UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-2151
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BANCROFT CONVERTIBLE FUND, INC.
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(Exact name of registrant as specified in charter)
65 Madison Avenue, Morristown, New Jersey 07960-7308
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(Address of principal executive offices) (Zip code)
Thomas H. Dinsmore
Bancroft Convertible Fund, Inc.
65 Madison Avenue
Morristown, New Jersey 07960-7308
(Name and address of agent for service)
Copy to:
Martha J. Hays, Esq.
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103-7599
Registrant's telephone number, including area code: 973-631-1177
Date of fiscal year end: October 31
Date of reporting period: July 31, 2004
ITEM 1. SCHEDULE OF INVESTMENTS.
Bancroft Convertible Fund
Portfolio of Investments July 31, 2004 (unaudited)
Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES - 56.7%
Advertising - 0.9%
$1,000,000 Lamar Advertising Company 2.875% 2010 cv. sub. notes (B2)............................ $ 1,051,250
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Aerospace and Defense - 1.3%
1,500,000 The Goldman Sachs Group, Inc. 1% 2009 exch. equity-linked notes (Aa3)
(exch. for General Dynamics Corp. common stock) (1)................................. 1,462,830
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Automotive - 3.4%
1,000,000 American Axle & Manufacturing Holdings, Inc. 2% 2024 cv. sr. notes (Baa3) (1)........ 937,500
125,000 Goodyear Tire & Rubber Company 4% 2034 cv. sr. notes (B3)
(Acquired 06/28/04; Cost $125,000) (2).............................................. 144,844
3,500,000 Lear Corp. 0% 2022 cv. sr. notes (Baa3).............................................. 1,736,875
1,000,000 Titan International, Inc. 5.25% 2009 sr. cv. notes 144A (NR)
(Acquired 7/20/04; Cost $1,000,938) (2)............................................. 1,028,125
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3,847,344
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Banking/Savings and Loan - 2.4%
2,078,000 The Bear Stearns Companies, Inc. 0.25% 2010 medium term notes (A1)
(exch. for Fifth Third Bancorp common stock) (1).................................... 1,956,738
750,000 Ocwen Financial Corp. 3.25% 2024 contingent cv. sr. unsecured notes (NR)
(Acquired 07/22/04; Cost $750,000) (2).............................................. 760,313
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2,717,051
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Consumer Goods - 2.0%
1,875,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba3).............................. 2,240,663
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Data-Processing Services - 1.8%
1,500,000 Pegasus Solutions, Inc. 3.875% 2023 cv. sr. notes (NR)............................... 1,441,875
500,000 Per-Se Technologies, Inc. 3.25% 2024 cv. sub. deb. (B-)
(Acquired 06/24/04 - 06/25/04; Cost $508,125) (2)................................... 543,750
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1,985,625
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Electrical Suppies - 0.8%
1,000,000 Graftech International LTD 1.625% 2024 cv. sr. deb. (B2)............................. 943,750
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Energy - 3.1%
250,000 Cooper Cameron Corp. 1.5% 2024 sr. cv. deb. (Baa1)
(Acquired 05/06/04; Cost $250,000) (2).............................................. 255,243
1,000,000 Devon Energy Corp. 0% 2020 cv. sr. deb. (BBB)........................................ 555,000
1,900,000 Kerr-McGee Corp. 5.25% 2010 cv. sub. deb. (Ba1)...................................... 1,991,998
1,000,000 Weatherford International Ltd. 0% 2020 cv. sr. deb. (Baa1)........................... 636,040
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3,438,281
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Entertainment - 1.9%
1,250,000 Citadel Broadcasting Corp. 1.875% 2011 cv. sub. notes (NR)........................... 1,072,000
1,000,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (Baa1)............................. 1,034,030
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2,106,030
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Financial and Insurance - 2.6%
2,000,000 Leucadia National Corp. 3.75% 2014 cv. sr. sub. notes (Ba3)
(Acquired 04/22/04 - 07/16/04; Cost $2,038,123) (2)................................. 2,040,000
1,000,000 Swiss Re America Holding Corp. 3.25% 2021 euro. sub. cv. bonds (Aa1)
(conv. into Swiss Reinsurance Company common stock) (Acquired 11/15/01 -
12/05/01; Cost $1,007,750) (2)...................................................... 929,600
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2,969,600
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Bancroft Convertible Fund
Portfolio of Investments July 31, 2004 (continued)
Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES - (continued)
Health Care - 3.9%
$ 500,000 Allscripts Healthcare Solutions, Inc. 3.5% 2024 cv. sr. deb. (NR)
(Acquired 06/29/04 - 06/30/04; Cost $502,500) (2)................................... $ 490,000
1,000,000 AmerisourceBergen Corp. 5% 2007 cv. sub. notes (B1).................................. 1,108,300
1,000,000 Community Health Systems, Inc. 4.25% 2008 cv. sub. notes (B3)........................ 1,024,200
500,000 LifePoint Hospitals, Inc. 4.50% 2009 cv. sub. notes (B3)............................. 506,875
875,000 Mentor Corp. 2.75% 2024 cv. deb. (NR)................................................ 1,069,688
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4,199,063
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Hotel Services - 0.9%
1,000,000 Four Seasons Hotels, Inc. 1.875% 2024 cv. sr. notes (Baa3)........................... 1,061,875
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Office Equipment - 1.5%
1,750,000 IOS Capital, LLC 5% 2007 cv. sub. notes (Ba3)
(exch. for IKON Office Solutions, Inc. common stock) (Acquired 05/08/02 -
06/02/03; Cost $1,746,250) (2)...................................................... 1,816,719
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Pharmaceuticals - 9.4%
2,000,000 Alza Corp. 0% 2020 cv. sub. deb. (Aa1)
(exch. for Johnson & Johnson common stock).......................................... 1,527,500
2,000,000 Amgen, Inc. 0% 2032 LYONs (A2) (1)................................................... 1,476,200
1,000,000 Gilead Sciences, Inc. 2% 2007 cv. sr. notes (NR)..................................... 1,447,650
1,500,000 Impax Laboratories, Inc. 1.25% 2024 cv. sr. sub. deb. (NR)
(Acquired 03/31/04 - 07/21/04; Cost $1,543,813) (2)................................. 1,260,195
500,000 Ivax Corp. 4.50% 2008 cv. sr. sub. notes (NR)........................................ 489,375
1,250,000 Ivax Corp. 1.50% 2024 cv. sr. notes (NR)
(Acquired 02/27/04; Cost $1,279,392) (1) (2)........................................ 1,294,250
750,000 Teva Pharmaceutical Finance B.V. 0.75% 2021 cv. sub. deb. (BBB)
(exch. for ADR representing Teva Pharmaceuticals Industries Ltd. common stock)...... 1,048,125
1,000,000 Teva Pharmaceutical Finance II, LLC series A 0.50% 2024 cv. sr. deb. (BBB)
(exch. for ADR representing Teva Pharmaceuticals Industries Ltd. common stock)...... 990,000
1,000,000 Teva Pharmaceutical Finance II, LLC series B 0.25% 2024 cv. sr. deb. (BBB)
(exch. for ADR representing Teva Pharmaceuticals Industries Ltd. common stock)...... 992,500
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10,525,795
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Retail - 8.2%
1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR)....................... 1,150,000
1,500,000 Charming Shoppes, Inc. 4.75% 2012 sr. cv. notes (B2)................................. 1,598,438
750,000 Costco Wholesale Corp. 0% 2017 cv. sub. notes (A3)................................... 696,645
1,800,000 Dick's Sporting Goods, Inc. 1.6061% 2024 sr. cv. notes (NR).......................... 1,324,125
1,000,000 Reebok International Ltd. 2% 2024 cv. deb. (BBB)
(Acquired 04/27/04; Cost $1,011,230) (1) (2)........................................ 975,000
1,500,000 Saks, Inc. 2% 2024 cv. sr. notes (Ba3)
(Acquired 03/17/04 - 07/16/04; Cost $1,483,785) (2)................................. 1,391,940
2,400,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1)......................................... 2,049,000
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9,185,148
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Technology - 6.1%
1,500,000 Axcelis Technologies, Inc. 4.25% 2007 cv. sub. notes (NR)............................ 1,447,500
2,191,000 Conexant Systems, Inc. 5.25% 2006 cv. sub. notes (NR)................................ 2,125,270
2,378,000 Hewlett-Packard Co., Inc. 0% 2017 LYONs (Baa1)....................................... 1,353,974
2,000,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2)......................... 1,970,000
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6,896,744
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Bancroft Convertible Fund
Portfolio of Investments July 31, 2004 (continued)
Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES - (continued)
Telecommunications - 6.5%
$1,500,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3)..................................... $ 1,705,313
1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (Caa1).................... 1,208,390
500,000 Lucent Technologies, Inc. 2.75% 2025 series B cv. sr. deb. (Caa1).................... 627,475
1,250,000 Nortel Networks Corp. 4.25% 2008 cv. sr. notes (B3).................................. 1,184,375
1,250,000 Tekelec, Inc. 2.25% 2008 cv. sub. discount notes (NR)................................ 1,539,063
1,000,000 UTStarcom, Inc. 0.875% 2008 cv. notes (NR)........................................... 1,044,063
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7,308,679
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TOTAL CONVERTIBLE BONDS AND NOTES.................................................... 63,756,447
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Shares
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CONVERTIBLE PREFERRED STOCKS - 19.8%
Automotive - 1.3%
50,000 General Motors Corp. 6.25% series C cv. sr. deb. (Baa1).............................. 1,406,000
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Banking/Savings and Loan - 7.4%
20,000 Commerce Capital Trust II 5.95% cv. trust pfd. (Baa1)
(exch. for Commerce Bancorp, Inc. common stock)..................................... 1,125,000
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR)......................... 1,329,520
30,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2)............................. 1,605,000
50,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1)
(exch. for Sovereign Bancorp, Inc. common stock) (1)................................ 2,393,750
35,000 Washington Mutual Capital Trust PIERS units (Baa1)
(exch. for Washington Mutual, Inc. common stock).................................... 1,859,375
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8,312,645
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Energy - 3.2%
12,500 Chesapeake Energy Corp. 6% cum. cv. pfd. (B3)........................................ 1,016,000
1,000 Chesapeake Energy Corp. 4.125% cum. cv. pfd. (B3)
(Acquired 03/24/04; Cost $1,000,000) (2)............................................ 1,107,500
20,000 The Williams Companies, Inc. 5.50% 2033 jr. sub. cv. deb. (B-)....................... 1,425,000
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3,548,500
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Entertainment - 2.5%
22,500 Emmis Communications Corp. 6.25% series A cum. cv. pfd. (Caa1)....................... 1,013,906
1,750 Radio One, Inc. 6.50% HIGH TIDES (B3)................................................ 1,794,078
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2,807,984
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Financial and Insurance - 3.1%
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2)................................ 1,140,000
100,000 The St. Paul Travelers Companies, Inc. 4.50% 2032 cv. jr. sub. notes (Baa1).......... 2,299,500
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3,439,500
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Health Care - 1.1%
29,000 Omnicare Capital Trust I 4% PIERS (Ba3)
(exch. for Omnicare, Inc. common stock) (1)......................................... 1,392,000
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Mining - 1.2%
1,500 Freeport-McMoRan Copper and Gold, Inc. 5.50% cv. perpetual pfd. (CCC+)
(Acquired 03/24/04 - 07/16/04; Cost $1,481,987) (2)................................. 1,393,219
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TOTAL CONVERTIBLE PREFERRED STOCKS................................................... 22,299,848
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Bancroft Convertible Fund
Portfolio of Investments July 31, 2004 (continued)
Principal
Amount Value
or Shares (Note 1)
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MANDATORY CONVERTIBLE SECURITIES - 19.8% (4)
Aerospace and Defense - 1.4%
15,000 shs Northrop Grumman Corp. 7.25% equity units (NR) (1)................................... $ 1,576,200
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Consumer Goods - 1.5%
50,000 shs Constellation Brands, Inc. dep. shs. representing 5.75% series A mand. cv. pfd. (B).. 1,642,500
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Energy - 4.7%
40,000 shs Amerada Hess Corp.7% mandatory cv. pfd. ACES (Ba3)................................... 3,028,600
25,000 shs Teekay Shipping Corp. 7.25% PEPS units (BB-)......................................... 1,168,000
30,000 shs Valero Energy Corp. 2% mandatory cv. pfd. (BB+)...................................... 1,122,660
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5,319,260
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Financial and Insurance - 5.7%
45,000 shs Capital One Financial Corp. 6.25% Upper DECS (Baa3) (1).............................. 2,313,900
15,000 shs The Chubb Corp. 7% 2005 equity units (A) (1)......................................... 412,350
54,000 shs The Chubb Corp. 7% 2006 equity units (A) (1)......................................... 1,489,860
40,000 shs Platinum Underwriters Holdings, Ltd. 7% equity security units (NR) (1)............... 1,140,000
45,000 shs XL Capital, Ltd. 6.5% equity security units (A2)..................................... 1,068,255
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6,424,365
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Foods - 0.9%
40,000 shs Albertson's, Inc. 7.25% HITS units (Baa2) (1)........................................ 1,025,000
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Pharmaceuticals - 1.4%
31,500 shs Baxter International, Inc. 7% equity units (Baa1) (1)................................ 1,618,785
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Technology - 3.0%
105,550 shs The Goldman Sachs Group, Inc. 7.50% mandatory exch. notes (Aa3)
(exch. for EMC Corp. common stock).................................................. 1,231,927
36,395 shs The Goldman Sachs Group, Inc. 5.625% mandatory exch. notes (Aa3)
(exch. for Intel Corp. common stock)................................................ 913,041
$2,000,000 Lehman Brothers Holdings, Inc. 6% 2005 YEELDS (A)
(linked to LSI Logic Corp. common stock)............................................ 1,202,500
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3,347,468
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Utilities - 1.1%
50,000 shs DTE Energy Co. 8.75% equity security units (BBB) (1)................................. 1,274,500
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TOTAL MANDATORY CONVERTIBLE SECURITIES (4)........................................... 22,228,078
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SHORT-TERM SECURITIES - 3.1%
Commercial Paper - 3.1%
3,500,000 American Express Credit Corp. (P1)
(1.26% maturing 08/03/04)............................................................ 3,499,510
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Bancroft Convertible Fund
Portfolio of Investments July 31, 2004 (continued)
Principal Value
Amount (Note 1)
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SHORT-TERM SECURITIES - (continued)
U.S. Government Obligations - 0.0%
$11,000 U.S. Treasury notes 1.625% 04/30/05 (Aaa) (5)....................................... $ 10,979
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TOTAL SHORT-TERM SECURITIES......................................................... 3,510,489
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Total Convertible Bonds and Notes - 56.7%........................................... 63,756,447
Total Convertible Preferred Stocks - 19.8%.......................................... 22,299,848
Total Mandatory Convertible Securities - 19.8%...................................... 22,228,078
Total Short-Term Securities - 3.1%.................................................. 3,510,489
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Total Investments - 99.4%........................................................... 111,794,862
Other assets and liabilities, net - 0.6%............................................ 617,194
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Total Net Assets - 100.0%........................................................... $112,412,056
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(1) Contingent payment debt instrument. See Note 1(b) below.
(2) Security not registered under the Securities Act of 1933, as ameneded
(e.g., the security was purchased in a Rule 144A transaction or a
Regulation D transaction.) The security may be resold only pursuant to
an exemption from registration under the 1933 Act, typically to qualified
institutional buyers. The Fund generally has no rights to demand
registration of these securities. The aggregate market value of these
securities at July 31, 2004 was $15,430,698 which represented 13.7% of
the Fund's net assets.
(3) Non-income producing security.
(4) Mandatory Convertible. See Note 1(e) below.
(5) Collateral for a letter of credit.
ACES Automatic Convertible Equity Securities.
ADR American Depositary Receipts.
BONUSES Bifurcated Option Note Unit Securities.
DECS Debt Exchangeable for Common Stock.
HIGH TIDES Remarketable Term Income Deferrable Equity Securities.
HITS Hybrid Income Term Security.
LYONs Liquid Yield Option Notes.
PEPS Premium Equity Particpating Securities.
PIERS Preferred Income Equity Redeemable Securities.
YEELDS Yield Enhanced Equity Linked Debt Securities.
ZYPS Zero Yield Puttable Securities.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's,
a division of McGraw-Hill Companies. NR is used whenever a rating is
unavailable.
The cost of investments for federal income tax purposes is $111,180,824
resulting in gross unrealized appreciation and depreciation of $5,444,288 and
$4,730,118, respectively, or net unrealized appreciation of $714,170 on a tax
cost basis.
The Fund invests primarily in convertible securities. Some convertible
securities the Fund invests in may be "restricted securities." Typically,
securities are considered "restricted securities" when they are not registered
under the Securities Act of 1933, as amended (the "Securities Act") and may be
resold only pursuant to an exemption from registration under the Securities Act.
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
Bancroft Convertible Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements:
(a) Security Valuation
Investments in securities traded on a national securities exchange are valued at
market using the last reported sales price as of the close of regular trading.
Unlisted securities traded in the over-the-counter market and listed securities
for which no sales were reported, are valued at the mean between closing
reported bid and asked prices as of the close of regular trading. Securities for
which quotations are not readily available, restricted securities and other
assets are valued at fair value as determined in good faith by management with
the approval of the Board of Directors. Short-term debt securities with initial
maturities of 60 days or less are valued at amortized cost.
(b) Securities Transactions and Related Investment Income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the
ex-dividend date and interest income is recorded on the accrual basis, including
accretion of discounts and amortization of non-equity premium. For certain
securities, known as "contingent payment debt instruments," Federal tax
regulations require the Fund to record non-cash, "contingent" interest income in
addition to interest income actually received. Contingent interest income
amounted to 8 cents per share for the nine months ended July 31, 2004.
(c) 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. At October 31, 2003, the net capital loss carryforward of the Fund
which may be used to offset possible future net realized gains was approximately
$8,230,848, and expires in 2009, 2010 and 2011.
(d) Dividends and Distributions to Shareholders
The liability for dividends and distributions payable is recorded on the
ex-dividend date.
(e) Market Risk
It is the Fund's policy, under normal circumstances, to invest at least 80% of
its assets in convertible securities. Although convertible securities do derive
part of their value from that of the securities into which they are convertible,
they are not considered derivative financial instruments. However, certain of
the Fund's investments include features which render them more sensitive to
price changes in their underlying securities. Thus they expose the Fund to
greater downside risk than traditional convertible securities, but still less
than that of the underlying common stock. At July 31, 2004, the market value of
those securities was $22,228,078, representing 19.8% of net assets.
ITEM 2. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of September 15, 2004, an evaluation was performed under the supervision
and with the participation of the officers of Bancroft Convertible Fund, Inc.
(the "Registrant"), including the Principal Executive Officer ("PEO") and
Principal Financial Officer ("PFO"), to assess the effectiveness of the
Registrant's disclosure controls and procedures, as that term is defined in Rule
30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended. Based
on that evaluation, the Registrant's officers, including the PEO and PFO,
concluded that, as of September 15, 2004, the Registrant's disclosure controls
and procedures were reasonably designed so as to ensure: (1) that information
required to be disclosed by the Registrant on Form N-Q is recorded, processed,
summarized and reported within the time periods specified by the rules and forms
of the Securities and Exchange Commission; and (2) that material information
relating to the Registrant is made known to the PEO and PFO as appropriate to
allow timely decisions regarding required disclosure.
(b) There have been no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the Registrant's last fiscal quarter
that has materially affected, or is reasonably likely to materially affect,
the Registrant's internal control over financial reporting.
ITEM 3. EXHIBITS.
Certifications of the principal executive officer and the principal financial
officer, as required by Rule 30a-2(a) under the Investment Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Bancroft Convertible Fund, Inc.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: September 24, 2004
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: September 24, 2004
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: September 24, 2004