<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
--------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX:
/X/ PRELIMINARY PROXY STATEMENT
/ / DEFINITIVE PROXY STATEMENT
/ / DEFINITIVE ADDITIONAL MATERIALS
/ / SOLICITING MATERIAL PURSUANT TO SEC.240.14a-11(c) OR SEC.240.14a-12
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14a-6(e)(2))
BANCROFT CONVERTIBLE FUND, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/X/ NO FEE REQUIRED.
/ / FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14a-6(i)(1) AND 0-11.
1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES:
2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES:
3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED
PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH
THE FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED):
4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION:
5) TOTAL FEE PAID:
/ / FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
/ / CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(a)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS
PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT
NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING.
1) AMOUNT PREVIOUSLY PAID:
2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.:
3) FILING PARTY:
4) DATE FILED:
<PAGE> 2
BANCROFT CONVERTIBLE FUND, INC.
65 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07960
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
MONDAY, FEBRUARY 12, 2001
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 2001 Annual Meeting of Shareholders
to:
1. Elect three directors to three-year terms.
2. Approve a new Investment Advisory Agreement with Davis-Dinsmore
Management Company.
3. Ratify the board's appointment of PricewaterhouseCoopers LLP as
independent accountants for fiscal year 2001.
4. Transact any other business that properly comes before the meeting.
We are holding the Annual Meeting on Monday, February 12, 2001 at 11:00
a.m., Eastern Time, at the Company's offices located at 65 Madison Avenue,
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. Of course,
if you attend the meeting, you may withdraw your proxy and vote your shares.
Only shareholders of record on December 26, 2000 will be entitled to vote at the
meeting or any adjournment of the meeting.
Thomas H. Dinsmore
Chairman of the Board of Directors
December 29, 2000
<PAGE> 3
BANCROFT CONVERTIBLE FUND, INC.
65 MADISON AVENUE
MORRISTOWN, NEW JERSEY 07960
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 12, 2001
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
PROXY STATEMENT
We are sending you this Proxy Statement and the enclosed proxy card because
the Company's Board of Directors is soliciting your proxy to vote at the 2001
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.
We plan to begin sending this Proxy Statement, the attached Notice of
Annual Meeting and the enclosed proxy card on December 29, 2000 to all
shareholders entitled to vote. Shareholders who owned shares of the Company's
common stock on December 26, 2000 are entitled to vote. On this record date,
there were 4,109,292 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 2000
Annual Report, which includes our financial statements.
TIME AND PLACE OF MEETING
We are holding the Annual Meeting on Monday, February 12, 2001 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. Returning the proxy card 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,
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 but do not make specific
choices, your proxy will vote your shares as recommended by the Board as
follows:
- FOR the election of all three nominees for director.
- FOR approval of a new Investment Advisory Agreement with Davis-Dinsmore
Management Company (Davis-Dinsmore).
- FOR ratification of the selection of independent accountants for 2001.
<PAGE> 4
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 three ways:
- You may send in another proxy with a later date.
- You may notify the Company's secretary in writing before the Annual
Meeting that you have revoked your proxy.
- 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 prior to the vote. 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
26, 2000, 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.
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, 2 and 3 even if it has not received instructions from you.
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.
PROPOSAL 2. The affirmative vote of an Investment Company Act Majority is
needed to approve the new investment advisory agreement. An "Investment Company
Act Majority" is defined as the lesser of (a) the vote of holders of 67% or more
of the voting securities of the Company present in person or by proxy, if the
holders of more than 50% of the outstanding voting securities of the Company 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 Company. Abstentions will not count
as votes cast and will have the effect of votes against this proposal. We expect
that brokers will be entitled to vote on this proposal.
PROPOSAL 3. The affirmative vote of the majority of votes cast is needed
to approve the selection of independent accountants. 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.
2
<PAGE> 5
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 Investment Company Act of 1940, as amended
(the Investment Company Act). Two of the Company's directors are "interested
persons" because of their business and financial relationships with the Company
and its investment adviser.
At the 2001 Annual Meeting, the terms of three directors are expiring. The
directors nominated for election at this Annual Meeting would each hold office
for a three-year term expiring in 2004. 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 has approved the nomination of the following people to serve as
directors until the annual meeting of shareholders to be held in 2004. Each of
the nominees is currently a director of the Company.
NOMINEES WHO ARE INDEPENDENT DIRECTORS
GORDON F. AHALT, 72, has been President of G.F.A. Inc., a petroleum
industry consulting company, since 1982 and a consultant with W. H. Reaves &
Co., Inc., an asset management company, since 1987. 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. Mr. Ahalt has been a director of the Company since 1982. He is also a
director of Ellsworth Convertible Growth and Income Fund, Inc. (Ellsworth) (a
closed-end investment company); The Harbinger Group, an investment firm; Cal
Dive International, a diving service, and The Houston Exploration Company, an
oil and gas exploration company. Mr. Ahalt received a B.S. in Petroleum
Engineering from the University of Pittsburgh.
NICOLAS W. PLATT, 47, has been the Executive Vice President of Ogilvy
Public Relations Worldwide, a division of Ogilvy & Mather, WPP Group, UK since
December 2000. From January 1997 to December 2000, he was the Managing Director
of the Corporate Financial Practice at the public relations firm of
Burson-Marsteller, a division of Young & Rubicam, WPP Group, UK, where he ran
the financial/investor relations practice. From 1995 to 1997, he was Senior
Managing Director at Bozell-Sawyer Miller, a division of True North
Communications, a public relations firm; and from 1993 to 1995, he was Executive
Vice President of NovAtel Communications Ltd. Before joining NovAtel, Mr. Platt
was Managing Director and Corporate
3
<PAGE> 6
Vice President of the American Stock Exchange from 1983-1993. 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.
NOMINEE WHO IS AN INTERESTED PERSON
JANE D. O'KEEFFE, 45, has been President of the Company, Ellsworth and
Davis-Dinsmore (investment adviser to the Company and to Ellsworth) 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 is an interested person (within the meaning of the Investment
Company 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.
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
WILLIAM A. BENTON, 67, 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 2003.
ELIZABETH C. BOGAN, PH.D., 56, 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 a director expires in 2003.
4
<PAGE> 7
DONALD M. HALSTED, JR., 73, has been a self-employed businessman since
1983. Mr. Halsted has had more than thirty years experience in management and
marketing for cement companies, including several senior management positions.
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. Mr.
Halsted received an A.B. in Economics from Princeton University. Mr. Halsted's
term as director expires in 2002.
GEORGE R. LIEBERMAN, 78, is a retired businessman. Prior to his retirement,
Mr. Lieberman spent more than thirty years as the head of an advertising agency.
Mr. Lieberman served in the U.S. Navy during World War II as a fighter pilot and
received several citations and commendations. Mr. Lieberman has been a director
of the Company since 1987 and is also a director of Ellsworth. Mr. Lieberman
received a B.A. from Muhlenberg College. Mr. Lieberman's term as director
expires in 2003.
DUNCAN O. MCKEE, 69, retired in 1988 from the practice of law as a partner
at the law firm of Ballard Spahr Andrews & Ingersoll, LLP. Mr. McKee was a
director of the Company from 1971 to 1988 and a director of Ellsworth from 1986
to 1988. Mr. McKee was Director Emeritus of the Company and Ellsworth from 1988
to 1996. 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. He 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. Mr. McKee's term as director expires in 2002.
CONTINUING DIRECTOR WHO IS AN INTERESTED PERSON
THOMAS H. DINSMORE, 47, has been Chairman and Chief Executive Officer of
the Company, Ellsworth and Davis-Dinsmore since August 1996. From 1986 to August
1996, Mr. Dinsmore was President of the Company; from 1986 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's term as director expires in
2002.
Mr. Dinsmore is an interested person 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.
COMMITTEES OF THE BOARD
The Board has two committees: an Audit Committee and a Nominating and
Administration Committee.
AUDIT COMMITTEE
The Audit Committee is comprised entirely of independent directors (Mr.
Benton, Dr. Bogan, Mr. Lieberman and Mr. Halsted, with Dr. Bogan serving as
Chairperson). In accordance with its charter attached as Appendix A to this
proxy statement, the Committee
5
<PAGE> 8
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 Committee recommends independent accountants for the Company,
evaluates their independence and meets with them to review the scope and results
of the audit.
Audit Committee Report
The Audit Committee reviewed and discussed the Company's audited financial
statements with its independent accountants, 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.
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. As the Company's independent accountants, PWC
discussed their independence with the Audit Committee. 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, 2000 for filing with the Securities and Exchange
Commission.
Elizabeth C. Bogan, Ph.D.,
Chairperson
William A. Benton
George R. Lieberman
Donald M. Halsted
NOMINATING AND ADMINISTRATION COMMITTEE
The Nominating and Administration Committee is also comprised entirely of
independent directors (Mr. Ahalt, Mr. Halsted and Mr. Lieberman, with Mr.
Halsted serving as Chairman). In accordance with its charter, the Committee,
among other duties, recommends nominees as independent directors for the Company
and nominees for Board committees, reviews Board governance issues and Board
compensation and monitors the performance of legal counsel. In recommending
nominees, the Committee considers the diversity of experience and backgrounds of
nominees and directors. The Nominating and Administration Committee will
consider a shareholder's suggestion for a nominee for director, but the final
decision for all nominees will be made by the Committee. Any shareholder who
wishes to propose an individual for consideration to be nominated for the 2002
annual meeting of shareholders may do so by submitting, in writing, the
individual's name, together with information regarding the business experience
of the individual and any other information that the shareholder considers
relevant to the Committee's decision, to the Secretary of the Company no earlier
than October 16, 2001 but no later than November 15, 2001.
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<PAGE> 9
BOARD AND COMMITTEE MEETING ATTENDANCE
During the 2000 fiscal year, the Board met eight times, the Audit Committee
met twice and the Nominating and Administration Committee met twice. All
directors attended at least 75% of all Board and Committee meetings held during
the 2000 fiscal year.
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.
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." 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 2000 fiscal year.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
AGGREGATE COMPENSATION FROM FUND
FROM COMPANY COMPLEX
---------------------- ------------------
<S> <C> <C>
Thomas H. Dinsmore........................... $ - 0 - $ - 0 -
Jane D. O'Keeffe............................. $ - 0 - $ - 0 -
Gordon F. Ahalt.............................. $13,125 $25,250
William A. Benton............................ $13,125 $26,250
Elizabeth C. Bogan, Ph.D..................... $13,125 $25,250
Donald M. Halsted, Jr........................ $14,125 $28,250
George R. Lieberman.......................... $14,125 $28,250
Duncan O. McKee.............................. $12,125 $24,250
Nicolas W. Platt............................. $12,125 $24,250
</TABLE>
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<PAGE> 10
PROPOSAL 2
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board is asking you to vote on this new agreement because the Company
may amend its advisory agreement only with shareholder approval. A form of the
Company's proposed Investment Advisory Agreement is in Appendix B. The proposed
advisory agreement amends the current advisory agreement primarily by:
- expanding the scope of services the investment adviser provides;
- providing Davis-Dinsmore with the ability to consider the full range and
quality of brokerage and research services in selecting brokers to
execute portfolio transactions;
- modernizing the expenses to be assumed by the Company;
- omitting expense limitation provisions that are not required by law;
- recognizing that Davis-Dinsmore acts as an investment adviser to another
registered investment company; and
- changing the governing law provision from New York to Delaware.
NO CHANGES TO INVESTMENT ADVISORY FEES ARE BEING PROPOSED, OTHER THAN TO
MODERNIZE THE EXPENSES TO BE PAID BY THE COMPANY AND TO ELIMINATE EXPENSE
LIMITATION PROVISIONS.
THE INVESTMENT ADVISER
Davis-Dinsmore has been the investment adviser for the Company since its
operations began in 1971. The current Investment Advisory Agreement has been in
effect since October 25, 1996, the date on which the Company's shareholders last
voted on and approved such agreement. The Board, including a majority of the
independent directors, last approved the current advisory agreement at a meeting
held on November 13, 2000.
Davis-Dinsmore is a privately owned Delaware corporation that acts as an
investment adviser to the Company and to Ellsworth. The address of
Davis-Dinsmore is 65 Madison Avenue, Suite 550, Morristown, New Jersey 07960.
The principal executive officer of Davis-Dinsmore is Thomas H. Dinsmore and the
directors are Thomas H. Dinsmore, Jane D. O'Keeffe, Sally Jean Finnican and Jean
H. Dinsmore.
DIRECTORS OR EXECUTIVE OFFICERS OF THE COMPANY HOLDING POSITIONS WITH
DAVIS-DINSMORE
Thomas H. Dinsmore and Jane D. O'Keeffe, both of whom are directors and
executive officers of the Company, also are directors and officers of
Davis-Dinsmore.
TERMS OF THE CURRENT ADVISORY AGREEMENT
Under the current advisory agreement, Davis-Dinsmore, subject to the
supervision of the Board and in conformance with the stated policies of the
Company, provides investment information, advice and recommendations. In this
regard, it is Davis-Dinsmore's responsibility to provide the Company with the
information, advice and recommendations necessary for the Company to make
investment decisions. In making its recommendations to the Company,
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<PAGE> 11
Davis-Dinsmore is guided by the Company's investment policy as delineated by
statements contained in the various documents filed by the Company with the
Securities and Exchange Commission as such documents may from time to time be
amended.
Davis-Dinsmore is also responsible for furnishing to the Company office
space and facilities, paying the salaries of the Company's executive officers,
and furnishing bookkeeping and statistical services to the Company.
The current advisory agreement provides that the Company will pay or cause
to be paid all of the costs and expenses associated with the Company's
operations and activities, except those expressly assumed by Davis-Dinsmore.
Expenses not assumed by Davis-Dinsmore include:
- expenses in connection with the Company's organization and with the
offering of its securities;
- fees and expenses of unaffiliated directors;
- salaries of employees other than executive officers;
- legal and accounting fees, fees of its custodian, registrar and transfer
agent;
- fees of the dividend disbursing agent and Automatic Dividend Investment
Plan Agent;
- taxes, interest, brokerage commissions; and
- direct costs of postage, printing, copying and travel expenses
attributable to the conduct of the Company's business.
The current advisory agreement will continue in effect from year to year
only if such continuance is specifically approved at least annually by (i) the
Board of Directors or an Investment Company Act Majority of shareholders, and
(ii) the affirmative vote of a majority of independent directors by votes cast
in person at a meeting called for such purpose. The current advisory agreement
provides that the Company or Davis-Dinsmore may terminate the agreement on 60
days' written notice without penalty. The agreement terminates automatically in
the event of its assignment.
The annual rates at which Davis-Dinsmore receives monthly fees under the
current advisory agreement are computed at an annual rate of 0.75% of the first
$100,000,000 of the Company's average net assets and 0.50% of the Company's
average net assets in excess of $100,000,000. Such fee is reduced to the extent
that the Company's ordinary expenses for the year (including Davis-Dinsmore's
fee but excluding interest, local, state and federal taxes and extraordinary
expenses as determined by the independent directors of the Company) 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 Company for the twelve months of
each fiscal year. These expense limitations have never been exceeded. The
Company paid Davis-Dinsmore fees totaling $817,341 during the fiscal year ended
October 31, 2000.
ADDITIONAL SERVICES PROVIDED BY DAVIS-DINSMORE
Davis-Dinsmore also provides certain administrative services, including
statistical, clerical and bookkeeping services. Davis-Dinsmore receives
reimbursement from the Company for the first
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<PAGE> 12
$50,000 of the costs and expenses of the Treasurer's office each year. However,
Davis-Dinsmore is currently waiving its right to be reimbursed for more than
$25,000 of such costs and expenses.
ADVISORY FEES RECEIVED BY DAVIS-DINSMORE FROM A SIMILAR FUND IT MANAGES.
Davis-Dinsmore also receives monthly advisory fees from the following fund
which has a similar investment objective as the Company:
<TABLE>
<CAPTION>
SIZE OF FUND FEE ARRANGEMENT
NAME OF FUND (AS OF 10/31/2000) (ANNUAL RATE) EXPENSE LIMITATIONS
------------ ------------------ -------------------- --------------------
<S> <C> <C> <C>
Ellsworth Convertible $92,434,486 0.75% of the first Advisory fees
Growth and Income $100,000,000 of net reduced if ordinary
Fund, Inc. assets and 0.50% of expenses exceed 1.5%
the excess over of the first
$100,000,000 $100,000,000, and
1.0% of the excess
over $100,000,000,
of the average of
monthly net assets
for the 12 months of
each fiscal year
</TABLE>
Ellsworth is currently the only other fund managed by Davis-Dinsmore. Ellsworth
paid Davis-Dinsmore fees totaling $768,396 during the Company's fiscal year
ended October 31, 2000.
TERMS OF THE PROPOSED ADVISORY AGREEMENT
The primary differences between the current advisory agreement and the
proposed advisory agreement are:
- To expand upon the scope of services that Davis-Dinsmore will provide to
the Company;
- To provide Davis-Dinsmore with the ability to consider the full range and
quality of brokerage and research services in selecting brokers to
execute portfolio transactions;
- To modernize the expenses to be assumed by the Company;
- To omit expense limitation provisions not required by law;
- To formally recognize that Davis-Dinsmore acts as an investment adviser
to another registered investment company; and
- To change the governing law provision from New York to Delaware.
Each of these changes is discussed more fully below. Except for these
changes, the terms of the current advisory agreement and the proposed advisory
agreement are substantially similar, except for the effective dates and the
renewal dates.
Services Provided by Davis-Dinsmore
The current advisory agreement requires Davis-Dinsmore to provide the
Company with information, advice and recommendations, but does not authorize
Davis-Dinsmore to make investment decisions. The Board proposes to expand the
scope of services provided by Davis-Dinsmore by providing in the proposed
advisory agreement that Davis-Dinsmore shall:
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<PAGE> 13
(a) supervise all aspects of the operations of the Company; (b) obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or any industry or the Company or any issuer of
securities held or to be purchased by the Company; (c) determine which issuers
and securities shall be represented in the Company's investment portfolio and
regularly report thereon to the Board of Directors; (d) place orders for the
purchase and sale of securities for the Company; and (e) take, on behalf of the
Company, such other action as may be necessary or appropriate in connection with
the above.
Transaction Execution
The current advisory agreement does not permit Davis-Dinsmore to make
investment decisions. As discussed above, the proposed advisory agreement
expands the scope of services to be provided by Davis-Dinsmore by allowing the
adviser to make investment decisions. The Board believes that it is prudent to
provide Davis-Dinsmore with the ability to consider the full range and quality
of services offered by broker-dealers in determining the most favorable price
and execution for the Company in each transaction. The proposed advisory
agreement provides that Davis-Dinsmore may consider, without limitation, the
value of research provided as well as execution capability, commission rate,
financial responsibility and responsiveness in choosing a broker-dealer to
execute a transaction. The Board recognizes in the proposed advisory agreement
that consideration of such factors by Davis-Dinsmore will not necessarily lead
to the lowest possible commission cost for each transaction.
Modernization of Expenses Assumed by the Company
The current advisory agreement indicates that the Company is responsible
for the salaries of employees other than executive officers. Since there are no
employees other than executive officers, the Board proposes to eliminate this
provision in the proposed advisory agreement. The Board also proposes to limit
the amount of the costs and expenses of the Treasurer's office assumed by the
Company. The current advisory agreement obligates the Company to reimburse
David-Dinsmore up to $50,000 for costs and expenses incurred by the Treasurer's
office each year. However, Davis-Dinsmore is currently waiving its right to
collect more than $25,000 of such costs and expenses. To more accurately reflect
the expenses being paid by the Company, the proposed advisory agreement reduces
the Company's obligation to pay the costs and expenses of the Treasurer's office
to a maximum of $25,000 per year.
Expense Limitations
The current advisory agreement limits expenses of the Company by requiring
Davis-Dinsmore to reduce its fee to the extent that the Company's ordinary
expenses for the year (including Davis-Dinsmore's fee but excluding interest,
local, state and federal taxes and extraordinary expenses as determined by the
independent directors of the Company) 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 Company for the twelve months of each fiscal year. The Board
proposes to eliminate this provision in the proposed advisory agreement. Neither
federal nor state law requires that expense limitations be imposed on investment
companies. Moreover, the Company has never exceeded the expense
11
<PAGE> 14
limitations. The Board believes that this change will not have a material effect
on the Company's expense ratio, and will continue to monitor the Company's
expenses.
Recognition of Davis-Dinsmore's Other Affiliations
The current investment advisory agreement is silent regarding the fact that
Davis-Dinsmore acts as an investment adviser to another registered investment
company and may act in the future as an investment adviser to fiduciary and
other managed accounts and investment companies. The Board of Directors believes
that it is prudent to recognize that Davis-Dinsmore currently acts in such a
capacity and may do so for additional entities in the future. The Board also
noted that under certain circumstances investment opportunities would be
equitably allocated between the Company and such other accounts and that such
allocation could adversely affect the size of the positions obtainable and the
prices realized for the Company. Accordingly, a provision has been added to the
proposed advisory agreement recognizing Davis-Dinsmore's other advisory
obligations.
Governing Law
The current investment advisory agreement provides that the laws of the
State of New York shall, except to the extent that any applicable provisions of
some other law shall be controlling, govern the construction, validity and
effect of the agreement. The parties originally chose the laws of New York as
governing the agreement because the Company and Davis-Dinsmore maintained an
office in New York City and the agreement was performed in New York. Since 1996,
neither the Company nor Davis-Dinsmore has maintained an office in New York.
Instead, they maintain an office in New Jersey and the current advisory
agreement is performed in that state.
Because neither party currently conducts business in New York, and the
Company is a Delaware corporation, the Board believes that the laws of the State
of Delaware should govern the construction, validity and effect of the advisory
agreement, except to the extent that any applicable provisions of some other law
are controlling. This change is reflected in the proposed advisory agreement.
Although Davis-Dinsmore is a Delaware corporation, the proposed advisory
agreement, if approved, will be performed in New Jersey and there can be no
assurance that, if litigation were to arise under the proposed advisory
agreement, a court would apply the laws of the State of Delaware in interpreting
the agreement.
COMPARATIVE EXPENSE INFORMATION
The amounts that would have been paid had the new investment advisory
agreement been in effect during the last fiscal year would not differ from
actual amounts paid under the current advisory agreement.
WHAT FACTORS DID THE DIRECTORS CONSIDER IN APPROVING THE ADVISORY AGREEMENT?
At the request of Davis-Dinsmore, the Board discussed the approval of the
proposed advisory agreement at a meeting held in person on November 13, 2000.
The independent directors also discussed approval of the proposed advisory
agreement with their counsel at that meeting. In
12
<PAGE> 15
evaluating the proposed advisory agreement, the Board requested and received
information from Davis-Dinsmore to assist in its deliberations.
The Board considered the following factors in determining the
reasonableness and fairness of the proposed changes to the current advisory
agreement.
- The qualifications of Davis-Dinsmore to provide investment advisory
services. The Board reviewed the credentials and experience of the
officers and employees of Davis-Dinsmore who provide investment advisory
services to the Company, and noted that the persons providing services to
the Company would not change if the new advisory agreement is approved by
shareholders.
- The range of investment advisory services provided by
Davis-Dinsmore. The Board reviewed the services to be provided by
Davis-Dinsmore under the new advisory agreement, and noted that no
changes in the level or type of services provided by Davis-Dinsmore would
occur if the new advisory agreement is approved by shareholders, other
than the actual investment decision and the execution by Davis-Dinsmore
of purchase and sale orders. The Board also noted that the officers of
the Company and the officers of Davis-Dinsmore are the same, so the same
persons who currently provide executive services for the Company also
provide such services for Davis-Dinsmore.
- The qualifications of Davis-Dinsmore to provide a range of management and
administrative services. The Board reviewed the general nature of the
non-investment advisory services performed by Davis-Dinsmore, such as
administrative services, and the fees received by Davis-Dinsmore for
performing such services. In addition to reviewing such services, the
Board also considered the organizational structure employed by Davis-
Dinsmore to provide those services. The Board concluded that the
administrative services to be provided by Davis-Dinsmore would not change
under the proposed advisory agreement.
- The performance record of the Company. The Board determined that
Davis-Dinsmore has provided high quality services with respect to the
Company, after considering performance information that it received
during the past year from Davis-Dinsmore regarding the Company. The Board
also determined that the Company's performance would not have been
affected if the proposed advisory agreement had been in effect during the
past fiscal year, since no changes to advisory fees are being proposed,
other than to eliminate expense limitation provisions. The Board noted
that the expense limitations have never been exceeded, and that it would
continue to monitor expense levels, and take whatever action it deemed
necessary if expenses rose materially.
- The profitability of Davis-Dinsmore. The Board reviewed information
concerning the profitability of Davis-Dinsmore's investment advisory and
administrative activities and its financial condition. The Board noted
that no changes to the advisory fees were being proposed, other than to
eliminate expense limitation provisions. The Board noted that it would
continue to monitor the Company's expenses.
- The terms of the proposed advisory agreement. The Board reviewed the
terms of the proposed advisory agreement, including the changes discussed
above. The Board deter-
13
<PAGE> 16
mined that these changes reflect the current environment in which the
Company operates, and that Davis-Dinsmore should have the flexibility to
take advantage of that environment.
After considering the above factors, the Board concluded that it is in the
best interests of the Company and its shareholders to approve the proposed
advisory agreement.
The Board reached its conclusion after careful discussion and analysis. The
Board believes that it has carefully and thoroughly examined the pertinent
issues and alternatives. In recommending that you approve the proposed advisory
agreement, the independent directors have considered what they believe to be in
your best interests. In so doing, they were advised by counsel, retained by the
independent directors and paid for by the Company, as to the nature of the
matters to be considered and the standards to be used in reaching their
decision.
WHEN WILL PROPOSAL 2 BE IMPLEMENTED?
If approved, the proposed advisory agreement will become effective
immediately and will expire, unless renewed, in December 31, 2002. If
shareholders do not approve the proposed advisory agreement, the current
advisory agreement will continue in effect.
WHAT IS THE BOARD'S RECOMMENDATION ON PROPOSAL 2?
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.
PROPOSAL 3
SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors seeks your ratification of the Board's appointment
of PricewaterhouseCoopers LLP as the Company's independent accountants for the
2001 fiscal year. We expect that a representative from PricewaterhouseCoopers
will be present at the Annual Meeting. If present, such representative will have
an opportunity to make a statement and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.
ADDITIONAL INFORMATION
INVESTMENT ADVISER
Davis-Dinsmore Management Company, 65 Madison Avenue, Morristown, New
Jersey 07960, is the Company's investment adviser.
EXECUTIVE OFFICERS
The Company's executive officers are elected by the Board of Directors and
receive no compensation from the Company. Information about these officers is
presented below.
THOMAS H. DINSMORE is Chairman and Chief Executive Officer of the Company.
Mr. Dinsmore is also a director of the Company and information about him is
presented earlier in
14
<PAGE> 17
this proxy statement under "Proposal 1, Election of Directors -- Information
about the Company's Other Directors -- Continuing Director Who is an Interested
Person."
JANE D. O'KEEFFE is President of the Company. 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 -- Nominees for
Directors -- Nominee Who is an Interested Person."
SIGMUND LEVINE, 76, has been Senior Vice President and Secretary of the
Company since 1996 and 1982, respectively. From 1993 to 1996, he was Executive
Vice President of the Company. Mr. Levine has been Senior Vice President and
Secretary of Ellsworth since 1996 and 1986, respectively, and was Executive Vice
President of Ellsworth from 1993 to 1996. Mr. Levine has been Senior Vice
President and Secretary of Davis-Dinsmore since 1997 and 1982, respectively, and
was Treasurer of Davis-Dinsmore from 1982 to 1997.
H. TUCKER LAKE, 53, has been Vice President, Trading of the Company since
joining the Company in 1994. He has been Vice President, Trading of Ellsworth
during the same period. He has been Vice President of Davis-Dinsmore since 1997.
GARY I. LEVINE, 43, has been Treasurer and Assistant Secretary of the
Company since 1993 and 1986, respectively. He has been Treasurer and Assistant
Secretary of Ellsworth during the same periods. Mr. Levine has been Treasurer
and Assistant Secretary of Davis-Dinsmore since 1997 and 1994, respectively, and
was Assistant Treasurer of Davis-Dinsmore from 1994 to 1997.
GERMAINE ORTIZ, 31, has been Vice President of the Company and of Ellsworth
since 1999. She has also been Vice President of Davis-Dinmore 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.
CERTAIN RELATIONSHIPS
Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister. H. Tucker
Lake is their cousin. Sigmund Levine is the father of Gary I. Levine.
SECURITY OWNERSHIP OF MANAGEMENT
The Company's directors and officers own the shares of the Company's common
stock shown on the following table:
<TABLE>
<CAPTION>
SHARES OWNED BENEFICIALLY
DECEMBER 26, 2000*
-------------------------
<S> <C>
Gordon F. Ahalt............................... 1,000(1)
William A. Benton............................. 2,268
Elizabeth C. Bogan, Ph.D. .................... 1,000
Thomas H. Dinsmore............................ 7,860(2)
Donald M. Halsted, Jr. ....................... 2,784
George R. Lieberman........................... 3,291
Duncan O. McKee............................... 1,347
Jane D. O'Keeffe.............................. 6,585
Nicolas W. Platt.............................. 100
Sigmund Levine................................ 1,288
H. Tucker Lake................................ 328(3)
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
SHARES OWNED BENEFICIALLY
DECEMBER 26, 2000*
-------------------------
<S> <C>
Gary I. Levine................................ 845
Germaine Ortiz................................ 0
</TABLE>
---------------
* Represents for each director and officer less than 1% of the outstanding
shares of the Company. As of December 26, 2000, directors and officers of
the Company beneficially owned in the aggregate 28,696 shares of the Company
representing approximately 0.7% of the outstanding shares. Except as
otherwise indicated, each director and officer possessed sole investment and
voting power with respect to shares beneficially owned.
(1) Does not include 500 shares owned by his wife as to which shares Mr. Ahalt
disclaims beneficial ownership.
(2) Includes 1,127 shares as to which Mr. Dinsmore possessed shared investment
and voting power; but does not include 2,383 shares owned by his wife, as to
which shares Mr. Dinsmore disclaims beneficial ownership.
(3) Includes 256 shares as to which Mr. Lake possessed shared investment and
voting power; but does not include 184 shares owned by his wife as to which
Mr. Lake disclaims beneficial ownership.
PROXY SOLICITATION
The Company expects to solicit proxies principally by mail, but may also
solicit proxies by telephone, facsimile, the Internet or personal interview. The
Company will pay the cost of soliciting proxies and may reimburse firms and
others for their expenses in forwarding solicitation materials to the beneficial
owners of the Company's shares.
SHAREHOLDER PROPOSALS
If you want us to consider including a shareholder proposal in the
Company's proxy statement for the 2002 annual meeting of shareholders, we must
receive it from you no later than September 1, 2001. If you want to bring before
the 2002 annual meeting of shareholders any other business, you must notify us
no earlier than October 16, 2001 and no later than November 15, 2001.
By order of the Board of
Directors,
/S/ THOMAS H. DINSMORE
----------------------------------
Thomas H. Dinsmore
Chairman of the Board of Directors
December 29, 2000
16
<PAGE> 19
APPENDIX A
BANCROFT CONVERTIBLE FUND, INC.
AUDIT COMMITTEE CHARTER
1. The membership of the Audit Committee shall consist of at least three
directors who are generally knowledgeable in financial and auditing matters,
including at least one member that has past employment experience in finance
or accounting, or any other experience or background that results in the
individual's financial sophistication. Each member shall be free of any
relationship that, in the opinion of the Board of Directors, would interfere
with his or her individual exercise of independent judgment, and shall meet
the director independence requirements for serving on audit committees as
set forth in the AMEX listing standards.
2. The purposes of the Audit Committee are:
(a) to oversee the Fund's accounting and financial reporting policies and
practices, its internal controls and, as appropriate, the internal
controls of certain service providers;
(b) to oversee the quality and objectivity of the Fund's financial
statements and the independent audit thereof; and
(c) to act as a liaison between the Fund's independent auditors and the full
Board of Directors.
The function of the Audit Committee is oversight; it is management's
responsibility to maintain appropriate systems for accounting and internal
control, and the auditor's responsibility to plan and carry out a proper
audit. The independent auditors are ultimately accountable to the Board and
the Committee.
3. To carry out its purposes, the Audit Committee shall have the following
duties and powers:
(a) to recommend the selection, retention or termination of auditors and, in
connection therewith, to evaluate the independence of the auditors,
including whether the auditors provide any consulting services to the
manager, and to receive from the auditors a formal written statement
delineating all relationships between the auditor and the Fund;
(b) to meet with the Fund's independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of
the annual audit and any special audits; (ii) to discuss any matters of
concern relating to the Fund's financial statements, including any
adjustments to such statements recommended by the auditors, or other
results of said audit(s); (iii) to consider the auditors' comments with
respect to the Fund's financial policies, procedures and internal
accounting controls and management's responses thereto; and (iv) to
review the form of opinion the auditors propose to render to the Board
and shareholders;
(c) to consider the effect upon the Fund of any changes in accounting
principles or practices proposed by management or the auditors;
(d) to review the fees charged by the auditors for audit and non-audit
services;
(e) to investigate improprieties or suspected improprieties in fund
operations; and
A-1
<PAGE> 20
(f) to report its activities to the full Board on a regular basis and to
make such recommendations with respect to the above and other matters as
the Committee may deem necessary or appropriate.
4. The Committee shall meet on a regular basis and is empowered to hold special
meetings as circumstances require.
5. The Committee shall regularly meet with the Treasurer of the Fund.
6. The Committee shall have the resources and authority appropriate to
discharge its responsibilities, including the authority to retain special
counsel and other experts or consultants at the expense of the Fund.
7. The Committee shall review this Charter at least annually and recommend any
changes to the full Board of Directors.
A-2
<PAGE> 21
APPENDIX B
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is entered into this day of January, 2001 by
and between BANCROFT CONVERTIBLE FUND, INC., a Maryland corporation (the
"Company"), and DAVIS-DINSMORE MANAGEMENT COMPANY, a Delaware corporation (the
"Adviser").
BACKGROUND
The Company is registered as a diversified, closed end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"). The Company
desires to engage the Adviser to provide investment advisory services to the
Company, and the Adviser desires to provide such services to the Company, all on
the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
AGREEMENT
SECTION 1. Appointment of Investment Adviser. The Company hereby appoints
the Adviser to provide investment advisory services to the Company, and the
Adviser hereby accepts such appointment, subject to the terms and conditions set
forth in this Agreement.
SECTION 2. Advisory Services. Subject at all times to the supervision of
the Board of Directors of the Company, the Adviser shall supervise all aspects
of the Company's operations, including the investment and reinvestment of cash,
securities or other properties comprising the Company's assets.
In carrying out its obligations in the preceding paragraph of this Section
2, the Adviser shall (a) supervise all aspects of the operations of the Company;
(b) obtain and evaluate pertinent information about significant developments and
economic, statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or any industry or the Company or any
issuer of securities held or to be purchased by the Company; (c) determine which
issuers and securities shall be represented in the Company's investment
portfolio and regularly report thereon to the Board of Directors; (d) place
orders for the purchase and sale of securities for the Company; and (e) take, on
behalf of the Company, such other action as may be necessary or appropriate in
connection with the foregoing.
In placing orders for the purchase and sale of securities for the Company,
the Adviser shall be guided by the Company's investment objectives, policies and
limitations as delineated by statements contained in the various documents filed
by the Company with the Securities and Exchange Commission as such documents may
from time to time be amended. The Company will make available to the Adviser
such financial reports, proxy statements, legal and other information relating
to its investments as may be in the possession of the Company or available to
it.
B-1
<PAGE> 22
The Adviser is hereby obligated, in placing orders for the purchase and
sale of securities for the Company, to obtain the most favorable price and
execution available under the circumstances and to keep true, accurate and
current books and records containing sufficient detail to demonstrate compliance
with this obligation. In determining the most favorable price and execution in
each transaction the determinative factor is not necessarily the lowest possible
commission cost. The Adviser may consider the full range and quality of the
services of broker-dealers in placing brokerage including, but not by way of
limitation, the value of research provided as well as execution capability,
commission rate, financial responsibility and responsiveness of the
broker-dealer to the Adviser. Accordingly, to the extent provided by law, in
executing portfolio transactions, the Adviser may pay a broker-dealer which
provides brokerage or research services a commission in excess of that which
another broker-dealer would have charged for the same transaction.
SECTION 3. Independent Contractor. The Adviser shall, for all purposes of
this Agreement, be deemed to be an independent contractor and shall have no
authority to act for or represent the Company unless otherwise provided. No
agreement, bid, offer, commitment, contract or other engagement entered into by
the Adviser, whether on behalf of the Adviser or whether purported to have been
entered into by the Adviser on behalf of the Company, shall be binding upon the
Company, and all acts authorized to be done by the Adviser under this Agreement
shall be done by the Adviser as an independent contractor and not as agent.
SECTION 4. Expenses. The Adviser shall provide the Company with office
space and facilities, pay the salaries of its executive officers and furnish
clerical, bookkeeping and statistical services to the Company, and pay all
expenses incurred by the Adviser in the performance of this Agreement.
The Company will pay all expenses incurred by it and not assumed by the
Adviser including, but not by way of limitation, expenses in connection with its
organization and with the offering of its securities; fees and expenses of its
unaffiliated directors; legal and accounting fees, fees of its custodian,
registrar, transfer agent; dividend disbursing agent and Dividend Reinvestment
Plan Agent; taxes, interest, brokerage commissions; and direct costs of postage,
printing, copying and travel expenses attributable to the conduct of the
business of the Company. In addition, the Company will pay the costs and
expenses of its Treasurer's office, up to a maximum of $25,000 per year,
incurred in connection with its performance of certain services for the Company,
including the valuation of securities owned by the Company, the preparation of
financial statements and schedules of the Company's investments for inclusion in
certain periodic reports to the Company's Board of Directors and to the
Securities and Exchange Commission, the maintenance of files relating to the
foregoing, and rent, personnel costs and other overhead expenses allocable to
the aforementioned services. Subject to approval of the Company's directors who
are not "interested persons" of either the Adviser or the Company, as defined by
the 1940 Act, the Company may also pay the costs of any additional services
performed in the future by the Treasurer's office in lieu of similar services
previously performed by third party contractors at the Company's expense.
SECTION 5. Compensation. As compensation for the services performed by
the Adviser, the Company will pay the Adviser on the last day of each month a
fee for such month computed at an annual rate of .75% of the first $100,000,000
of the Company's average net assets and .50% of the Company's average net assets
in excess of $100,000,000.
B-2
<PAGE> 23
For the purpose of calculation of the fee, the net asset value for a month
will be the average of the Company's net asset values at the close of business
on the last business day on which the New York Stock Exchange is open in each
week in the month.
If this Agreement shall become effective subsequent to the first day of a
month, or shall terminate before the last day of a month, the Adviser's
compensation for such fraction of the monthly period shall be determined by
applying the foregoing percentage to the net asset value of the Company during
such fraction of a monthly period (which net asset value shall be determined in
such reasonable manner as the Board of the Company shall deem appropriate) and
in the proportion that such fraction of a monthly period bears to the entire
month.
Compensation under this Agreement will begin to accrue on its effective
date.
SECTION 6. Approval of Agreement; Termination. This Agreement will be
submitted to the Company's stockholders for approval. If approved by the vote of
a "majority of the outstanding voting securities" of the Company as such term is
defined in the 1940 Act, this Agreement will be in effect from the date of
approval. Unless terminated by either party, this Agreement will remain in
effect until December 31, 2002, and for successive one-year periods thereafter,
provided that such continuation is approved annually (i) by the Board of
Directors of the Company or by the holders of a majority of the outstanding
voting securities of the Company and (ii) by a majority of the directors who are
not parties to this Agreement or "interested persons," as defined in the 1940
Act, of any such party.
This Agreement is terminable without penalty by either party on 60 days'
written notice and will terminate automatically in the event of its assignment.
Except as specified above, this Agreement may not be amended, transferred,
assigned, sold or in any other manner hypothecated or pledged; provided,
however, that this limitation shall not prevent any minor amendments to this
Agreement which may be required by Federal or state regulatory bodies.
SECTION 7. Liability. The Adviser shall give the Company the benefit of
its best judgment and efforts in rendering the services set forth herein. The
Company agrees as an inducement to the undertaking of these services by the
Adviser that the Adviser shall not be liable for any error of judgment or for
any loss suffered by the Company in connection with any matters to which this
Agreement relates, except that nothing herein contained shall be construed to
protect the Adviser against any liability by reason of willful misfeasance, bad
faith or gross negligence in the performance by the Adviser of its duties or the
reckless disregard of the Adviser's obligations or duties under this Agreement.
SECTION 8. Multiple Capacities. Except to the extent necessary for
performance of the Adviser's obligations hereunder, nothing shall restrict the
Adviser's right or the right of any of the Adviser's directors, officers or
employees who may be directors, officers or employees of the Company to engage
in any other business or to devote time and attention to the management or other
aspects of any other business whether of a similar or dissimilar nature or to
render services of any kind to any other corporation, firm, individual or
association.
The Company understands that the Adviser now acts and will continue to act
as an investment adviser to another registered investment company and may act in
the future as an investment adviser to fiduciary and other managed accounts and
investment companies. The
B-3
<PAGE> 24
Company has no objection to the Adviser so acting, provided that whenever the
Company and one or more other investment companies or accounts advised by the
Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a formula believed to
be equitable to each company and account. The Company recognizes that in some
cases this procedure may adversely affect the size of the positions obtainable
and the prices realized for the Company.
It is understood and agreed that the directors, officers, agents, employees
and stockholders of the Company may be interested in the Adviser as directors,
officers, stockholders, employees, agents or otherwise, and that the directors,
officers, agents, employees and stockholders of the Adviser may be interested in
the Company as a stockholder or otherwise.
SECTION 9. Concerning Applicable Provisions of Law, Etc. This Agreement
shall be subject to all applicable provisions of law, including, but not limited
to, the applicable provisions of the 1940 Act; and, to the extent that any
provisions herein contained conflict with any such applicable provisions of law,
the latter shall control.
The laws of the State of Delaware shall, except to the extent that any
applicable provisions of some other law shall be controlling, govern the
construction, validity and effect of this Agreement.
The headings preceding the text of the several sections herein are inserted
solely for convenience of reference and shall not affect the meaning,
construction or effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
BANCROFT CONVERTIBLE FUND, INC.
By
------------------------------------
(Chairman)
DAVIS-DINSMORE MANAGEMENT
COMPANY
By
------------------------------------
(President)
B-4
<PAGE> 25
BANCROFT CONVERTIBLE FUND, INC.
ANNUAL MEETING TO BE HELD FEBRUARY 12, 2001
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Dinsmore, Gary I. Levine, and
Sigmund Levine, 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 12, 2001 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 APPROVE A
NEW INVESTMENT ADVISORY AGREEMENT WITH DAVIS-DINSMORE MANAGEMENT COMPANY, AND
FOR THE PROPOSAL TO RATIFY THE BOARD'S SELECTION OF ACCOUNTANTS.
PLEASE FILL IN, DATE AND SIGN THE PROXY ON THE OTHER SIDE
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE
<PAGE> 26
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
BANCROFT CONVERTIBLE FUND, INC.
FEBRUARY 12, 2001
- Please Detach and Mail in the Envelope Provided -
A /X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
<TABLE>
<CAPTION>
FOR WITHHOLD
nominees listed at AUTHORITY
right (except as to vote for all nominees
indicated below) listed at right
<S> <C> <C> <C>
1. Election as / / / / NOMINEES: Gordon F. Ahalt
directors of all Nicolas W. Platt
nominees listed Jane D. O'Keeffe
at right for the
terms specified in
the proxy statement.
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Proposal to approve a new Investment / / / / / /
Advisory Agreement with Davis-Dinsmore
Management Company.
FOR AGAINST ABSTAIN
3. Proposal to ratify selection of accountants. / / / / / /
</TABLE>
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.
Signature(s) 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.
