UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02151
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BANCROFT FUND LTD.
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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 FUND LTD.
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: October 31, 2006
ITEM 1. REPORTS TO STOCKHOLDERS.
BANCROFT FUND LTD.
2006 ANNUAL REPORT
OCTOBER 31, 2006
Bancroft Fund Ltd. (successor to 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 apprectiation -- which objectives the Fund considers to
be relatively equal, over the long-term, due to the nature of the securities in
which it invests.
HIGHLIGHTS
PERFORMANCE THROUGH OCTOBER 31, 2006 WITH DIVIDENDS REINVESTED
Calendar Annualized 10 Year
YTD 1 Year 5 Years 10 Years Volatility(c)
-------- ------ ------- -------- -----------
Bancroft market price ...................... 10.03% 13.29% 4.80% 8.56% 11.54%
Bancroft net asset value ................... 9.08 11.06 5.60 7.03 10.04
Closed-end convertible fund average (NAV)(a) 10.38 12.82 7.34 6.97 9.51
S&P 500 Index (a)........................... 12.06 16.34 7.24 8.63 17.82
Merrill Lynch All Convertibles Index (a).... 10.23 13.13 8.26 8.57 15.60
Lehman Aggregate Bond Total Return Index (b) 3.74 5.19 5.67 6.98 4.07
(a) From Bloomberg L.P. pricing service
(b) From Lipper, Inc. Closed-End Fund Performance Analysis, dated
October 31, 2006
(c) Volatility is a measure of risk based on the standard deviation of the
return. The greater the volatility, the greater the chance of a profit or
risk of a loss.
Bancroft's performance in the table above has not been adjusted for the fiscal
2004 rights offering; net asset value dilution was 2.38%. Performance data
represent past results and do not reflect future performance.
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QUARTERLY HISTORY OF NAV AND MARKET PRICE
Net Asset Values Market Prices (AMEX, symbol BCV)
Qtr. Ended High Low Close High Low Close
---------- ------ ------ ------ ------ ------ ------
Jan. 06 $22.06 $20.90 $22.06 $18.65 $17.53 $18.62
Apr. 06 22.23 21.69 22.20 18.90 18.41 18.69
Jul. 06 22.38 21.05 21.72 18.93 18.08 18.32
Oct. 06 22.63 21.58 22.55 19.33 18.34 19.30
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DIVIDEND DISTRIBUTIONS (12 MONTHS)
Record Payment Capital *Corporate
Date Date Income Gains Deduction
-------- -------- ------ ------- ----------
12/02/05 12/27/05 $0.243 -- 19%
3/16/06 3/30/06 0.180 -- 16
6/15/06 6/29/06 0.180 -- 16
9/14/06 9/28/06 0.180 -- 16
------
$0.783
======
* Percentage of each ordinary income distribution qualifying for the corporate
dividend received tax deduction.
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To Our Shareholders ------------------------------------------------------------
December 7, 2006
For the fiscal year ended October 31, 2006, Bancroft has declared a
dividend of $0.731 per share which includes a $0.466 distribution of realized
long-term capital gains. The Fund's largest realized gains came from its
investments in Amerada Hess, Valero, Maverick Tube and The Williams Companies.
Our largest gains were in energy related issues while our largest losses were in
some banking and pharmaceutical convertibles. The gains realized this year were
larger than both the loss carryforward from prior years and the losses taken in
the rest of the portfolio.
The convertible market in calendar 2006 has seen substantial activity as
Citigroup Investment Research reports that there have been $58 billion of new
domestic convertibles issued, putting the convertible market on track to
exceed $60 billion for the first time since 2003. This has been roughly enough
to keep up with the redemptions of convertibles this year.
We continue to see a decline in the average yield as Citigroup has measured the
average current yield at 3.1%, down from 3.7% a year ago. Offsetting this
decline in yield is a drop in the average conversion premium to 26.8% from
31.3% a year ago. These changes make the average convertible somewhat more
equity sensitive and more volatile than they were a year ago. While we
continue to see attractive opportunities in this market, the average
convertible appears to be at a modest premium to some measures of theoretical
value. This leads us to the conclusion that convertibles as a group appear to
be fairly valued and opportunities are more likely to be found in
individual convertible issues with compelling underlying stocks.
As noted above, the Fund made profits from its energy holdings. These holdings
have been less profitable since early summer but we still believe that energy
is attractive due to our expectation of global economic growth. The Fund's
exposure to telecommunications, pharmaceuticals and banking has been
helpful of late. On the other hand, performance has been hurt by our exposure
to aerospace and defense.
As seen in the Highlights section of this report, we have added a new column
which reflects the ten year volatility (as measured by the standard deviation)
of the various performance figures. Many market professionals consider the
volatility of past returns to be a useful approximation of the past levels of
risk in the Fund. A higher volatility level equates to a higher measure of
risk. This measure of historic results may not reflect future performance but
we believe that it is informative. We have also added the Merrill Lynch All
Convertibles Index, a market-weighted index consisting of every domestic
security in the convertibles universe rated B- or higher, and with a market
value of more than $50 million at the time of inclusion. We believe this index
provides a useful comparison to the Fund's performance since over the past five
years, while the Fund has remained predominately invested in
convertibles, many of our peers have migrated away from such a predominance to
a mixture of convertibles and non-convertibles.
The Fund's performance through fiscal 2006 reflects the style of convertible
investing intended to produce growth and income with reduced volatility.
While total return has lagged the Merrill Lynch All Convertibles Index, the
volatility of those returns, over ten years, is lower for the Fund than for the
index.
continued on the following page
Page 1
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To Our Shareholders (continued)-------------------------------------------------
On December 31, 2006 boardmember Donald M. Halsted, Jr. will retire. He has
served with distinction on the board of Bancroft for over thirty-five years.
Throughout, Don has been a strong supporter of the diversified portfolio of
convertibles concept. He has been indispensable and his contributions to the
Fund's governance are too many to recount here, having served on both the Audit
and Governance Committees. We will miss his presence.
Visit our website, www.bancroftfund.com, for additional information such as a
monthly portfolio summary which lists the Fund's largest holdings. Quarterly
updates may be found in the Financial Reports section, and other financial data
is included in press releases. We have also added the Fund's Audit and
Governance Committee charters to the website.
On November 20, 2006, the Board of Trustees declared (1) a dividend of $0.265
per share from undistributed net investment income and (2) a distribution of
$0.466 per share from undistributed net long-term capital gains, both payable
December 26, 2006, to shareholders of record at the close of business December
1, 2006.
The 2007 annual meeting of shareholders will be held on February 12, 2007.
Time and location will be included in the proxy statement, scheduled to be
mailed to shareholders on December 26, 2006. All shareholders are welcome to
attend, we hope to see you there.
/s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board
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Major Portfolio Changes by underlying common stock -----------------------------
Six months ended October 31, 2006
ADDITIONS REDUCTIONS
Advanced Micro Devices, Inc. Casual Male Retail Group, Inc.
(exchangeable from Coherent, Inc.
The Goldman Sachs Group, Inc.) Constellation Brands, Inc.
Agere Systems Inc. Freeport-McMoRan Copper and Gold, Inc.
Alleghany Corp. Hess Corp.
Alliant Techsystems Inc. Lucent Technologies, Inc.
American Medical Systems Holdings, Inc. Maverick Tube Corp.
Bristow Group Inc. St. Jude Medical, Inc.
Corning Inc. Teva Pharmaceutical Industries Ltd.
(exchangeable from Credit Suisse (convertible from Teva Pharmaceutical
First Boston (USA), Inc.) Finance Co., LLC)
MedImmune, Inc. The TJX Companies, Inc.
Nabors Industries, Inc. Washington Mutual Inc.
SanDisk Corp.
Page 2
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Largest Investment Holdings by underlying common stock--------------------------
Value % Total
(Note 1) Net Assets
------------ ----------
The Walt Disney Company . . . . . . . . . . . . . . . . . . . . . .. $4,565,000 3.6%
Disney is an entertainment company whose operations
include media networks, studio entertainment, theme
parks and resorts, consumer products, and Internet
and direct marketing.
The St. Paul Travelers Companies, Inc. . . . . . . . . . . . . . . . 3,445,000 2.7
St. Paul Travelers provides a broad range of insurance
products and services for the commercial and consumer markets.
Nuveen Investments, Inc. . . . . . . . . . . . . . . . . . . . . . . 3,296,475 2.6
Nuveen's principal activities are asset management and
related research, and the development, marketing and
distribution of investment products and services. The
company provides its services through financial
advisors who serve the affluent and high net worth
market segments.
(exchangeable from Merrill Lynch & Co., Inc. and Morgan Stanley, Inc.)
Chesapeake Energy Corp. . . . . . . . . . . . . . . . . . . . . . .. 2,779,550 2.2
Chesapeake produces oil and natural gas. The company's
operations are focused on developmental drilling and
producing property acquisitions in onshore natural gas
producing areas of the United States and Canada.
Celanese Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,550,000 2.0
Celanese is a global industrial chemicals company that
processes raw materials and natural products into
chemicals and chemical-based products.
EchoStar Communications Corp. . . . . . . . . . . . . . . . . . . .. 2,534,375 2.0
EchoStar operates a direct broadcast satellite
subscription television service in the United States.
The company also designs, manufactures, distributes
and sells set-top boxes, antennae and other digital equipment.
U.S. Bancorp. . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2,528,125 2.0
U.S. Bancorp is a diversified financial services
company that provides lending and depository
services, cash management, foreign exchange, trust
and investment management services.
Schering-Plough Corp. . . . . . . . . . . . . . . . . . . . . . . .. 2,477,700 1.9
Schering-Plough is a worldwide pharmaceutical company
that discovers and markets new therapies and treatment
programs. The company's core product groups include
allergy/respiratory, anti-infective/anticancer,
dermatalogics, and cardiovasculars, as well as
an animal health business.
Genworth Financial, Inc. . . . . . . . . . . . . . . . . . . . . . . 2,397,750 1.9
Genworth provides life insurance products,
long-term care insurance and mortgage guarantee
insurance coverage on residential mortgage loans.
(exchangeable from Citigroup Funding Inc.)
MetLife, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,369,600 1.9
------------ ----------
MetLife provides insurance and financial services
to a range of individual and institutional customers.
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $28,943,575 22.8%
============ ==========
Page 3
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MAJOR INDUSTRY EXPOSURE---------------------------------------------------------
As a percentage of Net Assets
-------------
Aerospace and Defense 5.0%
-------------
----------------------
Banking/Savings and Loan 7.8%
----------------------
-----
Chemicals 3.2%
-----
---------------------------
Energy 8.8%
---------------------------
--------------------
Entertainment 5.6%
--------------------
------------------------------------------
Financial and Insurance 16.9%
------------------------------------------
----
Health Care 2.9%
----
----
Multi-Industry 3.1%
----
-----------------------------------
Pharmaceuticals 10.1%
-----------------------------------
----------------------------------------------------
Technology 18.7%
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DIVERSIFICATION OF ASSETS-------------------------------------------------------
%Total Net Assets
October 31,
Value ----------------
Cost (Note 1) 2006 2005
------------ ------------ ------ ------
Aerospace and Defense . . . . . . . . . . . . . $ 6,809,521 $ 6,295,382 5.0% 2.6%
Automotive . . . . . . . . . . . . . . . . . .. -- -- -- 2.2
Banking/Savings and Loan . . . . . . . . . . .. 9,463,836 9,874,475 7.8 9.6
Building Products . . . . . . . . . . . . . . . 1,938,970 2,152,500 1.7 --
Chemicals . . . . . . . . . . . . . . . . . . . 4,082,152 4,079,600 3.2 3.4
Consumer Goods . . . . . . . . . . . . . . . .. 1,000,000 1,398,750 1.1 2.6
Energy . . . . . . . . . . . . . . . . . . . .. 11,098,150 11,150,900 8.8 13.1
Entertainment . . . . . . . . . . . . . . . . . 6,620,307 7,099,375 5.6 4.3
Financial and Insurance . . . . . . . . . . . . 19,221,912 21,423,606 16.9 15.4
Financial Services . . . . . . . . . . . . . .. 2,280,953 2,155,000 1.7 0.8
Foods . . . . . . . . . . . . . . . . . . . . . 2,078,367 2,150,600 1.7 2.6
Health Care . . . . . . . . . . . . . . . . . . 3,754,679 3,739,375 2.9 3.1
Mining . . . . . . . . . . . . . . . . . . . .. 125,000 129,213 0.1 1.9
Multi-Industry . . . . . . . . . . . . . . . .. 3,591,608 3,875,000 3.1 0.7
Pharmaceuticals . . . . . . . . . . . . . . . . 11,760,924 12,778,251 10.1 10.5
Real Estate . . . . . . . . . . . . . . . . . . 1,481,097 1,542,500 1.2 --
Retail . . . . . . . . . . . . . . . . . . . .. 1,471,947 1,471,875 1.2 6.4
Technology . . . . . . . . . . . . . . . . . .. 23,310,947 23,790,675 18.7 8.4
Telecommunications . . . . . . . . . . . . . .. 3,043,820 3,318,750 2.6 5.2
Utilities . . . . . . . . . . . . . . . . . . . 1,500,000 1,775,625 1.4 1.5
Short-Term Securities . . . . . . . . . . . . . 6,497,221 6,497,221 5.1 4.1
------------ ------------ ------ ------
Total Investments . . . . . . . . . . . . . . $121,131,411 126,698,673 99.9 98.4
============
Other Assets, Net of Liabilities . . . . . . .. 148,034 0.1 1.6
------------ ------ ------
Total Net Assets . . . . . . . . . . . . . .. $126,846,707 100.0% 100.0%
============ ====== ======
Page 4
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Portfolio of Investments October 31, 2006---------------------------------------
Principal Identified Value
Amount Cost (Note 1)
---------- ----------- -----------
CONVERTIBLE BONDS AND NOTES -- 57.4%
Aerospace and Defense -- 4.5%
$1,500,000 AAR Corp. 1.75% 2026 cv. sr. notes (BB) . . . . . . . .. $ 1,535,389 $ 1,642,500
1,000,000 Alliant Techsystems Inc. 2.75% 2011 cv. sr. sub.
notes (B1)(Acquired 09/07/06; Cost $1,009,134) (1) . . . 1,009,134 1,010,000
1,000,000 Ceradyne, Inc. 2.875% 2035 sr. sub.
cv. notes (NR) (2) . . . . . . . . . . . . . . . . . . . 1,130,341 1,031,250
2,000,000 DRS Technologies, Inc. 2% 2026 cv. sr. notes (B1)
(Acquired 01/30/06; Cost $2,081,616) (1,2) . . . . . . . 2,081,616 1,962,500
----------- -----------
5,756,480 5,646,250
----------- -----------
Banking/Savings and Loan -- 2.0%
2,500,000 U.S. Bancorp floating rate 2035
cv. sr. deb. (Aa2) . . . . . . . . . . . . . . . . . . . 2,500,000 2,528,125
----------- -----------
Consumer Goods -- 1.1%
1,000,000 Church & Dwight Co., Inc. 5.25% 2033
cv. sr. deb. (Ba2) . . . . . . . . . . . . . . . . . . . 1,000,000 1,398,750
----------- -----------
Energy -- 4.1%
1,000,000 Cameron International Corp. 2.50% 2026
cv. sr. notes (Baa1) . . . . . . . . . . . . . . . . . . 991,958 1,056,250
1,500,000 Nabors Industries, Inc. 0.94% 2011 sr. exchangeable
notes (A-)(exchangeable for Nabors Industries Ltd.
common stock) . . . . . . . . . . . . . . . . . . . . .. 1,491,434 1,458,750
1,000,000 Oil States International, Inc. 2.375% 2025
contingent cv. sr. notes (NR) . . . . . . . . . . . . .. 1,207,784 1,177,500
1,250,000 Rentech, Inc. 4% 2013 cv. sr. notes (NR) . . . . . . . . 1,250,000 1,550,000
----------- -----------
4,941,176 5,242,500
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Entertainment -- 5.6%
2,500,000 EchoStar Communications Corp. 5.75% 2008
cv. sub. notes (B1) . . . . . . . . . . . . . . . . . .. 2,490,306 2,534,375
4,000,000 The Walt Disney Company 2.125% 2023
cv. sr. notes (A3) . . . . . . . . . . . . . . . . . . . 4,130,001 4,565,000
----------- -----------
6,620,307 7,099,375
----------- -----------
Financial and Insurance -- 1.5%
1,590,000 FTI Consulting, Inc. 3.75% 2012 cv. sr. sub.
notes (B1) . . . . . . . . . . . . . . . . . . . . . . . 1,620,901 1,850,363
----------- -----------
Financial Services -- 1.7%
2,000,000 Euronet Worldwide, Inc. 3.50% 2025 cv. deb. (NR) (2) . . 2,280,953 2,155,000
----------- -----------
Foods -- 0.8%
1,000,000 Lehman Brothers Holdings Inc. 3% 2012 medium-term
notes (A1)(performance linked to General Mills, Inc.
common stock) (2) . . . . . . . . . . . . . . . . . . .. 1,020,367 1,050,600
----------- -----------
Health Care -- 2.9%
1,000,000 American Medical Systems Holdings, Inc. 3.25% 2036
cv. sr. sub. notes (B3) (2) . . . . . . . . . . . . . .. 1,019,500 1,141,250
1,500,000 Manor Care, Inc. 2.125% 2035 cv. sr. notes (Baa3) . . .. 1,696,146 1,745,625
1,000,000 Omnicare, Inc. 3.25% 2035 cv. sr. deb. (Ba3) (2) . . . . 1,039,033 852,500
----------- -----------
3,754,679 3,739,375
----------- -----------
Mining -- 0.1%
125,000 Minefinders Corp. Ltd. 4.5% 2011 cv. sr. notes (NR)
(Acquired 10/19/06; Cost $125,000) (1) . . . . . . . . . 125,000 129,213
----------- -----------
Multi-Industry -- 3.1%
1,500,000 LSB Industries, Inc 7% 2011 cv. sr. sub. deb. (NR) . . . 1,500,000 2,002,500
1,000,000 Lehman Brothers Holdings Inc. 1% 2011 medium-term
notes (A1)(performance linked to a basket of
common stocks) (2) . . . . . . . . . . . . . . . . . . . 1,071,962 832,500
1,000,000 Trinity Industries, Inc. 3.875% 2036
cv. sub. notes (Ba3) (2) . . . . . . . . . . . . . . . . 1,019,646 1,040,000
----------- -----------
3,591,608 3,875,000
----------- -----------
Page 5
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Portfolio of Investments October 31, 2006 (continued)---------------------------
Principal Identified Value
Amount Cost (Note 1)
---------- ----------- -----------
CONVERTIBLE BONDS AND NOTES -- continued
Pharmaceuticals -- 8.1%
$2,000,000 Alza Corp. 0% 2020 cv. sub. deb. (Aa1)
(exch. for Johnson & Johnson common stock) . . . . . . . $ 1,708,974 $ 1,862,500
1,250,000 Amgen Inc. 0.125% 2011 cv. sr. notes (A2)
(Acquired 02/14/06 - 02/15/06; Cost $1,253,225) (1) . .. 1,253,225 1,309,375
500,000 Amgen Inc. 0.375% 2013 cv. sr. notes (A2)
(Acquired 02/14/06; Cost $500,000) (1) . . . . . . . . . 500,000 525,000
1,000,000 Bristol-Myers Squibb Co. floating rate 2023
cv. sr. deb. (A2) . . . . . . . . . . . . . . . . . . .. 995,164 1,006,800
750,000 Cephalon, Inc. 2% 2015 cv. sr. sub. notes (B-) . . . . . 737,662 1,220,625
1,000,000 Ivax Corp. 4.5% 2008 cv. sr. sub. notes (NR)
(exchangeable for Teva Pharmaceutical Industries
Ltd. ADR and cash) . . . . . . . . . . . . . . . . . . . 1,000,399 1,005,000
750,000 MedImmune, Inc. 1.375% 2011 cv. sr. notes (BBB) . . . .. 750,000 849,375
750,000 MedImmune, Inc. 1.625% 2013 cv. sr. notes (BBB) . . . .. 750,000 861,563
1,750,000 Teva Pharmaceutical Finance Co. B.V. 1.75% 2026
cv. sr. deb. (Baa2) (exchangeable for Teva
Pharmaceutical Industries Ltd. ADR) . . . . . . . . . .. 1,750,000 1,660,313
----------- -----------
9,445,424 10,300,551
----------- -----------
Real Estate -- 1.2%
500,000 Archstone-Smith Operating Trust 4% 2036
exchangeable sr. notes (Baa1)
(exchangeable into Archstone-Smith Trust common stock).. 494,089 545,000
1,000,000 United Dominion Realty Trust, Inc. 3.625% 2011
cv. sr. notes (NR) (Acquired 10/06/06;
Cost $987,008) (1) . . . . . . . . . . . . . . . . . . . 987,008 997,500
----------- -----------
1,481,097 1,542,500
----------- -----------
Retail -- 1.2%
1,500,000 Amazon.com, Inc. 4.75% 2009 cv. sub. notes (B2) . . . .. 1,471,947 1,471,875
----------- -----------
Technology -- 15.5%
1,000,000 Agere Systems Inc. 6.5% 2009 cv. sub. notes (B1) . . . . 1,008,750 1,011,250
1,000,000 C&D Technologies, Inc. 5.25% 2025 cv. sr. notes (NR)
(Acquired 11/16/05; Cost $1,000,000) (1) . . . . . . . . 1,000,000 901,250
2,000,000 Citigroup Funding Inc. 1% 2010 medium-term notes (Aa1)
(exchangeable for the cash value of a basket of
technology stocks) (2) . . . . . . . . . . . . . . . . . 2,088,424 1,944,600
2,000,000 Credit Suisse First Boston (USA), Inc. 15.55% 2007
equity-linked notes (Aa3)
(exchangeable for Corning Inc. common stock) . . . . . . 2,000,000 1,929,600
1,000,000 Conexant Systems, Inc. 4% 2026 cv. sub. notes (NR) . . . 987,769 885,000
2,000,000 Intel Corp. 2.95% 2035 jr. sub. cv. deb. (A-) (2) . . .. 1,929,851 1,825,000
2,250,000 International Rectifier Corp. 4.25% 2007
cv. sub. notes (B1) . . . . . . . . . . . . . . . . . .. 2,247,633 2,235,937
1,500,000 LSI Logic Corp. 4% 2010 cv. sub. notes (B) . . . . . . . 1,486,545 1,606,875
1,500,000 Lehman Brothers Holdings Inc. 1% 2009 medium-term notes(A1)
(performance linked to Microsoft Corp. common
stock) (2) . . . . . . . . . . . . . . . . . . . . . . . 1,536,404 1,515,300
1,000,000 Richardson Electronics, Ltd. 8% 2011 cv.
sr. sub. notes (NR) (Acquired 11/21/05;
Cost $1,000,000) (1) . . . . . . . . . . . . . . . . . . 1,000,000 1,113,750
1,100,000 SanDisk Corp. 1% 2013 cv. sr. notes (BB-) . . . . . . .. 1,108,301 1,002,375
1,000,000 Sybase, Inc. 1.75% 2025 cv. sub. notes (NR) . . . . . .. 994,046 1,118,750
1,000,000 Symantec Corp. 1% 2013 cv. sr. notes (NR)
(Acquired 06/13/06; Cost $992,890) (1) . . . . . . . . . 992,890 1,168,750
1,400,000 Vishay Intertechnology, Inc. 3.625% 2023
cv. sub. notes (B3) . . . . . . . . . . . . . . . . . .. 1,360,723 1,396,500
----------- -----------
19,741,336 19,654,937
----------- -----------
Page 6
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Portfolio of Investments October 31, 2006 (continued)---------------------------
Principal Identified Value
Amount Cost (Note 1)
---------- ----------- -----------
CONVERTIBLE BONDS AND NOTES -- continued
Telecommunications -- 2.6%
$2,000,000 Tekelec 2.25% 2008 sr. sub. cv. notes (NR) . . . . . . . $ 2,016,888 $ 2,035,000
1,000,000 Time Warner Telecom Inc. 2.375% 2026 cv.
sr. deb. (Caa1) . . . . . . . . . . . . . . . . . . . .. 1,026,932 1,283,750
----------- -----------
3,043,820 3,318,750
----------- -----------
Utilities -- 1.4%
1,500,000 CMS Energy Corp. 2.875% 2024 cv. sr. notes (Ba3) . . . . 1,500,000 1,775,625
----------- -----------
TOTAL CONVERTIBLE BONDS AND NOTES . . . . . . . . . . .. $69,895,095 $72,778,789
----------- -----------
Shares CONVERTIBLE PREFERRED STOCKS -- 20.2%
----------
Aerospace and Defense -- 0.5%
40,000 Ionatron, Inc. 6.5% Series A redeemable cv. pfd. (NR)
(Acquired 10/27/05; Cost $1,000,000) (1) . . . . . . . . 1,000,000 620,000
----------- -----------
Banking/Savings and Loan -- 5.8%
40,000 National Australia Bank Ltd. 7.875% exch.
capital units (NR) . . . . . . . . . . . . . . . . . . . 1,038,700 1,914,000
45,000 New York Community Bancorp, Inc. 6% BONUSES
units (Baa2) . . . . . . . . . . . . . . . . . . . . . . 2,303,400 2,090,250
35,000 Sovereign Capital Trust IV 4.375% PIERS (Baa2)
(exchangeable for Sovereign Bancorp, Inc.
common stock)(2) . . . . . . . . . . . . . . . . . . . . 2,017,236 1,697,500
30,000 Washington Mutual Capital Trust 5.375% PIERS units (BBB)
(exchangeable for Washington Mutual, Inc.
common stock) . . . . . . . . . . . . . . . . . . . . .. 1,604,500 1,644,600
----------- -----------
6,963,836 7,346,350
----------- -----------
Building Products -- 1.7%
35,000 TXI Capital Trust I 5.5% SPuRS (B2)
(exchangeable for Texas Industries, Inc.
common stock) . . . . . . . . . . . . . . . . . . . . .. 1,938,970 2,152,500
----------- -----------
Chemicals -- 2.0%
85,000 Celanese Corp. 4.25% cv. perpetual pfd. (NR) . . . . . . 2,070,748 2,550,000
----------- -----------
Energy -- 3.3%
25,000 Chesapeake Energy Corp. 4.5% cum. cv. pfd. (B+) . . . .. 2,566,320 2,505,750
9,000 SEMCO Energy, Inc. 5% Series B cv. cum. pfd. (B-) . . .. 1,835,154 1,685,250
----------- -----------
4,401,474 4,191,000
----------- -----------
Financial and Insurance -- 6.9%
75,000 Citigroup Funding Inc. variable rate exch. notes (Aa1)
(exchangeable for Genworth Financial, Inc.
common stock) . . . . . . . . . . . . . . . . . . . . .. 2,212,500 2,397,750
15 Fannie Mae 5.375% non-cumulative cv. pfd. (Aa3)
(Acquired 12/30/04 - 01/11/05; Cost $1,578,125) (1) . .. 1,578,125 1,453,123
20,000 Reinsurance Group of America, Inc.
5.75% PIERS (Baa2) . . . . . . . . . . . . . . . . . . . 1,000,000 1,415,000
132,500 The St. Paul Travelers Companies, Inc. 4.5% 2032
cv. jr. sub. notes (Baa1) . . . . . . . . . . . . . . .. 3,249,675 3,445,000
----------- -----------
8,040,300 8,710,873
----------- -----------
TOTAL CONVERTIBLE PREFERRED STOCKS . . . . . . . . . . . $24,415,328 $25,570,723
----------- -----------
Page 7
--------------------------------------------------------------------------------
Portfolio of Investments October 31, 2006 (continued)---------------------------
Identified Value
Shares Cost (Note 1)
---------- ----------- -----------
MANDATORY CONVERTIBLE SECURITIES -- 17.2% (3)
Chemicals -- 1.2%
40,000 Huntsman Corp. 5% 02/16/08 mandatory cv. pfd. (NR) . . . $ 2,011,404 $ 1,529,600
----------- -----------
Energy -- 1.3%
30,000 Bristow Group Inc. 5.5% 09/15/09 mandatory
cv. pfd. (NR) . . . . . . . . . . . . . . . . . . . . .. 1,505,500 1,443,600
1,000 Chesapeake Energy Corp. 6.25% 06/15/09 mandatory
cv. pfd. (B+) . . . . . . . . . . . . . . . . . . . . .. 250,000 273,800
----------- -----------
1,755,500 1,717,400
----------- -----------
Financial and Insurance -- 8.6%
7,000 Alleghany Corp. 5.75% 06/15/09 mandatory
cv. pfd. (BBB-) . . . . . . . . . . . . . . . . . . . .. 1,852,200 2,086,000
43,500 E*TRADE Financial Corp. 6.125% 11/18/08 equity
units (Ba3) . . . . . . . . . . . . . . . . . . . . . .. 1,120,063 1,305,870
30,000 Merrill Lynch & Co., Inc. 6.75% 10/15/07
mandatorily exchangeable securities (Aa3)
(exchangeable for Nuveen Investments, Inc.
common stock) . . . . . . . . . . . . . . . . . . . . .. 1,020,000 1,310,400
80,000 MetLife, Inc. 6.375% 08/15/08 common equity
units (BBB+) . . . . . . . . . . . . . . . . . . . . . . 2,084,000 2,369,600
45,500 Morgan Stanley, Inc. 5.875% 10/15/08
mandatorily exchangeable securities (Aa3)
(exchangeable for Nuveen Investments,
Inc. common stock) . . . . . . . . . . . . . . . . . . . 1,572,500 1,986,075
45,000 XL Capital, Ltd. 6.5% 05/15/07 equity
security units (A3) . . . . . . . . . . . . . . . . . .. 1,137,000 1,031,625
30,000 XL Capital, Ltd. 7% 02/15/09 equity
security units (A3) . . . . . . . . . . . . . . . . . .. 774,948 772,800
----------- -----------
9,560,711 10,862,370
----------- -----------
Foods -- 0.9%
40,000 Lehman Brothers Holdings Inc. 6.25% 10/15/07 PIES (A1)
(exchangeable for General Mills, Inc. common stock) . .. 1,058,000 1,100,000
----------- -----------
Pharmaceuticals -- 2.0%
45,000 Schering-Plough Corp. 6% 09/14/07 mand.
cv. pfd. (Baa3) . . . . . . . . . . . . . . . . . . . .. 2,315,500 2,477,700
----------- -----------
Technology -- 3.2%
30,000 Credit Suisse First Boston (USA), Inc. 5.5% 11/15/08
SAILS (Aa3)(exchangeable for Equinix, Inc.
common stock) . . . . . . . . . . . . . . . . . . . . .. 1,069,200 1,861,200
98,850 The Goldman Sachs Group, Inc. 14.75% 06/22/07
mandatory exchangeable notes (NR)
(exchangeable for Advanced Micro Devices, Inc.
common stock) (Acquired 06/14/06;
Cost $2,500,411) (1) . . . . . . . . . . . . . . . . . . 2,500,411 2,274,538
----------- -----------
3,569,611 4,135,738
----------- -----------
TOTAL MANDATORY CONVERTIBLE SECURITIES (3) . . . . . . . $20,270,726 $21,822,808
----------- -----------
COMMON STOCKS -- 0.0%
Aerospace and Defense -- 0.0%
6,606 Ionatron, Inc. (Acquired 04/17/05 -
10/11/06; Cost $53,041) (1,4) . . . . . . . . . . . . .. 53,041 29,132
----------- -----------
Page 8
--------------------------------------------------------------------------------
Portfolio of Investments October 31, 2006 (continued)---------------------------
Principal Identified Value
Amount Cost (Note 1)
---------- ----------- -----------
SHORT-TERM SECURITIES -- 5.1%
$6,500,000 Commercial Paper -- 5.1%
American Express Credit Corp. 5.13% 11/02/06 (P1) . . . $ 6,497,221 $ 6,497,221
----------- ------------
Total Convertible Bonds and Notes -- 57.4% . . . . . . . 69,895,095 72,778,789
Total Convertible Preferred Stocks -- 20.2% . . . . . .. 24,415,328 25,570,723
Total Mandatory Convertible Securities -- 17.2% . . . .. 20,270,726 21,822,808
Total Common Stocks -- 0.0% . . . . . . . . . . . . . .. 53,041 29,132
Total Short-Term Securities -- 5.1% . . . . . . . . . .. 6,497,221 6,497,221
----------- ------------
Total Investments -- 99.9% . . . . . . . . . . . . . . . $121,131,411 126,698,673
===========
Other assets and liabilities, net -- 0.1% . . . . . . .. 148,034
------------
Total Net Assets -- 100.0% . . . . . . . . . . . . . . . $126,846,707
============
(1)Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A or a Reg 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 October 31, 2006 was
$13,494,131 which represented 10.6% of the Fund's net assets.
(2)Contingent payment debt instrument which accrues contingent interest. See
Note 2.
(3)These securities are required to be converted on the dates listed; they
generally may be converted prior to these dates at the option of the holder.
(4)Non-income producing security.
ADR American Depositary Receipts.
BONUSES Bifurcated Option Note Unit Securities.
PIES Premium Income Exchangeable Securities.
PIERS Preferred Income Equity Redeemable Securities.
SAILS Shared Appreciation Income Linked Securities.
SPuRS Shared Preference Redeemable Securities.
Ratings in parentheses by Moody's Investors Service, Inc. or Standard & Poor's.
NR is used whenever a rating is unavailable.
Page 9
--------------------------------------------------------------------------------
Statement of Assets and Liabilities---------------------------------------------
October 31, 2006
----------------
Assets:
Investments at value (cost $121,131,411) (Note 1) . . . . . . $126,698,673
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 344,467
Receivable for securities sold . . . . . . . . . . . . . . .. 264,975
Dividends and interest receivable . . . . . . . . . . . . . . 830,182
Other assets . . . . . . . . . . . . . . . . . . . . . . . .. 41,034
----------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . .. 128,179,331
----------------
Liabilities:
Payable for securities purchased . . . . . . . . . . . . . .. 1,283,667
Accrued management fee (Note 2) . . . . . . . . . . . . . . . 11,725
Accrued expenses . . . . . . . . . . . . . . . . . . . . . .. 23,432
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 13,800
----------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 1,332,624
----------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. $126,846,707
================
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . $ 742,627
Accumulated net realized gain from investment
transactions . . . . . . . . . . . . . . . . . . . . . . .. 3,230,750
Unrealized appreciation on investments . . . . . . . . . . .. 5,567,262
Capital shares (Note 3) . . . . . . . . . . . . . . . . . . . 56,251
Additional paid-in capital . . . . . . . . . . . . . . . . .. 117,249,817
----------------
Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. $126,846,707
================
Net asset value per share ($126,846,707 /
5,625,134 outstanding shares) . . . . . . . . . . . . . . . . $ 22.55
================
--------------------------------------------------------------------------------
Statement of Operations---------------------------------------------------------
For the Year Ended October 31, 2006
Investment Income (Note 1):
Interest . . . . . . . . . . . . . . . . . . . . . . . . . .. $ 3,402,586
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 2,446,805
Other income . . . . . . . . . . . . . . . . . . . . . . . .. 20,000
----------------
Total Income . . . . . . . . . . . . . . . . . . . . . . .. 5,869,391
----------------
Expenses (Note 2):
Management fee . . . . . . . . . . . . . . . . . . . . . . .. 865,804
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 17,484
Transfer agent . . . . . . . . . . . . . . . . . . . . . . .. 30,116
Audit fees . . . . . . . . . . . . . . . . . . . . . . . . .. 44,200
Legal fees . . . . . . . . . . . . . . . . . . . . . . . . .. 72,254
Trustees' fees . . . . . . . . . . . . . . . . . . . . . . .. 121,375
Reports to shareholders . . . . . . . . . . . . . . . . . . . 101,298
Administrative services fees . . . . . . . . . . . . . . . .. 25,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,678
----------------
Total Expenses . . . . . . . . . . . . . . . . . . . . . .. 1,390,209
----------------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . 4,479,182
----------------
Realized and Unrealized Gain on Investments:
Net realized gain from investment transactions . . . . . . .. 7,233,885
Net change in unrealized appreciation of investments . . . .. 1,251,584
----------------
Net gain on investments . . . . . . . . . . . . . . . . . . . 8,485,469
----------------
Net Increase in Net Assets Resulting from Operations . . . .. $ 12,964,651
================
See accompanying notes to financial statements
Page 10
--------------------------------------------------------------------------------
Statements of Changes in Net Assets---------------------------------------------
For the Years Ended October 31, 2006 and 2005
2006 2005
------------ ------------
Change in net assets from operations:
Net investment income . . . . . . . . . . . . . . . . . . . . $ 4,479,182 $ 3,568,764
Net realized gain from investment transactions . . . . . . .. 7,233,885 414,909
Net change in unrealized appreciation of investments . . . . 1,251,584 3,577,352
------------ ------------
Net increase in net assets resulting from operations . . . 12,964,651 7,561,025
------------ ------------
Dividends to shareholders from:
Net investment income . . . . . . . . . . . . . . . . . . . . (4,395,566) (3,894,853)
------------ ------------
Capital share transactions (Note 3) . . . . . . . . . . . . .. 655,492 582,476
------------ ------------
Change in net assets . . . . . . . . . . . . . . . . . . . . .. 9,224,577 4,248,648
Net assets at beginning of period . . . . . . . . . . . . . . . 117,622,130 113,373,482
------------ ------------
Net assets at end of period . . . . . . . . . . . . . . . . .. $126,846,707 $117,622,130
============ ============
Undistributed net investment income at end of period . . . $ 742,627 $ 659,011
============ ============
--------------------------------------------------------------------------------
Notes to Financial Statements---------------------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a)Organization -- Bancroft Fund Ltd. (successor to Bancroft Convertible Fund,
Inc. (established in 1971)) (the "Fund"), is registered under the Investment
Company Act of 1940 as a diversified, closed-end management investment company.
On March 17, 2006, the Fund was reorganized as a Delaware statutory trust from a
Delaware corporation.
(b) Use of Estimates -- 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.
(c) Indemnification -- Under the Fund's organizational documents, each trustee,
officer or other agent of the Fund (including the Fund's investment adviser) is
indemnified against certain liabilities that may arise out of performance of
their duties to the Fund. Additionally, in the normal course of business, the
Fund enters into contracts that contain a variety of indemnification clauses.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. The risk of material loss as a result of such indemnification is
considered remote.
(d) Federal Income Taxes -- The Fund's policy is to distribute substantially all
of its taxable income within the prescribed time and to otherwise comply with
the provisions of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no provision for federal income or excise taxes is
believed necessary. At October 31, 2006, the Fund utilized capital loss
carryforward of $4,596,296 available to the extent allowed by tax law to offset
net capital gains. As of October 31, 2006, the Fund had no capital loss
carryforwards.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax return to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Management has not completed
their analysis on whether the adoption of FIN 48 will have an impact on the
financial statements.
Page 11
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)---------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
(e) 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. 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. Unlisted securities traded in
the over-the-counter market are valued using an evaluated quote provided by an
independent pricing service. The independent pricing service derives an
evaluated quote by obtaining dealer quotes, analyzing the listed markets,
reviewing trade execution data and employing sensitivity analysis. Evaluated
quotes may also reflect appropriate factors such as individual characteristics
of the issue, communications with broker-dealers, and other market data.
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 pursuant to procedures approved by the
Board of Trustees. Short-term debt securities with original maturities of 60
days or less are valued at amortized cost.
(f) 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 13 cents per
share for the year ended October 31, 2006. In addition, Federal tax
regulations require the Fund to reclassify realized gains on contingent payment
debt instruments to interest income. At October 31, 2006 there were unrealized
losses of approximately 8 cents per share on contingent payment debt
instruments.
(g) Change in Method of Accounting - Effective November 1, 2004, the Fund began
amortizing discounts and premiums on all debt securities. Prior to November 1,
2004, the Fund amortized discounts on original issue discount debt securities.
The new method of amortization was adopted in accordance with the provisions of
the AICPA Audit and Accounting Guide, Audits of Investment Companies and the
financial highlights and statement of changes in net assets presented herein
have been restated to reflect the new method retroactive to November 1, 2001.
The effect of this accounting change is included in the financial highlights for
the years ended October 31, 2002, 2003 and 2004. The cumulative effect of this
accounting change had no impact on the total net assets of the Fund or on
distributions for tax purposes, but resulted in a $103,986 increase in the cost
of securities held and a corresponding $103,986 reduction in the net unrealized
gains based on the securities held on November 1, 2001. These changes had no
effect on previously reported total net assets or total returns.
(h) 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, 2006 and 2005 were
$4,395,566 and $3,894,853, respectively, both from ordinary income.
At October 31, 2006 the components of distributable net assets and federal tax
cost were as follows:
Unrealized appreciation $ 9,273,673
Unrealized depreciation (3,829,223)
------------
Net unrealized appreciation 5,444,450
Undistributed ordinary income 1,480,740
Undistributed capital gains 2,615,450
------------
Total distributable net assets $ 9,540,640
============
Cost for federal income tax purposes $121,254,223
Page 12
--------------------------------------------------------------------------------
Notes to Financial Statements (continued)---------------------------------------
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Market Risk - It is the Fund's policy to invest at least 65% of its assets
(consisting of net assets plus the amount of any borrowings for investment
purposes) in convertible securities. Although convertible securities do derive
part of their value from that of the securities into which they are convertible,
they are not considered derivative financial instruments. However, certain of
the Fund's investments include features which render them more sensitive to
price changes of their underlying securities. Thus they expose the Fund to
greater downside risk than traditional convertible securities, but generally
less than that of the underlying common stock. The market value of those
securities was $21,822,808 at October 31, 2006, representing 17.2% of net
assets.
(j) New Accounting Pronouncements - In September 2006, the Financial Accounting
Standards Board (FASB) issued Statement on Financial Accounting Standards
(SFAS) No. 157, "Fair Value Measurements." This standard establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. The changes to current generally accepted accounting
principles from the application of this Statement relate to the definition of
fair value, the methods used to measure fair value, and the expanded
disclosures about fair value measurements. As of October 31, 2006, the Fund
does not believe the adoption of SFAS No. 157 will impact the financial
statement amounts, however, additional disclosures may be required about the
inputs used to develop the measurements and the effect of certain of the
measurements on changes in net assets for the period.
NOTE 2 - MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an investment advisory agreement with Davis-Dinsmore
Management Company ("Davis-Dinsmore"). Pursuant to the investment advisory
agreement, Davis-Dinsmore provides the Fund with investment advice, office
space and facilities. Under the terms of the investment advisory agreement,
the Fund pays Davis-Dinsmore on the last day of each month an advisory fee for
such month computed at an annual rate of 0.75% of the first $100,000,000 and
0.50% of the excess over $100,000,000 of the Fund's net asset value in such
month.
The Fund, pursuant to an administrative services agreement with Davis-Dinsmore,
has agreed to pay Davis-Dinsmore for certain accounting and other administrative
services provided to the Fund. Under the administrative services agreement, the
Fund pays Davis-Dinsmore compensation in the amount of $25,000 per year, payable
on a monthly basis. Effective January 1, 2007, the Fund will pay Davis-Dinsmore
on the last day of each month a fee for such month computed at an annual rate of
0.05% of the Fund's net asset value in such month.
Certain officers and trustees of the Fund are officers and directors of Davis-
Dinsmore.
NOTE 3 - PORTFOLIO ACTIVITY
At October 31, 2006 there were 5,625,134 shares of beneficial interest
outstanding, with a par value of $0.01 per share. During the years ended
October 31, 2006 and 2005, 36,681 shares and 31,315 shares were issued in
connection with reinvestment of dividends from net investment income, resulting
in an increase in paid-in capital of $655,492 and $582,476, respectively.
Purchases and sales of investments, exclusive of corporate short-term notes,
aggregated $67,500,867 and $68,023,810, respectively, for the year ended
October 31, 2006.
A distribution of $0.731 per share, consisting of $0.265 from net investment
income, and $0.466 long-term capital gains was declared on November 20, 2006,
payable December 26, 2006 to shareholders of record at the close of business
December 1, 2006.
Page 13
--------------------------------------------------------------------------------
Financial Highlights Selected data for a share of beneficial interest-----------
outstanding:
Year Ended October 31,
---------------------------------------------------
2006 2005 2004 2003 2002
---------------------------------------------------
Operating Performance:
Net asset value, beginning of year . . . . .$ 21.05 $ 20.40 $ 20.84 $ 18.55 $ 20.72
---------------------------------------------------
Net investment income . . . . . . . . . . .. 0.80 0.64 0.70(a) 0.71(a) 0.79(a)
Adjustment for change in
amortization policy . . . . . . . . . . .. -- -- (0.02) (0.02) --
---------------------------------------------------
Net investment income, as adjusted . . .. 0.80 0.64 0.68 0.69 0.79
---------------------------------------------------
Net realized and unrealized gain (loss) . .. 1.48 0.71 0.08(a) 2.31(a) (2.02)(a)
Adjustment for change in
amortization policy . . . . . . . . . . .. -- -- 0.02 0.02 --
---------------------------------------------------
Net realized and unrealized
gain (loss), as adjusted . . . . . . .. 1.48 0.71 0.10 2.33 (2.02)
---------------------------------------------------
Total from investment operations . . . .. 2.28 1.35 0.78 3.02 (1.23)
---------------------------------------------------
Less Distributions:
Dividends from net investment income . . .. (0.78) (0.70) (0.72) (0.73) (0.94)
Distributions from realized gains . . . . . -- -- -- -- --
---------------------------------------------------
Total distributions . . . . . . . . . . . (0.78) (0.70) (0.72) (0.73) (0.94)
---------------------------------------------------
Capital Share Transactions:
Effect of rights offering . . . . . . . . . -- -- (0.50) -- --
Capital share repurchases . . . . . . . . . -- -- -- -- --
---------------------------------------------------
Total capital share transactions . . . .. -- -- (0.50) -- --
---------------------------------------------------
Net asset value, end of year . . . . . . .. $ 22.55 $ 21.05 $ 20.40 $ 20.84 $ 18.55
===================================================
Market value, end of year . . . . . . . . . $ 19.30 $ 17.77 $ 18.23 $ 19.70 $ 17.54
Total Net Asset Value Return (%)(b) . . . . 11.1 6.7 1.3 16.7 (6.3)
Total Investment Return (%)(c) . . . . . . 13.3 1.3 (3.8) 16.7 (1.8)
Ratios/Supplemental Data:
Net assets, end of year (in thousands) . . $126,847 $117,622 $113,373 $98,486 $86,904
Ratio of expenses to average net assets (%) 1.1 1.2 1.1 1.2 1.2
Ratio of net investment income to
average net assets (%) . . . . . . . . . 3.7 3.1 3.3(d) 3.6(d) 4.0(d)
Portfolio turnover rate (%) . . . . . . . . 58 86 66 87 78
(a) As previously reported.
(b) Assumes valuation of the Fund's shares, and reinvestment of dividends, at
net asset values.
(c) Assumes valuation of the Fund's shares at market price and reinvestment of
dividends at actual reinvestment price.
(d) Ratios for 2004, 2003 and 2002 reflect ratios adjusted for change in
amortization policy. Ratios previously reported for 2004, 2003 and 2002 were
3.4%, 3.6% and 4.0%, respectively.
See accompanying notes to financial statements
Page 14
--------------------------------------------------------------------------------
Report of Independent Registered------------------------------------------------
Public Accounting Firm
To the Shareholders and Board of Trustees of
Bancroft Fund Ltd.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Bancroft Fund Ltd. (formerly Bancroft
Convertible Fund, Inc.) (the "Fund") as of October 31, 2006, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the two 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. The financial
highlights for each of the years in the three year period ended October 31, 2004
have been audited by other auditors, whose report dated November 19, 2004
expressed an unqualified opinion thereon.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform
an audit of the Fund's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also 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, 2006,
by correspondence with the custodian and brokers, or by other appropriate
auditing procedures where replies from brokers were not received. 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 Fund Ltd. as of October 31, 2006, the results of its operations for
the year then ended, the changes in its net assets and its financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
December 4, 2006
Page 15
--------------------------------------------------------------------------------
Miscellaneous Notes-------------------------------------------------------------
Automatic Dividend Investment and Cash Payment Plan
The Fund has an Automatic Dividend Investment and Cash Payment Plan (the
"Plan"). Any shareholder may elect to join the Plan by sending an application
to American Stock Transfer & Trust Company, P.O. Box 922, Church Street
Station, NY 10269-0560 (the "Plan Agent"). You may also obtain additional
information about the Plan as well as the Plan application by calling the Plan
Agent toll free at (800) 937-5449. If your shares are held by a broker or
other nominee, you should instruct the nominee to join the Plan on your behalf.
Some brokers may require that your shares be taken out of the broker's "street
name" and re-registered in your own name. Shareholders should also contact
their broker to determine whether shares acquired through participation in the
Plan can be transferred to another broker, and thereafter, whether the
shareholder can continue to participate in the Plan.
Under the Plan, all dividends and distributions are automatically invested in
additional Fund shares. Depending on the circumstances, shares may either be
issued by the Fund or acquired through open market purchases at the current
market price or net asset value, whichever is lower (but not less than 95% of
market price). When the market price is lower, the Plan Agent will combine
your dividends with those of other Plan participants and purchase shares in the
market, thereby taking advantage of the lower commissions on larger purchases.
There is no other charge for this service.
All dividends and distributions made by the Fund (including capital gain
dividends and dividends designated as qualified dividend income, which are
eligible for taxation at lower rates) remain taxable to Plan participants,
regardless of whether such dividends and distributions are reinvested in
additional shares of the Fund through open market purchases or through the
issuance of new shares. Plan participants will be treated as receiving the
cash used to purchase shares on the open market and, in the case of any
dividend or distribution made in the form of newly issued shares, will be
treated as receiving an amount equal to the fair market value of such shares as
of the reinvestment date. Accordingly, a shareholder may incur a tax liability
even though such shareholder has not received a cash distribution with which to
pay the tax.
Plan participants may also voluntarily send cash payments of $100 to $10,000
per month to the Plan Agent, to be combined with other Plan monies, for
purchase of additional Fund shares in the open market. You pay only a bank
service charge of $1.25 per transaction, plus your proportionate share of the
brokerage commission. All shares and fractional shares purchased will be held
by the Plan Agent in your dividend reinvestment account. You may deposit with
the Plan Agent any Bancroft share certificates you hold, for a one-time fee
of $7.50.
At any time, a Plan participant may instruct the Plan Agent to liquidate all or
any portion of such Plan participant's account. To do so, a Plan participant
must deliver written notice to the Plan Agent prior to the record date of any
dividend or distribution requesting either liquidation or a share certificate.
The Plan Agent will combine all liquidation requests it receives from Plan
participants on a particular day and will then sell shares of the Fund that are
subject to liquidation requests in the open market. The amount of proceeds a
Plan participant will receive shall be determined by the average sales price
per share, after deducting brokerage commissions, of all shares sold by the
Plan Agent for all Plan participants who have given the Plan Agent
liquidation requests.
The Plan Agent or the Fund may terminate the Plan for any reason at any time by
sending written notice addressed to Plan participant's address as shown on the
Plan Agent's records. Following the date of termination, the Plan Agent shall
send the Plan participant either the proceeds of liquidation, or a share
certificate or certificates for the full shares held by the Plan Agent in the
Plan participant's account. Additionally, a check will be sent for the value
of any fractional interest in the Plan participant's account based on the
market price of the Fund's shares on that date.
Page 16
--------------------------------------------------------------------------------
Miscellaneous Notes (continued)-------------------------------------------------
Notice of Privacy Policy
The Fund has adopted a privacy policy in order to protect the confidentiality of
nonpublic personal information that we have about you. We receive personal
information, such as your name, address and account balances, when transactions
occur in Fund shares registered in your name.
We may disclose this information to companies that perform services for the
Fund, such as the Fund's transfer agent or proxy solicitors. These companies
may only use this information in connection with the services they provide to
the Fund, and not for any other purpose. We will not otherwise disclose any
nonpublic personal information about our shareholders or former shareholders to
anyone else, except as required by law.
Access to nonpublic information about you is restricted to our employees and
service providers who need that information in order to provide services to you.
We maintain physical, electronic and procedural safeguards that comply with
federal standards to guard your nonpublic personal information.
--------------------------------------------------------------------------------
Change in Investment Policies
The Fund currently has a non-fundamental investment objective of investing
primarily in convertible securities with the objectives of providing income and
the potential for capital appreciation (which objectives the Fund considers to
be relatively equal due to the nature of the securities in which it invests).
The Board has approved the following new investment policy for the Fund: The
Fund will invest, under normal circumstances, at least 65% of the value of its
assets (consisting of net assets plus the amount of any borrowing for investment
purposes) in convertible securities.
The Board has eliminated the following non-fundamental policy: The Fund will
invest, under normal circumstances, at least 80% of the value of its assets
(consisting of net assets plus the amount of any borrowings for investment
purposes) in convertible securities.
These changes became effective as of September 29, 2006. Fund shareholders
were provided 60 days notice of these changes in July 2006.
--------------------------------------------------------------------------------
For More Information About Portfolio Holdings
In addition to the semi-annual and annual reports that Bancroft delivers to
shareholders and makes available through the Fund's public website, the Fund
files a complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the Fund's first and third fiscal quarters on Form N-Q.
Bancroft does not deliver the schedule of portfolio holdings for the first and
third fiscal quarters to shareholders, however the schedule is posted to the
Fund's public website, www.bancroftfund.com. You may obtain the Form N-Q
filings by accessing the SEC's website at www.sec.gov. You may also review and
copy them at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the SEC's Public Reference Room may be obtained by calling the
SEC at (800) SEC-0330.
--------------------------------------------------------------------------------
Proxy Voting Policies and Procedures / Proxy Voting Record
The Fund's policies and procedures with respect to the voting of proxies
relating to the Fund's portfolio securities is available without charge, upon
request, by calling (973) 631-1177, or at our website at www.bancroftfund.com.
This information is also available on the SEC's website at www.sec.gov. In
addition, information on how the Fund voted such proxies relating to portfolio
securities during the most recent twelve-month period ended June 30, is
available without charge at the above sources.
--------------------------------------------------------------------------------
Disclosure of Portfolio Holdings to Broker-Dealers
From time to time, brokers with whom the Fund's Adviser, Davis-Dinsmore
Management Company, has a pre-existing relationship may request that Davis-
Dinsmore disclose Fund portfolio holdings to such broker in advance of the
public disclosure of such portfolio holdings. Davis-Dinsmore may make such
disclosure under the following conditions: (i) the specific purpose of the
disclosure is to assist Davis-Dinsmore in identifying potential investment
opportunities for the Fund; (ii) prior to the receipt of nonpublic portfolio
holdings, the broker, by means of email or other written communication, shall
agree to keep the nonpublic portfolio holdings confidential and not to use the
information for the broker's own benefit, except in connection with the above
described purpose for which it was disclosed; (iii) Davis-Dinsmore shall keep
written records of its agreement with each broker to which it distributes
nonpublic portfolio holdings; and (iv) Davis-Dinsmore will secure a new
agreement with a broker any time the broker directs the nonpublic portfolio
holdings to be sent to a new recipient.
Page 17
--------------------------------------------------------------------------------
-------------------------------BOARD OF TRUSTEES--------------------------------
Each trustee is also a trustee of Ellsworth Fund Ltd.(Ellsworth)(a closed-end
management investment company). Davis-Dinsmore Management Company (Davis-
Dinsmore) is the Fund's investment adviser and is also the investment adviser to
Ellsworth. Because of this connection, the Fund and Ellsworth make up a Fund
Complex. Therefore, each trustee oversees two investment companies in the Fund
Complex.
--------------------------------------------------------------------------------
Personal Principal Occupation(s) During Past Five Years;
Information Other Directorship(s)
--------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
Gordon F. Ahalt Retired; Trustee of Ellsworth and Helix Energy
65 Madison Avenue Solutions Group, Inc. (an energy services
Suite 550 company).
Morristown, NJ 07960
Term expires 2007
Trustee since 1982
Age 78
--------------------------------------------------------------------------------
Elizabeth C. Bogan, Ph.D. Senior Lecturer in Economics at Princeton
65 Madison Avenue University; Trustee of Ellsworth.
Suite 550
Morristown, NJ 07960
Term expires 2009
Trustee since 1990
Age 62
--------------------------------------------------------------------------------
Donald M. Halsted, Jr.(1) Retired Business Executive; Trustee of
65 Madison Avenue Ellsworth.
Suite 550
Morristown, NJ 07960
Term expires 2008
Trustee since 1970
Age 79
--------------------------------------------------------------------------------
Duncan O. McKee Retired Attorney; Trustee of Ellsworth.
65 Madison Avenue
Suite 550
Morristown, NJ 07960
Term expires 2008
Trustee since 1996
Age 75
(1) Scheduled to retire effective as of December 31, 2006
PAGE 18
--------------------------------------------------------------------------------
------------------------BOARD OF TRUSTEES (CONTINUED)---------------------------
Personal Principal Occupation(s) During Past Five Years;
Information Other Directorship(s)
--------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
Robert J. McMullan Since 2005, Chief Executive Officer and director
65 Madison Avenue of Control Point Solutions, Inc.
Suite 550 (a provider of telecommunications expense
Morristown, NJ 07960 management and business process outsourcing
Term expires 2009 services); prior to 2004, Senior Vice President
Trustee since 2004 and Chief Financial Officer of Conexant Systems,
Age 52 Inc. (a semiconductor manufacturing company);
Trustee of Ellsworth.
--------------------------------------------------------------------------------
Nicolas W. Platt Since August 2006, Managing Director, Rodman &
65 Madison Avenue Renshaw, LLC (an investment banking firm);
Suite 550 prior to August 2006, President of CNC-US (an
Morristown, NJ 07960 international consulting company); prior to
Term expires 2007 January 2003, Senior Partner of Platt &
Trustee since 1997 Rickenbach (a public relations firm); prior to
Age 53 May 2001, with WPP Group, UK and its public
relations subsidiaries, Ogilvy Public Relations,
Burson-Marsteller and Robinson Lehr Montgomery;
Trustee of Ellsworth.
--------------------------------------------------------------------------------
INTERESTED TRUSTEES
Thomas H. Dinsmore, C.F.A.(2) Chairman and Chief Executive Officer of the
65 Madison Avenue Fund, Ellsworth and Davis-Dinsmore; Trustee of
Suite 550 Ellsworth and director of Davis-Dinsmore.
Morristown, NJ 07960
Term expires 2008
Trustee since 1985
Chairman of the Board
since 1996
Age 53
--------------------------------------------------------------------------------
Jane D. O'Keeffe(2) President of the Fund, Ellsworth and
65 Madison Avenue Davis-Dinsmore; Trustee of Ellsworth and
Suite 550 director of Davis-Dinsmore.
Morristown, NJ 07960
Term expires 2007
Trustee since 1995
Age 51
--------------------------------------------------------------------------------
(2)Mr. Dinsmore and Ms. O'Keeffe are considered interested persons of the Fund
because they are officers, directors, and holders of more than 5% of the
outstanding shares of the voting common stock of Davis-Dinsmore. They are
brother and sister.
PAGE 19
--------------------------------------------------------------------------------
-------------------------------PRINCIPAL OFFICERS-------------------------------
The business address of each officer is 65 Madison Avenue, Suite 550,
Morristown, NJ 07960. Officers are elected by and serve at the pleasure of the
Board of Trustees. Each officer holds office until the annual meeting to be
held in 2007, and thereafter until his or her respective successor is duly
elected and qualified.
--------------------------------------------------------------------------------
Personal
Information Principal Occupation(s) During Past Five Years
--------------------------------------------------------------------------------
Thomas H. Dinsmore, C.F.A. Trustee, Chairman and Chief Executive Officer
(1,2,3) Trustee, Chairman of the Fund and Ellsworth; Director, Chairman
and Chief Executive Officer and Chief Executive Officer of Davis-Dinsmore.
Officer since 1984
Age 53
--------------------------------------------------------------------------------
Jane D. O'Keeffe (1,2,3) Trustee and President of the Fund and Ellsworth;
Trustee and President Director and President of Davis-Dinsmore.
Officer since 1994
Age 51
--------------------------------------------------------------------------------
Gary I. Levine Executive Vice President and Chief Financial
Executive Vice President, Officer of the Fund, Ellsworth and Davis-
Chief Financial Officer and Dinsmore since 2004; Secretary of the Fund,
Secretary Ellsworth and Davis-Dinsmore since 2003;
Officer since 1986 Treasurer of Davis-Dinsmore since 1997; Vice
Age 49 President of the Fund, Ellsworth and Davis-
Dinsmore from 2002 until 2004; Treasurer of the
Fund and Ellsworth from 1993 until 2004.
--------------------------------------------------------------------------------
H. Tucker Lake, Jr. (2,4) Vice President of the Fund and Ellsworth since
Vice President 2002, and of Davis-Dinsmore since 1997; Vice
Officer since 1994 President, Trading, of the Fund and Ellsworth
Age 59 from 1994 to 2002.
--------------------------------------------------------------------------------
Germaine M. Ortiz Vice President of the Fund, Ellsworth and
Vice President Davis-Dinsmore.
Officer since 1996
Age 37
--------------------------------------------------------------------------------
Mercedes A. Pierre Vice President and Chief Compliance Officer
Vice President and of the Fund, Ellsworth and Davis-Dinsmore since
Chief Compliance Officer 2004, and Assistant Treasurer from 1998 to 2004.
Officer since 1998
Age 45
--------------------------------------------------------------------------------
Joshua P. Lake, C.T.P. (3,4) Treasurer of the Fund and Ellsworth since 2004.
Treasurer and Assistant Assistant Secretary of the Fund, Ellsworth and
Secretary Davis-Dinsmore since 2002; Assistant Treasurer
Officer since 2002 of Davis-Dinsmore, also since 2002.
Age 30
--------------------------------------------------------------------------------
(1) Mr. Dinsmore and Ms. O'Keeffe are brother and sister.
(2) Mr. H. Tucker Lake, Jr. is the cousin of Mr. Dinsmore and Ms. O'Keeffe.
(3) Mr. Joshua P. Lake is the cousin of Mr. Dinsmore and Ms. O'Keeffe.
(4) Mr. H. Tucker Lake, Jr. is the father of Mr. Joshua P. Lake.
PAGE 20
BOARD OF TRUSTEES INTERNET
GORDON F. AHALT www.bancroftfund.com
ELIZABETH C. BOGAN Ph.D. email: info@bancroftfund.com
THOMAS H. DINSMORE, C.F.A.
DONALD M. HALSTED, JR. INVESTMENT ADVISER
DUNCAN O. MCKEE Davis-Dinsmore Management Company
ROBERT J. MCMULLAN 65 Madison Avenue, Suite 550
JANE D. O'KEEFFE Morristown, NJ 07960
NICOLAS W. PLATT (973) 631-1177
OFFICERS SHAREHOLDER SERVICES AND TRANSFER AGENT
THOMAS H. DINSMORE, C.F.A. American Stock Transfer & Trust Company
Chairman of the Board 59 Maiden Lane
and Chief Executive Officer New York, NY 10038
(800) 937-5449
JANE D. O'KEEFFE www.amstock.com
President
BENEFICIAL SHARE LISTING
GARY I. LEVINE American Stock Exchange Symbol: BCV
Executive Vice President,
Chief Financial Officer and Secretary LEGAL COUNSEL
Ballard Spahr Andrews & Ingersoll LLP
H. TUCKER LAKE, JR.
Vice President INDEPENDENT ACCOUNTANTS
Tait, Weller & Baker LLP
GERMAINE M. ORTIZ
Vice President
MERCEDES A. PIERRE
Vice President and
Chief Compliance Officer
JOSHUA P. LAKE, C.T.P.
Treasurer and Assistant Secretary
JOANN VENEZIA
Assistant Vice President and
Assistant Secretary
The Fund is a member of the Closed-End Fund Association, a non-profit national
trade association (www.cefa.com). Thomas H. Dinsmore is on the Executive Board
and is the president of the association. The association is solely responsible
for the content of its website.
--------------------------------------------------------------------------------
Pursuant to Section 23 of the Investment Company Act of 1940, notice is hereby
given that the Fund may in the future purchase its own shares from time to time,
at such times, and in such amounts, as may be deemed advantageous to the Fund.
Nothing herein shall be considered a commitment to purchase such shares.
BANCROFT FUND LTD.
65 MADISON AVENUE, SUITE 550
MORRISTOWN, NEW JERSEY 07960
www.bancroftfund.com
[LOGO]
AMERICAN
STOCK EXCHANGE
--------------
LISTED
--------------
BCV(TM)
ITEM 2. CODE OF ETHICS.
The Board of Trustees of the Fund has adopted a code of ethics that applies to
the Fund's principal executive officer and principal financial officer. See
attached Exhibit EX-99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees determined that Trustee Robert J. McMullan, who is
"independent" as such term is used in Form N-CSR, possesses the attributes
required to be considered an audit committee financial expert under applicable
federal securities laws.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Set forth in the table below are the aggregate fees billed to the Fund
by Tait, Weller & Baker LLP ("Tait Weller") for services rendered to the Fund
during the Fund's last two fiscal years ended October 31, 2006 and 2005.
Fiscal YE Audit Audit-Related All Other
October 31 Fees Fees (1) Tax Fees (3) Fees
------------- ------- ------------- ------------ ---------
2005 $30,000 $10,000 (2) $2,500 $0
2006 $31,000 $ 0 $2,600 $0
(1) All Audit-Related Fees were pre-approved by the Fund's Audit Committee.
No Audit-Related Fees were approved by the Fund's Audit Committee pursuant
to section 2.01(c)(7)(i)(C) of Regulation S-X, which waives the
pre-approval requirement for certain de minimus fees.
(2) Includes fees billed to the Fund by Tait Weller in connection with the
Fund's change of accounting practice related to amortization of
convertible bond premiums and discounts.
(3) "Tax Fees" include those fees billed by Tait Weller in connection with
their review of the Fund's income tax returns for fiscal years 2005
and 2006. All Tax Fees were pre-approved by the Fund's Audit Committee.
No Tax Fees were approved by the Fund's Audit Committee pursuant to
section 2.01(c)(7)(i)(C) of Regulation S-X, which waives the pre-approval
requirement for certain de minimus fees.
Non-Audit Services
During each of the last two fiscal years ended September 30, 2005 and
October 31, 2006, Tait Weller did not provide any non-audit services to the
Fund or the Fund's investment adviser, Davis-Dinsmore Management Company
("Davis-Dinsmore") or its affiliates or otherwise bill the Fund or Davis-
Dinsmore or its affiliates for any such non-audit services.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee pre-approves all audit and permissible non-audit
services that are proposed to be provided to the Fund by its independent
registered public accountants before they are provided to the Fund. Such
pre-approval also includes the proposed fees to be charged by the independent
registered public accountants for such services. The Audit Committee may
delegate the pre-approval of audit and permissible non-audit services and
related fees to one or more members of the Audit Committee who are
"independent," as such term is used in Form N-CSR. Any such member's decision
to pre-approve audit and/or non-audit services and related fees shall be
presented to the full Audit Committee, solely for informational purposes, at
their next scheduled meeting.
The Audit Committee also pre-approves non-audit services to be provided by
the Fund's independent registered public accountants to the Fund's investment
adviser if the engagement relates directly to the operations and financial
reporting of the Fund and if the Fund's independent auditors are the same as,
or affiliated with, the investment adviser's auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
(a) The Fund has a designated Audit Committee in accordance with
Section 3(a)(58)(A) of the Exchange Act and the members of such committee are:
ELIZABETH C. BOGAN, PH.D.
DONALD M. HALSTED, JR.
ROBERT J. MCMULLAN
(b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers is included as
part of the report to shareholders, filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Bancroft Fund Ltd.
Ellsworth Fund Ltd.
Davis-Dinsmore Management Company
Proxy Voting Guidelines
(Adopted April 14, 2003)
These proxy voting guidelines have been adopted by the Boards of Trustees of
Bancroft Fund Ltd. and Ellsworth Fund Ltd. (collectively, the "Funds"), as well
as by the Board of Directors of Davis-Dinsmore Management Company
("Davis-Dinsmore").
The Boards of Trustees of the Funds have delegated to Davis-Dinsmore
responsibility for voting proxies received by the Funds in their capacities as
shareholders of various companies. The Boards recognize that, due to the nature
of the Funds' investments, the Funds do not frequently receive proxies.
Davis-Dinsmore exercises its voting responsibility with the overall goal of
maximizing the value of the Funds' investments. The portfolio managers at
Davis-Dinsmore oversee the voting policies and decisions for the Funds.
In evaluating voting issues, the portfolio managers may consider information
from many sources, including management of a company presenting a proposal,
shareholder groups, research analysts, and independent proxy research services.
Set forth below are the proxy voting guidelines:
A. Matters Related to the Board of Directors
1. The Funds generally will support the election of nominees recommended
by management for election as directors. In determining whether to support a
particular nominee, Davis-Dinsmore will consider whether the election of that
nominee will cause a company to have less than a majority of independent
directors.
2. The Funds generally will support proposals to de-classify boards of
directors if fewer than 66 2/3% of the directors are independent, and will
generally vote against proposals to classify boards of directors.
3. The Funds generally will withhold a vote in favor of a director who
has served on a committee which has approved excessive compensation arrangements
or proposed equity-based compensation plans that unduly dilute the ownership
interests of stockholders.
B. Matters Related to Independent Auditors
1. The Funds generally will vote in favor of independent accountants
approved by the company. Prior to such vote, however, Davis-Dinsmore will take
into consideration whether non-audit fees make up more than 50 to 75% of the
total fees paid by the company to the independent auditors, and the nature of
the non-audit services provided.
C. Corporate Governance Matters
1. As a general rule, the Funds will vote against proposals recommended
by management of a company that are being made primarily to implement anti-
takeover measures, and will vote in favor of proposals to eliminate policies
that are primarily intended to act as anti-takeover measures.
2. Subject to the other provisions of these guidelines, including without
limitation provision C.1. above, the Funds generally will vote in accordance
with management's recommendations regarding routine matters, including the
following:
a. Fixing number of directors;
b. Stock splits; and
c. Change of state of incorporation for specific corporate purposes.
D. Matters Related to Equity-Based Compensation Plans
1. The Fund generally will vote in favor of broad-based stock option
plans for executives, employees or directors which would not increase the
aggregate number of shares of stock available for grant under all currently
active plans to over 10% of the total number of shares outstanding.
2. The Funds generally will vote in favor of employee stock purchase
plans and employee stock ownership plans permitting purchase of company stock at
85% or more of fair market value.
E. Contested Matters
1. Contested situations will be evaluated on a case by case basis by the
portfolio manager at Davis-Dinsmore principally responsible for the particular
portfolio security.
F. Miscellaneous Matters
1. The Funds may in their discretion abstain from voting shares that have
been recently sold.
2. The Funds generally will abstain from voting on issues relating to
social and/or political responsibility.
3. Proposals that are not covered by the above-stated guidelines will be
evaluated on a case by case basis by the portfolio manager at Davis-Dinsmore
principally responsible for the particular portfolio security.
G. Material Conflicts of Interest
1. Conflicts of interest may arise from time to time between Davis-
Dinsmore and the Funds. Examples of conflicts of interests include:
a. Davis-Dinsmore may manage a pension plan, administer employee
benefit plans, or provide services to a company whose management is
soliciting proxies;
b. Davis-Dinsmore or its officers or directors may have a business
or personal relationship with corporate directors, candidates for
directorships, or participants in proxy contests;
c. Davis-Dinsmore may hold a position in a security contrary to
shareholder interests.
2. If a conflict of interest arises with respect to a proxy voting
matter, the portfolio manager will promptly notify the Funds' Audit Committee
and counsel for independent directors and the proxies will be voted in
accordance with direction received from the Audit Committee.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a) (1) Mr. Thomas H. Dinsmore, Chairman and Chief Executive Officer, serves as
the Portfolio Manager of the Registrant. He has served in that capacity since
1996. This information is as of December 28, 2006. Mr. Dinsmore usually
receives investment recommendations from a team of research analysts prior to
making investment decisions about transactions in the portfolio.
(2) The following table provides information relating to other (non-registrant)
accounts where this portfolio manager is primarily responsible for day-to-day
management as of October 31, 2006. The portfolio manager does not manage such
accounts or assets with performance-based advisory fees, or other pooled
investment vehicles.
Registered Investment Other Pooled Other
Portfolio Manager Companies Investment Vehicles Accounts
------------------ --------------------- -------------------- --------
Thomas H. Dinsmore Number: 1 n/a n/a
Assets: $116,130,162 n/a n/a
Mr. Dinsmore is the Portfolio Manager of one other account, Ellsworth Fund Ltd.
(Ellsworth), a registered investment company with total net assets of
$116,130,162 as of October 31, 2006. Mr. Dinsmore is Chairman and Chief
Executive Officer of Ellsworth. The Registrant and Ellsworth have similar
investment objectives and strategies. As a result, conflicts of interest may
arise between the two funds if a security is not available in a sufficient
amount to fill open orders for both funds. To deal with these situations, the
investment adviser for the Registrant and Ellsworth has adopted Trade Allocation
Procedures (the "Allocation Procedures"). The Allocation Procedures set forth
a method to allocate a partially filled order among the funds. Pursuant to the
method, the amount of shares that each fund purchases is allocated pro rata
based on the dollar amount of each fund's intended trade or, if the order is
subject to a minimum lot size, as closely as possibly to pro rata.
The Allocation Procedures permit the adviser to allocate an order in a way that
is different from the method set forth above if (i) each fund is treated fairly
and equitably and neither fund is given preferential treatment, and (ii) the
allocation is reviewed by the adviser's chief compliance officer.
(3) The Portfolio Manager is compensated by Davis-Dinsmore Management Company,
the Adviser, through a three-component plan, consisting of a fixed base salary,
annual cash bonus, and benefit retirement plan. His compensation is reviewed
and approved by the Adviser's Board of Directors annually. His compensation may
be adjusted from year to year based on the perception of the Adviser's Board of
Directors of the portfolio manager's overall performance and his management
responsibilities. His compensation is not based on (i) a formula specifically
tied to the performance of the Registrant or Ellsworth, including performance
against an index, or (ii) the value of assets held in the Registrant's
portfolio.
(4) As of October 31, 2006, Mr. Dinsmore's beneficial ownership in the
Registrant's shares was in the range of $100,001-$500,000.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
During the period covered by this report, there were no purchases made by or
on behalf of the registrant or any "affiliated purchaser," as defined in Rule
10b-18(a)(3) under the Exchange Act (17 CFR 240.10b-18(a)(3)), of shares or
other units of any class of the registrant's equity securities that is
registered by the registrant pursuant to Section 12 of the Exchange Act
(15 U.S.C. 781).
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the Registrant's board of trustees since those procedures
were last disclosed in response to the requirements of Item 407(c)(2)(iv) of
Regulation S-K (as required by Item 22(b)(15) of Schedule 14A
(17 CFR 240.14a-101)), or this Item 10 of Form N-CSR.
ITEM 11. CONTROLS AND PROCEDURES.
Conclusions of principal officers concerning controls and procedures
(a) As of November 28, 2006, an evaluation was performed under the supervision
and with the participation of the officers of Bancroft Fund Ltd. (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 November 28, 2006, the Registrant's disclosure controls
and procedures were reasonably designed so as to ensure: (1) that information
required to be disclosed by the Registrant on Form N-CSR 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 second fiscal
quarter of the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS
(a)(1) A code of ethics that applies to the Fund's principal executive officer
and principal financial officer is attached hereto.
(a)(2) Certifications of the principal executive officer and the principal
financial officer pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 are attached hereto.
(a)(3) There were no written solicitations to purchase securities under Rule
23c-1 under the Investment Company Act of 1940 during the period covered by the
report.
(b) Certifications of the principal executive officer and the principal
financial officer, as required by Rule 30a-2(b) under the Investment Company Act
of 1940 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Bancroft Fund Ltd.
By: /s/Thomas H. Dinsmore
Thomas H. Dinsmore
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: December 28, 2006
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: December 28, 2006
By: /s/Gary I. Levine
Gary I. Levine
Chief Financial Officer
(Principal Financial Officer)
Date: December 28, 2006