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, 2007
ITEM 1. REPORTS TO STOCKHOLDERS.
ELLSWORTH FUND LTD.
[ELLSWORTH LOGO APPEARS HERE]
2007 Semi-Annual Report
March 31, 2007
2007 Semi-Annual Report
March 31, 2007
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, 2007 with dividends reinvested
Calendar Annualized 10 Year
YTD 1 Year 5 Years 10 Years Volatility
------ ------ ------- -------- ----------
Ellsworth market price ................... 2.50% 13.52% 5.86% 8.98% 15.03%
Ellsworth net asset value ................ 2.19 9.14 6.49 7.57 13.13
Merrill Lynch All Convertibles Index ..... 2.50 9.82 8.48 8.77 19.04
S&P 500 Index ............................ 0.64 11.83 6.25 8.20 22.44
Lehman Aggregate Bond Total Return Index . 1.50 6.59 5.35 6.46 4.27
The above data is from Bloomberg L.P. pricing service, with the exception of the
Lehman Aggregate Bond Total Return Index which is from Lipper, Inc. Closed-End
Fund Performance Analysis, dated March 31, 2007.
Ellsworth's performance in the table above has not been adjusted for the fiscal
2004 rights offering; net asset value dilution was 2.21%. 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. Performance
data represent past results and do not reflect future performance.
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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. 06 $9.64 $9.06 $9.29 $8.17 $7.76 $7.95
Sep. 06 9.63 9.13 9.60 8.21 7.62 8.20
Dec. 06 9.72 9.29 9.60 8.46 8.06 8.45
Mar. 07 9.89 9.53 9.73 8.68 8.39 8.58
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Dividend Distributions (12 Months)
Record Payment Capital
Date Date Income Gains Total
------- ------- ---------- ---------- ----------
5/16/06 5/30/06 $ 0.070 -- $ 0.070
8/16/06 8/30/06 0.070 -- 0.070
10/27/06 11/22/06 0.130 $ 0.265 0.395
2/13/07 2/27/07 0.080 -- 0.080
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$ 0.350 $ 0.265 $ 0.615
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To Our Shareholders
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May 14, 2007
The U.S. domestic convertible securities market has been expanding in 2007.
Citigroup has measured this market at $321 billion on April 30, 2007, up from
$297 billion in December 2006 (this does not include the structured securities
discussed in last quarter's letter to shareholders). The overall convertible
market continues to provide attractive investment opportunities. While the
average yield has dropped from 3.2% in December 2006 to 3.1% in April 2007, the
average premium-to-conversion value has fallen from 27.5% to 25% during that
period. The reduced yield and premium appear to have come about from higher
underlying stock prices.
An important measure of the convertible market is known as "delta." This is an
indicator of how "equity sensitive" convertibles are. For example, a delta of
50 would imply that if the common stock underlying the convertible security
were to move 10%, the convertible would move by half of that or 5%. During the
late 1990's delta ranged from 57.1 to 75.9, indicating that most convertibles
moved substantially in-line with their underlying common stocks. In 2002, the
weighted average delta of the Citigroup Convertible Index fell to 36.1
indicating that many convertibles were not moving substantially with their
underlying common stocks. Historically convertibles have been used as equity
alternatives more than they have been used as fixed income alternatives; at
36.1 the Citigroup Convertible Index was far more interest rate sensitive than
equity sensitive. This can have an impact on performance. Since 2002, delta
has moved back up to 65, a more traditional level that is consistent with the
theme of using convertibles as an equity alternative.
During this fiscal year, the performance of the Fund has been enhanced by its
exposure to the chemical, insurance and telecommunications industries. Among
the better performing issues in the portfolio were LSB Industries, Inc.
(multi-industry), Celanese Corp. (chemical industry) and Equinix, Inc.
(telecommunications). Performance was held back by exposure to the
semiconductor, finance and computer software industries.
For the quarter, one-year and ten-year periods ended March 31, 2007,
Ellsworth's market return outperformed the Merrill Lynch All Convertibles Index
while underperforming for the five-year period. The Fund's net asset value (NAV)
underperformed for those quarter, one-year, five-year and ten-year periods.
However, when adjusted for fund expenses (the index includes no expenses) and
the fiscal 2004 rights offering, the Fund's NAV outperformed over the one-year
and ten-year periods, underperformed for the five-year period, and performed
in-line for the quarter. For that ten-year period, the Fund's volatility as
measured by the standard deviation was lower than that of the Merrill Lynch All
Convertibles Index. Many market professionals consider the volatility of past
returns to be a useful approximation of the past levels of risk. This measure of
historic results may not reflect future performance but we believe that it is
informative.
continued on the following page
Page 1
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To Our Shareholders (continued)
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The results of the 2007 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 $0.08 per
share. The dividend consists of undistributed net investment income and will be
payable on May 30, 2007 to shareholders of record on May 16, 2007.
/s/ Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board
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Major Portfolio Changes by underlying common stock
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Six months ended March 31, 2007
ADDITIONS REDUCTIONS
Agere Systems Inc. American Medical Systems Holdings, Inc.
Archer-Daniels-Midland Co. AT&T Inc.
(exchangeable from Merrill Lynch & Co., Inc.)
Bristol-Myers Squibb Co. Cephalon, Inc.
Covanta Holding Corp. Chesapeake Energy Corp.
Cypress Semicondcutor Corp. EchoStar Communication Corp.
EMC Corp. International Rectifier Corp.
Fairchild Semiconductor Corp. Schering-Plough Corp.
Mylan Laboratories Inc. SEMCO Energy, Inc.
NVIDIA Corp. The St. Paul Travelers Companies Inc.
(exchangeable from IXIS Financial Products Inc.)
Prudential Financial, Inc. Sybase, Inc.
The Stanley Works Tekelec, Inc.
Vornado Realty Trust Texas Industries Inc.
(exchangeable from TXI Capital Trust I)
Wyeth Vishay Intertechnology, Inc.
Page 2
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Largest Investment Holdings by underlying common stock
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Value % Total
(Note 1) Net Assets
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The Walt Disney Company . . . . . . . . . . . . . . . . . $ 3,641,250 3.0%
Disney is an entertainment company with
operations that include media networks,
studio entertainment, theme parks and
resorts, consumer products and Internet
and direct marketing.
Celanese Corp. . . . . . . . . . . . . . . . . . . .. . .. 3,292,000 2.7
Celanese is a global industrial chemicals
company that processes raw materials and
natural products into chemicals and
chemical-based products.
Nuveen Investments, Inc. . . . . . . . . . . . . . .. . .. 3,126,522 2.5
Nuveen's principal activities are asset
management and related research, and the
development, marketing and distribution
of investment products and services. The
company provides its services through
financial advisors who serve the affluent
and high net worth market segments.
(exchangeable from Merrill Lynch & Co., Inc.
and Morgan Stanley, Inc.)
Prudential Financial, Inc. . . . . . . . . . . . . .. . .. 3,006,300 2.4
Prudential provides financial services
throughout the United States and several
locations worldwide. The company offers a
variety of products and services including
life insurance, mutual funds, annuities,
asset management and real estate brokerage.
Equinix, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,838,200 2.3
Equinix provides core Internet exchange
services to networks, Internet infrastructure
companies, enterprises and content providers.
(convertible from Equinix, Inc. and exchangeable
from Credit Suisse First Boston (USA), Inc.)
MetLife, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,560,000 2.1
MetLife provides insurance and financial
services to a range of individual and
institutional customers.
Bristol-Myers Squibb Co. . . . . . . . . . . . . . .. . .. 2,531,250 2.1
Bristol-Myers is a diversified worldwide
health and personal care company that
manufacture medicines and other products.
The company's products include therapies
for various diseases and disorders, consumer
medicines, wound management, infant formulas,
and nutritional supplements.
U.S. Bancorp. . . . . . . . . . . . . . . . . . . . . . . 2,516,900 2.0
U.S. Bancorp is a diversified financial
services company that provides lending and
depository services, cash management,
foreign exchange, trust and investment
management services.
Teva Pharmaceutical Industries Ltd. . . . . . . . . . . . 2,461,250 2.0
Teva develops, manufactures and markets
generic and branded human pharmaceuticals
and active pharmaceutical ingredients.
(exchangeable from Ivax Corp. and Teva
Pharmaceutical Finance Co. B.V.)
Alleghany Corp. . . . . . . . . . . . . . . . . . . . . . 2,460,500 2.0
Alleghany provides property and casualty ----------- -----------
reinsurance and insurance and financial
services. The company also operates an
industrial minerals business, and a steel
and fastener importing and distribution business.
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $28,434,172 23.1%
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Page 3
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Major Industry Exposure
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Aerospace and Defense 5.1%
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Banking/Savings and Loan 6.9%
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Chemicals 4.1%
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Computer Hardware 5.6%
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Energy 7.8%
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Insurance 10.8%
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Multi-Industry 5.6%
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Pharmaceuticals 12.2%
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Semiconductors 10.7%
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Telecommunications 4.8%
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Diversification of Assets
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% Total Net Assets
----------------------------
Six Months Year
Ended Ended
Value March 31, September 30,
(Note 1) 2007 2006
------------ ---------- -------------
Aerospace and Defense . . . . . . . . $ 6,253,960 5.1% 5.4%
Agriculture . . . . . . . . . . . . . 2,012,300 1.6 --
Banking/Savings and Loan . . . . . .. 8,472,658 6.9 5.6
Chemicals . . . . . . . . . . . . . . 4,987,200 4.0 3.2
Computer Hardware . . . . . . . . . . 6,880,000 5.6 3.6
Computer Software . . . . . . . . . . 2,594,500 2.1 3.2
Consumer Goods . . . . . . . . . . .. 3,203,566 2.6 1.5
Energy . . . . . . . . . . . . . . .. 9,658,813 7.8 9.3
Entertainment . . . . . . . . . . . . 3,641,250 3.0 5.2
Finance . . . . . . . . . . . . . . . 3,126,522 2.5 3.7
Financial Services . . . . . . . . .. 3,991,700 3.2 2.8
Foods . . . . . . . . . . . . . . . . 1,096,800 0.9 1.8
Health Care . . . . . . . . . . . . . 3,813,750 3.1 3.9
Insurance . . . . . . . . . . . . . . 13,286,500 10.8 10.0
Mining . . . . . . . . . . . . . . .. 1,333,500 1.1 --
Multi-Industry . . . . . . . . . . .. 6,847,192 5.6 6.1
Pharmaceuticals . . . . . . . . . . . 14,988,326 12.1 10.5
Real Estate . . . . . . . . . . . . . 2,935,250 2.4 0.6
Retail . . . . . . . . . . . . . . .. 997,500 0.8 1.1
Semiconductors . . . . . . . . . . .. 13,176,049 10.7 8.8
Telecommunications . . . . . . . . .. 5,892,263 4.8 4.7
Utilities . . . . . . . . . . . . . . 1,353,750 1.1 1.5
Other . . . . . . . . . . . . . . . . -- -- 5.4
------------ ---------- -------------
Total Investments . . . . . . . . . 120,543,349 97.8 97.9
Other Assets, Net of Liabilities . .. 2,644,114 2.2 2.1
------------ ---------- -------------
Total Net Assets . . . . . . . . .. $123,187,463 100.0% 100.0%
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Page 4
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Portfolio of Investments March 31, 2007 (unaudited)
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Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES -- 62.0%
Aerospace and Defense -- 4.5%
$1,500,000 AAR Corp. 1.75%, due 2026 cv. sr. notes (BB)........................$ 1,698,750
1,000,000 Alliant Techsystems Inc. 2.75%, due 2011 cv. sr. sub. notes (B1).... 1,086,250
1,000,000 Ceradyne, Inc. 2.875%, due 2035 sr. sub. cv. notes (NR) (1)......... 1,160,000
1,500,000 DRS Technologies, Inc. 2%, due 2026 cv. sr. notes (B1)
(Acquired 01/30/06; Cost $1,596,304) (1,2).......................... 1,586,250
------------
5,531,250
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Agriculture -- 1.6%
2,000,000 Merrill Lynch & Co., Inc. 1.5%, due 2012 cv.
securities (Aa3) (exchangeable into Archer-
Daniels-Midland Co. common stock)
(Acquired 02/23/07; Cost $2,000,000) (2)........................... 2,012,300
------------
Banking/Savings and Loan -- 2.9%
1,000,000 PrivateBancorp, Inc. 3.625%, due 2027 cv. sr. notes (NR)
(Acquired 03/09/07; Cost $1,000,000) (2)........................... 1,026,250
1,500,000 U.S. Bancorp floating rate, due 2035 cv. sr. deb. (Aa2)............ 1,522,500
1,000,000 U.S. Bancorp floating rate, due 2037 cv. sr. deb. (Aa2)
(Acquired 02/01/07; Cost $988,750) (2)............................. 994,400
------------
3,543,150
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Computer Hardware -- 5.6%
1,000,000 C&D Technologies, Inc. 5.25%, due 2025 cv. sr. notes (NR).......... 946,250
2,000,000 Credit Suisse, New York Branch 13.62%, due 2007
equity-linked notes (Aa3)
(exchangeable for Corning Inc. common stock)....................... 2,130,000
1,000,000 EMC Corp. 1.75%, due 2011 cv. sr. notes (BBB+)..................... 1,078,750
1,000,000 EMC Corp. 1.75%, due 2013 cv. sr. notes (BBB+)..................... 1,078,750
500,000 Komag, Inc. 2.125%, due 2014 cv. sr. sub. notes (NR)
(Acquired 03/23/07; Cost $500,000) (2)............................. 516,875
1,000,000 Richardson Electronics, Ltd. 8%, due 2011 cv. sr. sub. notes (NR).. 1,129,375
------------
6,880,000
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Computer Software -- 2.1%
1,500,000 Lehman Brothers Holdings Inc. 1%, due 2009 medium-term notes (A1)
(performance linked to Microsoft Corp. common stock) (1)........... 1,519,500
1,000,000 Symantec Corp. 1%, due 2013 cv. sr. notes (NR)..................... 1,075,000
------------
2,594,500
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Consumer Goods -- 1.4%
1,000,000 Church & Dwight Co., Inc. 5.25%, due 2033 cv. sr. deb. (Ba1)....... 1,682,500
------------
Energy -- 5.6%
1,000,000 Cameron International Corp. 2.50%, due 2026 cv. sr. notes (Baa1)... 1,156,250
1,500,000 Covanta Holding Corp. 1%, due 2027 sr. cv. deb. (B1) (1)........... 1,481,250
1,500,000 Nabors Industries, Inc. 0.94%, due 2011 sr. exchangeable notes (A-)
(exchangeable for Nabors Industries Ltd. common stock)............. 1,430,625
1,225,000 Oil States International, Inc. 2.375%, due 2025
contingent cv. sr. notes (NR)...................................... 1,522,063
1,250,000 Rentech, Inc. 4%, due 2013 cv. sr. notes (NR)...................... 1,294,525
------------
6,884,713
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Entertainment -- 3.0%
3,000,000 The Walt Disney Company 2.125%, due 2023 cv. sr. notes (A3)........ 3,641,250
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Financial Services -- 1.6%
2,000,000 Euronet Worldwide, Inc. 3.50%, due 2025 cv. deb. (B+) (1).......... 2,027,500
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Page 5
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Portfolio of Investments March 31, 2007 (continued)
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Principal Value
Amount (Note 1)
---------- ------------
CONVERTIBLE BONDS AND NOTES -- continued
Health Care -- 3.1%
$1,000,000 China Medical Technologies, Inc. 3.5%, due 2011
cv. sr. sub. notes (NR)............................................ $ 1,020,000
1,500,000 Manor Care, Inc. 2.125%, due 2035 cv. sr. notes (Baa3)............. 1,912,500
1,000,000 Omnicare, Inc. 3.25%, due 2035 cv. sr. deb. (B2) (1) .............. 881,250
------------
3,813,750
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Insurance -- 2.4%
3,000,000 Prudential Financial, Inc. floating rate,
due 2036 cv. sr. notes (A3) (Acquired 12/08/06 - 01/25/07;
Cost $2,980,292) (2)............................................... 3,006,300
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Multi-Industry -- 3.7%
2,000,000 Citigroup Funding, Inc. 1%, due 2010 medium-term notes (Aa1)
(exchangeable for the cash value of a basket of
technology stocks)(1)............................................. 1,903,600
1,000,000 Diversa Corp. 5.5%, due 2027 cv. sr. notes (NR)
(Acquired 03/23/07; Cost $1,000,000) (2) .......................... 1,150,000
1,125,000 FTI Consulting, Inc. 3.75%, due 2012 cv. sr. sub. notes (B1) ...... 1,461,092
------------
4,514,692
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Pharmaceuticals -- 9.9%
1,250,000 Amgen Inc. 0.125%, due 2011 cv. sr. notes (A2) .................... 1,144,188
500,000 Amgen Inc. 0.375%, due 2013 cv. sr. notes (A2) .................... 449,900
2,500,000 Bristol-Myers Squibb Co. floating rate, due 2023 cv. sr. deb. (A2) 2,531,250
1,000,000 Ivax Corp. 4.5%, due 2008 cv. sr. sub. notes (NR)
(exchangeable for Teva Pharmaceutical Industries Ltd. ADR and cash) 1,012,500
500,000 MedImmune, Inc. 1.375%, due 2011 cv. sr. notes (BBB)............... 616,250
500,000 MedImmune, Inc. 1.625%, due 2013 cv. sr. notes (BBB)............... 628,125
1,625,000 Mylan Laboratories Inc. 1.25%, due 2012 sr. cv. notes (BBB-)....... 1,746,875
2,000,000 Teva Pharmaceutical Finance Co. B.V. 1.75%, due 2026
cv. sr. deb. (Baa2)
(exchangeable for Teva Pharmaceutical Industries Ltd. ADR)......... 1,955,000
2,000,000 Wyeth floating rate, due 2024 cv. sr. deb. (A3).................... 2,142,400
------------
12,226,488
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Real Estate -- 2.4%
500,000 ProLogis 2.25%, due 2037 cv. sr. notes (BBB+)
(Acquired 03/20/07; Cost $491,250) (2)............................. 493,375
1,000,000 United Dominion Realty Trust, Inc. 3.625%,
due 2011 cv. sr. notes (NR)........................................ 1,000,000
1,500,000 Vornado Realty Trust 2.85%, due 2027 cv. sr. deb. (BBB) ........... 1,441,875
------------
2,935,250
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Retail -- 0.8%
1,000,000 Amazon.com, Inc. 4.75%, due 2009 cv. sub. notes (Ba3) ............. 997,500
------------
Semiconductors -- 7.7%
2,000,000 Agere Systems Inc. 6.5%, due 2009 cv. sub. notes (B1) ............. 2,057,500
1,000,000 Conexant Systems, Inc. 4%, due 2026 cv. sub. notes (NR) ........... 876,250
1,250,000 Cypress Semiconductor Corp. 1%, due 2009
cv. sr. unsecured notes (B-) (Acquired 03/07/07 - 03/08/07;
Cost $1,267,188) (2) .............................................. 1,267,188
2,000,000 Fairchild Semiconductor Corp. 5%, due 2008 cv. sr. sub. notes (B)
(exchangeable into Fairchild Semiconductor International, Inc.
common stock)..................................................... 1,987,500
2,000,000 Intel Corp. 2.95%, due 2035 jr. sub. cv. deb. (A-) (1)............. 1,740,000
1,500,000 LSI Logic Corp. 4%, due 2010 cv. sub. notes (B).................... 1,614,375
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9,542,813
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Page 6
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Portfolio of Investments March 31, 2007 (continued)
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Principal Value
Amount (Note 1)
---------- ------------
CONVERTIBLE BONDS AND NOTES -- continued
Telecommunications -- 2.6%
$ 750,000 Anixter International, Inc. 1%, due 2013 sr. cv. notes (BB-)
(Acquired 02/12/07 - 03/19/07; Cost $828,750) (2).................. $ 884,063
1,000,000 Equinix, Inc. 2.5%, due 2012 cv. sub. notes (NR) .................. 1,014,200
1,000,000 Time Warner Telecom Inc. 2.375%, due 2026 cv. sr. deb. (Caa1)...... 1,312,500
------------
3,210,763
------------
Utilities -- 1.1%
1,000,000 CMS Energy Corp. 2.875%, due 2024 cv. sr. notes (Ba3).............. 1,353,750
------------
TOTAL CONVERTIBLE BONDS AND NOTES.................................. $ 76,398,469
------------
CONVERTIBLE PREFERRED STOCKS -- 10.9%
Shares
----------
Aerospace and Defense -- 0.4%
40,000 Ionatron, Inc. 6.5% Series A redeemable cv. pfd. (NR)
(Acquired 10/27/05; Cost $1,000,000) (2)........................... 520,000
------------
Banking/Savings and Loan -- 3.1%
41,678 New York Community Bancorp, Inc. 6% BONUSES units (Baa1)........... 2,052,642
20,000 Sovereign Capital Trust IV 4.375% PIERS (Baa2)
(exchangeable for Sovereign Bancorp, Inc. common stock) (1)........ 995,000
15,000 Washington Mutual Capital Trust 5.375% PIERS units (BBB)
(exchangeable for Washington Mutual, Inc. common stock)............ 815,850
------------
3,863,492
------------
Chemicals -- 2.7%
80,000 Celanese Corp. 4.25% cv. perpetual pfd. (NR)....................... 3,292,000
------------
Energy -- 0.8%
10,000 Chesapeake Energy Corp. 4.5% cum. cv. pfd. (B+).................... 997,500
------------
Insurance -- 3.2%
75,000 Citigroup Funding Inc. variable rate exch. notes (Aa1)
(exchangeable for Genworth Financial, Inc. common stock)........... 2,445,750
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2).............. 1,450,000
------------
3,895,750
------------
Telecommunications -- 0.7%
100 Medis Technologies Ltd 7.25% Series A cum. cv. perpetual pfd. (NR)
(Acquired 11/10/06; Cost $1,000,000) (2)........................... 857,500
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TOTAL CONVERTIBLE PREFERRED STOCKS................................. $ 13,426,242
------------
MANDATORY CONVERTIBLE SECURITIES -- 20.7% (3)
Chemicals -- 1.4%
40,000 Huntsman Corp. 5% mandatory cv. pfd., due 02/16/08 (NR)............ 1,695,200
------------
Consumer Goods -- 1.2%
1,500 The Stanley Works floating rate equity units, due 05/17/12 (A2).... 1,521,066
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Page 7
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Portfolio of Investments March 31, 2007 (continued)
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Value
Shares (Note 1)
---------- ------------
MANDATORY CONVERTIBLE SECURITIES -- continued (3)
Energy -- 1.4%
30,000 Bristow Group Inc. 5.5% mandatory cv. pfd., due 09/15/09 (B)....... $ 1,514,100
1,000 Chesapeake Energy Corp. 6.25% mandatory cv. pfd., due 06/15/09 (B+) 262,500
------------
1,776,600
------------
Finance -- 2.5%
30,000 Merrill Lynch & Co., Inc. 6.75% mandatorily exchangeable securities,
due 10/15/07 (Aa3)(exchangeable for Nuveen Investments, Inc.
common stock)...................................................... 1,231,875
45,500 Morgan Stanley, Inc. 5.875% mandatorily exchangeable securities,
due 10/15/08 (Aa3)(exchangeable for Nuveen Investments, Inc.
common stock)...................................................... 1,894,647
------------
3,126,522
------------
Financial Services -- 1.6%
70,000 E*TRADE Financial Corp. 6.125% equity units, due 11/18/08 (Ba3).... 1,964,200
------------
Foods -- 0.9%
40,000 Lehman Brothers Holdings Inc. 6.25% PIES, due 10/15/07 (A1)
(exchangeable for General Mills, Inc. common stock)................ 1,096,800
------------
Insurance -- 5.2%
7,000 Alleghany Corp. 5.75% mandatory cv. pfd., due 06/15/09 (BBB-)...... 2,460,500
80,000 MetLife, Inc. 6.375% common equity units, due 08/15/08 (BBB+)...... 2,560,000
52,500 XL Capital, Ltd. 7% equity security units, due 02/15/09 (A3)....... 1,363,950
------------
6,384,450
------------
Mining -- 1.1%
12,500 Freeport-McMoRan Copper & Gold Inc. 6.75% mandatory cv. pfd.,
due 05/01/10 (B)................................................... 1,333,500
------------
Pharmaceuticals -- 1.0%
20,000 Schering-Plough Corp. 6% mand. cv. pfd., due 09/14/07 (Baa3)....... 1,177,000
------------
Semiconductors -- 2.9%
98,850 The Goldman Sachs Group, Inc. 14.75% mandatory exchangeable notes,
due 06/22/07 (NR)(exchangeable for Advanced Micro Devices, Inc.
common stock) (Acquired 06/14/06; Cost $2,500,411) (2)............. 1,368,677
76,080 IXIS Financial Products Inc. 8.9% mandatory trigger exchangeable
notes, due 08/28/07(NR)(exchangeable for NVIDIA Corp. common stock)
(Acquired 02/23/07; Cost $2,499,989) (2)........................... 2,264,559
------------
3,633,236
------------
Telecommunications -- 1.5%
24,000 Credit Suisse First Boston (USA), Inc. 5.5% SAILS,
due 11/15/08 (Aa3) (exchangeable for Equinix, Inc. common stock)... 1,824,000
------------
TOTAL MANDATORY CONVERTIBLE SECURITIES (3)......................... $ 25,532,574
------------
Page 8
--------------------------------------------------------------------------------
Portfolio of Investments March 31, 2007 (continued)
--------------------------------------------------------------------------------
Principal Value
Amount (Note 1)
---------- ------------
COMMON STOCKS -- 4.2%
Aerospace and Defense -- 0.2%
43,500 Ionatron, Inc. common stock with warrants attached
(Acquired 08/08/06; Cost $250,125) (2,4)........................... $ 202,710
------------
Banking/Savings and Loan -- 0.9%
6,546 National Australia Bank Ltd. ADR................................... 1,066,016
------------
Multi-Industry -- 1.9%
150,000 LSB Industries, Inc. (4)........................................... 2,332,500
------------
Pharmaceuticals -- 1.3%
26,300 Johnson & Johnson.................................................. 1,584,838
------------
TOTAL COMMON STOCKS................................................ $ 5,186,064
------------
Total Convertible Bonds and Notes -- 62.0%......................... 76,398,469
Total Convertible Preferred Stocks -- 10.9%........................ 13,426,242
Total Mandatory Convertible Securities -- 20.7%.................... 25,532,574
Total Common Stocks -- 4.2%........................................ 5,186,064
------------
Total Investments -- 97.8%......................................... 120,543,349
Other assets and liabilities, net -- 2.2%.......................... 2,644,114
------------
Total Net Assets -- 100.0%......................................... $123,187,463
============
(1) Contingent payment debt instrument which accrues contingent interest.
See Note 1(f).
(2) Security not registered under the Securities Act of 1933, as amended
(i.e., the security was purchased in a Rule 144A or a 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, 2007 was $18,150,447 which represented 14.7% of
the Fund's net assets.
(3) 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.
(4) Non-income producing security.
Investment Abbreviations:
ADR American Depositary Receipts.
BONUSES Bifurcated Option Note Unit Securities.
PIES Premium Income Exchangeable Securities.
PIERS Preferred Income Equity Redeemable Securities.
SAILS Shared Appreciation Income Linked Securities.
SPuRS Shared Preference Redeemable 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, 2007
--------------
Assets:
Investments at value (cost $113,811,096) (Note 1) . . . . . .. $ 120,543,349
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 917,814
Receivable for securities sold . . . . . . . . . . . . . . . . 2,002,815
Dividends and interest receivable . . . . . . . . . . . . . .. 542,620
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 26,655
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 124,033,253
-------------
Liabilities:
Payable for securities purchased . . . . . . . . . . . . . . . 759,479
Accrued management fee (Note 2) . . . . . . . . . . . . . . .. 76,443
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 9,868
-------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . .. 845,790
-------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,187,463
=============
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . .. $ 661,549
Undistributed net realized gain from
investment transactions . . . . . . . . . . . . . . . . . .. 3,666,569
Unrealized appreciation on investments . . . . . . . . . . . . 6,732,253
Capital shares (Note 3) . . . . . . . . . . . . . . . . . . .. 126,591
Additional paid-in capital . . . . . . . . . . . . . . . . . . 112,000,501
-------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 123,187,463
=============
Net asset value per share ($123,187,463 /
12,659,098 outstanding shares) . . . . . . . . . . . . . . . . $ 9.73
=============
--------------------------------------------------------------------------------
Statement of Operations
--------------------------------------------------------------------------------
For the Six Months Ended March 31, 2007
Investment Income (Note 1):
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,769,884
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,132,629
-------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . 2,902,513
-------------
Expenses (Note 2):
Management fee . . . . . . . . . . . . . . . . . . . . . . . . 428,317
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . .. 9,575
Transfer agent . . . . . . . . . . . . . . . . . . . . . . . . 12,789
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . 18,638
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . 36,984
Trustees'fees . . . . . . . . . . . . . . . . . . . . . . . .. 61,500
Reports to shareholders . . . . . . . . . . . . . . . . . . .. 34,557
Administrative services fees . . . . . . . . . . . . . . . . . 21,798
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 49,320
-------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 673,478
-------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . .. 2,229,035
-------------
Realized and Unrealized Gain on Investments:
Net realized gain from investment transactions . . . . . . . . 3,244,810
Net unrealized appreciation of investments . . . . . . . . . . 2,478,931
-------------
Net gain on investments . . . . . . . . . . . . . . . . . .. 5,723,741
-------------
Net Increase in Net Assets Resulting from Operations . . . . . . $ 7,952,776
=============
See accompanying notes to financial statements
Page 10
---------------------------------------------------------------------------------------------------
Statement of Changes in Net Assets
---------------------------------------------------------------------------------------------------
Six Months Ended Year Ended
March 31, 2007(a) September 30, 2006
----------------- ------------------
Change in net assets from operations:
Net investment income . . . . . . . . . . . . . . . . . . . .. $ 2,229,035 $ 4,128,672
Net realized gain from investment transactions . . . . . . . . 3,244,810 6,420,502
Net change in appreciation of investments . . . . . . . . . . 2,478,931 (2,794,837)
------------ ------------
Net increase in net assets resulting from operations . . .. 7,952,776 7,754,337
------------ ------------
Distributions to shareholders from:
Net investment income . . . . . . . . . . . . . . . . . . . .. (2,628,509) (3,815,429)
Net realized gain on investments . . . . . . . . . . . . . . . (3,293,707) --
------------ ------------
Total distributions . . . . . . . . . . . . . . . . . . . .. (5,922,216) (3,815,429)
------------ ------------
Capital share transactions (Note 3) . . . . . . . . . . . . . . 1,893,024 501,102
------------ ------------
Change in net assets . . . . . . . . . . . . . . . . . . . . . . 3,923,584 4,440,010
Net assets at beginning of period . . . . . . . . . . . . . . .. 119,263,879 114,823,869
------------ ------------
Net assets at end of period . . . . . . . . . . . . . . . . . . $123,187,463 $119,263,879
============ ============
Undistributed net investment income at end of period . . . .. $ 661,549 $ 1,061,023
============ ============
___________________
(a) Unaudited.
--------------------------------------------------------------------------------
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 a diversified, closed-end management
investment company.
(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, 2006, the Fund utilized capital loss
carryforward of $3,010,788 available to the extent allowed by tax law to offset
net capital gains.
Page 11
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax return to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Management has not completed
their analysis on whether the adoption of FIN 48 will have an impact to the
financial statements.
(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, 2007. In addition, Federal tax
regulations require the Fund to reclassify realized gains on contingent payment
debt instruments to interest income. At March 31, 2007 there were unrealized
losses of approximately $16,000 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 only 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, 2006 and 2005
were $3,815,429 and $3,641,418, respectively, both from ordinary income.
Page 12
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)
--------------------------------------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
At March 31, 2007 unrealized appreciation (depreciation) of investment
securities on a tax basis were as follows:
Unrealized appreciation $ 11,035,990
Unrealized depreciation (4,346,448)
------------
Net unrealized appreciation 6,689,542
Cost for federal income tax purposes $113,853,807
(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
$25,532,574 at March 31, 2007, representing 20.7% of net assets.
(j) New Accounting Pronouncements -- In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS)
No. 157, "Fair Value Measurements." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded disclosures
about fair value measurements. As of March 31, 2007, the Funds do not believe
the adoption of SFAS No. 157 will impact the financial statement amounts,
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.
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 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
Davis-Dinsmore.
NOTE 3 - PORTFOLIO ACTIVITY
At March 31, 2007 there were 12,659,098 shares of beneficial interest
outstanding, with a par value of $0.01 per share. During the six months ended
March 31, 2007, 230,015 shares were issued in connection with reinvestment of
dividends from net investment income, resulting in an increase in paid-in
capital of $1,893,024.
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $52,002,543 and $50,142,977, respectively, for the six months ended
March 31, 2007.
A distribution of $0.08 per share from net investment income was declared on
April 16, 2007, payable May 30, 2007 to shareholders of record at the close of
business May 16, 2007.
Page 13
---------------------------------------------------------------------------------------------------
Financial Highlights Selected data for a share of beneficial interest outstanding:
---------------------------------------------------------------------------------------------------
Six Months
Ended Year Ended September 30,
March 31, --------------------------------------------------------
2007(a) 2006 2005 2004 2003 2002
------------------------------------------------------------------
Operating Performance:
Net asset value,
beginning of period.......... $ 9.60 $ 9.29 $ 8.71 $ 8.58 $ 7.81 $ 8.67
------------------------------------------------------------------
Net investment income.......... 0.17 0.33 0.29 0.30 (b) 0.32(b) 0.34(b)
Adjustment for change in
amortization policy.......... -- -- -- (0.02) (0.01) --
------------------------------------------------------------------
Net investment income,
as adjusted.............. 0.17 0.33 0.29 0.28 0.31 0.34
------------------------------------------------------------------
Net realized and unrealized
gain (loss) 0.44 0.29 0.59 0.35(b) 0.75(b) (0.76)(b)
Adjustment for change in
amortization policy.......... -- -- -- 0.02 0.01 --
------------------------------------------------------------------
Net realized and unrealized
gain (loss), as adjusted... 0.44 0.29 0.59 0.37 0.76 (0.76)
------------------------------------------------------------------
Total from investment
operations................ 0.61 0.62 0.88 0.65 1.07 (0.42)
------------------------------------------------------------------
Less Distributions:
Dividends from net
investment income............ (0.21) (0.31) (0.30) (0.32) (0.30) (0.44)
Distributions from
realized gains............... (0.27) -- -- -- -- --
------------------------------------------------------------------
Total distributions.......... (0.48) (0.31) (0.30) (0.32) (0.30) (0.44)
------------------------------------------------------------------
Capital Share Transactions:
Effect of rights offering...... -- -- -- (0.20) -- --
Capital share repurchases...... -- -- -- -- -- --
------------------------------------------------------------------
Total capital share
transactions............... -- -- -- (0.20) -- --
------------------------------------------------------------------
Net asset value, end of period $ 9.73 $ 9.60 $ 9.29 $ 8.71 $ 8.58 $ 7.81
==================================================================
Market value, end of period.... $ 8.58 $ 8.20 $ 7.84 $ 7.95 $ 8.05 $ 7.55
Total Net Asset Value
Return (%)(c)................ 6.4 6.8 10.3 5.2 14.0 (5.2)
Total Investment Return (%)(d) 10.7 8.8 2.5 2.8 10.8 (4.5)
Ratios/Supplemental Data:
Net assets, end of period
(in thousands)............... $123,187 $119,264 $114,824 $107,107 $89,801 $81,125
Ratio of expenses to
average net assets (%)....... 1.1 1.2 1.2 1.2 1.2 1.2
Ratio of net investment
income to average net
assets (%)................... 3.7 3.6 3.4(e) 3.2(e) 3.8(e) 4.0
Portfolio turnover rate (%).... 43 60 82 70 86 89
___________________
(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
--------------------------------------------------------------------------------
The independent trustees of Ellsworth renewed the advisory contract with
Davis-Dinsmore Management Company in November 2006. 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 Davis-Dinsmore --
The Board (the "Board") of the Fund and the independent trustees reviewed the
services to be provided by Davis-Dinsmore under the Advisory Agreement. The
Board noted that under the Advisory Agreement, 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 Agreement 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.
Based on such review, both the Board and the independent trustees concluded that
the range of services to be provided by Davis-Dinsmore under the Advisory
Agreement was appropriate and that Davis-Dinsmore currently is providing
services in accordance with the terms of the Advisory Agreement.
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 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 direct satellite links to issuer
interviews and conferences, (iv) investment research operations (which involves
meetings with issuers and analysts, investment seminars and field trips to
issuers, and the review of: (a) financial newspapers, industry literature,
publications and periodicals, (b) research materials prepared by others, (c)
issuer annual reports and prospectuses, and (d) issuer press releases) and
trading operations (which involves computerized execution of orders), and (v)
focus on providing 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 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 currently is
providing satisfactory services to the Fund in accordance with the terms of the
Advisory Agreement.
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, 2006
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 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
Page 15
--------------------------------------------------------------------------------
BOARD APPROVAL OF ADVISORY CONTRACT (continued)
--------------------------------------------------------------------------------
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. 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. The Board and the independent trustees recognized that only three of the
funds in the Fund's peer group followed a similar investment approach. 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, three, five and ten years ended September 30, 2006 against
the performance of the Merrill Lynch All Convertibles Index and Merrill Lynch
Investment Grade Convertibles Index. Both the Board and the independent trustees
noted that, for the one, three, five and ten year periods, the Fund's
performance was below the Merrill Lynch All Convertibles Index. The Board and
the independent trustees also considered the fact that currently a majority of
the securities held by the Fund have an investment grade rating or are of
comparable quality to securities with investment grade ratings, and noted that,
for the one, three, five and ten year periods, the Fund's performance 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 continue
the Advisory Agreement, 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 Agreement.
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 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 were 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
breakpoints had become effective for the Fund 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 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 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 statement of income and retained earnings, statement of
cash flows, 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 and the independent trustees
noted that Davis-Dinsmore's operations remain profitable and 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
Agreement 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 Agreement, and concluded that Davis-Dinsmore has the
financial resources necessary to fulfill its obligations under the Advisory
Agreement.
Historical relationship between the Fund and Davis-Dinsmore -- In determining
whether to continue the Advisory Agreement for the Fund, both the Board and the
independent trustees also considered the prior relationship among 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 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
Page 17
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BOARD APPROVAL OF ADVISORY CONTRACT (continued)
--------------------------------------------------------------------------------
performing such services. 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 provide non-investment advisory services to
the Fund, including administrative services, and that Davis-Dinsmore 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
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 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
Davis-Dinsmore under the Advisory Agreement is fair and reasonable. As a result,
the Board continued the Advisory Agreement.
Page 18
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MISCELLANEOUS NOTES
--------------------------------------------------------------------------------
Results of the 2006 Annual Shareholders Meeting
The Annual Meeting of Shareholders of the Fund was held on January 12, 2007. The
results of the shareholder vote were:
1. All persons nominated were elected.
Terms expiring in 2010 Shares voted for Shares withheld
---------------------- ---------------- ---------------
Gordon F. Ahalt 11,167,244 357,281
Elizabeth C. Bogan Ph.D. 11,203,491 321,034
Nicolas W. Platt 11,191,168 333,357
2. The Audit Committee's appointment of Tait, Weller & Baker LLP as
independent accountants was ratified, as 11,435,725 shares voted for,
31,885 shares voted against and 56,915 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 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.
Page 19
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MISCELLANEOUS NOTES (continued)
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 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.
DANIEL D. HARDING Investment Adviser
DUNCAN O. MCKEE Davis-Dinsmore Management Company
ROBERT J. MCMULLAN 65 Madison Avenue, Suite 550
JANE D. O'KEEFFE Morristown, NJ 07960-7308
NICOLAS W. PLATT (973) 631-1177
Officers Shareholder Services and Transfer Agent
American Stock Transfer & Trust Company
THOMAS H. DINSMORE, C.F.A. 59 Maiden Lane
Chairman of the Board New York, NY 10038
and Chief Executive Officer (800) 937-5449
www.amstock.com
JANE D. O'KEEFFE
President Beneficial Share Listing
American Stock Exchange Symbol: ECF
GARY I. LEVINE
Executive Vice President, Legal Counsel
Chief Financial Officer and Ballard Spahr Andrews & Ingersoll LLP
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
JAMES A. DINSMORE
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 applicable to this semi-annual report.
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 23, 2007 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 23, 2007, 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, 2007
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, 2007
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: May 31, 2007