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: September 30, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
ELLSWORTH FUND LTD.
2006 ANNUAL REPORT
SEPTEMBER 30, 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 apprectiation -- 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 SEPTEMBER 30, 2006 WITH DIVIDENDS REINVESTED
Calendar Annualized 10 Year
YTD 1 Year 5 Years 10 Years Volatility
--- ------ ------- -------- ----------
Ellsworth market price .................... 7.92% 8.76% 3.91% 9.00% 11.16%
Ellsworth net asset value ................. 7.89 6.84 6.01 7.46 12.43
Closed-end convertible fund average ....... 8.26 7.80 7.30 7.10 9.30
S&P 500 Index ............................. 8.53 10.79 6.96 8.58 20.42
Merrill Lynch All Convertibles Index ...... 7.45 7.94 8.15 8.42 17.64
Lehman Aggregate Bond Total Return Index .. 3.06 3.67 4.81 6.42 4.21
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 September 30, 2006.
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
---------- ----- ----- ----- ----- ----- -----
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
Jun. 06 9.64 9.06 9.29 8.17 7.76 7.95
Sept.06 9.63 9.13 9.60 8.21 7.62 8.20
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DIVIDEND DISTRIBUTIONS (12 MONTHS)
Record Payment Capital *Corporate
Date Date Income Gains Deduction
-------- -------- ------- ------- ----------
10/27/05 11/23/05 $0.0975 -- 22%
2/13/06 2/27/06 0.0700 -- 24
5/16/06 5/30/06 0.0700 -- 24
8/16/06 8/30/06 0.0700 -- 24
-------
$0.3075
=======
* Percentage of each ordinary income distribution qualifying for the corporate
dividend received tax deduction.
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To Our Shareholders ------------------------------------------------------------
November 10, 2006
For the fiscal year ended 2006 Ellsworth has declared a distribution of 39.5
cents per share, 26.5 cents of which is derived from realized long-term capital
gains. Our largest realized gains came from our energy industry investments
in Valero Energy, The Williams Companies and Maverick Tube. While we did take
some losses (banking and pharmaceuticals had the largest realized losses), the
gains we made in the energy sector were bigger.
While the convertible securities market as a whole continues to provide
attractive investment opportunities, it appears to be at a modest premium to
certain measures of theoretical value. Citigroup has measured the average
current yield of their convertible index at 3.2%, down from 3.7% a year ago,
while the average premium has dropped to 27.6%, down from 33.5% a year ago;
these imply a more equity sensitive convertible market. This leads us to the
conclusion that convertibles as a group appear to be fairly valued, and
opportunities are more likely to be found in individual convertible issues with
compelling underlying common stocks.
As cited above, the Fund made profits from its energy holdings. These holdings
have been less profitable since early summer but we still believe that energy
is attractive due to our expectation of global economic growth. The Fund's
exposure to banking, entertainment and retail has been helpful of late. On the
other hand, performance has been hurt by our exposure to aerospace and defense.
As seen in the Highlights section of this report, we have added a new column
which reflects the ten year volatility (as measured by the standard deviation)
of the various performance figures. We have also added the Merrill Lynch
All Convertibles Index, a market-weighted index consisting of every domestic
security in the convertibles universe rated B- or higher, and with a market
value of more than $50 million at the time of inclusion. We believe this index
provides a useful comparison to the Fund's performance because over the past
five years while the Fund has remained predominately invested in convertibles,
many of our peers have migrated away from such a predominance to a mixture of
convertibles and non-convertibles.
On December 31, 2006 boardmember Donald M. Halsted, Jr. will retire. He is one
of the Fund's original independent trustees. Mr. Halsted has been indispensable
and his contributions to the Fund's governance are too many to recount here. He
served on the Audit and Governance Committees and was the prime mover of the
Board's retirement policy. We will miss his presence.
Visit our website, www.ellsworthfund.com, for additional information 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.
continued on the following page
Page 1
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To Our Shareholders (continued)-------------------------------------------------
At its October 16, 2006 meeting, the Board of Trustees declared a distribution
of $0.395 per share. The distribution consists of $0.13 undistributed net
investment income and $0.265 long-term capital gains, payable on November 22,
2006 to shareholders of record on October 27, 2006.
The 2007 annual meeting of shareholders will be held on January 12, 2007. Time
and location will be included in the proxy statement, scheduled to be mailed to
shareholders on November 28, 2006. All shareholders are welcome to
attend, we hope to see you there.
/s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board
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Major Portfolio Changes by underlying common stock -----------------------------
Six months ended September 30, 2006
ADDITIONS REDUCTIONS
Advanced Micro Devices, Inc. Broadwing Corp.
(exchangeable from The Goldman Sachs Casual Male Retail Group, Inc.
Group, Inc.) Coherent, Inc.
Alleghany Corp. Comverse Technology, Inc.
Alliant Techsystems Inc. Constellation Brands, Inc.
American Medical Systems Holdings, Inc. Freeport-McMoRan Copper and Gold, Inc.
Bristow Group Inc. Hess Corp.
Corning Inc. Lucent Technologies, Inc.
(exchangeable from Credit Suisse Maverick Tube Corp.
First Boston (USA), Inc.) St. Jude Medical, Inc.
MedImmune, Inc. Teva Pharmaceutical Industries Ltd.
Nabors Industries, Inc. (convertible from Teva Pharmaceutical
Rentech Inc. Finance Co., LLC)
SanDisk Corp. The TJX Companies, Inc.
Symantec Corp. Washington Mutual, Inc.
Trinity Industries, Inc.
Page 2
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Largest Investment Holdings by underlying common stock--------------------------
Value % Total
(Note 1) Net Assets
---------- ----------
The Walt Disney Company................................................. $4,237,500 3.5%
An entertainment company whose operations include media networks,
studio entertainment, theme parks and resorts, consumer products, and
Internet and direct marketing.
Nuveen Investments, Inc................................................. 3,411,365 2.9
The company's principal activities are asset management and related
research, and the development, marketing and distribution of investment
products and services. Nuveen 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.)
Chesapeake Energy Corp.................................................. 2,602,290 2.2
Produces oil and natural gas. The company's operations are focused on
developmental drilling and producing property acquisitions in onshore
natural gas producing areas of the United States and Canada.
Advanced Micro Devices, Inc............................................. 2,489,636 2.1
Supplies integrated circuits for the personal and networked computer
and communications markets. The company produces microprocessors,
flash memory devices and circuitry for communications and networking
applications.(exchangeable from The Goldman Sachs Group, Inc.)
Genworth Financial, Inc................................................. 2,486,250 2.1
Provides life insurance products, long-term care insurance and mortgage
guarantee insurance coverage on residential mortgage loans.
(exchangeable from Citigroup Funding Inc.)
The St. Paul Travelers Companies, Inc................................... 2,462,000 2.1
Provides a broad range of insurance products and services for the
commercial and consumer markets.
MetLife, Inc............................................................ 2,376,800 2.0
Provides insurance and financial services to a range of individual and
institutional customers.
Schering-Plough Corp.................................................... 2,223,600 1.9
Is a worldwide pharmaceutical company that discovers and markets new
therapies and treatment programs. The company's core product groups
include allergy/respiratory, anti-infective/anticancer, dermatalogics,
and cardiovasculars, as well as an animal health business.
Celanese Corp........................................................... 2,214,400 1.8
Is a global industrial chemicals company that processes raw materials
and natural products into chemicals and chemical-based products.
Intel Corp.............................................................. 2,178,620 1.8
Designs, manufactures, and sells computer components and related ----------- -----
products. The company's major products include microprocessors and
chipsets. (convertible from Intel Corp. and exchangeable from
Citgroup Funding Inc.)
Total...................................................................$26,682,461 22.4%
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Page 3
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MAJOR INDUSTRY EXPOSURE---------------------------------------------------------
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Aerospace & Defense 5.5%
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----------
Banking/Savings & Loan 5.6%
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---
Chemicals 3.2%
---
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Energy 9.3%
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----------
Entertainment 5.2%
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Financial & Insurance 16.2%
---------------------------
-----
Health Care 3.9%
-----
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Pharmaceuticals 10.5%
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Technology 18.6%
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----
Telecommunications 3.4%
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DIVERSIFICATION OF ASSETS-------------------------------------------------------
% Total Net Assets
September 30,
Value -----------------
Cost (Note 1) 2006 2005
------------ ------------ ----- -----
Aerospace and Defense . . . . . . .. $ 7,060,667 $ 6,503,463 5.4% 0.8%
Automotive . . . . . . . . . . . . . -- -- -- 2.3
Banking/Savings and Loan . . . . . . 6,617,651 6,689,400 5.6 7.2
Building Products . . . . . . . . .. 1,938,970 1,883,000 1.6 --
Chemicals . . . . . . . . . . . . .. 3,943,044 3,825,600 3.2 3.4
Consumer Goods . . . . . . . . . . . 1,375,000 1,854,531 1.5 2.8
Energy . . . . . . . . . . . . . . . 11,072,018 11,071,976 9.3 13.7
Entertainment . . . . . . . . . . .. 5,848,349 6,252,500 5.2 4.2
Financial and Insurance . . . . . .. 17,332,507 19,356,173 16.2 15.3
Financial Services . . . . . . . . . 2,271,873 1,932,500 1.6 0.8
Foods . . . . . . . . . . . . . . .. 2,076,713 2,142,800 1.8 1.8
Health Care . . . . . . . . . . . .. 4,744,320 4,660,157 3.9 5.7
Mining . . . . . . . . . . . . . . . -- -- -- 1.9
Multi-Industry . . . . . . . . . . . 3,584,529 3,703,750 3.1 1.3
Pharmaceuticals . . . . . . . . . .. 11,549,232 12,492,073 10.5 11.6
Real Estate . . . . . . . . . . . .. 732,630 663,063 0.6 --
Retail . . . . . . . . . . . . . . . 1,233,045 1,306,875 1.1 6.4
Technology . . . . . . . . . . . . . 21,380,251 22,161,211 18.6 8.4
Telecommunications . . . . . . . . . 3,596,972 4,009,275 3.4 6.3
Travel and Leisure . . . . . . . . . 322,863 185,575 0.2 --
Utilities . . . . . . . . . . . . .. 1,500,000 1,740,000 1.5 1.7
Short-Term Securities . . . . . . .. 4,308,453 4,308,487 3.6 3.8
------------ ------------ ----- -----
TOTAL INVESTMENTS . . . . . . . .. $112,489,087 116,742,409 97.9 99.4
============
Other Assets, Net of Liabilities . . 2,521,470 2.1 0.6
------------ ----- -----
TOTAL NET ASSETS . . . . . . . . . $119,263,879 100.0% 100.0%
============ ===== =====
Page 4
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PORTFOLIO OF INVESTMENTS SEPTEMBER 30,2006--------------------------------------
Principal Identified Value
Amount Cost (Note 1)
---------- ---------- ----------
CONVERTIBLE BONDS AND NOTES -- 55.1%
AEROSPACE AND DEFENSE -- 4.7%
$1,500,000 AAR Corp. 1.75% 2026 cv. sr. notes (BB-) . . . . . . . $ 1,535,848 $1,554,375
1,000,000 Alliant Techsystems Inc. 2.75% 2011 cv. sr. sub.
notes (B2) (Acquired 09/07/06) (1) . . . . . . . . . . 1,009,283 1,038,750
1,000,000 Ceradyne, Inc. 2.875% 2035 sr. sub. cv. notes (NR) (2) 1,137,110 1,018,750
2,000,000 DRS Technologies, Inc. 2% 2026 cv. sr. notes (B2)
(Acquired 01/30/06) (1,2) . . . . . . . . . . . . . .. 2,072,328 1,957,500
---------- ----------
5,754,569 5,569,375
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BANKING/SAVINGS AND LOAN -- 1.3%
1,500,000 U.S. Bancorp floating rate 2035 cv. sr. deb. (Aa2) . . 1,498,728 1,513,125
---------- ----------
CONSUMER GOODS -- 1.6%
1,375,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba2) 1,375,000 1,854,531
---------- ----------
ENERGY -- 4.5%
1,000,000 Cameron International Corp. 2.50% 2026 cv. sr.
notes (Baa1) . . . . . . . . . . . . . . . . . . . .. 991,819 1,042,500
1,500,000 Nabors Industries, Inc. 0.94% 2011 sr. exchangeable
notes (A-)(exchangeable for Nabors Industries Ltd.
common stock) . . . . . . . . . . . . . . . . . . . .. 1,491,278 1,436,250
1,000,000 Oil States International, Inc. 2.375% 2025 contingent
cv. sr. notes (NR). . . . . . . . . . . . . . . . . .. 1,192,005 1,156,250
1,250,000 Rentech, Inc. 4% 2013 cv. sr. notes (NR) . . . . . . . 1,250,000 1,673,436
---------- ----------
4,925,102 5,308,436
---------- ----------
ENTERTAINMENT -- 5.2%
2,000,000 EchoStar Communications Corp. 5.75% 2008 cv. sub.
notes (B1).. . . . . . . . . . . . . . . . . . . . . . 1,995,708 2,015,000
3,750,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (A3) 3,852,641 4,237,500
---------- ----------
5,848,349 6,252,500
---------- ----------
FINANCIAL AND INSURANCE -- 1.4%
1,590,000 FTI Consulting, Inc. 3.75% 2012 cv. sr. sub. notes (B1) 1,621,319 1,719,188
---------- ----------
FINANCIAL SERVICES -- 1.6%
2,000,000 Euronet Worldwide, Inc. 3.50% 2025 cv. deb. (NR) (2) . 2,271,873 1,932,500
---------- ----------
FOODS -- 0.9%
1,000,000 Lehman Brothers Holdings Inc. 3% 2012 medium-term
notes (A1) (performance linked to General
Mills, Inc. common stock)(2). . . . . . . . . . . . .. 1,018,713 1,052,000
---------- ----------
HEALTH CARE -- 3.3%
1,000,000 American Medical Systems Holdings, Inc. 3.25%
2036 cv. sr. sub. notes (B3) (2) . . . . . . . . . . . 1,014,625 1,172,500
1,500,000 Manor Care, Inc. 2.125% 2035 cv. sr. notes (Baa3) . .. 1,700,697 1,846,875
1,000,000 Omnicare, Inc. 3.25% 2035 cv. sr. deb. (B1) (2) . . .. 1,035,248 895,000
---------- ----------
3,750,570 3,914,375
---------- ----------
MULTI-INDUSTRY -- 3.1%
1,500,000 LSB Industries, Inc. 7% 2011 cv. sr. sub. deb. (NR) .. 1,500,000 1,916,250
1,000,000 Lehman Brothers Holdings Inc. 1% 2011 medium-term
notes (A1)(performance linked to a basket of
common stocks) (2) . . . . . . . . . . . . . .. . . .. 1,068,812 822,500
1,000,000 Trinity Industries, Inc. 3.875% 2036 cv. sub.
notes (Ba3) (2) . . . . . . . . . . . . . . . . . . .. 1,015,717 965,000
---------- ----------
3,584,529 3,703,750
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Page 5
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PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2006 (CONTINUED)-------------------------
Principal Identified Value
Amount Cost (Note 1)
---------- ----------- ------------
CONVERTIBLE BONDS AND NOTES -- CONTINUED
PHARMACEUTICALS -- 7.2%
$1,250,000 Amgen Inc. 0.125% 2011 cv. sr. notes (A2)
(Acquired 02/14/06 - 02/15/06) (1) . . . . . . . . . . . . $ 1,253,289 $ 1,268,750
500,000 Amgen Inc. 0.375% 2013 cv. sr. notes (A2)
(Acquired 02/14/06) (1) . . . . . . . . . . . . . . . . .. 500,000 508,125
1,000,000 Bristol-Myers Squibb Co. floating rate 2023 cv. sr. deb.(A2) 996,112 1,006,800
1,000,000 Cephalon, Inc. 2% 2015 cv. sr. sub. notes (B-) . . . . . . 986,452 1,460,000
1,000,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR)
(exchangeable for Teva Pharmaceutical Industries Ltd.
ADR and cash) . . . . . . . . . . . . . . . . . . . . . . 1,000,394 1,008,750
750,000 MedImmune, Inc. 1.375% 2011 cv. sr. notes (BBB) . . . . .. 750,000 814,688
750,000 MedImmune, Inc. 1.625% 2013 cv. sr. notes (BBB) . . . . .. 750,000 822,188
1,750,000 Teva Pharmaceutical Finance Co. B.V. 1.75% 2026 cv.
sr. deb. (Baa2) (exchangeable for Teva Pharmaceutical
Industries Ltd. ADR) . . . . . . . . . . . . . . . . . . . 1,750,000 1,671,250
----------- ------------
7,986,247 8,560,551
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REAL ESTATE -- 0.4%
500,000 Archstone-Smith Operating Trust 4% 2036
exchangeable sr. notes (Baa1) (exchangeable into
Archstone-Smith Trust common stock) . . . . . . . . . . .. 493,993 521,250
----------- ------------
RETAIL -- 1.1%
1,000,000 Amazon.com, Inc. 4.75% 2009 cv. sub. notes (B2) . . . . .. 983,803 976,250
250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr.
sub. notes (NR). . . . . . . . . . . . . . . . . . . . . . 249,242 330,625
----------- ------------
1,233,045 1,306,875
----------- ------------
TECHNOLOGY -- 15.1%
1,000,000 C&D Technologies, Inc. 5.25% 2025 cv. sr. notes (NR)
(Acquired 11/16/05) (1) . . . . . . . . . . . . . . . . .. 1,000,000 1,101,250
2,000,000 Citigroup Funding Inc. 1% 2010 medium-term notes (Aa1)
(exchangeable for the cash value of a basket of
technology stocks)(2) . . . . . . . . . . . . . . . . .. 2,083,025 1,905,600
2,000,000 Credit Suisse First Boston (USA), Inc. 15.55% 2007
equity-linked notes (Aa3) (exchangeable for Corning
Inc. common stock) . . . . . . . . . . . . . . . . . . . . 2,000,000 2,121,600
1,000,000 Conexant Systems, Inc. 4% 2026 cv. sub. notes (NR) . . . . 988,790 871,250
2,000,000 Intel Corp. 2.95% 2035 jr. sub. cv. deb. (A-) (2) . . . .. 1,923,781 1,797,500
1,750,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B1) 1,748,697 1,736,875
1,500,000 LSI Logic Corp. 4% 2010 cv. sub. notes (B) . . . . . . . . 1,486,262 1,511,250
1,500,000 Lehman Brothers Holdings Inc. 1% 2009 medium-term notes (A1)
(performance linked to Microsoft Corp. common stock) (2) . 1,531,266 1,485,900
1,000,000 Richardson Electronics, Ltd. 8% 2011 cv. sr. sub. notes (NR)
(Acquired 11/21/05) (1) . . . . . . . . . . . . . . . . .. 1,000,000 1,076,250
1,100,000 SanDisk Corp. 1% 2013 cv. sr. notes (BB-) . . . . . . . .. 1,108,406 1,053,250
1,000,000 Sybase, Inc. 1.75% 2025 cv. sub. notes (NR) . . . . . . .. 993,861 1,110,000
1,000,000 Symantec Corp. 1% 2013 cv. sr. notes (NR)
(Acquired 06/13/06) (1) . . . . . . . . . . . . . . . . .. 992,802 1,230,000
1,000,000 Vishay Intertechnology, Inc. 3.625% 2023 cv. sub. notes (B3) 953,750 1,011,250
----------- ------------
17,810,640 18,011,975
----------- ------------
TELECOMMUNICATIONS -- 2.3%
1,500,000 Tekelec 2.25% 2008 sr. sub. cv. notes (NR) . . . . . . . . 1,506,701 1,464,375
1,000,000 Time Warner Telecom Inc. 2.375% 2026 cv. sr. deb. (Caa1) . 1,027,271 1,242,500
----------- ------------
2,533,972 2,706,875
----------- ------------
UTILITIES -- 1.5%
1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (Ba3) . . . . . 1,500,000 1,740,000
----------- ------------
TOTAL CONVERTIBLE BONDS AND NOTES . . . . . . . . . . . .. $63,206,649 $ 65,667,306
----------- ------------
Page 6
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PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2006 (CONTINUED)-------------------------
Identified Value
Shares Cost (Note 1)
---------- ----------- ------------
CONVERTIBLE PREFERRED STOCKS -- 17.8%
AEROSPACE AND DEFENSE -- 0.6%
40,000 Ionatron, Inc. 6.5% Series A redeemable cv. pfd. (NR)
(Acquired 10/27/05) (1) . . . . . . . . . . . . . . . . . . . $1,000,000 $ 700,000
----------- ------------
BANKING/SAVINGS AND LOAN -- 4.3%
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR). 1,038,700 1,762,000
20,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2). . . 1,306,838 943,000
35,000 Sovereign Capital Trust IV 4.375% PIERS (Baa2)
(exchangeable for Sovereign Bancorp, Inc. common stock) (2) . 2,000,260 1,631,875
15,000 Washington Mutual Capital Trust 5.375% PIERS units (BBB)
(exchangeable for Washington Mutual, Inc. common stock) . . . 773,125 839,400
----------- ------------
5,118,923 5,176,275
----------- ------------
BUILDING PRODUCTS -- 1.6%
35,000 TXI Capital Trust I 5.5% SPuRS (B2)
(exchangeable for Texas Industries, Inc. common stock) . . .. 1,938,970 1,883,000
----------- ------------
CHEMICALS -- 1.9%
80,000 Celanese Corp. 4.25% cv. perpetual pfd. (NR) . . . . . . . .. 1,931,748 2,214,400
----------- ------------
ENERGY -- 3.4%
25,000 Chesapeake Energy Corp. 4.5% cum. cv. pfd. (B+) . . . . . . . 2,566,320 2,350,000
9,000 SEMCO Energy, Inc. 5% Series B cv. cum. pfd. (B-) . . . . . . 1,825,096 1,689,750
----------- ------------
4,391,416 4,039,750
----------- ------------
FINANCIAL AND INSURANCE -- 6.1%
75,000 Citigroup Funding Inc. variable rate exch. notes (Aa1)
(exchangeable for Genworth Financial, Inc. common stock) . . 2,212,500 2,486,250
10 Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3)
(Acquired 01/11/05) (1) . . . . . . . . . . . . . . . . . . . 1,048,750 965,225
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2) . . . . 1,000,000 1,305,000
100,000 The St. Paul Travelers Companies, Inc. 4.5%
2032 cv. jr. sub. notes (Baa1) . . . . . . . . . . . . . . .. 2,414,175 2,462,000
----------- ------------
6,675,425 7,218,475
----------- ------------
TOTAL CONVERTIBLE PREFERRED STOCKS . . . . . . . . . . . . .. $21,056,482 $21,231,900
----------- ------------
MANDATORY CONVERTIBLE SECURITIES -- 17.8% (3)
CHEMICALS -- 1.4%
40,000 Huntsman Corp. 5% mandatory cv. pfd. 02/16/08 (NR). . . . . . 2,011,296 1,611,200
----------- ------------
ENERGY -- 1.4%
30,000 Bristow Group Inc. 5.5% mandatory cv. pfd. 09/15/09 (NR) . .. 1,505,500 1,471,500
1,000 Chesapeake Energy Corp. 6.25% mandatory cv. pfd. 06/15/09 (B+) 250,000 252,290
----------- ------------
1,755,500 1,723,790
----------- ------------
Page 7
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PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2006 (CONTINUED)-------------------------
Identified Value
Shares Cost (Note 1)
--------- ----------- ------------
MANDATORY CONVERTIBLE SECURITIES -- CONTINUED(3)
FINANCIAL AND INSURANCE -- 8.7%
7,000 Alleghany Corp. 5.75% mandatory cv. pfd. 06/15/09 (BBB-). . $ 1,852,200 $ 1,988,000
43,500 E*TRADE Financial Corp. 6.125% equity units 11/18/08 (Ba3). 1,120,063 1,353,720
30,000 Merrill Lynch & Co., Inc. 6.75%
mandatorily exchangeable securities 10/15/07 (Aa3)
exchangeable for Nuveen Investments, Inc. common stock) . . 1,020,000 1,344,300
80,000 MetLife, Inc. 6.375% common equity units 08/15/08 (BBB+) .. 2,084,000 2,376,800
45,500 Morgan Stanley, Inc. 5.875%
mandatorily exchangeable securities 10/15/08 (Aa3)
exchangeable for Nuveen Investments, Inc. common stock) . . 1,572,500 2,067,065
45,000 XL Capital, Ltd. 6.5% equity security units 05/15/07 (A3).. 1,137,000 1,031,625
10,000 XL Capital, Ltd. 7% equity security units 02/15/09 (A3) ... 250,000 257,000
----------- ------------
9,035,763 10,418,510
----------- ------------
FOODS -- 0.9%
40,000 Lehman Brothers Holdings Inc. 6.25% PIES 10/15/07 (A1)
exchangeable for General Mills, Inc. common stock) . . .. . 1,058,000 1,090,800
----------- ------------
PHARMACEUTICALS -- 1.9%
40,000 Schering-Plough Corp. 6% mand. cv. pfd. 09/14/07 (Baa3) . . 2,050,150 2,223,600
----------- ------------
TECHNOLOGY -- 3.5%
30,000 Credit Suisse First Boston (USA), Inc. 5.5% SAILS
11/15/08 (Aa3) exchangeable for Equinix, Inc.
common stock) . . . . . . . . . . . . . . . . . . . . . . . 1,069,200 1,659,600
98,850 The Goldman Sachs Group, Inc. 14.75%
mandatory exchangeable notes 06/22/07 (NR)
exchangeable for Advanced Micro Devices, Inc. common stock)
Acquired 06/14/06) (1) . . . . . . . . . . . . . . . . . .. 2,500,411 2,489,636
----------- ------------
3,569,611 4,149,236
----------- ------------
TOTAL MANDATORY CONVERTIBLE SECURITIES (3) . . . . . . . .. $19,480,320 $21,217,136
----------- ------------
COMMON STOCKS -- 3.6%
AEROSPACE AND DEFENSE -- 0.2%
48,667 Ionatron, Inc. common stock with warrants attached
Acquired 04/17/05 - 08/08/06) (1,4) . . . . . . . . . . . . 306,098 234,088
----------- ------------
HEALTH CARE -- 0.6%
21,115 LifePoint Hospitals, Inc. (4) . . . . . . . . . . . . . . . 993,750 745,782
----------- ------------
TRAVEL AND LEISURE -- 0.2%
2,500 Avis Budget Group, Inc. . . . . . . . . . . . . . . . . . . 89,840 45,725
5,000 Wyndham Worldwide Corp. (4) . . . . . . . . . . . . . . . . 233,023 139,850
----------- ------------
322,863 185,575
----------- ------------
PHARMACEUTICALS -- 1.4%
26,300 Johnson & Johnson . . . . . . . . . . . . . . . . . . . . . 1,512,835 1,707,922
----------- ------------
Page 8
--------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 2006 (CONTINUED)-------------------------
Identified Value
Shares Cost (Note 1)
---------- ------------ ------------
COMMON STOCKS -- CONTINUED
REAL ESTATE -- 0.1%
6,250 Realogy Corp. (4) . . . . . . . . . . . . . . . . . .. $ 238,637 $ 141,813
------------ ------------
TELECOMMUNICATIONS -- 1.1%
40,000 AT&T Inc. . . . . . . . . . . . . . . . . . . . . . .. 1,063,000 1,302,400
------------ ------------
TOTAL COMMON STOCKS . . . . . . . . . . . . . . . . .. 4,437,183 4,317,580
------------ ------------
Principal
Amount
----------
SHORT-TERM SECURITIES -- 3.6%
COMMERCIAL PAPER -- 3.6%
$4,300,000 American Express Credit Corp. 5.08% 10/02/06 (P1) . .. 4,297,573 4,297,573
------------ ------------
U.S. GOVERNMENT OBLIGATIONS -- 0.0%
11,000 U.S. Treasury notes 3.625% 04/30/07 (Aaa) (5) . . . .. 10,880 10,914
------------ ------------
TOTAL SHORT-TERM SECURITIES . . . . . . . . . . . . .. $ 4,308,453 $ 4,308,487
------------ ------------
TOTAL CONVERTIBLE BONDS AND NOTES -- 55.1% . . . . . . 63,206,649 65,667,306
TOTAL CONVERTIBLE PREFERRED STOCKS -- 17.8% . . . . .. 21,056,482 21,231,900
TOTAL MANDATORY CONVERTIBLE SECURITIES -- 17.8% . . .. 19,480,320 21,217,136
TOTAL COMMON STOCKS -- 3.6% . . . . . . . . . . . . .. 4,437,183 4,317,580
TOTAL SHORT-TERM SECURITIES -- 3.6% . . . . . . . . .. 4,308,453 4,308,487
------------ ------------
TOTAL INVESTMENTS -- 97.9% . . . . . . . . . . . . . . $112,489,087 116,742,409
============
OTHER ASSETS AND LIABILITIES, NET -- 2.1% . . . . . .. 2,521,470
------------
TOTAL NET ASSETS -- 100.0% . . . . . . . . . . . . . . $119,263,879
============
(1) 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 September 30, 2006 was $12,569,574 which represented 10.5%
of the Fund's net assets.
(2) Contingent payment debt instrument which accrues contingent interest.
See Note 1(f).
(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.
(5) Collateral for a letter of credit.
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.
Page 9
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES---------------------------------------------
SEPTEMBER 30, 2006
------------------
ASSETS:
Investments at value (cost $112,489,087) (Note 1) . . . . . . . . . . . . .. $116,742,409
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,037
Receivable for securities sold . . . . . . . . . . . . . . . . . . . . . . . 1,556,655
Dividends and interest receivable . . . . . . . . . . . . . . . . . . . . .. 642,258
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,977
-------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,369,336
-------------
LIABILITIES:
Accrued management fee (Note 2) . . . . . . . . . . . . . . . . . . . . . .. 74,423
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,634
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 9,400
-------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 105,457
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $119,263,879
=============
NET ASSETS CONSIST OF:
Undistributed net investment income . . . . . . . . . . . . . . . . . . . .. $ 1,061,023
Accumulated net realized gain from investment transactions . . . . . . . . . 3,715,465
Unrealized appreciation on investments . . . . . . . . . . . . . . . . . . . 4,253,322
Capital shares (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . .. 124,291
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 110,109,778
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $119,263,879
=============
Net asset value per share ($119,263,879 / 12,429,083 outstanding shares) . . . $ 9.60
=============
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS---------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 2006
INVESTMENT INCOME (NOTE 1):
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,097,287
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,400,368
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
-------------
Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 5,517,655
-------------
EXPENSES (NOTE 2):
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 831,367
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17,126
Transfer agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,537
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,200
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,417
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,875
Reports to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .. 104,162
Administrative services fees . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 95,299
-------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1,388,983
-------------
NET INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4,128,672
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions . . . . . . . . . . . . . . . 6,420,502
Net change in unrealized appreciation of investments . . . . . . . . . . . . (2,794,837)
-------------
Net gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . .. 3,625,665
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . . . . . . . . . . $ 7,754,337
=============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
Page 10
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS---------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005
2006 2005
------------ -------------
CHANGE IN NET ASSETS FROM OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . . . .. $ 4,128,672 $ 3,709,734
Net realized gain from investment transactions . . . . . . . 6,420,502 1,922,040
Net change in unrealized appreciation of investments . . . . (2,794,837) 5,219,341
------------ -------------
Net increase in net assets resulting from operations . . .. 7,754,337 10,851,115
------------ -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income . . . . . . . . . . . . . . . . . . .. (3,815,429) (3,641,418)
------------ -------------
CAPITAL SHARE TRANSACTIONS (NOTE 3) . . . . . . . . . . . . .. 501,102 506,725
------------ -------------
CHANGE IN NET ASSETS . . . . . . . . . . . . . . . . . . . . . 4,440,010 7,716,422
Net assets at beginning of period . . . . . . . . . . . . . .. 114,823,869 107,107,447
------------ -------------
NET ASSETS AT END OF PERIOD . . . . . . . . . . . . . . . . .. $119,263,879 $114,823,869
============ =============
Undistributed net investment income at end of period . . . . $ 1,061,023 $ 747,780
============ =============
NOTES TO FINANCIAL STATEMENTS
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, 2006, the Fund utilized capital loss
carryforward of $3,010,788 available to the extent allowed by tax law to offset
net capital gains.
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.
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 6 cents per
share for the year ended September 30, 2006. In addition, Federal tax
regulations require the Fund to reclassify realized gains on contingent payment
debt instruments to interest income. At September 30, 2006 there were
unrealized losses of approximately 4 cents per share 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 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.
At September 30, 2006 the components of distributable net assets and federal
tax cost were as follows:
Unrealized appreciation $ 8,604,708
Unrealized depreciation (4,467,394)
------------
Net unrealized appreciation 4,137,314
Undistributed ordinary income 1,584,336
Undistributed capital gains 3,308,160
------------
Total distributable net assets 9,029,810
============
Cost for federal income tax purposes $112,605,095
Page 12
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)---------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
(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
$21,217,136 at September 30, 2006, representing 17.8% 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 September 30, 2006, the Fund
does 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 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 September 30, 2006 there were 12,429,083 shares of beneficial interest
outstanding, with a par value of $0.01 per share. During the years ended
September 30, 2006 and 2005, 66,814 shares and 64,142 shares were issued in
connection with reinvestment of dividends from net investment income, resulting
in an increase in paid-in capital of $501,102 and $506,725, respectively.
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $67,000,607 and $69,337,731, respectively, for the year ended
September 30, 2006.
A distribution of $0.395 per share, consisting of $0.13 from net investment
income, and $0.265 long-term capital gains was declared on October 16, 2006,
payable November 22, 2006 to shareholders of record at the close of business
October 27, 2006.
Page 13
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING:
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
2006 2005 2004 2003 2002
--------------------------------------------------------
OPERATING PERFORMANCE:
Net asset value, beginning of year . . . . $ 9.29 $ 8.71 $ 8.58 $ 7.81 $ 8.67
--------------------------------------------------------
Net investment income . . . . . . . . . .. 0.33 0.29 0.30(a) 0.32(a) 0.34(a)
Adjustment for change in
amortization policy . . . . . . . . . .. -- -- (0.02) (0.01) --
--------------------------------------------------------
Net investment income, as adjusted . .. 0.33 0.29 0.28 0.31 0.34
--------------------------------------------------------
Net realized and unrealized gain (loss) .. 0.29 0.59 0.35(a) 0.75(a) (0.76)(a)
Adjustment for change in
amortization policy . . . . . . . . . .. -- -- 0.02 0.01 --
--------------------------------------------------------
Net realized and unrealized
gain (loss), as adjusted . . . . . . .. 0.29 0.59 0.37 0.76 (0.76)
--------------------------------------------------------
Total from investment operations . . . . 0.62 0.88 0.65 1.07 (0.42)
--------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income . . . (0.31) (0.30) (0.32) (0.30) (0.44)
Distributions from realized gains . . . .. -- -- -- -- --
--------------------------------------------------------
Total distributions . . . . . . . . . .. (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 year . . . . . . . $ 9.60 $ 9.29 $ 8.71 $ 8.58 $ 7.81
========================================================
Market value, end of year . . . . . . . .. $ 8.20 $ 7.84 $ 7.95 $ 8.05 $ 7.55
Total Net Asset Value Return (%)(b) . . .. 6.8 10.3 5.2 14.0 (5.2)
Total Investment Return (%)(c) . . . . . . 8.8 2.5 2.8 10.8 (4.5)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . $119,264 $114,824 $107,107 $89,801 $81,125
Ratio of expenses to average net assets (%) 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(d) 3.8(d) 4.0(d)
Portfolio turnover rate (%) . . . . . . .. 60 82 70 86 89
--------------
(a) As previously reported.
(b) Assumes valuation of the Fund's shares, and reinvestment of dividends,
at net asset values.
(c) Assumes valuation of the Fund's shares at market price and reinvestment
of dividends at actual reinvestment price.
(d) 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
--------------------------------------------------------------------------------
Report of Independent Registered------------------------------------------------
Public Accounting Firm
To the Shareholders and Board of Trustees of
Ellsworth Fund Ltd.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Ellsworth Fund Ltd. (formerly Ellsworth
Convertible Growth and Income Fund, Inc.) (the "Fund") as of September 30,
2006, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the two years in the
period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the years in the three year
period ended September 30, 2004 have been audited by other auditors, whose
report dated October 29, 2004 expressed an unqualified opinion thereon.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Fund is not required to have, nor were we engaged to perform
an audit of the Fund's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of September 30, 2006,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Ellsworth Fund Ltd. as of September 30, 2006, the results of its operations for
the year then ended, the changes in its net assets and its financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
November 3, 2006
Page 15
--------------------------------------------------------------------------------
Miscellaneous Notes-------------------------------------------------------------
Automatic Dividend Investment and Cash Payment Plan
The Fund has an Automatic Dividend Investment and Cash Payment Plan (the
"Plan"). Any shareholder may elect to join the Plan by sending an application
to American Stock Transfer & Trust Company, P.O. Box 922, Church Street
Station, NY 10269-0560 (the "Plan Agent"). You may also obtain additional
information about the Plan as well as the Plan application by calling the Plan
Agent toll free at (800) 937-5449. If your shares are held by a broker or
other nominee, you should instruct the nominee to join the Plan on your behalf.
Some brokers may require that your shares be taken out of the broker's "street
name" and re-registered in your own name. Shareholders should also contact
their broker to determine whether shares acquired through participation in the
Plan can be transferred to another broker, and thereafter, whether the
shareholder can continue to participate in the Plan.
Under the Plan, all dividends and distributions are automatically invested in
additional Fund shares. Depending on the circumstances, shares may either be
issued by the Fund or acquired through open market purchases at the current
market price or net asset value, whichever is lower (but not less than 95% of
market price). When the market price is lower, the Plan Agent will combine
your dividends with those of other Plan participants and purchase shares in the
market, thereby taking advantage of the lower commissions on larger purchases.
There is no other charge for this service.
All dividends and distributions made by the Fund (including capital gain
dividends and dividends designated as qualified dividend income, which are
eligible for taxation at lower rates) remain taxable to Plan participants,
regardless of whether such dividends and distributions are reinvested in
additional shares of the Fund through open market purchases or through the
issuance of new shares. Plan participants will be treated as receiving the
cash used to purchase shares on the open market and, in the case of any
dividend or distribution made in the form of newly issued shares, will be
treated as receiving an amount equal to the fair market value of such shares as
of the reinvestment date. Accordingly, a shareholder may incur a tax liability
even though such shareholder has not received a cash distribution with which to
pay the tax.
Plan participants may also voluntarily send cash payments of $100 to $10,000
per month to the Plan Agent, to be combined with other Plan monies, for
purchase of additional Fund shares in the open market. You pay only a bank
service charge of $1.25 per transaction, plus your proportionate share of the
brokerage commission. All shares and fractional shares purchased will be held
by the Plan Agent in your dividend reinvestment account. You may deposit with
the Plan Agent any Ellsworth share certificates you hold, for a one-time fee
of $7.50.
At any time, a Plan participant may instruct the Plan Agent to liquidate all or
any portion of such Plan participant's account. To do so, a Plan participant
must deliver written notice to the Plan Agent prior to the record date of any
dividend or distribution requesting either liquidation or a share certificate.
The Plan Agent will combine all liquidation requests it receives from Plan
participants on a particular day and will then sell shares of the Fund that are
subject to liquidation requests in the open market. The amount of proceeds a
Plan participant will receive shall be determined by the average sales price
per share, after deducting brokerage commissions, of all shares sold by the
Plan Agent for all Plan participants who have given the Plan Agent
liquidation requests.
The Plan Agent or the Fund may terminate the Plan for any reason at any time by
sending written notice addressed to Plan participant's address as shown on the
Plan Agent's records. Following the date of termination, the Plan Agent shall
send the Plan participant either the proceeds of liquidation, or a share
certificate or certificates for the full shares held by the Plan Agent in the
Plan participant's account. Additionally, a check will be sent for the value
of any fractional interest in the Plan participant's account based on the
market price of the Fund's shares on that date.
Page 16
--------------------------------------------------------------------------------
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, a non-profit national
trade association (www.cefa.com). Thomas H. Dinsmore is on the Executive Board
and is the president of the association. 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 17
--------------------------------------------------------------------------------
------------------------------------TRUSTEES------------------------------------
Each trustee is also a trustee of Bancroft Fund Ltd.(Bancroft)(a closed-end
management investment company). Davis-Dinsmore Management Company (Davis-
Dinsmore) is the Fund's investment adviser and is also the investment adviser to
Bancroft. Because of this connection, the Fund and Bancroft make up a Fund
Complex. Therefore, each trustee oversees two investment companies in the Fund
Complex.
--------------------------------------------------------------------------------
Personal Principal Occupation(s) During Past Five Years;
Information Other Directorship(s)
--------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Gordon F. Ahalt Retired. Trustee of Bancroft and Energy
65 Madison Avenue Solutions Group Inc. (an energy services
Suite 550 company).
Morristown, NJ 07960
Term expires 2007
Trustee since 1986
Age 78
--------------------------------------------------------------------------------
Elizabeth C. Bogan, Ph.D. Senior Lecturer in Economics at Princeton
65 Madison Avenue University; Trustee of Bancroft.
Suite 550
Morristown, NJ 07960
Term expires 2007
Trustee since 1986
Age 62
--------------------------------------------------------------------------------
Donald M. Halsted, Jr. Retired Business Executive; Trustee of
65 Madison Avenue Bancroft.
Suite 550
Morristown, NJ 07960
Term expires 2008
Trustee since 1986
Age 79
--------------------------------------------------------------------------------
Duncan O. McKee Retired Attorney; Trustee of Bancroft.
65 Madison Avenue
Suite 550
Morristown, NJ 07960
Term expires 2008
Trustee since 1996
Age 75
PAGE 18
--------------------------------------------------------------------------------
------------------------------TRUSTEES (CONTINUED)------------------------------
Personal Principal Occupation(s) During Past Five Years;
Information Other Directorship(s)
--------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Robert J. McMullan Since 2005, Chief Executive Officer and director
65 Madison Avenue of Control Point Solutions, Inc.
Suite 550 (a telecommunications service provider). Prior
Morristown, NJ 07960 to 2004, Senior Vice President and Chief
Term expires 2009 Financial Officer of Conexant Systems, Inc.
Trustee since 2004 (a semiconductor manufacturing company);
Age 52 Trustee of Bancroft.
--------------------------------------------------------------------------------
Nicolas W. Platt Since August 2006, Managing Director, Rodman &
65 Madison Avenue Renshaw, LLC (a full-service investment bank).
Suite 550 Prior to August 2006, President of CNC-US (an
Morristown, NJ 07960 international consulting company). Prior to
Term expires 2007 January 2003, Senior Partner of Platt &
Trustee since 1997 Rickenbach (a public relations firm). Prior to
Age 53 May 2001, with WPP Group, UK and its public
relations subsidiaries, Ogilvy Public Relations,
Burson-Marsteller and Robinson Lehr Montgomery;
Trustee of Bancroft.
--------------------------------------------------------------------------------
INTERESTED TRUSTEES
Thomas H. Dinsmore, C.F.A. (1) Chairman and Chief Executive Officer of the
65 Madison Avenue Fund, Bancroft and Davis-Dinsmore; Trustee of
Suite 550 Bancroft and director of Davis-Dinsmore.
Morristown, NJ 07960
Term expires 2008
Trustee since 1986
Chairman of the Board
since 1996
Age 53
--------------------------------------------------------------------------------
Jane D. O'Keeffe (1)
65 Madison Avenue President of the Fund, Bancroft and
Suite 550 Davis-Dinsmore; Trustee of Bancroft and
Morristown, NJ 07960 director of Davis-Dinsmore.
Term expires 2009
Trustee since 1995
Age 51
--------------------------------------------------------------------------------
(1) Mr. Dinsmore and Ms. O'Keeffe are considered interested persons because they
are officers and directors of Davis-Dinsmore. They are brother and sister.
PAGE 19
--------------------------------------------------------------------------------
-------------------------------PRINCIPAL OFFICERS-------------------------------
The business address of each officer is 65 Madison Avenue, Suite 550,
Morristown, NJ 07960. Officers are elected by and serve at the pleasure of the
Board of Trustees. Each officer holds office until the annual meeting to be
held in 2007, and thereafter until his or her respective successor is duly
elected and qualified.
--------------------------------------------------------------------------------
Personal
Information Principal Occupation(s) During Past Five Years
--------------------------------------------------------------------------------
Thomas H. Dinsmore, C.F.A. Trustee, Chairman and Chief Executive Officer
(1,2,3) Trustee, Chairman of the Fund and Bancroft; Director, Chairman and
and Chief Executive Officer Chief Executive Officer of Davis-Dinsmore.
Officer since 1986
Age 53
--------------------------------------------------------------------------------
Jane D. O'Keeffe (1,2,3) Trustee and President of the Fund and Bancroft;
Trustee and President Director and President of Davis-Dinsmore.
Officer since 1994
Age 51
--------------------------------------------------------------------------------
Gary I. Levine Executive Vice President and Chief Financial
Executive Vice President, Officer of the Fund, Bancroft and Davis-Dinsmore
Chief Financial Officer and since 2004. Secretary of the Fund, Bancroft and
Secretary Davis-Dinsmore since 2003. Treasurer of
Officer since 1986 Davis-Dinsmore since 1997. Vice President of the
Age 49 Fund, Bancroft and Davis-Dinsmore from 2002
until 2004. Treasurer of the Fund and Bancroft
from 1993 until 2004.
--------------------------------------------------------------------------------
H. Tucker Lake, Jr. (2,4) Vice President of the Fund and Bancroft since
Vice President 2002, and of Davis-Dinsmore since 1997. Vice
Officer since 1994 President, Trading, of the Fund and Bancroft
Age 59 from 1994 to 2002.
--------------------------------------------------------------------------------
Germaine M. Ortiz Vice President of the Fund, Bancroft and
Vice President Davis-Dinsmore.
Officer since 1996
Age 37
--------------------------------------------------------------------------------
Mercedes A. Pierre Vice President and Chief Compliance Officer
Vice President and of the Fund, Bancroft and Davis-Dinsmore since
Chief Compliance Officer 2004, and Assistant Treasurer from 1998 to 2004.
Officer since 1998
Age 45
--------------------------------------------------------------------------------
Joshua P. Lake, C.T.P. (3,4) Treasurer of the Fund and Bancroft since 2004.
Treasurer and Assistant Assistant Secretary of the Fund, Bancroft and
Secretary Davis-Dinsmore since 2002. Assistant Treasurer
Officer since 2002 of Davis-Dinsmore, also since 2002.
Age 30
--------------------------------------------------------------------------------
(1) Mr. Dinsmore and Ms. O'Keeffe are brother and sister.
(2) Mr. H. Tucker Lake, Jr. is the cousin of Mr. Dinsmore and Ms. O'Keeffe.
(3) Mr. Joshua P. Lake is the cousin of Mr. Dinsmore and Ms. O'Keeffe.
(4) Mr. H. Tucker Lake, Jr. is the father of Mr. Joshua Lake.
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
OFFICERS SHAREHOLDER SERVICES AND TRANSFER AGENT
THOMAS H. DINSMORE, C.F.A. American Stock Transfer & Trust Company
Chairman of the Board 59 Maiden Lane
and Chief Executive Officer New York, NY 10038
(800) 937-5449
JANE D. O'KEEFFE www.amstock.com
President
BENEFICIAL SHARE LISTING
GARY I. LEVINE American Stock Exchange Symbol: ECF
Executive Vice President,
Chief Financial Officer and Secretary LEGAL COUNSEL
Ballard Spahr Andrews & Ingersoll LLP
H. TUCKER LAKE, JR.
Vice President INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker LLP
GERMAINE M. ORTIZ
Vice President
MERCEDES A. PIERRE
Vice President and
Chief Compliance Officer
JOSHUA P. LAKE, C.T.P.
Treasurer and Assistant Secretary
JOANN VENEZIA
Assistant Vice President and
Assistant Secretary
--------------------------------------------------------------------------------
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.
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.
The Board of Trustees of the Fund has adopted a code of ethics that applies to
the Fund's principal executive officer and principal financial officer. See
attached Exhibit EX-99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees determined that Trustee Robert J. McMullan, who is
"independent" as such term is used in Form N-CSR, possesses the attributes
required to be considered an audit committee financial expert under applicable
federal securities laws.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Set forth in the table below are the aggregate fees billed to the Fund
by Tait, Weller & Baker LLP ("Tait Weller") for services rendered to the Fund
during the Fund's last two fiscal years ended September 30, 2006 and 2005.
Fiscal YE Audit Audit-Related All Other
September 30 Fees Fees (1) Tax Fees (3) Fees
------------- ------- ------------- ------------ ---------
2005 $30,000 $10,000 (2) $2,500 $0
2006 $31,000 $ 0 $2,600 $0
(1) All Audit-Related Fees were pre-approved by the Fund's Audit Committee.
No Audit-Related Fees were approved by the Fund's Audit Committee pursuant
to section 2.01(c)(7)(i)(C) of Regulation S-X, which waives the
pre-approval requirement for certain de minimus fees.
(2) Includes fees billed to the Fund by Tait Weller in connection with the
Fund's change of accounting practice related to amortization of
convertible bond premiums and discounts.
(3) "Tax Fees" include those fees billed by Tait Weller in connection with
their review of the Fund's income tax returns for fiscal years 2005
and 2006. All Tax Fees were pre-approved by the Fund's Audit Committee.
No Tax Fees were approved by the Fund's Audit Committee pursuant to
section 2.01(c)(7)(i)(C) of Regulation S-X, which waives the pre-approval
requirement for certain de minimus fees.
Non-Audit Services
During each of the last two fiscal years ended September 30, 2005 and
September 30, 2006, Tait Weller did not provide any non-audit services
to the Fund or the Fund's investment adviser, Davis-Dinsmore Management Company
("Davis-Dinsmore") or its affiliates or otherwise bill the Fund or Davis-
Dinsmore or its affiliates for any such non-audit services.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee pre-approves all audit and permissible non-audit
services that are proposed to be provided to the Fund by its independent
registered public accountants before they are provided to the Fund. Such
pre-approval also includes the proposed fees to be charged by the independent
registered public accountants for such services. The Audit Committee may
delegate the pre-approval of audit and permissible non-audit services and
related fees to one or more members of the Audit Committee who are
"independent," as such term is used in Form N-CSR. Any such member's decision
to pre-approve audit and/or non-audit services and related fees shall be
presented to the full Audit Committee, solely for informational purposes, at
their next scheduled meeting.
The Audit Committee also pre-approves non-audit services to be provided by
the Fund's independent registered public accountants to the Fund's investment
adviser if the engagement relates directly to the operations and financial
reporting of the Fund and if the Fund's independent auditors are the same as,
or affiliated with, the investment adviser's auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Fund has a designated Audit Committee in accordance with
Section 3(a)(58)(A) of the Exchange Act and the members of such committee are:
ELIZABETH C. BOGAN, PH.D.
DONALD M. HALSTED, JR.
ROBERT J. MCMULLAN
(b) Not applicable.
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.
Bancroft Fund Ltd.
Ellsworth Fund Ltd.
Davis-Dinsmore Management Company
Proxy Voting Guidelines
(Adopted April 14, 2003)
These proxy voting guidelines have been adopted by the Boards of Trustees of
Bancroft Fund Ltd. and Ellsworth Fund Ltd. (collectively, the "Funds"), as well
as by the Board of Directors of Davis-Dinsmore Management Company
("Davis-Dinsmore").
The Boards of Trustees of the Funds have delegated to Davis-Dinsmore
responsibility for voting proxies received by the Funds in their capacities as
shareholders of various companies. The Boards recognize that, due to the nature
of the Funds' investments, the Funds do not frequently receive proxies.
Davis-Dinsmore exercises its voting responsibility with the overall goal of
maximizing the value of the Funds' investments. The portfolio managers at
Davis-Dinsmore oversee the voting policies and decisions for the Funds.
In evaluating voting issues, the portfolio managers may consider information
from many sources, including management of a company presenting a proposal,
shareholder groups, research analysts, and independent proxy research services.
Set forth below are the proxy voting guidelines:
A. Matters Related to the Board of Directors
1. The Funds generally will support the election of nominees recommended
by management for election as directors. In determining whether to support a
particular nominee, Davis-Dinsmore will consider whether the election of that
nominee will cause a company to have less than a majority of independent
directors.
2. The Funds generally will support proposals to de-classify boards of
directors if fewer than 66 2/3% of the directors are independent, and will
generally vote against proposals to classify boards of directors.
3. The Funds generally will withhold a vote in favor of a director who
has served on a committee which has approved excessive compensation arrangements
or proposed equity-based compensation plans that unduly dilute the ownership
interests of stockholders.
B. Matters Related to Independent Auditors
1. The Funds generally will vote in favor of independent accountants
approved by the company. Prior to such vote, however, Davis-Dinsmore will take
into consideration whether non-audit fees make up more than 50 to 75% of the
total fees paid by the company to the independent auditors, and the nature of
the non-audit services provided.
C. Corporate Governance Matters
1. As a general rule, the Funds will vote against proposals recommended
by management of a company that are being made primarily to implement anti-
takeover measures, and will vote in favor of proposals to eliminate policies
that are primarily intended to act as anti-takeover measures.
2. Subject to the other provisions of these guidelines, including without
limitation provision C.1. above, the Funds generally will vote in accordance
with management's recommendations regarding routine matters, including the
following:
a. Fixing number of directors;
b. Stock splits; and
c. Change of state of incorporation for specific corporate purposes.
D. Matters Related to Equity-Based Compensation Plans
1. The Fund generally will vote in favor of broad-based stock option
plans for executives, employees or directors which would not increase the
aggregate number of shares of stock available for grant under all currently
active plans to over 10% of the total number of shares outstanding.
2. The Funds generally will vote in favor of employee stock purchase
plans and employee stock ownership plans permitting purchase of company stock at
85% or more of fair market value.
E. Contested Matters
1. Contested situations will be evaluated on a case by case basis by the
portfolio manager at Davis-Dinsmore principally responsible for the particular
portfolio security.
F. Miscellaneous Matters
1. The Funds may in their discretion abstain from voting shares that have
been recently sold.
2. The Funds generally will abstain from voting on issues relating to
social and/or political responsibility.
3. Proposals that are not covered by the above-stated guidelines will be
evaluated on a case by case basis by the portfolio manager at Davis-Dinsmore
principally responsible for the particular portfolio security.
G. Material Conflicts of Interest
1. Conflicts of interest may arise from time to time between Davis-
Dinsmore and the Funds. Examples of conflicts of interests include:
a. Davis-Dinsmore may manage a pension plan, administer employee
benefit plans, or provide services to a company whose management is
soliciting proxies;
b. Davis-Dinsmore or its officers or directors may have a business
or personal relationship with corporate directors, candidates for
directorships, or participants in proxy contests;
c. Davis-Dinsmore may hold a position in a security contrary to
shareholder interests.
2. If a conflict of interest arises with respect to a proxy voting
matter, the portfolio manager will promptly notify the Funds' Audit Committee
and counsel for independent directors and the proxies will be voted in
accordance with direction received from the Audit Committee.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) Mr. Thomas H. Dinsmore, Chairman and Chief Executive Officer, serves as
the Portfolio Manager of the Registrant. He has served in that capacity since
1996. This information is as of November 13, 2006. Mr. Dinsmore usually
receives investment recommendations from a team of research analysts prior to
making investment decisions about transactions in the portfolio.
(2) The following table provides information relating to other (non-registrant)
accounts where this portfolio manager is primarily responsible for day-to-day
management as of November 13, 2006. The portfolio manager does not manage such
accounts or assets with performance-based advisory fees, or other pooled
investment vehicles.
Registered Investment Other Pooled Other
Portfolio Manager Companies Investment Vehicles Accounts
------------------ --------------------- -------------------- --------
Thomas H. Dinsmore Number: 1 n/a n/a
Assets: $126,846,701 n/a n/a
Mr. Dinsmore is the Portfolio Manager of one other account, Bancroft Fund Ltd.
(Bancroft), a registered investment company with total net assets of
$126,846,701 as of October 31, 2006. Mr. Dinsmore is Chairman and Chief
Executive Officer of Bancroft. This information is as of November 13, 2006.
The Registrant and Bancroft have similar investment objectives and strategies.
As a result, conflicts of interest may arise between the two funds if a
security is not available in a sufficient amount to fill open orders for both
funds. To deal with these situations, the investment adviser for the
Registrant and Bancroft has adopted Trade Allocation Procedures (the
"Allocation Procedures"). The Allocation Procedures set forth a method to
allocate a partially filled order among the funds. Pursuant to the method, the
amount of shares that each fund purchases is allocated pro rata based on the
dollar amount of each fund's intended trade or, if the order is subject to a
minimum lot size, as closely as possibly to pro rata.
The Allocation Procedures permit the adviser to allocate an order in a way that
is different from the method set forth above if (i) each fund is treated fairly
and equitably and neither fund is given preferential treatment, and (ii) the
allocation is reviewed by the adviser's chief compliance officer.
(3) The Portfolio Manager is compensated by Davis-Dinsmore Management Company,
the Adviser, through a three-component plan, consisting of a fixed base salary,
annual cash bonus, and benefit retirement plan. His compensation is reviewed
and approved by the Adviser's Board of Directors annually. His compensation may
be adjusted from year to year based on the perception of the Adviser's Board of
Directors of the portfolio manager's overall performance and his management
responsibilities. His compensation is not based on (i) a formula specifically
tied to the performance of the Registrant or Bancroft, including performance
against an index, or (ii) the value of assets held in the Registrant's
portfolio.
(4) As of November 13, 2006, Mr. Dinsmore's beneficial ownership in the
Registrant's shares was in the range of $100,001-$500,000.
ITEM 9. PURCHASES 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 the registrant 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 have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's board of trustees since those procedures
were last disclosed in response to the requirements of Item 7(d)(2)(ii)(G) of
Schedule 14A (17 CFR 240.14a-101), or this Item 10 of Form N-CSR.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of November 28, 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 November 28, 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 Registrant's 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) A code of ethics that applies to the Fund's principal executive officer
and principal financial officer is attached hereto.
(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: November 28, 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: November 28, 2006
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: November 28, 2006