UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-2151
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BANCROFT CONVERTIBLE FUND, INC.
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(Exact name of registrant as specified in charter)
65 Madison Avenue, Morristown, New Jersey 07960-7308
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(Address of principal executive offices) (Zip code)
Thomas H. Dinsmore
BANCROFT CONVERTIBLE FUND, INC.
65 Madison Avenue
Morristown, New Jersey 07960-7308
(Name and address of agent for service)
Copy to:
Martha J. Hays, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
Registrant's telephone number, including area code: (973)631-1177
Date of fiscal year end: October 31
Date of reporting period: April 30, 2005
ITEM 1. REPORTS TO STOCKHOLDERS.
[LOGO]
BANCROFT CONVERTIBLE FUND
2005 SEMI-ANNUAL REPORT
APRIL 30, 2005
2005 SEMI-ANNUAL REPORT
APRIL 30, 2005
BANCROFT CONVERTIBLE FUND, INC. OPERATES AS A CLOSED-END, DIVERSIFIED MANAGEMENT
INVESTMENT COMPANY AND INVESTS PRIMARILY IN CONVERTIBLE SECURITIES, WITH THE
OBJECTIVES OF PROVIDING INCOME AND THE POTENTIAL FOR CAPITAL APPRECIATION --
WHICH OBJECTIVES THE FUND CONSIDERS TO BE RELATIVELY EQUAL, OVER THE LONG-TERM,
DUE TO THE NATURE OF THE SECURITIES IN WHICH IT INVESTS.
HIGHLIGHTS
PERFORMANCE THROUGH APRIL 30, 2005 WITH DIVIDENDS REINVESTED
Calendar Cumulative Cumulative
YTD 1 Year 5 Years 10 Years
---------- --------- ---------- ----------
Bancroft market price (a,b)...................... (10.48)% (4.05)% 16.38% 148.17%
Bancroft net asset value (b,c,d)................. (5.45) (0.92) 0.80 122.92
Closed-end convertible fund average (d).......... (5.34) 2.49 7.00 106.90
S&P 500 (a)...................................... (4.00) 6.33 (13.86) 165.51
Russell 2000 (d)................................. (10.76) 4.80 22.55 149.85
Lehman Aggregate Bond Total Return Index (d)..... 0.87 5.26 43.48 99.24
PERFORMANCE DATA REPRESENT PAST RESULTS AND DO NOT REFLECT FUTURE PERFORMANCE.
(a) From Bloomberg L.P. pricing service.
(b) Performance is not adjusted for dilution due to the Fund's 2003 rights
offering.
(c) For all periods shown, net asset value dilution resulting from the Bancroft
rights offering in 2003 was 2.38%.
(d) From Lipper, Inc. Closed-End Fund Performance Analysis, dated April 30,
2005.
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QUARTERLY HISTORY OF NAV AND MARKET PRICE
Net Asset Values Market Prices (AMEX, symbol BCV)
Qtr. Ended High Low Close High Low Close
------------ ------ ------ ------- ------ ------ -------
Jul. 04 $20.98 $20.06 $20.23 $18.71 $17.87 $17.87
Oct. 04 20.65 19.79 20.40 18.50 17.65 18.23
Jan. 05 21.24 20.36 20.77 19.11 18.08 18.49
Apr. 05 21.28 19.86 19.92 18.60 16.95 16.95
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DIVIDEND DISTRIBUTIONS (12 MONTHS)
Record Payment Capital
Date Date Income Gains Income
--------- --------- -------- --------- --------
6/15/04 6/29/04 $0.170 -- $0.170
9/15/04 9/29/04 0.170 -- 0.170
12/03/04 12/28/04 0.188 -- 0.188
3/16/05 3/30/05 0.170 -- 0.170
-------- --------
$0.698 $0.698
======== ========
TO OUR SHAREHOLDERS
June 10, 2005
The convertible securities sector of the market has underperformed the
stock and bond markets during the first two quarters of Bancroft's fiscal year,
according to Citigroup. This is unusual. Convertibles rarely underperform both
markets simultaneously. The causes appear to include a decline in convertible
arbitrage activity (usually undertaken by hedge funds and other financial
institutions, but not Bancroft) as well as poor performance by the stocks
underlying the convertibles.
The convertible arbitrage community has developed several mathematical
models for measuring theoretical value for the convertible securities market.
Merrill Lynch measures the discount or premium to this theoretical value. They
have shown that convertibles have moved to a discount to theoretical value as
large as any seen since the summer of 2003.* However, the discount to
theoretical value is much lower than it was in early 2002. Further, there is an
analytic known as delta. This is a measure of how sensitive a convertible may be
to stock price changes. A delta of 50 implies that the convertible should
reflect half of the price movement of the underlying common stock. The average
delta of the convertible market has fluctuated from 75 in February of 2002 to 36
in September, 2002. The current level is just over 50.**
Taken together, these facts indicate that the convertible market is in a
middle area; historically neither cheap nor expensive. This reinforces our
position that the bottom-up choices of stock, convertible and industry are
important to overall performance.
The Fund's audit committee has recently approved the hiring of our new
independent auditors, Tait, Weller & Baker. This audit firm specializes in
mutual funds and other firms in the financial services industry.
During the last quarter, industries in which the Fund currently invests
that have underperformed include banking/savings and loan, and automotive. We
believe these have declined due to the expectation of a rise in short-term
interest rates and reduced expectations for economic growth. Industries that
outperformed include energy, which has been helped by high oil prices, and
consumer goods which have been helped by continued growth in consumer demand.
Bancroft Convertible Fund is the oldest closed-end convertible fund.
Founded in 1971, the Fund's strategy has remained consistent, as an equity
investment that uses convertible securities to reduce risk and volatility. This
strategy tends to outperform in bear markets and lag in bull markets. The
performance of the Fund's NAV was in line with the average of its peer-group for
the quarter ended April 30, 2005 while outperforming the average for the
ten-year period ended April 30, 2005. However, for the one year and five years
ended April 30, 2005, Bancroft underperformed the average of the funds in its
category. Our peers consist of twelve closed-end convertible funds tracked by
Lipper, Inc. and published in the LIPPER CLOSED-END PERFORMANCE ANALYSIS.+ Of
the twelve funds in the category, only six, including the Fund, remain
unleveraged convertible funds. In addition, many of our competitors have had
greater exposure to non-convertible, low-rated, high yield debt than the Fund
has had. We believe these factors contributed to the difference in performance
between Bancroft and many of the other funds in the group.
* MERRILL LYNCH WEEKLY HEDGE MONITOR 05/02/2005.
** CITIGROUP CONVERTIBLE MONTHLY MARKET SNAPSHOT 05/09/2005.
+ Twelve funds for the quarter and one year ended April 30, 2005 and seven funds
for the five years and ten years ended April 30, 2005.
CONTINUED ON THE FOLLOWING PAGE
PAGE 1
TO OUR SHAREHOLDERS (CONTINUED)
Visit our website, www.bancroftfund.com, for additional information on the
Fund. Shareholders who wish to obtain a copy of the most recent report on the
Fund issued by Standard & Poor's should contact us.
The results of the 2005 annual meeting of shareholders are shown in the
Miscellaneous Notes section of this report. We thank you for your support. At
its May meeting, the Board of Directors declared a dividend of 17 cents per
share. The dividend consists of undistributed net investment income and will be
payable on June 29, 2005 to shareholders of record on June 15, 2005.
/s/ Thomas H. Dinsmore
Thomas H. Dinsmore
Chariman of the Board
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MAJOR PORTFOLIO CHANGES BY UNDERLYING COMMON STOCK
Six months ended April 30, 2005
ADDITIONS REDUCTIONS
Chesapeake Energy Corp. Capital One Financial Corp.
Fannie Mae Conexant Systems, Inc.
GlobalSantaFe Corp. General Dynamics Corp.
(EXCHANGEABLE FROM THE GOLDMAN
SACHS GROUP, INC.)
Nuveen Investments, Inc.
(EXCHANGEABLE FROM MERRILL Kerr-McGee Corp.
LYNCH & CO., INC. AND
MORGAN STANLEY, INC.) Leucadia National Corp.
The Walt Disney Company Radio One, Inc.
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MAJOR INDUSTRY EXPOSURE
Banking/Savings & Loan -----------------------> 9.3%
Consumer Goods -----> 3.1%
Energy --------------------------------------------------> 17.6%
Entertainment ----------> 4.5%
Financial & Insurance -----------------------------------> 12.0%
Health Care ------------------> 6.2%
Pharmaceuticals -------------------------------> 11.4%
Retail ----------> 4.5%
Technology --------------------> 6.3%
Telecommunications ----------------> 5.7%
PAGE 2
LARGEST INVESTMENT HOLDINGS BY UNDERLYING COMMON STOCK
Value % Total
(Note 1) Net Assets
------------ ------------
Chesapeake Energy Corp......................................... $ 3,236,370 2.9%
PRODUCES OIL AND NATURAL GAS. THE COMPANY'S OPERATIONS
ARE FOCUSED ON DEVELOPMENTAL DRILLING AND PRODUCING
PROPERTY ACQUISITIONS IN ONSHORE NATURAL GAS PRODUCING
AREAS OF THE UNITED STATES AND CANADA.
The Walt Disney Company........................................ 3,150,030 2.8
AN ENTERTAINMENT COMPANY WHICH CONDUCTS OPERATIONS IN
MEDIA NETWORKS, STUDIO ENTERTAINMENT, THEME PARKS AND
RESORTS, CONSUMER PRODUCTS, AND INTERNET AND DIRECT
MARKETING.
Nuveen Investments, Inc........................................ 2,966,363 2.7
THE COMPANY'S PRINCIPAL ACTIVITIES ARE ASSET MANAGEMENT
AND RELATED RESEARCH, AND THE DEVELOPMENT, MARKETING AND
DISTRIBUTION OF INVESTMENT PRODUCTS AND SERVICES. NUVEEN
PROVIDES ITS SERVICES THROUGH FINANCIAL ADVISORS WHO SERVE
THE AFFLUENT AND HIGH NET WORTH MARKET SEGMENTS.
GlobalSantaFe Corp............................................. 2,950,000 2.6
AN INTERNATIONAL OFFSHORE AND LAND CONTRACT DRILLER. THE
COMPANY OWNS AND OPERATES A FLEET CONSISTING OF MARINE AND
LAND DRILLING RIGS LOCATED THROUGHOUT THE WORLD.
Weatherford International Ltd.................................. 2,549,160 2.3
PROVIDES EQUIPMENT AND SERVICES USED FOR THE DRILLING,
COMPLETION, AND PRODUCTION OF OIL AND NATURAL GAS WELLS.
THE COMPANY OFFERS DRILLING AND INTERVENTION SERVICES,
COMPLETION SYSTEMS, ARTIFICIAL LIFT SYSTEMS AND COMPRESSION
SERVICES.
Devon Energy Corp.............................................. 2,287,500 2.1
AN INDEPENDENT WORLDWIDE ENERGY COMPANY INVOLVED IN
OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND
PRODUCTION.
International Rectifier Corp................................... 2,216,250 2.0
DESIGNS, MANUFACTURES AND MARKETS POWER SEMICONDUCTORS.
THE COMPANY'S PRODUCTS INCLUDE POWER INTEGRATED CIRCUITS
AND ADVANCED CIRCUIT DEVICES, POWER SYSTEMS AND POWER
COMPONENTS.
The St. Paul Travelers Companies, Inc.......................... 2,189,500 2.0
PROVIDES A BROAD RANGE OF INSURANCE PRODUCTS AND SERVICES
FOR THE COMMERCIAL AND CONSUMER MARKETS.
The Chubb Corp................................................. 2,059,110 1.8
A HOLDING COMPANY THAT OFFERS PROPERTY AND CASUALTY
INSURANCE, WHICH INCLUDES PERSONAL, STANDARD COMMERCIAL
AND SPECIALTY COMMERCIAL INSURANCE.
Valero Energy Corp............................................. 2,035,800 1.8
AN INDEPENDENT PETROLEUM REFINING AND MARKETING ------------ ------------
COMPANY THAT OWNS AND OPERATES REFINERIES IN THE UNITED
STATES AND CANADA.
Total.......................................................... $25,640,083 23.0%
============ ============
PAGE 3
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2005
---------------
ASSETS:
Investments at value (cost $113,014,568) (Note 1) ........................... $110,622,848
Cash ........................................................................ 157,927
Dividends and interest receivable ........................................... 578,469
Other assets ................................................................ 46,530
------------
Total assets ................................................................ 111,405,774
------------
LIABILITIES:
Payable for securities purchased ............................................ 10,888
Accrued management fee (Note 2) ............................................. 67,886
Accrued expenses ............................................................ 11,078
------------
Total liabilities ........................................................... 89,852
------------
NET ASSETS ...................................................................... $111,315,922
============
NET ASSETS CONSIST OF:
Undistributed net investment income ......................................... $ 691,589
Accumulated net realized loss from investment transactions .................. (3,634,523)
Unrealized depreciation on investments ...................................... (2,391,720)
Capital shares (Note 3) ..................................................... 55,881
Additional paid-in capital .................................................. 116,594,695
------------
NET ASSETS ...................................................................... $111,315,922
============
Net asset value per share ($111,315,922 (divided) 5,588,453 outstanding shares) . $ 19.92
============
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED APRIL 30, 2005
INVESTMENT INCOME (NOTE 1):
Interest ...................................................................... $ 1,235,499
Dividends ..................................................................... 1,166,253
------------
Total Income ................................................................ 2,401,752
------------
EXPENSES (NOTE 2):
Management fee ................................................................ 409,479
Custodian ..................................................................... 9,319
Transfer agent ................................................................ 15,108
Professional fees ............................................................. 56,224
Directors' fees ............................................................... 62,800
Reports to shareholders ....................................................... 61,423
Treasurer's office ............................................................ 12,500
Other ......................................................................... 73,631
------------
Total Expenses .............................................................. 700,484
------------
NET INVESTMENT INCOME ........................................................... 1,701,268
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions ................................ 924,462
Net unrealized depreciation of investments .................................... (3,270,987)
------------
Net loss on investments ....................................................... (2,346,525)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................ $ (645,257)
============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 4
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2005(a) OCTOBER 31, 2004
----------------- ------------------
CHANGE IN NET ASSETS FROM OPERATIONS:
Net investment income.................................... $ 1,701,268 $ 3,878,705 (b)
Adjustment for change in amortization policy........... -- (87,223)
-------------
Net investment income, as adjusted................... 3,791,482
-------------
Net realized gain from investment transactions........... 924,462 3,760,644 (b)
Adjustment for change in amortization policy........... -- 10,188
-------------
Net realized gain from investment transactions,
as adjusted....................................... 3,770,832
-------------
Net change in unrealized appreciation of investments..... (3,270,987) (3,604,190)(b)
Adjustment for change in amortization policy........... -- 77,035
-------------
Net unrealized appreciation of investments,
as adjusted....................................... (3,527,155)
------------- -------------
Net change in net assets resulting from operations....... (645,257) 4,035,159 (b)
Adjustment for change in amortization policy........... -- --
------------- -------------
Net change in net assets resulting from operations,
as adjusted....................................... (645,257) 4,035,159
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.................................... (1,994,779) (3,826,570)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 3)
Value of shares issued on reinvestment of distributions.. 582,476 628,542
Net proceeds from rights offering........................ -- 14,050,851
------------- -------------
Total capital share transactions....................... 582,476 14,679,393
------------- -------------
CHANGE IN NET ASSETS....................................... (2,057,560) 14,887,982
Net assets at beginning of period.......................... 113,373,482 98,485,500
------------- -------------
NET ASSETS AT END OF PERIOD................................. $ 111,315,922 $ 113,373,482
============= =============
Undistributed net investment income at end of period...... $ 691,589 $ 1,037,260(b)
=============
Adjustment for change in amortization policy............ (52,160)
-------------
Undistributed net investment income at end of period,
as adjusted........................................ $ 985,100
=============
-----------------------
(a) Unaudited.
(b) As previously reported.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 5
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING:
SIX MONTHS
ENDED YEARS ENDED OCTOBER 31,
APRIL 30, ------------------------------------------------
2005 (a) 2004 2003 2002 2001 2000
---------- -------- -------- -------- -------- --------
OPERATING PERFORMANCE:
Net asset value, beginning of period......... $20.40 $20.84 $18.55 $20.72 $27.09 $27.35
-------- -------- ------- ------- ------- --------
Net investment income........................ 0.30 0.70(b) 0.71(b) 0.79(b) 1.07 1.04
Adjustment for change in amortization
policy.................................... -- (0.02) (0.02) -- -- --
-------- -------- ------- ------- ------- --------
Net investment income, as adjusted...... 0.30 0.68 0.69 0.79 1.07 1.04
-------- -------- ------- ------- ------- --------
Net realized and unrealized gain (loss)...... (0.42) 0.08(b) 2.31(b) (2.02)(b) (3.23) 2.29
Adjustment for change in amortization
policy.................................... -- 0.02 0.02 -- -- --
-------- -------- ------- ------- ------- --------
Net realized and unrealized gain
(loss), as adjusted..................... (0.42) 0.10 2.33 (2.02) (3.23) 2.29
-------- -------- ------- ------- ------- --------
Total from investment operations.......... (0.12) 0.78 3.02 (1.23) (2.16) 3.33
-------- -------- ------- ------- ------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income......... (0.36) (0.72) (0.73) (0.94) (1.11) (0.80)
Distributions from realized gains............ -- -- -- -- (3.10) (2.90)
-------- -------- ------- ------- ------- --------
Total distributions....................... (0.36) (0.72) (0.73) (0.94) (4.21) (3.70)
-------- -------- ------- ------- ------- --------
CAPITAL SHARE TRANSACTIONS:
Effect of rights offering.................... -- (0.50) -- -- -- --
Capital share repurchases.................... -- -- -- -- -- 0.11
-------- -------- ------- ------- ------- --------
Total capital share transactions.......... -- (0.50) -- -- -- 0.11
-------- -------- ------- ------- ------- --------
Net asset value, end of period............... $19.92 $20.40 $20.84 $18.55 $20.72 $27.09
======== ======== ======= ======= ======= ========
Market value, end of period.................. $16.95 $18.23 $19.70 $17.54 $18.75 $22.63
Total Net Asset Value Return (%)(c).......... (0.7) 1.3 16.7 (6.3) (8.7) 13.6
Total Investment Return (%)(d)............... (5.2) (3.8) 16.7 (1.8) 1.3 20.6
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..... $111,316 $113,373 $98,486 $86,904 $95,864 $111,336
Ratio of expenses to average net assets (%).. 1.2(e) 1.1 1.2 1.2 1.1 1.1
Ratio of net investment income to average
net assets (%) ........................... 3.0(e) 3.3(f) 3.6(f) 4.0(f) 4.9 3.8
Portfolio turnover rate (%).................. 38 66 87 78 83 93
-------------------
(a) Unaudited.
(b) As previously reported.
(c) Assumes valuation of the Fund's shares, and reinvestment of dividends, at
net asset values.
(d) Assumes valuation of the Fund's shares at market price and reinvestment of
dividends at actual reinvestment price.
(e) Annualized.
(f) Ratios for 2004, 2003 and 2002 reflect ratios adjusted for change in
amortization policy. Ratios previously reported for 2004, 2003 and 2002
were 3.4%, 3.6% and 4.0%, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 6
PORTFOLIO OF INVESTMENTS APRIL 30, 2005 (UNAUDITED)
Principal Value
Amount (Note 1)
----------- -----------
CONVERTIBLE BONDS AND NOTES -- 53.0%
AUTOMOTIVE -- 1.8%
$4,500,000 Lear Corp. 0% 2022 cv. sr. notes (Baa3)................................ $ 1,982,813
-----------
BANKING/SAVINGS AND LOAN -- 2.8%
2,078,000 The Bear Stearns Companies, Inc. 0.25% 2010 medium-term notes (A1)
(exch. for Fifth Third Bancorp common stock) (1)...................... 1,805,366
1,500,000 Ocwen Financial Corp. 3.25% 2024 contingent cv. sr. unsecured
notes (B-)............................................................. 1,263,750
-----------
3,069,116
-----------
CONSUMER GOODS -- 1.7%
1,375,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba2)................ 1,854,600
-----------
DATA-PROCESSING SERVICES -- 1.2%
1,500,000 Pegasus Solutions, Inc. 3.875% 2023 cv. sr. notes (NR)................. 1,302,765
-----------
ELECTRICAL SUPPLIES -- 0.9%
1,500,000 Graftech International Ltd. 1.625% 2024 cv. sr. deb. (B2).............. 982,500
-----------
ENERGY -- 9.1%
1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (B1)........................ 1,657,500
4,000,000 Devon Energy Corp. 0% 2020 cv. sr. deb. (BBB).......................... 2,287,500
5,000,000 GlobalSantaFe Corp. 0% 2020 cv. deb. (Baa1)............................ 2,950,000
750,000 OMI Corp. 2.875% 2024 cv. sr. notes (B+)............................... 678,750
4,000,000 Weatherford International Ltd. 0% 2020 cv. sr. deb. (Baa1)............. 2,549,160
-----------
10,122,910
-----------
ENTERTAINMENT -- 3.7%
1,250,000 Citadel Broadcasting Corp. 1.875% 2011 cv. sub. notes (NR)............. 951,438
3,000,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (Baa1)............... 3,150,030
-----------
4,101,468
-----------
FINANCIAL AND INSURANCE -- 0.8%
1,000,000 Swiss Re America Holding Corp. 3.25% 2021 euro. sub. cv. bonds (A1)
(conv. into Swiss Reinsurance Company common stock)
(Acquired 11/15/01 - 12/05/01; Cost $1,007,750) (2)................... 940,600
-----------
HEALTH CARE -- 5.0%
1,500,000 Community Health Systems, Inc. 4.25% 2008 cv. sub. notes (B3).......... 1,691,850
1,750,000 Isolagen, Inc. 3.5% 2024 cv. sub. notes (NR)
(Acquired 10/29/04 - 02/17/05; Cost $1,771,250) (2)................... 1,470,000
1,000,000 LifePoint Hospitals, Inc. 4.5% 2009 cv. sub. notes (B3)................ 1,022,500
1,000,000 Mentor Corp. 2.75% 2024 cv. sub. notes (NR)............................ 1,326,250
-----------
5,510,600
-----------
MULTI-INDUSTRY -- 0.8%
1,000,000 Lehman Brothers Holdings, Inc. 1% 2011 medium-term notes (A1)
(performance linked to Cendant Corp. common stock) (1)................ 926,250
-----------
OFFICE EQUIPMENT -- 1.5%
1,750,000 IOS Capital, LLC 5% 2007 cv. sub. notes (Ba3)
(exch. for IKON Office Solutions, Inc. common stock)
(Acquired 05/08/02 - 06/02/03; Cost $1,746,250) (2)................... 1,717,188
-----------
PAGE 7
PORTFOLIO OF INVESTMENTS APRIL 30, 2005 (CONTINUED)
Principal Value
Amount (Note 1)
----------- -----------
CONVERTIBLE BONDS AND NOTES -- CONTINUED
PHARMACEUTICALS -- 8.3%
$2,000,000 Alza Corp. 0% 2020 cv. sub. deb. (Aa1)
(exch. for Johnson & Johnson common stock)............................ $ 1,887,500
2,000,000 Amgen, Inc. 0% 2032 LYONs (A2) (1)..................................... 1,458,830
1,000,000 Encysive Pharmaceuticals, Inc. 2.5% 2012 cv. sr. notes (NR)
(Acquired 03/11/05; Cost $1,013,125) (2).............................. 905,000
1,500,000 Impax Laboratories, Inc. 1.25% 2024 cv. sr. sub. deb. (NR)............. 1,285,650
500,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR)........................... 486,250
1,250,000 Ivax Corp. 1.5% 2024 cv. sr. notes (NR) (1)............................ 1,222,936
1,000,000 Teva Pharmaceutical Finance II, LLC series A 0.5% 2024
cv. sr. deb. (BBB) (exch. for ADR representing Teva Pharmaceutical
Industries Ltd. common stock)......................................... 1,001,250
1,000,000 Teva Pharmaceutical Finance II, LLC series B 0.25% 2024
cv. sr. deb. (BBB) (exch. for ADR representing Teva Pharmaceutical
Industries Ltd. common stock)......................................... 1,012,500
-----------
9,259,916
-----------
RETAIL -- 4.5%
1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR)......... 1,109,375
1,000,000 Charming Shoppes, Inc. 4.75% 2012 sr. cv. notes (B2)................... 1,002,500
1,500,000 Dick's Sporting Goods, Inc. 1.6061% 2024 sr. cv. notes (B)............. 981,600
2,400,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1)........................... 1,906,800
-----------
5,000,275
-----------
TECHNOLOGY -- 5.2%
1,000,000 Advanced Micro Devices, Inc. 4.75% 2022 cv. sr. deb. (B3) (1).......... 944,375
1,250,000 Agilent Technologies, Inc. 3% 2021 sr. cv. deb. (Ba2) (1).............. 1,235,943
2,250,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2)........... 2,216,250
1,500,000 Sybase, Inc. 1.75% 2025 cv. sub. notes (NR)
(Acquired 2/15/05 - 04/20/05; Cost $1,491,557) (2)..................... 1,443,705
-----------
5,840,273
-----------
TELECOMMUNICATIONS -- 5.7%
1,500,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3) ...................... 2,027,775
1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (B2)........ 975,330
500,000 Lucent Technologies, Inc. 2.75% 2025 series B cv. sr. deb. (B2)........ 495,240
1,250,000 Nortel Networks Corp. 4.25% 2008 cv. sr. notes (B3).................... 1,128,125
1,000,000 Tekelec, Inc. 2.25% 2008 sr. sub. cv. notes (NR)....................... 941,250
1,000,000 UTStarcom, Inc. 0.875% 2008 cv. notes (NR)............................. 786,250
-----------
6,353,970
-----------
TOTAL CONVERTIBLE BONDS AND NOTES ..................................... $58,965,244
-----------
Shares CONVERTIBLE PREFERRED STOCKS -- 21.0%
-----------
AUTOMOTIVE -- 0.8%
50,000 General Motors Corp. 6.25% 2033 series C cv. sr. deb. (Baa3)........... 942,000
-----------
BANKING/SAVINGS AND LOAN -- 6.6%
17,500 Commerce Capital Trust II 5.95% cv. trust pfd. (Baa1)
(exch. for Commerce Bancorp, Inc. common stock)....................... 986,422
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR)........... 1,516,000
20,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2)............... 1,458,750
35,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1)
(exch. for Sovereign Bancorp, Inc. common stock) (1).................. 1,531,250
35,000 Washington Mutual Capital Trust PIERS units (Baa1)
(exch. for Washington Mutual, Inc. common stock)...................... 1,828,750
-----------
7,321,172
-----------
PAGE 8
PORTFOLIO OF INVESTMENTS APRIL 30, 2005 (CONTINUED)
Value
Shares (Note 1)
----------- -----------
CONVERTIBLE PREFERRED STOCKS -- CONTINUED
ENERGY -- 5.2%
1,000 Chesapeake Energy Corp. 4.125% cum. cv. pfd. (NR)...................... $ 1,260,000
20,000 Chesapeake Energy Corp. 5% cum. cv. pfd. (B-)
(Acquired 04/13/05; Cost $2,000,000) (2).............................. 1,976,370
5,000 Semco Energy, Inc. 5% series B cv. cum. pfd. (NR)
(Acquired 03/09/05 - 03/10/05; Cost $1,003,750) (2)................... 916,250
20,000 The Williams Companies, Inc. 5.5% 2033 jr. sub. cv. deb. (B-).......... 1,675,000
-----------
5,827,620
-----------
ENTERTAINMENT -- 0.8%
22,500 Emmis Communications Corp. 6.25% series A cum. cv. pfd. (Caa1)......... 911,250
-----------
FINANCIAL AND INSURANCE -- 4.7%
20 Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3)
(Acquired 12/29/04 - 01/11/05; Cost $2,078,125) (2)................... 1,857,500
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2).................. 1,159,688
100,000 The St. Paul Travelers Companies, Inc. 4.5% 2032
cv. jr. sub. notes (Baa1)............................................. 2,189,500
-----------
5,206,688
-----------
HEALTH CARE -- 1.3%
29,000 Omnicare Capital Trust II 4% PIERS (NR)
(exch. for Omnicare, Inc. common stock) (1)........................... 1,403,600
-----------
MINING -- 1.6%
2,000 Freeport-McMoRan Copper and Gold, Inc. 5.5% cv. perpetual pfd. (B-).... 1,784,728
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS..................................... $23,397,058
-----------
MANDATORY CONVERTIBLE SECURITIES -- 19.0% (4)
CHEMICALS -- 0.8%
20,000 Huntsman Corp. 5% mand. cv. pfd. (NR).................................. 937,920
-----------
CONSUMER GOODS -- 1.4%
40,000 Constellation Brands, Inc. dep. shs. representing 5.75%
series A mand. cv. pfd. (B)........................................... 1,600,000
-----------
ENERGY -- 3.3%
20,000 Amerada Hess Corp. 7% mand. cv. pfd. ACES (Ba3)........................ 1,634,000
30,000 Valero Energy Corp. 2% mand. cv. pfd. (BB)............................. 2,035,800
-----------
3,669,800
-----------
FINANCIAL AND INSURANCE -- 6.5%
15,000 The Chubb Corp. 7% 2005 equity units (A) (1)........................... 447,750
54,000 The Chubb Corp. 7% 2006 equity units (A2) (1).......................... 1,611,360
37,500 Merrill Lynch & Co, Inc. 6.75% mand. exch. sec. (Aa3)
(exch. for Nuveen Investments, Inc. common stock)..................... 1,286,363
50,000 Morgan Stanley, Inc. 5.875% mand. exch. sec. (NR)
(exch. for Nuveen Investments, Inc. common stock)..................... 1,680,000
40,000 Platinum Underwriters Holdings, Ltd. 7% equity security units (NR) (1). 1,122,800
45,000 XL Capital, Ltd. 6.5% equity security units (A2)....................... 1,028,520
-----------
7,176,793
-----------
FOODS -- 1.7%
40,000 Albertson's, Inc. 7.25% HITS units (Baa2) (1).......................... 864,000
40,000 Lehman Brothers Holdings, Inc. 6.25% PIES (A1)
(exch. for General Mills, Inc. common stock).......................... 1,060,000
-----------
1,924,000
-----------
PAGE 9
PORTFOLIO OF INVESTMENTS APRIL 30, 2005 (CONTINUED)
Principal
Amount Value
or Shares (Note 1)
----------- ------------
MANDATORY CONVERTIBLE SECURITIES -- CONTINUED
PHARMACEUTICALS -- 3.1%
31,500 shs Baxter International, Inc. 7% equity units (Baa1) (1)................ $ 1,759,905
30,000 shs Schering-Plough Corp. 6% mand. cv. pfd. (Baa3)....................... 1,642,500
------------
3,402,405
------------
TECHNOLOGY -- 1.1%
$2,000,000 Lehman Brothers Holdings, Inc. 6% 2005 YEELDS (A)
(performance linked to LSI Logic Corp. common stock)................ 1,170,000
------------
UTILITIES -- 1.1%
50,000 shs DTE Energy Co. 8.75% equity security units (BBB-) (1)................ 1,271,000
------------
TOTAL MANDATORY CONVERTIBLE SECURITIES (4)........................... $ 21,151,918
------------
SHORT-TERM SECURITIES -- 6.4%
COMMERCIAL PAPER -- 6.4%
7,100,000 American Express Credit Corp. (P1)
(2.85% maturing 05/03/05)........................................... 7,097,752
------------
U.S. GOVERNMENT OBLIGATIONS -- 0.0%
11,000 U.S. Treasury notes 2.25% 04/30/06 (Aaa) (5)......................... 10,876
------------
TOTAL SHORT-TERM SECURITIES.......................................... 7,108,628
------------
TOTAL CONVERTIBLE BONDS AND NOTES -- 53.0%........................... 58,965,244
TOTAL CONVERTIBLE PREFERRED STOCKS -- 21.0%.......................... 23,397,058
TOTAL MANDATORY CONVERTIBLE SECURITIES -- 19.0%...................... 21,151,918
TOTAL SHORT-TERM SECURITIES -- 6.4%.................................. 7,108,628
------------
TOTAL INVESTMENTS -- 99.4%........................................... 110,622,848
OTHER ASSETS AND LIABILITIES, NET -- 0.6%............................ 693,074
------------
TOTAL NET ASSETS -- 100.0%........................................... $111,315,922
============
(1) Contingent payment debt instrument which accrues contingent interest. See
Note 1(b).
(2) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction). The security may be
resold only pursuant to an exemption from registration under the 1933 Act,
typically to qualified institutional buyers. The Fund generally has no
rights to demand registration of these securities. The aggregate market
value of these securities at April 30, 2005 was $11,226,613 which
represented 10.1% of the Fund's net assets.
(3) Non-income producing security.
(4) Mandatory convertible. See Note 1(f).
(5) Collateral for a letter of credit.
ACES Automatic Convertible Equity Securities.
ADR American Depositary Receipts.
BONUSES Bifurcated Option Note Unit Securities.
HITS Hybrid Income Term Security.
LYONs Liquid Yield Option Notes.
PIES Premium Income Exchangeable Securities.
PIERS Preferred Income Equity Redeemable Securities.
YEELDS Yield Enhanced Equity Linked Debt Securities.
ZYPS Zero Yield Puttable Securities.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's.
NR is used whenever a rating is unavailable.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PAGE 10
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES AND CHANGE IN ACCOUNTING POLICY
Bancroft Convertible Fund, Inc. (the "Fund"), established in 1971, is registered
under the Investment Company Act of 1940 as a diversified, closed-end management
investment company. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements:
(A) SECURITY VALUATION
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price as of the close of regular
trading. Unlisted securities traded in the over-the-counter market and listed
securities for which no sales were reported, are valued at the mean between
closing reported bid and asked prices as of the close of regular trading.
Securities for which quotations are not readily available, restricted securities
and other assets are valued at fair value as determined in good faith by
management with the approval of the Board of Directors. Short-term debt
securities with original maturities of 60 days or less are valued at amortized
cost.
(B) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis, including
accretion of discounts and amortization of non-equity premium. For certain
securities, known as "contingent payment debt instruments," Federal tax
regulations require the Fund to record non-cash, "contingent" interest income in
addition to interest income actually received. Contingent interest income
amounted to 6 cents per share for the six months ended April 30, 2005. In
addition, Federal tax regulations require the Fund to reclassify realized gains
on contingent payment debt instruments to interest income. At April 30, 2005
there were unrealized losses of approximately 2 cents per share on contingent
payment debt instruments.
(C) CHANGES IN METHOD OF ACCOUNTING FOR BOND PREMIUM AND DISCOUNT AMORTIZATION
Effective November 1, 2004, the Fund began amortizing discounts and premiums on
all debt securities. Prior to November 1, 2004, the Fund amortized discounts on
original issue discount debt securities. The new method of amortization was
adopted in accordance with the provisions of the AICP AAudit and Accounting
Guide, Audits of Investment Companies and the financial highlights and statement
of changes in net assets presented herein have been restated to reflect the new
method retroactive to November 1, 2001.
The effect of this accounting change is included in the financial highlights for
the years ended October 31, 2002, 2003 and 2004, and in the statement of changes
in net assets for the year ended October 31, 2004. The cumulative effect of this
accounting change had no impact on the total net assets of the Fund or on
distributions for tax purposes, but resulted in a $103,986 increase in the cost
of securities held and a corresponding $103,986 reduction in the net unrealized
gains based on the securities held on November 1, 2001. The impact of this
change during the six months ended April 30, 2005 was to reduce net investment
income by $41,542, increase unrealized losses by $73,950 and increase realized
gains by $115,492. These changes had no effect on previously reported total net
assets or total returns.
PAGE 11
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(D) FEDERAL INCOME TAXES
The Fund's policy is to distribute substantially all of its taxable income
within the prescribed time and to otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. Therefore,
no provision for federal income or excise taxes is believed necessary. At
October 31, 2004, the Fund had available for federal income tax purposes unused
capital losses of $4,470,204, available to offset future net capital gains,
$4,045,634 of which expires in 2010 and $424,570 of which expires in 2011. The
Fund utilized net capital loss carryforwards of $3,760,644 during the year ended
October 31, 2004.
(E) DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income are recorded by the
Fund on the ex-dividend date. Distributions from capital gains, if any, are
recorded on the ex-dividend date and paid annually. The amount and character of
income and capital gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted accounting
principles. The tax character of distributions paid during the fiscal years
ended October 31, 2004 and 2003 were $3,826,570 and $3,445,042, respectively,
both from ordinary income.
(F) MARKET RISK
It is the Fund's policy to invest at least 80% of its assets in convertible
securities. Although convertible securities do derive part of their value from
that of the securities into which they are convertible, they are not considered
derivative financial instruments. However, certain of the Fund's investments
include features which render them more sensitive to price changes of their
underlying securities. Thus they expose the Fund to greater downside risk than
traditional convertible securities, but generally less than that of the
underlying common stock. The market value of those securities was $21,151,918 at
April 30, 2005, representing 19.0% of net assets.
2. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The management fee is paid to the investment adviser, Davis-Dinsmore Management
Company (the "Adviser"). The contract provides for payment of a monthly advisory
fee, computed at an annual rate of 3/4 of 1% of the first $100,000,000 and 1/2
of 1% of the excess over $100,000,000 of the Fund's net asset value in such
month.
The Adviser furnishes investment advice, office equipment and facilities, and
pays the salaries of all executive officers of the Fund. The Fund pays all
expenses incurred by it and not assumed by the Adviser and in addition will pay
the costs and expenses of its Treasurer's office, up to a maximum of $25,000 per
year, incurred in connection with its performance of certain services for the
Fund. These services include the valuation of securities owned by the Fund, and
the preparation of financial statements and schedules of the Fund's investments
for inclusion in certain periodic reports to the Fund's Board of Directors and
to the U.S. Securities and Exchange Commission, the maintenance of files
relating to the foregoing, and rent, personnel costs and other overhead expenses
allocable to the aforementioned services.
3. PORTFOLIO ACTIVITY
At April 30, 2005 there were 5,588,453 shares of $.01 par value common stock
outstanding (9,000,000 shares authorized). During the six months ended April 30,
2005, 31,315 shares were issued in connection with reinvestment of dividends
from net investment income, resulting in an increase in paid-in capital of
$582,476.
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $40,147,797 and $41,028,139, respectively, for the six months ended
April 30, 2005.
A distribution of $0.17 per share from net investment income was declared on May
17, 2005, payable June 29, 2005 to shareholders of record at the close of
business June 15, 2005.
PAGE 12
BOARD APPROVAL OF ADVISORY CONTRACT
THE INDEPENDENT DIRECTORS OF BANCROFT RENEWED THE ADVISORY CONTRACT WITH
DAVIS-DINSMORE MANAGEMENT COMPANY IN NOVEMBER 2004. THE FOLLOWING ARE THE
MATERIAL FACTORS AND CONCLUSIONS THAT FORMED THE BASIS FOR THAT APPROVAL.
--------------------------------------------------------------------------------
THE NATURE AND EXTENT OF THE ADVISORY SERVICES PROVIDED BY DAVIS-DINSMORE. Based
on the independent directors' review of the services provided and to be provided
by Davis-Dinsmore under the Advisory Agreement, the independent directors
concluded that the range of services to be provided by Davis-Dinsmore under the
Advisory Agreement was appropriate and that Davis-Dinsmore currently is
providing services in accordance with the terms of each Advisory Agreement.
THE QUALITY OF SERVICES PROVIDED BY DAVIS-DINSMORE. In reviewing the
qualifications of Davis-Dinsmore to provide investment advisory services, the
independent directors reviewed the credentials and experience of
Davis-Dinsmore's investment personnel, and considered such issues as
Davis-Dinsmore's portfolio and product review process, compliance function, use
of technology, portfolio administration function, investment research operations
and trading operations. Based on the review of these and other factors, the
independent directors concluded that the quality of services to be provided by
Davis-Dinsmore was appropriate and that Davis-Dinsmore currently is providing
satisfactory services in accordance with the terms of the Advisory Agreement.
THE PERFORMANCE OF THE FUND RELATIVE TO COMPARABLE FUNDS. The independent
directors reviewed the performance of the Fund against the performance of funds
advised by other advisors with investment strategies comparable to those of the
Fund. The independent directors noted that although during the past year the
Fund has underperformed its peers, the Fund's long-term performance was better,
and concluded that no changes should be made to the Fund's investment objective
or policies at this time. In addition, the independent directors determined that
the Fund's portfolio management team should remain in place.
THE PERFORMANCE OF THE FUND RELATIVE TO INDICES. The independent directors
reviewed the performance of the Fund against the performance of applicable
indices. The independent directors noted that although during the past year the
Fund has underperformed relative to relevant indices, the Fund's long-term
comparative performance was better, and concluded that no changes should be made
to the Fund's investment objective or policies at this time. In addition, the
independent directors determined that the Fund's portfolio management team
should remain in place.
MEETINGS WITH THE FUND'S PORTFOLIO MANAGER AND INVESTMENT PERSONNEL. The
independent directors noted that they meet regularly with the Fund's portfolio
manager and investment personnel, and believe that such individuals are
competent and able to continue to carry out their responsibilities under the
Advisory Agreement.
OVERALL PERFORMANCE OF DAVIS-DINSMORE. After considering the overall performance
of Davis-Dinsmore in providing investment advisory and portfolio administrative
services to the Fund, the independent directors concluded that such performance
was satisfactory.
FEES RELATIVE TO THOSE OF CLIENTS OF DAVIS-DINSMORE WITH COMPARABLE INVESTMENT
STRATEGIES. The independent directors noted that the Fund and Ellsworth
Convertible Growth and Income Fund are the only clients of Davis-Dinsmore, and
that the advisory fee rates for the funds are the same. The independent
directors concluded that, because the fee rates are the same for each fund, the
current advisory fee rate of a fund was fair as compared to the rate for the
other fund.
FEES RELATIVE TO THOSE OF COMPARABLE FUNDS WITH OTHER ADVISERS. After reviewing
the advisory fee rate for the Fund against the advisory fee rates for funds
advised by other advisors with investment strategies comparable to those of the
Fund, the independent directors determined that the Fund's advisory fee rate was
at approximately the median of the funds in its peer group, and concluded that
the current advisory fee rate of the Fund was fair and reasonable.
EXPENSE LIMITATIONS AND FEE WAIVERS. The independent directors noted that,
although there are no contractual expense limitations or fee waivers in effect
for the Fund, Davis-Dinsmore is very diligent in its efforts to keep expenses of
the Fund as low as possible. The independent directors also noted that the
Fund's expense ratios had declined as a result of the Fund's rights offering in
late 2003, but that
PAGE 13
BOARD APPROVAL OF ADVISORY CONTRACT (CONTINUED)
the cost of compliance with regulatory initiatives was increasing. The
independent directors concluded that the current level of expenses for the Fund
was reasonable.
BREAKPOINTS AND ECONOMIES OF SCALE. The independent directors reviewed the
structure of the Fund's advisory fee under the Advisory Agreement, and noted
that the fee includes a significant breakpoint when the Fund's assets reach $100
million. The independent directors noted that breakpoints had become effective
as a result of the Fund's 2003 rights offering, which resulted in lower
management fee expenses as a percentage of assets. The independent directors
concluded that it was not necessary to implement any further changes to the
structure of the advisory fee for the Fund.
PROFITABILITY OF DAVIS-DINSMORE. The independent directors reviewed information
concerning the profitability and financial condition of Davis-Dinsmore, noting
that Davis-Dinsmore's sole source of revenue was advisory fees from Bancroft and
Ellsworth Convertible Growth and Income Fund. The Board noted that
Davis-Dinsmore's operations remain profitable, and that the continued success of
the two funds will positively impact Davis-Dinsmore's profitability. Based on
the review of the profitability of Davis-Dinsmore and its financial condition,
the independent directors concluded that the compensation to be paid by Bancroft
to Davis-Dinsmore under its Advisory Agreement was not excessive.
BENEFITS OF SOFT DOLLARS TO DAVIS-DINSMORE. The independent directors discussed
the fact that there are no third-party soft dollar arrangements in effect with
respect to the Fund. The independent directors recognized that Davis-Dinsmore
does receive proprietary research from brokers with whom it executes portfolio
transactions on behalf of the Fund. This research is used by Davis-Dinsmore in
making investment decisions for the Fund. The directors also considered
representations made by Davis-Dinsmore that portfolio transactions received best
execution. Because such research ultimately benefits the Fund, the Board
concluded that it was appropriate to receive proprietary research.
DAVIS-DINSMORE'S FINANCIAL SOUNDNESS IN LIGHT OF THE NEEDS OF THE FUND. The
independent directors considered whether Davis-Dinsmore is financially sound and
has the resources necessary to perform its obligations under the Advisory
Agreement, and concluded that Davis-Dinsmore has the financial resources
necessary to fulfill its obligations under the Advisory Agreement.
HISTORICAL RELATIONSHIP BETWEEN THE FUND AND DAVIS-DINSMORE. In determining
whether to continue the Advisory Agreement for the Fund, the independent
directors also considered the prior relationship between Davis-Dinsmore and the
Fund, as well as the independent directors' knowledge of Davis-Dinsmore's
operations, and concluded that it was beneficial to maintain the current
relationship, in part, because of such knowledge. The independent directors also
reviewed the general nature of the non-investment advisory services currently
performed by Davis-Dinsmore, such as administrative services, and the fees
received by Davis-Dinsmore for performing such services. In addition to
reviewing such services, the independent directors also considered the
organizational structure employed by Davis-Dinsmore to provide those services.
Based on the review of these and other factors, the independent directors
concluded that Davis-Dinsmore was qualified to continue to provide
non-investment advisory services to the Funds, including administrative
services, and that Davis-Dinsmore currently is providing satisfactory
non-investment advisory services.
OTHER FACTORS AND CURRENT TRENDS. The independent directors considered the
culture of compliance and high ethical standards at Davis-Dinsmore, and the
efforts historically and currently undertaken by Davis-Dinsmore to engage in
best practices. The independent directors noted Davis-Dinsmore's historical
adherence to compliance procedures, as well as the Fund's investment objectives,
policies and restrictions. The independent directors concluded that this
commitment to adhere to the highest ethical standards was an important factor in
their determination that they should continue the Advisory Agreement for the
Fund.
--------------------------------------------------------------------------------
After consideration of all of the above factors, the independent directors found
that with respect to the Fund: (i) the services provided by Davis-Dinsmore to
such Fund and its shareholders were adequate; (ii) such Fund's Advisory
Agreement was fair and reasonable under the circumstances; and (iii) the fees
payable under such Fund's Advisory Agreement would have been obtained through
arm's length negotiations. The independent directors therefore concluded that
the Fund's Advisory Agreement was in the best interests of such Fund and its
shareholders and should be continued for another year.
PAGE 14
MISCELLANEOUS NOTES
RESULTS OF THE 2005 ANNUAL SHAREHOLDERS MEETING
The results of the shareholder vote at the Annual Meeting of Shareholders held
on February 14, 2005 were:
1. All directors nominated were elected.
Terms expiring in 2008 Shares voted for Shares withheld
---------------------- ---------------- ---------------
Donald M. Halsted, Jr. 3,320,648 140,107
Duncan O. McKee 3,319,039 141,716
Thomas H. Dinsmore 3,326,319 134,436
Term expiring in 2006 Shares voted for Shares withheld
--------------------- ---------------- ---------------
Robert J. McMullan 3,322,809 137,946
2. The Audit Committee's appointment of PricewaterhouseCoopers LLP as
independent accountants was ratified with 3,307,462 shares voted for,
61,042 shares voted against and 92,251 shares abstaining.
3(a). Change to restriction on issuer diversification was ratified with
2,577,514 shares voted for, 316,581 shares voted against, 186,656 shares
abstaining and 367,146 broker non-votes.
3(b). Change to restriction on borrowing money was ratified with 2,478,045
shares voted for, 414,348 shares voted against, 188,358 shares
abstaining and 367,146 broker non-votes.
3(c). Change to restriction on issuing senior securities was ratified with
2,458,052 shares voted for, 434,690 shares voted against, 188,009 shares
abstaining and 367,146 broker non-votes.
3(d). Change to restriction on underwriting securities was ratified with
2,581,309 shares voted for, 306,835 shares voted against, 192,607 shares
abstaining and 367,146 broker non-votes.
3(e). Change to restriction on purchasing or selling real estate was ratified
with 2,579,606 shares voted for, 322,593 shares voted against, 178,552
shares abstaining and 367,146 broker non-votes.
3(f). Change to restriction on purchasing or selling commodities was ratified
with 2,486,912 shares voted for, 413,813 shares voted against, 180,026
shares abstaining and 367,146 broker non-votes.
3(g). Change to restriction on making loans was ratified with 2,460,025 shares
voted for, 436,868 shares voted against, 183,858 shares abstaining and
367,146 broker non-votes.
3(h). Change to restriction on industry concentration was ratified with
2,587,058 shares voted for, 312,928 shares voted against, 180,765 shares
abstaining and 367,146 broker non-votes.
3(i). Elimination of restriction on investing in certain listed companies was
ratified with 2,539,007 shares voted for, 330,969 shares voted against,
210,775 shares abstaining and 367,146 broker non-votes.
3(j). Elimination of restriction on investments in newer companies and in
single issuers was ratified with 2,565,220 shares voted for, 325,808
shares voted against, 189,723 shares abstaining and 367,146 broker
non-votes.
3(k). Elimination of restriction on short sales was ratified with 2,482,128
shares voted for, 416,267 shares voted against, 182,356 shares
abstaining and 367,146 broker non-votes.
3(l). Elimination of restriction on investing for control was ratified with
2,568,836 shares voted for, 324,173 shares voted against, 187,742 shares
abstaining and 367,146 broker non-votes.
3(m). Elimination of restrictions on margin purchases was ratified with
2,437,409 shares voted for, 455,475 shares voted against, 187,867 shares
abstaining and 367,146 broker non-votes.
3(n). Elimination of restriction regarding put and call options was ratified
with 2,525,655 shares voted for, 359,621 shares voted against, 195,475
shares abstaining and 367,146 broker non-votes.
3(o). Elimination of restriction regarding securities trading accounts was
ratified with 2,564,669 shares voted for, 318,977 shares voted against,
197,105 shares abstaining and 367,146 broker non-votes.
3(p). Elimination of restriction regarding the purchase of director and
officer owned companies was ratified with 2,416,149 shares voted for,
479,386 shares voted against, 185,216 shares abstaining and 367,146
broker non-votes.
PAGE 15
MISCELLANEOUS NOTES (CONTINUED)
CHANGE IN THE FUND'S INDEPENDENT ACCOUNTANT
On March 17, 2005, PricewaterhouseCoopers LLP ("PwC") resigned as independent
registered public accountants for the Fund. The Fund's audit committee appointed
Tait, Weller & Baker as independent accountants for the Fund on April 12, 2005
for the 2005 fiscal year, which appointment was ratified by the Fund's
independent directors. The reports of PwC on the Fund's financial statements for
each of the fiscal years ended October 31, 2004 and October 31, 2003 contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During the Fund's
fiscal years ended October 31, 2003 and October 31, 2004 and during the period
November 1, 2004 through March 17, 2005, there have been no disagreements with
PwC on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of PwC, would have caused them to make reference thereto in their
reports on the financial statements for such years.
--------------------------------------------------------------------------------
NOTICE OF PRIVACY POLICY
The Fund has adopted a privacy policy in order to protect the confidentiality of
nonpublic personal information that we have about you. We receive personal
information, such as your name, address and account balances, when transactions
occur in Bancroft shares registered in your name.
We may disclose this information to companies that perform services for the
Fund, such as the Fund's transfer agent or proxy solicitors. These companies may
only use this information in connection with the services they provide to the
Fund, and not for any other purpose. We will not otherwise disclose any
nonpublic personal information about our stockholders or former stockholders to
anyone else, except as required by law.
Access to nonpublic information about you is restricted to our employees and
service providers who need that information in order to provide services to you.
We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard your nonpublic personal information.
--------------------------------------------------------------------------------
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
In addition to the semi-annual and annual reports that Bancroft delivers to
shareholders and makes available through the Bancroft public website, the Fund
files a complete schedule of portfolio holdings with the U.S. Securities and
Exchange Commission (SEC) for the Fund's first and third fiscal quarters each
fiscal year on Form N-Q. Bancroft does not deliver the schedule for the first
and third fiscal quarters to shareholders, however the schedule is posted to the
Bancroft public website, www.bancroftfund.com. You may obtain the Form N-Q
filings by accessing the SEC's website at www.sec.gov. You may also review and
copy them at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the SEC's Public Reference Room may be obtained by calling the
SEC at (800) SEC-0330.
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PROXY VOTING POLICIES AND PROCEDURES/PROXY VOTING RECORD
The Fund's policies and procedures with respect to the voting of proxies
relating to the Fund's portfolio securities is available without charge, upon
request, by calling (973) 631-1177, or at our website at www.bancroftfund.com.
This information is also available on the SEC's website at www.sec.gov. In
addition, information on how the Fund voted such proxies relating to portfolio
securities during the most recent twelve-month period ended June 30, is
available without charge at the above sources.
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The Fund is a member of the Closed-End Fund Association (CEFA). Its website
address is www.cefa.com. CEFA is solely responsible for the content of its
website.
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DISCLOSURE OF PORTFOLIO HOLDINGS TO BROKER-DEALERS
From time to time, brokers with whom the Fund's Adviser, Davis-Dinsmore
Management Company, has a pre-existing relationship may request that the Adviser
disclose Fund portfolio holdings to such broker in advance of the public
disclosure of such portfolio holdings. The Adviser may make such disclosure
under the following conditions: (i) the specific purpose of the disclosure is to
assist the Adviser in identifying potential investment opportunities for the
Funds; (ii) prior to the receipt of non-public portfolio holdings, the broker,
by means of e-mail or other written communication, shall agree to keep the
non-public portfolio holdings confidential and not to use the information for
the broker's own benefit, except in connection with the above described purpose
for which it was disclosed; (iii) the Adviser shall keep written records of its
agreement with each broker to which it distributes nonpublic portfolio holdings;
and (iv) the Adviser will secure a new agreement with a broker any time the
broker directs the nonpublic portfolio holdings to be sent to a new recipient.
PAGE 16
BOARD OF DIRECTORS INTERNET
GORDON F. AHALT www.bancroftfund.com
WILLIAM A. BENTON email:info@bancroftfund.com
ELIZABETH C. BOGAN
THOMAS H. DINSMORE, C.F.A.
DONALD M. HALSTED, JR. INVESTMENT ADVISER
DUNCAN O. MCKEE Davis-Dinsmore Management Company
ROBERT J. MCMULLAN 65 Madison Avenue, Morristown, NJ
JANE D. O'KEEFFE (973) 631-1177
NICOLAS W. PLATT
SHAREHOLDER SERVICES AND TRANSFER AGENT
OFFICERS American Stock Transfer & Trust Company
THOMASH. DINSMORE, C.F.A. 59 Maiden Lane
CHAIRMAN OF THE BOARD New York, NY 10038
(800) 937-5449
JANE D. O'KEEFFE www.amstock.com
PRESIDENT
GARY I. LEVINE COMMON STOCK LISTING
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER American Stock Exchange Symbol: BCV
AND SECRETARY
H. TUCKER LAKE, JR. LEGAL COUNSEL
VICE PRESIDENT Ballard Spahr Andrews & Ingersoll LLP
GERMAINE M. ORTIZ
VICE PRESIDENT INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker
MERCEDES A. PIERRE
VICE PRESIDENT, CHIEF COMPLIANCE OFFICER
AND ASSISTANT TREASURER
JOSHUA P. LAKE, C.T.P.
TREASURER AND ASSISTANT SECRETARY
JESSICA K. LAKE
ASSISTANT VICE PRESIDENT
JOANN VENEZIA
ASSISTANT VICE PRESIDENT AND ASSISTANT SECRETARY
--------------------------------------------------------------------------------
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase shares of its own Common Stock
from time to time, at such times, and in such amounts, as may be deemed
advantageous to the Fund. Nothing herein shall be considered a commitment to
purchase such shares.
BANCROFT CONVERTIBLE FUND, INC.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.bancroftfund.com
[LOGO]
AMERICAN
STOCK EXCHANGE
--------------
LISTED
--------------
BCV
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this semi-annual report.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers is included as
part of the report to shareholders, filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual report.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not currently applicable to registrant.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
During the period covered by this report, there were no purchases made by or
on behalf of Bancroft Convertible Fund, Inc. or any "affiliated purchaser," as
defined in Rule 10b-18(a)(3) under the Exchange Act(17 CFR 240.10b-18(a)(3)),
of shares or other units of any class of the registrant's equity securities
that is registered by the registrant pursuant to Section 12 of the Exchange
Act (15 U.S.C. 781).
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no changes to the procedures by which shareholders may recommend
nominees to the registrant's board of directors, after the registrant last
provided disclosure in response to the requirements of this item.
ITEM 11. CONTROLS AND PROCEDURES
Conclusions of principal officers concerning controls and procedures
(a) As of June 16, 2005, an evaluation was performed under the supervision
and with the participation of the officers of Bancroft Convertible Fund, Inc.
(the "Registrant"), including the Principal Executive Officer ("PEO") and
Principal Financial Officer ("PFO"), to assess the effectiveness of the
Registrant's disclosure controls and procedures, as that term is defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "Act").
Based on that evaluation, the Registrant's officers, including the PEO and PFO,
concluded that, as of June 16, 2005, the Registrant's disclosure controls
and procedures were reasonably designed so as to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR and Form N-Q is
recorded, processed, summarized and reported within the time periods specified
by the rules and forms of the Securities and Exchange Commission; and (2) that
material information relating to the Registrant is made known to the PEO and
PFO as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of
1940) that occurred during the Registrant's second fiscal quarter of the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) The code of ethics disclosure required by Item 2 is not applicable to
this semi-annual report.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940, are attached hereto.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940, are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Bancroft Convertible Fund, Inc.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: July 6, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: July 6, 2005
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: July 6, 2005