Notes

Ellsworth Fund Ltd. (ECF) is a close ended equity mutual fund launched and managed by Davis-Dinsmore Management Company. It invests in fixed income markets of the United States. The fund primarily in convertible securities. It benchmarks the performance of its portfolio against the Merrill Lynch All Convertibles Index, the S&P 500 Index and the Lehman Aggregate Bond Total Return Index.
http://www.ellsworthfund.com/

An overview of convertibles:

"Convertible bonds are a safer investment than buying common stock but can provide the stock like returns. They are less volatile than stocks and their value can only fall to a price where the yield would be equal to that of a non-convertible bond of the same terms. They offer strong downside protection in a bear market, such as the one we experienced between 2000 and 2002 in the stock markets but also allow the investor to take part in the profits as a stock moves higher.

"Convertibles can be disadvantageous in the sense that the bond holder will be receiving substantially lower yield to maturity in comparison to the non-convertible equivalent. This is only a concern when the issuer's equity does not achieve the upward price projections that would make taking the lower yield speculation worthwhile.
http://www.mysmp.com/bonds/convertible-bonds.html

20JUL08 - $7.16

ECF trades at a 14% discount to its net asset value (NAV). The yield is 5%.

Expense ratio: 1.07%.

From a recent report (May 2008)

"In recent years financial innovations and alternative investments have come to provide many companies with a growing pool of capital available to meet their needs. These newer capital sources have often displaced convertible securities issued by companies that, in the past, would probably have used convertible securities for their needs. With the disruption in the financial markets of the last few months, however, these newer capital sources have become less available. Consequently many companies have returned, in a big way, to the convertible market. The return of these issuers is providing investors with large issues from well-known companies.

"Recent offerings have attractive yields and premiums, and are welcome additions to the convertible universe. According to Merrill Lynch the convertible market has grown to $321.3 billion from $313.1 billion at December 31, 2007. The average weighted yield has moved up to 3.4% from under 3% last fall. The average weighted premium to conversion value is 43%, while it had been about 35% last fall, and it had risen to 47% earlier this year. Finally, parity delta (a measure of equity sensitivity) is at 63.8 according to Merrill Lynch. This metric indicates that the convertible market is still sensitive to moves in the stocks underlying these securities. We are convinced that this convertible market provides many investment opportunities for our Fund.

Portfolio Overview

Energy: 13.5 %
Pharmaceuticals: 10.3 %
Insurance: 7.4%
Telecommunications: 7.0%
Minerals and Mining: 6.6%
Banking/Savings and Loan: 5.9 %
Consumer Goods: 5.1%
Health Care: 5.0%
Semiconductors: 4.8%

Quality Allocation (From Moody's or S&P when Moody's is unavailable)
Aa: 6% ... high quality, very low credit risk.
A: 18% ... upper-medium grade, low credit risk.
Baa: 18% ...speculative elements, substantial credit risk.
B: 19% ...speculative, high credit risk
Caa: 4% ...highly speculative, very near default
Not Rated: 32%

22NOV08 - $4.15

NAV: $5.09
Discount to NAV: 18.47%

Multiple insider buys since September, in $4 to $6 range.

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