SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BANCROFT CONVERTIBLE FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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BANCROFT CONVERTIBLE FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
Monday, February 14, 2005
11:00 a.m., Eastern Time
at
65 Madison Avenue, Suite 550
Morristown, New Jersey 07960
To Shareholders of Bancroft Convertible Fund, Inc.:
We cordially invite you to attend our 2005 Annual Meeting of Shareholders
to:
1. Elect four directors to serve for a term of one or three years, as the
case may be.
2. Ratify the Audit Committee's appointment of PricewaterhouseCoopers LLP
as independent auditors for fiscal year 2005.
3. Approve changing the fundamental investment restrictions of the Company.
4. Transact any other business that properly comes before the meeting.
We are holding the Annual Meeting on Monday, February 14, 2005 at 11:00
a.m., Eastern Time, at the Company's offices located at 65 Madison Avenue, Suite
550, Morristown, New Jersey 07960.
You may vote on these proposals in person or by proxy. If you cannot attend
the meeting, we urge you to complete and return the enclosed proxy promptly in
the enclosed, self-addressed, stamped envelope so that your shares will be
represented and voted at the meeting according to your instructions. If you are
the record owner of your shares on the books of the Company's transfer agent,
then you may also submit your proxy vote by telephone or via the Internet, by
following the instructions accompanying this Proxy Statement. If your broker
holds your shares in its name, you may submit your proxy vote by any other means
specified in the instructions that accompany this Proxy Statement. Of course, if
you attend the meeting, you may withdraw your proxy and vote your shares. Only
shareholders of record on December 22, 2004 will be entitled to vote at the
meeting or any adjournment of the meeting.
Thomas H. Dinsmore
Chairman of the Board of Directors
December 27, 2004
BANCROFT CONVERTIBLE FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
February 14, 2005
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Proxy Statement
We are sending you this Proxy Statement and the enclosed proxy card
because the Bancroft Convertible Fund, Inc.'s Board of Directors is soliciting
your proxy to vote at the 2005 Annual Meeting of Shareholders. This Proxy
Statement summarizes the information you need to know to cast an informed vote
at the Annual Meeting. However, you do not need to attend the Annual Meeting to
vote your shares. Instead, you may simply complete, sign and return the enclosed
proxy card or use any of the available alternative proxy voting methods
specified in the instructions that accompany this Proxy Statement.
If you are the record owner of your shares, the available alternative
proxy voting methods are telephone and Internet voting. If your shares are held
by a broker, the alternative proxy voting methods may include telephone,
Internet and any alternative method of voting permitted by your broker.
This Proxy Statement, the attached Notice of Annual Meeting and the
enclosed proxy card will first be sent on or about December 27, 2004 to all
shareholders entitled to vote. Shareholders who owned shares of the Company's
common stock on December 22, 2004 are entitled to vote. On this record date,
there were 5,557,138 shares outstanding. We know of no beneficial owner of more
than five percent of those shares. Each share of the Company's common stock that
you own entitles you to one vote. (A fractional share has a fractional vote.)
We are also sending along with this Proxy Statement the Company's 2004
Annual Report, which includes our financial statements.
The cost of soliciting proxies will be borne by the Company. The
Company will engage Georgeson Shareholder Communications to assist in the
solicitation of proxies for the Company. The fee for such solicitation has been
estimated to be $7,000 plus reasonable out-of-pocket expenses. Officers of the
Company may also solicit proxies and will not receive any additional
compensation for such solicitation. Both Georgeson Shareholder Communications
and officers of the Company may solicit proxies by telephone, facsimile, the
Internet or personal interview.
Time and Place of Meeting
We are holding the Annual Meeting on Monday, February 14, 2005 at 11:00
a.m., Eastern Time, at the Company's offices located at 65 Madison Avenue, Suite
550, Morristown, New Jersey 07960.
Voting by Proxy
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. If you are the record owner of your shares on the books of
the Company's transfer agent, then you may also submit your proxy vote by
telephone or via the Internet, by following the instructions accompanying this
Proxy Statement. If your broker holds your shares in its name, you may submit
your proxy vote by any other means specified in the instructions that accompany
this Proxy Statement. Returning the proxy card or using any of the available
alternative proxy voting methods will not affect your right to attend the Annual
Meeting and vote.
If you properly fill in your proxy card and send it to us in time to
vote or use any of the available alternative proxy voting methods, your "proxy"
(one of the individuals named on your proxy card) will vote your shares as you
have directed. If you sign the proxy card or use any of the available
alternative proxy voting methods but do not make specific choices, your proxy
will vote your shares as recommended by the Board as follows:
o FOR the election of all four nominees for director.
o FOR ratification of the appointment of independent auditors for
2005.
o FOR changing the Company's fundamental investment restrictions.
Your proxy will have authority to vote and act on your behalf at any
adjournment of the meeting.
If you give a proxy, you may revoke it at any time before it is
exercised. You can do this in one of four ways:
o You may send in another proxy with a later date.
o If you submitted a proxy by telephone, via the Internet or via an
alternative method of voting permitted by your broker, you may
submit another proxy by telephone, via the Internet, or via such
alternative method of voting, or send in another proxy with a later
date.
o You may notify the Company's Secretary in writing before the Annual
Meeting that you have revoked your proxy.
o You may vote in person at the Annual Meeting.
Voting in Person
If you do attend the Annual Meeting and wish to vote in person, we will
give you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring a letter from the nominee
indicating that you are the beneficial owner of the shares on December 22, 2004,
the record date for voting, and authorizing you to vote.
Quorum Requirement
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote a majority of all shares outstanding
on the record date are present in person or by proxy.
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Under rules applicable to broker-dealers, if your broker holds your
shares in its name, we expect that the broker will be entitled to vote your
shares on Proposals 1 and 2 even if it has not received instructions from you.
However, your broker will not be entitled to vote on Proposal 3 unless it has
received instructions from you. If your broker does not vote your shares on
Proposal 3 because it has not received instructions from you, these shares will
be considered "broker non-votes."
Broker non-votes, if any, and abstentions will count as present for
establishing a quorum.
Vote Necessary to Approve a Proposal
Proposal 1. Directors are elected by a plurality vote of shares present
at the meeting, meaning that the director nominee with the most affirmative
votes for a particular slot is elected for that slot. In an uncontested election
for directors, the plurality requirement is not a factor. Abstentions will not
count as votes cast and will have no effect on the outcome of this proposal. We
expect that brokers will be entitled to vote on this proposal, but any broker
non-vote will have no effect on the outcome of this proposal.
Proposal 2. The affirmative vote of the majority of votes cast is
needed to approve the ratification of the Audit Committee's appointment of the
independent auditors. Abstentions will not count as votes cast and will have no
effect on the outcome of this proposal. We expect that brokers will be entitled
to vote on this proposal, but any broker non-vote will have no effect on the
outcome of this proposal.
Proposals 3(a) through 3(p). The affirmative vote of a "majority of the
outstanding voting shares" of the Company, as defined in the Investment Company
Act of 1940, as amended (the 1940 Act), whether or not present at the Annual
Meeting, is needed to approve new fundamental investment restrictions for the
Company. The 1940 Act defines a majority of the outstanding voting shares (a
1940 Act majority) of a fund as the lesser of (a) the vote of holders of 67% or
more of the voting securities of the fund present in person or by proxy, if the
holders of more than 50% of the outstanding voting securities of the fund are
present in person or by proxy, or (b) the vote of the holders of more than 50%
of the outstanding voting securities of the fund. Broker non-votes and
abstentions will not count as votes cast and will have the effect of votes
against Proposal 3.
PROPOSAL 1
ELECTION OF DIRECTORS
Structure of the Board of Directors
The Company's Board of Directors is divided into three classes for
purposes of election. One class is elected at each annual meeting of
shareholders. Directors in each class serve for a three-year term.
The Board of Directors currently consists of nine persons. Seven of the
directors are "independent," meaning they are not "interested persons" of the
Company within the meaning of the 1940 Act. Two of the Company's directors are
"interested persons" because of their business and financial relationships with
the Company and Davis-Dinsmore Management Company (Davis-Dinsmore), its
investment adviser.
At the 2005 Annual Meeting, the terms of three directors are expiring.
The directors approved the nomination of each of the three directors whose terms
are expiring in 2005, as set forth below, to serve for terms that expire in
2008. In addition, the directors approved the nomination of one director, Robert
J. McMullan, for a term that expires in 2006. Mr. McMullan was appointed by the
Board of Directors as a
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director to fill a vacancy created by the retirement of George R. Lieberman, a
former Company director. Mr. McMullan was nominated for election at the 2005
Annual Meeting so that shareholders may have an opportunity to vote for him as a
director. Other directors are not up for election this year and will continue in
office for the rest of their terms.
Each of the nominees is willing to serve as a director. However, if a
nominee becomes unavailable for election, proxies will vote for another nominee
proposed by the Board or, as an alternative, the Board may keep the position
vacant or reduce the number of directors.
Nominees for Directors
The Board of Directors has approved the nomination of the following
people to serve as directors until the annual meeting of shareholders to be held
in 2006 or 2008, as the case may be. Each of the nominees is currently a
director of the Company. The business address of each nominee and director
listed below is Bancroft Convertible Fund, Inc., 65 Madison Avenue, Suite 550,
Morristown, NJ 07960.
Nominees Who Are Independent Directors and Whose Terms Will Expire in 2008
Donald M. Halsted, Jr., 77, served for four years as President and
Chief Operating Officer of Lonestar Industries, Inc. prior to retirement in
1983, and prior to that served for twelve years as President, Chief Executive
Officer and Director of Atlantic Cement Company. Since his retirement, Mr.
Halsted has continued to serve on various boards of directors, including the
board of Aquarion Company through 1999. Mr. Halsted served in the Army Air Force
in World War II. Mr. Halsted has been a director of the Company since 1970 and
is also a director of Ellsworth Convertible Growth and Income Fund, Inc.
(Ellsworth), a closed-end investment company. Mr. Halsted received an A.B. in
Economics from Princeton University.
Duncan O. McKee, 73, retired in 1988 from the practice of law as a
partner at the law firm of Ballard Spahr Andrews & Ingersoll, LLP (Ballard
Spahr). During his career at Ballard Spahr, Mr. McKee represented publicly owned
companies, including closed-end and open-end investment companies, in mergers,
acquisitions and securities offerings. Mr. McKee was Director Emeritus of the
Company and Ellsworth from 1988 to 1996. Mr. McKee has been a director of the
Company since 1996 and is also a director of Ellsworth. Mr. McKee received his
undergraduate degree from the College of Wooster and his law degree from Duke
University School of Law.
Nominee Who Is An Independent Director and Whose Term Will Expire in 2006
Robert J. McMullan, 50, has been a trustee of AmSouth Funds since 2003
and currently oversees 26 portfolios within the AmSouth Funds complex. From 1998
to 2004, Mr. McMullan was Senior Vice President and Chief Financial Officer of
Conexant Systems, Inc. (formerly, GlobeSpan Virata, Inc.), a semiconductor
manufacturing company. From 1989 through 1998, Mr. McMullan was an Executive
Vice President and Chief Financial Officer of The BISYS Group, Inc., a computer
services company. Mr. McMullan received a B.A. in Business Administration from
Saint Michael's College. He has been a director of the Company and Ellsworth
since November 2004, at which time he was appointed to serve out the term of
retired director George R. Lieberman.
Mr. McMullan was recommended to the Company's Nominating and
Administration Committee for election as a Company director by a non-management
director of the Company.
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Nominee Who Is An Interested Person and Whose Term Will Expire in 2008
Thomas H. Dinsmore, 51, has been Chairman and Chief Executive Officer
of the Company, Ellsworth and Davis-Dinsmore (investment adviser to the Company
and Ellsworth) since August 1996. From 1986 to August 1996, Mr. Dinsmore was
President of the Company; from 1985 to 1996, he was President of Ellsworth; and
from 1988 to 1996, he was President of Davis-Dinsmore. Mr. Dinsmore is a
Chartered Financial Analyst. Mr. Dinsmore has been a director of the Company
since 1985 and is also a director of Ellsworth and Davis-Dinsmore. Mr. Dinsmore
received a B.S. in Economics from the Wharton School of Business at the
University of Pennsylvania, and an M.A. in Economics from Fairleigh Dickinson
University.
Mr. Dinsmore is an interested person (within the meaning of the 1940
Act) of the Company and Davis-Dinsmore because he is an officer of the Company
and an officer, director and holder of more than 5% of the outstanding shares of
voting common stock of Davis-Dinsmore.
The Board of Directors recommends that you vote FOR these nominees.
Information about the Company's Other Directors
Information about the Company's other directors is presented below.
Continuing Independent Directors
Gordon F. Ahalt, 76, is currently retired. Prior to his retirement, Mr.
Ahalt was President of G.F.A. Inc., a petroleum industry consulting company,
from 1982 until 2000. From 1987 until 1998, Mr. Ahalt was a consultant with W.
H. Reaves & Co., Inc., an asset management company. Mr. Ahalt has spent his
career as an analyst of and a consultant to the petroleum industry, and has
previously served as a director or executive officer of several energy companies
and an oil and gas exploration company. Mr. Ahalt has been a director of the
Company since 1982. He is also a director of Ellsworth, Cal Dive International,
a diving service company, as well as several private investment funds. Mr. Ahalt
received a B.S. in Petroleum Engineering from the University of Pittsburgh. Mr.
Ahalt's term as director expires in 2007.
William A. Benton, 71, is currently retired. Formerly, Mr. Benton was a
partner in BE Partners, a small options market maker, from 1991 until the
business was sold on November 1, 2000. From 1991 to November 1999, he was a
limited partner of Gavin, Benton, & Co., a New York Stock Exchange specialist
firm. Mr. Benton has been a member of the New York Stock Exchange for more than
45 years, and has previously been a director of a discount brokerage firm and a
brokerage firm making markets in derivative instruments. Mr. Benton has been a
director of the Company since 1994 and is also a director of Ellsworth. Mr.
Benton graduated from Bucknell University with a B.S. in Commerce and Finance.
Mr. Benton's term as director expires in 2006.
Elizabeth C. Bogan, Ph.D., 60, has been a Senior Lecturer in Economics
at Princeton University since 1992. Before joining the faculty at Princeton, she
was the Chairman of the Economics and Finance Department at Fairleigh Dickinson
University and a member of the Executive Committee for the College of Business
Administration. Dr. Bogan has chaired numerous administrative and academic
committees. Dr. Bogan has been a director of the Company since 1990 and is also
a director of Ellsworth. Dr. Bogan received an A.B. in Economics from Wellesley
College, an M.A. in Quantitative Economics from the University of New Hampshire,
and a Ph.D. in Economics from Columbia University. Her writings on finance have
been published in The Financial Analysts Journal and in other journals. Dr.
Bogan's term as director expires in 2006.
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Nicolas W. Platt, 51, has been President of CNC-US, an international
consulting company, since January 2003. From May 2001 to January 2003, he was a
Senior Partner of Platt & Rickenbach, a New York based financial relations firm.
From January 1995 to April 2001, he held senior executive positions with the WPP
Group, UK and its public relations subsidiaries, Ogilvy Public Relations,
Burson-Marsteller and Robinson Lehr Montgomery. He has been a director of the
Company since 1997 and is also a director of Ellsworth. Mr. Platt received a
B.A. from Skidmore College and an M.A. in Economics from Columbia University.
Mr. Platt's term as director expires in 2007.
Continuing Director Who Is An Interested Person
Jane D. O'Keeffe, 49, has been President of the Company, Ellsworth and
Davis-Dinsmore since August 1996. In 1996, before becoming President of the
Company and Ellsworth, she was Executive Vice President of the Company and
Ellsworth. From 1994 to 1996, Ms. O'Keeffe was Vice President of the Company and
Ellsworth and Executive Vice President of Davis-Dinsmore. Ms. O'Keeffe has been
in the investment business since 1980. Ms. O'Keeffe has been a director of the
Company since 1995 and is also a director of Ellsworth and Davis-Dinsmore. Ms.
O'Keeffe has a B.A. from the University of New Hampshire and attended the Lubin
Graduate School of Business at Pace University. Ms. O'Keeffe's term as director
expires in 2007.
Ms. O'Keeffe is an interested person (within the meaning of the 1940
Act) of the Company and Davis-Dinsmore because she is an officer of the Company
and an officer, director and holder of more than 5% of the outstanding shares of
voting common stock of Davis-Dinsmore.
Certain Relationships
Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister.
Committees of the Board of Directors
The Board of Directors has three committees: an Audit Committee, a
Nominating and Administration Committee and a Pricing Committee.
Audit Committee
The Company has a separately designated Audit Committee as that term is
defined in the Securities Exchange Act of 1934, as amended. The Audit Committee
is comprised entirely of independent directors (Mr. Benton, Dr. Bogan, Mr.
Halsted and Mr. McMullan, with Dr. Bogan serving as Chairperson). In addition,
all such members are independent as such term is defined by the American Stock
Exchange's Company Guide.
In accordance with its charter, attached as Appendix A to this Proxy
Statement, the Audit Committee oversees the Company's accounting and financial
reporting policies and practices, as well as the quality and objectivity of the
Company's financial statements and the independent audit of the financial
statements. Among other duties, the Audit Committee is responsible for: (i) the
appointment, compensation and oversight of any independent auditors employed by
the Company (including monitoring the independence qualifications and
performance of such auditors and resolution of disagreements between the
Company's management and the auditors regarding financial reporting) for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services; (ii) overseeing the accounting and financial
reporting process of the Company; (iii) monitoring the process and the resulting
financial statements prepared by management to promote accuracy and integrity of
the financial statements and asset valuation; (iv) assisting the Board of
Directors' oversight of the
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Company's compliance with legal and regulatory requirements that related to the
Company's accounting and financial reporting, internal control over financial
reporting and independent audits; (v) to the extent required by Section 10A of
the Securities Exchange Act of 1934, as amended, pre-approving all permissible
audit and non-audit services provided to the Company by its independent
auditors; (vi) pre-approving, in accordance with Item 2.01(c)(7)(ii) of
Regulation S-X, certain non-audit services provided by the Company's independent
auditors to the Company's investment adviser and certain other affiliated
entities if the Company's independent auditors are the same as, or affiliated
with, the investment adviser's or affiliated entities' auditors; and (vii) to
the extent required by Regulation 14A under the Securities Exchange Act of 1934,
as amended, preparing an audit committee report for inclusion in the Company's
annual proxy statement.
Audit Committee Report
The Audit Committee reviewed and discussed the Company's audited
financial statements with its independent auditors, PricewaterhouseCoopers LLP
(PwC). These discussions included the auditor's judgments about the quality, not
just acceptability, of the Company's accounting principles as applied in its
financial reporting. PwC, the Audit Committee and management also discussed
matters such as the clarity, consistency and completeness of the accounting
policies and disclosures, with a particular focus on critical accounting
policies.
The Audit Committee has received a letter from PwC required by
Independence Standards Board Standard No. 1 disclosing all relationships between
PwC and its related entities and the Company. The Audit Committee discussed with
PwC their independence as the Company's independent auditors. In addition, the
Audit Committee has considered whether the provision of non-audit services by
PwC is compatible with maintaining PwC's independence. The Audit Committee also
reviewed and discussed the Company's audited financial statements with
management.
Based on the review and discussions described above, the Audit
Committee has recommended to the Company's Board of Directors that the audited
financial statements be included in the Company's annual report to shareholders
for the fiscal year ended October 31, 2004 for filing with the Securities and
Exchange Commission.
Elizabeth C. Bogan, Ph.D., Chairperson
William A. Benton
Donald M. Halsted
Robert J. McMullan
Nominating and Administration Committee
The Nominating and Administration Committee is comprised entirely of
independent directors (Mr. Ahalt, Mr. Halsted and Mr. Platt, with Mr. Ahalt
serving as Chairman). In addition, all such members are independent as such term
is defined by the American Stock Exchange's Company Guide. In accordance with
its charter, the Committee, among other duties, is responsible for: (i)
nominating persons for election or appointment: (a) as additions to the Board of
Directors, (b) to fill vacancies which, from time to time, may occur in the
Board of Directors and (c) for election by shareholders of the Company at
meetings called for the purpose of electing directors; (ii) nominating persons
for appointment as members of each committee of the Board of Directors,
including, without limitation, the Audit Committee, the Nominating and
Administration Committee, and the Pricing Committee; (iii) reviewing from time
to time the compensation, if any, payable to the directors and making
recommendations to the Board of Directors regarding compensation; (iv) reviewing
and evaluating from time to time the functioning of the Board of Directors and
the various committees of the Board of Directors; (v) overseeing the selection
of
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independent legal counsel to the independent directors; and (vi) monitoring the
performance of independent legal counsel employed by the Company and the
independent directors.
After a determination by the Nominating and Administration Committee
that a person should be nominated as an additional director, or as soon as
practical after a vacancy occurs or it appears that a vacancy is about to occur
for a director position on the Board of Directors, the Nominating and
Administration Committee will nominate a person for appointment by a majority of
the independent directors to add to the Board of Directors or to fill the
vacancy. Prior to a meeting of the shareholders of the Company called for the
purpose of electing directors, the Nominating and Administration Committee will
nominate one or more persons for election as directors at such meeting.
Evaluation by the Nominating and Administration Committee of a person
as a potential nominee to serve as a director, including a person nominated by a
shareholder, should result in the following findings by the Nominating and
Administration Committee: (i) upon advice of independent legal counsel to the
independent directors, that the person will qualify as an independent director
(applicable only to the nomination of independent directors), and that the
person is otherwise not disqualified under the 1940 Act from serving as a
director of the Company; (ii) with respect to the nomination of independent
directors only, that the person is free of any material relationship with the
Company (other than as a shareholder of the Company), that would interfere with
the exercise of independent judgment; (iii) that the person is willing to serve,
and willing and able to commit the time necessary for the performance of the
duties of a director; (iv) that the person can make a positive contribution to
the Board of Directors and the Company, with consideration being given to the
person's business experience, education and such other factors as the Nominating
and Administration Committee may consider relevant; (v) that the person is of
good character and high integrity; (vi) that the person has desirable
personality traits including independence, leadership and the ability to work
with the other members of the Board of Directors; (vii) that the person is not
an AMEX employee or floor member; and (viii) that the composition of the Board
of Directors is varied as to educational background, business experience and
occupation.
Consistent with the 1940 Act, the Nominating and Administration
Committee can consider recommendations from management in its evaluation
process.
The Nominating and Administration Committee will consider nominees
recommended by a shareholder to serve as director, provided: (i) that such
person is a shareholder of record at the time he or she submits such names and
is entitled to vote at the meeting of shareholders at which directors will be
elected; and (ii) that the Nominating and Administration Committee, shall make
the final determination of persons to be nominated. The Nominating and
Administration Committee will evaluate nominees recommended by a shareholder to
serve as directors in the same manner as they evaluate nominees identified by
the Nominating and Administration Committee.
A shareholder may nominate an individual for election to the Board of
Directors at the 2006 Annual Meeting of shareholders if the shareholder: (1) is
a shareholder of record at the time of giving notice to the Company; (2) is a
shareholder of record at the time of the 2006 Annual Meeting; (3) is entitled to
vote at the 2006 Annual Meeting; and (4) has complied with the notice procedures
in the Company's Bylaws. The notice procedures require that a shareholder submit
the nomination in writing to the Secretary of the Company no earlier than
October 17, 2005 but no later than November 16, 2005. The notice must contain
all information relating to the nominee required for proxy solicitations by
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
the individual's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected). The notice must also contain
the shareholder's name and address as they appear on the Company's books (and
the name and address of any beneficial owner, on whose behalf the nomination is
made) and the number of shares of stock owned beneficially and of record by such
shareholder and shareholder nominee.
8
A current copy of the Nominating and Administration Committee Charter
is set forth in Appendix B.
Pricing Committee
The Pricing Committee is comprised of three members, two of whom are
independent directors (Mr. Ahalt and Mr. Platt, with Mr. Ahalt serving as
Chairman) and one of whom is an interested person (Mr. Dinsmore). In accordance
with its charter, the Committee assists the Company's investment adviser,
Davis-Dinsmore, in its valuation of the Company's portfolio securities when
pricing anomalies arise and the full Board is not available to assist
Davis-Dinsmore in making a fair value determination.
It is anticipated that the Committee will meet only as pricing
anomalies or issues arise that cannot be resolved by the entire Board due to
time constraints.
Board and Committee Meeting Attendance
During the 2004 fiscal year, the Board of Directors met nine times, the
Audit Committee met four times and the Nominating and Administration Committee
met four times. The Pricing Committee did not meet. All directors attended at
least 75% of all Board and Committee meetings held during the 2004 fiscal year.
The Company's policy regarding Board member attendance at annual meetings of
shareholders is that directors are encouraged but not required to attend such
annual meetings. Each of the Company's then current directors attended the
Company's 2004 annual meeting of shareholders.
Shareholder Communications with the Board of Directors
The Company adopted Shareholder Communication Procedures (the
"Procedures") that set forth the process by which shareholders of the Company
may send communications to the Board of Directors. If a shareholder sends a
recommendation of a nominee to the Board of Directors or to an individual
director, such communication would be covered by the Procedures. Shareholder
proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended, and communications made in connection with such proposals are
not subject to the Procedures. The Company's Bylaws also contain provisions
requiring a shareholder to provide advance notice of his or her intention to
nominate, at the Company's annual meeting of shareholders, an individual for
election as director.
Pursuant to the Procedures, shareholders should send their
communications to the Company's Shareholder Relations Group. Communications may
be sent by regular mail or delivery service to the following address: 65 Madison
Avenue, Suite 550, Morristown, NJ 07960. Email communications may be sent to:
info@bancroftfund.com. All shareholder communications that are directed to the
Board of Directors or an individual director of the Company in his or her
capacity as director and received by the Shareholder Relations Group shall be
promptly forwarded to the individual director of the Company to whom they were
addressed or to the full Board, as applicable. Copies of all such shareholder
communications will also be distributed to the Chairs of each of the Company's
Audit Committee and Nominating and Administration Committee, and to counsel for
the Company and for the independent directors. Counsel for the Company and for
the independent directors, upon receipt of its copy of a shareholder
communication, shall work with such Chairs and counsel for the independent
directors to determine whether such shareholder communication should be
distributed to any directors to whom it was not sent and whether and in what
manner the directors should respond to such shareholder communication.
Responses, if any, to shareholder communications shall be coordinated by counsel
for the Company and for the independent directors, working with the Chairs.
9
Directors' Compensation
Mr. Dinsmore and Ms. O'Keeffe are the only officers of the Company or
Davis-Dinsmore who serve on the Board of Directors. Each director who is not an
officer of the Company or Davis-Dinsmore currently receives (1) an annual fee of
$5,000, (2) $1,000 plus expenses for each Board meeting attended, (3) $1,000 for
each shareholders' meeting attended, (4) $1,000 plus expenses for each Committee
meeting attended that is not held in conjunction with a Board meeting, and (5)
$500 for each Committee meeting attended that is held in conjunction with a
Board meeting. The chairperson of each Committee receives an additional $200 per
Committee meeting.
Davis-Dinsmore is the Company's investment adviser and is also the
investment adviser to Ellsworth. Because of this connection, Ellsworth and the
Company make up a "fund complex" (Fund Complex). The following table shows the
compensation that was paid to the directors solely by the Company as well as by
the Fund Complex as a whole during the 2004 fiscal year.
Aggregate Compensation Total Compensation
From Company From Fund Complex
------------ -------------------
Thomas H. Dinsmore...................... $ -0- $ -0-
Jane D. O'Keeffe........................ $ -0- $ -0-
Gordon F. Ahalt......................... $16,200 $33,400
William A. Benton....................... $15,500 $31,500
Elizabeth C. Bogan, Ph.D................ $17,300 $35,100
Donald M. Halsted, Jr................... $19,100 $38,700
George R. Lieberman (1)................. $17,500 $35,500
Duncan O. McKee......................... $13,000 $27,000
Robert J. McMullan (2).................. $ -0- $ -0-
Nicolas W. Platt........................ $14,000 $29,000
(1) Mr. Lieberman retired as a director October 18, 2004.
(2) Mr. McMullan was appointed director as of November 15, 2004.
10
Security Ownership of Management
The Company's directors, nominees for director and officers
owned the shares of the Company's common stock shown on the following table as
of October 31, 2004 (officers of the Company are identified in the "Additional
Information - Executive Officers" section of this proxy statement)
Shares of Company
wned Beneficially
-----------------
Gordon F. Ahalt........................... 1,200
William A. Benton......................... 3,070
Elizabeth C. Bogan, Ph.D.................. 2,459
Thomas H. Dinsmore........................ 13,166(1)
Donald M. Halsted, Jr..................... 3,248
Duncan O. McKee........................... 1,614
Robert J. McMullan........................ None
Jane D. O'Keeffe.......................... 10,709(2)
Nicolas W. Platt.......................... 589
H. Tucker Lake, Jr........................ 348(3)
Gary I. Levine........................... 1,641
Germaine M. Ortiz......................... None
Mercedes A. Pierre........................ 165(4)
Joshua P. Lake............................ 186
* Represents for each director and officer less than 1% of the outstanding
shares of the Company. As of October 31, 2004, directors and officers of the
Company beneficially owned in the aggregate 38,395 shares of the Company,
representing approximately 0.69% of the outstanding shares. Except as
otherwise indicated, each director and officer possesses sole investment and
voting power with respect to shares beneficially owned.
(1) Includes (i) 2,527 shares held in trust for the benefit of Mr. Dinsmore's
minor child, (ii) 1,556 shares which Mr. Dinsmore owned jointly with his
wife, and (iii) 3,475 shares owned solely by his wife, as to which shares
Mr. Dinsmore disclaims beneficial ownership.
(2) Includes (i) 5,148 shares held in trust for the benefit of Ms. O'Keeffe's
minor children, and (ii) 2,543 shares owned jointly with her husband.
(3) Includes 225 shares owned by Mr. Lake's spouse. (4) Ms. Pierre and her
spouse own these shares jointly.
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Although not required to do so, the Board of Directors seeks your
ratification of the Audit Committee's appointment of PricewaterhouseCoopers LLP
(PwC) as the Company's independent auditors for the 2005 fiscal year. The Board
of Directors believes that the shareholders should have the opportunity to vote
on this matter. If the appointment is not ratified, the Audit Committee will
meet to select new independent auditors. We do not expect that a representative
from PwC will be present at the Annual Meeting. However, should a PwC
representative choose to attend, he or she will have an opportunity to make a
statement and to respond to appropriate questions.
11
Fees Billed by PwC Related to the Company
Set forth in the table below are the aggregate fees billed to the
Company by PwC for services rendered to the Company during the Company's last
two fiscal years ended October 31, 2003 and October 31, 2004.
Fiscal Year Ended
October 31 Audit Fees Audit-Related Fees(1) Tax Fees(2) All Other Fees
---------- ---------- ------------------ -------- --------------
2003 $32,847 $0 $2,200 $0
2004 $34,400 $0 $2,500 $0
(1) "Audit-Related Fees" include those fees billed to the Company by PwC in
connection with its review of the Company's Registration Statement on Form
N-2 relating to the Company's Rights Offering. All Audit-Related Fees were
pre-approved by the Company's Audit Committee and no Audit-Related Fees
were approved by the Company'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) "Tax Fees" include those fees billed by PwC in connection with its review
of the Company's income tax returns. All Tax Fees were pre-approved by the
Company's Audit Committee and no Tax Fees were approved by the Company'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 October 31, 2003 and
October 31, 2004, PwC did not provide any non-audit services to the Company or
Davis-Dinsmore or its affiliates or otherwise bill the Company 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 Company by its independent
auditors before they are provided to the Company. Such pre-approval also
includes the proposed fees to be charged by the independent auditors 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 defined in Rule
10A-3(b)(1)(iii) under the Exchange Act. 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 Company's independent auditors to the Company' investment adviser if the
engagement relates directly to the operations and financial reporting of the
Company and if the Company' independent auditors are the same as, or affiliated
with, the investment adviser's auditors.
The Board of Directors recommends that you vote FOR Proposal 2.
12
PROPOSAL 3
CHANGES TO THE COMPANY'S FUNDAMENTAL INVESTMENT RESTRICTIONS
Background
Pursuant to the 1940 Act, the Company has adopted fundamental
restrictions covering certain types of investment practices, which may be
changed only with shareholder approval. Investment restrictions that the Company
has not specifically designated as being "fundamental" are considered to be
"non-fundamental" and may be changed by the Board of Directors without
shareholder approval.
The Board is recommending that you approve changes to the Company's
fundamental investment restrictions for the reasons set forth below. The Board
approved the changes to the Company's fundamental investment restrictions at an
in-person meeting held on November 22, 2004.
Although Proposals 3(a) through 3(p) all relate to the Company's
fundamental investment restrictions, each will be voted on separately, as
indicated on the enclosed proxy card. If any particular proposal is not approved
by the Company's shareholders, the current fundamental investment restriction of
the Company related to that proposal will not be changed.
Reasons for the Proposed Changes to the Company's Fundamental Investment
Restrictions
Several of the Company's fundamental investment restrictions reflect
regulatory, business or industry conditions, practices or requirements that are
no longer applicable. For example, the National Securities Markets Improvement
Act of 1996 (NISMIA) preempted certain state securities laws, under which the
Company previously was regulated and which required the adoption of certain
investment restrictions. In addition, other fundamental investment restrictions
reflect regulatory requirements that remain in effect but are not required to be
stated as fundamental, or in some cases even as non-fundamental, investment
restrictions.
Accordingly, the Board of Directors has approved changes to the
Company's fundamental investment restrictions in order to simplify and modernize
those investment restrictions that are required to be fundamental. In addition,
the Board of Directors has approved adding certain corresponding
"non-fundamental" restrictions, which may be changed by the Board of Directors
without shareholder approval.
The Board of Directors expects that shareholders will benefit from
these changes in a number of ways. The proposed investment restrictions will
provide the Company with the investment flexibility enjoyed by the Company's
competitors. Further, by reducing to a minimum those investment restrictions
that can be changed only by a shareholder vote, the Company will be able to
avoid the costs and delays associated with a shareholder meeting if the Board of
Directors decides that future changes to the company's fundamental investment
restrictions are in the best interest of the Company and its shareholders.
What the Proposed Changes to the Fundamental Investment Restrictions Will
Involve
Each proposed change to the Company's fundamental restrictions is
discussed below. The proposed fundamental investment restrictions will provide
the Company with the ability to operate under new interpretations of the 1940
Act or pursuant to exemptive relief from the SEC without receiving prior
shareholder approval of operating under such interpretations or exemptions. This
flexibility is referred to in the proposed investment restrictions as being
permitted by the "1940 Act laws, interpretation and
13
exemptions." Even though the Company will have this flexibility, if the proposed
fundamental investment restrictions are approved by shareholders, several new
non-fundamental investment restrictions (which function as internal operating
guidelines) will become effective, which will replace the Company's current
non-fundamental investment restrictions. The Company's investment advisor must
follow these non-fundamental restrictions in managing the Company. Of course, if
circumstances change, the Board of Directors may change or eliminate any
non-fundamental investment restriction in the future without shareholder
approval.
Any investment restriction that involves a maximum or minimum
percentage of securities or assets (other than with respect to borrowing) shall
not be considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Company.
PROPOSAL 3(a) -
CHANGE TO FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Current Fundamental Restriction
The Company's existing fundamental restriction with regard to issuer
diversification is as follows:
"The Company will not, with respect to 85% of its total assets,
invest more than 5% of the market value of its total assets in
the securities of any one issuer (other than the United States
government or its agencies) or purchase additional securities of
any one issuer (other than the United States government or its
agencies) if after giving effect to such purchase the cost of all
securities of such issuer then held by it would exceed 5% of the
market value of its total assets."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(a), the existing fundamental
restriction with regard to issuer diversification for the Company would be
changed to read as follows:
"The Company is a "diversified company" as defined in the 1940
Act. The Company will not purchase the securities of any issuer
if, as a result, the Company would fail to be a diversified
company within the meaning of the 1940 Act, and the rules and
regulations promulgated thereunder, as such statute, rules and
regulations are amended from time to time or are interpreted from
time to time by the SEC staff (collectively, the 1940 Act laws
and interpretations) or except to the extent that the Company may
be permitted to do so by exemptive order or similar relief
(collectively, with the 1940 Act laws and interpretations, the
1940 Act laws, interpretations and exemptions). In complying with
this restriction, however, the Company may purchase securities of
other investment companies to the extent permitted by the 1940
Act laws, interpretations and exemptions."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction would become effective for the Company:
"In complying with the fundamental restriction regarding issuer
diversification, the Company will not, with respect to 75% of its
total assets, purchase the securities of any
14
issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities), if, as a
result, (i) more than 5% of the Company's total assets would be
invested in the securities of that issuer or (ii) the Company
would hold more than 10% of the outstanding voting securities of
that issuer. The Company may purchase securities of other
investment companies as permitted by Section 12(d)(1) of the 1940
Act."
Reasons for the Change
The Company operates as a diversified investment company within the
requirements of the 1940 Act. Its current fundamental investment restriction
pertaining to issuer diversification is more stringent than that required by the
1940 Act, which only requires 75% of a diversified company's assets to be so
invested. Historically, the Company has been diversified with respect to 85% or
more of its assets. Management does not currently expect that this change will
affect the Company's operations, although it will provide management some
additional flexibility in purchasing securities for the Company. The proposed
restriction has been drafted broadly so that the Company may take advantage of
SEC interpretations regarding diversification. The Board has adopted a
non-fundamental policy, which it may change without shareholder approval, that
provides that the Company must be diversified with respect to 75% of its assets.
PROPOSAL 3(b) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
BORROWING MONEY
Current Fundamental Restriction
The existing Company's existing fundamental restriction on borrowing
money is as follows:
"The Company will not borrow money, except for temporary or
emergency purposes to the extent of 5% of the market value of its
total assets determined at the time of borrowing, or pledge,
mortgage or hypothecate its assets to secure such borrowing
except securities in an amount taken at market value not
exceeding 15% of its total assets taken at cost."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(b), the existing fundamental
restriction on borrowing money for the Company would be changed to read as
follows:
"The Company may not borrow money, except as permitted by the
1940 Act laws, interpretations and exemptions."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction would become effective for the Company:
"The Company may borrow money in an amount not exceeding 5% of
its total assets (including the amount borrowed) less liabilities
(other than borrowings). The Company may borrow from banks and
broker/dealers. The Company may not borrow for leveraging, but
may borrow for temporary or emergency purposes, in anticipation
of or in response to adverse market conditions, or for cash
management purposes. The Company
15
may not purchase additional securities when any borrowings from
banks exceed 5% of the Company's total assets."
Reasons for the Change
The 1940 Act establishes limits on the ability of the Company to borrow
money. Currently, the fundamental restriction for the Company is more limiting
than required by the 1940 Act, which would permit the Company to borrow amounts
not exceeding 33 1/3% of its total assets (including amounts borrowed) less
liabilities (other than borrowing). The proposed changes would make the
Company's restriction on borrowing money no more limiting than that required by
the 1940 Act. Historically, the Company has not borrowed to purchase additional
securities (which would result in leveraging the Company). The Board is
currently of the view that the Company should not be leveraged. As a result, the
non-fundamental investment restriction adopted by the Board limits the
situations in which the Company may borrow. The proposed change would provide
the Company with flexibility to borrow for leveraging at some point in the
future, if the Board determined it was in the best interests of the Company to
do so. If the Board approved the use of leverage, the Company would notify
shareholders prior to engaging in leverage.
PROPOSAL 3(c) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
ISSUING SENIOR SECURITIES
Current Fundamental Restriction
The Company's existing fundamental restriction on issuing senior
securities is as follows:
"The Company will not issue senior securities."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(c), the existing fundamental
restriction on issuing senior securities for the Company would be changed to
read as follows:
"The Company may not issue senior securities, except as
permitted by the 1940 Act laws, interpretations and
exemptions."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction would become effective for the Company:
"The Company will not issue senior securities, but may borrow
money in accordance with its non-fundamental restriction on
borrowing money."
Reasons for the Change
The 1940 Act establishes limits on the ability of the Company to issue
"senior securities," a term that is defined, generally, to refer to obligations
that have a priority over the company's shares of common stock with respect to
the distribution of its assets or the payment of dividends. Currently, the
16
fundamental restriction for the Company is more limiting than required by the
1940 Act. The proposed change would make the Company's restriction on issuing
senior securities no more limiting than required by the 1940 Act. Although it
has no current intention of authorizing the issuance of senior securities, the
Board believed that it was prudent to provide the Company with the flexibility
to issue such securities in the future. The non-fundamental investment
restriction currently prohibits the issuance of senior securities, other than
borrowing money in accordance with the non-fundamental policy regarding
borrowing money. Such restriction may be changed by the Board without
shareholder approval. Management of the Company does not expect this change to
have a material impact on the Company's operations.
PROPOSAL 3(d) -
CHANGE TO FUNDAMENTAL RESTRICTION ON UNDERWRITING SECURITIES
Current Fundamental Restriction
The Company's existing fundamental restriction on underwriting
securities is as follows:
"The Company will not underwrite securities of other issuers,
except that it may acquire convertible securities the subsequent
disposition of which (or of the underlying equity security) would
cause the Company to be deemed an underwriter within the meaning
of the Securities Act of 1933, as amended."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(d), the existing fundamental
restriction on underwriting securities for the Company would be changed to read
as follows:
"The Company may not underwrite the securities of other issuers.
This restriction does not prevent the Company from engaging in
transactions involving the acquisition, disposition or resale of
its portfolio securities, even if engaging in such transactions
may cause the Company to be considered an underwriter under the
Securities Act of 1933, as amended."
Reasons for the Change
All investment companies must state their policy on underwriting
securities. The current fundamental restriction and the proposed fundamental
restriction are substantially the same in that they prohibit the Company from
acting as an underwriter. Both the current and proposed fundamental restrictions
state that this prohibition does not extend to situations where the Company
could be deemed to be an underwriter under the securities laws when it disposes
of securities. The proposed fundamental restriction is more explicit in
describing transactions that might result in the Company being deemed to be an
underwriter. Management of the Company does not expect this change to have a
material impact on the Company's operations.
17
PROPOSAL 3(e) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
PURCHASING OR SELLING REAL ESTATE
Current Fundamental Restriction
The Company's existing fundamental restriction on purchases and sales
of real estate investments is as follows:
"The Company will not purchase or sell interests in real estate
or real estate investment trusts, except that the Company may
purchase and sell securities of corporations which hold interests
in real estate."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(e), the existing fundamental
restriction on purchases and sales of real estate investments by the Company
would be changed to read as follows:
"The Company may not purchase real estate or sell real estate
unless acquired as a result of ownership of securities or other
instruments. This restriction does not prevent the Company from
investing in issuers that invest, deal or otherwise engage in
transactions in real estate or interests therein, or investing in
securities that are secured by real estate or interests therein,
including real estate investment trusts."
Reasons for the Change
All investment companies must state their policy on investing in real
estate. When the Company was subject to regulation by state securities laws,
many states prohibited direct investments by investment companies in real
estate. The Company's current policy restricts the ability of the Company to
invest directly in real estate, as well as real estate investment trusts
(REITs). The proposed policy would broaden the types of investments that the
Company may purchase that are real estate-related, and would permit the Company
to buy REITs and securities that are secured by real estate. In addition, the
proposed restriction includes an exception that permits the Company to hold real
estate acquired as a result of ownership of securities or other instruments.
Management of the Company does not expect this change to have a material impact
on the Company's operations.
PROPOSAL 3(f) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
PURCHASING OR SELLING COMMODITIES
Current Fundamental Restriction
The Company's existing fundamental restriction on purchases and sales
of commodities is as follows:
"The Company will not purchase or sell commodities or commodity
contracts."
18
Proposed Fundamental Restriction
Upon the approval of Proposal 3(f), the existing fundamental
restriction on purchases and sales of commodities by the Company would be
changed to read as follows:
"The Company may not purchase physical commodities or sell
physical commodities unless acquired as a result of ownership of
securities or other instruments. This restriction does not
prevent the Company from engaging in transactions involving
futures contracts and options thereon or investing in securities
that are secured by physical commodities."
Reasons for the Change
The Company's current fundamental restriction could be interpreted to
prohibit the Company's purchase of futures contracts and options on such
contracts. The proposed fundamental restriction would clarify that the
prohibition on investing in commodities is limited to physical commodities (such
as gold, coffee and soybeans). The proposed change to this fundamental
restriction is intended to ensure that the Company will have the maximum
flexibility to enter into hedging and other transactions utilizing financial
contracts and derivative products when doing so is permitted by the Company's
other investment policies. Furthermore, the proposed restriction would allow the
Company to respond to the rapid and continuing development of derivative
products. The proposed restriction creates an exception to the prohibition on
buying and selling commodities to cover financial derivative instruments.
Management does not believe this change will materially affect the operations of
the Company because it has not typically engaged in futures contracts and
options on such contracts. This change would provide the Company with additional
flexibility should management determine it would be desirable to engage in these
types of transactions.
PROPOSAL 3(g) -
CHANGE TO FUNDAMENTAL RESTRICTION ON MAKING LOANS
Current Fundamental Restriction
The Company's existing fundamental restriction on the Company making
loans is as follows:
"The Company will not make loans to other persons, (a) except
that (i) the Company may lend its portfolio securities provided
the value of such loaned securities does not exceed 10% of its
total assets and (ii) the purchase of debt securities in
accordance with the Company's investment policies shall not be
considered the making of a loan, and (b) provided that the
Company may make temporary purchases of securities issued or
guaranteed by the United States, its agencies or
instrumentalities; bank certificates of deposit; or high-grade
commercial paper, which are subject to repurchase agreements."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(g), the existing fundamental
restriction on the Company making loans would be changed to read as follows:
"The Company will not make personal loans or loans of its assets
to persons who control or are under common control with the
Company, except to the extent permitted by 1940 Act laws,
interpretations and exemptions. This restriction does not prevent
the Company from, among other things, purchasing debt
obligations, entering into repurchase
19
agreements, loaning its assets to broker-dealers or institutional
investors, or investing in loans, including assignments and
participation interests."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"In complying with the fundamental restriction with regard to
making loans, the Company may lend up to 33 1/3% of its total
assets."
Reasons for the Change
The current fundamental restriction prohibits loans to persons, and
limits lending securities to an amount less than that permitted by the 1940 Act.
The proposed fundamental restriction would prohibit personal loans, and loans to
persons who control the Company. It would permit the Company to engage in
transactions that might be deemed to be loans, such as repurchase agreements or
the purchase of debt securities. The proposed restriction would also permit the
Company to lend securities to the fullest extent permitted by the 1940 Act.
Although the Company does not currently lend its portfolio securities, the Board
believed that it was prudent to provide the Company with the flexibility to make
loans and lend securities in the future. The non-fundamental restriction limits
securities lending to 33 1/3% of the Company's assets. This restriction could be
changed by the Board without shareholder approval. As a result, the proposed
change is not expected to affect the Company's operations.
PROPOSAL 3(h) -
CHANGE TO FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Current Fundamental Restriction
The Company's existing fundamental restriction on industry
concentration by the Company is as follows:
"The Company will not invest more than 25% of the market value
of its total assets in any one industry."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(h), the existing fundamental
restriction on industry concentration by the Company would be changed to read as
follows:
"The Company will not make investments that will result in the
concentration (as that term may be defined or interpreted by the
1940 Act laws, interpretations and exemptions) of its investments
in the securities of issuers primarily engaged in the same
industry. This restriction does not limit the Company's
investments in (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or (ii) tax-exempt
obligations issued by governments or political subdivisions of
government. In complying with this restriction, the Company will
not consider a bank-issued guaranty or financial guaranty
insurance as a separate security."
20
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"In complying with the fundamental restriction regarding industry
concentration, the Company may invest up to 25% of its total
assets in the securities of issuers whose principal business
activities are in the same industry."
Reasons for the Change
The proposed change will permit the Company to take advantage of the
1940 Act laws, interpretations and exemptions in effect from time to time
relating to industry concentration. The Board does not expect this change to
have a material effect on the Company's operations.
PROPOSAL 3(i) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN
LISTED COMPANIES THAT MEET CERTAIN LISTING STANDARDS
Current Fundamental Restriction
The Company's existing fundamental restriction on investing in listed
companies that meet certain listing standards is as follows:
"The Company will not have less than 80% of the market value of
its total assets (excluding cash and government securities)
invested in (a) securities of companies which at the time of
purchase (i) had shares of their common stock listed on the New
York Stock Exchange, the American Stock Exchange or NASDAQ
National Market (each, an "Exchange"), (ii) met the then
prevailing earnings requirements for listing on the New York
Stock Exchange, or (iii) had pre-tax earnings of at least
$2,000,000 in three of the five preceding fiscal years, and (b)
in American Depositary Receipts that at the time of purchase (i)
are listed on an Exchange, or (ii) met the then prevailing
earnings requirements for listing on the New York Stock Exchange.
The fact that any or all of these standards is met is no
assurance of investment quality."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(i), the existing fundamental
restriction on investing 80% or more of the Company's assets in securities of
companies that are listed on the New York Stock Exchange, American Stock
Exchange or NASDAQ National Market and that meet certain earnings requirements,
would be eliminated.
Reasons for the Change
The Company is not required to have a fundamental restriction on
investing in the types of listed securities described in the current fundamental
restriction. Eliminating this restriction will permit the Company to purchase
securities that may be issued by entities that are affiliated with publicly
traded companies or have been organized by publicly traded companies, but are
not themselves publicly traded. Management of the Company believes that this
will give it greater flexibility in seeking investment opportunities.
21
PROPOSAL 3(j) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON LIMITING INVESTMENTS IN
COMPANIES WITH LIMITED OPERATING HISTORIES AND IN SECURITIES OF A
SINGLE ISSUER
Current Fundamental Restriction
The Company's existing fundamental restriction on limiting investments
in companies with limited operating histories and in securities of a single
issuer is as follows:
"The Company will not (a) purchase securities (i) of companies
which, with their predecessors, or (ii) which are guaranteed by
companies which, with their predecessors, have a record of less
than three years' continuous operations, if such purchase would
cause more than 5% of the market value of the Company's total
assets to be invested in the securities of such companies, or (b)
invest in more than 10% of the outstanding voting securities of
any one issuer."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(j), the existing fundamental
restriction of (i) investing no more than 5% of the Company's assets in
securities of companies which, with their predecessors, have a record of less
than three years' continuous operations and (ii) investing no more than 10% of
the Company's assets in the outstanding voting securities of a single issuer,
would be eliminated.
Reason for the Change
Prior to 1996, state securities laws required that investment
companies, such as the Company, not invest in companies that had limited
operating histories. In 1996, the National Securities Markets Improvement Act
was passed, which made most state law restrictions no longer applicable to
investment companies. Therefore, the Company is no longer required to have a
fundamental restriction on limiting investments in companies with limited
operating histories. Management of the Company believes that eliminating the
prohibition on investing in "unseasoned issuers" will provide the Company with
additional investment opportunities. In recent years, many companies have
established new or special purpose entities to issue convertible securities.
Eliminating this restriction will now permit the Company to purchase such
securities.
The Company believes that Proposal 3(a), which pertains to issuer
diversification, already limits the ability of the Company, with respect to 75%
of its assets, from acquiring more than 10% of the outstanding voting securities
of any issuer. As a result, the Board believes that a second fundamental
restriction pertaining to this issue is not necessary.
PROPOSAL 3(k) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON MAKING SHORT SALES
Current Fundamental Restriction
The Company's existing fundamental restriction on making short sales is
as follows:
"The Company will not make short sales of securities unless at
the time of sale it owns or has the right to acquire, with or
without payment of further consideration through its
22
ownership of convertible or exchangeable securities or warrants
or rights, an equal amount of such securities."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(k), the existing fundamental
restriction of prohibiting the Company from making short sales of securities
unless at the time of the sale it owns or has the right to acquire an equal
amount of such securities, would be eliminated.
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"The Company will not make short sales of securities, unless at
the time of sale the Company owns or has the right to acquire,
with or without payment of further consideration through its
ownership of convertible or exchangeable securities or warrants
or rights, an equal amount of such securities."
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on making short sales and, therefore, the Board is
proposing to eliminate the Company's fundamental restriction on engaging in
short sales. Instead, the Board believes that this restriction should be adopted
as a non-fundamental restriction of the Company. Management of the Company does
not generally engage in short sales and management does not expect this change
to have an impact on the Company's operations.
PROPOSAL 3(l) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON
INVESTING FOR THE PURPOSE OF CONTROL
Current Fundamental Restriction
The Company's existing fundamental restriction on investing for the
purpose of exercising control or management is as follows:
"The Company will not invest in securities of corporations for
the purpose of exercising control or management."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(l), the existing fundamental
restriction of prohibiting the Company from investing for the purpose of
exercising control of management would be eliminated.
Reason for the Change
Management of the Company believes that it should be able to
communicate freely the Company's views as a shareholder on important matters of
policy. The Company's investment adviser believes that the Company may currently
communicate its views without necessarily violating this
23
restriction, however, the existence of this investment restriction might give
rise to a claim that such activities did in fact constitute investing for the
purpose of exercising control of management.
Eliminating this restriction would clarify the Company's ability to
exercise freely its rights as a shareholder of the companies in which it
invests. The Company, however, does not intend to become involved in directing
or administering the day-to-day operations of any company. The Company generally
does not hold large positions of any company. Management of the Company does not
believe this change will materially affect the operations of the Company.
PROPOSAL 3(m) -
ELIMINATION OF FUNDAMENTAL RESTRICTION
ON MAKING MARGIN PURCHASES
Current Fundamental Restriction
The Company's existing fundamental restriction on making margin
purchases is as follows:
"The Company will not purchase securities on margin, except that
it may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(m), the existing fundamental
restriction of prohibiting the Company from making margin purchases except in
connection with the clearance of purchases and sales of securities would be
eliminated.
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"The Company will not purchase securities on margin, except that
the Company may obtain such short-term credits as are necessary
for the clearance of portfolio transactions."
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on making margin purchases of securities and, therefore,
the Board of Directors is proposing to eliminate this restriction as a
fundamental restriction and adopt it as a non-fundamental restriction.
Management of the Company historically has not purchased securities on margin,
and currently does not intend to do so, except as may be necessary for the
clearance of purchases and sales of portfolio securities. Accordingly,
management of the Company does not expect this change to have a material effect
on the Company's operations.
24
PROPOSAL 3(n) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON
INVESTING IN PUT AND CALL OPTIONS
Current Fundamental Restriction
The Company's existing fundamental restriction on investing in put and
call options is as follows:
"The Company will not invest in puts, calls, or combinations
thereof; provided that, notwithstanding the foregoing, the
Company may invest up to 2% of its net assets in put options on
common stock or market indices and may write covered call options
and may purchase call options to close out written covered call
options."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(n), the existing fundamental
restriction of prohibiting the Company from investing in puts, calls, or
combinations thereof or writing covered call options, except for investments in
certain put and call options up to 2% of the Company's assets, would be
eliminated.
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"The Company will not invest in puts, calls, or combinations
thereof; provided that, notwithstanding the foregoing, the
Company may invest up to 5% of its net assets in put options on
common stock or market indices and may write covered call options
and may purchase call options to close out written covered call
options."
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on investing in puts, calls or combinations thereof or
writing covered call options. As a result, the Board is proposing to eliminate
this restriction and instead adopt it as a non-fundamental restriction. Although
the Company would have greater flexibility to purchase put and call options and
to write covered call options if this investment restriction is eliminated, the
Company's investment adviser generally does not intend to invest in these
instruments. Accordingly, the management of the Company does not expect this
change to have a material impact on the Company's operations.
PROPOSAL 3(o) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON
PARTICIPATING IN A SECURITIES TRADING ACCOUNT
Current Fundamental Restriction
The Company's existing fundamental restriction on participating in a
securities trading account is as follows:
"The Company will not participate on a joint or a
joint-and-several basis in any securities trading account."
25
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(o), the existing fundamental
restriction of prohibiting the Company from participating on a joint or a
joint-and-several basis in any securities trading account would be eliminated.
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on participating in joint securities trading accounts. As
a result, the Board of Directors is proposing to eliminate this restriction. The
Company would still be subject to 1940 Act restrictions on engaging in certain
types of joint transactions. Management of the Company does not expect this
change to have a material impact on the Company's operations.
PROPOSAL 3(p) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN
COMPANIES OWNED BY DIRECTORS AND OFFICERS
Current Fundamental Restriction
The Company's existing fundamental restriction on investing in companies
owned by directors and officers is as follows"
"The Company will not purchase or hold the securities of a
company if, to the Company's knowledge, one or more officers or
directors of the Company or the Adviser individually own
beneficially more than 1/2 of 1% and together own beneficially
more than 5% of the securities of such other company."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(p), the existing fundamental
restriction of prohibiting the Company from owning securities of a company, more
than 1/2 of 1% of whose securities are owned by one or more directors or
officers of the Company or its investment adviser or owned more than 5% in the
aggregate by such persons, would be eliminated.
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction limiting its investments in companies that are owned by
the directors and officers of the Company or its investment adviser. As a
result, the Board of Directors is proposing to eliminate this restriction.
Management of the Company believes that, due to the nature of the
securities that the Company purchases, this proposed change is not likely to
affect the Company's operations.
The Board of Directors recommends that you vote "FOR" each sub-proposal
of Proposal 3.
Investment Adviser
Davis-Dinsmore Management Company, 65 Madison Avenue, Morristown, New
Jersey 07960, is the Company's investment adviser.
26
Executive Officers
The Company's executive officers are elected by the Board of Directors,
receive no compensation from the Company and hold office until the meeting of
the Board of Directors following the next annual meeting of stockholders and
until his or her successor shall have been duly elected and qualified, or until
his or her earlier death, resignation or removal. Information about these
officers is presented below.
Thomas H. Dinsmore is Chairman and Chief Executive Officer of the
Company and of Ellsworth. Mr. Dinsmore is also a director of the Company and
information about him is presented earlier in this proxy statement under
"Proposal 1, Election of Directors - Nominee Who is an Interested Person and
Whose Term Will Expire in 2008."
Jane D. O'Keeffe is President of the Company and of Ellsworth. Ms.
O'Keeffe is also a director of the Company. Information about Ms. O'Keeffe is
presented earlier in this proxy statement under "Proposal 1, Election of
Directors - Information about the Company's Other Directors - Continuing
Director Who is an Interested Person."
H. Tucker Lake, Jr., 57, has been Vice President of the Company and of
Ellsworth since 2002. From 1994 until 2002, he was Vice President, Trading of
the Company and of Ellsworth. He has been a Vice President of Davis-Dinsmore
since 1997.
Joshua P. Lake, 28, has been Treasurer of the Company and Ellsworth
since April 2004, and Assistant Secretary of the Company and Ellsworth since
February 2002. From February 2002 until April 2004, Mr. Lake was Assistant
Treasurer of the Company and Ellsworth. He has also been Assistant Treasurer and
Assistant Secretary of Davis-Dinsmore since February 2002.
Gary I. Levine, 47, has been Executive Vice President and Chief
Financial Officer of the Company and Ellsworth since April 2004, and Secretary
of the Company and Ellsworth since November 2003. From 2002 until 2004, Mr.
Levine was Vice President and Chief Financial Officer of the Company and
Ellsworth, and Treasurer of the Company and Ellsworth from 1993 until 2004. He
had been Assistant Secretary of the Company and Ellsworth from 1986 until 2003.
He has been Executive Vice President of Davis-Dinsmore since April 2004 and
Treasurer since 1997.
Germaine Ortiz, 35, has been a Vice President of the Company and
Ellsworth since 1999. She has also been a Vice President of Davis-Dinsmore since
1999. She was Assistant Vice President of the Company, Ellsworth and
Davis-Dinsmore from 1996 to 1999. From 1993 to 1996, Ms. Ortiz was an Assistant
Analyst with Davis-Dinsmore.
Mercedes A. Pierre, 43, has been Vice President of the Company and
Ellsworth since April 2004, and Chief Compliance Officer of the Company and
Ellsworth since July 2004. Since February, 1998, she has been Assistant
Treasurer of the Company and Ellsworth. Ms. Pierre has been Vice President and
Chief Compliance Officer of Davis-Dinsmore since June 2004.
Certain Relationships
H. Tucker Lake, Jr. is the cousin of Thomas H. Dinsmore and Jane D.
O'Keeffe, and is the father of Joshua P. Lake.
27
Security Ownership of Management
Set forth below is the dollar range of equity securities beneficially
owned (1) in both the Company and Fund Complex by each director and each nominee
for election as a director of the Company as of October 31, 2004. (2)
Aggregate Dollar Range of
Equity Securities in All
Funds Overseen or to be
Dollar Range of Equity Overseen by the Director or
Securities in Nominee
the Company (3) in Fund Complex (4)
---------------------- ---------------------------
Gordon F. Ahalt.................................... $10,001-$50,000 $10,001-$50,000
William A. Benton.................................. $50,001-$100,000 over $100,000
Elizabeth C. Bogan, Ph.D........................... $10,001-$50,000 over $100,000
Thomas H. Dinsmore................................. over $100,000 over $100,000
Donald M. Halsted, Jr.............................. $50,001-$100,000 $50,001-$100,000
Duncan O. McKee.................................... $10,001-$50,000 $50,001-$100,000
Robert J. McMullan (5)............................. None None
Jane D. O'Keeffe................................... over $100,000 over $100,000
Nicolas W. Platt................................... $10,001-$50,000 $10,001-$50,000
(1) Beneficial ownership has been determined based upon the director's or
nominee's direct or indirect pecuniary interest in the equity securities.
(2) The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000,
or over $100,000.
(3) The dollar range of equity securities owned in the Company is based on the
closing price of $18.23 on October 31, 2004 on the American Stock Exchange.
(4) The dollar range of equity securities owned in the Fund Complex is based on
the closing price of $18.23 for the Company and $7.89 for Ellsworth on
October 31, 2004 on the American Stock Exchange.
(5) Mr. McMullan was appointed to the Company's board of directors effective
November 15, 2004.
Proxy Solicitation
The cost of soliciting proxies will be borne by the Company. The
Company will engage Georgeson Shareholder Communications to assist in the
solicitation of proxies for the Company. The fee for such solicitation has been
estimated to be $7,000 plus reasonable out-of-pocket expenses. Officers of the
Company may also solicit proxies and will not receive any additional
compensation for such solicitation. Both Georgeson Shareholder Communications
and officers of the Company may solicit proxies by telephone, facsimile, the
Internet or personal interview.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, Section 30(h) of
the 1940 Act, and the regulations of the Securities and Exchange Commission
thereunder require the Company's officers and directors and direct or indirect
beneficial owners of more than 10% of the Company's Common Stock, as well as
Davis-Dinsmore, its directors and officers and certain of its other affiliated
persons (collectively, Reporting Persons), to file initial reports of ownership
and changes in ownership with the Securities and
28
Exchange Commission. Reporting Persons are required to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it
and written representations, the Company believes that all filing requirements
applicable to the Reporting Persons have been complied with during the fiscal
year ended October 31, 2004.
Shareholder Proposals
If you want us to consider including a shareholder proposal in the
Company's proxy statement for the 2006 annual meeting of shareholders, we must
receive it from you no later than August 29, 2005.
A shareholder may bring other business before the 2006 Annual Meeting
of shareholders if the shareholder: (1) is a shareholder of record at the time
of giving notice to the Company; (2) is a shareholder of record at the time of
the 2006 Annual Meeting; (3) is entitled to vote at the 2006 Annual Meeting; and
(4) has complied with the notice procedures in the Company's Bylaws. The notice
procedures require that a shareholder submit the proposal in writing to the
Secretary of the Company no earlier than October 17, 2005 but no later than
November 16, 2005. The notice must include a brief description of the business
desired to be brought before the 2006 Annual Meeting, the reasons for conducting
such business at the 2006 Annual Meeting and any material interest the
shareholder may have in such business. The notice must also include the
shareholder's name and address as they appear on the Company's books (and the
name and address of any beneficial owner on whose behalf the proposal is made),
as well as the number of shares of stock owned beneficially and of record by
such shareholder and beneficial owner.
By order of the Board of Directors,
/s/ THOMAS H. DINSMORE
-----------------------------------------
Thomas H. Dinsmore
Chairman of the Board of Directors
December 27, 2004
29
Appendix A
BANCROFT CONVERTIBLE FUND, INC.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(THE "FUNDS")
AMENDED AND RESTATED
AUDIT COMMITTEES CHARTER
(Effective July 22, 2004)
1. Membership; Qualifications.
a. Each Audit Committee shall have at least three members. [Section
121B(2)(a) of the American Stock Exchange ("AMEX") Listing Standards.]
b. Each member of the Audit Committees shall be able to read and
understand fundamental financial statements, including a Fund's balance sheet,
income statement, and cash flow statement. [Section 121B(2)(a)(ii) of the AMEX
listing Standards.]
c. At least one member of each Audit Committee must be "financially
sophisticated" in that he or she has past employment experience in finance or
accounting, requisite professional certification in accounting or other
comparable experience or background which results in the individual's financial
sophistication, including but not limited to being or having been a chief
executive officer, chief financial officer, or other senior officer with
financial oversight responsibilities. [Section 121B(2)(a)(ii) of the AMEX
listing standards.]
d. Each member of the Audit Committees shall be free of any material
relationship with the Funds that, in the opinion of the Boards of Directors of
the Funds (the "Boards"), would interfere with his or her individual exercise of
independent judgment. [Section 121A of the AMEX listing Standards.]
e. No member of the Audit Committees shall, other than in his or her
capacity as a member of the Audit Committees, the Boards, or any other Board
committee, accept directly or indirectly any consulting, advisory, or other
compensatory fee from the Funds. Compensatory fees do not include the receipt of
fixed amounts of compensation under a retirement plan (including deferred
compensation) for prior service with the Funds (provided that such compensation
is not contingent in any way on continued service). [Rule 10A-3(b)(1)(iii)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")]
f. No member of either of the Audit Committees shall be an "interested
person" of any of the Funds as defined in section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act"). [Section 121A(g) and
121B(2)(a)(i) of the AMEX listing Standards; Rule 10A-3(b)(1)(iii) promulgated
under the Exchange Act]
2. Purposes. The purposes of the Audit Committees are:
a. in their capacity as committees of the Boards, to be directly
responsible for the appointment (subject to ratification by a majority of the
Boards who are not "interested persons" of the Funds as defined in the 1940 Act
("disinterested directors")), compensation, retention and oversight of the work
of any independent auditors employed by the Funds (including resolution of
disagreements between management and the auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work;
A-1
b. to oversee the Funds' accounting and financial reporting policies
and processes, its internal controls and, as appropriate, the internal controls
of their investment adviser; [Section 121B(1)(iii) of the AMEX Listing
Standards.]
c. to oversee the quality and objectivity of the Funds' financial
statements and the independent audit thereof; [Section 121B(1)(iii) of the AMEX
Listing Standards.]
d. to the extent required by Section 10A(h) and (i) of the Exchange
Act, to preapprove all audit and permissible non-audit services that are
provided to the Funds by their independent auditors;
e. to pre-approve, in accordance with Item 2.01(c)(7)(ii) of Regulation
S-X, certain non-audit services provided by the Funds' independent auditors to
the Funds' investment adviser, if the Funds' independent auditors are the same
as, or affiliated with, the investment adviser's auditors;
f. to the extent required by Regulation 14A under the Exchange Act, to
prepare an audit committee report for inclusion in a Fund's annual proxy
statement; and
g. to serve as the Funds' qualified legal compliance committee ("QLCC")
within the meaning of Part 205 of the Commission's Rules of Practice - Standards
of Professional Conduct for Attorneys Appearing and Practicing before the
Commission in the Representation of an Issuer (the "Attorney Conduct Rules").
3. Duties and Powers. To carry out their purposes, the Audit Committees shall
have the following duties and powers:
a. to be directly responsible for the appointment (subject to
ratification by a majority of the Boards of the Funds who are not interested
persons of the Funds (the "independent directors")), compensation, retention and
oversight of the work of any independent auditors employed by the Funds,
including reviewing with such auditors the proposed audit plans and meeting with
the auditors after completion of the audit to review the work done in connection
with the audit and to discuss and resolve any disagreements between management
and the auditor regarding financial reporting. All of the foregoing shall be for
the purpose of preparing or issuing an audit report or performing other audit,
review or attest services, and each such independent auditors must report
directly to the Audit Committees; [Section 10A(m)(2) of the Exchange Act, Rule
10A-3(b)(2) adopted thereunder, and Section 121B(4)4 of the AMEX listing
standards]
b. to evaluate the independence of the Funds' independent auditors,
including whether such auditors provide any consulting services to the Funds'
investment adviser; to receive from such auditors a formal written statement
delineating all relationships between such auditors and the Funds, consistent
with Independent Standards Board Standard 1; and to actively engage in a
dialogue with the independent auditor with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the auditor and for taking, or recommending that the full Board take,
appropriate action to oversee the independence of the outside independent
auditor; [Section 121B(1)(ii) of the AMEX Listing Standards]
c. to oversee the accounting and financial reporting process of the
Funds and the audits of the financial statements of the Funds, and in connection
therewith, to meet with the Funds' independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of the
annual audit and any special audits and any audit plans prepared by the
independent auditors for the Funds; (ii) to discuss any matters of concern
relating to the Funds' financial statements, including any adjustments to such
statements recommended by the independent auditors, or other results of said
A-2
audit(s); (iii) to consider the independent auditors' comments with respect to
the Funds' financial policies, procedures and internal accounting controls and
management's responses thereto; and (iv) to review the form of opinion the
independent auditors propose to render to the Boards and shareholders; [Section
121B(iii) of the Amex Listing Standard.]
d. to receive and review the written disclosures and the letter from
the independent auditors regarding their independence that are required by Item
306 of Regulation S-K, to discuss with such auditors their independence, and to
consider whether the provision by such auditors of permissible non-audit
services to (i) the Funds, (ii) their advisor or (iii) any person that controls,
is controlled by or is under common control with such advisor that provides
services to the Funds, is compatible with maintaining such auditors'
independence; [Item 7(d)(3)(i) and Item 9(e)(8) of Schedule 14A, and Item 306 of
Regulation S-K]
e. to review and discuss audited financial statements contained in
annual and other periodic reports to shareholders with management and the
independent auditors to determine that such auditors are satisfied with the
disclosure and content of the annual financial statements and the quality of the
Funds' accounting and financial reporting policies, procedures and internal
control over financial reporting (including the Funds' critical accounting
policies and practices), and also to discuss with management and the independent
auditors the clarity, consistency and completeness of accounting policies and
disclosures; [Item 7(d)(3)(i) of Regulation 14A, and Item 306 of Regulation S-K]
f. based upon a review of the items discussed in (d) and (e) above, to
recommend to the Boards that the Funds' audited financial statements be included
in the Funds' annual reports to shareholders; [Item 7(d)(3)(i) of Regulation 14A
and Item 306 of Regulation S-K]
g. the Audit Committees shall prepare the audit committee report that
SEC rules require to be included in the Funds' annual proxy statement. [Item
7(d)(3)(i) of Regulation 14A and Item 306 of Regulation S-K]
h. to consider the effect upon the Funds of any changes in accounting
principles or practices proposed by management or the independent auditors and
to review information received from management and such auditors regarding
regulatory changes and new accounting pronouncements that affect net asset value
calculations and financial statement reporting requirements;
i. to the extent that certifications by officers of the Funds (the
"signing officers") as to the Funds' financial statements or other financial
information are required by applicable law to be included with or in the Funds'
periodic reports filed with the Securities and Exchange Commission ("SEC"), to
receive from such officers notifications if such certifications are not included
for any reason;
j. to meet as necessary with counsel to the Funds, counsel to the
disinterested directors of the Funds and, if applicable, independent counsel or
other advisers to the Audit Committees and to review information provided by all
such persons on legal issues having the possibility of impacting the financial
reporting process, including items of industry-wide importance and internal
issues such as litigation;
k. to the extent required by Section 10A(h) and (i) of the Exchange
Act, to preapprove all audit and permissible non-audit services that are
proposed to be provided to the Funds by their independent auditors before they
are provided to the Funds. Such pre-approval shall also include the proposed
fees to be charged by the independent auditors for such services. The Audit
Committees may delegate the pre-approval of audit and permissible non-audit
services and related fees to one or more members of the Audit Committees who are
"independent," as such term is defined in Rule 10A-3(b)(1)(iii) under the
Exchange Act. Any such member's decision to pre-approve audit and/or non-audit
A-3
services and related fees shall be presented to the full Audit Committees,
solely for informational purposes, at their next scheduled meeting; [Section
10A(h) and (i) of the Exchange Act]
l. to pre-approve non-audit services to be provided by the Funds'
independent auditors to the Funds' investment adviser and certain affiliated
entities that provide ongoing services to the Funds if the engagement relates
directly to the operations and financial reporting of any Fund and if the Funds'
independent auditors are the same as, or affiliated with, the investment
adviser's or certain affiliated entities' auditors; [Item 2.01(c)(7)(ii) of
Regulation S-X and Item 9(e)(8) of Schedule 14A]
m. to investigate improprieties or suspected improprieties in fund
operations, including but not limited to receiving and reviewing disclosures by
the Funds' signing officers to the Audit Committees of (i) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the Funds' ability to record, process, summarize, and report
financial data and (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Funds' internal
controls;
n. to establish procedures for (i) the receipt, retention and treatment
of complaints received by the Funds regarding accounting, internal accounting
controls or auditing matters and (ii) the confidential, anonymous submission by
employees of the Funds (or the Funds' investment adviser) of concerns regarding
questionable accounting or auditing matters [Section 10A(m)(4) of the Exchange
Act, Rule 10A-3(b)(3) adopted thereunder, and Section 121B(4) of the AMEX
listing standards]
o. to receive and review information provided by management and the
independent auditors regarding the Funds' accounting system and controls,
including but not limited to receiving from the Funds' independent auditors
information concerning (i) all critical accounting policies and practices to be
used, (ii) all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management
officials of the Funds, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by such independent auditors, and
(iii) other material written communications between such independent auditors
and the management of the Funds such as the management letter or schedule of
unadjusted differences; [Section 10A(k) of the Exchange Act]
p. to carry out the responsibilities of a QLCC as set forth in the
Attorney Conduct Rules, and in connection therewith: (i) to adopt written
procedures for the confidential receipt, retention and consideration of any
report of evidence of a material violation of an applicable United States
federal or state securities law, a material breach of fiduciary duty arising
under United States federal or state law, or a similar material violation of any
United States federal or state law (a "Material Violation"); (ii) to report to
the Fund's chief executive officer any report of evidence of a Material
Violation (iii) to determine whether an investigation is necessary regarding any
report of evidence of a Material Violation by the Fund, its officers, directors,
employees or agents and, if it determines an investigation is necessary or
appropriate, to: (A) notify the full Board; (B) initiate an investigation, which
may be conducted by outside attorneys; and (C)retain such additional expert
personnel as the Audit Committee deems necessary; and (iv) at the conclusion of
any such investigation, to: (A) recommend, by majority vote, that the Fund
implement an appropriate response to evidence of a Material Violation; and (B)
inform the chief executive officer and the Board of the results of any such
investigation and the appropriate remedial measures to be adopted; and (v)
acting by majority vote, to take all other appropriate action, including the
authority to notify the Commission in the event that the Fund fails in any
material respect to implement an appropriate response the Audit Committee has
recommended the Fund to take; [Attorney Conduct Rules]
A-4
q. to receive reports of violations and potential violations of the
Funds' Code of Ethics for Principal Financial Officers (the "Code") from the
Funds' Compliance Officer or his/her designee, and determine whether a violation
has occurred;
r. to inform the disinterested directors of the Funds of any violation
of the Code; and
s. to report their activities to the full Boards on a regular basis and
to make such recommendations and/or decisions with respect to the above and
other matters as the Audit Committees may deem necessary or appropriate.
4. Appointment of Independent Auditors. The Audit Committees shall appoint the
Funds' independent auditors at an in-person meeting. If, at any time, the
approval by the Audit Committees of the Funds' independent auditors constitutes
an approval of such auditors by less than a majority of the disinterested
directors, such approval shall be ratified by a majority of the Funds'
disinterested directors at the next regularly scheduled in-person meeting of the
Boards; [Section 32(a)(1) of the Investment Company Act of 1940, as amended]
5. Meetings. The Audit Committees shall meet at least quarterly and are
empowered to hold special meetings as circumstances require. The Audit
Committees may meet either on their own or in conjunction with meetings of the
full Boards. Meetings of the Audit Committees may be held in person or by
conference telephone. Where appropriate, the Audit Committees may take action by
unanimous written consent in lieu of a meeting. [Section 121B(3) of the AMEX
listing standards]
The Audit Committees shall regularly meet with the Treasurer of the
Funds.
6. Authority; Funding.
a. The Audit Committees shall have the resources and authority
appropriate to carry out their duties, including the authority to engage
independent counsel and other advisers, experts or consultants as they deem
necessary to carry out their duties, all at the expense of the appropriate
Fund(s). [Section 10A(m)(5) of the Exchange Act, Rule 10A-3(b)(4) adopted
thereunder, and Section 121B(4) of the AMEX listing standards]
b. The Funds shall provide for appropriate funding, as determined by
the Audit Committees, in their capacity as committees of the Boards, for payment
of compensation (i) to the independent auditors employed by the Funds for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Funds and (ii) to any independent counsel or
other advisers employed by the Audit Committees. [Section 10A(m)(6) of the
Exchange Act, Rule 10A-3(b)(5) adopted thereunder, and Section 121B(4) of the
AMEX listing standards]
7. Annual Internal Performance Evaluation. Each fiscal year the Audit Committees
shall conduct an internal evaluation of the performance of the Audit Committees.
8. Good Faith Reliance. In performing their duties under this Charter, members
of the Committee shall be entitled to rely in good faith upon the records of the
Funds and upon such information, opinions, reports and statements presented to
the Audit Committees by the officers and employees of the Funds and of
Davis-Dinsmore Management Company, and by the Funds' independent auditors.
9. Review of Charter. The Audit Committees shall review and reassess the
adequacy of this Charter at least annually and recommend any changes to the full
Boards. This Charter may be amended
A-5
only by the approval of the Boards, and a majority of the disinterested
directors. [Section 121B(1) of the AMEX listing standards]
10. Maintenance of Charter. Each Fund shall maintain and preserve in an easily
accessible place a copy of this Charter and any modification to this Charter.
A-6
Appendix B
BANCROFT CONVERTIBLE FUND, INC.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(THE "FUNDS")
AMENDED AND RESTATED
NOMINATING AND ADMINISTRATION COMMITTEES CHARTER
(Effective April 19, 2004)
1. Membership; Qualifications.
a. Each member of the Nominating and Administration Committees (the
"Committees") shall be free of any material relationship with the
Funds that, in the opinion of the Boards of Directors of the Funds
(the "Boards"), would interfere with his or her individual exercise of
independent judgment.
b. No member of the Committees shall, other than in his or her capacity
as a member of the Committees, the Boards, or any other Board
committee, accept directly or indirectly any consulting, advisory, or
other compensatory fee from the Funds or any subsidiary of the Funds,
provided that, unless the rules of the American Stock Exchange
("AMEX") provide otherwise, compensatory fees do not include the
receipt of fixed amounts of compensation under a retirement plan
(including deferred compensation) for prior service with the Funds
(provided that such compensation is not contingent in any way on
continued service).
c. No member of either of the Committees shall be an "interested person"
of any of the Funds as defined in section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act").
2. Purposes. The purposes of the Committees are:
a. to nominate persons for election or appointment as directors (i) to
fill vacancies which, from time to time, may occur in the Boards and
(ii) for election by shareholders of Funds at meetings called for the
election of directors;
b. to nominate persons for appointment as members of each committee of
the Boards, including without limitation the Committees, the Audit
Committees, and the Pricing Committees;
c. to review from time to time, the compensation, if any, payable to the
directors of the Funds and to make recommendations to the Boards with
respect thereto;
d. to review and evaluate from time to time the functioning of the Boards
and the various committees of the Boards and to make recommendations
to the Boards with respect thereto;
e. to oversee the selection of independent legal counsel to the
independent directors; and
f. to monitor the performance of independent legal counsel employed by
the Funds and the independent directors.
B-1
3. Duties and Powers. To carry out their purposes, the Committees shall have
the following duties and powers:
a. to nominate persons to serve on the Boards.
i. The Committees shall make nominations for director membership on
the Boards. If members of the Committees do not unanimously agree
to nominate an incumbent director for re-election to the Boards,
the Committees shall submit the issue of nomination of such
person for re-election to the independent directors as a group.
ii. Evaluation by the Committees of a person as a potential nominee
to serve as a director, including a person nominated by a
shareholder, should result in the following findings by the
Committees:
A. upon advice of independent legal counsel to the independent
directors, that the person will qualify as a director who is
not an "interested person" of the Funds (an "independent
director")(applicable only to the nomination of independent
directors ), and that the person is otherwise qualified
under the 1940 Act to serve as a director of the Funds;
B. with respect to the nomination of independent directors
only, that the person is free of any material relationship
with the Funds (other than as a shareholder of the Funds),
that would interfere with the exercise of independent
judgment;
C. that the person is willing to serve, and willing and able to
commit the time necessary for the performance of the duties
of a director;
D. that the person can make a positive contribution to the
Boards and the Funds, with consideration being given to the
person's business experience, education and such other
factors as the Committees may consider relevant;
E. that the person is of good character and high integrity;
F. that the person has desirable personality traits including
independence, leadership and the ability to work with the
other members of the Boards;
G. that the person is not an AMEX employee or floor member; and
H. that the composition of the Boards is varied as to
educational background, business experience and occupation.
iii. The Committees shall consider nominees recommended by a
shareholder to serve as director, provided: (i) that such person
is a shareholder of record both at the time he or she submits
such names and at the time of the meeting of shareholders at
which directors will be elected; (ii) that such person is
entitled to vote at such meeting; and (iii) that the Committees
shall make the final determination of persons to be nominated.
The Committees shall evaluate nominees recommended by a
shareholder to serve as director in the same manner as they
B-2
evaluate nominees identified by the Committees. Shareholders
should provide the Committees with information regarding the
recommended nominee sufficient for the Committees to make the
findings set forth in Section 3.a.ii.
b. to nominate directors to serve on the Funds' committees.
i. The Committees shall make nominations for membership on all
committees and shall review and recommend committee assignments
at least annually.
ii. Evaluation by the Committees of a person as a potential committee
member shall include the factors set forth above under Section
3.a.ii. to the extent that such factors are applicable or
relevant, as well as any qualifications as may be set forth in
the charter of the applicable committee.
c. to review as necessary the responsibilities of any committees of the
Board, whether there is a continuing need for each committee, whether
there is a need for additional committees of the Board, and whether
committees should be combined or reorganized. The Committees shall
make recommendations for any such action to the full Board. Any
proposed changes shall be approved by the full Board as well as a
majority of the independent directors.
d. to periodically review the composition of the Boards to determine
whether it may be appropriate to add individuals with different
backgrounds or skill sets from those already on the Boards.
e. to periodically review director compensation and recommend any
appropriate changes to the independent directors as a group.
f. to consider and oversee the selection of independent legal counsel to
the independent directors and recommend such counsel to the
independent directors. In making such selection the Committees shall
examine and monitor such legal counsel's client relationships in order
to ascertain continued independence.
g. to monitor the performance of independent legal counsel employed by
the Funds and the independent directors, and supervise counsel for the
independent directors.
4. Meetings. The Committees may meet either on their own or in conjunction
with meetings of the full Boards. Meetings of the Committees may be held in
person or by conference telephone. Where appropriate, the Committees may
take action by unanimous written consent in lieu of a meeting.
5. Attendance at Annual Meetings of Shareholders. Directors are encouraged but
not required to attend annual meetings of shareholders.
6. Authority; Funding. The Committees shall have the resources and authority
appropriate to discharge their responsibilities, including authority to
retain special counsel and other experts or consultants at the expense of
the appropriate Fund(s).
7. Annual Internal Performance Evaluation. Each fiscal year the Committees
shall conduct an internal evaluation of the performance of the Committees.
B-3
8. Good Faith Reliance. In performing their duties under this Charter, members
of the Committees shall be entitled to rely in good faith upon the records
of the Funds and upon such information, opinions, reports and statements
presented to the Committees by the officers and employees of the Funds and
of Davis-Dinsmore Management Company.
9. Review of Charter. The Committees shall review this Charter at least
annually and recommend any changes to the full Boards. This Charter may be
amended only by approval of the full Boards, and a majority of the
independent directors.
10. Maintenance of Charter. Each Fund shall maintain and preserve in an easily
accessible place a copy of this Charter and any modification to this
Charter.
BANCROFT CONVERTIBLE FUND, INC.
ANNUAL MEETING TO BE HELD FEBRUARY 14, 2005
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Dinsmore, Gary I. Levine, and
Jane D. O'Keeffe, and each of them, attorneys and proxies with power of
substitution in each, to vote and act on behalf of the undersigned at the annual
meeting of stockholders of Bancroft Convertible Fund, Inc. (the "Company") at
the offices of the Company, 65 Madison Avenue, Suite 550, Morristown, New Jersey
07960 on February 14, 2005 at 11:00 a.m., and at all adjournments, according to
the number of shares of Common Stock which the undersigned could vote if
present, upon such subjects as may properly come before the meeting, all as set
forth in the notice of the meeting and the proxy statement furnished therewith.
UNLESS OTHERWISE MARKED ON THE REVERSE HEREOF, THIS PROXY IS GIVEN WITH
AUTHORITY TO VOTE FOR THE DIRECTORS LISTED, FOR THE PROPOSAL TO RATIFY THE AUDIT
COMMITTEE'S SELECTION OF AUDITORS AND FOR EACH OF THE PROPOSALS TO CHANGE
CERTAIN FUNDAMENTAL INVESTMENT POLICIES OF THE FUND.
PLEASE FILL IN, DATE AND SIGN THE PROXY ON THE OTHER SIDE
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSALS 2 THROUGH 3(P).
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE /X/
1. Election as directors of all nominees listed below for the terms specified in
the proxy statement.
NOMINEES:
/ / FOR ALL NOMINEES / / Thomas H. Dinsmore
/ / Donald M. Halsted, Jr.
/ / Duncan O. McKee
/ / Robert J. McMullan
/ / WITHHOLD AUTHORITY FOR ALL NOMINEES
/ / FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: /X/
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--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratify selection of auditors. / / / / / /
Page 1
FOR AGAINST ABSTAIN
3(a). Change to restriction on issuer / / / / / /
diversification.
FOR AGAINST ABSTAIN
3(b). Change to restriction on borrowing money. / / / / / /
FOR AGAINST ABSTAIN
3(c). Change to restriction on issuing senior / / / / / /
securities.
FOR AGAINST ABSTAIN
3(d). Change to restriction on underwriting / / / / / /
securities.
FOR AGAINST ABSTAIN
3(e). Change to restriction on purchasing or / / / / / /
selling real estate.
FOR AGAINST ABSTAIN
3(f). Change to restriction on purchasing or / / / / / /
selling commodities.
FOR AGAINST ABSTAIN
3(g). Change to restriction on making loans. / / / / / /
FOR AGAINST ABSTAIN
3(h). Change to restriction on industry / / / / / /
concentration.
FOR AGAINST ABSTAIN
3(i). Elimination of restriction on investing / / / / / /
in certain listed companies.
FOR AGAINST ABSTAIN
3(j). Elimination of restriction on investments / / / / / /
in newer companies and in single issuers.
FOR AGAINST ABSTAIN
3(k). Elimination of restriction on short sales. / / / / / /
FOR AGAINST ABSTAIN
3(l). Elimination of restriction on investing for / / / / / /
control.
FOR AGAINST ABSTAIN
3(m). Elimination of restriction on margin / / / / / /
purchases.
FOR AGAINST ABSTAIN
3(n). Elimination of restriction regarding put / / / / / /
and call options.
FOR AGAINST ABSTAIN
3(o). Elimination of restriction regarding / / / / / /
securities trading accounts.
FOR AGAINST ABSTAIN
Page 2
3(p). Elimination of restriction regarding / / / / / /
directors and officers owned companies.
YOUR VOTE IS IMPORTANT TO US. PLEASE FILL IN, DATE AND SIGN YOUR PROXY AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that / /
changes to the registered name(s) on the account may not be submitted via
this method.
--------------------------------------------------------------------------------
Signature of Stockholder Date
----------------------------------- ----------------
Signature of Stockholder Date
----------------------------------- ----------------
NOTE: Please sign as name appears hereon. Joint owners each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such.
Page 3