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Ellsworth Fund Ltd (NYSEMKT:ECF) is a close-end fund that trades on the New York Stock Exchange. Since its inception, it has been continuously managed by Thomas H. Dinsmore. ECF specializes in convertible securities. The fund has been around since 1986. There has been a decline in the issuance of convertible securities in the past few years, and ECF now has 12% of its assets in common stocks with high dividend yields. As of September 30, 2012, the yield on the common stocks was 3.99%.

Barclays Research has estimated the total value of the 520 domestic convertible securities at $209 billion, with an average yield of 4.2% and a conversion premium of 38.5%. This is a declining market sector which is generating less and less attention. It is still viable, and deserves our attention as an alternative to credit-sensitive fixed income securities or high-yielding common stocks. It does offer the best of both worlds. In addition, the discount of this closed-end fund from net asset value has been increasing and offers an added attraction, particularly when this discount approaches 15%

Performance and volatility, as of September 30, 2012, have been as follows:

Calendar YTD1 Year5 Year10 Year10-year Volatility
Market price14.30%18.41%2.08%5.34%15.64%
Net Asset value12.0117.752.236.0912.33
Bank of America US Cov. Index11.8316.632.807.9212.62
S & P 500 Index16.4430.181.058.0115.29

As of September 30, 2012, its 9 largest holdings constituted only 19.15% of assets, and were as follows:

Intel2.5%
Verizon2.4
Gilead Sciences2.4
AT & T2.3
Wells Fargo2.2
EMC2.1
Nuance Communications1.9
United Technologies1.7
Chesapeake Energy1.6
19.1%

Major industry exposure is well diversified with investments in its 10 largest industries representing only 57.3% of assets and being as follows:

Semiconductors10.3%
Pharmaceuticals7.5
Software6.9
Biotechnology6.4
Oil & Gas5.6
Telecommunications5.3
Insurance4.3
Metals & Mining4.2
Commercial Banks3.7
Computers3.1

This is a relatively small closed-end fund with gross assets of $114,153,893, of which 96.4% is invested. There is no leverage. The fund does not trade with any substantial liquidity, as its shareholders tend to sit on their stock. There are liquidity issues if buying in size. You must nibble with limit offers.

The breakdown in credit ratings is fairly conservative for investing in convertible securities and is as follows:

AAA1%
AA4
A20
BBB19
BB21
B12
CCC & less3
Not Rated20

As of September 30, 2012, ECF had unrealized appreciation of $7,196,792, capital loss carryforwards of $9,344,507 and other losses of $2,320,369.

For the past five years, ECF has produced reasonable income with reasonable expenses and an acceptable turnover ratio. Statistics for this period are as follows:

20122011201020092008
Market Value Return18.41%(7.13%)21.9%23.9%(33.3%)
Expense Ratio1.11.11.11.21.3
Investment Income Ratio2.32.63.55.53.6
Portfolio Turnover Rare3947627161
Net Asset Value Return17.75(2.82)16.46.1(21.01)

Conclusion:

This investment will never be a rocket, but it is well worth investing in for safety and return. It has been around a long time, and they know their business. The discount from net asset value has widened, and this adds to its appeal.

Source: Ellsworth Fund: A Convertible Bond Fund At A Discount