<PAGE> 1
[LOGO]
BANCROFT CONVERTIBLE FUND, INC.
1996 ANNUAL REPORT
OCTOBER 31, 1996
<PAGE> 2
1996 ANNUAL REPORT
OCTOBER 31, 1996
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 COMPANY CONSIDERS TO
BE RELATIVELY EQUAL DUE TO THE NATURE OF THE SECURITIES IN WHICH IT
INVESTS.
HIGHLIGHTS
The Company
<TABLE>
<S> <C>
Began the period with net assets of ............................... $71,425,036
Earned net investment income of ................................... 2,996,655
Realized net capital gains from investment transactions of ........ 6,807,244
Had net unrealized appreciation of investments of ................. 5,451,699
Increased capital from capital share transactions ................. 1,745,225
-----------
88,425,859
Paid dividends on common stock:
from net investment income ...................................... 3,251,738
from net realized gains on investment transactions .............. 1,871,807
-----------
Ended the period with net assets of ............................... $83,302,314
===========
Common shares outstanding at end of period ........................ 2,950,343
The Common Shareholders
Began the period with each share owned having net asset value of... $ 24.84
Earned net investment income per share of ......................... .96
Net realized and unrealized gain on investments of ................ 4.19
-----------
29.99
Received dividends on each share:*
from net investment income ...................................... 1.11
from net realized gains on investment transactions .............. 0.65
-----------
Ended the period with each share owned having net asset value of .. $ 28.23
===========
</TABLE>
*Does not include dividend of $2.49 per share to be paid in December, 1996.
<PAGE> 3
BANCROFT CONVERTIBLE FUND, INC.
To Our Shareholders:
December 10, 1996
Fiscal year 1996 was a year of change and achievement at Bancroft Convertible
Fund, Inc. The death of our Chairman and founder, Ronald E. Dinsmore, in August
marked the end of an era. Ron was a pioneer in the use of convertible
securities, and his experience will be missed. We are happy he was able to
celebrate the Fund's twenty-fifth anniversary in April.
The stock market has had another tremendous run-up in price reflecting the
strong overall flow of money into the stock market from people saving for
retirement or college educations. It is less attractive at these levels than it
was, but the bond market, with thirty-year US Treasury bonds yielding 6 1/2%, is
still attractive. Given that we still believe our economy is becoming more
efficient due to technological change and that there are still many investments
with excellent potential, we are following a strategy of adding short maturity
convertible bonds to the portfolio. These issues may have lower yields but they
also should be less volatile due to the proximity of the maturity date.
As readers of these letters know, Bancroft has been covered by Morningstar,
Inc.* in its Closed-End Funds publication. Unfortunately, starting in November
1996, Morningstar ceased publishing this report. We at Bancroft have been proud
to see the rating of the Fund improve from three stars to four stars (out of a
possible five) over the past few years. In its last report on the Fund,
Morningstar gave Bancroft four stars for three-year, five-year, ten-year and
overall performance. They also gauged the Fund's historical return profile as
'above average' and its historical risk profile as 'below average' (meaning
lower risk). While these measures of past risk and reward provide no guarantees
of future performance we thought you should know how the Fund's history has been
reported.
We have determined that the Fund's net asset value (NAV) rose 4.51%. 17.23%,
93.05% and 179.45% for the three-month, one-year, five-year and ten-year periods
ended September 30, 1996 (assuming all dividends reinvested at NAV). The value
of the Fund's shares rose 3.40%, 16.50%, 92.13% and 145.17%** for those
three-month, one-year, five-year and ten-year periods (assuming all dividends
reinvested at actual reinvestment price). As quoted in Barron's, Lipper
Analytical Service reported that the average open-end convertible fund's NAV+
rose 3.04%, 12.92%, 82.69% and 158.65% for those same periods (also assuming all
dividends reinvested).
The passing of our Chairman and founder in August set in motion a number of
changes. The Board of Directors named as the new Chairman, longtime President of
the company Thomas H. Dinsmore. Jane D. O'Keeffe was named as the new President,
and Duncan O. McKee agreed to return to the Board of Directors to fill the Board
vacancy. With the change in ownership and control of the management company, the
Fund was required by law to submit the management contract to shareholders for
their approval within a limited period of time. This required that a special
meeting of shareholders be held.
This special meeting was held on October 25, 1996 at which the shareholders
approved the contract with Davis-Dinsmore Management Company. We thank you for
your support and consideration.
At its November meeting, the Board of Directors declared a $2.49 dividend.
This dividend will be payable on December 30, 1996 to shareholders of record
December 5, 1996. It will consist of $.18 cents per share from net investment
income, $.423 cents per share from short-term capital gains and $1.887 per share
from long-term capital gains.
The 1997 annual meeting will be held at the Parsippany Hilton in Parsippany,
New Jersey on February 3, 1997 at 11:00 a.m. All shareholders are welcome to
attend.
Bancroft, its sister fund Ellsworth Convertible Growth and Income Fund, Inc.
and their adviser Davis-Dinsmore have opened a page on the Internet. The address
appears on page 10 of this report. The easiest and most interesting route to
access these pages is through the American Stock Exchange website at
www.amex.com.
[SIGNATURE]
Chairman of the Board
** Morningstar is an independent statistical service that rates mutual funds.
** Assumes full exercise of rights issued in 1988.
*+ Average NAV of the forty-two open-end convertible funds followed by Lipper
Analytical Services, Inc., an independent statistical service.
<PAGE> 4
BANCROFT CONVERTIBLE FUND, INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
- --------- ---------- -----------
<S> <C> <C>
ADVERTISING -- 3.0%
28,243 shs Omnicom Group, Inc. common stock............................................. $ 807,425 $ 1,405,089
$1,025,000 Interpublic Group Cos., Inc. 3 3/4% 2002 Euro. cv. sub. deb.................. 889,780 1,090,343
---------- -----------
1,697,205 2,495,432
---------- -----------
AEROSPACE -- 3.8%
44,104 shs Orbital Sciences Corp. common stock.......................................... 823,024 926,184
2,000,000 Morgan Stanley Group, Inc. 0% 2000 medium-term exch. notes................... 1,852,306 2,205,000
(exch. for Boeing Company common stock) ---------- -----------
2,675,330 3,131,184
---------- -----------
AUTOMOTIVE -- 3.1%
48,981 shs Ford Motor Co. common stock.................................................. 751,931 1,530,656
1,000,000 Pep Boys 4% 1999 cv. sub. notes.............................................. 1,035,000 1,060,000
---------- -----------
1,786,931 2,590,656
---------- -----------
BANKING -- 13.4%
32,472 shs Barnett Banks, Inc. common stock............................................. 511,502 1,237,995
32,500 shs Boatmens Bancshares, Inc. depositary shares.................................. 1,087,588 1,694,063
(representing 7% cum. cv. A pfd.)
15,375 shs Chase Manhattan Corp. common stock........................................... 663,097 1,318,406
25,000 shs First Commerce Corp. 7 1/4% cum. cv. pfd..................................... 671,250 1,034,375
30,530 shs National City Corp. common stock............................................. 769,153 1,324,239
15,000 shs ONBANCorp, Inc. 6 3/4% cv. B pfd............................................. 379,375 431,250
10,000 shs Washington Mutual Savings Bank $6.00 cv. perpetual D pfd..................... 967,500 1,672,500
1,000,000 BankAtlantic Bancorp 6 3/4% 2006 cv. sub. deb................................ 1,000,000 1,100,000
15,000 Jefferson-Pilot Corp. 7 1/4% 2000 Automatic Common Exchange Securities....... 1,090,250 1,331,250
---------- -----------
7,139,715 11,144,078
---------- -----------
CAPITAL GOODS -- 9.2%
70,000 shs Westinghouse Electric Corp. depositary shares................................ 981,950 1,146,250
(representing $1.30 cv. C pfd.)
1,067,000 Cooper Industries, Inc. 7.05% 2015 cv. sub. deb.............................. 1,150,559 1,131,020
1,000,000 CS First Boston, Inc. 3 1/2% 2001 sr. medium-term exch. notes*............... 1,000,000 1,077,500
(exch. for General Electric Corp. common stock)
2,250,000 General Signal Corp. 5 3/4% 2002 cv. sub. notes.............................. 2,304,375 2,480,625
1,750,000 Robbins & Myers, Inc. 6 1/2% 2003 cv. sub. notes............................. 1,750,000 1,820,000
---------- -----------
7,186,884 7,655,395
---------- -----------
COMMUNICATIONS -- 3.7%
336 shs MFS Communications Co., Inc. common stock.................................... 13,860 16,842
15,000 shs MFS Communications Co., Inc. depositary shares............................... 502,500 1,301,250
(representing 8% cum. cv. A pfd.)
1,200,000 Comcast Cellular Corp. 0% 2000 senior participating zero coupon
redeemable series A notes.................................................... 812,440 846,000
25,000 Sprint Corp. 8 1/4% 2000 FCENS#.............................................. 815,788 887,500
(exch. for Southern New England Telecommunications Corp. common stock) ---------- -----------
2,144,588 3,051,592
---------- -----------
DATA-PROCESSING SERVICES -- 4.0%
1,000,000 CS First Boston, Inc. 3% 2001 sr. medium-term exch. notes*................... 1,000,000 932,500
(exch. for Electronic Data Systems Corp. common stock)
1,000,000 First Financial Management Corp. 5% 1999 cv. sub. deb........................ 1,000,000 1,880,000
(exch. for First Data Corp. common stock)
500,000 National Data Corp. 5% 2003 cv. sub. notes.................................... 500,000 500,000
---------- -----------
2,500,000 3,312,500
---------- -----------
ENERGY -- 9.1%
30,389 shs AES Corp. common stock....................................................... 871,265 1,333,317
41,000 shs Chieftain International Funding Corp. 7 1/4% cv. red. pfd.................... 1,107,270 1,224,875
10,000 shs Devon Financing Trust 6 1/2% trust cv. pfd.*................................. 507,500 653,750
(conv. into Devon Energy Corp. common stock)
12,500 shs Unocal Capital Trust 6 1/4% trust cv. pfd.................................... 679,688 668,750
1,375,000 Nabors Industries, Inc. 5% 2006 cv. sub. notes............................... 1,429,250 1,564,063
1,000,000 Pennzoil Company 4 3/4% 2003 exch. sr. deb................................... 1,032,500 1,165,000
(exch. for Chevron Corp. common stock)
600,000 Pennzoil Company 6 1/2% 2003 exch. sr. deb................................... 668,719 942,000
(exch. for Chevron Corp. common stock) ---------- -----------
6,296,192 7,551,755
---------- -----------
</TABLE>
See accompanying notes to financial statements.
(2)
<PAGE> 5
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
- --------- ---------- -----------
<S> <C> <C>
ENTERTAINMENT -- 6.2%
7,500 shs American Radio Systems Corp. depositary shares................................. $ 375,000 $ 367,500
(representing 7% cv. exch. pfd.)*
50,000 shs Hollinger International, Inc. depositary shares................................ 489,813 600,000
(representing 9 3/4% cv. B pfd.)
8,000 shs SFX Broadcasting, Inc. 6 1/2% cum. cv. exch. D pfd*............................ 406,750 443,000
50,000 shs Triathlon Broadcasting Co. depositary shares................................... 525,000 500,000
(representing 9% mandatory cv. pfd.)
$1,000,000 Credit Suisse 3% 2001 equity linked certificates............................... 1,000,000 1,012,500
(exch. for the cash equivalent of Walt Disney Co. common stock)
1,000,000 Imax Corp. 5 3/4% 2003 cv. sub. notes*......................................... 1,000,000 982,500
750,000 International CableTel, Inc. 7% 2008 cv. sub. notes*........................... 750,000 663,750
600,000 International CableTel, Inc. 7 1/4% 2005 cv. sub. notes*....................... 600,000 622,500
---------- -----------
5,146,563 5,191,750
---------- -----------
ENVIRONMENTAL SERVICES -- 0.7%
500,000 United Waste Systems, Inc. 4 1/2% 2001 cv. sub. notes*......................... 500,000 606,250
---------- -----------
FINANCIAL & INSURANCE -- 11.4%
15,000 shs American Bankers Insurance Group, Inc. series B cum. cv. pfd................... 751,250 860,625
30,000 shs American General Delaware, LLC 6% cv. A monthly income preferred securities.... 1,515,875 1,567,500
12,500 shs Frontier Financing Trust 6 1/4% cv. trust originated pfd.*..................... 631,250 668,750
(conv. into Frontier Insurance Group, Inc. common stock)
250,000 American Travellers Corp. 6 1/2% 2005 cv. sub. deb............................. 250,000 576,250
1,300,000 Chubb Capital Corp. 6% 1998 Euro. cv. sub. deb................................. 1,324,500 1,506,375
851,000 First Central Financial Corp. 9% 2000 cv. sub. deb............................. 862,625 825,470
1,800,000 Pioneer Financial Services, Inc. 6 1/2% 2003 cv. sub. notes.................... 1,813,563 1,872,000
500,000 RLI Corp. 6% 2003 cv. sub. deb................................................. 527,500 560,000
35,000 US West, Inc. 7 5/8% 1998 FCENS#............................................... 840,000 1,080,625
(exch. for Enhance Financial Services Group, Inc. common stock) ---------- -----------
8,516,563 9,517,595
---------- -----------
FOODS -- 2.0%
10,000 shs Wendy's Financing, Inc. 5% cv. A pfd........................................... 508,888 508,750
(conv. into Wendy's International, Inc. common stock)
1,000,000 Grand Metropolitan Public Limited Co. 6 1/2% 2000 cv. sub. deb.*............... 1,000,000 1,170,000
---------- -----------
1,508,888 1,678,750
---------- -----------
HEALTH CARE & DRUGS -- 9.2%
1,550,000 Ciba Geigy Corp. 6 1/4% 2016 exch. sub. deb.*.................................. 1,550,500 1,565,500
(exch. for ALZA Corp. common stock)
500,000 Complete Management, Inc. 8% 2003 cv. sub. deb................................. 500,000 577,500
1,000,000 Medco Containment Service, Inc. 6% 2001 cv. sub. deb........................... 1,324,063 2,362,500
1,200,000 Morgan Stanley Group, Inc. 0% 2001 medium-term exchangeable notes.............. 1,029,913 1,048,500
(exch. for ADR's representing SmithKline Beecham plc common stock)
3,500,000 Roche Holdings, Inc. 0% 2010 liquid yield option notes*........................ 1,432,831 1,566,250
500,000 Sandoz Capital BVI Ltd. 2% 2002 cv. sub. notes*................................ 526,250 553,125
---------- -----------
6,363,557 7,673,375
---------- -----------
HOTEL SERVICES -- 2.4%
250,000 HFS, Inc. 4 3/4% 2003 cv. senior notes......................................... 250,000 323,125
1,500,000 Hilton Hotels Corp. 5% 2006 cv. sub. notes..................................... 1,522,500 1,668,750
---------- -----------
1,772,500 1,991,875
---------- -----------
INDUSTRIAL SERVICES -- 0.8%
750,000 Quantum Health Resources, Inc. 4 3/4% 2000 cv. sub. deb........................ 684,375 691,875
(conv. into Olsten Corp. common stock) ---------- -----------
OFFICE EQUIPMENT -- 1.1%
10,000 shs Alco Standard Corp. depositary shares (representing 6 1/2% cv. BB pfd.)........ 805,513 867,500
---------- -----------
RETAIL -- 3.0%
2,000,000 Home Depot, Inc. 3 1/4% 2001 cv. sub. notes.................................... 2,003,125 2,007,500
500,000 Pier 1 Imports, Inc. 5 3/4% 2003 cv. sub. notes................................ 500,000 502,500
---------- -----------
2,503,125 2,510,000
---------- -----------
</TABLE>
See accompanying notes to financial statements.
(3)
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
- --------- ----------- -----------
<S> <C> <C>
TECHNOLOGY -- 8.5%
$ 600,000 Conner Peripherals, Inc. 6 1/2% 2002 cv. sub. deb.............................. $ 659,000 $ 738,000
475,000 Conner Peripherals, Inc. 6 3/4% 2001 cv. sub. deb.............................. 521,313 532,000
500,000 Emerson Radio Corp. 8 1/2% 2002 sr. cv. sub. deb.*............................. 500,000 350,000
1,000,000 Morgan Stanley Group, Inc. 0% 2001 exch. note trust certificates*.............. 914,290 890,000
(exch. for a basket of common stocks+)
600,000 Motorola, Inc. 0% 2013 liquid yield option notes............................... 512,574 408,000
1,625,000 Thermo Electron Corp. 4 1/4% 2003 cv. sub. deb.*............................... 1,992,800 1,828,125
125,000 Thermo Instruments Corp. 4 1/2% 2003 cv. sub. deb.*............................ 125,000 125,625
200,000 Thermo Optek Corp. 5% 2000 cv. sub. deb.*...................................... 200,000 206,000
125,000 Thermo Quest Corp. 5% 2000 cv. sub. deb.*...................................... 125,000 126,250
250,000 Thermo Terratech, Inc. 4 5/8% 2003 cv. sub. deb.*.............................. 263,750 235,000
500,000 3Com Corp. 10 1/4% 2001 cv. sub. notes*........................................ 692,813 1,037,500
600,000 VLSI Technology, Inc. 8 1/4% 2005 cv. sub. notes............................... 613,750 571,500
----------- -----------
7,120,290 7,048,000
----------- -----------
TRANSPORTATION -- 0.6%
500,000 Mercury Air Group, Inc. 7 3/4% 2006 cv. sub. deb............................... 500,000 511,875
----------- -----------
U.S. TREASURY NOTES -- 0.0%
25,000 6 5/8% 3/31/97**............................................................... 24,980 25,141
----------- -----------
SHORT-TERM NOTES -- 2.8%
1,400,000 American Express Credit Corp. 5 1/4% 11/4/96................................... 1,398,979 1,398,979
1,000,000 U.S. Treasury Bill 5.27% 11/14/96.............................................. 974,318 974,318
----------- -----------
2,373,297 2,373,297
----------- -----------
TOTAL BONDS AND NOTES -- 64.8%................................................................ $48,767,985 $53,943,162
TOTAL PREFERRED STOCKS -- 19.5%............................................................... 12,893,957 16,210,688
TOTAL COMMON STOCKS -- 10.9%.................................................................. 5,211,257 9,092,728
TOTAL CORPORATE SHORT-TERM NOTES -- 2.8%...................................................... 2,373,297 2,373,297
----------- -----------
TOTAL INVESTMENTS -- 98.0%.................................................................... $69,246,496 81,619,875
===========
OTHER ASSETS AND LIABILITIES, NET -- 2.0%..................................................... 1,682,439
-----------
TOTAL NET ASSETS -- 100.0%.................................................................... $83,302,314
===========
</TABLE>
* Rule 144A security, may be sold only to qualified institutional buyers.
# Forced Conversion Exchangeable Notes.
+ Ticker symbols: CSCO, EDS, HWP, INTC, MSFT & ORCL.
** Collateral for a letter of credit.
The cost of investments for federal income tax purposes is $69,246,496 resulting
in gross unrealized appreciation and depreciation of $13,159,438 and $786,059,
respectively, or net unrealized appreciation of $12,373,379 on a tax cost basis.
See accompanying notes to financial statements.
Pursuant to Section 23 of the Investment
Company Act of 1940, notice is hereby given
that the Company may in the future purchase
shares of Bancroft Convertible Fund, Inc.
Common Stock from time to time, at such
times, and in such amounts as may be
deemed advantageous to the Company. Nothing
herein shall be considered a commitment to
purchase such shares.
(4)
<PAGE> 7
BANCROFT CONVERTIBLE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 31,
1996
-----------
<S> <C>
ASSETS:
Investments at value (Identified cost $69,246,496) (Note A) ............. $81,619,875
Cash .................................................................... 61,703
Receivable for securities sold .......................................... 1,542,596
Dividends and interest receivable ....................................... 614,425
Other assets ............................................................ 12,640
-----------
Total assets ....................................................... 83,851,239
-----------
LIABILITIES:
Payable for securities purchased ........................................ 500,000
Accrued management fee (Note B) ......................................... 8,925
Accrued expenses ........................................................ 40,000
-----------
Total liabilities ....................................................... 548,925
-----------
NET ASSETS .......................................................... $83,302,314
===========
NET ASSETS CONSIST OF:
Undistributed net investment income ..................................... $ 524,001
Undistributed net realized gain from investment transactions ............ 6,786,172
Unrealized appreciation on investments .................................. 12,373,379
Capital shares (Note D) ................................................. 29,503
Additional paid-in capital .............................................. 63,589,259
-----------
NET ASSETS .............................................................. $83,302,314
===========
Net asset value per share ($83,302,314 / 2,950,343 outstanding shares) .. $ 28.23
===========
</TABLE>
See accompanying notes to financial statements.
================================================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME (Note A):
Interest ........................................................ $ 2,601,759
Dividends ....................................................... 1,352,481
-----------
Total Income .................................................... 3,954,240
-----------
EXPENSES (Note B):
Management fee .................................................. 583,368
Custodian fees .................................................. 27,899
Transfer agent fees ............................................. 49,798
Professional fees ............................................... 68,616
Directors' fees ................................................. 37,800
Printing and shareholder relations .............................. 106,086
Treasurer's office .............................................. 25,000
Other ........................................................... 59,018
-----------
Total Expenses .............................................. 957,585
-----------
NET INVESTMENT INCOME ........................................... 2,996,655
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions .................. 6,807,244
Net increase in unrealized appreciation of investments .......... 5,451,699
-----------
Net gain on investments ......................................... 12,258,943
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $15,255,598
===========
</TABLE>
See accompanying notes to financial statements.
(5)
<PAGE> 8
BANCROFT CONVERTIBLE FUND, INC.
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................... $ 24.84 $ 23.11 $ 25.00 $ 22.75 $ 21.02
-------- -------- -------- -------- --------
Net investment income ................................. .96 1.14 1.20 1.26 1.35
Net realized and unrealized gain (loss) ............... 4.19 2.30 (1.18) 3.07 1.70
-------- -------- -------- -------- --------
Total from investment operations .................. 5.15 3.44 .02 4.33 3.05
Less distributions:
Dividends from net investment income .................. (1.11) (1.17) (1.24) (1.24) (1.32)
Distributions from realized gains ..................... (.65) (.54) (.67) (.84) --
-------- -------- -------- -------- --------
Total distributions ............................... (1.76) (1.71) (1.91) (2.08) (1.32)
-------- -------- -------- -------- --------
Net asset value, end of year .......................... $ 28.23 $ 24.84 $ 23.11 $ 25.00 $ 22.75
======== ======== ======== ======== ========
Market value, end of year ............................. $ 23.88 $ 22.25 $ 20.13 $ 23.00 $ 20.63
Total investment return:
Based on market value* ............................ 15.65% 20.17% (4.88)% 22.90% 18.35%
Based on net asset value# ......................... 21.55% 15.79% .18% 20.12% 14.87%
Ratios/Supplemental Data:
Net assets, end of year (000's) ....................... $ 83,302 $ 71,425 $ 64,551 $ 67,829 $ 59,436
Ratio of expenses to average net assets ............... 1.2% 1.2% 1.2% 1.2% 1.2%
Ratio of net investment income to average net assets .. 3.9% 4.9% 5.2% 5.4% 6.1%
Portfolio turnover rate ............................... 70% 43% 39% 102% 71%
Average commission rate paid+ ......................... $ 0.07 -- -- -- --
</TABLE>
* Assumes valuation of the Fund's shares at market price, and reinvestment of
dividends at actual reinvestment price.
# Assumes valuation of the Fund's shares, and reinvestment of dividends, at net
asset values.
+ Disclosure required for fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
1996 1995
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,996,655 $ 3,285,250
Net realized gain from investment transactions 6,807,244 1,869,444
Net unrealized appreciation of investments 5,451,699 5,012,325
------------ ------------
Net increase in net assets resulting from operations 15,255,598
10,167,019
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (3,251,738) (3,350,427)
Net realized gain on investments (1,871,807) (1,497,574)
------------ ------------
Total dividends (5,123,545) (4,848,001)
------------ ------------
CAPITAL SHARE TRANSACTIONS (Note D) 1,745,225 1,554,561
------------ ------------
Increase in net assets 11,877,278 6,873,579
NET ASSETS AT BEGINNING OF YEAR 71,425,036 64,551,457
------------ ------------
NET ASSETS AT END OF YEAR (including undistributed net
investment income of $524,001 and $779,084, respectively) $ 83,302,314 $ 71,425,036
============ ============
</TABLE>
See accompanying notes to financial statements.
(6)
<PAGE> 9
BANCROFT CONVERTIBLE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(A) The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, closed-end management investment company. The 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:
1. Security Valuation
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price. Securities traded in the
over-the-counter market and listed securities for which no sales were reported
are valued at the mean between reported closing bid and asked prices. Where no
closing prices are available, value is determined by management, with the
approval of the Board of Directors.
2. Securities Transactions and Related Investment Income
Security transactions are accounted for on the trade date 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. Interest of $15,417 was earned on cash balances held by the
custodian of the Fund's assets during the year ended October 31, 1996.
3. Federal Taxes
It is the policy of the Fund to distribute substantially all of its taxable
income within the prescribed time and to otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies.
Therefore, no provision for federal income or excise taxes are believed
necessary.
4. Dividends and Distributions to Shareholders
The liability for dividends and distributions payable is recorded on the
ex-dividend date.
(B) The management fee is paid to Davis-Dinsmore Management Company, investment
adviser. The contract provides for payment of a monthly advisory fee, computed
at an annual rate of 3/4 of 1% of the first $100,000,000 and 1/2 of 1% of the
excess over $100,000,000 of the Fund's net asset value in such month. The annual
fee is subject to reduction to the extent that the ordinary expenses of the Fund
(excluding taxes and interest) exceed 1.5% of the first $100,000,000 and 1% of
the excess over $100,000,000 of the average of the monthly net asset values of
the Fund for the year.
The adviser's organization furnishes investment advice, office equipment and
facilities, and pays the salaries of all executive officers of the Fund, except
that the costs associated with personnel and certain non-personnel expenses of
the office of the Treasurer up to a maximum of $50,000 a year are reimbursed by
the Fund. Such reimbursements amounted to $25,000 for the year ended October 31,
1996. The officers of the Fund are also directors, officers or employees of the
investment adviser, and are compensated by the investment adviser.
(C) Purchases and sales of investments, exclusive of corporate short-term notes
and government securities, aggregated $51,756,925 and $50,436,939 respectively,
for the year ended October 31, 1996. Sales of government securities aggregated
$950,499 for the year then ended.
(D) At October 31, 1996 there were 2,950,343 shares of $.01 par value common
stock outstanding (9,000,000 shares authorized). During the year ended October
31, 1996, 75,063 shares were issued in connection with reinvestment of dividends
from net investment income and capital gains, resulting in an increase in
paid-in capital of $1,745,225. During the year ended October 31, 1995, 81,819
shares were issued.
(E) Distributions of 18 cents per share from net investment income and $2.31 per
share from realized gains on investments were declared November 25, 1996 to
shareholders of record at the close of business December 5, 1996, payable
December 30, 1996.
(7)
<PAGE> 10
BANCROFT CONVERTIBLE FUND, INC.
TAX STATUS OF DIVIDENDS
(UNAUDITED)
Per share distributions to shareholders during the fiscal year ended October 31,
1996:
<TABLE>
<CAPTION>
TOTAL ORDINARY LONG-TERM QUALIFYING
PAYMENT DATE PAID INCOME CAPITAL GAIN DISTRIBUTION*
- ------------ ----- -------- ------------ -------------
<S> <C> <C> <C> <C>
December 28, 1995 $ 0.92 $ 0.327 $0.593 41%
March 25, 1996 0.28 0.28 -- 40%
June 24, 1996 0.28 0.28 -- 40%
September 23, 1996 0.28 0.28 -- 40%
------ ------- ------
$ 1.76 $ 1.167 $0.593
</TABLE>
* The percentages set forth above indicate the portion of each ordinary income
distribution which qualifies under the Internal Revenue Code for the
deduction for dividends received by corporate shareholders.
================================================================================
PRINCIPAL PORTFOLIO CHANGES AUGUST 1 TO OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OR PRINCIPAL AMOUNT
HELD AT
ADDITIONS REDUCTIONS 10-31-96
--------- ---------- ---------
<S> <C> <C> <C>
American Travellers Corp. 6 1/2% 2005 cv. sub. deb .............................. 250,000 250,000
Ciba Geigy 6 1/4% 2016 exch. sub. deb. 144A ..................................... 550,000 1,550,000
Comcast Corp. 3 3/8% 2005 cv. sub. deb .......................................... 975,000 --
Conner Peripherals, Inc. 6 1/2% 2002 cv. sub. deb ............................... 1,000,000 600,000
Credit Suisse 3% 2001 equity linked certificates ................................ 1,000,000 1,000,000
CS First Boston, Inc. 2 1/2% 2001 sr. medium term exch. notes 144A .............. 1,000,000 --
Delta Airlines, Inc. common stock ............................................... 9,506 --
Frontier Financing Trust 6 1/4% cv. trust originated pfd. 144A .................. 12,500 12,500
Hilton Hotels Corp. 5% 2006 cv. sub. notes ...................................... 500,000 1,500,000
Hollinger International, Inc. depositary shares representing 9 3/4% cv. B pfd ... 50,000 50,000
Home Depot, Inc. 3 1/4% 2001 cv. sub. notes ..................................... 2,000,000 2,000,000
Morgan Stanley Group, Inc. 0% 2001 exch. note trust certificates 144A ........... 1,000,000 1,000,000
National Data Corp. 5% 2003 cv. sub. notes ...................................... 500,000 500,000
Omnicom Group, Inc. 4 1/2% 2000 cv. sub. deb. 144A .............................. 700,000 --
Pep Boys 4% 1999 cv. sub. notes ................................................ 1,000,000 1,000,000
Pier 1 Imports, Inc. 5 3/4% 2003 cv. sub. notes ................................. 500,000 500,000
Quintiles Transnational Corp. 4 1/4% 2000 cv sub. deb. 144A ..................... 500,000 --
RLI Corp. 6% 2003 cv. sub. deb .................................................. 500,000 500,000
Robbins & Myers, Inc. 6 1/2% 2003 cv. sub. notes ................................ 1,750,000 1,750,000
Unocal Capital Trust 6 1/4% trust cv. pfd ....................................... 12,500 12,500
US West, Inc. 7 5/8% 1998 exch. notes ........................................... 20,000 35,000
Washington Mutual Savings Bank $6.00 cv perpetual D pfd ......................... 5,000 10,000
Wendy's Financing, Inc. 5% cv. A pfd ............................................ 10,000 10,000
</TABLE>
(8)
<PAGE> 11
BANCROFT CONVERTIBLE FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Bancroft Convertible Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Bancroft Convertible Fund, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 1996, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Bancroft Convertible Fund, Inc. as of October 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
November 19, 1996
(9)
<PAGE> 12
BANCROFT CONVERTIBLE FUND, INC.
ADDITIONAL SERVICES AVAILABLE TO SHAREHOLDERS
OF
BANCROFT CONVERTIBLE FUND, INC.
AUTOMATIC DIVIDEND INVESTMENT PLAN You may wish to participate in our
Automatic Dividend Investment Plan whereby all of the dividends and
distributions on your Bancroft shares are automatically invested in
additional shares of the Company's stock at the then current market price or
net asset value, whichever is lower. When the market price is lower than net
asset value, the Bank, as your agent, will take your dividends or
distributions in cash, combine them with those of other Plan participants,
and purchase shares in the market and thereby take advantage of the lower
commissions on larger purchases. There is no other charge for this service.
To join the Plan, fill out and mail the authorization form on the next page.
CASH PAYMENT PLAN Members of the Dividend Investment Plan may also wish to
participate in our Cash Payment Plan which provides a convenient and
economical means to increase your investment in the Company's shares. The
Cash Payment Plan, for which Mellon Securities Trust Company (the "Bank")
acts as your agent, permits you to send cash payments of between $25 to
$5,000 per month to the Bank, which will be aggregated with the funds of
other participants, to purchase additional Bancroft shares. You pay only a
service charge (5% of the amount to be invested with a maximum of $3.00 per
transaction) plus your proportionate share of the brokerage commission which
is typically at a savings because your funds are combined with others to
take advantage of the reduced commission on larger purchases.
================================================================================
INVESTMENT ADVISER:
Davis-Dinsmore Management Company
65 Madison Avenue
Morristown, NJ 07960
(201) 631-1177
CUSTODIAN:
The Bank of New York
TRANSFER AGENT, REGISTRAR AND
SHAREHOLDER SERVICES:
ChaseMellon Shareholder Services, L.L.C.
P.O. Box 590
Ridgefield Park, NJ 07660
1-800-851-9677
COMMON STOCK LISTING:
American Stock Exchange
Symbol: BCV
INTERNET:
http://ourworld.compuserve.com/homepages/dinsmore
e-mail: [email protected]
(10)
<PAGE> 13
BANCROFT CONVERTIBLE FUND, INC.
AUTOMATIC DIVIDEND INVESTMENT PLAN
AUTHORIZATION FORM
c/o ChaseMellon Shareholder Services
Shareholder Investment Services
P.O. Box 750
Pittsburgh, PA 15230-0750
Dear Sirs:
I hold stock certificates, registered in my name, for . . . . . . . . . .
shares of Common Stock of Bancroft Convertible Fund, Inc. (the "Company").
I wish to invest all the dividends and distributions paid by the Company on my
shares automatically in additional shares from the date hereof until this
arrangement is terminated as stated below.
AUTHORIZATION
You are authorized to act as my agent as follows:
A. Establish an Account in my name.
B. Take into my Account all dividends and distributions paid by the Company on
all its Common Stock held in my name now or in the future and on all additional
shares of the Company (including fractions) held by you in my Account.
C. Whenever the Company declares a dividend or distribution payable in cash
or, at the option all its shareholders, in Common Stock of the Company at market
price or net asset value, whichever is lower, take the dividend or distribution
in Common Stock.
D. Whenever the Company declares a dividend or distribution payable in cash
or, at the option of the shareholders for whom you act as agent under the Plan,
in the Company's Common Stock at net asset value, take the dividend or
distribution in Common Stock if the net asset value as determined by the Company
as of the close of business on the last trading day preceding the date of
payment is lower then (1) the asked price of the Company's Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau, if the
Common Stock is not listed on a national securities exchange, or (2) the closing
market price of the Common Stock on a national securities exchange, on that
trading day, plus brokerage commissions, if the Company's Common Stock is listed
on such exchange. If the market price is lower, take the dividend or
distribution in cash and add it to my Account.
E. As soon as practicable after each cash payment is made to my Account, use
the funds in my Account to buy in the over-the-counter market or on a national
securities exchange, as the case may be, as many additional full shares of the
Company's Common Stock as possible, plus a fractional interest in one share
computed to four decimal places.
F. You may mingle the cash in my Account with similar funds of other
shareholders of the Company for whom you act as agent under the Plan. The cost
of the shares and fractional interest you buy for my Account in connection with
a particular dividend or distribution shall be determined by the average cost
per share, including brokerage commission, of all shares bought by you for all
shareholders for whom you act under the Plan in connection with that dividend or
distribution.
G. Whenever you receive or purchase shares or fractional interests for my
Account, you will send me confirmation of the transaction as soon as
practicable. You will hold such shares and fractional interests as my agent in
your name or the name of your nominee. Do not send me stock certificates for
full shares until I so request in writing or until my Account is terminated as
stated below. You will vote any shares so held for me in accordance with any
proxy returned to the Company by me in respect of the shares of which I am a
record owner.
H. I understand that there is presently no service charge for your serving as
my agent and maintaining my Account. You may, however, charge me for extra
services performed at my request. I further understand that the Company reserves
the right to amend the Plan in the future to impose a service charge. You will
be liable only for willful misconduct or gross negligence in acting as my agent
under the Plan.
(11)
<PAGE> 14
BANCROFT CONVERTIBLE FUND, INC.
NAME AND ADDRESS
My name as shown on my Common Stock certificate or certificates (including all
names if more than one) and my address, are as follows:
PLEASE PRINT:
NAME OR NAMES ...............................................................
NUMBER AND STREET ...........................................................
CITY, STATE AND ZIP CODE ....................................................
STOCK CERTIFICATES
I understand that if I hold more than one Common Stock certificate registered
in similar but not identical names or if more than one address is shown for me
on the Company's Common Stock records, all my shares of Common Stock must be put
into the same name and address prior to signing this authorization if all of
them are to be covered by one Account. I understand that additional shares
subsequently acquired by me otherwise than through the Plan will be covered by
my Account if and when they are registered in the same name and address as the
shares in my Account.
INCOME TAX
I understand that participation in the Plan for automatic investment of
dividends and distributions does not relieve me of any income tax which may be
payable by me on such dividends and distributions.
AMENDMENTS AND CHANGE OF AGENT
I understand that the Company may amend the terms of the Plan and reserves the
right to change the agent which acts for all participants in the Plan at any
time by giving written notice thereof to each participant at his address as
shown on your records. Any such change shall be effective as to all dividends
and distributions payable to shareholders of record on any date more than 30
days after mailing of such notice. Further, I understand that the Company in
connection with any dividend or distribution will change the price at which
shares of its Common Stock are issued to participants in the Plan if the net
asset value of the shares is less than 95% of the fair market value of such
shares on the last trading day preceding the payment date of any distribution of
net investment income or net capital gain, unless the Board obtains a legal
opinion from independent counsel that the purchase of shares at net asset value
under these circumstances will not have a material adverse effect upon the
federal income tax liability of the Company. The Board may not authorize
issuance of shares offered to Plan participants only, if such issuance is at a
price less than net asset value, without the prior specific approval of the
Company's stockholders or of the Securities and Exchange Commission.
TERMINATION
I may terminate this authorization and my Account at any time by delivering
written notice to you, such termination to be effective as to all dividends and
distributions payable to shareholders of record on any date more than 15 days
after receipt of such notice by you. I understand that you or the Company may
terminate all authorizations for any reason at any time by sending written
notice addressed to participants at their addresses as shown on your records,
such termination to be effective as to all dividends and distributions payable
to shareholders of record on any date more than 30 days after mailing of such
notice. I understand you will terminate my Account if you are informed of the
transfer of all shares of the Company's Common Stock registered in my name.
Following the date of termination, you shall send me at my address shown on your
records a stock certificate or certificates for the full shares held by you in
my Account and a check for the value of any fractional interest in my Account
based on the market price of the Company's Common Stock on that date.
Date: .................................................................
Signature: ............................................................
Note: If shares are in more than one name, all must sign.
(12)
<PAGE> 15
BANCROFT CONVERTIBLE FUND, INC.
DIRECTORS
GORDON F. AHALT President
G.F.A., Inc.
WILLIAM A. BENTON Retired Stock Exchange Specialist
ELIZABETH C. BOGAN Senior Lecturer in Economics
Princeton University
THOMAS H. DINSMORE, C.F.A. Chairman of the Board
JANE D. O'KEEFFE President
DONALD M. HALSTED, JR. Investor
GEORGE R. LIEBERMAN Retired Advertising Executive
DIRECTOR EMERITUS
DUNCAN O. MCKEE
OFFICERS
THOMAS H. DINSMORE Chairman of the Board
JANE D. O'KEEFFE President
SIGMUND LEVINE Senior Vice President and
Secretary
H. TUCKER LAKE Vice President, Trading
GARY I. LEVINE Treasurer and
Assistant Secretary
