| | | | Six Months
Ended
March 31, | | Year Ended September 30,
| |
|---|
| | | | 2009 (a)
| | 2008
| | 2007
| | 2006
| | 2005
| | 2004
|
|---|
Operating Performance: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net asset value, beginning of period | | | | $ | 7.18 | | | $ | 10.27 | | | $ | 9.60 | | | $ | 9.29 | | | $ | 8.71 | | | $ | 8.58 | |
| Net investment income | | | | | 0.17 | | | | 0.31 | | | | 0.33 | | | | 0.33 | | | | 0.29 | | | | 0.30 | (b) |
| Adjustment for change in amortization policy | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (0.02 | ) |
| Net investment income, as adjusted | | | | | 0.17 | | | | 0.31 | | | | 0.33 | | | | 0.33 | | | | 0.29 | | | | 0.28 | |
| Net realized and unrealized gain (loss) | | | | | (1.58 | ) | | | (2.24 | ) | | | 1.00 | | | | 0.29 | | | | 0.59 | | | | 0.35 | (b) |
| Adjustment for change in amortization policy | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0.02 | |
| Net realized and unrealized gain (loss), as adjusted | | | | | (1.58 | ) | | | (2.24 | ) | | | 1.00 | | | | 0.29 | | | | 0.59 | | | | 0.37 | |
| Total from investment operations | | | | | (1.41 | ) | | | (1.93 | ) | | | 1.33 | | | | 0.62 | | | | 0.88 | | | | 0.65 | |
Less Distributions: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dividends from net investment income | | | | | (0.18 | ) | | | (0.33 | ) | | | (0.39 | ) | | | (0.31 | ) | | | (0.30 | ) | | | (0.32 | ) |
| Distributions from realized gains | | | | | — | | | | (0.83 | ) | | | (0.27 | ) | | | — | | | | — | | | | — | |
| Total distributions | | | | | (0.18 | ) | | | (1.16 | ) | | | (0.66 | ) | | | (0.31 | ) | | | (0.30 | ) | | | (0.32 | ) |
Capital Share Transactions: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Effect of rights offering | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (0.20 | ) |
| Capital share repurchases | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total capital share transactions | | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (0.20 | ) |
| Net asset value, end of period | | | | $ | 5.59 | | | $ | 7.18 | | | $ | 10.27 | | | $ | 9.60 | | | $ | 9.29 | | | $ | 8.71 | |
| Market value, end of period | | | | $ | 4.76 | | | $ | 5.30 | | | $ | 9.09 | | | $ | 8.20 | | | $ | 7.84 | | | $ | 7.95 | |
| Total Net Asset Value Return (%)(c) | | | | | 2.1 | | | | (21.0 | ) | | | 14.4 | | | | 6.8 | | | | 10.3 | | | | 5.2 | |
| Total Investment Return (%)(d) | | | | | (1.2 | ) | | | (33.3 | ) | | | 19.6 | | | | 8.8 | | | | 2.5 | | | | 2.8 | |
Ratios/Supplemental Data: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net assets, end of period (in thousands) | | | | $ | 74,220 | | | $ | 94,497 | | | $ | 129,952 | | | $ | 119,264 | | | $ | 114,824 | | | $ | 107,107 | |
| Ratio of expenses to average net assets (%) | | | | | 1.2 | (e) | | | 1.1 | | | | 1.1 | | | | 1.2 | | | | 1.2 | | | | 1.2 | |
| Ratio of net investment income to average net assets (%) | | | | | 6.2 | (e) | | | 3.6 | | | | 3.4 | | | | 3.6 | | | | 3.4 | | | | 3.2 | (f) |
| Portfolio turnover rate (%) | | | | | 31 | | | | 61 | | | | 84 | | | | 60 | | | | 82 | | | | 70 | |
Board Approval of Advisory Contract
The independent trustees of Ellsworth renewed the advisory contract with Dinsmore Capital Management Co. (formerly Davis-Dinsmore Management Company) in November 2008. The following are the material factors and conclusions that formed the basis for that approval.
The nature and extent of the advisory services provided by Dinsmore Capital – The Board (the “Board”) of the Fund and the independent trustees reviewed the services to be provided by Dinsmore Capital under the Advisory Agreement. The Board noted that under the Advisory Agreement, Dinsmore Capital would supervise all aspects of the Fund’s operations including the investment and reinvestment of cash, securities or other properties comprising the Fund’s assets. In this regard, the Board noted that under the Advisory Agreement Dinsmore Capital is responsible to, among other things, (a) supervise all aspects of the operations of the Fund; (b) obtain and evaluate pertinent information about significant developments and economic, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or any industry or the Fund or any issuer of securities held or to be purchased by the Fund; (c) determine which issuers and securities 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 Dinsmore Capital under the Advisory Agreement was appropriate and that Dinsmore Capital currently is providing services in accordance with the terms of the Advisory Agreement.
The quality of services provided by Dinsmore Capital – In reviewing the qualifications of Dinsmore Capital to provide investment advisory services, both the Board and the independent trustees reviewed the credentials and experience of Dinsmore Capital’s investment personnel who will provide investment advisory services to the Fund, and considered Dinsmore Capital’s (i) portfolio and product review process, particularly its adherence to the Fund’s investment mandate, (ii) compliance function and its culture of compliance, (iii) use of technology, including the use, from time to time, of 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 high quality services while keeping the Fund’s fees and expenses as low as possible. The Board and the independent trustees also took into consideration the presentations made by Dinsmore Capital at prior Board meetings pertaining to its management of the Fund.
Based on the review of these and other factors, both the Board and the independent trustees determined and concluded that the quality of services to be provided by Dinsmore Capital was exemplary and that Dinsmore Capital currently is providing 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, 2008 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 three, five and ten year periods was below the average performance of all
Page 15
Board Approval of Advisory Contract (continued)
closed-end funds in the peer group, but was above the average performance of such funds for the one 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 has done so with increased risk of loss. Because of this increased risk of loss, the Fund does not engage in leverage. In addition, the Board and the independent trustees recognized that many of the Fund’s competitors have a higher percentage of their assets invested in securities with lower credit quality than does the Fund, and that such securities have performed better than higher quality securities in recent years. The Board and the independent trustees also noted that 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, 2008 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 five and ten year periods, the Fund’s performance was below that of the Merrill Lynch All Convertibles Index but was above such Index for the one and three year periods. 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 that of 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 Dinsmore Capital – After considering the overall performance of Dinsmore Capital in providing investment advisory and administrative services to the Fund, both the Board and the independent trustees concluded that such performance was satisfactory.
Fees relative to those of clients of Dinsmore Capital with comparable investment strategies – Both the Board and the independent trustees noted that the Fund and Bancroft Fund Ltd. (the “Funds”) are the only clients of Dinsmore Capital, and that the advisory fee rates for the Funds are the same.
Both the Board and the independent trustees concluded that, because the fee rates are the same for the Funds,the current advisory fee rate of the Fund was fair as compared to the rate for Bancroft Fund Ltd.
Page 16
Board Approval of Advisory Contract (continued)
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.
Expense limitations and fee waivers – Both the Board and the independent trustees noted that, although there are no contractual expense limitations or fee waivers in effect for the Fund, Dinsmore Capital is very diligent in its efforts to keep expenses of the Fund as low as possible. 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 Dinsmore Capital – Both the Board and the independent trustees reviewed information concerning the profitability and financial condition of Dinsmore Capital. In particular, the Board reviewed Dinsmore Capital’s financial statements including its statement of income and retained earnings, statement of cash flows, and audited balance sheet. The Board also reviewed Dinsmore Capital’s costs in providing services to the Funds. The Board noted that Dinsmore Capital’s sole source of revenue was fees from the Funds for providing advisory and administrative services to the Funds. The Board and the independent trustees noted that Dinsmore Capital’s operations remain profitable and that increasing the success of the Funds will positively impact Dinsmore Capital’s profitability.
Based on the review of the profitability of Dinsmore Capital and its financial condition, both the Board and the independent trustees concluded that the compensation to be paid by the Fund to Dinsmore Capital under the Advisory Agreement was not excessive.
Benefits of soft dollars to Dinsmore Capital – Both the Board and the independent trustees discussed the fact that there are no third-party soft dollar arrangements in effect with respect to the Fund. Both the Board and the independent trustees recognized that Dinsmore Capital does receive proprietary research from brokers with whom it executes portfolio transactions on behalf of the Fund. This research is used by Dinsmore Capital in making investment decisions for the Fund. Both the Board and the independent trustees also considered representations made by Dinsmore Capital that portfolio transactions received best execution. Because such research ultimately benefits the Fund, the Board and the independent trustees concluded that it was appropriate to receive proprietary research.
Dinsmore Capital’s financial soundness in light of the Fund’s needs – Both the Board and the independent trustees considered whether Dinsmore Capital is financially sound and has the resources necessary to fulfill its obligations under the Advisory Agreement.
Page 17
Board Approval of Advisory Contract (continued)
Historical relationship between the Fund and Dinsmore Capital – In determining whether to continue the Advisory Agreement for the Fund, both the Board and the independent trustees also considered the prior relationship among Dinsmore Capital and the Fund, as well as the independent trustees’ knowledge of Dinsmore Capital’s operations, and concluded that it was beneficial to maintain the current relationship, in part, because of such knowledge. Both the Board and the independent trustees also reviewed the general nature of the non-investment advisory services currently performed by Dinsmore Capital, such as administrative services, and the fees received by Dinsmore Capital for performing such services. In addition to reviewing such services, both the Board and the independent trustees also considered the organizational structure employed by Dinsmore Capital to provide those services. Based on the review of these and other factors, both the Board and the independent trustees concluded that Dinsmore Capital was qualified to provide non-investment advisory services to the Fund, including administrative services, and that Dinsmore Capital currently is providing satisfactory non-investment advisory services to the Fund.
Other factors and current trends – Both the Board and the independent trustees considered the culture of compliance and high ethical standards at Dinsmore Capital, and the efforts historically and currently undertaken by Dinsmore Capital to engage in best practices. Both the Board and the independent trustees noted Dinsmore Capital’s historical adherence to compliance procedures, as well as the Fund’s investment objectives, policies and restrictions. Both the Board and the independent trustees concluded that this commitment to adhere to the highest ethical standards was an important factor in their determination that they should approve the continuance of the Advisory Agreement for the Fund.
After considering all of the above factors and based on informed business judgment, the Board determined that the Advisory Agreement is in the best interests of the Fund and its shareholders and that the compensation to Dinsmore Capital under the Advisory Agreement is fair and reasonable. As a result, the Board continued the Advisory Agreement.
Page 18
Miscellaneous Notes
Results of the 2009 Annual Shareholders Meeting
The Annual Meeting of Shareholders of the Fund was held on January 16, 2009. The results of the shareholder vote were:
| 1. | | All persons nominated were elected. |
Terms expiring in 2012
| | | | Shares voted for
| | Shares withheld
|
| Kinchen C. Bizzell | | | | | 9,547,576 | | | | 2,057,565 | |
| Jane D. O’Keeffe | | | | | 9,549,214 | | | | 2,055,927 | |
| 2. | | The Audit Committee’s appointment of Tait, Weller & Baker LLP as independent accountants was ratified, as 11,436,371 shares voted for, 71,055 shares voted against and 97,715 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 (800) 914-1177 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
Miscellaneous Notes (continued)
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.
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
GORDON F. AHALT
KINCHEN C. BIZZELL, CFA
ELIZABETH C. BOGAN, Ph.D.
THOMAS H. DINSMORE, CFA
DANIEL D. HARDING
JANE D. O’KEEFFE
NICOLAS W. PLATT
Officers
THOMAS H. DINSMORE, CFA
Chairman of the Board
and Chief Executive Officer
JANE D. O’KEEFFE
President
GARY I. LEVINE
Executive Vice President, Chief Financial Officer
and Secretary
JAMES A. DINSMORE
Vice President
H. TUCKER LAKE, JR.
Vice President
GERMAINE M. ORTIZ
Vice President
MERCEDES A. PIERRE
Vice President and Chief Compliance Officer
JOANN VENEZIA
Vice President
Internet
www.ellsworthfund.com
email: info@ellsworthfund.com
Shareholder Services and Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
(800) 937-5449
www.amstock.com
Investment Adviser
Dinsmore Capital Management Co.
65 Madison Avenue, Suite 550
Morristown, NJ 07960-7308
(973) 631-1177
Beneficial Share Listing
NYSE Amex Symbol: ECF
Legal Counsel
Ballard Spahr Andrews & Ingersoll, LLP
Independent Accountants
Tait, Weller & Baker LLP
ELLSWORTH FUND LTD.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.ellsworthfund.com
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.
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. 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 Securities Exchange Act of 1934 (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 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) 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 May 27, 2009 an evaluation was performed under the supervision and with the participation of the officers of 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, as required by Rule 30a-3(b) under the Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)), the Registrant’s
officers, including the PEO and PFO, concluded that, as of May 27, 2009, 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.
(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 Act (17 CFR 270.30a-2(a)), are attached hereto.
(a)(3) There were no written solicitations to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the Registrant to ten or more persons.
(b) Certifications of the principal executive officer and the principal financial officer, as required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities 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 29, 2009
Pursuant to the requirements of the Securities 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 29, 2009
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: May 29, 2009
