<PAGE> 1
BANCROFT CONVERTIBLE FUND, INC.
TO OUR SHAREHOLDERS:
BANCROFT CONVERTIBLE FUND, INC. went public twenty-five years ago this
spring. Ronald E. Dinsmore and Bancroft G. ("Gary") Davis founded the Fund in
April 1971. It is the oldest domestic closed-end convertible fund. Throughout
the 1970's Ron and Gary managed the Fund through some very interesting markets
including the 1973-1974 bear market and the oil crises of 1974 and 1979. Gary
Davis died in 1981 but the Fund he helped found moved forward. Tom Dinsmore was
hired in 1983 to assist Ron manage the Fund during the 1980's through two great
bull markets separated by the crash of '87. More recently, in 1994, Jane
Dinsmore O'Keeffe was hired. She came with a background in portfolio management
going back to 1980 that included time working with George Soros and five years
as portfolio manager at Fiduciary Trust Co.
Since Jane's hiring, Ron Dinsmore changed his function with the Fund from
Portfolio Manager to Chief Portfolio Strategist. Today, Tom Dinsmore and Jane
O'Keeffe are the portfolio managers of the Fund. Transitions are sometimes rocky
but this one has gone well. Indeed, the Bancroft Fund has maintained a four star
overall rating from Morningstar* and was recently given a fifth star for its
3-year performance in their April 26, 1996 report. While this measures past
performance and does not guarantee future performance, we hope to build on it
for the future.
We estimate that the Fund's net asset value (NAV) rose 4.90%, 23.88%,
92.96% and 164.50% for the three-month, one-year, five-year and ten-year periods
ended March 31, 1996 (assuming all dividends reinvested at NAV). The value of
the Fund's shares appreciated 0.66%, 19.94%, 96.75% and 149.80%** for those
three-month, one-year, five-year and ten-year periods (assuming all dividends
reinvested at actual reinvestment price). As quoted in Barron's, Lipper
Analytical Services reported that the average open-end convertible fund's NAV+
rose 4.71%, 20.52%, 89.61% and 145.01% for those same periods (also assuming all
dividends reinvested).
At its June meeting, the Board of Directors announced that a special
meeting of shareholders will be held on September 25, 1996 for shareholders of
record August 1, 1996. The purpose of the meeting will be to consider reapproval
of the management contract with Davis/Dinsmore Management Company. Further
details will be made available in the proxy materials that will be sent to you.
At its April meeting the Board of Directors declared a 28 cents per share
dividend payable on June 24, 1996 to shareholders of record June 10, 1996.
/s/ Ronald E. Dinsmore
Chairman of the Board
/s/ Thomas H. Dinsmore
President
June 12, 1996
** Morningstar is an independent statistical service that rates mutual funds.
** Assumes full exercise of rights issued in 1988.
+ Average NAV of the forty-one open-end convertible funds followed by Lipper
Analytical Services, Inc., an independent statistical service.
<PAGE> 2
BANCROFT CONVERTIBLE FUND, INC.
INVESTMENTS APRIL 30, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
OR SHARES (NOTE A)
--------- -----------
<S> <C> <C>
ADVERTISING--5.2%
$ 1,025,000 Interpublic Group Cos., Inc. 3 3/4% 2002 Euro. cv. sub. deb..................................... $ 1,071,125
650,000 Interpublic Group Cos., Inc. 3 3/4% 2002 cv. sub. deb. *........................................ 677,625
1,475,000 Omnicom Group, Inc. 4 1/2% 2000 cv. sub. deb. *................................................. 2,352,625
-----------
4,101,375
-----------
AEROSPACE--4.0%
2,000,000 Morgan Stanley Group, Inc. 0% 2000 medium-term exchangeable notes............................... 1,945,000
(exch. for Boeing Company common stock)
1,134,000 Orbital Sciences Corp. 6 3/4% 2003 cv. sub. deb................................................. 1,202,040
-----------
3,147,040
-----------
AUTOMOTIVE--2.7%
15,000 shs Ford Motor Co. depositary shares (representing $4.20 cum. cv. A pfd.)........................... 1,747,500
25,100 shs MascoTech Industries, Inc. 6% cv. pfd........................................................... 348,263
-----------
2,095,763
-----------
BANKING--13.4%
37,736 shs Barnett Banks, Inc. common stock................................................................ 2,391,519
32,500 shs Boatmens Bancshares, Inc. depositary shares (representing 7% cum. cv. A pfd.)................... 1,105,000
15,375 shs Chase Manhattan Corp. common stock.............................................................. 1,060,875
25,000 shs First Commerce Corp. 7 1/4% cum. cv. pfd........................................................ 987,500
45,530 shs National City Corp. common stock................................................................ 1,678,919
15,000 shs ONBANCorp, Inc. 6 3/4% cv. B pfd................................................................ 397,500
15,000 shs Washington Mutual Savings Bank $6.00 cv. perpetual D pfd........................................ 1,680,000
15,000 Jefferson-Pilot Corp. 7 1/4% 2000 FCENS #....................................................... 1,215,000
-----------
10,516,313
-----------
CAPITAL GOODS--6.4%
5,000 shs Greenfield Capital Trust 6% cv. pfd. * (conv. into Greenfield Industries, Inc. common stock).... 273,750
70,000 shs Westinghouse Electric Corp. depositary shares (representing $1.30 cv. C pfd.)................... 1,242,500
1,067,000 Cooper Industries, Inc. 7.05% 2015 cv. sub. deb................................................. 1,141,690
2,250,000 General Signal Corp. 5 3/4% 2002 cv. sub. notes................................................. 2,385,000
-----------
5,042,940
-----------
COMMUNICATIONS--3.6%
354 shs MFS Communications Co., Inc. common stock....................................................... 12,279
15,000 shs MFS Communications Co., Inc. depositary shares (representing 8% cum. cv. A pfd.)................ 885,000
1,200,000 Comcast Cellular Corp. 0% 2000 senior participating zero coupon redeemable series A notes....... 882,000
25,000 Sprint Corp. 8 1/4% 2000 FCENS # (exch. for Southern New Eng. Telecom. Corp. common stock)...... 1,059,375
-----------
2,838,654
-----------
DATA-PROCESSING SERVICES--7.2%
21,117 shs General Motors Corp. (GME) common stock......................................................... 1,190,471
7,500 shs Wang Laboratories, Inc. depositary shares (representing 6 1/2% cum. cv. B pfd.) *............... 409,688
35,000 American Express Company 6 1/4% 1996 FCENS # (exch. for First Data Corp. common stock).......... 2,183,125
1,000,000 First Financial Management Corp. 5% 1999 cv. sub. deb........................................... 1,825,000
-----------
5,608,284
-----------
ENERGY--6.6%
41,000 shs Chieftain International Funding Corp. 7 1/4% cv. red. pfd....................................... 1,091,625
500 shs MCN Corp. 8 3/4% Preferred Redeemable Increased Dividend Equity Securities...................... 13,188
25,000 shs Unocal Corp. $3.50 cv. pfd. *................................................................... 1,381,250
12,500 shs Sun Company, Inc. depositary shares (representing $1.80 cum. cv. A pfd.)........................ 387,500
375,000 AES Corp. 6 1/2% 2002 cv. deb................................................................... 397,500
500,000 Pennzoil Company 4 3/4% 2003 exch. sr. deb. (exch. for Chevron Corp. common stock).............. 532,500
1,000,000 Pennzoil Company 6 1/2% 2003 exch. sr. deb. (exch. for Chevron Corp. common stock).............. 1,390,000
-----------
5,193,563
-----------
ENTERTAINMENT--5.4%
40,000 shs Cablevision Systems Corp. depositary shares (representing 8 1/2% cum. cv. exch. pfd.)........... 1,035,000
50,000 shs Triathlon Broadcasting Co. depositary shares (representing 9% mandatory cv. pfd.)............... 537,500
975,000 Comcast Corp. 3 3/8% 2005 cv. sub. deb.......................................................... 887,250
1,000,000 Imax Corp. 5 3/4% 2003 cv. sub. notes *......................................................... 1,005,000
600,000 International CableTel, Inc. 7 1/4% 2005 cv. sub. notes *....................................... 741,000
-----------
4,205,750
-----------
ENVIRONMENTAL SERVICES--1.0%
750,000 Sanifill, Inc. 5% 2006 cv. sub. deb............................................................. 813,750
-----------
FINANCIAL & INSURANCE--11.5%
30,000 shs American General Delaware, LLC 6% cv. A MIPS +.................................................. 1,545,000
23,536 shs Old Republic International Corp. common stock................................................... 776,688
33,410 shs Pioneer Financial Services, Inc. common stock................................................... 513,679
750,000 American Travellers Corp. 6 1/2% 2005 cv. sub. deb.............................................. 1,100,625
1,300,000 Chubb Capital Corp. 6% 1998 Euro. cv. sub. deb.................................................. 1,475,500
1,025,000 First Central Financial Corp. 9% 2000 cv. sub. deb.............................................. 1,035,250
1,000,000 Pioneer Financial Services, Inc. 6 1/2% 2003 cv. sub. notes..................................... 995,000
55,000 Pioneer Financial Services, Inc. 8% 2000 cv. sub. deb........................................... 70,950
55,000 US West, Inc. 7 5/8% 1998 FCENS # (exch. for Enhance Financial Services Group,
Inc. common stock)............................................................................ 1,491,875
-----------
9,004,567
-----------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
OR SHARES (NOTE A)
--------- -----------
<S> <C> <C>
FOODS--1.4%
$1,000,000 Grand Metropolitan Public Limited Co. 6 1/2% 2000 cv. sub. deb. *...................... $ 1,100,000
-----------
HEALTH CARE & DRUGS--8.5%
500,000 Ciba Geigy Corp. 6 1/4% 2016 exch. sub. deb. * (exch. for ALZA Corp. common stock)..... 516,250
1,250,000 Medco Containment Service, Inc. 6% 2001 cv. sub. deb................................... 2,537,500
1,200,000 Morgan Stanley Group, Inc. 0% 2000 medium-term exchangeable notes...................... 964,500
(exch. for ADR's representing SmithKline Beecham plc common stock)
500,000 Quintiles Transnational Corp. 4 1/4% 2000 cv. sub. deb. *.............................. 542,500
2,500,000 Roche Holdings, Inc. 0% 2010 liquid yield option notes *............................... 1,093,750
500,000 Sandoz Capital BVI Ltd. 2% 2002 cv. sub. notes *....................................... 537,500
500,000 TheraTx, Inc. 8% 2002 cv. sub. notes *................................................. 477,500
-----------
6,669,500
-----------
HOTEL SERVICES--0.9%
250,000 HFS, Inc. 4 3/4% 2003 cv. senior notes................................................. 260,625
875,000 Marriott International, Inc. 0% 2011 liquid yield option notes......................... 461,563
-----------
722,188
-----------
OFFICE EQUIPMENT--0.9%
7,500 shs Alco Standard Corp. depositary shares (representing 6 1/2% cv. BB pfd.)................ 742,500
-----------
PAPER & PAPER PRODUCTS--1.2%
20,000 shs International Paper Capital Trust Company 5 1/4% cv. pfd. *............................ 930,000
-----------
RETAIL--0.8%
10,000 shs AnnTaylor Finance Trust 8 1/2% cv. trust originated pfd. * (conv. into Ann Taylor
Stores Corp. common stock)..................................................... 502,500
400,000 Tops Appliance City, Inc. 6 1/2% 2003 cv. sub. deb. 152,000
-----------
654,500
-----------
TECHNOLOGY--10.1%
1,100,000 Conner Peripherals, Inc. 6 1/2% 2002 cv. sub. deb...................................... 1,254,000
1,000,000 Conner Peripherals, Inc. 6 3/4% 2001 cv. sub. deb...................................... 1,070,000
750,000 Emerson Radio Corp. 8 1/2% 2002 sr. cv. sub. deb. *.................................... 626,250
600,000 Motorola, Inc. 0% 2013 liquid yield option notes....................................... 452,250
300,000 Texas Instruments, Inc. 2 3/4% 2002 Euro. cv. sub. deb................................. 410,250
475,000 Thermo Electron Corp. 5% 2001 cv. sub. deb. *.......................................... 945,844
925,000 Thermo Electron Corp. 4 1/4% 2003 cv. sub. deb. *...................................... 1,142,375
200,000 Thermo Optek Corp. 5% 2000 cv. sub. deb. *............................................. 224,000
125,000 Thermo Quest Corp. 5% 2000 cv. sub. deb. *............................................. 140,000
250,000 Thermo Terratech, Inc. 4 5/8% 2003 cv. sub. deb. *..................................... 262,188
500,000 3Com Corp. 10 1/4% 2001 cv. sub. notes *............................................... 771,250
600,000 VLSI Technology, Inc. 8 1/4% 2005 cv. sub. notes....................................... 573,000
-----------
7,871,407
-----------
TRANSPORTATION--4.0%
12,658 shs AMR Corp. common stock................................................................. 1,129,727
5,000 shs Delta Air Lines, Inc. depositary shares (representing $3.50 cum. cv. C pfd.)........... 316,875
1,075,000 Delta Air Lines, Inc. 3.23% 2003 cv. sub. notes........................................ 1,103,219
500,000 Mercury Air Group, Inc. 7 3/4% 2006 cv. sub. deb....................................... 572,500
-----------
3,122,321
-----------
U.S. TREASURY NOTES--1.2%
952,000 4 1/4% 5/15/96......................................................................... 952,000
25,000 6 5/8% 3/31/97 **...................................................................... 25,219
-----------
977,219
-----------
CORPORATE SHORT-TERM NOTES--2.7%
1,500,000 General Electric Capital Services, Inc. 5.20% 5/2/96................................... 1,499,567
350,000 Sears Roebuck Acceptance Corp. 5.05% 5/2/96............................................ 349,853
240,000 Sears Roebuck Acceptance Corp. 5.29% 5/23/96........................................... 239,154
-----------
2,088,574
-----------
TOTAL BONDS AND NOTES--62.6%............................................................................... $49,043,833
TOTAL PREFERRED STOCKS--22.4%.............................................................................. 17,559,639
TOTAL COMMON STOCKS--11.2%................................................................................. 8,754,157
TOTAL CORPORATE SHORT-TERM NOTES--2.7%..................................................................... 2,088,574
-----------
TOTAL INVESTMENTS--98.9%................................................................................... 77,446,203
OTHER ASSETS AND LIABILITIES, NET--1.1%.................................................................... 863,105
-----------
TOTAL NET ASSETS--100.0%................................................................................... $78,309,308
-----------
</TABLE>
* Rule 144A security, may be sold only to qualified institutional buyers.
# Forced Conversion Exchangeable Notes.
+ Monthly Income Preferred Securities.
** Collateral for a letter of credit.
The cost of investments for federal income tax purposes is $66,079,748 resulting
in gross unrealized appreciation and depreciation of $12,394,017 and $1,027,562,
respectively, or net unrealized appreciation of $11,366,455 on a tax cost basis.
See accompanying notes to financial statements.
<PAGE> 4
BANCROFT CONVERTIBLE FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, 1996
-----------------
<S> <C>
INVESTMENT INCOME (NOTE A):
Interest................................................... $1,255,005
Dividends.................................................. 737,807
----------
Total Income............................................. 1,992,812
----------
EXPENSES (NOTE B)
Management fee............................................. 276,293
Custodian.................................................. 13,742
Transfer agent............................................. 27,876
Professional fees.......................................... 33,096
Reports to Shareholders.................................... 47,646
Directors' fees............................................ 16,550
Treasurer's office......................................... 12,500
Listing fee................................................ 7,500
Other...................................................... 25,411
----------
Total Expenses........................................... 460,614
----------
NET INVESTMENT INCOME........................................ 1,532,198
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions............. 2,633,427
Net increase in unrealized appreciation of investments..... 4,444,776
----------
Net gain on investments.................................... 7,078,203
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $8,610,401
==========
</TABLE>
See accompanying notes to financial statements.
================================================================================
MAJOR PORTFOLIO CHANGES FEBRUARY 1 TO APRIL 30, 1996
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT
------------------------------------
HELD AT
ADDITIONS REDUCTIONS 4-30-96
--------- ---------- ---------
<S> <C> <C> <C>
AMR Corp. common stock 12,658 12,658
Bindley Western Industries, Inc. 61/2% 2002 cv. sub. deb. 1,475,000 --
Boatmens Bancshares, Inc. depositary shares (representing 7% cum cv. A pfd.) 15,000 32,500
Browning-Ferris Industries, Inc. 71/4% 1998 notes 25,000 --
Conner Peripherals, Inc. 61/2% 2002 cv. sub. deb. 1,100,000 1,100,000
Conner Peripherals, Inc. 63/4% 2001 cv. sub. deb. 750,000 250,000 1,000,000
General Signal Corp. 53/4% 2002 cv. sub. notes 500,000 2,250,000
Imax Corp. 53/4% 2003 cv. sub. notes * 1,000,000 1,000,000
Old Republic International Corp. common stock 35,000 23,536
Pioneer Financial Services, Inc. 61/2% 2003 cv. sub. notes 1,000,000 1,000,000
Sanifill, Inc. 5% 2006 cv. sub. deb. 750,000 750,000
Seagate Technology, Inc. 63/4% 2012 cv. sub. deb. 1,295,000 --
Starbucks Corp. 41/4% 2002 cv. sub. deb. 500,000 --
Thermo Electron Corp. 41/4% 2003 cv. sub. deb. * 800,000 925,000
Thermo Electron Corp. 5% 2001 cv. sub. deb. * 500,000 475,000
United Technologies Corp. 0% 1997 pharmaceutical exch. notes 500,000 --
</TABLE>
* Rule 144A security.
<PAGE> 5
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
APRIL 30, 1996
--------------
<S> <C>
ASSETS:
Investments at value (cost $66,079,748) (Note A)..................... $77,446,203
Cash................................................................. 478,567
Receivable for securities sold....................................... 1,068,594
Dividends and interest receivable.................................... 485,740
Other assets......................................................... 16,335
-----------
Total assets......................................................... 79,495,439
-----------
LIABILITIES:
Payable for securities purchased..................................... 1,173,907
Accrued expenses..................................................... 12,224
-----------
Total liabilities.................................................... 1,186,131
-----------
NET ASSETS $78,309,308
===========
NET ASSETS CONSIST OF:
Accumulated undistributed net investment income...................... $ 706,102
Accumulated net realized gain from investment transactions........... 2,617,989
Unrealized appreciation on investments............................... 11,366,455
Capital shares (Note D).............................................. 29,503
Additional paid-in capital........................................... 63,589,259
-----------
NET ASSETS............................................................. $78,309,308
===========
Net asset value per share ($78,309,308 / 2,950,343
outstanding shares)............................................... $ 26.54
===========
</TABLE>
See accompanying notes to financial statements.
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
---------------- ----------------
<S> <C> <C>
Increase in net assets from operations:
Net investment income.................................... $ 1,532,198 $ 3,285,250
Net realized gain from investment transactions........... 2,633,427 1,869,444
Net increase in unrealized appreciation of investments... 4,444,776 5,012,325
------------ ------------
Net increase in net assets resulting from operations... 8,610,401 10,167,109
Dividends paid from net investment income.................... (1,599,546) (3,350,427)
Distribution from net realized gain on investments........... (1,871,807) (1,497,574)
Capital share transactions (Note D).......................... 1,745,224 1,554,561
------------ ------------
Increase in net assets................................... 6,884,272 6,873,579
Net assets at beginning of period............................ 71,425,036 64,551,457
------------ ------------
Net assets at end of period (including undistributed net
investment income of $706,102 and $779,084, respectively).. $ 78,309,308 $ 71,425,036
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
BANCROFT CONVERTIBLE FUND, INC.
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
--------------- -------------------------------------------------------
PER SHARE OPERATING PERFORMANCE APRIL 30, 1996+ 1995 1994 1993 1992 1991
- ------------------------------- --------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $24.84 $23.11 $25.00 $22.75 $21.02 $17.86
------ ------ ------ ------ ------ ------
Net investment income .52 1.14 1.20 1.26 1.35 1.34
Net realized and unrealized gain (loss) 2.39 2.30 (1.18) 3.07 1.70 3.28
------ ------ ------ ------ ------ ------
Total from investment operations 2.91 3.44 .02 4.33 3.05 4.62
Dividends paid from net
investment income (.56) (1.17) (1.24) (1.24) (1.32) (1.46)
Distributions from realized gains (.65) (.54) (.67) (.84) -- --
------ ------ ------ ------ ------ ------
Net asset value, end of period 26.54 24.84 23.11 25.00 22.75 21.02
====== ====== ====== ====== ====== ======
Market value, end of period 22.63 22.25 20.13 23.00 20.63 18.63
Total investment return:
Based on market value 6.99% 20.17% (4.88)% 22.90% 18.35% 33.90%
Based on net asset value** 11.93% 15.79% .18% 20.12% 14.87% 26.64%
Ratios/Supplemental Data:
Net assets, end of period (000's) 78,309 71,425 64,551 67,829 59,436 54,915
Ratio of expenses to average net assets 1.2%# 1.2% 1.2% 1.2% 1.2% 1.3%*
Ratio of net investment income to
average net assets 4.1%# 4.9% 5.2% 5.4% 6.1% 6.7%
Portfolio turnover rate 27% 43% 39% 102% 71% 39%
Average commission rate paid $0.072
</TABLE>
+ Unaudited.
* Includes $23,038 ($.01 per share) legal expenses for shareholder proposals.
** Assumes valuation of the Fund's shares, and reinvestment of dividends, at
net asset values.
# Annualized.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Shareholders voted as follows at the Annual Meeting of Stockholders held on
February 15, 1996:
1. All nominated directors were elected.
<TABLE>
<CAPTION>
Votes for Votes withheld
--------- --------------
<S> <C> <C>
Ronald E. Dinsmore 1,564,446 40,666
Thomas H. Dinsmore 1,562,590 45,522
Donald M. Halsted, Jr. 1,563,946 41,166
</TABLE>
2. Fundamental investment policy changes were approved regarding:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
a. Qualitative requirements for investment. 1,447,805 71,213 69,243
b. History of operations requirement. 1,439,524 78,847 69,890
c. Issuer diversification. 1,392,351 118,055 77,855
d. Illiquid and restricted securities. 1,362,309 142,530 83,422
e. Lending of portfolio securities. 1,341,290 162,211 84,760
f. Puts and calls. 1,355,685 162,032 70,544
</TABLE>
3. The selection of Coopers & Lybrand L.L.P. as independent accountants was
ratified with 1,546,455 votes for, 14,081 against and 44,576 abstaining.
- --------------------------------------------------------------------------------
Pursuant to Section 23 of the Investment Company Act of 1940, notice is
hereby given that the Fund may in the future purchase shares of Bancroft
Convertible Fund, Inc. Common Stock from time to time, at such times, and in
such amounts, as may be deemed advantageous to the Fund. Nothing herein shall be
considered a commitment to purchase such shares.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
(A) The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements:
1. Security Valuation
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price. Securities traded in the
over-the-counter market and listed securities for which no sales were reported
are valued at the mean between closing reported bid and asked prices. Where no
closing prices are available, value is determined by management, with the
approval of the Board of Directors.
2. Securities Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized gain or
loss on securities is determined based upon identified cost. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. For the six months ended April 30, 1996, interest of $5,025 was earned on
cash balances held by the custodian of the Fund's assets.
3. Federal Taxes
It is the policy of the Fund to distribute substantially all of its taxable
income within the prescribed time and to otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies.
Therefore, no provisions for federal income or excise taxes are believed
necessary.
4. Dividends and Distributions to Shareholders
The liability for dividends and distributions payable is recorded on the
ex-dividend date.
(B) The management fee is paid to Davis/Dinsmore Management Company, investment
adviser. The contract provides for payment of a monthly advisory fee, computed
at an annual rate of 3/4 of 1% of the first $100,000,000 and 1/2 of 1% of the
excess over $100,000,000 of the Fund's net asset value in such month. The annual
fee is subject to reduction to the extent that the ordinary expenses of the Fund
(excluding taxes and interest) exceed 1.5% of the first $100,000,000 and 1% of
the excess over $100,000,000 of the average of the monthly net asset values of
the Fund for the year.
The adviser's organization furnishes investment advice, office equipment and
facilities, and pays the salaries of all executive officers of the Fund, except
that the costs associated with personnel and certain non-personnel expenses of
the office of the Treasurer, up to a maximum of $50,000 a year, are reimbursed
by the Fund. Such reimbursements amounted to $12,500 for the six months ended
April 30, 1996. The officers of the Fund are also directors, officers or
employees of the investment adviser, and are compensated by the investment
adviser.
(C) Purchases and sales of investments aggregated $20,746,811 and $19,249,436,
respectively, for the six months ended April 30, 1996, exclusive of short-term
notes.
(D) At April 30, 1996, 2,950,343 shares of $.01 par value capital stock were
outstanding (9,000,000 shares authorized). During the six months ended April 30,
1996, 75,036 shares were issued in connection with reinvestment of dividends
from net investment income and capital gains, resulting in an increase in
paid-in capital of $1,744,475.
(E) A distribution of $.28 per share from net investment income was declared
April 18, 1996 to shareholders of record at the close of business June 10, 1996,
payable June 24, 1996.
<PAGE> 8
================================================================================
DIRECTORS
GORDON F. AHALT
WILLIAM A. BENTON
ELIZABETH C. BOGAN
RONALD E. DINSMORE
THOMAS H. DINSMORE, C.F.A.
DONALD M. HALSTED, JR.
GEORGE R. LIEBERMAN
JANE D. O'KEEFFE
DIRECTOR EMERITUS
DUNCAN O. MCKEE
================================================================================
OFFICERS
RONALD E. DINSMORE Chairman of the Board
THOMAS H. DINSMORE President
JANE D. O'KEEFFE Executive Vice President
SIGMUND LEVINE Senior Vice President
and Secretary
H. TUCKER LAKE Vice President, Trading
GARY I. LEVINE Treasurer and Assistant
Secretary
STOCKHOLDER SERVICES AND TRANSFER AGENT
Chemical Mellon Shareholder Services, L.L.C.
P.O. Box 590
Ridgefield Park, NJ 07660
1-800/526-0801
Printed on [RECYCLED SYMBOL] recycled paper.
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1996
SEMI-ANNUAL
REPORT
APRIL 30, 1996
(LOGO)
65 MADISON AVENUE
MORRISTOWN, NJ 07960-7308
(201) 631-1177
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