SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Section 240.14a-12
BANCROFT CONVERTIBLE FUND, INC.
...........................................................................
(Name of Registrant as Specified In Its Charter)
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BANCROFT CONVERTIBLE FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held
Monday, February 14, 2005
11:00 a.m., Eastern Time
at
65 Madison Avenue, Suite 550
Morristown, New Jersey 07960
To Shareholders of Bancroft Convertible Fund, Inc.:
We cordially invite you to attend our 2005 Annual Meeting of Shareholders to:
1. Elect four directors to serve for a term of one or three years, as the
case may be.
2. Ratify the Audit Committee's appointment of PricewaterhouseCoopers LLP as
independent auditors for fiscal year 2005.
3. Approve changing the fundamental investment restrictions of the Company.
4. Transact any other business that properly comes before the meeting.
We are holding the Annual Meeting on Monday, February 14, 2005 at 11:00
a.m., Eastern Time, at the Company's offices located at 65 Madison Avenue, Suite
550, Morristown, New Jersey 07960.
You may vote on these proposals in person or by proxy. If you cannot
attend the meeting, we urge you to complete and return the enclosed proxy
promptly in the enclosed, self-addressed, stamped envelope so that your shares
will be represented and voted at the meeting according to your instructions. If
you are the record owner of your shares on the books of the Company's transfer
agent, then you may also submit your proxy vote by telephone or via the
Internet, by following the instructions accompanying this Proxy Statement. If
your broker holds your shares in its name, you may submit your proxy vote by any
other means specified in the instructions that accompany this Proxy Statement.
Of course, if you attend the meeting, you may withdraw your proxy and vote your
shares. Only shareholders of record on December 22, 2004 will be entitled to
vote at the meeting or any adjournment of the meeting.
Thomas H. Dinsmore
Chairman of the Board of Directors
December 27, 2004
BANCROFT CONVERTIBLE FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
February 14, 2005
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Proxy Statement
We are sending you this Proxy Statement and the enclosed proxy card because
the Bancroft Convertible Fund, Inc.'s Board of Directors is soliciting your
proxy to vote at the 2005 Annual Meeting of Shareholders. This Proxy Statement
summarizes the information you need to know to cast an informed vote at the
Annual Meeting. However, you do not need to attend the Annual Meeting to vote
your shares. Instead, you may simply complete, sign and return the enclosed
proxy card or use any of the available alternative proxy voting methods
specified in the instructions that accompany this Proxy Statement.
If you are the record owner of your shares, the available alternative proxy
voting methods are telephone and Internet voting. If your shares are held by a
broker, the alternative proxy voting methods may include telephone, Internet and
any alternative method of voting permitted by your broker.
This Proxy Statement, the attached Notice of Annual Meeting and the
enclosed proxy card will first be sent on or about December 27, 2004 to all
shareholders entitled to vote. Shareholders who owned shares of the Company's
common stock on December 22, 2004 are entitled to vote. On this record date,
there were 5,557,138 shares outstanding. We know of no beneficial owner of more
than five percent of those shares. Each share of the Company's common stock that
you own entitles you to one vote. (A fractional share has a fractional vote.)
We are also sending along with this Proxy Statement the Company's 2004
Annual Report, which includes our financial statements.
The cost of soliciting proxies will be borne by the Company. The Company
will engage Georgeson Shareholder Communications, Inc. to assist in the
solicitation of proxies for the Company. The fee for such solicitation by
Georgeson has been estimated to be $20,000, which includes an estimate of
Georgeson's out-of-pocket expenses. Officers of the Company may also solicit
proxies and will not receive any additional compensation for such solicitation.
Both Georgeson Shareholder Communications and officers of the Company may
solicit proxies by telephone, facsimile, the Internet or personal interview.
Time and Place of Meeting
We are holding the Annual Meeting on Monday, February 14, 2005 at 11:00
a.m., Eastern Time, at the Company's offices located at 65 Madison Avenue, Suite
550, Morristown, New Jersey 07960.
Voting by Proxy
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. If you are the record owner of your shares on the books of
the Company's transfer agent, then you may also submit your proxy vote by
telephone or via the Internet, by following the instructions accompanying this
Proxy Statement. If your broker holds your shares in its name, you may submit
your proxy vote by any other means specified in the instructions that accompany
this Proxy Statement. Returning the proxy card or using any of the available
alternative proxy voting methods will not affect your right to attend the Annual
Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote
or use any of the available alternative proxy voting methods, your "proxy" (one
of the individuals named on your proxy card) will vote your shares as you have
directed. If you sign the proxy card or use any of the available alternative
proxy voting methods but do not make specific choices, your proxy will vote your
shares as recommended by the Board as follows:
o FOR the election of all four nominees for director.
o FOR ratification of the appointment of independent auditors for 2005.
o FOR changing the Company's fundamental investment restrictions.
Your proxy will have authority to vote and act on your behalf at any
adjournment of the meeting.
If you give a proxy, you may revoke it at any time before it is exercised.
You can do this in one of four ways:
o You may send in another proxy with a later date.
o If you submitted a proxy by telephone, via the Internet or via an
alternative method of voting permitted by your broker, you may submit
another proxy by telephone, via the Internet, or via such alternative
method of voting, or send in another proxy with a later date.
o You may notify the Company's Secretary in writing before the Annual
Meeting that you have revoked your proxy.
o You may vote in person at the Annual Meeting.
Voting in Person
If you do attend the Annual Meeting and wish to vote in person, we will
give you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring a letter from the nominee
indicating that you are the beneficial owner of the shares on December 22, 2004,
the record date for voting, and authorizing you to vote.
Quorum Requirement
A quorum of shareholders is necessary to hold a valid meeting. A quorum
will exist if shareholders entitled to vote a majority of all shares outstanding
on the record date are present in person or by proxy.
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Under rules applicable to broker-dealers, if your broker holds your shares
in its name, we expect that the broker will be entitled to vote your shares on
Proposals 1 and 2 even if it has not received instructions from you. However,
your broker will not be entitled to vote on Proposal 3 unless it has received
instructions from you. If your broker does not vote your shares on Proposal 3
because it has not received instructions from you, these shares will be
considered "broker non-votes."
Broker non-votes, if any, and abstentions will count as present for
establishing a quorum.
Vote Necessary to Approve a Proposal
Proposal 1. Directors are elected by a plurality vote of shares present at
the meeting, meaning that the director nominee with the most affirmative votes
for a particular slot is elected for that slot. In an uncontested election for
directors, the plurality requirement is not a factor. Abstentions will not count
as votes cast and will have no effect on the outcome of this proposal. We expect
that brokers will be entitled to vote on this proposal, but any broker non-vote
will have no effect on the outcome of this proposal.
Proposal 2. The affirmative vote of the majority of votes cast is needed to
approve the ratification of the Audit Committee's appointment of the independent
auditors. Abstentions will not count as votes cast and will have no effect on
the outcome of this proposal. We expect that brokers will be entitled to vote on
this proposal, but any broker non-vote will have no effect on the outcome of
this proposal.
Proposals 3(a) through 3(p). The affirmative vote of a "majority of the
outstanding voting shares" of the Company, as defined in the Investment Company
Act of 1940, as amended (the 1940 Act), whether or not present at the Annual
Meeting, is needed to approve new fundamental investment restrictions for the
Company. The 1940 Act defines a majority of the outstanding voting shares (a
1940 Act majority) of a fund as the lesser of (a) the vote of holders of 67% or
more of the voting securities of the fund present in person or by proxy, if the
holders of more than 50% of the outstanding voting securities of the fund are
present in person or by proxy, or (b) the vote of the holders of more than 50%
of the outstanding voting securities of the fund. Broker non-votes and
abstentions will not count as votes cast and will have the effect of votes
against Proposal 3.
PROPOSAL 1
ELECTION OF DIRECTORS
Structure of the Board of Directors
The Company's Board of Directors is divided into three classes for purposes
of election. One class is elected at each annual meeting of shareholders.
Directors in each class serve for a three-year term.
The Board of Directors currently consists of nine persons. Seven of the
directors are "independent," meaning they are not "interested persons" of the
Company within the meaning of the 1940 Act. Two of the Company's directors are
"interested persons" because of their business and financial relationships with
the Company and Davis-Dinsmore Management Company (Davis-Dinsmore), its
investment adviser.
At the 2005 Annual Meeting, the terms of three directors are expiring. The
directors approved the nomination of each of the three directors whose terms are
expiring in 2005, as set forth below, to serve for terms that expire in 2008. In
addition, the directors approved the nomination of one director, Robert J.
McMullan, for a term that expires in 2006. Mr. McMullan was appointed by the
Board of Directors as a
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director to fill a vacancy created by the retirement of George R. Lieberman, a
former Company director. Mr. McMullan was nominated for election at the 2005
Annual Meeting so that shareholders may have an opportunity to vote for him as a
director. Other directors are not up for election this year and will continue in
office for the rest of their terms.
Each of the nominees is willing to serve as a director. However, if a
nominee becomes unavailable for election, proxies will vote for another nominee
proposed by the Board or, as an alternative, the Board may keep the position
vacant or reduce the number of directors.
Nominees for Directors
The Board of Directors has approved the nomination of the following people
to serve as directors until the annual meeting of shareholders to be held in
2006 or 2008, as the case may be. Each of the nominees is currently a director
of the Company. The business address of each nominee and director listed below
is Bancroft Convertible Fund, Inc., 65 Madison Avenue, Suite 550, Morristown, NJ
07960.
Nominees Who Are Independent Directors and Whose Terms Will Expire in 2008
Donald M. Halsted, Jr., 77, served for four years as President and Chief
Operating Officer of Lone Star Industries, Inc. prior to retirement in 1983, and
prior to that served for twelve years as President, Chief Executive Officer and
Director of Atlantic Cement Company. Since his retirement, Mr. Halsted has
continued to serve on various boards of directors, including the board of
Aquarion Company through 1999. Mr. Halsted served in the Army Air Force in World
War II. Mr. Halsted has been a director of the Company since 1970 and is also a
director of Ellsworth Convertible Growth and Income Fund, Inc. (Ellsworth), a
closed-end investment company. Mr. Halsted received an A.B. in Economics from
Princeton University.
Duncan O. McKee, 73, retired in 1988 from the practice of law as a partner
at the law firm of Ballard Spahr Andrews & Ingersoll, LLP (Ballard Spahr).
During his career at Ballard Spahr, Mr. McKee represented publicly owned
companies, including closed-end and open-end investment companies, in mergers,
acquisitions and securities offerings. Mr. McKee was Director Emeritus of the
Company and Ellsworth from 1988 to 1996. Mr. McKee has been a director of the
Company since 1996 and is also a director of Ellsworth. Mr. McKee received his
undergraduate degree from the College of Wooster and his law degree from Duke
University School of Law.
Nominee Who Is An Independent Director and Whose Term Will Expire in 2006
Robert J. McMullan, 50, has been a trustee of AmSouth Funds since 2003 and
currently oversees 26 portfolios within the AmSouth Funds complex. From 1998 to
2004, Mr. McMullan was Senior Vice President and Chief Financial Officer of
Conexant Systems, Inc. (formerly, GlobeSpan Virata, Inc.), a semiconductor
manufacturing company. From 1989 through 1998, Mr. McMullan was an Executive
Vice President and Chief Financial Officer of The BISYS Group, Inc., a computer
services company. Mr. McMullan received a B.A. in Business Administration from
Saint Michael's College. He has been a director of the Company and Ellsworth
since November 2004, at which time he was appointed to serve out the term of
retired director George R. Lieberman.
Mr. McMullan was recommended to the Company's Nominating and Administration
Committee for election as a Company director by a non-management director of the
Company.
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Nominee Who Is An Interested Person and Whose Term Will Expire in 2008
Thomas H. Dinsmore, 51, has been Chairman and Chief Executive Officer of
the Company, Ellsworth and Davis-Dinsmore (investment adviser to the Company and
Ellsworth) since August 1996. From 1986 to August 1996, Mr. Dinsmore was
President of the Company; from 1985 to 1996, he was President of Ellsworth; and
from 1988 to 1996, he was President of Davis-Dinsmore. Mr. Dinsmore is a
Chartered Financial Analyst. Mr. Dinsmore has been a director of the Company
since 1985 and is also a director of Ellsworth and Davis-Dinsmore. Mr. Dinsmore
received a B.S. in Economics from the Wharton School of Business at the
University of Pennsylvania, and an M.A. in Economics from Fairleigh Dickinson
University.
Mr. Dinsmore is an interested person (within the meaning of the 1940 Act)
of the Company and Davis-Dinsmore because he is an officer of the Company and an
officer, director and holder of more than 5% of the outstanding shares of voting
common stock of Davis-Dinsmore.
The Board of Directors recommends that you vote FOR these nominees.
Information about the Company's Other Directors
Information about the Company's other directors is presented below.
Continuing Independent Directors Gordon F. Ahalt, 76, is currently retired.
Prior to his retirement, Mr. Ahalt was President of G.F.A. Inc., a petroleum
industry consulting company, from 1982 until 2000. From 1987 until 1998, Mr.
Ahalt was a consultant with W. H. Reaves & Co., Inc., an asset management
company. Mr. Ahalt has spent his career as an analyst of and a consultant to the
petroleum industry, and has previously served as a director or executive officer
of several energy companies and an oil and gas exploration company. Mr. Ahalt
has been a director of the Company since 1982. He is also a director of
Ellsworth, Cal Dive International, a diving service company, as well as several
private investment funds. Mr. Ahalt received a B.S. in Petroleum Engineering
from the University of Pittsburgh. Mr. Ahalt's term as director expires in 2007.
William A. Benton, 71, is currently retired. Formerly, Mr. Benton was a
partner in BE Partners, a small options market maker, from 1991 until the
business was sold on November 1, 2000. From 1991 to November 1999, he was a
limited partner of Gavin, Benton, & Co., a New York Stock Exchange specialist
firm. Mr. Benton has been a member of the New York Stock Exchange for more than
45 years, and has previously been a director of a discount brokerage firm and a
brokerage firm making markets in derivative instruments. Mr. Benton has been a
director of the Company since 1994 and is also a director of Ellsworth. Mr.
Benton graduated from Bucknell University with a B.S. in Commerce and Finance.
Mr. Benton's term as director expires in 2006.
Elizabeth C. Bogan, Ph.D., 60, has been a Senior Lecturer in Economics at
Princeton University since 1992. Before joining the faculty at Princeton, she
was the Chairman of the Economics and Finance Department at Fairleigh Dickinson
University and a member of the Executive Committee for the College of Business
Administration. Dr. Bogan has chaired numerous administrative and academic
committees. Dr. Bogan has been a director of the Company since 1990 and is also
a director of Ellsworth. Dr. Bogan received an A.B. in Economics from Wellesley
College, an M.A. in Quantitative Economics from the University of New Hampshire,
and a Ph.D. in Economics from Columbia University. Her writings on finance have
been published in The Financial Analysts Journal and in other journals. Dr.
Bogan's term as director expires in 2006.
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Nicolas W. Platt, 51, has been President of CNC-US, an international
consulting company, since January 2003. From May 2001 to January 2003, he was a
Senior Partner of Platt & Rickenbach, a New York based financial relations firm.
From January 1995 to April 2001, he held senior executive positions with the WPP
Group, UK and its public relations subsidiaries, Ogilvy Public Relations,
Burson-Marsteller and Robinson Lehr Montgomery. He has been a director of the
Company since 1997 and is also a director of Ellsworth. Mr. Platt received a
B.A. from Skidmore College and an M.A. in Economics from Columbia University.
Mr. Platt's term as director expires in 2007.
Continuing Director Who Is An Interested Person
Jane D. O'Keeffe, 49, has been President of the Company, Ellsworth and
Davis-Dinsmore since August 1996. In 1996, before becoming President of the
Company and Ellsworth, she was Executive Vice President of the Company and
Ellsworth. From 1994 to 1996, Ms. O'Keeffe was Vice President of the Company and
Ellsworth and Executive Vice President of Davis-Dinsmore. Ms. O'Keeffe has been
in the investment business since 1980. Ms. O'Keeffe has been a director of the
Company since 1995 and is also a director of Ellsworth and Davis-Dinsmore. Ms.
O'Keeffe has a B.A. from the University of New Hampshire and attended the Lubin
Graduate School of Business at Pace University. Ms. O'Keeffe's term as director
expires in 2007.
Ms. O'Keeffe is an interested person (within the meaning of the 1940 Act)
of the Company and Davis-Dinsmore because she is an officer of the Company and
an officer, director and holder of more than 5% of the outstanding shares of
voting common stock of Davis-Dinsmore.
Certain Relationships
Thomas H. Dinsmore and Jane D. O'Keeffe are brother and sister.
Committees of the Board of Directors
The Board of Directors has three committees: an Audit Committee, a
Nominating and Administration Committee and a Pricing Committee.
Audit Committee
The Company has a separately designated Audit Committee as that term is
defined in the Securities Exchange Act of 1934, as amended. The Audit Committee
is comprised entirely of independent directors (Mr. Benton, Dr. Bogan, Mr.
Halsted and Mr. McMullan, with Dr. Bogan serving as Chairperson). In addition,
all such members are independent as such term is defined by the American Stock
Exchange's Company Guide.
In accordance with its charter, attached as Appendix A to this Proxy
Statement, the Audit Committee oversees the Company's accounting and financial
reporting policies and practices, as well as the quality and objectivity of the
Company's financial statements and the independent audit of the financial
statements. Among other duties, the Audit Committee is responsible for: (i) the
appointment, compensation and oversight of any independent auditors employed by
the Company (including monitoring the independence qualifications and
performance of such auditors and resolution of disagreements between the
Company's management and the auditors regarding financial reporting) for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services; (ii) overseeing the accounting and financial
reporting process of the Company; (iii) monitoring the process and the resulting
financial statements prepared by management to promote accuracy and integrity of
the financial statements and asset valuation; (iv) assisting the Board of
Directors' oversight of the
6
Company's compliance with legal and regulatory requirements that related to
the Company's accounting and financial reporting, internal control over
financial reporting and independent audits; (v) to the extent required by
Section 10A of the Securities Exchange Act of 1934, as amended, pre-approving
all permissible audit and non-audit services provided to the Company by its
independent auditors; (vi) pre-approving, in accordance with Item 2.01(c)(7)(ii)
of Regulation S-X, certain non-audit services provided by the Company's
independent auditors to the Company's investment adviser and certain other
affiliated entities if the Company's independent auditors are the same as, or
affiliated with, the investment adviser's or affiliated entities' auditors; and
(vii) to the extent required by Regulation 14A under the Securities Exchange Act
of 1934, as amended, preparing an audit committee report for inclusion in the
Company's annual proxy statement.
Audit Committee Report
The Audit Committee reviewed and discussed the Company's audited financial
statements with its independent auditors, PricewaterhouseCoopers LLP (PwC).
These discussions included the auditor's judgments about the quality, not just
acceptability, of the Company's accounting principles as applied in its
financial reporting. PwC, the Audit Committee and management also discussed
matters such as the clarity, consistency and completeness of the accounting
policies and disclosures, with a particular focus on critical accounting
policies.
The Audit Committee has received a letter from PwC required by Independence
Standards Board Standard No. 1 disclosing all relationships between PwC and its
related entities and the Company. The Audit Committee discussed with PwC their
independence as the Company's independent auditors. In addition, the Audit
Committee has considered whether the provision of non-audit services by PwC is
compatible with maintaining PwC's independence. The Audit Committee also
reviewed and discussed the Company's audited financial statements with
management.
Based on the review and discussions described above, the Audit Committee
has recommended to the Company's Board of Directors that the audited financial
statements be included in the Company's annual report to shareholders for the
fiscal year ended October 31, 2004 for filing with the Securities and Exchange
Commission.
Elizabeth C. Bogan, Ph.D., Chairperson
William A. Benton
Donald M. Halsted
Robert J. McMullan
Nominating and Administration Committee
The Nominating and Administration Committee is comprised entirely of
independent directors (Mr. Ahalt, Mr. Halsted and Mr. Platt, with Mr. Ahalt
serving as Chairman). In addition, all such members are independent as such term
is defined by the American Stock Exchange's Company Guide. In accordance with
its charter, the Committee, among other duties, is responsible for: (i)
nominating persons for election or appointment: (a) as additions to the Board of
Directors, (b) to fill vacancies which, from time to time, may occur in the
Board of Directors and (c) for election by shareholders of the Company at
meetings called for the purpose of electing directors; (ii) nominating persons
for appointment as members of each committee of the Board of Directors,
including, without limitation, the Audit Committee, the Nominating and
Administration Committee, and the Pricing Committee; (iii) reviewing from time
to time the compensation, if any, payable to the directors and making
recommendations to the Board of Directors regarding compensation; (iv) reviewing
and evaluating from time to time the functioning of the Board of Directors and
the various committees of the Board of Directors; (v) overseeing the selection
of
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independent legal counsel to the independent directors; and (vi) monitoring the
performance of independent legal counsel employed by the Company and the
independent directors.
After a determination by the Nominating and Administration Committee that a
person should be nominated as an additional director, or as soon as practical
after a vacancy occurs or it appears that a vacancy is about to occur for a
director position on the Board of Directors, the Nominating and Administration
Committee will nominate a person for appointment by a majority of the
independent directors to add to the Board of Directors or to fill the vacancy.
Prior to a meeting of the shareholders of the Company called for the purpose of
electing directors, the Nominating and Administration Committee will nominate
one or more persons for election as directors at such meeting.
Evaluation by the Nominating and Administration Committee of a person as a
potential nominee to serve as a director, including a person nominated by a
shareholder, should result in the following findings by the Nominating and
Administration Committee: (i) upon advice of independent legal counsel to the
independent directors, that the person will qualify as an independent director
(applicable only to the nomination of independent directors), and that the
person is otherwise not disqualified under the 1940 Act from serving as a
director of the Company; (ii) with respect to the nomination of independent
directors only, that the person is free of any material relationship with the
Company (other than as a shareholder of the Company), that would interfere with
the exercise of independent judgment; (iii) that the person is willing to serve,
and willing and able to commit the time necessary for the performance of the
duties of a director; (iv) that the person can make a positive contribution to
the Board of Directors and the Company, with consideration being given to the
person's business experience, education and such other factors as the Nominating
and Administration Committee may consider relevant; (v) that the person is of
good character and high integrity; (vi) that the person has desirable
personality traits including independence, leadership and the ability to work
with the other members of the Board of Directors; (vii) that the person is not
an AMEX employee or floor member; and (viii) that the composition of the Board
of Directors is varied as to educational background, business experience and
occupation.
Consistent with the 1940 Act, the Nominating and Administration Committee
can consider recommendations from management in its evaluation process.
The Nominating and Administration Committee will consider nominees
recommended by a shareholder to serve as director, provided: (i) that such
person is a shareholder of record at the time he or she submits such names and
is entitled to vote at the meeting of shareholders at which directors will be
elected; and (ii) that the Nominating and Administration Committee, shall make
the final determination of persons to be nominated. The Nominating and
Administration Committee will evaluate nominees recommended by a shareholder to
serve as directors in the same manner as they evaluate nominees identified by
the Nominating and Administration Committee.
A shareholder may nominate an individual for election to the Board of
Directors at the 2006 Annual Meeting of shareholders if the shareholder: (1) is
a shareholder of record at the time of giving notice to the Company; (2) is a
shareholder of record at the time of the 2006 Annual Meeting; (3) is entitled to
vote at the 2006 Annual Meeting; and (4) has complied with the notice procedures
in the Company's Bylaws. The notice procedures require that a shareholder submit
the nomination in writing to the Secretary of the Company no earlier than
October 17, 2005 but no later than November 16, 2005. The notice must contain
all information relating to the nominee required for proxy solicitations by
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
the individual's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected). The notice must also contain
the shareholder's name and address as they appear on the Company's books (and
the name and address of any beneficial owner, on whose behalf the nomination is
made) and the number of shares of stock owned beneficially and of record by such
shareholder and shareholder nominee.
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A current copy of the Nominating and Administration Committee Charter is
set forth in Appendix B.
Pricing Committee
The Pricing Committee is comprised of three members, two of whom are
independent directors (Mr. Ahalt and Mr. Platt, with Mr. Ahalt serving as
Chairman) and one of whom is an interested person (Mr. Dinsmore). In accordance
with its charter, the Committee assists the Company's investment adviser,
Davis-Dinsmore, in its valuation of the Company's portfolio securities when
pricing anomalies arise and the full Board is not available to assist
Davis-Dinsmore in making a fair value determination.
It is anticipated that the Committee will meet only as pricing anomalies or
issues arise that cannot be resolved by the entire Board due to time
constraints.
Board and Committee Meeting Attendance
During the 2004 fiscal year, the Board of Directors met nine times, the
Audit Committee met four times and the Nominating and Administration Committee
met four times. The Pricing Committee did not meet. All directors attended at
least 75% of all Board and Committee meetings held during the 2004 fiscal year.
The Company's policy regarding Board member attendance at annual meetings of
shareholders is that directors are encouraged but not required to attend such
annual meetings. Each of the Company's then current directors attended the
Company's 2004 annual meeting of shareholders.
Shareholder Communications with the Board of Directors
The Company adopted Shareholder Communication Procedures (the "Procedures")
that set forth the process by which shareholders of the Company may send
communications to the Board of Directors. If a shareholder sends a
recommendation of a nominee to the Board of Directors or to an individual
director, such communication would be covered by the Procedures. Shareholder
proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended, and communications made in connection with such proposals are
not subject to the Procedures. The Company's Bylaws also contain provisions
requiring a shareholder to provide advance notice of his or her intention to
nominate, at the Company's annual meeting of shareholders, an individual for
election as director.
Pursuant to the Procedures, shareholders should send their communications
to the Company's Shareholder Relations Group. Communications may be sent by
regular mail or delivery service to the following address: 65 Madison Avenue,
Suite 550, Morristown, NJ 07960. Email communications may be sent to:
info@bancroftfund.com. All shareholder communications that are directed to the
Board of Directors or an individual director of the Company in his or her
capacity as director and received by the Shareholder Relations Group shall be
promptly forwarded to the individual director of the Company to whom they were
addressed or to the full Board, as applicable. Copies of all such shareholder
communications will also be distributed to the Chairs of each of the Company's
Audit Committee and Nominating and Administration Committee, and to counsel for
the Company and for the independent directors. Counsel for the Company and for
the independent directors, upon receipt of its copy of a shareholder
communication, shall work with such Chairs and counsel for the independent
directors to determine whether such shareholder communication should be
distributed to any directors to whom it was not sent and whether and in what
manner the directors should respond to such shareholder communication.
Responses, if any, to shareholder communications shall be coordinated by counsel
for the Company and for the independent directors, working with the Chairs.
9
Directors' Compensation
Mr. Dinsmore and Ms. O'Keeffe are the only officers of the Company or
Davis-Dinsmore who serve on the Board of Directors. Each director who is not an
officer of the Company or Davis-Dinsmore currently receives (1) an annual fee of
$5,000, (2) $1,000 plus expenses for each Board meeting attended, (3) $1,000 for
each shareholders' meeting attended, (4) $1,000 plus expenses for each Committee
meeting attended that is not held in conjunction with a Board meeting, and (5)
$500 for each Committee meeting attended that is held in conjunction with a
Board meeting. The chairperson of each Committee receives an additional $200 per
Committee meeting.
Davis-Dinsmore is the Company's investment adviser and is also the
investment adviser to Ellsworth. Because of this connection, Ellsworth and the
Company make up a "fund complex" (Fund Complex). The following table shows the
compensation that was paid to the directors solely by the Company as well as by
the Fund Complex as a whole during the 2004 fiscal year.
Aggregate Compensation Total Compensation
From Company From Fund Complex
---------------------- ------------------
Thomas H. Dinsmore.................. $ -0- $ -0-
Jane D. O'Keeffe.................... $ -0- $ -0-
Gordon F. Ahalt..................... $16,200 $33,400
William A. Benton................... $15,500 $31,500
Elizabeth C. Bogan, Ph.D............ $17,300 $35,100
Donald M. Halsted, Jr............... $19,100 $38,700
George R. Lieberman (1)............. $17,500 $35,500
Duncan O. McKee..................... $13,000 $27,000
Robert J. McMullan (2) ............. $ -0- $ -0-
Nicolas W. Platt.................... $14,000 $29,000
(1) Mr. Lieberman retired as a director October 18, 2004.
(2) Mr. McMullan was appointed director as of November 15, 2004.
10
Security Ownership of Management
The Company's directors, nominees for director and officers owned the
shares of the Company's common stock shown on the following table as of October
31, 2004 (officers of the Company are identified in the "Additional Information
- Executive Officers" section of this proxy statement). For more information on
the security ownership by the Company's directors, see the "Security Ownership"
section following Proposal 3 of this proxy statement.
Shares of Company
Owned Beneficially
Gordon F. Ahalt........................... 1,200
William A. Benton......................... 3,070
Elizabeth C. Bogan, Ph.D.................. 2,459
Thomas H. Dinsmore........................ 13,166(1)
Donald M. Halsted, Jr..................... 3,248
Duncan O. McKee........................... 1,614
Robert J. McMullan........................ None
Jane D. O'Keeffe.......................... 10,709(2)
Nicolas W. Platt.......................... 589
H. Tucker Lake, Jr........................ 348(3)
Gary I. Levine............................ 1,641
Germaine M. Ortiz......................... None
Mercedes A. Pierre........................ 165(4)
Joshua P. Lake............................ 186
* Represents for each director and officer less than 1% of the outstanding
shares of the Company. As of October 31, 2004, directors and officers of
the Company beneficially owned in the aggregate 38,395 shares of the
Company, representing approximately 0.69% of the outstanding shares. Except
as otherwise indicated, each director and officer possesses sole investment
and voting power with respect to shares beneficially owned.
(1) Includes (i) 2,527 shares held in trust for the benefit of Mr. Dinsmore's
minor child, (ii) 1,556 shares which Mr. Dinsmore owned jointly with his
wife, and (iii) 3,475 shares owned solely by his wife, as to which shares
Mr. Dinsmore disclaims beneficial ownership.
(2) Includes (i) 5,148 shares held in trust for the benefit of Ms. O'Keeffe's
minor children, and (ii) 2,543 shares owned jointly with her husband.
(3) Includes 225 shares owned by Mr. Lake's spouse.
(4) Ms. Pierre and her spouse own these shares jointly.
PROPOSAL 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
Although not required to do so, the Board of Directors seeks your
ratification of the Audit Committee's appointment of PricewaterhouseCoopers LLP
(PwC) as the Company's independent auditors for the 2005 fiscal year. The Board
of Directors believes that the shareholders should have the opportunity to vote
on this matter. If the appointment is not ratified, the Audit Committee will
meet to select new independent auditors. We do not expect that a representative
from PwC will be present at the
11
Annual Meeting. However, should a PwC representative choose to attend, he or she
will have an opportunity to make a statement and to respond to appropriate
questions.
Fees Billed by PwC Related to the Company
Set forth in the table below are the aggregate fees billed to the Company
by PwC for services rendered to the Company during the Company's last two fiscal
years ended October 31, 2003 and October 31, 2004.
Fiscal Year Ended
October 31 Audit Fees Audit-Related Fees(1) Tax Fees(2) All Other Fees
---------- ---------- --------------------- ----------- --------------
2003 $32,847 $0 $2,200 $0
2004 $34,400 $9,785 $2,500 $0
(1) "Audit-Related Fees" include those fees billed to the Company by PwC in
connection with its review of the Company's Registration Statement on Form
N-2 relating to the Company's Rights Offering. All Audit-Related Fees were
pre-approved by the Company's Audit Committee and no Audit-Related Fees
were approved by the Company's Audit Committee pursuant to section
2.01(c)(7)(i)(C) of Regulation S-X, which waives the pre-approval
requirement for certain de minimus fees.
(2) "Tax Fees" include those fees billed by PwC in connection with its review
of the Company's income tax returns. All Tax Fees were pre-approved by the
Company's Audit Committee and no Tax Fees were approved by the Company's
Audit Committee pursuant to section 2.01(c)(7)(i)(C) of Regulation S-X,
which waives the pre-approval requirement for certain de minimus fees.
Non-Audit Services
During each of the last two fiscal years ended October 31, 2003 and October
31, 2004, PwC did not provide any non-audit services to the Company or
Davis-Dinsmore or its affiliates or otherwise bill the Company or Davis-Dinsmore
or its affiliates for any such non-audit services.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee pre-approves all audit and permissible non-audit
services that are proposed to be provided to the Company by its independent
auditors before they are provided to the Company. Such pre-approval also
includes the proposed fees to be charged by the independent auditors for such
services. The Audit Committee may delegate the pre-approval of audit and
permissible non-audit services and related fees to one or more members of the
Audit Committee who are "independent," as such term is defined in Rule
10A-3(b)(1)(iii) under the Exchange Act. Any such member's decision to
pre-approve audit and/or non-audit services and related fees shall be presented
to the full Audit Committee, solely for informational purposes, at their next
scheduled meeting.
The Audit Committee also pre-approves non-audit services to be provided by
the Company's independent auditors to the Company' investment adviser if the
engagement relates directly to the operations and financial reporting of the
Company and if the Company' independent auditors are the same as, or affiliated
with, the investment adviser's auditors.
The Board of Directors recommends that you vote FOR Proposal 2.
12
PROPOSAL 3
CHANGES TO THE COMPANY'S FUNDAMENTAL INVESTMENT RESTRICTIONS
Background
Pursuant to the 1940 Act, the Company has adopted fundamental restrictions
covering certain types of investment practices, which may be changed only with
shareholder approval. Investment restrictions that the Company has not
specifically designated as being "fundamental" are considered to be
"non-fundamental" and may be changed by the Board of Directors without
shareholder approval.
The Board is recommending that you approve changes to the Company's
fundamental investment restrictions for the reasons set forth below. The Board
approved the changes to the Company's fundamental investment restrictions at an
in-person meeting held on November 22, 2004.
Although Proposals 3(a) through 3(p) all relate to the Company's
fundamental investment restrictions, each will be voted on separately, as
indicated on the enclosed proxy card. If any particular proposal is not approved
by the Company's shareholders, the current fundamental investment restriction of
the Company related to that proposal will not be changed.
Reasons for the Proposed Changes to the Company's Fundamental Investment
Restrictions
Several of the Company's fundamental investment restrictions reflect
regulatory, business or industry conditions, practices or requirements that are
no longer applicable. For example, the National Securities Markets Improvement
Act of 1996 (NISMIA) preempted certain state securities laws, under which the
Company previously was regulated and which required the adoption of certain
investment restrictions. In addition, other fundamental investment restrictions
reflect regulatory requirements that remain in effect but are not required to be
stated as fundamental, or in some cases even as non-fundamental, investment
restrictions.
Accordingly, the Board of Directors has approved changes to the Company's
fundamental investment restrictions in order to simplify and modernize those
investment restrictions that are required to be fundamental. In addition, the
Board of Directors has approved adding certain corresponding "non-fundamental"
restrictions, which may be changed by the Board of Directors without shareholder
approval.
The Board of Directors expects that shareholders will benefit from these
changes in a number of ways. The proposed investment restrictions will provide
the Company with the investment flexibility enjoyed by the Company's
competitors. Further, by reducing to a minimum those investment restrictions
that can be changed only by a shareholder vote, the Company will be able to
avoid the costs and delays associated with a shareholder meeting if the Board of
Directors decides that future changes to the company's fundamental investment
restrictions are in the best interest of the Company and its shareholders.
What the Proposed Changes to the Fundamental Investment Restrictions Will
Involve
Each proposed change to the Company's fundamental restrictions is discussed
below. The proposed fundamental investment restrictions will provide the Company
with the ability to operate under new interpretations of the 1940 Act or
pursuant to exemptive relief from the SEC without receiving prior shareholder
approval of operating under such interpretations or exemptions. This flexibility
is referred to in the proposed investment restrictions as being permitted by the
"1940 Act laws, interpretation and
13
exemptions." Even though the Company will have this flexibility, if the proposed
fundamental investment restrictions are approved by shareholders, several new
non-fundamental investment restrictions (which function as internal operating
guidelines) will become effective, which will replace the Company's current
non-fundamental investment restrictions. The Company's investment advisor must
follow these non-fundamental restrictions in managing the Company. Of course, if
circumstances change, the Board of Directors may change or eliminate any
non-fundamental investment restriction in the future without shareholder
approval.
Any investment restriction that involves a maximum or minimum percentage of
securities or assets (other than with respect to borrowing) shall not be
considered to be violated unless an excess over or a deficiency under the
percentage occurs immediately after, and is caused by, an acquisition or
disposition of securities or utilization of assets by the Company.
PROPOSAL 3(a) -
CHANGE TO FUNDAMENTAL RESTRICTION ON ISSUER DIVERSIFICATION
Current Fundamental Restriction
The Company's existing fundamental restriction with regard to issuer
diversification is as follows:
"The Company will not, with respect to 85% of its total assets, invest
more than 5% of the market value of its total assets in the securities
of any one issuer (other than the United States government or its
agencies) or purchase additional securities of any one issuer (other
than the United States government or its agencies) if after giving
effect to such purchase the cost of all securities of such issuer then
held by it would exceed 5% of the market value of its total assets."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(a), the existing fundamental restriction
with regard to issuer diversification for the Company would be changed to read
as follows:
"The Company is a "diversified company" as defined in the 1940 Act.
The Company will not purchase the securities of any issuer if, as a
result, the Company would fail to be a diversified company within the
meaning of the 1940 Act, and the rules and regulations promulgated
thereunder, as such statute, rules and regulations are amended from
time to time or are interpreted from time to time by the SEC staff
(collectively, the 1940 Act laws and interpretations) or except to the
extent that the Company may be permitted to do so by exemptive order
or similar relief (collectively, with the 1940 Act laws and
interpretations, the 1940 Act laws, interpretations and exemptions).
In complying with this restriction, however, the Company may purchase
securities of other investment companies to the extent permitted by
the 1940 Act laws, interpretations and exemptions."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction would become effective for the Company:
"In complying with the fundamental restriction regarding issuer
diversification, the Company will not, with respect to 75% of its
total assets, purchase the securities of any
14
issuer (other than securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities), if, as a
result, (i) more than 5% of the Company's total assets would be
invested in the securities of that issuer or (ii) the Company would
hold more than 10% of the outstanding voting securities of that
issuer. The Company may purchase securities of other investment
companies as permitted by Section 12(d)(1) of the 1940 Act."
Reasons for the Change
The Company operates as a diversified investment company within the
requirements of the 1940 Act. Its current fundamental investment restriction
pertaining to issuer diversification is more stringent than that required by the
1940 Act, which only requires 75% of a diversified company's assets to be so
invested. Historically, the Company has been diversified with respect to 85% or
more of its assets. This means that the Company could not invest more than 15%
of its assets in a single issuer. If approved, the new investment restriction
will authorize the Company to invest up to 25% of its assets in a single issuer.
Less diversification means that the price change of a single security may have a
greater impact on the Company's net asset value, which could cause greater
volatility in the Company's share price.
Management does not expect that this change will affect the manner in which
the Company is currently operated, although it will provide management some
additional flexibility in purchasing securities for the Company. The proposed
restriction has been drafted broadly so that the Company may take advantage of
SEC interpretations regarding diversification. The Board has adopted a
non-fundamental policy, which it may change without shareholder approval, that
provides that the Company must be diversified with respect to 75% of its assets.
PROPOSAL 3(b) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
BORROWING MONEY
Current Fundamental Restriction
The existing Company's existing fundamental restriction on borrowing money
is as follows:
"The Company will not borrow money, except for temporary or emergency
purposes to the extent of 5% of the market value of its total assets
determined at the time of borrowing, or pledge, mortgage or
hypothecate its assets to secure such borrowing except securities in
an amount taken at market value not exceeding 15% of its total assets
taken at cost."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(b), the existing fundamental restriction on
borrowing money for the Company would be changed to read as follows:
"The Company may not borrow money, except as permitted by the 1940 Act
laws, interpretations and exemptions."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction would become effective for the Company:
15
"The Company may borrow money in an amount not exceeding 5% of its
total assets (including the amount borrowed) less liabilities (other
than borrowings). The Company may borrow from banks and
broker/dealers. The Company may not borrow for leveraging, but may
borrow for temporary or emergency purposes, in anticipation of or in
response to adverse market conditions, or for cash management
purposes. The Company may not purchase additional securities when any
borrowings from banks exceed 5% of the Company's total assets."
Reasons for the Change
The 1940 Act establishes limits on the ability of the Company to borrow
money. Currently, the fundamental restriction for the Company is more limiting
than required by the 1940 Act, which would permit the Company to borrow amounts
not exceeding 33 1/3% of its total assets (including amounts borrowed) less
liabilities (other than borrowing). The proposed changes would make the
Company's restriction on borrowing money no more limiting than that required by
the 1940 Act. Borrowing money to purchase additional securities (i.e., leverage)
may amplify the changes in the Company's net asset value and its share price.
If, for example, the securities purchased with the borrowed funds decline in
value, the Company may need to sell other securities to repay the loan. In
addition, the Company will incur interest expense in borrowing money, which may
or may not be outweighed by the income derived from the securities purchased
with the borrowed funds.
Historically, the Company has not borrowed to purchase additional
securities (which would result in leveraging the Company). The Board is
currently of the view that the Company should not be leveraged. As a result, the
non-fundamental investment restriction adopted by the Board limits the
situations in which the Company may borrow. The proposed change would provide
the Company with flexibility to borrow for leveraging at some point in the
future, if the Board determined it was in the best interests of the Company to
do so. If the Board approved the use of leverage, the Company would notify
shareholders prior to engaging in leverage.
PROPOSAL 3(c) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
ISSUING SENIOR SECURITIES
Current Fundamental Restriction
The Company's existing fundamental restriction on issuing senior securities
is as follows:
"The Company will not issue senior securities."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(c), the existing fundamental restriction on
issuing senior securities for the Company would be changed to read as follows:
"The Company may not issue senior securities, except as permitted by
the 1940 Act laws, interpretations and exemptions."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction would become effective for the Company:
16
"The Company will not issue senior securities, but may borrow money in
accordance with its non-fundamental restriction on borrowing money."
Reasons for the Change
The 1940 Act establishes limits on the ability of the Company to issue
"senior securities," a term that is defined, generally, to refer to obligations
that have a priority over the company's shares of common stock with respect to
the distribution of its assets or the payment of dividends. Currently, the
fundamental restriction for the Company is more limiting than required by the
1940 Act. The proposed change would make the Company's restriction on issuing
senior securities no more limiting than that required by the 1940 Act. The 1940
Act requires that if the Company issues or sells any senior securities,
immediately after such issuance or sale, the Company must have an asset coverage
of at least 300% with respect to senior debt securities and 200% with respect to
senior stock. The 1940 Act also limits the ability of the Company to pay
dividends while it has outstanding senior securities, and would give the holders
of Company securities that are not senior securities special voting rights if
the asset coverage levels described above fall below certain levels. If the
Company were to issue senior securities, it would most likely be to invest the
proceeds in other securities, which creates leverage. The risks of leverage are
discussed under the "Reasons for the Change" section of sub-Proposal 3(b).
Although it has no current intention of authorizing the issuance of senior
securities, the Board believed that it was prudent to provide the Company with
the flexibility to issue such securities in the future. The non-fundamental
investment restriction currently prohibits the issuance of senior securities,
other than borrowing money in accordance with the non-fundamental policy
regarding borrowing money. Such restriction may be changed by the Board without
shareholder approval. Management of the Company does not expect this change to
have a material impact on the Company's operations.
PROPOSAL 3(d) -
CHANGE TO FUNDAMENTAL RESTRICTION ON UNDERWRITING SECURITIES
Current Fundamental Restriction
The Company's existing fundamental restriction on underwriting securities
is as follows:
"The Company will not underwrite securities of other issuers, except
that it may acquire convertible securities the subsequent disposition
of which (or of the underlying equity security) would cause the
Company to be deemed an underwriter within the meaning of the
Securities Act of 1933, as amended."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(d), the existing fundamental restriction on
underwriting securities for the Company would be changed to read as follows:
"The Company may not underwrite the securities of other issuers. This
restriction does not prevent the Company from engaging in transactions
involving the acquisition, disposition or resale of its portfolio
securities, even if engaging in such transactions may cause the
Company to be considered an underwriter under the Securities Act of
1933, as amended."
17
Reasons for the Change
All investment companies must state their policy on underwriting
securities. The current fundamental restriction and the proposed fundamental
restriction are substantially the same in that they prohibit the Company from
acting as an underwriter. Both the current and proposed fundamental restrictions
state that this prohibition does not extend to situations where the Company
could be deemed to be an underwriter under the securities laws when it disposes
of securities. The proposed fundamental restriction is more explicit in
describing transactions that might result in the Company being deemed to be an
underwriter. Management of the Company does not expect this change to have a
material impact on the Company's operations.
PROPOSAL 3(e) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
PURCHASING OR SELLING REAL ESTATE
Current Fundamental Restriction
The Company's existing fundamental restriction on purchases and sales of
real estate investments is as follows:
"The Company will not purchase or sell interests in real estate or
real estate investment trusts, except that the Company may purchase
and sell securities of corporations which hold interests in real
estate."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(e), the existing fundamental restriction on
purchases and sales of real estate investments by the Company would be changed
to read as follows:
"The Company may not purchase real estate or sell real estate unless
acquired as a result of ownership of securities or other instruments.
This restriction does not prevent the Company from investing in
issuers that invest, deal or otherwise engage in transactions in real
estate or interests therein, or investing in securities that are
secured by real estate or interests therein, including real estate
investment trusts."
Reasons for the Change
All investment companies must state their policy on investing in real
estate. When the Company was subject to regulation by state securities laws,
many states prohibited direct investments by investment companies in real
estate. The Company's current policy restricts the ability of the Company to
invest directly in real estate, as well as real estate investment trusts
(REITs). The proposed policy would broaden the types of investments that the
Company may purchase that are real estate-related, and would permit the Company
to buy REITs and securities that are secured by real estate. In addition, the
proposed restriction includes an exception that permits the Company to hold real
estate acquired as a result of ownership of securities or other instruments. The
real estate industry is particularly sensitive to macroeconomic changes, such as
changes in interest rates or market recessions, as well as microeconomic
factors, such as overbuilding in particular areas or changes in zoning laws or
local property taxes. In addition, REIT's are dependent on specialized
management skills and generally have limited diversification and rely on cash
flows to make distributions to shareholders. Therefore, investments in REITs or
real estate could cause greater volatility in the Company's share price.
18
Management of the Company does not expect this change to have a material
impact on the Company's operations.
PROPOSAL 3(f) -
CHANGE TO FUNDAMENTAL RESTRICTION ON
PURCHASING OR SELLING COMMODITIES
Current Fundamental Restriction
The Company's existing fundamental restriction on purchases and sales of
commodities is as follows:
"The Company will not purchase or sell commodities or commodity
contracts."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(f), the existing fundamental restriction on
purchases and sales of commodities by the Company would be changed to read as
follows:
"The Company may not purchase physical commodities or sell physical
commodities unless acquired as a result of ownership of securities or
other instruments. This restriction does not prevent the Company from
engaging in transactions involving futures contracts and options
thereon or investing in securities that are secured by physical
commodities."
Reasons for the Change
The Company's current fundamental restriction could be interpreted to
prohibit the Company's purchase of futures contracts and options on such
contracts. The proposed fundamental restriction would clarify that the
prohibition on investing in commodities is limited to physical commodities (such
as gold, coffee and soybeans). The proposed change to this fundamental
restriction is intended to ensure that the Company will have the maximum
flexibility to enter into hedging and other transactions utilizing financial
contracts and derivative products when doing so is permitted by the Company's
other investment policies. Furthermore, the proposed restriction would allow the
Company to respond to the rapid and continuing development of derivative
products. The proposed restriction creates an exception to the prohibition on
buying and selling commodities to cover financial derivative instruments. This
change would provide the Company with additional flexibility should management
determine it would be desirable to engage in these types of transactions.
Purchasing futures contracts and options thereon often involve a high degree of
leverage because of the low margin deposits required. As a result, a relatively
small price movement in a derivative may result in a substantial loss, as well
as a gain, to the Company. Further, the successful use of futures contracts and
options thereon depend on the degree to which prices of the underlying assets
correlate with price movements in the derivatives, which is not always
predictable.
Management does not believe this change will materially affect the manner
in which the Company is currently operated because the Company has not typically
engaged in futures contracts and options on such contracts.
19
PROPOSAL 3(g) -
CHANGE TO FUNDAMENTAL RESTRICTION ON MAKING LOANS
Current Fundamental Restriction
The Company's existing fundamental restriction on the Company making loans
is as follows:
"The Company will not make loans to other persons, (a) except that (i)
the Company may lend its portfolio securities provided the value of
such loaned securities does not exceed 10% of its total assets and
(ii) the purchase of debt securities in accordance with the Company's
investment policies shall not be considered the making of a loan, and
(b) provided that the Company may make temporary purchases of
securities issued or guaranteed by the United States, its agencies or
instrumentalities; bank certificates of deposit; or high-grade
commercial paper, which are subject to repurchase agreements."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(g), the existing fundamental restriction on
the Company making loans would be changed to read as follows:
"The Company will not make personal loans or loans of its assets to
persons who control or are under common control with the Company,
except to the extent permitted by 1940 Act laws, interpretations and
exemptions. This restriction does not prevent the Company from, among
other things, purchasing debt obligations, entering into repurchase
agreements, loaning its assets to broker-dealers or institutional
investors, or investing in loans, including assignments and
participation interests."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"In complying with the fundamental restriction with regard to making
loans, the Company may lend up to 33 1/3% of its total assets."
Reasons for the Change
The current fundamental restriction prohibits loans to persons, and limits
lending securities to an amount less than that permitted by the 1940 Act. The
proposed fundamental restriction would prohibit personal loans, and loans to
persons who control the Company. It would permit the Company to engage in
transactions that might be deemed to be loans, such as repurchase agreements or
the purchase of debt securities. The proposed restriction would also permit the
Company to lend securities to the fullest extent permitted by the 1940 Act.
Lending portfolio securities involves the risk that the borrower may fail to
return the securities in a timely manner or at all, or to provide additional
collateral should the value of the securities securing the loan fall, which
could cause the Company to lose money.
Although the Company does not currently lend its portfolio securities, the
Board believed that it was prudent to provide the Company with the flexibility
to make loans and lend securities in the future. The non-fundamental restriction
limits securities lending to 33 1/3% of the Company's assets. This restriction
could be changed by the Board without shareholder approval. As a result, the
proposed change is not expected to affect the Company's operations.
20
PROPOSAL 3(h) -
CHANGE TO FUNDAMENTAL RESTRICTION ON INDUSTRY CONCENTRATION
Current Fundamental Restriction
The Company's existing fundamental restriction on industry concentration by
the Company is as follows:
"The Company will not invest more than 25% of the market value of its
total assets in any one industry."
Proposed Fundamental Restriction
Upon the approval of Proposal 3(h), the existing fundamental restriction on
industry concentration by the Company would be changed to read as follows:
"The Company will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940
Act laws, interpretations and exemptions) of its investments in the
securities of issuers primarily engaged in the same industry. This
restriction does not limit the Company's investments in (i)
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities or (ii) tax-exempt obligations issued by
governments or political subdivisions of government."
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"In complying with the fundamental restriction regarding industry
concentration, the Company may invest up to 25% of its total assets in
the securities of issuers whose principal business activities are in
the same industry."
Reasons for the Change
The proposed change will permit the Company to take advantage of the 1940
Act laws, interpretations and exemptions in effect from time to time relating to
industry concentration. Currently, the SEC Staff interprets industry
concentration to mean investment of more than 25% of the value of a fund's
assets in any one industry. If the SEC issues new guidance or regulations
increasing the ability of funds to concentrate their investments, the Company
would be permitted to increase accordingly the amount of its assets that could
be invested in a single industry. Although the proposed non-fundamental
restriction is aligned with current SEC Staff guidance, this restriction could
be changed upon the vote of a majority of the Company's directors and without
shareholder vote.
The Company has typically not invested a large percentage of its assets in
a single industry and, therefore, management does not expect this change will
materially affect the manner in which the Company is operated.
21
PROPOSAL 3(i) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN LISTED
COMPANIES THAT MEET CERTAIN LISTING STANDARDS
Current Fundamental Restriction
The Company's existing fundamental restriction on investing in listed
companies that meet certain listing standards is as follows:
"The Company will not have less than 80% of the market value of its
total assets (excluding cash and government securities) invested in
(a) securities of companies which at the time of purchase (i) had
shares of their common stock listed on the New York Stock Exchange,
the American Stock Exchange or NASDAQ National Market (each, an
"Exchange"), (ii) met the then prevailing earnings requirements for
listing on the New York Stock Exchange, or (iii) had pre-tax earnings
of at least $2,000,000 in three of the five preceding fiscal years,
and (b) in American Depositary Receipts that at the time of purchase
(i) are listed on an Exchange, or (ii) met the then prevailing
earnings requirements for listing on the New York Stock Exchange. The
fact that any or all of these standards is met is no assurance of
investment quality."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(i), the existing fundamental restriction on
investing 80% or more of the Company's assets in securities of companies that
are listed on the New York Stock Exchange, American Stock Exchange or NASDAQ
National Market and that meet certain earnings requirements, would be
eliminated.
Reasons for the Change
The Company is not required to have a fundamental restriction on investing
in the types of listed securities described in the current fundamental
restriction. Eliminating this restriction will permit the Company to purchase
securities that may be issued by entities that are affiliated with publicly
traded companies or have been organized by publicly traded companies, but are
not themselves publicly traded. Companies that are not listed on an Exchange or
that are not otherwise publicly traded may be less liquid and harder to value
than companies that are traded on an Exchange. As a result, the Company may not
be able to buy or sell such securities at the desired times or in desired
amounts and may be unable to obtain accurate daily prices. Privately placed
securities may also be subject to contractual restrictions on the Company's
ability to sell such securities for certain periods.
Management of the Company believes that this change will give it greater
flexibility in seeking investment opportunities and that the potential benefits
to the Company outweigh the potential risks.
PROPOSAL 3(j) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON LIMITING INVESTMENTS IN
COMPANIES WITH LIMITED OPERATING HISTORIES AND IN SECURITIES OF A
SINGLE ISSUER
Current Fundamental Restriction
The Company's existing fundamental restriction on limiting investments in
companies with limited operating histories and in securities of a single issuer
is as follows:
22
"The Company will not (a) purchase securities (i) of companies which,
with their predecessors, or (ii) which are guaranteed by companies
which, with their predecessors, have a record of less than three
years' continuous operations, if such purchase would cause more than
5% of the market value of the Company's total assets to be invested in
the securities of such companies, or (b) invest in more than 10% of
the outstanding voting securities of any one issuer."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(j), the existing fundamental restriction of
(i) investing no more than 5% of the Company's assets in securities of companies
which, with their predecessors, have a record of less than three years'
continuous operations and (ii) investing no more than 10% of the Company's
assets in the outstanding voting securities of a single issuer, would be
eliminated.
Reason for the Change
Prior to 1996, state securities laws required that investment companies,
such as the Company, not invest in companies that had limited operating
histories. In 1996, the National Securities Markets Improvement Act was passed,
which made most state law restrictions no longer applicable to investment
companies. Therefore, the Company is no longer required to have a fundamental
restriction on limiting investments in companies with limited operating
histories. Management of the Company believes that eliminating the prohibition
on investing in "unseasoned issuers" will provide the Company with additional
investment opportunities. In recent years, many companies have established new
or special purpose entities to issue convertible securities. Eliminating this
restriction will now permit the Company to purchase such securities. Unseasoned
issuers, however, may have less experienced management, more limited product
lines, and be subject to more volatile price swings than more seasoned issuers.
As a result, investments in these types of securities may subject the Company to
greater risk of loss, as well as gain.
The Company believes that Proposal 3(a), which pertains to issuer
diversification, already limits the ability of the Company, with respect to 75%
of its assets, from acquiring more than 10% of the outstanding voting securities
of any issuer. As a result, the Board believes that a second fundamental
restriction pertaining to this issue is not necessary.
PROPOSAL 3(k) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON MAKING SHORT SALES
Current Fundamental Restriction
The Company's existing fundamental restriction on making short sales is as
follows:
"The Company will not make short sales of securities unless at the
time of sale it owns or has the right to acquire, with or without
payment of further consideration through its ownership of convertible
or exchangeable securities or warrants or rights, an equal amount of
such securities."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(k), the existing fundamental restriction of
prohibiting the Company from making short sales of securities unless at the time
of the sale it owns or has the right to acquire an equal amount of such
securities, would be eliminated.
23
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"The Company will not make short sales of securities, unless at the
time of sale the Company owns or has the right to acquire, with or
without payment of further consideration through its ownership of
convertible or exchangeable securities or warrants or rights, an equal
amount of such securities."
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on making short sales and, therefore, the Board is
proposing to eliminate the Company's fundamental restriction on engaging in
short sales. Instead, the Board believes that this restriction should be adopted
as a non-fundamental restriction of the Company, which may be changed by a
majority of the Company's directors. The Company could lose money if it engages
in short sales of securities that the Company does not otherwise own. For
example, if the value of a security sold short subsequently appreciates, the
Company may be required to repurchase the security at a higher price to cover
the short position.
Management of the Company does not generally engage in short sales and,
therefore, management does not expect that this change will affect the manner in
which the Company is currently operated.
PROPOSAL 3(l) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON
INVESTING FOR THE PURPOSE OF CONTROL
Current Fundamental Restriction
The Company's existing fundamental restriction on investing for the purpose
of exercising control or management is as follows:
"The Company will not invest in securities of corporations for the
purpose of exercising control or management."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(l), the existing fundamental restriction of
prohibiting the Company from investing for the purpose of exercising control of
management would be eliminated.
Reason for the Change
Management of the Company believes that it should be able to communicate
freely the Company's views as a shareholder on important matters of policy. The
Company's investment adviser believes that the Company may currently communicate
its views without necessarily violating this restriction, however, the existence
of this investment restriction might give rise to a claim that such activities
did in fact constitute investing for the purpose of exercising control of
management.
Eliminating this restriction would clarify the Company's ability to
exercise freely its rights as a shareholder of the companies in which it
invests. The Company, however, does not intend to become
24
involved in directing or administering the day-to-day operations of any company.
The Company generally does not hold large positions of any company. In addition,
the Company's proposed restriction regarding issuer diversification would
prohibit the Company, with respect to 75% of its assets, from holding more than
10% of the outstanding voting securities of an issuer.
Management of the Company does not believe this change will materially
affect the operations of the Company.
PROPOSAL 3(m) -
ELIMINATION OF FUNDAMENTAL RESTRICTION
ON MAKING MARGIN PURCHASES
Current Fundamental Restriction
The Company's existing fundamental restriction on making margin purchases
is as follows:
"The Company will not purchase securities on margin, except that it
may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(m), the existing fundamental restriction of
prohibiting the Company from making margin purchases except in connection with
the clearance of purchases and sales of securities would be eliminated.
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"The Company will not purchase securities on margin, except that the
Company may obtain such short-term credits as are necessary for the
clearance of portfolio transactions."
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on making margin purchases of securities and, therefore,
the Board of Directors is proposing to eliminate this restriction as a
fundamental restriction and adopt it as a non-fundamental restriction.
Management of the Company historically has not purchased securities on margin,
and currently does not intend to do so, except as may be necessary for the
clearance of purchases and sales of portfolio securities. Accordingly,
management of the Company does not expect this change to have a material effect
on the Company's operations.
25
PROPOSAL 3(n) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON
INVESTING IN PUT AND CALL OPTIONS
Current Fundamental Restriction
The Company's existing fundamental restriction on investing in put and call
options is as follows:
"The Company will not invest in puts, calls, or combinations thereof;
provided that, notwithstanding the foregoing, the Company may invest
up to 2% of its net assets in put options on common stock or market
indices and may write covered call options and may purchase call
options to close out written covered call options."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(n), the existing fundamental restriction of
prohibiting the Company from investing in puts, calls, or combinations thereof
or writing covered call options, except for investments in certain put and call
options up to 2% of the Company's assets, would be eliminated.
Proposed Non-Fundamental Restriction
If you approve the proposed change, the following non-fundamental
investment restriction will become effective for the Company:
"The Company will not invest in puts, calls, or combinations thereof;
provided that, notwithstanding the foregoing, the Company may invest
up to 5% of its net assets in put options on common stock or market
indices and may write covered call options and may purchase call
options to close out written covered call options."
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction on investing in puts, calls or combinations thereof or
writing covered call options. As a result, the Board is proposing to eliminate
this restriction and instead adopt it as a non-fundamental restriction.
Investments in puts and calls involve certain risks. Since puts and calls are
options which have an expiration date, the Company could lose the entire cost of
those puts and calls which expire worthless. Further, if the Company writes a
covered call option and the price of the underlying security appreciates beyond
the option strike price, the Company may be required to sell the security at the
lower option price and will not enjoy its full market appreciation.
Although the Company would have greater flexibility to purchase put and
call options and to write covered call options if this investment restriction is
eliminated, the Company's investment adviser generally does not intend to invest
in these instruments. Accordingly, the management of the Company does not expect
this change to have a material impact on the Company's operations.
26
PROPOSAL 3(o) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON
PARTICIPATING IN A SECURITIES TRADING ACCOUNT
Current Fundamental Restriction
The Company's existing fundamental restriction on participating in a
securities trading account is as follows:
"The Company will not participate on a joint or a joint-and-several
basis in any securities trading account."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(o), the existing fundamental restriction of
prohibiting the Company from participating on a joint or a joint-and-several
basis in any securities trading account would be eliminated.
Reason for the Change
A joint securities trading account is an account at a bank or broker-dealer
in which multiple parties deposit cash or securities for the purpose of
facilitating purchases or sales of securities on an aggregate basis. There is no
legal requirement that the Company have a fundamental investment restriction on
participating in joint securities trading accounts. In fact, the Securities and
Exchange Commission and its Staff have issued a number of exemptive orders and
no-action letters permitting investments through one or more joint trading
accounts. The Board of Directors is proposing to eliminate this restriction to
give the Company the flexibility to rely on existing and any future no-action
and interpretive letters, and to seek its own exemptive order, regarding joint
trading accounts. The Company would still be subject to the restrictions in the
no-action letters or any exemptive order it receives regarding the operation of
the joint trading accounts. The Company would also be subject to the 1940 Act
restrictions on engaging in certain types of joint transactions. Management of
the Company does not expect this change to have a material impact on the
Company's operations.
PROPOSAL 3(p) -
ELIMINATION OF FUNDAMENTAL RESTRICTION ON INVESTING IN
COMPANIES OWNED BY DIRECTORS AND OFFICERS
Current Fundamental Restriction
The Company's existing fundamental restriction on investing in companies
owned by directors and officers is as follows"
"The Company will not purchase or hold the securities of a company if,
to the Company's knowledge, one or more officers or directors of the
Company or the Adviser individually own beneficially more than 1/2 of
1% and together own beneficially more than 5% of the securities of
such other company."
Proposed Elimination of Fundamental Restriction
Upon the approval of Proposal 3(p), the existing fundamental restriction of
prohibiting the Company from owning securities of a company, more than 1/2 of 1%
of whose securities are owned by
27
one or more directors or officers of the Company or its investment adviser or
owned more than 5% in the aggregate by such persons, would be eliminated.
Reason for the Change
There is no legal requirement that the Company have a fundamental
investment restriction limiting its investments in companies that are owned by
the directors and officers of the Company or its investment adviser. As a
result, the Board of Directors is proposing to eliminate this restriction.
Management of the Company believes that, due to the nature of the
securities that the Company purchases, this proposed change is not likely to
affect the Company's operations.
The Board of Directors recommends that you vote "FOR" each sub-proposal of
Proposal 3.
Investment Adviser
Davis-Dinsmore Management Company, 65 Madison Avenue, Morristown, New
Jersey 07960, is the Company's investment adviser.
Executive Officers
The Company's executive officers are elected by the Board of Directors,
receive no compensation from the Company and hold office until the meeting of
the Board of Directors following the next annual meeting of stockholders and
until his or her successor shall have been duly elected and qualified, or until
his or her earlier death, resignation or removal. Information about these
officers is presented below.
Thomas H. Dinsmore is Chairman and Chief Executive Officer of the Company
and of Ellsworth. Mr. Dinsmore is also a director of the Company and information
about him is presented earlier in this proxy statement under "Proposal 1,
Election of Directors - Nominee Who is an Interested Person and Whose Term Will
Expire in 2008."
Jane D. O'Keeffe is President of the Company and of Ellsworth. Ms. O'Keeffe
is also a director of the Company. Information about Ms. O'Keeffe is presented
earlier in this proxy statement under "Proposal 1, Election of Directors -
Information about the Company's Other Directors - Continuing Director Who is an
Interested Person."
H. Tucker Lake, Jr., 57, has been Vice President of the Company and of
Ellsworth since 2002. From 1994 until 2002, he was Vice President, Trading of
the Company and of Ellsworth. He has been a Vice President of Davis-Dinsmore
since 1997.
Joshua P. Lake, 28, has been Treasurer of the Company and Ellsworth since
April 2004, and Assistant Secretary of the Company and Ellsworth since February
2002. From February 2002 until April 2004, Mr. Lake was Assistant Treasurer of
the Company and Ellsworth. He has also been Assistant Treasurer and Assistant
Secretary of Davis-Dinsmore since February 2002.
Gary I. Levine, 47, has been Executive Vice President and Chief Financial
Officer of the Company and Ellsworth since April 2004, and Secretary of the
Company and Ellsworth since November 2003. From 2002 until 2004, Mr. Levine was
Vice President and Chief Financial Officer of the Company and Ellsworth, and
Treasurer of the Company and Ellsworth from 1993 until 2004. He had been
Assistant Secretary of the Company and Ellsworth from 1986 until 2003. He has
been Executive Vice President of Davis-Dinsmore since April 2004 and Treasurer
since 1997.
28
Germaine Ortiz, 35, has been a Vice President of the Company and Ellsworth
since 1999. She has also been a Vice President of Davis-Dinsmore since 1999. She
was Assistant Vice President of the Company, Ellsworth and Davis-Dinsmore from
1996 to 1999. From 1993 to 1996, Ms. Ortiz was an Assistant Analyst with
Davis-Dinsmore.
Mercedes A. Pierre, 43, has been Vice President of the Company and
Ellsworth since April 2004, and Chief Compliance Officer of the Company and
Ellsworth since July 2004. Since February, 1998, she has been Assistant
Treasurer of the Company and Ellsworth. Ms. Pierre has been Vice President and
Chief Compliance Officer of Davis-Dinsmore since June 2004.
Certain Relationships
H. Tucker Lake, Jr. is the cousin of Thomas H. Dinsmore and Jane D.
O'Keeffe, and is the father of Joshua P. Lake.
Security Ownership of Management
Set forth below is the dollar range of equity securities beneficially owned
(1) in both the Company and Fund Complex by each director and each nominee for
election as a director of the Company as of October 31, 2004. (2)
Aggregate Dollar Range of
Equity Securities in All
Funds Overseen or to be
Dollar Range of Equity Overseen by the Director
Securities in or Nominee in
the Company (3) Fund Complex (4)
---------------------- -------------------------
Gordon F. Ahalt.................... $10,001-$50,000 $10,001-$50,000
William A. Benton.................. $50,001-$100,000 over $100,000
Elizabeth C. Bogan, Ph.D........... $10,001-$50,000 over $100,000
Thomas H. Dinsmore................. over $100,000 over $100,000
Donald M. Halsted, Jr.............. $50,001-$100,000 $50,001-$100,000
Duncan O. McKee.................... $10,001-$50,000 $50,001-$100,000
Robert J. McMullan (5)............. None None
Jane D. O'Keeffe................... over $100,000 over $100,000
Nicolas W. Platt................... $10,001-$50,000 $10,001-$50,000
(1) Beneficial ownership has been determined based upon the director's or
nominee's direct or indirect pecuniary interest in the equity securities.
(2) The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000,
or over $100,000.
(3) The dollar range of equity securities owned in the Company is based on the
closing price of $18.23 on October 31, 2004 on the American Stock Exchange.
(4) The dollar range of equity securities owned in the Fund Complex is based on
the closing price of $18.23 for the Company and $7.89 for Ellsworth on
October 31, 2004 on the American Stock Exchange.
(5) Mr. McMullan was appointed to the Company's board of directors effective
November 15, 2004.
29
Proxy Solicitation
The cost of soliciting proxies will be borne by the Company. The Company
will engage Georgeson Shareholder Communications, Inc. to assist in the
solicitation of proxies for the Company. The fee for such solicitation by
Georgeson has been estimated to be $20,000, which includes an estimate of
Georgeson's out-of-pocket expenses. Officers of the Company may also solicit
proxies and will not receive any additional compensation for such solicitation.
Both Georgeson Shareholder Communications and officers of the Company may
solicit proxies by telephone, facsimile, the Internet or personal interview.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, Section 30(h) of the
1940 Act, and the regulations of the Securities and Exchange Commission
thereunder require the Company's officers and directors and direct or indirect
beneficial owners of more than 10% of the Company's Common Stock, as well as
Davis-Dinsmore, its directors and officers and certain of its other affiliated
persons (collectively, Reporting Persons), to file initial reports of ownership
and changes in ownership with the Securities and Exchange Commission. Reporting
Persons are required to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it and
written representations, the Company believes that all filing requirements
applicable to the Reporting Persons have been complied with during the fiscal
year ended October 31, 2004.
Shareholder Proposals
If you want us to consider including a shareholder proposal in the
Company's proxy statement for the 2006 annual meeting of shareholders, we must
receive it from you no later than August 29, 2005.
A shareholder may bring other business before the 2006 Annual Meeting of
shareholders if the shareholder: (1) is a shareholder of record at the time of
giving notice to the Company; (2) is a shareholder of record at the time of the
2006 Annual Meeting; (3) is entitled to vote at the 2006 Annual Meeting; and (4)
has complied with the notice procedures in the Company's Bylaws. The notice
procedures require that a shareholder submit the proposal in writing to the
Secretary of the Company no earlier than October 17, 2005 but no later than
November 16, 2005. The notice must include a brief description of the business
desired to be brought before the 2006 Annual Meeting, the reasons for conducting
such business at the 2006 Annual Meeting and any material interest the
shareholder may have in such business. The notice must also include the
shareholder's name and address as they appear on the Company's books (and the
name and address of any beneficial owner on whose behalf the proposal is made),
as well as the number of shares of stock owned beneficially and of record by
such shareholder and beneficial owner.
By order of the Board of Directors,
/s/ THOMAS H. DINSMORE
-----------------------------------
Thomas H. Dinsmore
Chairman of the Board of Directors
December 27, 2004
30
Appendix A
BANCROFT CONVERTIBLE FUND, INC.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(THE "FUNDS")
AMENDED AND RESTATED
AUDIT COMMITTEES CHARTER
(Effective July 22, 2004)
1. Membership; Qualifications.
a. Each Audit Committee shall have at least three members. [Section
121B(2)(a) of the American Stock Exchange ("AMEX") Listing Standards.]
b. Each member of the Audit Committees shall be able to read and understand
fundamental financial statements, including a Fund's balance sheet, income
statement, and cash flow statement. [Section 121B(2)(a)(ii) of the AMEX listing
Standards.]
c. At least one member of each Audit Committee must be "financially
sophisticated" in that he or she has past employment experience in finance or
accounting, requisite professional certification in accounting or other
comparable experience or background which results in the individual's financial
sophistication, including but not limited to being or having been a chief
executive officer, chief financial officer, or other senior officer with
financial oversight responsibilities. [Section 121B(2)(a)(ii) of the AMEX
listing standards.]
d. Each member of the Audit Committees shall be free of any material
relationship with the Funds that, in the opinion of the Boards of Directors of
the Funds (the "Boards"), would interfere with his or her individual exercise of
independent judgment. [Section 121A of the AMEX listing Standards.]
e. No member of the Audit Committees shall, other than in his or her
capacity as a member of the Audit Committees, the Boards, or any other Board
committee, accept directly or indirectly any consulting, advisory, or other
compensatory fee from the Funds. Compensatory fees do not include the receipt of
fixed amounts of compensation under a retirement plan (including deferred
compensation) for prior service with the Funds (provided that such compensation
is not contingent in any way on continued service). [Rule 10A-3(b)(1)(iii)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")]
f. No member of either of the Audit Committees shall be an "interested
person" of any of the Funds as defined in section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act"). [Section 121A(g) and
121B(2)(a)(i) of the AMEX listing Standards; Rule 10A-3(b)(1)(iii) promulgated
under the Exchange Act]
2. Purposes. The purposes of the Audit Committees are:
a. in their capacity as committees of the Boards, to be directly
responsible for the appointment (subject to ratification by a majority of the
Boards who are not "interested persons" of the Funds as defined in the 1940 Act
("disinterested directors")), compensation, retention and oversight of the work
of any independent auditors employed by the Funds (including resolution of
disagreements between management and the auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related work;
A-1
b. to oversee the Funds' accounting and financial reporting policies and
processes, its internal controls and, as appropriate, the internal controls of
their investment adviser; [Section 121B(1)(iii) of the AMEX Listing Standards.]
c. to oversee the quality and objectivity of the Funds' financial
statements and the independent audit thereof; [Section 121B(1)(iii) of the AMEX
Listing Standards.]
d. to the extent required by Section 10A(h) and (i) of the Exchange Act, to
preapprove all audit and permissible non-audit services that are provided to the
Funds by their independent auditors;
e. to pre-approve, in accordance with Item 2.01(c)(7)(ii) of Regulation
S-X, certain non-audit services provided by the Funds' independent auditors to
the Funds' investment adviser, if the Funds' independent auditors are the same
as, or affiliated with, the investment adviser's auditors;
f. to the extent required by Regulation 14A under the Exchange Act, to
prepare an audit committee report for inclusion in a Fund's annual proxy
statement; and
g. to serve as the Funds' qualified legal compliance committee ("QLCC")
within the meaning of Part 205 of the Commission's Rules of Practice - Standards
of Professional Conduct for Attorneys Appearing and Practicing before the
Commission in the Representation of an Issuer (the "Attorney Conduct Rules").
3. Duties and Powers. To carry out their purposes, the Audit Committees shall
have the following duties and powers:
a. to be directly responsible for the appointment (subject to ratification
by a majority of the Boards of the Funds who are not interested persons of the
Funds (the "independent directors")), compensation, retention and oversight of
the work of any independent auditors employed by the Funds, including reviewing
with such auditors the proposed audit plans and meeting with the auditors after
completion of the audit to review the work done in connection with the audit and
to discuss and resolve any disagreements between management and the auditor
regarding financial reporting. All of the foregoing shall be for the purpose of
preparing or issuing an audit report or performing other audit, review or attest
services, and each such independent auditors must report directly to the Audit
Committees; [Section 10A(m)(2) of the Exchange Act, Rule 10A-3(b)(2) adopted
thereunder, and Section 121B(4)4 of the AMEX listing standards]
b. to evaluate the independence of the Funds' independent auditors,
including whether such auditors provide any consulting services to the Funds'
investment adviser; to receive from such auditors a formal written statement
delineating all relationships between such auditors and the Funds, consistent
with Independent Standards Board Standard 1; and to actively engage in a
dialogue with the independent auditor with respect to any disclosed
relationships or services that may impact the objectivity and independence of
the auditor and for taking, or recommending that the full Board take,
appropriate action to oversee the independence of the outside independent
auditor; [Section 121B(1)(ii) of the AMEX Listing Standards]
c. to oversee the accounting and financial reporting process of the Funds
and the audits of the financial statements of the Funds, and in connection
therewith, to meet with the Funds' independent auditors, including private
meetings, as necessary (i) to review the arrangements for and scope of the
annual audit and any special audits and any audit plans prepared by the
independent auditors for the Funds; (ii) to discuss any matters of concern
relating to the Funds' financial statements, including any adjustments to such
statements recommended by the independent auditors, or other results of said
A-2
audit(s); (iii) to consider the independent auditors' comments with respect to
the Funds' financial policies, procedures and internal accounting controls and
management's responses thereto; and (iv) to review the form of opinion the
independent auditors propose to render to the Boards and shareholders; [Section
121B(iii) of the Amex Listing Standard.]
d. to receive and review the written disclosures and the letter from the
independent auditors regarding their independence that are required by Item 306
of Regulation S-K, to discuss with such auditors their independence, and to
consider whether the provision by such auditors of permissible non-audit
services to (i) the Funds, (ii) their advisor or (iii) any person that controls,
is controlled by or is under common control with such advisor that provides
services to the Funds, is compatible with maintaining such auditors'
independence; [Item 7(d)(3)(i) and Item 9(e)(8) of Schedule 14A, and Item 306 of
Regulation S-K]
e. to review and discuss audited financial statements contained in annual
and other periodic reports to shareholders with management and the independent
auditors to determine that such auditors are satisfied with the disclosure and
content of the annual financial statements and the quality of the Funds'
accounting and financial reporting policies, procedures and internal control
over financial reporting (including the Funds' critical accounting policies and
practices), and also to discuss with management and the independent auditors the
clarity, consistency and completeness of accounting policies and disclosures;
[Item 7(d)(3)(i) of Regulation 14A, and Item 306 of Regulation S-K]
f. based upon a review of the items discussed in (d) and (e) above, to
recommend to the Boards that the Funds' audited financial statements be included
in the Funds' annual reports to shareholders; [Item 7(d)(3)(i) of Regulation 14A
and Item 306 of Regulation S-K]
g. the Audit Committees shall prepare the audit committee report that SEC
rules require to be included in the Funds' annual proxy statement. [Item
7(d)(3)(i) of Regulation 14A and Item 306 of Regulation S-K]
h. to consider the effect upon the Funds of any changes in accounting
principles or practices proposed by management or the independent auditors and
to review information received from management and such auditors regarding
regulatory changes and new accounting pronouncements that affect net asset value
calculations and financial statement reporting requirements;
i. to the extent that certifications by officers of the Funds (the "signing
officers") as to the Funds' financial statements or other financial information
are required by applicable law to be included with or in the Funds' periodic
reports filed with the Securities and Exchange Commission ("SEC"), to receive
from such officers notifications if such certifications are not included for any
reason;
j. to meet as necessary with counsel to the Funds, counsel to the
disinterested directors of the Funds and, if applicable, independent counsel or
other advisers to the Audit Committees and to review information provided by all
such persons on legal issues having the possibility of impacting the financial
reporting process, including items of industry-wide importance and internal
issues such as litigation;
k. to the extent required by Section 10A(h) and (i) of the Exchange Act, to
preapprove all audit and permissible non-audit services that are proposed to be
provided to the Funds by their independent auditors before they are provided to
the Funds. Such pre-approval shall also include the proposed fees to be charged
by the independent auditors for such services. The Audit Committees may delegate
the pre-approval of audit and permissible non-audit services and related fees to
one or more members of the Audit Committees who are "independent," as such term
is defined in Rule 10A-3(b)(1)(iii) under the Exchange Act. Any such member's
decision to pre-approve audit and/or non-audit
A-3
services and related fees shall be presented to the full Audit Committees,
solely for informational purposes, at their next scheduled meeting; [Section
10A(h) and (i) of the Exchange Act]
l. to pre-approve non-audit services to be provided by the Funds'
independent auditors to the Funds' investment adviser and certain affiliated
entities that provide ongoing services to the Funds if the engagement relates
directly to the operations and financial reporting of any Fund and if the Funds'
independent auditors are the same as, or affiliated with, the investment
adviser's or certain affiliated entities' auditors; [Item 2.01(c)(7)(ii) of
Regulation S-X and Item 9(e)(8) of Schedule 14A]
m. to investigate improprieties or suspected improprieties in fund
operations, including but not limited to receiving and reviewing disclosures by
the Funds' signing officers to the Audit Committees of (i) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the Funds' ability to record, process, summarize, and report
financial data and (ii) any fraud, whether or not material, that involves
management or other employees who have a significant role in the Funds' internal
controls;
n. to establish procedures for (i) the receipt, retention and treatment of
complaints received by the Funds regarding accounting, internal accounting
controls or auditing matters and (ii) the confidential, anonymous submission by
employees of the Funds (or the Funds' investment adviser) of concerns regarding
questionable accounting or auditing matters [Section 10A(m)(4) of the Exchange
Act, Rule 10A-3(b)(3) adopted thereunder, and Section 121B(4) of the AMEX
listing standards]
o. to receive and review information provided by management and the
independent auditors regarding the Funds' accounting system and controls,
including but not limited to receiving from the Funds' independent auditors
information concerning (i) all critical accounting policies and practices to be
used, (ii) all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with management
officials of the Funds, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by such independent auditors, and
(iii) other material written communications between such independent auditors
and the management of the Funds such as the management letter or schedule of
unadjusted differences; [Section 10A(k) of the Exchange Act]
p. to carry out the responsibilities of a QLCC as set forth in the Attorney
Conduct Rules, and in connection therewith: (i) to adopt written procedures for
the confidential receipt, retention and consideration of any report of evidence
of a material violation of an applicable United States federal or state
securities law, a material breach of fiduciary duty arising under United States
federal or state law, or a similar material violation of any United States
federal or state law (a "Material Violation"); (ii) to report to the Fund's
chief executive officer any report of evidence of a Material Violation (iii) to
determine whether an investigation is necessary regarding any report of evidence
of a Material Violation by the Fund, its officers, directors, employees or
agents and, if it determines an investigation is necessary or appropriate, to:
(A) notify the full Board; (B) initiate an investigation, which may be conducted
by outside attorneys; and (C)retain such additional expert personnel as the
Audit Committee deems necessary; and (iv) at the conclusion of any such
investigation, to: (A) recommend, by majority vote, that the Fund implement an
appropriate response to evidence of a Material Violation; and (B) inform the
chief executive officer and the Board of the results of any such investigation
and the appropriate remedial measures to be adopted; and (v) acting by majority
vote, to take all other appropriate action, including the authority to notify
the Commission in the event that the Fund fails in any material respect to
implement an appropriate response the Audit Committee has recommended the Fund
to take; [Attorney Conduct Rules]
A-4
q. to receive reports of violations and potential violations of the Funds'
Code of Ethics for Principal Financial Officers (the "Code") from the Funds'
Compliance Officer or his/her designee, and determine whether a violation has
occurred;
r. to inform the disinterested directors of the Funds of any violation of
the Code; and
s. to report their activities to the full Boards on a regular basis and to
make such recommendations and/or decisions with respect to the above and other
matters as the Audit Committees may deem necessary or appropriate.
4. Appointment of Independent Auditors. The Audit Committees shall appoint the
Funds' independent auditors at an in-person meeting. If, at any time, the
approval by the Audit Committees of the Funds' independent auditors constitutes
an approval of such auditors by less than a majority of the disinterested
directors, such approval shall be ratified by a majority of the Funds'
disinterested directors at the next regularly scheduled in-person meeting of the
Boards; [Section 32(a)(1) of the Investment Company Act of 1940, as amended]
5. Meetings. The Audit Committees shall meet at least quarterly and are
empowered to hold special meetings as circumstances require. The Audit
Committees may meet either on their own or in conjunction with meetings of the
full Boards. Meetings of the Audit Committees may be held in person or by
conference telephone. Where appropriate, the Audit Committees may take action by
unanimous written consent in lieu of a meeting. [Section 121B(3) of the AMEX
listing standards]
The Audit Committees shall regularly meet with the Treasurer of the Funds.
6. Authority; Funding.
a. The Audit Committees shall have the resources and authority appropriate
to carry out their duties, including the authority to engage independent counsel
and other advisers, experts or consultants as they deem necessary to carry out
their duties, all at the expense of the appropriate Fund(s). [Section 10A(m)(5)
of the Exchange Act, Rule 10A-3(b)(4) adopted thereunder, and Section 121B(4) of
the AMEX listing standards]
b. The Funds shall provide for appropriate funding, as determined by the
Audit Committees, in their capacity as committees of the Boards, for payment of
compensation (i) to the independent auditors employed by the Funds for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Funds and (ii) to any independent counsel or
other advisers employed by the Audit Committees. [Section 10A(m)(6) of the
Exchange Act, Rule 10A-3(b)(5) adopted thereunder, and Section 121B(4) of the
AMEX listing standards]
7. Annual Internal Performance Evaluation. Each fiscal year the Audit
Committees shall conduct an internal evaluation of the performance of the Audit
Committees.
8. Good Faith Reliance. In performing their duties under this Charter, members
of the Committee shall be entitled to rely in good faith upon the records of the
Funds and upon such information, opinions, reports and statements presented to
the Audit Committees by the officers and employees of the Funds and of
Davis-Dinsmore Management Company, and by the Funds' independent auditors.
9. Review of Charter. The Audit Committees shall review and reassess the
adequacy of this Charter at least annually and recommend any changes to the full
Boards. This Charter may be amended
A-5
only by the approval of the Boards, and a majority of the disinterested
directors. [Section 121B(1) of the AMEX listing standards]
10. Maintenance of Charter. Each Fund shall maintain and preserve in an easily
accessible place a copy of this Charter and any modification to this Charter.
A-6
Appendix B
BANCROFT CONVERTIBLE FUND, INC.
ELLSWORTH CONVERTIBLE GROWTH AND INCOME FUND, INC.
(THE "FUNDS")
AMENDED AND RESTATED
NOMINATING AND ADMINISTRATION COMMITTEES CHARTER
(Effective April 19, 2004)
1. Membership; Qualifications.
a. Each member of the Nominating and Administration Committees (the
"Committees") shall be free of any material relationship with the
Funds that, in the opinion of the Boards of Directors of the Funds
(the "Boards"), would interfere with his or her individual exercise of
independent judgment.
b. No member of the Committees shall, other than in his or her capacity
as a member of the Committees, the Boards, or any other Board
committee, accept directly or indirectly any consulting, advisory, or
other compensatory fee from the Funds or any subsidiary of the Funds,
provided that, unless the rules of the American Stock Exchange
("AMEX") provide otherwise, compensatory fees do not include the
receipt of fixed amounts of compensation under a retirement plan
(including deferred compensation) for prior service with the Funds
(provided that such compensation is not contingent in any way on
continued service).
c. No member of either of the Committees shall be an "interested person"
of any of the Funds as defined in section 2(a)(19) of the Investment
Company Act of 1940, as amended (the "1940 Act").
2. Purposes. The purposes of the Committees are:
a. to nominate persons for election or appointment as directors (i) to
fill vacancies which, from time to time, may occur in the Boards and
(ii) for election by shareholders of Funds at meetings called for the
election of directors;
b. to nominate persons for appointment as members of each committee of
the Boards, including without limitation the Committees, the Audit
Committees, and the Pricing Committees;
c. to review from time to time, the compensation, if any, payable to the
directors of the Funds and to make recommendations to the Boards with
respect thereto;
d. to review and evaluate from time to time the functioning of the Boards
and the various committees of the Boards and to make recommendations
to the Boards with respect thereto;
e. to oversee the selection of independent legal counsel to the
independent directors; and
f. to monitor the performance of independent legal counsel employed by
the Funds and the independent directors.
B-1
3. Duties and Powers. To carry out their purposes, the Committees shall have
the following duties and powers:
a. to nominate persons to serve on the Boards.
i. The Committees shall make nominations for director membership on
the Boards. If members of the Committees do not unanimously agree
to nominate an incumbent director for re-election to the Boards,
the Committees shall submit the issue of nomination of such
person for re-election to the independent directors as a group.
ii. Evaluation by the Committees of a person as a potential nominee
to serve as a director, including a person nominated by a
shareholder, should result in the following findings by the
Committees:
A. upon advice of independent legal counsel to the independent
directors, that the person will qualify as a director who is
not an "interested person" of the Funds (an "independent
director")(applicable only to the nomination of independent
directors ), and that the person is otherwise qualified
under the 1940 Act to serve as a director of the Funds;
B. with respect to the nomination of independent directors
only, that the person is free of any material relationship
with the Funds (other than as a shareholder of the Funds),
that would interfere with the exercise of independent
judgment;
C. that the person is willing to serve, and willing and able to
commit the time necessary for the performance of the duties
of a director;
D. that the person can make a positive contribution to the
Boards and the Funds, with consideration being given to the
person's business experience, education and such other
factors as the Committees may consider relevant;
E. that the person is of good character and high integrity;
F. that the person has desirable personality traits including
independence, leadership and the ability to work with the
other members of the Boards;
G. that the person is not an AMEX employee or floor member; and
H. that the composition of the Boards is varied as to
educational background, business experience and occupation.
iii. The Committees shall consider nominees recommended by a
shareholder to serve as director, provided: (i) that such person
is a shareholder of record both at the time he or she submits
such names and at the time of the meeting of shareholders at
which directors will be elected; (ii) that such person is
entitled to vote at such meeting; and (iii) that the Committees
shall make the final determination of persons to be nominated.
The Committees shall evaluate nominees recommended by a
shareholder to serve as director in the same manner as they
B-2
evaluate nominees identified by the Committees. Shareholders
should provide the Committees with information regarding the
recommended nominee sufficient for the Committees to make the
findings set forth in Section 3.a.ii.
b. to nominate directors to serve on the Funds' committees.
i. The Committees shall make nominations for membership on all
committees and shall review and recommend committee assignments
at least annually.
ii. Evaluation by the Committees of a person as a potential committee
member shall include the factors set forth above under Section
3.a.ii. to the extent that such factors are applicable or
relevant, as well as any qualifications as may be set forth in
the charter of the applicable committee.
c. to review as necessary the responsibilities of any committees of the
Board, whether there is a continuing need for each committee, whether
there is a need for additional committees of the Board, and whether
committees should be combined or reorganized. The Committees shall
make recommendations for any such action to the full Board. Any
proposed changes shall be approved by the full Board as well as a
majority of the independent directors.
d. to periodically review the composition of the Boards to determine
whether it may be appropriate to add individuals with different
backgrounds or skill sets from those already on the Boards.
e. to periodically review director compensation and recommend any
appropriate changes to the independent directors as a group.
f. to consider and oversee the selection of independent legal counsel to
the independent directors and recommend such counsel to the
independent directors. In making such selection the Committees shall
examine and monitor such legal counsel's client relationships in order
to ascertain continued independence.
g. to monitor the performance of independent legal counsel employed by
the Funds and the independent directors, and supervise counsel for the
independent directors.
4. Meetings. The Committees may meet either on their own or in conjunction
with meetings of the full Boards. Meetings of the Committees may be held in
person or by conference telephone. Where appropriate, the Committees may
take action by unanimous written consent in lieu of a meeting.
5. Attendance at Annual Meetings of Shareholders. Directors are encouraged but
not required to attend annual meetings of shareholders.
6. Authority; Funding. The Committees shall have the resources and authority
appropriate to discharge their responsibilities, including authority to
retain special counsel and other experts or consultants at the expense of
the appropriate Fund(s).
7. Annual Internal Performance Evaluation. Each fiscal year the Committees
shall conduct an internal evaluation of the performance of the Committees.
B-3
8. Good Faith Reliance. In performing their duties under this Charter, members
of the Committees shall be entitled to rely in good faith upon the records
of the Funds and upon such information, opinions, reports and statements
presented to the Committees by the officers and employees of the Funds and
of Davis-Dinsmore Management Company.
9. Review of Charter. The Committees shall review this Charter at least
annually and recommend any changes to the full Boards. This Charter may be
amended only by approval of the full Boards, and a majority of the
independent directors.
10. Maintenance of Charter. Each Fund shall maintain and preserve in an easily
accessible place a copy of this Charter and any modification to this
Charter.
B-4
BANCROFT CONVERTIBLE FUND, INC.
ANNUAL MEETING TO BE HELD FEBRUARY 14, 2005
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas H. Dinsmore, Gary I. Levine, and
Jane D. O'Keeffe, and each of them, attorneys and proxies with power of
substitution in each, to vote and act on behalf of the undersigned at the annual
meeting of stockholders of Bancroft Convertible Fund, Inc. (the "Company") at
the offices of the Company, 65 Madison Avenue, Suite 550, Morristown, New Jersey
07960 on February 14, 2005 at 11:00 a.m., and at all adjournments, according to
the number of shares of Common Stock which the undersigned could vote if
present, upon such subjects as may properly come before the meeting, all as set
forth in the notice of the meeting and the proxy statement furnished therewith.
UNLESS OTHERWISE MARKED ON THE REVERSE HEREOF, THIS PROXY IS GIVEN WITH
AUTHORITY TO VOTE FOR THE DIRECTORS LISTED, FOR THE PROPOSAL TO RATIFY THE AUDIT
COMMITTEE'S SELECTION OF AUDITORS AND FOR EACH OF THE PROPOSALS TO CHANGE
CERTAIN FUNDAMENTAL INVESTMENT POLICIES OF THE FUND.
PLEASE FILL IN, DATE AND SIGN THE PROXY ON THE OTHER SIDE
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSALS 2 THROUGH 3(P).
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE /X/
1. Election as directors of all nominees listed below for the terms specified in
the proxy statement.
NOMINEES:
/ / FOR ALL NOMINEES / / Thomas H. Dinsmore
/ / Donald M. Halsted, Jr.
/ / Duncan O. McKee
/ / Robert J. McMullan
/ / WITHHOLD AUTHORITY FOR ALL NOMINEES
/ / FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you
wish to withhold, as shown here: /X/
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratify selection of auditors. / / / / / /
Page 1
FOR AGAINST ABSTAIN
3(a). Change to restriction on issuer / / / / / /
diversification.
FOR AGAINST ABSTAIN
3(b). Change to restriction on borrowing money. / / / / / /
FOR AGAINST ABSTAIN
3(c). Change to restriction on issuing senior / / / / / /
securities.
FOR AGAINST ABSTAIN
3(d). Change to restriction on underwriting / / / / / /
securities.
FOR AGAINST ABSTAIN
3(e). Change to restriction on purchasing or / / / / / /
selling real estate.
FOR AGAINST ABSTAIN
3(f). Change to restriction on purchasing or / / / / / /
selling commodities.
FOR AGAINST ABSTAIN
3(g). Change to restriction on making loans. / / / / / /
FOR AGAINST ABSTAIN
3(h). Change to restriction on industry / / / / / /
concentration.
FOR AGAINST ABSTAIN
3(i). Elimination of restriction on investing / / / / / /
in certain listed companies.
FOR AGAINST ABSTAIN
3(j). Elimination of restriction on investments / / / / / /
in newer companies and in single issuers.
FOR AGAINST ABSTAIN
3(k). Elimination of restriction on short sales. / / / / / /
FOR AGAINST ABSTAIN
3(l). Elimination of restriction on investing for / / / / / /
control.
FOR AGAINST ABSTAIN
3(m). Elimination of restriction on margin / / / / / /
purchases.
FOR AGAINST ABSTAIN
3(n). Elimination of restriction regarding put / / / / / /
and call options.
FOR AGAINST ABSTAIN
3(o). Elimination of restriction regarding / / / / / /
securities trading accounts.
FOR AGAINST ABSTAIN
Page 2
3(p). Elimination of restriction regarding / / / / / /
directors and officers owned companies.
YOUR VOTE IS IMPORTANT TO US. PLEASE FILL IN, DATE AND SIGN YOUR PROXY AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that / /
changes to the registered name(s) on the account may not be submitted via
this method.
--------------------------------------------------------------------------------
Signature of Stockholder Date
----------------------------------- ----------------
Signature of Stockholder Date
----------------------------------- ----------------
NOTE: Please sign as name appears hereon. Joint owners each sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such.
Page 3