the
Fund, such as a monthly portfolio summary which lists the Fund's largest
holdings. Quarterly updates may be found in the Financial Reports section, and
other financial data is often included in press releases.
The results of the 2006 annual meeting of shareholders are shown in the
Miscellaneous Notes section of this report. We thank you for your support. At
its April meeting, the Board of Trustees declared a dividend of $0.07 per
share. The dividend consists of undistributed net investment income and will
be payable on May 30, 2006 to shareholders of record on May 16, 2006.
/s/ Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board
MAJOR PORTFOLIO CHANGES by underlying common stock
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Six months ended March 31, 2006
ADDITIONS REDUCTIONS
C&D Technologies, Inc. Advanced Micro Devices, Inc.
DRS Technologies, Inc. Amerada Hess Corp.
E*TRADE Financial Corp. Baxter International, Inc.
Equinix, Inc. Best Buy Co., Inc.
(exchangeable from Credit Suisse
First Boston (USA), Inc.) Chesapeake Energy Corp.
Intel Corp. Community Health Systems, Inc.
Ionatron, Inc. Comverse Technology, Inc.
LSB Industries, Inc. L-3 Communications Holdings, Inc.
Maverick Tube Corp. Lear Corp.
Microsoft Corp. Nortel Networks Corp.
(exchangeable from Lehman
Brothers Holdings, Inc.) The PMI Group, Inc.
St. Jude Medical, Inc. The Williams Companies, Inc.
Texas Industries, Inc. Valero Energy Corp.
(exchangeable from TXI Capital
Trust I)
Page 2
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LARGEST INVESTMENT HOLDINGS BY UNDERLYING COMMON STOCK -------------------------
Value % Total
(Note 1) Net Assets
------------ ------------
The Walt Disney Company .......................................... $ 4,045,313 3.4 %
AN ENTERTAINMENT COMPANY WHICH CONDUCTS OPERATIONS IN MEDIA
NETWORKS, STUDIO ENTERTAINMENT, THEME PARKS AND RESORTS,
CONSUMER PRODUCTS, AND INTERNET AND DIRECT MARKETING.
Teva Pharmaceutical Industries Ltd................................ 3,261,563 2.8
DEVELOPS, MANUFACTURES AND MARKETS GENERIC AND BRANDED HUMAN
PHARMACEUTICALS AND ACTIVE PHARMACEUTICAL INGREDIENTS.
(EXCH. FROM IVAX CORP., TEVA PHARMACEUTICAL FINANCE CO. B.V.
AND TEVA PHARMACEUTICAL FINANCE CO., LLC)
Nuveen Investments, Inc........................................... 3,136,440 2.6
THE COMPANY'S PRINCIPAL ACTIVITIES ARE ASSET MANAGEMENT AND
RELATED RESEARCH, AND THE DEVELOPMENT, MARKETING AND
DISTRIBUTION OF INVESTMENT PRODUCTS AND SERVICES.
(EXCH. FROM MERRILL LYNCH & CO., INC. AND MORGAN STANLEY, INC.)
Freeport-McMoRan Copper and Gold, Inc............................. 2,569,250 2.2
IS INVOLVED IN MINERAL EXPLORATION AND DEVELOPMENT, MINING, AND
MILLING OF COPPER, GOLD AND SILVER. THE COMPANY IS ALSO
INVOLVED IN SMELTING AND REFINING COPPER CONCENTRATES.
The TJX Companies, Inc............................................ 2,523,750 2.1
RETAILS OFF-PRICE APPAREL AND HOME FASHIONS. THE COMPANY
CURRENTLY OPERATES T.J. MAXX, MARSHALLS, HOMEGOODS, A.J.
WRIGHT, WINNERS AND T.K. MAXX STORES.
The St. Paul Travelers Companies, Inc............................. 2,456,000 2.1
PROVIDES A BROAD RANGE OF INSURANCE PRODUCTS AND SERVICES FOR
THE COMMERCIAL AND CONSUMER MARKETS.
Genworth Financial, Inc........................................... 2,443,500 2.1
PROVIDES LIFE INSURANCE PRODUCTS, LONG-TERM CARE INSURANCE AND
MORTGAGE GUARANTEE INSURANCE COVERAGE ON RESIDENTIAL MORTGAGE
LOANS. (EXCH. FROM CITIGROUP FUNDING, INC.)
Celanese Corp..................................................... 2,440,000 2.1
A GLOBAL INDUSTRIAL CHEMICALS COMPANY THAT PROCESSES CHEMICAL
RAW MATERIALS AND NATURAL PRODUCTS INTO CHEMICALS AND
CHEMICAL-BASED PRODUCTS.
Euronet Worldwide, Inc............................................ 2,365,000 2.0
PROVIDES ELECTRONIC FINANCIAL TRANSACTION SOLUTIONS. THE
COMPANY OFFERS FINANCIAL PAYMENT MIDDLEWARE, FINANCIAL NETWORK
GATEWAYS, OUTSOURCING, AND CONSULTING SERVICES TO FINANCIAL
INSTITUTIONS AND MOBILE OPERATORS.
Manor Care, Inc................................................... 2,177,500 1.8
THE COMPANY PROVIDES CARE FOR RESIDENTS AND PATIENTS THROUGH ------------ ------------
LONG-TERM CARE CENTERS, ASSISTED LIVING FACILITIES, OUTPATIENT
REHABILITATION CLINICS, HOME HEALTHCARE OFFICES, AND MANAGEMENT
SERVICES FOR PROFESSIONAL ORGANIZATIONS.
Total............................................................. $27,418,316 23.2 %
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Page 3
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MAJOR INDUSTRY EXPOSURE --------------------------------------------------------
Aerospace & Defense ------------> 4.7%
Banking/Savings & Loan ---------------------> 6.5%
Energy ---------------------------> 7.6%
Entertainment ----------------> 5.1%
Financial & Insurance ------------------------------------------------> 15.1%
Health Care ----------> 4.5%
Pharmaceuticals ---------------------------------> 10.9%
Retail -----> 4.1%
Technology ----------------------------------------> 14.3%
Telecommunications ---------------> 5.0%
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DIVERSIFICATION OF ASSETS ------------------------------------------------------
% Total Net Assets
-------------------------------------
Value Six Months Ended Year Ended
(Note 1) March 31, 2006 September 30, 2005
------------ ----------------- ------------------
Aerospace and Defense.................... $ 5,497,500 4.7% 0.8%
Automotive............................... -- -- 2.3
Banking/Savings and Loan................. 7,726,150 6.5 7.2
Building Products........................ 1,951,625 1.6 --
Chemicals................................ 4,165,000 3.5 3.4
Consumer Goods........................... 3,113,081 2.6 2.8
Energy................................... 8,944,625 7.6 13.7
Entertainment............................ 6,030,313 5.1 4.2
Financial and Insurance.................. 17,877,104 15.1 15.3
Financial Services....................... 2,365,000 2.0 0.8
Foods.................................... 2,047,900 1.7 1.8
Health Care.............................. 5,284,802 4.5 5.7
Mining................................... 2,569,250 2.2 1.9
Multi-Industry........................... 2,826,250 2.4 1.3
Pharmaceuticals.......................... 12,929,837 10.9 11.6
Retail................................... 4,792,500 4.1 6.4
Technology............................... 16,909,678 14.3 8.4
Telecommunications....................... 5,876,070 5.0 6.3
Utilities................................ 1,612,500 1.4 1.7
Short-Term Securities.................... 1,410,052 1.2 3.8
------------ -------- --------
TOTAL INVESTMENTS...................... 113,929,237 96.4 99.4
Other Assets, Net of Liabilities......... 4,277,689 3.6 0.6
------------ -------- --------
TOTAL NET ASSETS....................... $118,206,926 100.0% 100.0%
============ ======== ========
Page 4
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PORTFOLIO OF INVESTMENTS MARCH 31, 2006 (UNAUDITED) ----------------------------
Principal Value
Amount (Note 1)
----------- -----------
CONVERTIBLE BONDS AND NOTES -- 55.4%
AEROSPACE AND DEFENSE -- 3.7%
$1,000,000 AAR Corp. 1.75% 2026 cv. sr. notes (BB-)
(Acquired 01/26/06 - 01/27/06; Cost $1,013,754) (1)................... $ 1,142,500
1,000,000 Ceradyne, Inc. 2.875% 2035 sr. sub. cv. notes (NR) (2)................. 1,115,000
2,000,000 DRS Technologies, Inc. 2% 2026 cv. sr. notes (B2)
(Acquired 01/30/06; Cost $2,017,917) (1,2)............................ 2,120,000
-----------
4,377,500
-----------
BANKING/SAVINGS AND LOAN -- 1.3%
1,500,000 U.S. Bancorp floating rate 2035 cv. sr. deb. (Aa2)..................... 1,498,125
-----------
CONSUMER GOODS -- 1.5%
1,375,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba2)................ 1,799,531
-----------
ENERGY -- 3.6%
1,500,000 Maverick Tube Corp. 1.875% 2025 cv. sr. sub. notes (NR)................ 2,165,625
1,500,000 Oil States International, Inc. 2.375% 2025 contingent cv. sr.
notes (NR)............................................................ 2,043,750
-----------
4,209,375
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ENTERTAINMENT -- 5.1%
2,000,000 EchoStar Communications Corp. 5.75% 2008 cv. sub. notes (B2)........... 1,985,000
3,750,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (A3)................. 4,045,313
-----------
6,030,313
-----------
FINANCIAL AND INSURANCE -- 1.3%
249,000 E*TRADE Financial Corp. 6% 2007 cv. sub. notes (B-).................... 285,416
1,125,000 FTI Consulting, Inc. 3.75% 2012 cv. sr. sub. notes (Ba3)............... 1,296,563
-----------
1,581,979
-----------
FINANCIAL SERVICES -- 2.0%
2,000,000 Euronet Worldwide, Inc. 3.50% 2025 cv. deb. (NR) (2)................... 2,365,000
-----------
FOODS -- 0.8%
1,000,000 Lehman Brothers Holdings, Inc. 1% 2011 medium-term notes (A1)
(performance linked to General Mills, Inc. common stock) (2)........... 977,900
-----------
HEALTH CARE -- 3.9%
2,000,000 Manor Care, Inc. 2.125% 2035 cv. sr. notes (Baa3)...................... 2,177,500
1,000,000 Omnicare, Inc. 3.25% 2035 cv. sr. deb. (B1) (2)........................ 963,750
1,500,000 St. Jude Medical, Inc. 2.8% 2035 cv. sr. deb. (BBB+) (2)............... 1,486,875
-----------
4,628,125
-----------
MULTI-INDUSTRY -- 2.0%
1,500,000 LSB Industries, Inc 7% 2011 cv. sr. sub. deb. (NR)
(Acquired 03/01/06; Cost $1,500,000) (1).............................. 1,530,000
1,000,000 Lehman Brothers Holdings, Inc. 1% 2011 medium-term notes (A1)
(performance linked to Cendant Corp. common stock) (2)................ 862,500
-----------
2,392,500
-----------
Page 5
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PORTFOLIO OF INVESTMENTS MARCH 31, 2006 (CONTINUED) ----------------------------
Principal Value
Amount (Note 1)
----------- -----------
CONVERTIBLE BONDS AND NOTES -- CONTINUED
PHARMACEUTICALS -- 7.9%
$1,250,000 Amgen, Inc. 0.125% 2011 cv. sr. notes (A2)
(Acquired 02/14/06 - 02/15/06; Cost $1,253,669) (1)................... $ 1,265,625
500,000 Amgen, Inc. 0.375% 2013 cv. sr. notes (A2)
(Acquired 02/14/06; Cost $500,000) (1)................................ 507,500
463,000 BioMarin Pharmaceutical, Inc. 2.5% 2013 cv. sr. sub. notes (NR)........ 486,150
1,000,000 Bristol-Myers Squibb Co. floating rate 2023 cv. sr. deb. (A1).......... 1,003,750
1,000,000 Cephalon, Inc. 2% 2015 cv. sr. sub. notes (B-)......................... 1,412,500
1,250,000 Encysive Pharmaceuticals, Inc. 2.5% 2012 cv. sr. notes (NR)............ 895,313
1,000,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR) (exch. for Teva
Pharmaceutical Industries Ltd. ADR and cash).......................... 1,017,500
1,000,000 Teva Pharmaceutical Finance Co., LLC 0.25% 2026 cv. sr. deb. (Baa2)
(exch. for Teva Pharmaceutical Industries Ltd. ADR)................... 1,013,750
1,750,000 Teva Pharmaceutical Finance Co. B.V. 1.75% 2026 cv. sr. deb. (Baa2)
(exch. for Teva Pharmaceutical Industries Ltd. ADR)................... 1,739,063
-----------
9,341,151
-----------
RETAIL -- 4.1%
1,000,000 Amazon.com, Inc. 4.75% 2009 cv. sub. notes (B2)........................ 956,250
1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR)......... 1,312,500
3,000,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1)........................... 2,523,750
-----------
4,792,500
-----------
TECHNOLOGY -- 12.8%
1,000,000 C&D Technologies, Inc. 5.25% 2025 cv. sr. notes (NR)
(Acquired 11/16/05; Cost $1,000,000) (1).............................. 1,285,000
2,000,000 Citigroup Funding, Inc. 1% 2010 medium-term notes (Aa1)
(exch. for the cash equivalent of a basket of technology stocks) (2).. 1,882,600
1,000,000 Coherent, Inc. 2.75% 2011 cv. sub. notes (NR)
(Acquired 03/07/06 - 03/08/06; Cost $1,012,376) (1)................... 1,125,000
1,000,000 Conexant Systems, Inc. 4% 2026 cv. sub. notes (NR)
(Acquired 03/02/06; Cost $987,653) (1)................................ 1,017,500
1,500,000 Intel Corp. 2.95% 2035 jr. sub. cv. deb. (A-)
(Acquired 12/14/05 - 01/26/06; Cost $1,470,402) (1,2)................. 1,293,750
1,750,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2)........... 1,712,813
1,500,000 LSI Logic Corp. 4% 2010 cv. sub. notes (B)............................. 1,680,000
1,500,000 Lehman Brothers Holdings, Inc. 1% 2009 medium-term notes (A1)
(performance linked to Microsoft Corp. common stock) (2).............. 1,488,750
1,000,000 Richardson Electronics, Ltd. 8% 2011 cv. sr. sub. notes (NR)
(Acquired 11/21/05; Cost $1,000,000) (1).............................. 1,143,750
1,500,000 Sybase, Inc. 1.75% 2025 cv. sub. notes (NR)............................ 1,509,375
1,000,000 Vishay Intertechnology, Inc. 3.625% 2023 cv. sub. notes (B3)........... 1,003,750
-----------
15,142,288
-----------
TELECOMMUNICATIONS -- 4.1%
750,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3)....................... 1,033,125
1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (B1)........ 1,066,250
1,500,000 Tekelec, Inc. 2.25% 2008 sr. sub. cv. notes (NR)....................... 1,479,375
1,056,000 Time Warner Telecom, Inc. 2.375% 2026 cv. sr. deb. (Caa1).............. 1,215,720
-----------
4,794,470
-----------
UTILITIES -- 1.4%
1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (B1)........................ 1,612,500
-----------
TOTAL CONVERTIBLE BONDS AND NOTES...................................... $65,543,257
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Page 6
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PORTFOLIO OF INVESTMENTS MARCH 31, 2006 (CONTINUED) ----------------------------
Value
Shares (Note 1)
----------- -----------
CONVERTIBLE PREFERRED STOCKS -- 21.1%
AEROSPACE AND DEFENSE -- 0.9%
40,000 Ionatron, Inc. 6.5% series A redeemable cv. pfd. (NR)
(Acquired 10/27/05; Cost $1,000,000) (1).............................. $ 1,120,000
-----------
BANKING/SAVINGS AND LOAN -- 5.3%
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR)........... 1,762,000
20,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2)............... 976,000
35,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1)
(exch. for Sovereign Bancorp, Inc. common stock) (2).................. 1,596,875
35,000 Washington Mutual Capital Trust 5.375% PIERS units (BBB)
(exch. for Washington Mutual, Inc. common stock)...................... 1,893,150
-----------
6,228,025
-----------
BUILDING PRODUCTS -- 1.6%
32,500 TXI Capital Trust I 5.5% SPuRS (B2)
(exch. for Texas Industries, Inc. common stock)....................... 1,951,625
-----------
CHEMICALS -- 2.1%
80,000 Celanese Corp. 4.25% cv. perp. pfd. (NR)............................... 2,440,000
-----------
ENERGY -- 3.0%
20,000 Chesapeake Energy Corp. 4.5% cum. cv. pfd. (B+)........................ 1,897,500
9,000 Semco Energy, Inc. 5% series B cv. cum. pfd. (B-)...................... 1,640,250
-----------
3,537,750
-----------
FINANCIAL AND INSURANCE -- 6.0%
75,000 Citigroup Funding, Inc. variable rate exch. notes (Aa1)
(exch. for Genworth Financial, Inc. common stock)..................... 2,443,500
10 Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3)
(Acquired 01/11/05; Cost $1,048,750) (1).............................. 960,678
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2).................. 1,210,000
100,000 The St. Paul Travelers Companies, Inc. 4.5% 2032 cv. jr. sub.
notes (Baa1).......................................................... 2,456,000
-----------
7,070,178
-----------
MINING -- 2.2%
2,000 Freeport-McMoRan Copper and Gold, Inc. 5.5% cv. perpetual pfd. (B-).... 2,569,250
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS..................................... $24,916,828
-----------
MANDATORY CONVERTIBLE SECURITIES -- 15.3% (4)
CHEMICALS -- 1.5%
40,000 Huntsman Corp. 5% mand. cv. pfd. 02/16/08 (NR)......................... 1,725,000
-----------
CONSUMER GOODS -- 1.1%
35,000 Constellation Brands, Inc. dep. shs. representing 5.75%
series A mand. cv. pfd. 09/01/06 (B).................................. 1,313,550
-----------
ENERGY -- 1.0%
10,000 Amerada Hess Corp. 7% mand. cv. pfd. ACES 12/01/06 (Ba3)............... 1,197,500
-----------
Page 7
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PORTFOLIO OF INVESTMENTS MARCH 31, 2006 (CONTINUED) ----------------------------
Value
Shares (Note 1)
----------- -----------
MANDATORY CONVERTIBLE SECURITIES -- CONTINUED (4)
FINANCIAL AND INSURANCE -- 7.6%
25,000 The Chubb Corp. 7% equity units 08/16/06 (A2) (2)...................... $ 850,000
43,500 E*TRADE Financial Corp. 6.125% equity units 11/18/08 (B3).............. 1,511,625
30,000 Merrill Lynch & Co., Inc. 6.75% mandatory exch. securities 10/15/07
(Aa3) (exch. for Nuveen Investments, Inc. common stock)............... 1,292,280
80,000 MetLife, Inc. 6.375% common equity units 08/15/08 (BBB+)............... 2,170,000
42,500 Morgan Stanley, Inc. 5.875% mandatory exch. securities 10/15/08 (Aa3)
(exch. for Nuveen Investments, Inc. common stock)..................... 1,844,160
45,000 XL Capital, Ltd. 6.5% equity security units 05/15/07 (A3).............. 1,021,050
10,000 XL Capital, Ltd. 7% equity security units 02/15/09 (A3)................ 248,900
-----------
8,938,015
-----------
FOODS -- 0.9%
40,000 Lehman Brothers Holdings, Inc. 6.25% PIES 10/15/07 (A1)
(exch. for General Mills, Inc. common stock).......................... 1,070,000
-----------
PHARMACEUTICALS -- 1.7%
40,000 Schering-Plough Corp. 6% mand. cv. pfd. 09/14/07 (Baa3)................ 2,031,200
-----------
TECHNOLOGY -- 1.5%
30,000 Credit Suisse First Boston (USA), Inc. 5.5% SAILS 11/15/08 (Aa3)
(exch. for Equinix, Inc. common stock)................................ 1,767,390
-----------
TOTAL MANDATORY CONVERTIBLE SECURITIES (4)............................. $18,042,655
-----------
COMMON STOCKS -- 3.4%
FINANCIAL AND INSURANCE -- 0.2%
10,635 E*TRADE Financial Corp. (3)............................................ 286,932
-----------
HEALTH CARE -- 0.6%
21,115 LifePoint Hospitals, Inc. (3).......................................... 656,677
-----------
MULTI-INDUSTRY -- 0.4%
25,000 Cendant Corp........................................................... 433,750
-----------
PHARMACEUTICALS -- 1.3%
26,300 Johnson & Johnson...................................................... 1,557,486
-----------
TELECOMMUNICATIONS -- 0.9%
40,000 AT&T Inc............................................................... 1,081,600
-----------
TOTAL COMMON STOCKS.................................................... $ 4,016,445
-----------
Page 8
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PORTFOLIO OF INVESTMENTS MARCH 31, 2006 (CONTINUED) ----------------------------
Principal Value
Amount (Note 1)
----------- ------------
SHORT-TERM SECURITIES -- 1.2%
COMMERCIAL PAPER -- 1.2%
$1,400,000 American Express Credit Corp. 4.77% maturing 04/03/06 (P1)............. $ 1,399,073
------------
U.S. GOVERNMENT OBLIGATIONS -- 0.0%
11,000 U.S. Treasury notes 2.25% 04/30/06 (Aaa) (5)........................... 10,979
------------
TOTAL SHORT-TERM SECURITIES............................................ 1,410,052
------------
TOTAL CONVERTIBLE BONDS AND NOTES -- 55.4%............................. 65,543,257
TOTAL CONVERTIBLE PREFERRED STOCKS -- 21.1%............................ 24,916,828
TOTAL MANDATORY CONVERTIBLE SECURITIES -- 15.3%........................ 18,042,655
TOTAL COMMON STOCKS -- 3.4%............................................ 4,016,445
TOTAL SHORT-TERM SECURITIES -- 1.2%.................................... 1,410,052
------------
TOTAL INVESTMENTS -- 96.4%............................................. 113,929,237
OTHER ASSETS AND LIABILITIES, NET -- 3.6%.............................. 4,277,689
------------
TOTAL NET ASSETS -- 100.0%............................................. $118,206,926
============
(1) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A or Reg D transaction). The
security may be resold only pursuant to an exemption from registration
under the 1933 Act, typically to qualified institutional buyers. The Fund
generally has no rights to demand registration of these securities. The
aggregate market value of these securities at March 31, 2006 was
$14,511,303 which represented 12.3% of the Fund's net assets.
(2) Contingent payment debt instrument which accrues contingent interest. See
Note 1(f).
(3) Non-income producing security.
(4) These 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.
(5) Collateral for a letter of credit.
Investment Abbreviations:
ACES Automatic Convertible Equity Securities.
ADR American Depositary Receipts.
BONUSES Bifurcated Option Note Unit Securities.
LYONs Liquid Yield Option Notes.
PIES Premium Income Exchangeable Securities.
PIERS Preferred Income Equity Redeemable Securities.
SAILS Shared Appreciation Income Linked Securities.
SPuRS Shared Preference Redeemable Securities.
ZYPS Zero Yield Puttable Securities.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's.
NR is used whenever a rating is unavailable.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
Page 9
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) --------------------------------
MARCH 31, 2006
----------------
ASSETS:
Investments at value (cost $107,539,781) (Note 1)............................. $113,929,234
Cash ......................................................................... 1,108,176
Receivable for securities sold ............................................... 2,698,856
Dividends and interest receivable ............................................ 519,545
Other assets ................................................................. 21,008
------------
Total assets ................................................................. 118,276,819
------------
LIABILITIES:
Accrued management fee (Note 2)............................................... 69,893
------------
NET ASSETS ...................................................................... $118,206,926
============
NET ASSETS CONSIST OF:
Undistributed net investment income........................................... $ 1,031,604
Accumulated net realized gain from investment transactions.................... 551,800
Unrealized appreciation on investments ....................................... 6,389,453
Capital shares (Note 3)....................................................... 124,291
Additional paid-in capital.................................................... 110,109,778
------------
NET ASSETS....................................................................... $118,206,926
============
Net asset value per share ($118,206,926 / 12,429,083 outstanding shares)......... $ 9.51
============
STATEMENT OF OPERATIONS --------------------------------------------------------
FOR THE SIX MONTHS ENDED MARCH 31, 2006 ----------------------------------------
INVESTMENT INCOME (NOTE 1):
Interest...................................................................... $ 1,585,501
Dividends..................................................................... 1,224,848
------------
Total Income................................................................ 2,810,349
------------
EXPENSES (NOTE 2):
Management fee................................................................ 410,826
Custodian..................................................................... 7,171
Transfer agent................................................................ 13,440
Professional fees............................................................. 113,130
Directors' fees............................................................... 66,375
Reports to shareholders....................................................... 52,074
Administrative services fees.................................................. 12,500
Other......................................................................... 63,848
------------
Total Expenses.............................................................. 739,364
------------
NET INVESTMENT INCOME............................................................ 2,070,985
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions................................ 3,545,033
Net unrealized depreciation of investments.................................... (658,706)
------------
Net gain on investments....................................................... 2,886,327
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 4,957,312
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
Page 10
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS ---------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2006(a) SEPTEMBER 30, 2005
----------------- ------------------
CHANGE IN NET ASSETS FROM OPERATIONS:
Net investment income................................... $ 2,070,985 $ 3,709,734
Net realized gain from investment transactions.......... 3,545,033 1,922,040
Net change in appreciation of investments............... (658,706) 5,219,341
------------ ------------
Net increase in net assets resulting from operations.. 4,957,312 10,851,115
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income................................... (2,075,357) (3,641,418)
------------ ------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)....................... 501,102 506,725
------------ ------------
CHANGE IN NET ASSETS...................................... 3,383,057 7,716,422
Net assets at beginning of period......................... 114,823,869 107,107,447
------------ ------------
NET ASSETS AT END OF PERIOD............................... $118,206,926 $114,823,869
============ ============
Undistributed net investment income at end of period.... $ 1,031,604 $ 747,780
============ ============
-------------
(a) Unaudited.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)---------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization - Ellsworth Fund Ltd. (successor to Ellsworth Convertible
Growth and Income Fund, Inc. (established in 1986)) (the "Fund"), is registered
under the Investment Company Act of 1940 as a diversified, closed-end
management investment company. On February 17, 2006, the Fund was reorganized
as a Delaware statutory trust from a Maryland corporation.
(b) Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
(c) 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 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.
(d) Federal Income Taxes - The Fund's policy is to distribute substantially all
of its taxable income within the prescribed time and to otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no provision for federal income or excise taxes is
believed necessary. At September 30, 2005, the Fund had a capital loss
carryforward of $3,010,788 available to the extent allowed by tax law to offset
future net capital gains, if any. To the extent that the carryforward is used,
no capital gains distributions will be made. The carryforward expires in 2011.
The Fund utilized net capital loss carryforwards of $1,904,485 during the
fiscal year ended September 30, 2005.
Page 11
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)---------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) Security Valuation - Investments in securities traded on a national
securities exchange are valued at market using the last reported sales
price as of the close of regular trading. 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 an
independent pricing service. 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 by management 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.
(f) Securities Transactions and Related Investment Income - Security
transactions are accounted for on the trade date (date the order to buy or sell
is executed) with gain or loss on the sale of securities being determined based
upon identified cost. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis, including
accretion of discounts and amortization of non-equity premium. For certain
securities, known as "contingent payment debt instruments," Federal tax
regulations require the Fund to record non-cash, "contingent" interest income
in addition to interest income actually received. Contingent interest income
amounted to 3 cents per share for the six months ended March 31,
2006. In addition, Federal tax regulations require the Fund to reclassify
realized gains on contingent payment debt instruments to interest income. At
March 31, 2006 there were unrealized gains of approximately $3,000 on
contingent payment debt instruments.
(g) Change in Method of Accounting - Effective October 1, 2004, the Fund began
amortizing discounts and premiums on all debt securities. Prior to
October 1, 2004, the Fund amortized discounts on original issue discount debt
securities. The new method of amortization was adopted in accordance with the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies and the financial highlights and statement of changes in net assets
presented herein have been restated to reflect the new method retroactive to
October 1, 2001. The effect of this accounting change is included in the
financial highlights for the years ended September 30, 2002, 2003 and 2004.
The cumulative effect of this accounting change had no impact on the total net
assets of the Fund or on distributions for tax purposes, but resulted in a
$79,579 increase in the cost of securities held and a corresponding $79,579
reduction in the net unrealized gains based on the securities held on
October 1, 2001. These changes had no effect on previously reported total net
assets or total returns.
(h) 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, 2005 and 2004
were $3,641,418 and $3,681,116, respectively, both from ordinary income.
(i) 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, certain of the
Fund's investments include features which render them more sensitive to price
changes of their underlying securities. Thus they expose the Fund to greater
downside risk than traditional convertible securities, but generally less than
that of the underlying common stock. The market value of those securities was
$18,042,655 at March 31, 2006, representing 15.3% of net assets.
Page 12
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)---------------------------------------
NOTE 2 - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with Davis-Dinsmore
Management Company ("Davis-Dinsmore"). Pursuant to the investment advisory
agreement, Davis-Dinsmore provides the Fund with investment advice, office
space and facilities. Under the terms of the investment advisory
agreement, the Fund pays Davis-Dinsmore 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 Davis-Dinsmore,
has agreed to pay Davis-Dinsmore for certain accounting and other
administrative services provided to the Fund. Under the administrative
services agreement, the Fund pays Davis-Dinsmore compensation in the amount of
$25,000 per year, payable on a monthly basis.
Certain officers and trustees of the Fund are officers and directors of Davis-
Dinsmore.
NOTE 3 - PORTFOLIO ACTIVITY
At March 31, 2006 there were 12,429,083 shares of beneficial interest
outstanding, with a par value of $0.01 per share. During the six months
ended March 31, 2006, 66,814 shares were issued in connection with
reinvestment of dividends from net investment income, resulting in an increase
in paid-in capital of $501,102.
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $40,351,765 and $41,333,910, respectively, for the six months ended
March 31, 2006.
A distribution of $0.07 per share from net investment income was declared on
April 10, 2006, payable May 30, 2006 to shareholders of record at the close of
business May 16, 2006.
--------------------------------------------------------------------------------
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase its own shares 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.
Page 13
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING:
SIX MONTHS
ENDED YEARS ENDED SEPTEMBER 30,
MARCH 31, ----------------------------------------------------
2006 (A) 2005 2004 2003 2002 2001
----------------------------------------------------------------
OPERATING PERFORMANCE:
Net asset value,
beginning of period.............. $9.29 $8.71 $8.58 $7.81 $8.67 $11.82
----------------------------------------------------------------
Net investment income.............. 0.16 0.29 0.30 (b) 0.32 (b) 0.34 (b) 0.47
Adjustment for change in
amortization policy.............. -- -- (0.02) (0.01) -- --
----------------------------------------------------------------
Net investment income,
as adjusted.................... 0.16 0.29 0.28 0.31 0.34 0.47
----------------------------------------------------------------
Net realized and unrealized
gain (loss)...................... 0.23 0.59 0.35 (b) 0.75 (b) (0.76)(b) (1.88)
Adjustment for change in
amortization policy.............. -- -- 0.02 0.01 -- --
----------------------------------------------------------------
Net realized and unrealized
gain (loss), as adjusted....... 0.23 0.59 0.37 0.76 (0.76) (1.88)
----------------------------------------------------------------
Total from investment
operations....................... 0.39 0.88 0.65 1.07 (0.42) (1.41)
----------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income........................... (0.17) (0.30) (0.32) (0.30) (0.44) (0.42)
Distributions from realized gains.. -- -- -- -- -- (1.32)
----------------------------------------------------------------
Total distributions.............. (0.17) (0.30) (0.32) (0.30) (0.44) (1.74)
----------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Effect of rights offering.......... -- -- (0.20) -- -- --
Capital share repurchases.......... -- -- -- -- -- --
----------------------------------------------------------------
Total capital share
transactions................... -- -- (0.20) -- -- --
----------------------------------------------------------------
Net asset value, end of period..... $9.51 $9.29 $8.71 $8.58 $7.81 $8.67
================================================================
Market value, end of period........ $8.14 $7.84 $7.95 $8.05 $7.55 $8.35
Total Net Asset Value Return (%)(c) 4.3 10.3 5.2 14.0 (5.2) (13.3)
Total Investment Return (%)(d)..... 6.1 2.5 2.8 10.8 (4.5) 2.2
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands)................... $118,207 $114,824 $107,107 $89,801 $81,125 $88,901
Ratio of expenses to average
net assets (%)................... 1.3 1.2 1.2 1.2 1.2 1.2
Ratio of net investment income to
average net assets (%)........... 3.6 3.4 3.2 (e) 3.8 (e) 4.0 (e) 5.0
Portfolio turnover rate (%)........ 37 82 70 86 89 82
-----------------
(a) Unaudited.
(b) As previously reported. See Note 1(g).
(c) Assumes valuation of the Fund's shares, and reinvestment of dividends, at
net asset values.
(d) Assumes valuation of the Fund's shares at market price and reinvestment of
dividends at actual reinvestment price.
(e) Ratios for 2004, 2003 and 2002 reflect ratios adjusted for change in
amortization policy. Ratios previously reported for 2004, 2003 and 2002
were 3.4%, 3.9% and 3.9%, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
Page 14
--------------------------------------------------------------------------------
Board Approval of Advisory Contract---------------------------------------------
In November 2005, the Board of Trustees of the Fund and separately the
independent trustees of the Fund (i) approved an advisory contract with Davis-
Dinsmore Management Company (the "Former Advisory Agreement"), which was
substantially similar to the advisory agreement for the Fund's predecessor,
Ellsworth Convertible Growth and Income Fund, Inc., in effect at that time, and
(ii) approved a new advisory contract with Davis-Dinsmore Management Company
(the "New Advisory Agreement" and, together with the Former Advisory Agreement,
the "Advisory Agreements"), subject to shareholder approval subsequently
obtained. In February 2006, the Fund's predecessor was reorganized as the
Fund. The following are the material factors and conclusions that formed the
basis for the approval of the Advisory Agreements.
The nature and extent of the advisory services provided by Davis-Dinsmore - The
Board and the independent trustees reviewed the services to be provided by
Davis-Dinsmore under both Advisory Agreements. The Board noted that the terms
of the Former Advisory Agreement and the New Advisory Agreement were consistent
in that Davis-Dinsmore 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 Agreements it is Davis-Dinsmore's responsibility 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 shall 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; and (e) take, on behalf of the Fund, such
other action as may be necessary or appropriate in connection with the above.
With respect to the New Advisory Agreement, the Board and the independent
trustees noted that no changes in the level or type of investment advisory
services provided under the Former Advisory Agreement with Davis-Dinsmore would
occur if the New Advisory Agreement was approved by shareholders. The Board
noted further that administration services provided under the Former Advisory
Agreement would not be provided under the New Advisory Agreement and that such
services would instead be provided under a new Administrative Services
Agreement.
Based on such review and comparison of the terms of the New Advisory Agreement
and the Former Advisory Agreement, both the Board and the independent trustees
concluded that the range of services to be provided by Davis-Dinsmore under the
Advisory Agreements was appropriate.
The quality of services provided by Davis-Dinsmore - In reviewing the
qualifications of Davis-Dinsmore to provide investment advisory services, both
the Board and the independent trustees reviewed the credentials and experience
of Davis-Dinsmore's investment personnel who will provide investment advisory
services to the Fund, and considered Davis-Dinsmore's (i) portfolio and product
review process, particularly its adherance to the Fund's investment mandate,
(ii) compliance function and its culture of compliance, (iii) use of
technology, (iv) investment research operations and trading operations, and (v)
focus on providing quality services while keeping the Fund's fees and expenses
low. The Board and the independent trustees also took into consideration the
presentations made by Davis-Dinsmore 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 to be provided by Davis-Dinsmore was appropriate and that
Davis-Dinsmore was qualified to continue to provide investment advisory
services to the Fund.
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 September 30, 2005
against the performance of other closed-end funds categorized to be in the
Fund's peer group by Lipper, Inc. Both the Board and the independent trustees
noted that
Page 15
--------------------------------------------------------------------------------
Board Approval of Advisory Contract (continued)---------------------------------
the Fund's performance for the one, three, and five year periods was below the
average performance of all closed-end funds in the peer group, but was above
the average performance of such funds for the ten year period. In evaluating
the Fund's performance against other funds in its peer group, the Board and the
independent trustees took into account the fact that many of the Fund's
competitors engage in leverage, which has increased their returns, but that the
Fund does not engage in leverage. In addition, the Board and the independent
trustees recognized that many of the Fund's competitors have a higher
percentage of their assets invested in securities with lower credit quality
than does the Fund, and that such securities have performed better than higher
quality securities in recent years. Because of the differences in how funds in
the Fund's peer group are managed, the Board and the independent trustees
concluded that they should consider the performance of the Fund against
appropriate indices as a more relevant factor in assessing the performance of
the Fund.
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, five and ten year fiscal years against the performance of
the Merrill Lynch All Convertibles Index and Merrill Lynch Investment Grade
Convertibles Index (the "Indices"). Both the Board and the independent
trustees noted that, for the one year period, the Fund's performance was above
the Indices' performance, and that, for the five year period, the Fund's
performance (both adjusted and not adjusted for the Fund's fiscal 2004 rights
offering) was also above the Indices' performance. The Board and the
independent trustees further noted that, for the ten year period, the Fund's
performance (both adjusted and not adjusted for the Fund's fiscal 2004 rights
offering) (i) was below the Merrill Lynch All Convertibles Index, and (ii) was
above the Merrill Lynch Investment Grade Convertibles Index. 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 approve the
Advisory Agreements, the Board and the independent trustees concluded that no
changes should be made to the Fund's investment objective or policies, or the
portfolio management team.
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 competent and able to carry out their responsibilities under
the Advisory Agreements.
Overall performance of Davis-Dinsmore - After considering the overall
performance of Davis-Dinsmore 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 Davis-Dinsmore 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 Davis-Dinsmore, 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 the
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 for the Fund against the advisory fee rates for
funds advised by other advisors in the Fund's peer group both the Board and the
independent trustees determined that the Fund's advisory fee rate was at
approximately the median of the funds in its peer group, and concluded that the
current advisory fee rate of the Fund was fair and reasonable.
Page 16
--------------------------------------------------------------------------------
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, Davis-Dinsmore is very diligent in its
efforts to keep expenses of the Fund as low as possible. Both the Board and
the independent trustees also noted that the Fund's expense ratio had declined
as a result of the Fund's rights offering during the 2004 fiscal year, but 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 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
Agreements, and noted that the fee includes a significant breakpoint when the
Fund's assets reach $100 million. Both the Board and the independent trustees
noted that breakpoints had become effective as a result of the Fund's rights
offering that occurred during the 2004 fiscal year, which resulted in lower
management fee expenses as a percentage of assets. Both the Board and the
independent trustees concluded that it was not necessary to implement any
further changes to the structure of the advisory fee for the Fund.
Profitability of Davis-Dinsmore - Both the Board and the independent trustees
reviewed information concerning the profitability and financial condition of
Davis-Dinsmore. In particular, the Board reviewed Davis-Dinsmore's financial
statements including its income statement and audited balance sheet. The Board
also reviewed Davis-Dinsmore's costs in providing services to the Funds. The
Board noted that Davis-Dinsmore's sole source of revenue was fees from the
Funds for providing advisory and administrative services to the Funds. The
Board noted that if the New Advisory Agreement is approved, the Fund will enter
into the Administrative Services Agreement with Davis-Dinsmore, which will
provide a source of revenue for Davis-Dinsmore. The Board and the independent
trustees noted that Davis-Dinsmore's operations remain profitable, but that
increased expenses in recent years have reduced Davis-Dinsmore's profitability.
The Board also noted that increasing the success of the Funds will positively
impact Davis-Dinsmore's profitability.
Based on the review of the profitability of Davis-Dinsmore and its financial
condition, both the Board and the independent trustees concluded that the
compensation to be paid by the Fund to Davis-Dinsmore under the Advisory
Agreements was not excessive.
Benefits of soft dollars to Davis-Dinsmore - 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 Davis-Dinsmore does receive proprietary
research from brokers with whom it executes portfolio transactions on behalf of
the Fund. This research is used by Davis-Dinsmore in making investment
decisions for the Fund. Both the Board and the independent trustees also
considered representations made by Davis-Dinsmore 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.
Davis-Dinsmore's financial soundness in light of the Fund's needs - Both the
Board and the independent trustees considered whether Davis-Dinsmore is
financially sound and has the resources necessary to perform its obligations
under the Advisory Agreements, and concluded that Davis-Dinsmore has the
financial resources necessary to fulfill its obligations under the Advisory
Agreements.
Historical relationship between the Fund and Davis-Dinsmore - In determining
whether to approve the Advisory Agreements for the Fund, both the Board and the
independent trustees also considered the prior relationship between Davis-
Dinsmore and the Fund, as well as the independent trustees' knowledge of Davis-
Dinsmore's operations, and concluded that it was beneficial to maintain the
current relationship, in part, because of such knowledge. Both the Board
Page 17
--------------------------------------------------------------------------------
Board Approval of Advisory Contract (continued)---------------------------------
and the independent trustees also reviewed the general nature of the non-
investment advisory services currently performed by Davis-Dinsmore, such as
administrative services, and the fees received by Davis-Dinsmore for performing
such services. The Board noted that if the New Advisory Agreement is approved,
the Fund will enter into the Administrative Services Agreement with Davis-
Dinsmore, and such administrative services would be provided pursuant to such
agreement. In addition to reviewing such services, both the Board and the
independent trustees also considered the organizational structure employed by
Davis-Dinsmore to provide those services. Based on the review of these and
other factors, both the Board and the independent trustees concluded that Davis-
Dinsmore was qualified to continue to provide non-investment advisory services
to the Fund, including administrative services, and that Davis-Dinsmore
currently is providing satisfactory non-investment advisory services.
Other factors and current trends - Both the Board and the independent trustees
considered the culture of compliance and high ethical standards at Davis-
Dinsmore, and the efforts historically and currently undertaken by Davis-
Dinsmore to engage in best practices. Both the Board and the independent
trustees noted Davis-Dinsmore'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 Advisory Agreements for the Fund.
Breakout of Administrative Services - With respect to the New Advisory
Agreement, the Board and the independent trustees considered the fact that the
administrative services being provided by Davis-Dinsmore under the Former
Advisory Agreement were not included in the New Advisory Agreement, and instead
are set forth in a new Administrative Services Agreement. When evaluating the
new Administrative Services Agreement, the Board and the independent trustees
considered (i) the additional administrative services provided by Davis-
Dinsmore in recent years due to increased regulation, (ii) the additional
expenses incurred by Davis-Dinsmore in providing such services, and (iii) that
the Fund has reimbursed Davis-Dinsmore $25,000 each year (which is the maximum
amount permitted to be reimbursed under the Former Advisory Agreement) since
1988 for expenses incurred by the Treasurer's Office in performing
administrative services. As a result, the Board and the independent trustees
concluded (i) that the new Administrative Services Agreement should be
structured so that Davis-Dinsmore is not required to seek reimbursement for its
costs in providing administrative services but rather be paid fixed
compensation in the amount of $25,000 for providing such services, and (ii)
that such arrangement was fair and reasonable. In concluding the new
Administrative Service Agreement was fair and reasonable, the Board and the
independent trustees considered, in addition to the factors set forth above,
the Fund's need for the provision of administrative services, the quality of
administrative services provided by Davis-Dinsmore in the past, the amounts to
be paid under the Administrative Services Agreement, and how the amounts paid
to Davis-Dinsmore under the Administrative Services Agreement impact Davis-
Dinsmore's profitability. The Board and the independent trustees also
considered the fact that in the future, the fees for administrative
services could be increased by the Board without shareholder approval. Both
the Board and the independent trustees concluded that this breakout of
administrative services was an important factor in their determination that
they should approve the New Advisory Agreement for the Fund.
--------------------------------------------------------------------------------
After considering the above factors, the Board concluded that it is in the best
interests of the Fund and its shareholders to approve the Advisory Agreements.
Page 18
--------------------------------------------------------------------------------
Miscellaneous Notes-------------------------------------------------------------
Results of the 2006 Annual Shareholders Meeting
The Annual Meeting of Shareholders of the Fund was held on January 13, 2006.
The results of the shareholder vote were:
1. All persons nominated were elected.
Terms expiring in 2009 Shares voted for Shares withheld
---------------------- ---------------- ---------------
Robert J. McMullan 7,517,404 1,130,847
Jane D. O'Keeffe 7,511,069 1,137,182
2. The proposal to approve a new Investment Advisory Agreement with Davis-
Dinsmore Management Company passed, as 6,190,195 shares voted for, 967,567
shares voted against, 311,084 shares abstained, and 1,179,405 shares were
broker non-votes.
3. The proposal to eliminate the Fund's fundamental investment restriction
related to investments in unseasoned issuers passed, as 5,947,552 shares voted
for, 1,108,525 shares voted against, 412,769 shares abstained, and 1,179,405
shares were broker non-votes.
4. The proposed Agreement of Merger which provides for the reorganization of
the Fund as a Delaware statutory trust was approved at an adjourned meeting
held on February 13, 2006, as 6,329,212 shares voted for, 1,203,767 shares
voted against, 513,858 shares abstained, and 1,002,831 shares were broker non-
votes.
5. The Audit Committee's appointment of Tait, Weller & Baker LLP as
independent accountants was ratified, as 7,792,979 shares voted for, 420,189
shares voted against and 435,083 shares abstained.
6. The proposal to amend the Articles of Incorporation that would give
shareholders the right to tender their shares during the current fiscal year
did not pass, as 2,038,349 shares voted for, 4,991,596 shares voted against,
438,901 shares abstained, and 1,179,405 shares were broker non-votes.
--------------------------------------------------------------------------------
Change in Investment Policies
The Fund currently has a non-fundamental investment objective of investing
primarily in convertible securities with the objectives of providing income and
the potential for capital appreciation (which objectives the Fund considers to
be relatively equal due to the nature of the securities in which it invests).
Also, the Fund currently has a fundamental investment policy providing that
under normal market conditions it will invest 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 federal income tax purposes.
The Fund has eliminated the following two non-fundamental policies:
(1) The Fund expects that a substantial majority of its assets will consist of
convertible securities; and
(2) The Fund will invest, under normal circumstances, at least 80% of the value
of its assets (consisting of net assets plus the amount of any borrowings for
investment purposes) in convertible securities.
These changes became effective as of January 31, 2006. Fund shareholders were
provided 60 days notice of these changes in November 2005.
Page 19
--------------------------------------------------------------------------------
Miscellaneous Notes (continued)-------------------------------------------------
Notice of Privacy Policy
The Fund has adopted a privacy policy in order to protect the confidentiality
of nonpublic personal information that we have about you. We receive personal
information, such as your name, address and account balances, when transactions
occur in Fund shares registered in your name.
We may disclose this information to companies that perform services for the
Fund, such as the Fund's transfer agent or proxy solicitors. These companies
may only use this information in connection with the services they provide to
the Fund, and not for any other purpose. We will not otherwise disclose any
nonpublic personal information about our shareholders or former shareholders to
anyone else, except as required by law.
Access to nonpublic information about you is restricted to our employees and
service providers who need that information in order to provide services to
you. We maintain physical, electronic and procedural safeguards that comply
with federal standards to guard your nonpublic personal information.
--------------------------------------------------------------------------------
For More Information About Portfolio Holdings
In addition to the semi-annual and annual reports that Ellsworth delivers to
shareholders and makes available through the 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 schedule is
posted to 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 (973) 631-1177, or at our website at www.ellsworthfund.com.
This information is also available on the SEC's website at www.sec.gov. In
addition, information on how the Fund voted such proxies relating to portfolio
securities during the most recent twelve-month period ended June 30, is
available without charge at the above sources.
--------------------------------------------------------------------------------
The Fund is a member of the Closed-End Fund Association (www.cefa.com). The
association is solely responsible for the content of its website.
--------------------------------------------------------------------------------
Disclosure of Portfolio Holdings to Broker-Dealers
From time to time, brokers with whom the Fund's Adviser, Davis-Dinsmore
Management Company, has a pre-existing relationship may request that Davis-
Dinsmore disclose Fund portfolio holdings to such broker in advance of the
public disclosure of such portfolio holdings. Davis-Dinsmore may make such
disclosure under the following conditions: (i) the specific purpose of the
disclosure is to assist Davis-Dinsmore in identifying potential investment
opportunities for the Fund; (ii) prior to the receipt of nonpublic portfolio
holdings, the broker, by means of e-mail or other written communication, shall
agree to keep the nonpublic portfolio holdings confidential and not to use the
information for the broker's own benefit, except in connection with the
above described purpose for which it was disclosed; (iii) Davis-
Dinsmore shall keep written records of its agreement with each broker to which
it distributes nonpublic portfolio holdings; and (iv) Davis-Dinsmore will
secure a new agreement with a broker any time the broker directs the nonpublic
portfolio holdings to be sent to a new recipient.
Page 20
BOARD OF TRUSTEES INTERNET
GORDON F. AHALT www.ellsworthfund.com
ELIZABETH C. BOGAN Ph.D. email: info@ellsworthfund.com
THOMAS H. DINSMORE, C.F.A.
DONALD M. HALSTED, JR. INVESTMENT ADVISER
DUNCAN O. MCKEE Davis-Dinsmore Management Company
ROBERT J. MCMULLAN 65 Madison Avenue, Suite 550
JANE D. O'KEEFFE Morristown, NJ 07960
NICOLAS W. PLATT (973) 631-1177
SHAREHOLDER SERVICES AND TRANSFER AGENT
American Stock Transfer & Trust Company
OFFICERS 59 Maiden Lane
THOMAS H. DINSMORE, C.F.A. New York, NY 10038
Chairman of the Board (800) 937-5449
and Chief Executive Officer www.amstock.com
JANE D. O'KEEFFE BENEFICIAL SHARE LISTING
President American Stock Exchange Symbol: ECF
GARY I. LEVINE LEGAL COUNSEL
Executive Vice President, Chief Financial Officer Ballard Spahr Andrews & Ingersoll LLP
and Secretary
INDEPENDENT ACCOUNTANTS
H. TUCKER LAKE, JR. Tait, Weller & Baker LLP
Vice President
GERMAINE M. ORTIZ
Vice President
MERCEDES A. PIERRE
Vice President and Chief Compliance Officer
JOSHUA P. LAKE, C.T.P.
Treasurer and Assistant Secretary
JESSICA K. LAKE
Assistant Vice President
JOANN VENEZIA
Assistant Vice President and Assistant Secretary
ELLSWORTH FUND LTD.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.ellsworthfund.com
[LOGO]
AMERICAN
STOCK EXCHANGE
--------------
LISTED
--------------
ECF(TM)
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers is included as
part of the report to shareholders, filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not currently applicable to registrant.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
During the period covered by this report, there were no purchases made by or
on behalf of Ellsworth Fund Ltd. or any "affiliated purchaser," as defined in
Rule 10b-18(a)(3) under the Exchange Act(17 CFR 240.10b-18(a)(3)), of shares
or other units of any class of the registrant's equity securities that is
registered by the registrant pursuant to Section 12 of the Exchange Act
(15 U.S.C. 781).
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no changes to the procedures by which shareholders may recommend
nominees to the registrant's board of trustees, after the registrant last
provided disclosure in response to the requirements of this item.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of May 17, 2006 an evaluation was performed under the supervision
and with the participation of the officers of Ellsworth Fund Ltd. (the
"Registrant"), including the Principal Executive Officer ("PEO") and Principal
Financial Officer ("PFO"), to assess the effectiveness of the Registrant's
disclosure controls and procedures, as that term is defined in Rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act"), as amended. Based on that
evaluation, the Registrant's officers, including the PEO and PFO, concluded
that, as of May 17, 2006, the Registrant's disclosure controls and
procedures were reasonably designed so as to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR is recorded, processed,
summarized and reported within the time periods specified by the rules and forms
of the Securities and Exchange Commission; and (2) that material information
relating to the Registrant is made known to the PEO and PFO as appropriate to
allow timely decisions regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940, are attached hereto.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940, are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Ellsworth Fund Ltd.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: May 31, 2006
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: May 31, 2006
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: May 31, 2006