The following table presents additional information about valuation methodologies and inputs used for investments that are measured at fair value and categorized within Level 3 as of September 30, 2014:
(1) In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments, market valuations of comparable companies and company specific developments.
(2) This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more-likely-than-not” to be sustained assuming examination by taxing authorities. Management of the Fund has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2011-2013), or expected to be taken in the Fund’s 2014 tax returns. The major tax authority for the Fund is the Internal Revenue Service. The Fund is not aware of any tax positions for which it is reasonably likely that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
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, 2014 and 2013 were as follows:
At September 30, 2014, the components of distributable earnings and federal tax cost were as follows:
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
Notes to Financial Statements (continued) |
NOTE 1 – ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
The differences between book-basis and tax-basis unrealized appreciation/depreciation is attributable to differing methods of recognizing interest and ordinary income on bonds for tax purposes.
To the extent the Fund’s net realized capital gains, if any, can be offset by capital loss carryforwards, it is the policy of the Fund not to distribute such gains. As determined at September 30, 2014, the Fund utilized $9,203,598 of its capital loss carryforwards and had no Post October losses.
(g) Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(h) Regulated Investment Company Modernization Act – On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Modernization Act) was signed into law. The Modernization Act modernizes several of the federal income and excise tax provisions related to regulated investment companies (“RICs”).
New capital losses may now be carried forward indefinitely and retain the character of the original loss. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital losses, irrespective of the character of the original loss. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses.
(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, the Fund’s mandatory convertible securities include features which render them more sensitive to price changes of their underlying securities. Thus they expose the Fund to greater downside risk than traditional convertible securities, but generally less than that of the underlying common stock. The market value of those securities was $13,129,287 at September 30, 2014, representing approximately 9.7% of net assets.
(j) Reclassification of Capital Accounts – Accounting principles generally accepted in the United States require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. At September 30, 2014 the Fund increased undistributed net investment loss by $10,103 and increased accumulated net realized gain on investments by $10,103.
NOTE 2 – MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with Dinsmore Capital Management Co. (“Dinsmore Capital”). Pursuant to the investment advisory agreement, Dinsmore Capital provides the Fund with investment advice, office space and facilities. Under the terms of the investment advisory agreement, the Fund pays Dinsmore Capital on the last day of each month an advisory fee for such month computed at an annual rate of 0.75% of the first $100,000,000 and 0.50% of the excess over $100,000,000 of the Fund’s net asset value in such month.
The Fund, pursuant to an administrative services agreement with Dinsmore Capital, has agreed to pay Dinsmore Capital for certain accounting and other administrative services provided to the Fund. Under the administrative services agreement, the Fund pays Dinsmore Capital on the last day of each month a fee for such month computed at an annual rate of 0.05% of the Fund’s net asset value in such month.
Certain officers and trustees of the Fund are officers and directors of Dinsmore Capital.
NOTE 3 – PORTFOLIO ACTIVITY
At September 30, 2014, there were 13,140,692 shares of beneficial interest outstanding, with a par value of $0.01 per share. During the twelve months ended September 30, 2014, 38,046 shares were issued in connection with reinvestment of dividends from net investment income, resulting in an increase in paid-in capital of $305,503.
During the twelve months ended September 30, 2014 the Fund repurchased 405,236 capital shares in the open market at a cost of $3,343,583. The weighted average discount of these purchases comparing the average purchase price to net asset value was 16.65%.
Purchases and sales of investments, exclusive of corporate short-term notes, aggregated $64,052,395 and $64,778,078, respectively, for the twelve months ended September 30, 2014.
Page 18
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
Notes to Financial Statements (continued) |
NOTE 4 – NEW ACCOUNTING PRONOUNCEMENT
In June 2013, the Financial Accounting Standards Board issued guidance that creates a two-tiered approach to assess whether an entity is an investment company. The guidance will also require an investment company to measure non-controlling ownership interest in other investment companies at fair value and will require additional disclosures relating to investment company status, any changes thereto and information about financial support provided or contractually required to be provided to any of the investment company’s investees. The guidance is effective for financial statements with fiscal years beginning on or after December 15, 2013 and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds’ financial statement disclosures.
In June 2014, FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The ASU changes the accounting for certain repurchase agreements and expands disclosure requirements related to repurchase agreements, securities lending, repurchase-to-maturity and similar transactions. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management is currently evaluating the impact, if any, of applying this provision.
NOTE 5 – SUBSEQUENT EVENTS
In preparing the financial statements as of September 30, 2014, management considered the impact of subsequent events for potential recognition or disclosure in these financial statements. GT Advanced Technologies Inc. (GT) announced on October 6, 2014 that the company had filed for bankruptcy court protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of New Hampshire. GT expects the court will authorize the company to continue to conduct business as usual while it devotes renewed efforts to resolve its current issues and develops a reorganization plan. GT and Apple have reached a settlement agreement under which GT will wind down its sapphire materials production in the company’s Mesa, AZ and Salem, MA locations. The company indicated that it will exit from the market as a producer of sapphire materials and will refocus its business as an equipment supplier, manufacturing and developing sapphire growth systems and processes. In addition to these sapphire businesses, GT also has photo voltaic and poly silicon solar segments. The effect on the Fund’s net asset value on October 6, 2014 was $0.055 per share.
On November 17, 2014 the Board of Trustees of the Fund adopted a new minimum distribution policy. Pursuant to the new minimum distribution policy, the Fund anticipates making a cumulative annual distribution at a rate equal to at least 5% of the Fund’s trailing 12-month average month-end market price. This amount may be adjusted from time to time depending on current market conditions and the projected performance of the Fund. The distribution policy will be subject to regular review by the Board of Trustees. There can be no assurance that the amount of the quarterly distributions will be maintained at levels implemented under the policy or that the new distribution policy will not be discontinued or substantially modified in the future. Implementation of the new minimum distribution policy is subject to completion of any regulatory requirements.
Distributions may consist of net investment income, net realized capital gains (although capital gains distributions, if any, will only be made once per year) and/or a return of capital for federal income tax purposes. The Form 1099-DIV that your broker or agent will make available to you by the IRS mailing deadline will specify the taxability of our distributions, and will tell you how to report these distributions for federal income tax purposes.
On November 17, 2014 the Trustees authorized a plan to repurchase up to 3% of the Fund’s outstanding shares (up to approximately 394,000 shares). This repurchase program follows a prior 3% buyback authorization, adopted in 2013 and completed in 2014.
Page 19
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
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. (the “Fund”) as of September 30, 2014, 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 five 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.
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, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five 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 20, 2014
Page 20
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
Miscellaneous Notes (unaudited) |
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, Wall Street Station, New York, NY 10269-0560 (the “Plan Agent”). You may also obtain information about the Plan, as well as the Plan application, by calling the Plan Agent toll free at (888) 888-0314. 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). For shareholder distributions made with respect to income earned during each of the first three fiscal quarters, when the market price of a share of Fund beneficial shares is lower than such share’s net asset value, the Plan Agent will combine the distributions of all Plan participants and purchase shares in the open market, thereby taking advantage of the lower commissions on larger purchases. There is no other charge for this service. For shareholder distributions made with respect to capital gains realized during the fiscal year and income earned during the fourth fiscal quarter, when the market price of a share of Fund shares is lower than such share’s net asset value, the Fund will issue shares at the market price.
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 Fund 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 the 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 21
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
Miscellaneous Notes (unaudited) (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 schedules are available without charge, upon request, by calling (800) 914-1177 or at the Fund’s public website, www.ellsworthfund.com. You may obtain the Form N-Q filings by accessing the SEC’s website at www.sec.gov. You may also review and copy them at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the SEC’s Public Reference Room may be obtained by calling the SEC at (800) SEC-0330.
Proxy Voting Policies and Procedures / Proxy Voting Record
The Fund’s policies and procedures with respect to the voting of proxies relating to the Fund’s portfolio securities is available without charge, upon request, by calling (800) 914-1177, or on the Fund’s website at www.ellsworthfund.com. 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. This information is also available on the SEC’s website at www.sec.gov.
Declared Distribution
A distribution of $0.35 per share was declared on October 20, 2014, payable November 26, 2014 to shareholders of record at the close of business October 31, 2014. The distribution consists of $0.038 undistributed net investment income, and net realized long-term gains on investments of $0.312.
The Fund is a member of the Closed-End Fund Association (CEFA), a non-profit national trade association (www.cefa.com). Thomas H. Dinsmore, Chairman and Chief Executive Officer of the Fund, is on its executive board.
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby given that the Fund may in the future purchase beneficial shares of the Fund from time to time, at such times, and in such amounts, as may be deemed advantageous to the Fund. Nothing herein shall be considered a commitment to purchase such shares.
Page 22
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
Trustees |
Each trustee is also a trustee of Bancroft Fund Ltd. (Bancroft) (a closed-end management investment company). Dinsmore Capital Management Co. (Dinsmore Capital) 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
Information
|
|
|
| Principal Occupation(s) During Past Five Years; Other Directorship(s)
|
|---|
| | | | |
| |
Kinchen C. Bizzell, CFA
65 Madison Avenue, Suite 550
Morristown, NJ 07960
Term expires 2015
Trustee since 2008 – Born 1954 | | | | Since August 2013, Managing Director of CAVU Securities (an institutional securities broker-dealer). Formerly Senior Counselor with Burson-Marsteller (a global public relations and communications firm) (2004 to 2013); Trustee of Bancroft. |
Elizabeth C. Bogan, Ph.D.
65 Madison Avenue, Suite 550
Morristown, NJ 07960
Term expires 2016
Trustee since 1986 – Born 1944 | | | | Senior Lecturer in Economics at Princeton University; Trustee of Bancroft. |
Daniel D. Harding, CFA
65 Madison Avenue, Suite 550
Morristown, NJ 07960
Term expires 2017
Trustee since 2007 – Born 1952 | | | | Since 2008, managing partner of a private investment fund. Prior to 2008, Senior Advisor with Harding Loevner Management LP (an investment advisory firm); director of Tax Receivables Corp., a private asset management company; and a general partner of Latitude Capital Partners, LLC, a private investment firm (2010 to 2012); Trustee of Bancroft. |
Nicolas W. Platt
65 Madison Avenue, Suite 550
Morristown, NJ 07960
Term expires 2016
Trustee since 1997 – Born 1953 | | | | A private investor; formerly Managing Director of FTI Consulting Inc. (an international consulting company) (2009 to 2011) and Managing Director, Rodman & Renshaw, LLC (2006 to 2009); Trustee of Bancroft. |
| | | | |
| |
Thomas H. Dinsmore, CFA(1)
65 Madison Avenue, Suite 550
Morristown, NJ 07960
Term expires 2017
Trustee since 1986
Chairman of the Board
since 1996 – Born 1953 | | | | Chairman and Chief Executive Officer of the Fund, Bancroft and Dinsmore Capital; Trustee of Bancroft and Director of Dinsmore Capital. |
Jane D. O’Keeffe(1)
65 Madison Avenue, Suite 550
Morristown, NJ 07960
Term expires 2015
Trustee since 1995 – Born 1955 | | | | Executive Vice President of the Fund; President of Bancroft and Dinsmore Capital; Trustee of Bancroft and Director of Dinsmore Capital. |
| (1) | | Mr. Dinsmore and Ms. O’Keeffe are considered interested persons because they are officers and directors of Dinsmore Capital. They are brother and sister. |
Page 23
|
E L L S W O R T H F U N D L T D . 2 0 1 4 A N N U A L R E P O R T T O S H A R E H O L D E R S |
|
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 2015, 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, CFA(1,2,5)
Trustee, Chairman and
Chief Executive Officer
Officer since 1986
Born 1953 | | | | Trustee, Chairman and Chief Executive Officer of the Fund, Bancroft and Dinsmore Capital. |
James A. Dinsmore, CFA(2,3)
President
Officer since 2007
Born 1982 | | | | President of the Fund since February 2014. Executive Vice President of the Fund from January 2013 until February 2014. Executive Vice President of Bancroft Fund and Dinsmore Capital since January 2013. Vice President of the Fund, Bancroft Fund and Dinsmore Capital from 2009 through 2012. |
Jane D. O’Keeffe(1,3,5)
Trustee and
Executive Vice President
Officer since 1994
Born 1955 | | | | Trustee of the Fund, Bancroft Fund and Dinsmore Capital. Executive Vice President of the Fund since February 2014. President of the Fund from 1996 until February 2014. President of Bancroft Fund and Dinsmore Capital. |
Gary I. Levine(4)
Executive Vice President,
Chief Financial Officer and
Secretary
Officer since 1986
Born 1957 | | | | Executive Vice President, Chief Financial Officer and Secretary of the Fund, Bancroft and Dinsmore Capital. |
H. Tucker Lake, Jr.(5)
Vice President
Officer since 1994
Born 1947 | | | | Vice President of the Fund, Bancroft and Dinsmore Capital. |
Germaine M. Ortiz(4)
Vice President
Officer since 1998
Born 1969 | | | | Vice President of the Fund, Bancroft and Dinsmore Capital. |
Mercedes A. Pierre
Vice President andChief Compliance Officer
Officer since 1997
Born 1961 | | | | Vice President and Chief Compliance Officer of the Fund, Bancroft and Dinsmore Capital. |
| (1) | | Mr. Thomas Dinsmore and Ms. O’Keeffe are brother and sister. |
| (2) | | Mr. Thomas Dinsmore is the father of Mr. James Dinsmore. |
| (3) | | Ms. O’Keeffe is the aunt of Mr. James Dinsmore. |
| (4) | | Ms. Ortiz is the first cousin of Mr. Levine’s wife. |
| (5) | | Mr. Lake is the first cousin of Mr. Thomas Dinsmore and Ms. O’Keeffe. |
Page 24
| | |
Board of Trustees | | Internet |
KINCHEN C. BIZZELL, CFA | | www.ellsworthfund.com |
ELIZABETH C. BOGAN, Ph.D. | | email: info@ellsworthfund.com |
THOMAS H. DINSMORE, CFA | | |
DANIEL D. HARDING, CFA | | Shareholder Services and Transfer Agent |
JANE D. O’KEEFFE | | American Stock Transfer & Trust Company, LLC |
NICOLAS W. PLATT | | 6201 15th Avenue |
| | Brooklyn, NY 11219 |
Officers | | (888) 888-0314 |
THOMAS H. DINSMORE, CFA | | www.amstock.com |
Chairman of the Board | | |
and Chief Executive Officer | | Investment Adviser |
| | Dinsmore Capital Management Co. |
JAMES A. DINSMORE, CFA | | 65 Madison Avenue, Suite 550 |
President | | Morristown, NJ 07960 |
| | (973) 631-1177 |
JANE D. O’KEEFE | | |
Executive Vice President | | Custodian of Securities |
| | Brown Brothers Harriman & Co. |
GARY I. LEVINE | | |
Executive Vice President, Chief Financial Officer | | Beneficial Share Listing |
and Secretary | | NYSE MKT Exchange Symbol: ECF |
| | |
H. TUCKER LAKE, JR. | | Legal Counsel |
Vice President | | Ballard Spahr LLP |
| | |
GERMAINE M. ORTIZ | | Independent Registered Public Accounting Firm |
Vice President | | Tait, Weller & Baker LLP |
| | |
MERCEDES A. PIERRE | | |
Vice President and Chief Compliance Officer | | |
| | |
JUDITH M. DOUGHERTY | | |
Assistant Vice President and Assistant Secretary | | |
| | |
JOANN VENEZIA | | |
Assistant Vice President | | |
ELLSWORTH FUND LTD.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.ellsworthfund.com
ITEM 2. CODE OF ETHICS.
On April 16, 2007, the Board of Trustees of Ellsworth Fund Ltd. (the “Fund”) adopted a code of ethics that applies to the Fund’s principal executive officer (the “PEO”) and principal financial officer (the “PFO”). The code of ethics is available on the Fund’s website at www.ellsworthfund.com. Since the code of ethics was adopted, there have been no amendments to it nor have any waivers from any of its provisions been granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the Fund has determined that Trustee and Audit Committee Chair, Daniel D. Harding, 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 its principal accountant, Tait, Weller & Baker LLP (“Tait Weller”), for professional services rendered to the Fund during the Fund’s last two fiscal years ended September 30, 2013 and 2014.
| | | | | | | | | | | | | | | |
Fiscal
Year-End September 30 | | Audit Fees (1) | | | Audit-Related Fees (2) | | | Tax Fees (3) | | | All Other Fees |
2013 | | $ | 37,500 | | | $ | 0 | | | $ | 3,500 | | | $ | 0 |
2014 | | $ | 38,500 | | | $ | 0 | | | $ | 3,600 | | | $ | 0 |
| |
(1) | The Fund’s Audit Committee pre-approves all Audit Fees, without exception. |
| |
(2) | The Fund’s Audit Committee pre-approves all Audit-Related Fees, with exceptions. For the Fund’s last two fiscal years ended September 30, 2013 and 2014, no Audit-Related Fees were approved by the Fund’s Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X, which waives the pre-approval requirement for certain de minimis fees. |
| |
(3) | “Tax Fees” include those fees billed by Tait Weller in connection with its review of the Fund’s income tax returns for fiscal years 2013 and 2014. The Fund’s Audit Committee pre-approves all Tax Fees, with exceptions. For the Fund’s last two fiscal years ended September 30, 2013 and 2014, no Tax Fees were approved by the Fund’s Audit Committee pursuant to Rule
2-01(c)(7)(i)(C) of Regulation S-X, which waives the pre-approval requirement for certain de minimis fees. |
Non-Audit Services
During each of the last two fiscal years ended September 30, 2013 and 2014, Tait Weller did not provide any non-audit services to the Fund, with the exception of the services for which the Fund paid the Tax Fees noted above. Tait Weller did not provide any non-audit services to the Fund’s investment adviser, Dinsmore Capital Management Co. (“Dinsmore Capital”) or its affiliates or otherwise bill the Fund or Dinsmore Capital 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 accountant before they are provided to the Fund. Such pre-approval also includes the proposed fees to be charged by the independent registered public accountant 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 is presented to the full Audit Committee, solely for informational purposes, at its next scheduled meeting.
The Audit Committee also pre-approves non-audit services to be provided by the Fund’s independent registered public accountant 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 registered public accountant is the same as, or affiliated with, the investment adviser’s independent registered public accountant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Fund has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the members of such committee are:
KINCHEN C. BIZZELL
ELIZABETH C. BOGAN, PH.D.
DANIEL D. HARDING (Chair)
(b) Not applicable.
ITEM 6. INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers as of September 30, 2014 is included as part of the report to shareholders, filed under Item 1 of this certified shareholder report on Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Bancroft Fund Ltd.
Ellsworth Fund Ltd.
Dinsmore Capital Management Co.
Proxy Voting Guidelines
(Amended July 19, 2012)
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 Dinsmore Capital Management Co. (“Dinsmore”).
The Boards of Trustees of the Funds have delegated to 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 receive proxies on many of their holdings.
Dinsmore exercises its voting responsibility with the overall goal of maximizing the value of the Funds’ investments. The portfolio managers at 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, Dinsmore will consider whether the election of such nominee will cause the board of directors of such nominee’s 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 an issuer. Prior to such vote, however, Dinsmore will take into consideration whether non-audit fees make up more than 50 to 75% of the total fees paid by such issuer to the independent auditors, and the nature of the non-audit services provided.
C.
Corporate Governance Matters
1.
Except as provided in Section E.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.
Other Matters
1.
Contested situations will be evaluated on a case by case basis by the portfolio manager or analyst at Dinsmore principally responsible for the particular portfolio security.
2.
The Funds may, in their discretion, abstain from voting shares that have been recently sold.
3.
The Funds generally will abstain from voting on issues relating to social and/or political responsibility.
4.
Proposals that are not covered by the above-stated guidelines will be evaluated on a case by case basis by the portfolio manager or analyst at Dinsmore principally responsible for the particular portfolio security.
F.
Material Conflicts of Interest
1.
Conflicts of interest may arise from time to time between Dinsmore and the Funds. Examples of conflicts of interests include:
a.
Dinsmore may manage a pension plan, administer employee benefit plans, or provide services to a company whose management is soliciting proxies;
b.
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.
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 trustees and the proxies will be voted in accordance with direction received from the Audit Committee.
G.
Amendments
1.
Any proposed material amendment to these Guidelines shall be submitted for review and approval to:
a.
the Funds’ Board of Trustees, including a majority of the disinterested trustees; and
b.
the Adviser’s Board of Directors.
2.
Non-material amendments to these Guidelines may be made by the Chair of the Funds, upon consultation with counsel to the Funds and the Funds’ Chief Compliance Officer, and will be reported to the Funds’ Board of Trustees at their next scheduled in-person meeting.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) As of December 10, 2014, Mr. Thomas H. Dinsmore, Chairman and Chief Executive Officer, Mr. James A. Dinsmore, President and Ms. Jane D. O’Keeffe, Executive Vice President, comprise the three-person portfolio management team of the Fund. Mr. Thomas H. Dinsmore has served as portfolio manager since 1996. Mr. James Dinsmore and Ms. O’Keeffe have served as portfolio managers since 2011. Mr. Thomas H. Dinsmore is the lead member of the portfolio management team.
Since February 2014, Mr. James A. Dinsmore has served as President of the Fund and of Dinsmore Capital (the “Advisor”). He served as Executive Vice President of the Fund and of the Advisor from January 2013 until February 2014. Prior to this he served as Vice President of the Fund and the Advisor from 2009 through 2012. He had also been a research analyst for the Advisor beginning in 2004.
Since February 2014, Ms. O’Keeffe has served as Executive Vice President of the Fund and of the Advisor, as well as Managing Director of Research for the Advisor. She served as President of the Fund and of the Advisor from 1996 until February 2014. Messrs. Thomas H. Dinsmore and James A. Dinsmore and Ms. O’Keeffe receive investment recommendations from a team of research analysts prior to making investment decisions about transactions in the portfolio. Generally, the co-portfolio managers make decisions jointly about any transactions in the Fund’s portfolio, but each co-portfolio manager may do so independently as well.
(2) The portfolio management team comprised of Mr. Thomas H. Dinsmore, Mr. James A. Dinsmore and Ms. Jane D. O’Keeffe is also primarily responsible for the day-to-day management of one registered investment company, Bancroft Fund Ltd. (“Bancroft”), with total assets of $122,402,165 as of November 30, 2014. The portfolio management team does not manage any accounts or assets with performance-based advisory fees. Mr. Thomas Dinsmore is Chairman and Chief Executive Officer, Ms. O’Keeffe is President
and Mr. James Dinsmore is Executive Vice President of Bancroft. This information is as of December 10, 2014. The Fund and Bancroft have similar investment objectives and strategies. As a result, material 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, Trade Allocation Procedures (the “Allocation Procedures”) have been adopted by the investment adviser for the Fund and Bancroft. 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 such an allocation.
The Allocation Procedures permit Dinsmore Capital 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 chief compliance officer of Dinsmore Capital.
(3) This information is as of December 10, 2014. The Portfolio Management team is compensated by Dinsmore Capital through a three-component plan, consisting of a fixed base salary, annual cash bonus, and benefit retirement plan. Their compensation is reviewed and approved by Dinsmore Capital’s Board of Directors annually. Their compensation may be adjusted from year to year based on the perception of Dinsmore Capital’s Board of Directors of the team’s overall performance and their management responsibilities. Their compensation is not based on (i) a formula specifically tied to the performance of the Fund or Bancroft, including performance against an index or (ii) the value of assets held in the Fund’s portfolio.
(4) As of December 10, 2014, Mr. Thomas Dinsmore’s beneficial ownership in the Fund’s shares was in the range of $500,001-$1,000,000. Mr. James Dinsmore’s beneficial ownership in the Fund’s shares was in the range of $10,001-$50,000. Ms. O’Keeffe’s beneficial ownership in the Fund’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, the following purchases were made by or on behalf of the Fund 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 Fund’s equity securities registered by the Fund pursuant to Section 12 of the Exchange Act (15 U.S.C. 78l):
REGISTRANT PURCHASES OF EQUITY SECURITIES
| | | | |
Period | (a)
Total number of
shares
purchased | (b)
Average price
paid
per share | (c)
Total number of
shares
purchased as
part of publicly
announced
plans or programs* | (d)
Maximum number
of shares that
may yet
be purchased
under the
plans or programs* |
October 1 through October 31, 2013 | 15,836 | $8.09 | 15,836 | 389,400 |
November 1 through November 30, 2013 | 84,349 | $8.07 | 84,349 | 305,051 |
December 1 through December 31, 2013 | 71,796 | $8.05 | 71,796 | 233,255 |
January 1 through January 31, 2014 | 143,056 | $8.28 | 143,056 | 90,199 |
February 1 through February 28, 2014 | 35,386 | $8.48 | 35,386 | 54,813 |
March 1 through March 31, 2014 | 54,813 | $8.60 | 54,813 | — |
Total | 405,236 | $8.26 | 405,236 | — |
* On October 21, 2013, the Board of Trustees approved a share repurchase plan (the Repurchase Plan). Under the Repurchase Plan, the Fund may purchase, in the open market, up to 3% of its outstanding shares (up to 405,236 shares, based on shares of beneficial interest outstanding as of October 21, 2013).
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 Fund’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 Item 10 of this Form N-CSR.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning the effectiveness of controls and procedures:
(a) As of December 10, 2014, an evaluation was performed under the supervision and with the participation of the officers of the Fund, including the PEO and the PFO, to assess the effectiveness of the Fund’s disclosure controls and procedures, as that term is defined in Rule 30a-3(c) (17 CFR 270.30a-3(c)) under the Investment Company Act of 1940, as amended (the “Act”). 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 Fund’s officers, including the PEO and PFO, concluded that, as of December 6, 2013, the Fund’s disclosure controls and procedures were reasonably designed so as to ensure: (1) that information required to be disclosed by the Fund 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 Fund 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 Fund’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 Fund’s internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Not applicable. See the Fund’s response to Item 2, above.
(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 Fund 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: December 10, 2014
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: December 10, 2014
By: /s/ Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: December 10, 2014
