<PAGE> 1
[LOGO]
FPO
Bancroft Convertible Fund, Inc.
1997 Annual Report
October 31, 1997
<PAGE> 2
1997 Annual Report
October 31, 1997
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
<TABLE>
THE COMPANY
<S> <C>
Began the period with net assets of ............................ $ 83,302,314
Earned net investment income of ................................ 2,955,432
Realized net capital gains from investment transactions of ..... 11,286,484
Had net unrealized appreciation of investments of .............. 3,620,296
Increased capital from capital share transactions .............. 4,736,186
------------
105,900,712
Paid dividends on common stock:
from net investment income ................................... 2,898,260
from net realized gains on investment transactions ........... 6,815,292
------------
Ended the period with net assets of ............................ $ 96,187,160
============
Common shares outstanding at end of period ..................... 3,156,263
THE COMMON SHAREHOLDERS
Began the period with each share owned having net asset value of $ 28.23
Earned net investment income per share of ...................... .94
Net realized and unrealized gain on investments of ............. 4.55
------------
33.72
Received dividends on each share:*
from net investment income ................................... 0.93
from net realized gains on investment transactions ........... 2.31
------------
Ended the period with each share owned having net asset value of $ 30.48
============
</TABLE>
*Does not include dividend of $3.756 per share to be paid in December, 1997.
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase shares of Bancroft Convertible
Fund, Inc. Common Stock from time to time, at such times, and in such amounts,
as may be deemed advantageous to the Fund. Nothing herein shall be considered a
commitment to purchase such shares.
<PAGE> 3
BANCROFT CONVERTIBLE FUND, INC.
TO OUR SHAREHOLDERS:
December 10, 1997
The world's financial markets have been transformed over the last decade. The
Information Revolution and the fall of Communism have contributed to a truly
global system of information and money flows that can be distributed virtually
anywhere with the turning of a switch. Unfortunately, many developing nations
and even some developed nations have entered the global financial markets with
banking systems or currencies that have not been transformed to meet the new
standards required by such a system. With few restrictions, capital can flow
almost anywhere instantaneously. When a distant banking system or foreign
exchange market does not respond appropriately to the requirements of the
market, the local economy can suffer, as capital can be pulled out quickly. This
is what has happened in many Asian markets as many local technocrats sought to
maintain currency prices that should have been adjusted. The effects of these
local dislocations can now be felt in most of the world's financial markets as
several major Asian equity markets have fallen and do not appear to be getting
up quickly.
If you are going to London be prepared for drizzle and fog. If you are
going to invest in stocks, be prepared for stock prices to go up and down; for
that is exactly what they have done since our last letter in September. At that
time, the NASDAQ composite index was near 1650; it is currently near 1600 after
rising to 1745 and then falling below 1550 twice. It is currently up over 24%
for calendar 1997 to date. In the past this kind of increase in volatility often
presaged an important market top. Is this a prelude to a Bear market?
The Bull market has been driven for the last three years by several
important factors which include declining interest rates and accelerating
earnings growth. Interest rates have fallen in the last year in the face of
predictions that they would rise. Earnings have continued to grow in excess of
their historical norms. It appears as if both of these factors may have run
their course. Long-term interest rates have bounced off of 6% and may not break
below that level and earnings growth appears to be slowing. If these indicators
prove out, then the returns from U.S. equity markets are unlikely to match those
of the last few years. However, given that inflation is under control, that
monetary policy has not been restrictive, that earnings growth, while slower,
should still be higher than the norm (due to continuing productivity gains) and
interest rates should not rise significantly, we are still optimistic going
forward that equities should provide a return higher than that of most other
financial assets but perhaps more in line with the historical average returns of
9 to 10%.
We have determined that the Fund's net asset value (NAV) rose 8.56%,
26.98%, 110.51% and 212.10% for the three-month, one-year, five-year and
ten-year periods ended September 30, 1997 (assuming all dividends reinvested at
NAV). The value of the Fund's shares rose 13.11%, 35.37%, 117.97% and 250.72%
for those same three-month, one-year, five-year and ten-year periods (assuming
dividends reinvested at actual reinvestment price)*. As quoted in Barron's,
Lipper Analytical Services reported that the average open-end convertible fund's
NAV** rose 8.48%, 24.03%, 94.99% and 191.69% for those same periods (also
assuming all dividends reinvested).
At its November meeting, the Board of Directors declared a dividend of
$3.756. This dividend consists of 18.5 cents from net investment income, 65.6
cents from short-term capital gains and $2.915 from long-term capital gains (of
which approximately $1.86 is taxable at a 28% rate and $1.055 at a 20% rate;
please wait for your Form 1099 in January for exact numbers). The dividend is
payable December 30, 1997 to shareholders of record December 1, 1997.
The 1998 annual meeting will be held in the offices of Davis-Dinsmore
Management Company in Morristown, NJ on February 23, 1998 at 12 noon. All
shareholders are welcome to attend.
/s/Thomas H. Dinsmore
Chairman of the Board
* Assumes full exercise of rights issued in 1988.
** Average NAV of the fifty-eight open-end convertible funds followed by
Lipper Analytical Services, Inc., an independent statistical service.
Important Factors Regarding Forward-Looking Statements
Information contained within the letter to Shareholders constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company believes its expectations
are based on reasonable assumptions, the Company's actual results could differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include, among others, lack of availability of
convertible securities with characteristics that are most attractive to the
Company, changes in the Federal Reserve Board's monetary policy, changes to
foreign and domestic markets in general or changes to the market for convertible
securities.
(1)
<PAGE> 4
BANCROFT CONVERTIBLE FUND, INC.
PORTFOLIO OF INVESTMENTS OCTOBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
--------- ----------- -----------
ADVERTISING -- 0.4%
<S> <C> <C>
$ 500,000 Interpublic Group Cos., Inc. 1.80% 2004 cv. sub. deb.* (Aa)..... $ 401,785 $ 409,375
----------- -----------
AEROSPACE -- 3.7%
1,500,000 Morgan Stanley Dean Witter Discover & Co. 0% 2000 medium-term
exch. notes (A1).............................................. 1,417,924 1,711,875
(exch.for Boeing Company common stock)
350,000 Orbital Sciences Corp. 5% 2002 cv. sub. notes* (NR)............. 350,000 389,375
750,000 Simula, Inc. 8% 2004 sr. cv. sub. notes (NR).................... 750,000 825,000
625,000 SPACEHAB, Inc. 8% 2007 cv. sub. notes* (NR)..................... 626,250 628,125
----------- -----------
3,144,174 3,554,375
----------- -----------
AUTOMOTIVE -- 1.3%
750,000 Mark IV Industries, Inc. 4 3/4% 2004 cv. sub. notes* (BB+)...... 750,000 721,875
500,000 Tower Automotive, Inc. 5% 2004 cv. sub. notes* (NR)............. 500,000 513,750
----------- -----------
1,250,000 1,235,625
----------- -----------
BANKING -- 10.9%
14,200 shs Barnett Banks, Inc. common stock................................ 223,680 979,800
12,600 shs First Commerce Corp. common stock............................... 290,495 809,550
40,000 shs National Australia Bank Ltd. 7 7/8% exch. capital units (A1).... 1,038,700 1,112,500
(exch. for ADR's representing National Australia Bank Ltd.
common stock)
13,400 shs National City Corp. common stock................................ 337,591 800,650
15,300 shs Washington Mutual Savings Bank common stock..................... 382,412 1,047,094
1,225,000 BankAtlantic Bancorp 6 3/4% 2006 cv. sub. deb. (NR)............. 1,284,563 2,058,000
500,000 First State Bancorp 7 1/2% 2017 cv. sub. deb. (NR).............. 500,000 602,500
1,000,000 Goldman Sachs Financial Products U.S., L.P. 3% 2002 medium-term
exch. notes. (NR) .............................................. 1,000,000 965,500
(exch. for Citicorp common stock)
20,000 Jefferson-Pilot Corp. 7 1/4% 2000 Automatic Common Exchange
Securities# (A1) ............................................. 1,720,850 2,120,000
(exch. for NationsBank Corp. common stock)
----------- -----------
6,778,291 10,495,594
----------- -----------
BUILDING & REAL ESTATE -- 1.6%
16,000 shs The Rouse Company 6% series B cv. pfd. (Baa3)................... 791,275 758,000
750,000 The Rouse Company 5 3/4% 2002 euro. cv. sub. deb. (Baa2)........ 803,750 783,750
----------- -----------
1,595,025 1,541,750
----------- -----------
CAPITAL GOODS -- 4.0%
1,000,000 CS First Boston,Inc. 3 1/2% 2001 sr. medium-term exch. notes*
(Aa)......................................................... 1,000,000 1,305,000
(exch. for General Electric Corp. common stock)
1,710,000 Robbins & Myers, Inc. 6 1/2% 2003 cv. sub. notes (NR)........... 1,755,600 2,530,800
----------- -----------
2,755,600 3,835,800
----------- -----------
COMMUNICATIONS -- 6.2%
10,000 shs WorldCom, Inc. GA depositary shares (representing 8% cum. cv.
A pfd.)(B1) 335,000 1,170,000
2,000,000 NatWest Markets 0% 2003 exch. trust securities* (AA2)........... 1,828,323 2,200,000
(exch. for Lucent Technologies, Inc. common stock)
500,000 Premiere Technologies, Inc. 5 3/4% 2004 cv. sub. notes* (NR).... 500,000 602,500
25,000 Sprint Corp. 8 1/4% 2000 FCENS+ # (Baa3)........................ 815,788 973,438
(exch. for Southern New England Telecommunications Corp.
common stock)
1,000,000 Telefonica De Espana 2% 2002 gtd. exch. deb.* (NR).............. 1,000,000 1,020,000
----------- -----------
4,479,111 5,965,938
----------- -----------
DATA-PROCESSING SERVICES -- 2.4%
1,000,000 First Financial Management Corp. 5% 1999 cv. sub. deb. (A2)..... 1,000,000 1,347,500
(exch. for First Data Corp. common stock)
1,000,000 National Data Corp. 5% 2003 cv. sub. notes (NR)................. 1,010,000 996,250
----------- -----------
2,010,000 2,343,750
----------- -----------
ENERGY -- 14.6%
44,000 shs AES Trust I $2.6875 term cv. securities, series A (Ba1)......... 2,200,000 2,816,000
(exch. for AES Corp. common stock)
10,000 shs Devon Financing Trust 6 1/2% trust cv. pfd.* (NR)............... 507,500 818,750
(conv. into Devon Energy Corp. common stock)
10,000 shs MCN Energy Group, Inc. 8% FELINE - PRIDES**# (Ba2).............. 502,800 553,750
</TABLE>
See accompanying notes to financial statements.
(2)
<PAGE> 5
BANCROFT CONVERTIBLE FUND, INC.
PORTFOLIO OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
--------- ----------- -----------
ENERGY -- (CONTINUED)
<S> <C> <C>
12,500 shs Unocal Capital Trust 6 1/4% trust cv. pfd. (Ba1)................ $ 679,688 $ 746,875
$1,000,000 Diamond Offshore Drilling, Inc. 3 3/4% 2007 cv.
sub. notes (Baa2).............................................. 1,015,000 1,611,250
1,500,000 Enserch Corp. 6 3/8% 2002 euro. cv. sub. deb. (Baa3)............ 1,515,000 1,516,875
375,000 Halter Marine Group, Inc. 4 1/2% 2004 cv. sub. notes* (B2)...... 375,000 474,375
1,000,000 Nabors Industries, Inc. 5% 2006 cv. sub. notes (Baa2)........... 1,051,437 2,325,000
500,000 Parker Drilling Co. 5 1/2% 2004 cv. sub. notes (B3)............. 500,000 596,250
1,800,000 Pennzoil Company 4 3/4% 2003 exch. sr. deb. (Baa2).............. 1,978,500 2,520,000
(exch. for Chevron Corp. common stock)
----------- -----------
10,324,925 13,979,125
----------- -----------
ENTERTAINMENT -- 8.7%
5,000 shs Chancellor Media Corp. 6% cv. exch. pfd.* (B)................... 250,000 318,125
10,000 shs Chancellor Media Corp. 7% cv. pfd. (Caa)........................ 500,000 827,500
45,000 shs Hollinger International, Inc. depositary shares (B2)
(representing 9 3/4% cv. B pfd.).............................. 441,063 528,750
22,000 shs Houston Industries, Inc. 7% 2000 Automatic Common Exchange
Securities# (Baa1)........................................... 1,010,625 1,204,500
(exch. for Time Warner, Inc. common stock)
10,000 shs News Corporation Exchange Trust 5% cv. trust originated pfd.*
(Ba2)......................................................... 1,000,000 860,000
(exch. for British Sky Broadcasting Group plc American
Depositary Shares)
4,000 shs SFX Broadcasting, Inc. 6 1/2% cum. cv. exch. D pfd.* (Caa)...... 206,750 329,500
50,000 shs Triathlon Broadcasting Co. depositary shares (NR)............... 525,000 500,000
(representing 9% mandatory cv. pfd.)
1,000,000 Credit Suisse 3% 2001 equity linked certificates# (Aa).......... 1,000,000 1,122,500
(exch. for the cash equivalent of Walt Disney Co. common stock)
1,000,000 Imax Corp. 5 3/4% 2003 cv. sub. notes* (B3)..................... 1,000,000 1,326,250
750,000 International CableTel, Inc. 7% 2008 cv. sub. notes* (Caa)...... 750,000 727,500
(conv. into NTL, Inc. common stock)
600,000 International CableTel, Inc. 7 1/4% 2005 cv. sub. notes* (Caa).. 600,000 666,000
(conv. into NTL, Inc. common stock)
----------- -----------
7,283,438 8,410,625
----------- -----------
FINANCIAL & INSURANCE -- 8.6%
15,000 shs American Bankers Insurance Group, Inc. series B cum. cv. pfd.
(Baa1)........................................................ 751,250 1,185,000
20,000 shs American General Delaware, L.L.C. 6% cv. A monthly income
preferred securities (A1)..................................... 1,015,875 1,330,000
25,000 shs Frontier Financing Trust 6 1/4% cv. trust originated
pfd.*(Baa3)................................................... 1,296,875 1,918,750
(conv. into Frontier Insurance Group, Inc. common stock)
500,000 American International Group 2 1/4% 2004 cv. notes (AAA)........ 500,000 495,000
851,000 First Central Financial Corp. 9% 2000 cv. sub. deb.## (NR)...... 862,625 --
1,375,000 Penn Treaty American Corp. 6 1/4% 2003 cv. sub. notes* (BB+).... 1,406,875 1,763,438
35,000 US West, Inc. 7 5/8% 1998 FCENS+# (A2).......................... 840,000 1,566,250
(exch. for Enhance Financial Services Group, Inc. common stock)
----------- -----------
6,673,500 8,258,438
----------- -----------
FOODS -- 3.4%
10,000 shs Apple South Financing I 7% cv. A pfd.* (NR)..................... 500,000 708,750
(conv. into Apple South, Inc. common stock)
750,000 Fine Host Corp. 5% 2004 cv. sub. notes* (B3).................... 745,625 686,250
30,000 Ralston Purina Co. 7% 2000 Stock Appreciation Income Linked
Securities# (A1).............................................. 1,861,638 1,890,000
(exch. for Interstate Bakeries Corp. common stock)
----------- -----------
3,107,263 3,285,000
----------- -----------
HEALTH CARE & DRUGS -- 12.3%
15,000 shs Kapson Senior Quarters Corp. 8% cv. exch. pfd.* (NR)............ 375,000 436,875
500,000 American Retirement Corp. 5 3/4% 2002 cv. sub. deb. (NR)........ 501,875 505,000
500,000 Assisted Living Concepts, Inc. 6% 2002 cv. sub. deb. (NR)....... 500,000 552,500
750,000 Atria Communities, Inc. 5% 2002 cv. sub. notes* (NR)............ 754,375 762,188
1,850,000 Ciba Geigy Corp. 6 1/4% 2016 exch. sub. deb.* (Aa3)............. 1,860,250 1,887,000
(exch. for ALZA Corp. common stock)
250,000 Medco Containment Services, Inc. 6% 2001 cv. sub. deb. (AAA).... 326,875 687,500
1,200,000 Morgan Stanley Dean Witter Discover & Co. 0% 2001 medium-term
exch. notes (A1)............................................. 1,061,042 1,611,000
(exch. for ADR's representing SmithKline Beecham plc common
stock)
1,500,000 Republic National Bank of NY 1 7/8% 2002 sr. exch. notes (Aa1).. 1,450,076 1,370,625
(exch. for the cash equivalent of Merck & Co., Inc. common
stock)
750,000 Rite Aid Corp. 5 1/4% 2002 cv. sub. notes* (Baa1)............... 750,000 808,125
</TABLE>
See accompanying notes to financial statements.
(3)
<PAGE> 6
BANCROFT CONVERTIBLE FUND, INC.
PORTFOLIO OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT IDENTIFIED VALUE
OR SHARES COST (NOTE A)
--------- ----------- -----------
HEALTH CARE & DRUGS -- (CONTINUED)
<S> <C> <C>
$3,500,000 Roche Holdings, Inc. 0% 2010 liquid yield option notes* (Aa2)... $ 1,531,877 $ 1,758,750
500,000 Sandoz Capital BVI Ltd. 2% 2002 cv. sub. notes* (AAA)........... 526,250 752,500
(cv. into Novartis AG common stock)
500,000 Union Bank of Switzerland Finance N.V. 2 1/2% 2001 euro. cv.deb.
(AAA)......................................................... 533,750 612,500
(cv. into Novartis AG common stock)
----------- -----------
10,171,370 11,744,563
----------- -----------
HOTEL SERVICES -- 2.9%
7,500 shs Royal Caribbean Cruises Ltd. $3.625 cv. A pfd. (Ba2)............ 414,338 570,000
1,500,000 Hilton Hotels Corp. 5% 2006 cv. sub. notes (Baa2)............... 1,522,500 1,702,500
500,000 Signature Resorts, Inc. 5 3/4% 2007 cv. sub. notes (B - )....... 500,000 531,250
----------- -----------
2,436,838 2,803,750
----------- -----------
OFFICE EQUIPMENT -- 0.5%
500,000 Xerox Credit 2 7/8% 2002 medium-term notes (A1)................. 500,000 508,125
----------- -----------
RETAIL -- 3.2%
1,000,000 Costco Companies, Inc. 0% 2017 cv. sub. notes* (A1)............. 514,957 537,500
2,000,000 Home Depot, Inc. 3 1/4% 2001 cv. sub. notes (A1)................ 2,003,125 2,575,000
----------- -----------
2,518,082 3,112,500
----------- -----------
TECHNOLOGY -- 9.9%
5,000 shs Microsoft Corp. 2 3/4% cv. exch. series A pfd. (A1)............. 399,375 441,250
1,500,000 The Bear Stearns Companies, Inc. 6 3/4% 2000 medium-term notes*
(Aa2)......................................................... 1,500,000 1,121,100
(exch. for Seagate Technology, Inc. common stock)
500,000 EMC Corp. 3 1/4% 2002 cv. sub. notes* (Ba3)..................... 500,000 686,250
3,500,000 Hewlett-Packard Co., Inc. 0% 2017 liquid yield
option notes*(NR)............................................... 1,887,377 1,828,750
7,500 Morgan Stanley Dean Witter Discover & Co. 6% 1998 FCENS+# (A1).. 498,750 585,938
(exch. for Cisco Systems, Inc. common stock)
1,000,000 Morgan Stanley Dean Witter Discover & Co. 0% 2001 technology
exch. note trust certificates* (A1) .......................... 914,290 1,080,000
(exch. for technology basket common stocks++)
500,000 Reptron Electronics, Inc. 6 3/4% 2004 cv. sub. deb. (NR)........ 500,000 447,500
500,000 Systems & Computer Technology Corp. 5% 2004 cv.
sub. notes (NR)............................................... 500,000 515,000
1,000,000 Thermo Electron Corp. 4 1/4% 2003 cv. sub. deb.* (Ba2).......... 1,253,425 1,145,000
375,000 Thermo Instruments Corp. 4 1/2% 2003 cv. sub. deb.* (Ba1)....... 380,000 393,750
1,250,000 VLSI Technology, Inc. 8 1/4% 2005 cv. sub. notes (B)............ 1,262,125 1,281,250
----------- -----------
9,595,342 9,525,788
----------- -----------
TRANSPORTATION -- 0.6%
550,000 Mercury Air Group, Inc. 7 3/4% 2006 cv. sub. deb. (B - )........ 551,625 559,625
----------- -----------
U.S. TREASURY NOTES -- 0.0%
25,000 6 1/4% 3/31/99 (c)(c)........................................... 24,922 25,219
----------- -----------
CORPORATE SHORT-TERM NOTES -- 2.0%
1,900,000 American Express Credit Corp. 5.55% 11/3/97 (P1)................ 1,898,828 1,898,828
----------- -----------
TOTAL CONVERTIBLE BONDS AND NOTES -- 71.5%...................................... $59,625,999 $68,822,997
TOTAL CONVERTIBLE PREFERRED STOCKS -- 19.9%..................................... 14,741,114 19,134,875
TOTAL COMMON STOCKS -- 3.8%..................................................... 1,234,178 3,637,094
TOTAL CORPORATE SHORT-TERM NOTES -- 2.0%........................................ 1,898,828 1,898,828
----------- -----------
TOTAL INVESTMENTS -- 97.2%...................................................... $77,500,119 93,493,794
===========
OTHER ASSETS AND LIABILITIES, NET -- 2.8%....................................... 2,693,366
-----------
TOTAL NET ASSETS -- 100.0%...................................................... $96,187,160
===========
</TABLE>
* Rule 144A security, may be sold only to qualified institutional buyers.
# See Note A, Market Risk.
+ Forced Conversion Exchangeable Notes.
(C) Family of Equity-Linked Income Securities.
** Preferred Redeemable Increased Dividend Equity Securities.
## Value reflects fair value determination made by the Board of Directors
of the Company as a result of FCC financial difficulties.
++ Ticker symbols: CSCO, EDS, HWP, INTC, MSFT & ORCL.
(C)(C) Collateral for a letter of credit.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard &
Poor's, a division of McGraw-Hill Companies, Inc. have been obtained
from sources believed to be reliable but have not been audited by
Coopers & Lybrand L.L.P.
The cost of investments for federal income tax purposes is $77,500,119 resulting
in gross unrealized appreciation and depreciation of $17,915,728 and $1,922,053,
respectively, or net unrealized appreciation of $15,993,675 on a tax cost basis.
See accompanying notes to financial statements
(4)
<PAGE> 7
BANCROFT CONVERTIBLE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 31,
1997
-----------
<S> <C>
ASSETS:
Investments at value (Identified cost $77,500,119) (Note A) .......... $93,493,794
Cash ................................................................. 870,512
Receivable for securities sold ....................................... 1,371,160
Dividends and interest receivable .................................... 546,573
Other assets ......................................................... 16,783
-----------
Total assets ......................................................... 96,298,822
-----------
LIABILITIES:
Accrued management fee (Note B) ...................................... 61,484
Accrued expenses ..................................................... 50,178
-----------
Total liabilities .................................................... 111,662
-----------
NET ASSETS ........................................................... $96,187,160
===========
NET ASSETS CONSIST OF:
Undistributed net investment income .................................. $ 581,173
Undistributed net realized gain from investment transactions ......... 11,257,364
Unrealized appreciation on investments ............................... 15,993,675
Capital shares (Note D) .............................................. 31,563
Additional paid-in capital ........................................... 68,323,385
-----------
NET ASSETS ........................................................... $96,187,160
===========
Net asset value per share ($96,187,160 (divided by) 3,156,263
outstanding shares) ................................................ $ 30.48
===========
</TABLE>
See accompanying notes to financial statements.
================================================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME (Note A):
Interest ................................................... $ 2,525,153
Dividends .................................................. 1,458,846
-----------
Total Income ............................................... 3,983,999
-----------
EXPENSES (Note B):
Management fee ............................................. 653,420
Custodian fees ............................................. 39,290
Transfer agent fees ........................................ 51,784
Professional fees .......................................... 67,180
Directors' fees ............................................ 56,850
Printing and shareholder relations ......................... 55,426
Treasurer's office ......................................... 25,000
Other ...................................................... 79,617
-----------
Total Expenses ............................................. 1,028,567
-----------
NET INVESTMENT INCOME ...................................... 2,955,432
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions ............. 11,286,484
Net increase in unrealized appreciation of investments ..... 3,620,296
-----------
Net gain on investments .................................... 14,906,780
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....... $17,862,212
===========
</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: 1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $ 28.23 $ 24.84 $ 23.11 $ 25.00 $ 22.75
------------ ------------ ------------ ------------ ------------
Net investment income .............................. .94 .96 1.14 1.20 1.26
Net realized and unrealized gain (loss) ............ 4.55 4.19 2.30 (1.18) 3.07
------------ ------------ ------------ ------------ ------------
Total from investment operations ................... 5.49 5.15 3.44 .02 4.33
Less distributions:
Dividends from net investment income ............... (.93) (1.11) (1.17) (1.24) (1.24)
Distributions from realized gains .................. (2.31) (.65) (.54) (.67) (.84)
------------ ------------ ------------ ------------ ------------
Total distributions ................................ (3.24) (1.76) (1.71) (1.91) (2.08)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year ....................... $ 30.48 $ 28.23 $ 24.84 $ 23.11 $ 25.00
============ ============ ============ ============ ============
Market value, end of year .......................... $ 26.81 $ 23.88 $ 22.25 $ 20.13 $ 23.00
Total investment return:
Based on market value* ............................. 28.19% 15.65% 20.17% (4.88)% 22.90%
Based on net asset value# .......................... 21.18% 21.55% 15.79% .18% 20.12%
Ratios/Supplemental Data:
Net assets, end of year (000's) .................... $ 96,187 $ 83,302 $ 71,425 $ 64,551 $ 67,829
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 ....................................... 3.3% 3.9% 4.9% 5.2% 5.4%
Portfolio turnover rate ............................ 71% 70% 43% 39% 102%
Average commission rate paid+....................... $ 0.0600 $ 0.0683 -- -- --
</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,
1997 1996
------------ ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ................................... $ 2,955,432 $ 2,996,655
Net realized gain from investment transactions .......... 11,286,484 6,807,244
Net unrealized appreciation of investments .............. 3,620,296 5,451,699
------------ ------------
Net increase in net assets resulting from operations .... 17,862,212 15,255,598
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income ................................... (2,898,260) (3,251,738)
Net realized gain on investments ........................ (6,815,292) (1,871,807)
------------ ------------
Total dividends ......................................... (9,713,552) (5,123,545)
------------ ------------
CAPITAL SHARE TRANSACTIONS (Note D) ..................... 4,736,186 1,745,225
------------ ------------
Increase in net assets .................................. 12,884,846 11,877,278
NET ASSETS AT BEGINNING OF YEAR ......................... 83,302,314 71,425,036
------------ ------------
NET ASSETS AT END OF YEAR (including undistributed net
investment income of $581,173 and $524,001,
respectively) ........................................... $ 96,187,160 $ 83,302,314
============ ============
</TABLE>
See accompanying notes to financial statements.
(6)
<PAGE> 9
BANCROFT CONVERTIBLE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(A) Bancroft Convertible Fund, Inc. (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, closed-end 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 closing reported bid and asked prices. Where no
closing prices are available, value is determined by management, with the
approval of the Board of Directors.
2. Securities Transactions and Related Investment Income
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. Interest
of $16,337 was earned on cash balances held by the custodian of the Fund's
assets during the year ended October 31, 1997.
3. Federal Income 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 is believed
necessary.
4. Dividends and Distributions to Shareholders
The liability for dividends and distributions payable is recorded on the
ex-dividend date.
5. Market Risk
It is the Fund's policy to invest the majority 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 under Statement of Financial Accounting
Standards No. 119. However, certain of the Fund's investments include features
which render them more sensitive to price changes in their underlying security.
Thus they expose the Fund to greater downside risk than traditional convertible
securities, but still less than that of the underlying common stock. The market
value of those securities was $10,016,376 at October 31, 1997, representing
10.4% of net assets.
(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 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 $25,000 a year are reimbursed by the Fund. Such
reimbursements amounted to $25,000 for the year ended October 31, 1997. The
officers of the Fund are also directors or officers of the investment adviser,
and are compensated by the investment adviser.
(C) At October 31, 1997 there were 3,156,263 shares of $.01 par value common
stock outstanding (9,000,000 shares authorized). During the year ended October
31, 1997, 205,920 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 $4,736,186. During the year ended October 31, 1996, 75,063
shares were issued.
(D) Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $59,183,385 and $62,014,674, respectively, for the year ended October
31, 1997.
(E) A distribution of $3.756 per share, derived from net investment income of
.185 cents, and net realized gains on investments of $3.571, was declared on
November 17, 1997, payable December 30, 1997 to shareholders of record at the
close of business December 1, 1997.
(7)
<PAGE> 10
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, 1997, 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, 1997 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, 1997, 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 13, 1997
(8)
<PAGE> 11
BANCROFT CONVERTIBLE FUND, INC.
TAX STATUS OF DIVIDENDS
(UNAUDITED)
Per share distributions to shareholders during the fiscal year ended October 31,
1997:
<TABLE>
<CAPTION>
TOTAL ORDINARY LONG-TERM QUALIFYING
PAYMENT DATE PAID INCOME CAPITAL GAIN DISTRIBUTION*
---------------------- ------ -------- ------------ -------------
<S> <C> <C> <C> <C>
December 30, 1996 $2.49 $0.603 $1.887 30%
March 24, 1997 0.25 0.25 -- 35%
June 30, 1997 0.25 0.25 -- 35%
September 29, 1997 0.25 0.25 -- 35%
----- ------ ------
$3.24 $1.353 $1.887
</TABLE>
* The percentages indicate the portion of each ordinary income distribution
which qualifies under the Internal Revenue Code for the deduction for
dividends received by corporate shareholders.
<TABLE>
<CAPTION>
===========================================================================================================================
Principal Portfolio Changes AUGUST 1 to OCTOBER 31, 1997
(unaudited)
SHARES OR PRINCIPAL AMOUNT
HELD AT
ADDITIONS REDUCTIONS 10-31-97
--------- ---------- ---------
<S> <C> <C> <C>
American Retirement Corp. 5 3/4% 2002 cv. sub. deb 1,000,000 500,000 500,000
Assisted Living Concepts, Inc. 6% 2002 cv. sub. deb 500,000 500,000
Atria Communities, Inc. 5% 2002 cv. sub. notes 144A 750,000 750,000
CalEnergy Capital Trust III 6 1/2% cv. pfd. 144A 20,000 20,000 --
Complete Management, Inc. 8% 2003 cv. sub. deb 500,000 --
Fine Host Corp. 5% 2004 cv. sub. notes 144A 750,000 750,000
Goldman Sachs Financial Products U.S., L.P. 3% 2002 medium-term exch. notes 1,500,000 500,000 1,000,000
Greenfield Capital Trust 6% cv. pfd 10,000 --
Hewlett-Packard Co., Inc. 0% 2017 liquid yield option notes 144A 3,500,000 3,500,000
Mandatory Exch. Securities 7 1/4% trust issued mandatory exch. securities 17,500 17,500 --
Medco Containment Services, Inc. 6% 2001 cv. sub. deb 750,000 500,000 250,000
QUALCOMM Financial Trust I 5 3/4% trust cv. pfd. 144A 22,000 22,000
Reptron Electronics, Inc. 6 3/4% 2004 cv. sub. deb 500,000 500,000
Republic National Bank of NY 1 7/8% 2002 senior exch. notes 1,500,000 1,500,000
Rite Aid Corp. 5 1/4% 2002 cv. sub. notes 144A 750,000 750,000
The Rouse Company 5 3/4% 2002 euro. cv. sub. deb 500,000 750,000
Salomon, Inc. 6 1/4% 2001 exch. notes 10,000 --
SPACEHAB, Inc. 8% 2007 cv. sub. notes 144A 625,000 625,000
Systems & Computer Technology Corp. 5% 2004 cv. sub. notes 500,000 500,000
Thermo Electron Corp. 4 1/4% 2003 cv. sub. deb. 144A 625,000 1,000,000
Westbridge Capital Corp. 7 1/2% 2004 cv. sub. notes 1,000,000 --
===========================================================================================================================
</TABLE>
ADOPTION OF INVESTMENT POLICY
At the Fund's regular Board of Directors Meeting held on April 28, 1997 the
Board adopted a new investment policy that clarified existing investment
policies of the Fund, consistent with the Fund's fundamental investment
restriction which permits certain types of short sales. The new investment
policy provides that:
The Fund may engage in short sales of convertible securities as well as
common stock, provided that at the time of sale it owns or has the right to
acquire, with or without payment of further consideration through its
ownership of convertible or exchangeable securities or warrants or rights, an
equal amount of such securities. The Fund may close out any short sale of
common stock through the conversion or exchange of securities or the exercise
of warrants or rights it owns, or through the purchase and delivery of common
stock.
(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. When the net asset value is lower than
the market price, the participant will receive shares issued by the
Company at net asset value. When the Company makes dividends and
distributions payable in cash or at the option of all stockholders in
common stock, a participant will receive shares of common stock issued by
the Company. 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 07960-7308
(973) 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://www.bcvecf.com
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 of 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 Petroleum Consultant
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
DONALD M. HALSTED, JR. Investor
GEORGE R. LIEBERMAN Retired Advertising Executive
DUNCAN O. MCKEE Retired Attorney
JANE D. O'KEEFFE President
NICOLAS W. PLATT Public Relations Executive
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
GERMAINE M. ORTIZ Assistant Vice President
GARY I. LEVINE Treasurer and
Assistant Secretary
MERCEDES A. PIERRE Assistant Treasurer
<PAGE> 16
================================================================================
[FPO LOGO]
================================================================================
Bancroft Convertible Fund, Inc.
65 MADISON AVENUE - MORRISTOWN, NJ 07960
================================================================================
