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: January 31, 2005
ITEM 1. SCHEDULE OF INVESTMENTS.
PORTFOLIO OF INVESTMENTS JANUARY 31, 2005 (UNAUDITED)
Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES -- 52.9%
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).................... $ 1,490,970
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AUTOMOTIVE -- 2.4%
1,000,000 American Axle & Manufacturing Holdings, Inc. 2% 2024 cv. sr. notes
(Baa3) (1)............................................................. 861,800
3,500,000 Lear Corp. 0% 2022 cv. sr. notes (Baa3)................................ 1,699,688
163,000 Titan International, Inc. 5.25% 2009 sr. cv. notes (NR)................ 215,975
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2,777,463
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BANKING/SAVINGS AND LOAN -- 2.7%
2,078,000 The Bear Stearns Companies, Inc. 0.25% 2010 medium-term notes (A1)
(exch. for Fifth Third Bancorp common stock) (1)....................... 1,894,737
1,250,000 Ocwen Financial Corp. 3.25% 2024 contingent cv. sr. unsecured notes
(B-) (Acquired 07/22/04 - 09/27/04; Cost $1,263,750) (2)............... 1,239,063
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3,133,800
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CONSUMER GOODS -- 1.6%
1,375,000 Church & Dwight Co., Inc. 5.25% 2033 cv. sr. deb. (Ba2)................ 1,824,763
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DATA-PROCESSING SERVICES -- 1.8%
1,000,000 Open Solutions, Inc. 1.4673% 2035 sr. sub. cv. notes (NR)
(Acquired 01/28/05; Cost $533,560) (2)................................. 571,875
1,500,000 Pegasus Solutions, Inc. 3.875% 2023 cv. sr. notes (NR)................. 1,393,526
125,000 Per-Se Technologies, Inc. 3.25% 2024 cv. sub. deb. (B-)
(Acquired 06/24/05 - 06/25/04; Cost $129,063) (2)...................... 138,594
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2,103,995
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ELECTRICAL SUPPLIES -- 1.1%
1,500,000 Graftech International Ltd. 1.625% 2024 cv. sr. deb. (B2) 1,293,750
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ENERGY -- 6.2%
1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (B1) ....................... 1,497,656
3,000,000 Devon Energy Corp. 0% 2020 cv. sr. deb. (BBB) ......................... 1,685,625
1,900,000 Kerr-McGee Corp. 5.25% 2010 cv. sub. deb. (Ba1) ....................... 2,003,493
750,000 OMI Corp. 2.875% 2024 cv. sr. notes (B+) .............................. 729,375
2,000,000 Weatherford International Ltd. 0% 2020 cv. sr. deb. (Baa1) ............ 1,286,900
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7,203,049
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ENTERTAINMENT -- 3.3%
1,250,000 Citadel Broadcasting Corp. 1.875% 2011 cv. sub. notes (NR) ............ 1,077,250
2,500,000 The Walt Disney Company 2.125% 2023 cv. sr. notes (Baa1) .............. 2,796,800
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3,874,050
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FINANCIAL AND INSURANCE -- 2.7%
2,000,000 Leucadia National Corp. 3.75% 2014 cv. sr. sub. notes (Ba3) ........... 2,120,000
1,000,000 Swiss Re America Holding Corp. 3.25% 2021 euro. sub. cv. bonds (A1)
(conv. into Swiss Reinsurance Company common stock)
(Acquired 11/15/01 - 12/05/01; Cost $1,007,750) (2) ................... 964,100
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3,084,100
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PAGE 1
PORTFOLIO OF INVESTMENTS JANUARY 31, 2005 (CONTINUED)
Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES -- (CONTINUED)
HEALTH CARE -- 4.3%
$1,500,000 Community Health Systems, Inc. 4.25% 2008 cv. sub. notes (B3) ......... $1,567,050
1,000,000 Isolagen, Inc. 3.5% 2024 cv. sub. notes (NR)
(Acquired 10/29/04 - 11/01/04; Cost $1,020,000) (2) ................... 1,052,500
1,000,000 LifePoint Hospitals, Inc. 4.5% 2009 cv. sub. notes (B3) ............... 1,021,500
1,125,000 Mentor Corp. 2.75% 2024 cv. sub. notes (NR) ........................... 1,350,000
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4,991,050
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METALS -- 0.8%
1,000,000 Ryerson Tull, Inc. 3.5% 2024 cv. sr. notes (NR)
(Acquired 11/05/04 - 12/09/04; Cost $1,020,000) (2) ................... 960,625
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MULTI-INDUSTRY -- 0.9%
1,000,000 Lehman Brothers Holdings, Inc. 1% 2011 medium-term notes (A)
(performance linked to Cendant Corp. common stock) (1) ................ 1,002,500
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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) ................... 1,779,531
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PHARMACEUTICALS -- 7.1%
2,000,000 Alza Corp. 0% 2020 cv. sub. deb. (Aa1)
(exch. for Johnson & Johnson common stock) ............................ 1,783,750
2,000,000 Amgen, Inc. 0% 2032 LYONs (A2) (1) .................................... 1,481,220
1,500,000 Impax Laboratories, Inc. 1.25% 2024 cv. sr. sub. deb. (NR) ............ 1,379,250
500,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR) .......................... 498,750
1,250,000 Ivax Corp. 1.5% 2024 cv. sr. notes (NR) (1) ........................... 1,163,938
1,000,000 Teva Pharmaceutical Finance II, LLC series A 0.5% 2024 cv. sr. deb.
(BBB) (exch. for ADR representing Teva Pharmaceutical
Industries Ltd. common stock) ......................................... 985,000
1,000,000 Teva Pharmaceutical Finance II, LLC series B 0.25% 2024 cv. sr. deb.
(BBB) (exch. for ADR representing Teva
Pharmaceutical Industries Ltd. common stock) .......................... 990,000
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8,281,908
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RETAIL -- 4.4%
1,250,000 Casual Male Retail Group, Inc. 5% 2024 cv. sr. sub. notes (NR) ........ 1,126,563
1,000,000 Charming Shoppes, Inc. 4.75% 2012 sr. cv. notes (B2) .................. 1,111,875
1,000,000 Dick's Sporting Goods, Inc. 1.6061% 2024 sr. cv. notes (B) ............ 749,100
2,400,000 The TJX Companies, Inc. 0% 2021 LYONs (Baa1) .......................... 2,088,000
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5,075,538
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TECHNOLOGY -- 4.8%
1,000,000 Advanced Micro Devices, Inc. 4.75% 2022 cv. sr. deb. (B3) (1) ......... 1,018,750
1,191,000 Conexant Systems, Inc. 5.25% 2006 cv. sub. notes (NR) ................. 1,170,158
2,378,000 Hewlett-Packard Co., Inc. 0% 2017 LYONs (Baa1) ........................ 1,349,515
2,000,000 International Rectifier Corp. 4.25% 2007 cv. sub. notes (B2) .......... 1,987,500
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5,525,923
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PAGE 2
PORTFOLIO OF INVESTMENTS JANUARY 31, 2005 (CONTINUED)
Principal Value
Amount (Note 1)
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CONVERTIBLE BONDS AND NOTES -- (CONTINUED)
TELECOMMUNICATIONS -- 6.0%
$1,500,000 Comverse Technology, Inc. 0% 2023 ZYPS (BB-) (3) ...................... $ 2,016,975
1,000,000 Lucent Technologies, Inc. 2.75% 2023 series A cv. sr. deb. (B2) ....... 1,245,180
500,000 Lucent Technologies, Inc. 2.75% 2025 series B cv. sr. deb. (B2) ....... 655,825
1,250,000 Nortel Networks Corp. 4.25% 2008 cv. sr. notes (B3) ................... 1,203,906
750,000 Tekelec, Inc. 2.25% 2008 sr. sub. cv. notes (NR) ...................... 893,438
1,000,000 UTStarcom, Inc. 0.875% 2008 cv. notes (NR) ............................ 993,750
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7,009,074
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TOTAL CONVERTIBLE BONDS AND NOTES ..................................... $61,412,089
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Shares
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CONVERTIBLE PREFERRED STOCKS -- 20.6%
AUTOMOTIVE -- 1.1%
50,000 General Motors Corp. 6.25% 2033 series C cv. sr. deb. (Baa2) .......... 1,260,000
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BANKING/SAVINGS AND LOAN -- 6.3%
17,500 Commerce Capital Trust II 5.95% cv. trust pfd. (Baa1)
(exch. for Commerce Bancorp, Inc. common stock) ....................... 1,040,156
40,000 National Australia Bank Ltd. 7.875% exch. capital units (NR) .......... 1,544,000
20,000 New York Community Bancorp, Inc. 6% BONUSES units (Baa2) .............. 1,058,400
35,000 Sovereign Capital Trust IV 4.375% PIERS (Ba1)
(exch. for Sovereign Bancorp, Inc. common stock) (1) .................. 1,732,500
35,000 Washington Mutual Capital Trust PIERS units (Baa1)
(exch. for Washington Mutual, Inc. common stock) ...................... 1,911,875
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7,286,931
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ENERGY -- 3.1%
1,550 Chesapeake Energy Corp. 4.125% cum. cv. pfd. (NR) ..................... 1,873,563
20,000 The Williams Companies, Inc. 5.5% 2033 jr. sub. cv. deb. (B-) ......... 1,721,250
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3,594,813
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ENTERTAINMENT -- 2.4%
22,500 Emmis Communications Corp. 6.25% series A cum. cv. pfd. (Caa1) ........ 1,009,688
1,750 Radio One, Inc. 6.5% HIGH TIDES (B3) .................................. 1,771,875
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2,781,563
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FINANCIAL AND INSURANCE -- 4.8%
20 Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3) ....................... 2,072,500
20,000 Reinsurance Group of America, Inc. 5.75% PIERS (Baa2) ................. 1,215,000
100,000 The St. Paul Travelers Companies, Inc. 4.5% 2032 cv. jr.
sub. notes (Baa1) ..................................................... 2,307,500
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5,595,000
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HEALTH CARE -- 1.3%
29,000 Omnicare Capital Trust I 4% PIERS (Ba3)
(exch. for Omnicare, Inc. common stock) (1) ........................... 1,457,250
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MINING -- 1.6%
2,000 Freeport-McMoRan Copper and Gold, Inc. 5.5% cv. perpetual pfd. (B-) ... 1,909,375
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TOTAL CONVERTIBLE PREFERRED STOCKS .................................... $23,884,932
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PAGE 3
PORTFOLIO OF INVESTMENTS JANUARY 31, 2005 (CONTINUED)
Principal Value
Amount (Note 1)
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MANDATORY CONVERTIBLE SECURITIES -- 16.9% (4)
CONSUMER GOODS -- 1.8%
50,000 shs Constellation Brands, Inc. dep. shs. representing 5.75%
series A mand. cv. pfd. (B) ........................................... $ 2,032,000
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ENERGY -- 2.7%
20,000 shs Amerada Hess Corp. 7% mand. cv. pfd. ACES (Ba3) ....................... 1,547,000
30,000 shs Valero Energy Corp. 2% mand. cv. pfd. (BB+) ........................... 1,553,970
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3,100,970
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FINANCIAL AND INSURANCE -- 3.6%
15,000 shs The Chubb Corp. 7% 2005 equity units (A) (1) .......................... 421,500
54,000 shs The Chubb Corp. 7% 2006 equity units (A2) (1) ......................... 1,545,480
40,000 shs Platinum Underwriters Holdings, Ltd. 7% equity security units (NR) (1). 1,161,400
45,000 shs XL Capital, Ltd. 6.5% equity security units (A2) ...................... 1,093,860
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4,222,240
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FOODS -- 1.8%
40,000 shs Albertson's, Inc. 7.25% HITS units (Baa2) (1) ......................... 981,600
40,000 shs Lehman Brothers Holdings, Inc. 6.25% PIES (A)
(exch. for General Mills, Inc. common stock) .......................... 1,120,000
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2,101,600
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PHARMACEUTICALS -- 2.8%
31,500 shs Baxter International, Inc. 7% equity units (Baa1) (1) ................. 1,719,585
30,000 shs Schering-Plough Corp. 6% mand. cv. pfd. (Baa3) ........................ 1,548,000
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3,267,585
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TECHNOLOGY -- 3.1%
105,550 shs The Goldman Sachs Group, Inc. 7.5% mand. exch. notes (Aa3)
(exch. for EMC Corp. common stock) .................................... 1,407,773
36,395 shs The Goldman Sachs Group, Inc. 5.625% mand. exch. notes (Aa3)
(exch. for Intel Corp. common stock) .................................. 827,113
$2,000,000 Lehman Brothers Holdings, Inc. 6% 2005 YEELDS (A)
(performance linked to LSI Logic Corp. common stock) .................. 1,365,000
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3,599,886
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UTILITIES -- 1.1%
50,000 shs DTE Energy Co. 8.75% equity security units (BBB-) (1) ................. 1,317,000
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TOTAL MANDATORY CONVERTIBLE SECURITIES (4) ............................ $19,641,281
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SHORT-TERM SECURITIES -- 4.2%
COMMERCIAL PAPER -- 4.2%
4,900,000 American Express Credit Corp. (P1) (2.2% maturing 02/01/05) ........... 4,898,802
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PAGE 4
PORTFOLIO OF INVESTMENTS JANUARY 31, 2005 (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) ......................... $ 10,976
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TOTAL SHORT-TERM SECURITIES ........................................... 4,909,778
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TOTAL CONVERTIBLE BONDS AND NOTES -- 52.9% ............................ 61,412,089
TOTAL CONVERTIBLE PREFERRED STOCKS -- 20.6% ........................... 23,884,932
TOTAL MANDATORY CONVERTIBLE SECURITIES -- 16.9% ....................... 19,641,281
TOTAL SHORT-TERM SECURITIES -- 4.2% ................................... 4,909,778
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TOTAL INVESTMENTS -- 94.6% ............................................ 109,848,080
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OTHER ASSETS AND LIABILITIES, NET -- 5.4% ............................. 6,250,259
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TOTAL NET ASSETS -- 100.0% ............................................ 116,098,339
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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 amended (e.g.,
the security was purchased in a Rule 144A transaction). The security may be
resold only pursuant to an exemption from registration under the 1933 Act,
typically to qualified institutional buyers. The Fund generally has no
rights to demand registration of such securities. The aggregate market
value of these unregistered securities at January 31, 2005 was $6,706,288,
which represented 5.8% 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.
HIGH TIDES Remarketable Term Income Deferrable Equity Securities.
HITS Hybrid Income Term Securities.
LYONs Liquid Yield Option Notes.
PIES Premium Income Exchangeable Securities.
PIERS Preferred Income Equity Redeemable Securities.
YEELDS Yield Enhanced Equity Linked Debt Securities.
ZYPS Zero Yield Puttable Securities.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's.
NR is used whenever a rating is unavailable.
PAGE 5
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
Bancroft Convertible Fund, Inc. (the "Fund"), established in 1971, is
registered under the Investment Company Act of 1940 as a diversified, closed-
end management investment company. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements:
(a) Security Valuation
Investments in securities traded on a national securities exchange are valued
at market using the last reported sales price as of the close of regular
trading. Unlisted securities traded in the over-the-counter market and listed
securities for which no sales were reported, are valued at the mean between
closing reported bid and asked prices as of the close of regular trading.
Securities for which quotations are not readily available, restricted
securities and other assets are valued at fair value as determined in good
faith by management with the approval of the Board of Directors. Short-term
debt securities with original maturities of 60 days or less are valued at
amortized cost.
(b) Securities Transactions and Related Investment Income
Security transactions are accounted for on the trade date (date the order to
buy or sell is executed) with gain or loss on the sale of securities being
determined based upon identified cost. Dividend income is recorded on the ex-
dividend date and interest income is recorded on the accrual basis, including
accretion of discounts and amortization of non-equity premium. For certain
securities, known as "contingent payment debt instruments," Federal tax
regulations require the Fund to record non-cash, "contingent" interest income
in addition to interest income actually received. Contingent interest income
amounted to approximately 3 cents per share for the quarter ended January 31,
2005. In addition, Federal tax regulations require the Fund to reclassify
realized gains on contingent payment debt instruments to interest income. At
January 31, 2005 there were unrealized losses of approximately 7 cents per
share on contingent payment debt instruments.
(c) Federal Income Taxes
The Fund's policy is to distribute substantially all of its taxable income
within the prescribed time and to otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. Therefore,
no provision for federal income or excise taxes is believed necessary.
The capital loss carryforward represents tax basis capital losses which may be
carried over to offset future realized capital gains. To the extent that the
carryforward is used, no capital gains distributions will be made. At October
31, 2004, the Fund had available for federal income tax purposes unused capital
losses of $4,470,204, available to offset future net capital gains, $4,045,634
of which expires in 2010 and $424,570 of which expires in 2011. The Fund
utilized net capital loss carryforwards of $3,760,644 during the fiscal year
ended October 31, 2004.
(d) Distributions to Shareholders
Distributions to shareholders from net investment income are recorded by the
Fund on the ex-dividend date. Distributions from capital gains, if any, are
recorded on the ex-dividend date and paid annually. The amount and character
of income and capital gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted accounting
principles. The tax character of distributions paid during the fiscal years
ended October 31, 2004 and 2003 were $3,826,570 and $3,445,042, respectively,
both from ordinary income.
PAGE 6
Notes to Financial Statements (continued)
(e) Market Risk
It is the Fund's policy to invest at least 80% of its assets in convertible
securities. Although convertible securities do derive part of their value from
that of the securities into which they are convertible, they are not considered
derivative financial instruments. However, certain of the Fund's investments
include features which render them more sensitive to price changes of their
underlying securities. Thus they expose the Fund to greater downside risk than
traditional convertible securities, but generally less than that of the
underlying common stock. The market value of those securities was $19,641,281
at January 31, 2005, representing 16.9% of net assets.
For the complete Notes to Financial Statements see the Annual Report to
Shareholders, dated October 31, 2004.
ITEM 2. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) The Registrant's principal executive officer and principal financial
officer, or persons performing similar functions, have concluded that the
Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940, as amended (the "Act"),
(17 CFR 270.30a-3(c))) are effective as of March 15, 2005, based on the
evaluation of these controls and procedures required by Rule 30a-3(b) under
the Act (and 15d-15(b) under the Securities Exchange Act of 1934, as amended
(17 CFR 240.15d-15(b)).
(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.
Separate certifications of the principal executive officer and the principal
financial officer of the Registrant, as required by Rule 30a-2(a) under the
Investment Company Act of 1940, are filed herewith.
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: March 31, 2005
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: March 31, 2005
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: March 31, 2005