Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Bancroft Fund Ltd.
(the “Fund”) as of October 31, 2021, the related statement of operations for the year ended October 31, 2021, the statement
of changes in net assets attributable to common shareholders for each of the two years in the period ended October 31, 2021, including
the related notes, and the financial highlights for each of the four years in the period ended October 31, 2021 (collectively
referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Fund as of October 31, 2021, the results of its operations for the year then ended, the
changes in its net assets attributable to common shareholders for each of the two years in the period ended October 31, 2021 and
the financial highlights for each of the four years in the period ended October 31, 2021 in conformity with accounting principles
generally accepted in the United States of America.
The
financial statements and the financial highlights of the Fund as of and for the year ended October 31, 2017 (not presented herein,
other than the financial highlights) were audited by other auditors whose report dated December 21, 2017 expressed an unqualified
opinion on those financial statements and financial highlights.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the
Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. Our procedures included confirmation of securities owned as of October 31, 2021 by correspondence with
the custodian. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers
LLP
New York, New York
December 22, 2021
We
have served as the auditor of one or more investment companies in the Gabelli/GAMCO Fund Complex since 1986.
Bancroft
Fund Ltd.
Additional Fund Information
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SUMMARY
OF FUND EXPENSES
The
following table shows the Fund’s expenses as a percentage of net assets attributable to common shares. All expenses of the
Fund are borne, directly or indirectly, by the common shareholders. The table is based on the capital structure of the Fund as
of October 31, 2021. The purpose of the table and example below is to help you understand all fees and expenses that you, as a
holder of common shares, would bear directly or indirectly.
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Shareholder
Transaction Expenses
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|
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Sales Load (as a percentage of offering price)
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-% (a)
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Offering Expenses Borne by the Fund (excluding
Preferred Shares Offering Expenses) (as a percentage of offering price)
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-% (a)
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Dividend
Reinvestment and Voluntary Cash Purchase Plan
Fees
|
|
|
|
|
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Purchase
Transactions
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$
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1.25
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(b)
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Annual
Expenses
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Percentages
of Net Assets
Attributable
to Common Shares
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|
Management
Fees
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0.78%
(c)
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Interest
Expense
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-%
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|
Other
Expenses
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0.33%
(d)
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Total
Annual Expenses
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1.11%
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Dividends
on Preferred Shares
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0.88%
(e)
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Total
Annual Expenses and Dividends on Preferred
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1.99%
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|
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(a)
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If
common shares are sold to or through underwriters or dealer managers, a prospectus or
prospectus supplement will set forth any applicable sales load and the estimated offering
expenses borne by the Fund.
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(b)
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Shareholders
participating in the Fund’s automatic dividend reinvestment plan do not incur any additional
fees. Shareholders participating in the voluntary cash purchase plan would pay $1.25
plus their pro rata share of brokerage commissions per transaction to purchase shares
and just their pro rata share of brokerage commissions per transaction to sell shares.
See “Automatic Dividend Reinvestment and Voluntary Cash Purchase Plan.”
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(c)
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The
Investment Adviser’s fee is a monthly fee computed at an annual rate of 0.80% of the
first $100,000,000 of average weekly net assets and 0.55% of average weekly net assets
in excess of $100,000,000 including proceeds attributable to any outstanding preferred
shares, with no deduction for the liquidation preference of any preferred shares. Consequently,
if the Fund has preferred shares or notes outstanding, all else being equal, the investment
management fees and other expenses as a percentage of net assets attributable to common
shares will be higher than if the Fund does not utilize a leveraged capital structure.
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(d)
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“Other
Expenses” are estimated based on the Fund’s fiscal year ended October 31,
2021.
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(e)
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Dividends
on Preferred Shares represent the estimated annual distributions on the existing preferred
shares outstanding.
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Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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For
a more complete description of the various costs and expenses a common shareholder would bear in connection with the issuance
and ongoing maintenance of any preferred shares or notes issued by the Fund, see “Risk Factors and Special Considerations—Special
Risks to Holders of Common Shares—Leverage Risk.”
The following example illustrates the expenses you would pay on a
$1,000 investment in common shares, assuming a 5% annual portfolio total return.* The actual amounts in connection with any offering
will be set forth in the Prospectus Supplement if applicable.
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1
Year
|
3
Year
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5
Year
|
10
Year
|
|
Total
Expenses Incurred
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$20
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$62
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$107
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$232
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|
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*
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The
example should not be considered a representation of future expenses. The example is
based on total Annual Expenses and Dividends on Preferred Shares shown in the table above
and assumes that the amounts set forth in the table do not change and that all distributions
are reinvested at net asset value. Actual expenses may be greater or less than those
assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical
5% return shown in the example.
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The
example includes Dividends on Preferred Shares. If Dividends on Preferred Shares were not included in the example calculation,
the expenses for the 1-, 3-, 5- and 10-year periods in the table above would be as follows (based on the same assumptions as above):
$11, $35, $61 and $135.
The
Fund’s common shares are listed on the NYSE American under the trading or “ticker” symbol “BCV.” The Fund’s
Series A Preferred are listed on the NYSE American under the ticker symbol “BCV Pr A.” See “Description of the
Securities” in the Prospectus. The Fund’s common shares have historically traded at a discount to the Fund’s net asset value.
Over the past ten years, the Fund’s common shares have traded at a premium to net asset value as high as 5.4% and a discount as
low as (21.6)%. Any additional series of fixed rate preferred shares or subscription rights issued in the future pursuant to a
Prospectus Supplement by the Fund would also likely be listed on the NYSE American.
The
following table sets forth for the quarters indicated, the high and low sale prices on the NYSE American per share of our common
shares and the net asset value and the premium or discount from net asset value per share at which the common shares were trading,
expressed as a percentage of net asset value, at each of the high and low sale prices provided.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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Common Share
Market Price
|
|
Corresponding
Net Asset
Value
(“NAV”) Per
Share
|
|
Corresponding
Premium or
Discount as a %
of NAV
|
|
Quarter
Ended
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
January
31, 2020
|
|
$26.57
|
|
$24.16
|
|
$27.02
|
|
$26.17
|
|
(1.66)%
|
|
(7.68)%
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April
30, 2020
|
|
$27.48
|
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$15.61
|
|
$27.80
|
|
$19.70
|
|
(1.15)%
|
|
(20.76)%
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|
July
31, 2020
|
|
$26.29
|
|
$20.70
|
|
$28.83
|
|
$23.61
|
|
(8.81)%
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|
(12.32)%
|
|
October
31, 2020
|
|
$27.01
|
|
$24.13
|
|
$29.77
|
|
$28.18
|
|
(9.27)%
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|
(14.37)%
|
|
January
31, 2021
|
|
$32.81
|
|
$24.98
|
|
$33.81
|
|
$28.90
|
|
(2.95)%
|
|
(13.56)%
|
|
April
30, 2021
|
|
$35.67
|
|
$28.70
|
|
$36.08
|
|
$31.47
|
|
(1.13)%
|
|
(8.80)%
|
|
July
31, 2021
|
|
$32.53
|
|
$29.85
|
|
$33.17
|
|
$30.63
|
|
(1.92)%
|
|
(2.54)%
|
|
October
31, 2021
|
|
$31.66
|
|
$29.21
|
|
$32.62
|
|
$31.56
|
|
(3.91)%
|
|
(7.44)%
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The
last reported price for our common shares on October 31, 2021 was $30.07 per share. As of October 31, 2021, the net asset value
per share of the Fund’s common shares was $33.08. Accordingly, the Fund’s common shares traded at a discount to net
asset value of 9.1% on October 31, 2021.
Unresolved
SEC Staff Comments
The
Fund does not believe that there are any material unresolved written comments, received 180 days or more before October 31, 2021
from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act of 1934
or the Investment Company Act of 1940, or its registration statement.
CHANGES
OCCURRING DURING THE PRIOR FISCAL PERIOD
The
following information is a summary of certain changes during the most recent fiscal year ended October 31, 2021. This information
may not reflect all of the changes that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objective or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
INVESTMENT
OBJECTIVES AND POLICIES
Investment Objectives
The
investment objective of the Fund is to provide income and the potential for capital appreciation by investing primarily in convertible
securities. Under normal market conditions, the Fund invests at least 65% of its assets (consisting of net assets plus the amount
of any borrowing for investment purposes) in convertible securities.
Investment
Policies
The
Fund expects that a substantial majority of its assets will consist of convertible securities. The Fund has adopted a non-fundamental
investment policy providing that the Fund will invest, under normal market conditions, at least 65% of the value of its assets
(consisting of net assets plus the amount of any borrowings for investment purposes) in convertible securities.
Convertible
securities include debt securities and preferred stocks which are convertible into, or carry the right to purchase, common stock
or other equity securities. The debt security or preferred stock may itself be convertible into or exchangeable for equity securities,
or the conversion privilege may be evidenced by warrants attached to the security or acquired as part of a unit with the security.
A convertible security may also be structured so that it is convertible at the option of the holder or the issuer, or subject
to mandatory conversion. The Fund may invest in convertible securities rated in the lower rating categories of the established
rating services (“Ba” or lower by Moody’s or “BB” or lower by S&P or unrated debt instruments which are
in the judgment of the Fund’s Investment Adviser of equivalent quality. Debt securities rated below investment grade commonly
are referred to as “junk bonds.” The average duration of the Fund’s investments in debt securities is expected to vary
and the Fund does not target any particular average duration.
Under
normal market conditions, the remaining 35% or less of the Fund’s assets may be invested in other securities, including common
stocks, non-convertible preferred stocks and investment grade debt securities, common stock received upon conversion or exchange
of securities, options, warrants, securities of the U.S. government, its agencies and instrumentalities, foreign securities, American
Depositary Receipts or repurchase agreements, or they may be held as cash or cash equivalents. The Fund does not intend to participate
in derivative transactions other than options transactions as described herein. See “—Certain Investment Practices—Options.”
The Fund is not required to sell securities for the purpose of assuring that 65% of its assets are invested in convertible securities.
No
assurances can be given that the Fund’s objective will be achieved. Neither the Fund’s investment objective nor, except as expressly
listed under “Investment Restrictions” in the SAI, any of its policies are fundamental, and each may be modified by
the Board without shareholder approval. The percentage and ratings limitations stated herein and in the SAI apply only at the
time of investment and are not considered violated as a result of subsequent changes to the value, or downgrades to the ratings,
of the Fund’s portfolio investments.
Principal
Investment Practices and Policies
Convertible
Securities. The Fund will invest primarily in convertible securities, including bonds, debentures, corporate notes, preferred
stock or other securities which may be exchanged or converted into a predetermined
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
number
of the issuer’s underlying common stock during a specified time period. Prior to their conversion, convertible securities have
the same overall characteristics as non-convertible debt securities insofar as they generally provide a stable stream of income
with generally higher yields than those of equity securities of the same or similar issuers. Convertible securities rank senior
to common stock in an issuer’s capital structure. They are of a higher credit quality and entail less risk than an issuer’s common
stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security
sells above its value as a fixed income security.
The
Fund is also permitted to invest in certain other securities with innovative structures in the convertible securities market.
These include “mandatory conversion” securities, which consist of debt securities or preferred stocks that convert automatically
into equity securities of the same or a different issuer at a specified date and conversion ratio.
The
market value of a convertible security may be viewed as comprised of two components: its “investment value,” which is
its value based on its yield without regard to its conversion feature; and its “conversion value,” which is its value
attributable to the underlying common stock obtainable on conversion. The investment value of a convertible security is influenced
by changes in interest rates and the yield of similar non-convertible securities, with investment value declining as interest
rates increase and increasing as interest rates decrease. The conversion value of a convertible security is influenced by changes
in the market price of the underlying common stock. If, because of a low price of the underlying common stock, the conversion
value is low relative to the investment value, the price of the convertible security is governed principally by its investment
value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the convertible
security will be increasingly influenced by its conversion value, and the convertible security may sell at a premium over its
conversion value to the extent investors place value on the right to acquire the underlying common stock while holding a fixed
income security.
Accordingly,
convertible securities have unique investment characteristics because (i) they have relatively high yields as compared to common
stocks, (ii) they have defensive characteristics since they provide a fixed return even if the market price of the underlying
common stock declines, and (iii) they provide the potential for capital appreciation if the market price of the underlying common
stock increases.
A
convertible security may be subject to redemption at the option of the issuer at a price established in the charter provision
or indenture pursuant to which the convertible security is issued. If a convertible security held by the Fund is called for redemption,
the Fund will be required to surrender the security for redemption, convert it into the underlying common stock or sell it to
a third party. Before the Fund purchases a convertible security it will review carefully the redemption provisions of the security.
Synthetic
Convertible Securities The Fund may also invest in “synthetic” convertible securities, which, for purposes of
its investment policies, the Fund considers to be convertible securities. A “synthetic” convertible security may be
created by the Fund or by a third party by combining separate securities that possess the two principal characteristics of a traditional
convertible security: an income producing component and a convertible component. Synthetic convertible securities differ from
convertible securities whose conversion privilege may be evidenced by warrants attached to the security or acquired as part of
a unit with the security. The income-producing component is achieved by investing in non-convertible, income-producing securities
such as
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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bonds,
preferred stocks and money market instruments. The convertible component is achieved by investing in securities or instruments
such as warrants or options to buy common stock at a certain exercise price, or options on a stock index. Unlike a traditional
convertible security, which is a single security having a single market value, a synthetic convertible comprises two or more separate
securities, each with its own market value. Because the “market value” of a synthetic convertible security is the sum
of the values of its income-producing component and its convertible component, the value of a synthetic convertible security may
respond differently to market fluctuations than a traditional convertible security. The Fund also may purchase synthetic convertible
securities created by other parties, including convertible structured notes. Convertible structured notes are income-producing
debentures linked to equity. Convertible structured notes have the attributes of a convertible security; however, the issuer of
the convertible note (typically an investment bank), rather than the issuer of the underlying common stock into which the note
is convertible, assumes credit risk associated with the underlying investment and the Fund in turn assumes credit risk associated
with the issuer of the convertible note.
Equity
Securities. The Fund invests in equity securities (such as common stock and preferred stock).
Common
stocks represent the residual ownership interest in the issuer and holders of common stock are entitled to the income and increase
in the value of the assets and business of the issuer after all of its debt obligations and obligations to preferred shareholders
are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
Equity securities also include preferred stock (whether or not convertible into common stock)
and debt securities convertible into or exchangeable for common or preferred stock. Preferred stock has a preference over common
stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As
a general rule the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with
interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element
of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in
the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security
with similarly stated yield characteristics. The market value of preferred stock will also generally reflect whether (and if so
when) the issuer may force holders to sell their preferred stock back to the issuer and whether (and if so when) the holders may
force the issuer to buy back their preferred stock. Generally speaking, the right of the issuer to repurchase the preferred stock
tends to reduce any premium at which the preferred stock might otherwise trade due to interest rate or credit factors, while the
right of the holders to require the issuer to repurchase the preferred stock tends to reduce any discount at which the preferred
stock might otherwise trade due to interest rate or credit factors. In addition, some preferred stocks are noncumulative, meaning
that the dividends do not accumulate and need not ever be paid. A portion of the portfolio may include investments in noncumulative
preferred stocks, whereby the issuer does not have an obligation to make up any arrearages to its shareholders. There is no assurance
that dividends or distributions on non-cumulative preferred stocks in which the Fund invests will be declared or otherwise made
payable.
Income
Securities. Income securities include (i) fixed income securities such as bonds, debentures, notes, preferred stock, short
term discounted Treasury Bills or certain securities of the U.S. government sponsored instrumentalities, as well as money market
open-end funds that invest in those securities, which, in the absence
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
of
an applicable exemptive order, will not be affiliated with the Investment Adviser, and (ii) common stocks of issuers that have
historically paid periodic dividends. Fixed income securities obligate the issuer to pay to the holder of the security a specified
return, which may be either fixed or reset periodically in accordance with the terms of the security. Fixed income securities
generally are senior to an issuer’s common stock and their holders generally are entitled to receive amounts due before any distributions
are made to common shareholders. Common stocks, on the other hand, generally do not obligate an issuer to make periodic distributions
to holders.
The market value of fixed income securities, especially those that provide a fixed rate of return, may be expected
to rise and fall inversely with interest rates and in general is affected by the credit rating of the issuer, the issuer’s performance
and perceptions of the issuer in the market place. The market value of callable or redeemable fixed income securities may also
be affected by the issuer’s call and redemption rights. In addition, it is possible that the issuer of fixed income securities
may not be able to meet its interest or principal obligations to holders. Further, holders of non-convertible fixed income securities
do not participate in any capital appreciation of the issuer.
The
Fund may also invest in obligations of government sponsored instrumentalities. Unlike non-U.S. government securities, obligations
of certain agencies and instrumentalities of the U.S. government, such as the Government National Mortgage Association, are supported
by the “full faith and credit” of the U.S. government; others, such as those of the Export-Import Bank of the U.S.,
are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. government to purchase the agency’s obligations; and still
others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality. No assurance
can be given that the U.S. government would provide financial support to U.S. government sponsored instrumentalities if it is
not obligated to do so by law.
The
Fund also may invest in common stock of issuers that have historically paid periodic dividends or otherwise made distributions
to common shareholders. Unlike fixed income securities, dividend payments generally are not guaranteed and so may be discontinued
by the issuer at its discretion or because of the issuer’s inability to satisfy its liabilities. Further, an issuer’s history
of paying dividends does not guarantee that it will continue to pay dividends in the future. In addition to dividends, under certain
circumstances the holders of common stock may benefit from the capital appreciation of the issuer.
Common
stocks represent the residual ownership interest in the issuer and holders of common stock are entitled to the income and increase
in the value of the assets and business of the issuer after all of its debt obligations and obligations to preferred shareholders
are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
Non-Investment
Grade Securities. The Fund may invest in below investment-grade debt securities, also known as high-yield securities.
These securities, which may be preferred stock or debt, are predominantly speculative and involve major risk exposure to adverse
conditions. Securities that are rated lower than “BBB” by S&P or lower than “Baa” by Moody’s (or unrated
debt securities of comparable quality) are referred to in the financial press as “junk bonds.”
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
Generally,
such non-investment grade securities and unrated securities of comparable quality offer a higher current yield than is offered
by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions, and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligation.
The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes
in economic conditions than higher quality bonds. In addition, such comparable unrated securities generally present a higher degree
of credit risk. The risk of loss due to default by these issuers is significantly greater because such non-investment grade securities
and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior
indebtedness. In light of these risks, the Investment Adviser, in evaluating the creditworthiness of an issue, whether rated or
unrated, will take various factors into consideration, which may include, as applicable, the issuer’s operating history, financial
resources and its sensitivity to economic conditions and trends, the market support for the facility financed by the issue, the
perceived ability and integrity of the issuer’s management and regulatory matters.
In
addition, the market value of non-investment grade securities is more volatile than that of higher quality securities, and the
markets in which such lower rated or unrated securities are traded are more limited than those in which higher rated securities
are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict
the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell
securities at their fair value in order to respond to changes in the economy or the financial markets.
Non-investment
grade securities and unrated securities of comparable quality also present risks based on payment expectations. If an issuer calls
the obligation for redemption (often a feature of fixed-income securities), the Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Also, as the principal value of nonconvertible bonds and preferred
stocks moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held
by the Fund may decline proportionately more than a portfolio consisting of higher rated securities. Investments in zero coupon
bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay
interest currently. Interest rates are at historical lows and, therefore, it is likely that they will rise in the future.
As
part of its investments in non-investment grade securities, the Fund may invest in securities of issuers in default. The Fund
will make an investment in securities of issuers in default only when the Investment Adviser believes that such issuers will honor
their obligations or emerge from bankruptcy protection and the value of these securities will appreciate. By investing in securities
of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from
bankruptcy protection or that the value of the securities will not otherwise appreciate.
In
addition to using recognized rating agencies and other sources, the Investment Adviser also performs its own analysis of issues
in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition of the
issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management,
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
responsiveness
to business conditions, credit standing and current anticipated results of operations. In selecting investments for the Fund,
the Investment Adviser may also consider general business conditions, anticipated changes in interest rates and the outlook for
specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
The market for non-investment grade and comparable unrated securities has experienced periods of significantly
adverse price and liquidity several times, particularly at or around times of economic recession. Past market recessions have
adversely affected the value of such securities and the ability of certain issuers of such securities to repay principal and pay
interest thereon or to refinance such securities. The market for those securities may react in a similar fashion in the future.
Investment
Grade Securities. The Fund may also invest in investment grade non-convertible debt securities. Such securities include
those rated at “Baa” and higher by Moody’s or at “BBB” and higher by S&P.
Leverage.
The Fund may use leverage, including as a result of any issuances of preferred shares or notes pursuant to an applicable
Prospectus Supplement, the Fund may issue senior securities (which may be stock, such as preferred shares, and/or securities representing
debt) only if immediately after such issuance the value of the Fund’s total assets, less certain ordinary course liabilities,
exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding, as
provided in the 1940 Act and subject to certain exceptions. Any such preferred shares may be convertible in accordance with the
SEC staff guidelines, which may permit the Fund to obtain leverage at attractive rates. The use of leverage magnifies the impact
of changes in net asset value. In addition, if the cost of leverage exceeds the return on the securities acquired with the proceeds
of leverage, the use of leverage will diminish rather than enhance the return to the Fund. The use of leverage generally increases
the volatility of returns to the Fund. See “Risk Factors and Special Considerations—Special Risks to Holders of Common
Shares—Leverage Risk.”.
In
the event the Fund had both outstanding preferred shares and senior securities representing debt at the same time, the Fund’s
obligations to pay dividends or distributions and, upon liquidation of the Fund, liquidation payments in respect of its preferred
shares would be subordinate to the Fund’s obligations to make any principal and/or interest payments due and owing with respect
to its outstanding senior debt securities. Accordingly, the Fund’s issuance of senior securities representing debt would have
the effect of creating special risks for the Fund’s preferred shareholders that would not be present in a capital structure that
did not include such securities.
Additionally,
the Fund may enter into derivative transactions that have economic leverage embedded in them. Economic leverage exists when the
Fund achieves the right to a return on a capital base that exceeds the investment which the Fund has contributed to the instrument
achieving a return. Derivative transactions that the Fund may enter into and the risks associated with them are described elsewhere
in this Annual Report. The Fund cannot assure you that investments in derivative transactions that have economic leverage embedded
in them will result in a higher return on its common shares.
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To
the extent the terms of such transactions obligate the Fund to make payments, the Fund may earmark or segregate cash or liquid
assets in an amount at least equal to the current value of the amount then payable by the Fund under the terms of such transactions
or otherwise cover such transactions in accordance with applicable interpretations of the staff of the SEC. If the current value
of the amount then payable by the Fund under the terms of such transactions is represented by the notional amounts of such investments,
the Fund would segregate or earmark cash or liquid assets having a market value at least equal to such notional amounts, and if
the current value of the amount then payable by the Fund under the terms of such transactions is represented by the market value
of the Fund’s current obligations, the Fund would segregate or earmark cash or liquid assets having a market value at least equal
to such current obligations. To the extent the terms of such transactions obligate the Fund to deliver particular securities to
extinguish the Fund’s obligations under such transactions the Fund may “cover” its obligations under such transactions
by either (i) owning the securities or collateral underlying such transactions or (ii) having an absolute and immediate right
to acquire such securities or collateral without additional cash consideration (or, if additional cash consideration is required,
having earmarked or segregated an appropriate amount of cash or liquid assets). Such earmarking, segregation or cover is intended
to provide the Fund with available assets to satisfy its obligations under such transactions. As a result of such earmarking,
segregation or cover, the Fund’s obligations under such transactions will not be considered senior securities representing indebtedness
for purposes of the 1940 Act, or considered borrowings subject to the Fund’s limitations on borrowings discussed above, but may
create leverage for the Fund. To the extent that the Fund’s obligations under such transactions are not so earmarked, segregated
or covered, such obligations may be considered “senior securities representing indebtedness” under the 1940 Act and
therefore subject to the 300% asset coverage requirement.
These
earmarking, segregation or cover requirements can result in the Fund maintaining securities positions it would otherwise liquidate,
segregating or earmarking assets at a time when it might be disadvantageous to do so or otherwise restrict portfolio management.
Foreign
Securities. Although the Fund does not frequently do so, the Fund may invest in securities principally traded in securities
markets outside the United States. Foreign investments may be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company,
and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable
to those applicable to U.S. companies. Securities of some foreign companies may be less liquid or more volatile than securities
of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Investments
in foreign securities may also be subject to other risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest
payments.
American
Depositary Receipts. The Fund may invest in American Depositary Receipts (“ADRs”). Such investment may entail
certain risks similar to foreign securities. ADRs are certificates representing an ownership interest in a security or a pool
of securities issued by a foreign issuer and deposited with the depositary, typically a bank, and held in trust for the investor.
The economies of many of the countries in which the issuer of a security underlying an ADR principally engages in business may
not be as developed as the United States’ economy and may be subject to significantly different forces. Political or social instability,
expropriation or confiscatory
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taxation,
and limitations on the removal of funds or other assets could adversely affect the value of the Fund’s investments in such securities.
The value of the securities underlying ADRs could fluctuate as exchange rates change between U.S. dollars and the currency of
the country in which the foreign company is located. In addition, foreign companies are not registered with the SEC and are generally
not subject to the regulatory controls imposed on U.S. issuers and, as a consequence, there is generally less publicly available
information about foreign companies than is available about domestic companies. Foreign companies are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements comparable to those applicable to domestic companies.
Emerging
Market Countries. The risks described above for foreign securities, including the risks of nationalization and expropriation
of assets, are typically increased to the extent that the Fund invests in companies headquartered in developing, or emerging market,
countries. Investments in securities of companies headquartered in such countries may be considered speculative and subject to
certain special risks. The political and economic structures in many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic characteristics of more developed countries. Certain of
these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the
assets of private companies. Some countries have inhibited the conversion of their currency to another. The currencies of certain
emerging market countries have experienced devaluation relative to the U.S. dollar, and future devaluations may adversely affect
the value of the Fund’s assets denominated in such currencies. Some emerging market countries have experienced substantial rates
of inflation for many years. Continued inflation may adversely affect the economies and securities markets of such countries.
In addition, unanticipated political or social developments may affect the value of the Fund’s investments in these countries
and the availability of the Fund of additional investments in these countries. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may make the Fund’s investments in such countries illiquid and more
volatile than investments in more developed countries, and the Fund may be required to establish special custodial or other arrangements
before making investments in these countries. There may be little financial or accounting information available with respect to
companies located in these countries, and it may be difficult as a result to assess the value or prospects of an investment in
such companies
Restricted
and Illiquid Securities. The Fund may invest up to 20% of its net assets in securities that are illiquid. Illiquid securities
include securities legally restricted as to resale, such as commercial paper issued pursuant to Section 4(a)(2) of the Securities
Act of 1933 (the “Securities Act”) and securities eligible for resale pursuant to Rule 144A thereunder. Section 4(a)(2)
and Rule 144A securities may, however, be treated as liquid by the Investment Adviser pursuant to procedures adopted by the Board,
which require consideration of factors such as trading activity, availability of market quotations and number of dealers willing
to purchase the security. If the Fund invests in Rule 144A securities, the level of portfolio illiquidity may be increased to
the extent that eligible buyers become uninterested in purchasing such securities.
It
may be difficult to sell such securities at a price representing the fair value until such time as such securities may be sold
publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time
when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time
of the decision to sell. The Fund may also acquire securities
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through
private placements under which it may agree to contractual restrictions on the resale of such securities. Such restrictions might
prevent their sale at a time when such sale would otherwise be desirable.
Other
Investment Practices
U.S.
Government Obligations. U.S. government securities in which the Fund invests include debt obligations of varying maturities
issued by the U.S. Treasury or issued or guaranteed by an agency or instrumentality of the U.S. government. Some U.S. government
securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ only in their interest rates, maturities
and times of issuance, are supported by the full faith and credit of the United States. Others are supported only by: (i) the
right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Home Loan Banks; (ii) the discretionary
authority of the U.S. government to purchase the agency’s obligations, such as securities of the Federal National Mortgage Association;
or (iii) only the credit of the issuer. No assurance can be given that the U.S. government will provide financial support in the
future to U.S. government agencies, authorities or instrumentalities that are not supported by the full faith and credit of the
United States. Securities guaranteed as to principal and interest by the U.S. government, its agencies, authorities or instrumentalities
include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by
the U.S. government or any of its agencies, authorities or instrumentalities; and (ii) participations in loans made to non-U.S.
governments or other entities that are so guaranteed. The secondary market for certain of these participations is limited and,
therefore, may be regarded as illiquid.
Short
Sales. Although the Fund does not generally do so, the Fund may make short sales of securities if at the time of sale,
the Fund owns or has the right to acquire, with or without payment of further consideration through its ownership of convertible
or exchangeable securities or warrants or rights, an equal amount of such securities. In a short sale the Fund does not immediately
deliver the securities sold and does not receive the proceeds from the sale. The Fund is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale.
To
secure its obligation to deliver the securities sold short, the Fund will earmark or segregate cash or liquid assets in an amount
at least equal to the current value of the amount then payable by the Fund under the terms of such transactions or otherwise cover
such transactions in accordance with applicable interpretations of the staff of the SEC. The Fund will normally close out a short
position by purchasing and delivering an equal amount of the securities sold short, rather than by delivering securities already
held by the Fund. The Fund may, however, close out any short sale of common stock through the conversion or exchange of securities
or the exercise of warrants or rights it owns, or through the delivery of common stock already held by the Fund.
The Fund may
make a short sale in order to hedge against market risks when it believes that the price of a security may decline, causing a
decline in the value of a long position the Fund may have in such security or a security convertible into or exchangeable for
such security, or when, for tax or other reasons, the Fund does not want to sell the security it owns. In such case, any future
losses in the Fund’s long position should be reduced by a gain in the short position. Conversely, any gain in the long position
should be reduced by a loss in the short position. Any gain will be decreased, and any loss will be increased, by the transaction
costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer (usually cash, U.S.
government securities or other highly liquid debt securities) and the maintenance of collateral with its custodian.
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Although
the Fund’s gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited. The
extent to which such gains or losses are reduced will depend upon the amount of the security sold short relative to the amount
the Fund owns, either directly or indirectly, and, in the case where the Fund owns convertible securities, changes with the conversion
premiums.
Warrants.
The Fund may invest in warrants. Warrants are, in effect, longer-term call options. They give the holder the right to
purchase a given number of shares of a particular company at specified prices within certain periods of time. The purchaser of
a warrant expects that the market price of the security will exceed the purchase price of the warrant plus the exercise price
of the warrant, thus giving him a profit. Since the market price may never exceed the exercise price before the expiration date
of the warrant, the purchaser of the warrant risks the loss of the entire purchase price of the warrant. Warrants generally trade
in the open market and may be sold rather than exercised. Warrants are sometimes sold in unit form with other securities of an
issuer. Units of warrants and common stock may be employed in financing young, unseasoned companies. The purchase price of a warrant
varies with the exercise price of the warrant, the current market value of the underlying security, the life of the warrant and
various other investment factors.
Lending
of Portfolio Securities. Although the Fund does not presently intend to do so, the Fund may lend securities may lend up
to 33-1/3% of its total assets. The purpose of such loans, generally, is to permit the borrower to use such securities for delivery
to purchasers when such borrower has sold short. If cash collateral is received by the Fund, it is invested in short-term money
market securities, and a portion of the yield received in respect of such investment is retained by the Fund. Alternatively, if
securities are delivered to the Fund as collateral, the Fund and the borrower negotiate a rate for the loan premium to be received
by the Fund for lending its portfolio securities. In either event, the total yield on the Fund’s portfolio is increased by loans
of its portfolio securities. The Fund intends to retain record ownership of loaned securities in order to exercise beneficial
rights such as voting rights, subscription rights and rights to dividends, interest or other distributions. Such loans are terminable
at any time. The Fund may pay reasonable finder’s, administrative and custodial fees in connection with such loans. The risks
in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or
possible loss of rights in the collateral should the borrower fail financially. In determining whether the Fund will lend securities
to a particular borrower, the Fund will consider all relevant facts and circumstances, including the creditworthiness of the borrower.
Repurchase
Agreements. Although the Fund does not presently intend to do so, as part of its strategy for the temporary investment
of cash balances, the Fund may enter into repurchase agreements. Repurchase agreements may be seen as loans by the Fund collateralized
by underlying securities. Under the terms of a typical repurchase agreement, the Fund acquires an underlying security for a relatively
short period (usually not more than one week) subject to an obligation of the seller to repurchase, and the Fund to resell, the
security at an agreed price and time. This arrangement results in a fixed rate of return to the Fund that is not subject to market
fluctuations during the holding period. The Fund bears a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Fund is delayed in or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying securities during the period in which it seeks to assert
these rights. The Investment Adviser, acting under the supervision of the Board, reviews the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing basis the value
of the securities
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subject
to repurchase agreements to ensure that the value is maintained at the required level. The Fund does not enter into repurchase
agreements with the Investment Adviser or any of its affiliates.
Temporary
Defensive Investments. When a temporary defensive posture is believed by the Investment Adviser to be warranted (“temporary
defensive periods”), the Fund may without limitation hold cash or invest all or a portion of its assets in money market instruments
and repurchase agreements in respect of those instruments. The money market instruments in which the Fund may invest are obligations
of the U.S. government, its agencies or instrumentalities; commercial paper rated “A-1” or higher by S&P or “Prime-1”
by Moody’s; and certificates of deposit and bankers’ acceptances issued by domestic branches of U.S. banks that are members of
the Federal Deposit Insurance Corporation. During temporary defensive periods, the Fund may also invest to the extent permitted
by applicable law in shares of money market mutual funds. Money market mutual funds are investment companies and the investments
in those companies by the Fund are in some cases subject to certain fundamental investment restrictions and applicable law. As
a shareholder in a mutual fund, the Fund will bear its ratable share of its expenses, including management fees, and will remain
subject to payment of the fees to the Investment Adviser, with respect to assets so invested. The Fund may find it more difficult
to achieve its investment objective during temporary defensive periods.
Options.
Although the Fund does not presently intend to do so, the Fund may invest up to 5% of its net assets in put options on
common stock or market indices and may write covered call options and may purchase call options to close out written covered call
options. Many currently traded convertible securities are convertible into common stocks against which call options may be written.
A
call option is a contract that gives the holder of the option the right to buy from the writer of the call option, in return for
a premium, the security underlying the option at a specified exercise price at any time during the term of the option. The writer
of the call option has the obligation, upon exercise of the option, to deliver the underlying security upon payment of the exercise
price during the option period.
A
put option is a contract that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying
security at a specified price. The seller of the put option has the obligation to buy the underlying security upon exercise at
the exercise price.
The
Fund will write covered call options in order to receive additional income in the form of premiums which it is paid for writing
options, and for hedging purposes in order to protect against possible declines in the market values of the stocks or convertible
securities held in its portfolio. A call option is “covered” if the Fund owns the underlying instrument covered by the
call or has an absolute and immediate right to acquire that instrument without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian) upon conversion or exchange of other instruments held in its
portfolio. A call option is also covered if the Fund holds a call on the same instrument as the call written where the exercise
price of the call held is (i) equal to or less than the exercise price of the call written or (ii) greater than the exercise price
of the call written if the difference is maintained by the Fund in cash, U.S. government securities or other high-grade short
term obligations in a segregated account with its custodian. A put option is “covered” if the Fund maintains cash or
other high-grade short term obligations with a value equal to the exercise price in a segregated account with its custodian, or
else holds a put on the same instrument as the put written where the exercise price of the put held is equal to or greater than
the exercise price of the put written.
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If
the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise
notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it
may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series
as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected
when the Fund so desires.
The Fund realizes a profit from a closing transaction if the price of the transaction is less than the
premium received from writing the option or is more than the premium paid to purchase the option; the Fund realizes a loss from
a closing transaction if the price of the transaction is more than the premium received from writing the option or is less than
the premium paid to purchase the option. Since call option prices generally reflect increases in the price of the underlying security,
any loss resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the
underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest
rates, the current market price and price volatility of the underlying security and the time remaining until the expiration date.
Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to predict correctly the
effect of these factors. The use of options cannot serve as a complete hedge since the price movement of securities underlying
the options will not necessarily follow the price movements of the portfolio securities subject to the hedge.
An
option position may be closed out only on an exchange which provides a secondary market for an option of the same series or in
a private transaction. Although the Fund generally purchases or writes only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In
such event it might not be possible to effect closing transactions in particular options, so that the Fund would have to exercise
its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option writer,
is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise or otherwise covers the position.
The
Fund may also purchase put options on one or more broadly based stock market indices when it wishes to protect all or part of
its portfolio securities against a general market decline. The put on the index will increase in value if the level of the index
declines; any such increase in value would serve to offset in whole or in part any decline in the value of the Fund’s portfolio.
The
Fund’s purchase and sale of put options on stock indices will be subject to the same risks described above with respect to transactions
in stock options on individual stocks. In addition, the distinctive characteristics of options on indices create certain risks
that are not present with stock options.
The
Fund’s ability to effectively hedge all or a portion of the securities in its portfolio in anticipation of or during a market
decline through transactions in put options on stock indices depends on the degree to which price movements in the underlying
index correlate with the price movements in the Fund’s portfolio securities. Since the Fund’s portfolio securities will not duplicate
the components of an index, the correlation will not be perfect. Consequently, the Fund will bear the risk that the prices of
its portfolio securities being hedged will not move in
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the
same amount as the prices of the Fund’s put options on the stock indices. It is also possible that there may be a negative correlation
between the index and the Fund’s portfolio securities which would result in a loss on both such portfolio securities and the put
options on stock indices acquired by the Fund.
There
are several risks associated with transactions in options. For example, there are significant differences between the securities
markets and the options markets that could result in an imperfect correlation among these markets, causing a given transaction
not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. The
ability of the Fund to utilize options successfully will depend on the Investment Adviser’s ability to predict pertinent market
investments, which cannot be assured. Although the Investment Adviser will attempt to take appropriate measures to minimize the
risks relating to the Fund’s writing of put and call options, there can be no assurance that the Fund will succeed in any option-writing
program it undertakes.
Investment
Restrictions. The Fund has adopted certain fundamental investments policies designed to limited investment risk and maintain
portfolio diversification. Under the 1940 Act, a fundamental policy may not be changed without the vote of a majority, as defined
in the 1940 Act, of the outstanding voting securities of the Fund (voting together as a single class subject to class approval
rights of any preferred shares). The Fund may become subject to rating agency guidelines that are more limiting than its current
investment restrictions in order to obtain and maintain a desired rating on its preferred shares, if any.
Neither
the Fund’s investment objective nor, except as expressly listed under “Investment Restrictions” in the SAI, any of its
policies are fundamental, and each may be modified by the Board without shareholder approval.
In addition, pursuant to the Fund’s
Statement of Preferences for the Series A Preferred Shares, a majority, as defined in the 1940 Act, of the outstanding preferred
shares of the Fund (voting separately as a single class) is also required to change a fundamental policy. See “Investment
Restrictions.”.
Portfolio
Turnover. The Fund will buy and sell securities to accomplish its investment objective. The investment policies of the
Fund may lead to frequent changes in investments, particularly in periods of rapidly fluctuating interest or currency exchange
rates.
Portfolio
turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the
lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the
year (excluding securities whose maturities at acquisition were one year or less). Higher portfolio turnover may decrease the
after-tax return to individual investors in the Fund to the extent it results in a decrease of the long term capital gains portion
of distributions to shareholders.
The
Fund anticipates that its annual portfolio turnover rate will generally not exceed 100%. For the fiscal years ended October 31,
2020 and October 31, 2021, the portfolio turnover rates of the Fund were 58% and 33% respectively.
Further
information on the investment objectives and policies of the Fund is set forth in the SAI.
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RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors
should consider the following risk factors and special considerations associated with investing in the Fund:
General
Risks
Market
Risk (Principal). The market price of securities owned by the Fund may go up or down, sometimes rapidly or
unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries
represented in the securities markets. The value of a security may decline due to general market conditions which are not
specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general
outlook for corporate earnings, changes in interest or currency rates, adverse changes to credit markets or adverse investor
sentiment generally. The value of a security may also decline due to factors which affect a particular industry or
industries, such as labor shortages or increased production costs and competitive conditions within an industry. During a
general downturn in the securities markets, multiple asset classes may decline in value simultaneously. Equity securities
generally have greater price volatility than fixed income securities. Credit ratings downgrades may also negatively affect
securities held by the Fund. Even when markets perform well, there is no assurance that the investments held by the Fund will
increase in value along with the broader market.
In
addition, market risk includes the risk that geopolitical and other events will disrupt the economy on a national or global level.
For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic
developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental
disasters can all negatively impact the securities markets, which could cause the Fund to lose value. These events could reduce
consumer demand or economic output, result in market closures, travel restrictions or quarantines, and significantly adversely
impact the economy. The current contentious domestic political environment, as well as political and diplomatic events within
the United States and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction
plan, has in the past resulted, and may in the future result, in a government shutdown, which could have an adverse impact on
the Fund’s investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect investor and consumer
confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Governmental
and quasi-governmental authorities and regulators throughout the world have previously responded to serious economic disruptions
with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into
companies, new monetary programs and dramatically lower interest rates. An unexpected or sudden reversal of these policies, or
the ineffectiveness of these policies, could increase volatility in securities markets, which could adversely affect the Fund’s
investments. Any market disruptions could also prevent the Fund from executing advantageous investment decisions in a timely manner.
To the extent that the Fund focuses its investments in a region enduring geopolitical market disruption, it will face higher risks
of loss, although the increasing interconnectivity between global economies and financial markets can lead to events or conditions
in one country, region or financial market adversely impacting a different country, region or financial
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market.
Thus, investors should closely monitor current market conditions to determine whether the Fund meets their individual financial
needs and tolerance for risk.
Current
market conditions may pose heightened risks with respect to the Fund’s investment in fixed income securities. Interest rates in
the U.S. are at or near historically low levels. Any interest rate increases in the future could cause the value of the Fund to
decrease. Recently, there have been signs of inflationary price movements. As such, fixed income securities markets may experience
heightened levels of interest rate, volatility and liquidity risk.
Exchanges
and securities markets may close early, close late or issue trading halts on specific securities or generally, which may result
in, among other things, the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time
or accurately price its portfolio investments.
Coronavirus
(“COVID-19”) and Global Health Event Risk (Principal). As of the filing date of this Annual Report, there
is an outbreak of a highly contagious form of a novel coronavirus known as “COVID-19.” COVID-19 has been declared
a pandemic by the World Health Organization and, in response to the outbreak, the U.S. Health and Human Services Secretary declared
a public health emergency in the United States. COVID-19 had a devastating impact on the global economy, including the U.S. economy,
and resulted in a global economic recession. Many states issued orders requiring the closure of non-essential businesses and/or
requiring residents to stay at home. The COVID-19 pandemic and preventative measures taken to contain or mitigate its spread have
caused, and are continuing to cause, business shutdowns, cancellations of events and travel, significant reductions in demand
for certain goods and services, reductions in business activity and financial transactions, supply chain interruptions and overall
economic and financial market instability both globally and in the United States. Such effects will likely continue for the duration
of the pandemic, which is uncertain, and for some period thereafter. While several countries, as well as certain states, counties
and cities in the United States, began to relax the early public health restrictions with a view to partially or fully reopening
their economies, many cities, both globally and in the United States, continue to experience, from time to time, surges in the
reported number of cases and hospitalizations related to the COVID-19 pandemic. Increases in cases can and has led to the re-introduction
of restrictions and business shutdowns in certain states, counties and cities in the United States and globally and could continue
to lead to the re-introduction of such restrictions elsewhere. Additionally, vaccines produced by Moderna and Johnson & Johnson
are currently authorized for emergency use, and in August 2021, the U.S. Food and Drug Administration (“FDA”) granted
full approval to the vaccines produced by Pfizer-BioNTech, which will now be marketed as Comirnaty. However, it remains unclear
how quickly the vaccines will be distributed nationwide and globally or when “herd immunity” will be achieved and
the restrictions that were imposed to slow the spread of the virus will be lifted entirely. The delay in distributing the vaccines
could lead people to continue to self-isolate and not participate in the economy at pre-pandemic levels for a prolonged period
of time. Even after the COVID-19 pandemic subsides, the U.S. economy and most other major global economies may continue to experience
a substantial economic downturn or recession, and our business and operations, as well as the business and operations of our portfolio
companies, could be materially adversely affected by a prolonged economic downtown or recession in the United States and other
major
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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markets.
Potential consequences of the current unprecedented measures taken in response to the spread of COVID-19, and current market disruptions
and volatility that may impact the Fund include, but are not limited to:
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sudden,
unexpected and/or severe declines in the market price of our common stock or net asset
value;
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inability
of the Fund to accurately or reliably value its portfolio;
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inability
of the Fund to comply with certain asset coverage ratios that would prevent the Fund
from paying dividends to our common stockholders;
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inability
of the Fund to pay any dividends and distributions;
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inability of the Fund to maintain its status as a RIC under the Code;
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potentially
severe, sudden and unexpected declines in the value of our investments;
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increased
risk of default or bankruptcy by the companies in which we invest;
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increased
risk of companies in which we invest being unable to weather an extended cessation of
normal economic activity and thereby impairing their ability to continue functioning
as a going concern;
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reduced
economic demand resulting from mass employee layoffs or furloughs in response to governmental
action taken to slow the spread of COVID-19, which could impact the continued viability
of the companies in which we invest;
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companies
in which we invest being disproportionally impacted by governmental action aimed at slowing
the spread of COVID-19;
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limited
availability of new investment opportunities; and
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general
threats to the Fund’s ability to continue investment operations and to operate
successfully as a diversified, closed-end investment company.
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Despite
actions of the U.S. federal government and foreign governments, the uncertainty surrounding the COVID-19 pandemic and other factors
has contributed to significant volatility and declines in the global public equity markets and global debt capital markets, including
the net asset value of the Fund’s shares. These events could have, and/or have had, a significant impact on the Fund’s
performance, net asset value, income, operating results and ability to pay distributions, as well as the performance, income,
operating results and viability of issuers in which it invests.
It
is virtually impossible to determine the ultimate impact of COVID-19 at this time. Further, the extent and strength of any economic
recovery after the COVID-19 pandemic abates, including following any “second wave,” “third wave” or other
intensifying of the pandemic, is uncertain and subject to various factors and conditions. Accordingly, an investment in the Fund
is subject to an elevated degree of risk as compared to other market environments.
Convertible
Securities Risk (Principal). Convertible securities generally offer lower interest or dividend yields than non-convertible
securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely,
to increase as interest rates decline. In the absence of adequate anti-dilution provisions in a convertible security, dilution
in the value of the Fund’s holding may occur in the event the underlying stock is subdivided, additional equity securities are
issued for below market value, a stock dividend is declared or the issuer enters into another type of corporate transaction that
has a similar effect.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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The
value of a convertible security is influenced by the value of the underlying equity security. Convertible debt securities and
preferred stocks may depreciate in value if the market value of the underlying equity security declines or if rates of interest
increase. In addition, although debt securities are liabilities of a corporation which the corporation is generally obligated
to repay at a specified time, debt securities, particularly convertible debt securities, are often subordinated to the claims
of some or all of the other creditors of the corporation.
Mandatory
conversion securities (securities that automatically convert into equity securities at a future date) may limit the potential
for capital appreciation and, in some instances, are subject to complete loss of invested capital. Other innovative convertibles
include “equity-linked” securities, which are securities or derivatives that may have fixed, variable, or no interest
payments prior to maturity, may convert (at the option of the holder or on a mandatory basis) into cash or a combination of cash
and equity securities, and may be structured to limit the potential for capital appreciation. Equity-linked securities may be
illiquid and difficult to value and may be subject to greater credit risk than that of other convertibles. Moreover, mandatory
conversion securities and equity-linked securities have increased the sensitivity of the convertible securities market to the
volatility of the equity markets and to the special risks of those innovations, which may include risks different from, and possibly
greater than, those associated with traditional convertible securities.
Preferred
stocks are equity securities in the sense that they do not represent a liability of the corporation. In the event of liquidation
of the corporation, and after its creditors have been paid or provided for, holders of preferred stock are generally entitled
to a preference as to the assets of the corporation before any distribution may be made to the holders of common stock. Debt securities
normally do not have voting rights. Preferred stocks may have no voting rights or may have voting rights only under certain circumstances.
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Credit
Risk. Credit risk is the risk that an issuer will fail to pay interest or dividends
and principal in a timely manner. Companies that issue convertible securities may be
small to medium-size, and they often have low credit ratings. In addition, the credit
rating of a company’s convertible securities is generally lower than that of its conventional
debt securities. Convertible securities are normally considered “junior” securities—that
is, the company usually must pay interest on its conventional debt before it can make
payments on its convertible securities. Credit risk could be high for the Fund, because
it could invest in securities with low credit quality. The lower a debt security is rated,
the greater its default risk. As a result, the Fund may incur cost and delays in enforcing
its rights against the issuer.
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Market
Risk. 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, the Fund’s mandatory convertible securities 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.
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Interest
Rate Risk for Convertible Securities. The Fund may be subject to a greater risk of
rising interest rates due to the current period of historically low interest rates. There
is a possibility that interest rates may rise, which would likely drive down the prices
of income or dividend paying securities. These factors increase the risk that market
interest rates will rise or continue to rise in the future, with a corresponding decline
in the value of convertible securities held by the Fund. Convertible securities are particularly
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Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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sensitive
to interest rate changes when their predetermined conversion price is much higher than the issuing company’s common stock.
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Sector
Risk. Sector risk is the risk that returns from the economic sectors in which convertible
securities are concentrated will trail returns from other economic sectors. As a group,
sectors tend to go through cycles of doing better-or-worse-than the convertible securities
market in general. These periods have, in the past, lasted for as long as several years.
Moreover, the sectors that dominate this market change over time
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Dilution
Risk. In the absence of adequate anti-dilution provisions in a convertible security,
dilution in the value of the Fund’s holding may occur in the event the underlying stock
is subdivided, additional equity securities are issued for below market value, a stock
dividend is declared, or the issuer enters into another type of corporate transaction
that has a similar effect.
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Synthetic
Convertible Instruments Risk (Principal). The value of a synthetic convertible instrument may respond differently to market
fluctuations than a convertible security because a synthetic convertible instrument is composed of two or more separate instruments,
each with its own market value. In addition, if the value of the underlying common stock or the level of the index involved in
the convertible component falls below the exercise price of the warrant or option, the warrant or option may lose all value. Synthetic
convertible instruments created by other parties have the same attributes of a convertible security; however, the issuer of the
synthetic convertible instrument assumes the credit risk associated with the investment, rather than the issuer of the underlying
equity security into which the instrument is convertible. The Fund remains subject to the credit risk associated with the counterparty
creating the synthetic convertible instrument.
Equity
Risk (Principal). Investing in the Fund involves equity risk, which is the risk that the securities held by the Fund
will fall in market value due to adverse market and economic conditions, perceptions regarding the industries in which the
issuers of securities held by the Fund participate and the particular circumstances and performance of particular companies
whose securities the Fund holds. An investment in the Fund represents an indirect economic stake in the securities owned by
the Fund, which are for the most part traded on securities exchanges or in the OTC markets. The market value of these
securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The net asset value of
the Fund may at any point in time be worth less than the amount at the time the shareholder invested in the Fund, even after
taking into account any reinvestment of distributions.
Inflation
Risk (Principal). Inflation risk is the risk that the value of assets or income from investments will be worth less in
the future as inflation decreases the value of money. Recently, there have been market indicators of a rise in inflation. As inflation
increases, the real value of the Fund’s shares and distributions therefore may decline. In addition, during any periods of rising
inflation, dividend rates of any debt securities issued by the Fund would likely increase, which would tend to further reduce
returns to common shareholders. Inflation rates may change frequently and significantly as a result of various factors, including
unexpected shifts in the domestic or global economy and changes in economic policies, and the Fund’s investments may not keep
pace with inflation, which may result in losses to Fund shareholders. This risk is greater for fixed-income instruments with longer
maturities.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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Common
Stock Risk (Principal). Common stock of an issuer in the Fund’s portfolio may decline in price for a variety of
reasons, including if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the
security experiences a decline in its financial condition. Common stock in which the Fund invests is structurally
subordinated as to income and residual value to preferred stock, bonds and other debt instruments in a company’s capital
structure, in terms of priority to corporate income, and therefore will be subject to greater dividend risk than preferred
stock or debt instruments of such issuers. In addition, while common stock has historically generated higher average returns
than fixed income securities, common stock has also experienced significantly more volatility in generating those
returns.
Preferred
Stock Risk (Principal). There are special risks associated with the Fund’s investing in preferred securities, including:
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Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion,
to defer dividends or distributions for a stated period without any adverse consequences
to the issuer. If the Fund owns a preferred security that is deferring its dividends
or distributions, the Fund may be required to report income for tax purposes although
it has not yet received such income.
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Non-Cumulative
Dividends. Some preferred securities are non-cumulative, meaning that the dividends
do not accumulate and need not ever be paid. A portion of the portfolio may include investments
in non-cumulative preferred securities, whereby the issuer does not have an obligation
to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred
security held by the Fund determine not to pay dividends or distributions on such security,
the Fund’s return from that security may be adversely affected. There is no assurance
that dividends or distributions on non-cumulative preferred securities in which the Fund
invests will be declared or otherwise made payable.
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Subordination.
Preferred securities are subordinated to bonds and other debt instruments in an issuer’s
capital structure in terms of priority to corporate income and liquidation payments,
and therefore will be subject to greater credit risk than more senior debt security instruments.
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Liquidity.
Preferred securities may be substantially less liquid than many other securities,
such as common stocks or U.S. government securities.
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Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have no voting
rights with respect to the issuing company unless preferred dividends have been in arrears
for a specified number of periods, at which time the preferred security holders may be
entitled to elect a number of directors to the issuer’s board. Generally, once all the
arrearages have been paid, the preferred security holders no longer have voting rights.
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Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities
may redeem the securities prior to a specified date. For instance, for certain types
of preferred securities, a redemption may be triggered by a change in U.S. federal income
tax or securities laws. A redemption by the issuer may negatively impact the return of
the security held by the Fund.
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Warrants
and Rights (Non-Principal). The Fund may invest in warrants and rights (including those acquired in units or attached
to other securities) which entitle the holder to buy equity securities at a specific price for or at the end of a specific period
of time. The Fund will do so only if the underlying equity securities are deemed appropriate by the Investment Adviser for inclusion
in the Fund’s portfolio.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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Investing
in rights and warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security,
and thus can be a riskier investment. The value of a right or warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or other policies of the Fund whose equity underlies
the warrant, a change in the perception as to the future price of the underlying security, or any combination thereof. Rights
and warrants generally pay no dividends and confer no voting or other rights other than the right to purchase the underlying security.
Fixed
Income Securities Risks (Principal). Fixed income securities in which the Fund may invest are generally subject to the
following risks:
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Interest
Rate Risk. The market value of bonds and other fixed-income or dividend-paying securities
changes in response to interest rate changes and other factors. Interest rate risk is
the risk that prices of bonds and other income or dividend paying securities will increase
as interest rates fall and decrease as interest rates rise.
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The
Fund may be subject to a greater risk of rising interest rates due to the current period of historically low interest rates. The
magnitude of these fluctuations in the market price of bonds and other income or dividend paying securities is generally greater
for those securities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect interest
income derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value. The Fund may lose
money if short term or long term interest rates rise sharply in a manner not anticipated by Fund management. To the extent the
Fund invests in debt securities that may be prepaid at the option of the obligor, the sensitivity of such securities to changes
in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on certain floating
rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden and significant
changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests in floating
rate debt securities. These basic principles of bond prices also apply to U.S. government securities. A security backed by the
“full faith and credit” of the U.S. government is guaranteed only as to its stated interest rate and face value at maturity,
not its current market price. Just like other income or dividend paying securities, government-guaranteed securities will fluctuate
in value when interest rates change.
The
Fund’s use of leverage will tend to increase the Fund’s interest rate risk. The Fund may invest in variable and floating rate
debt instruments, which generally are less sensitive to interest rate changes than longer duration fixed rate instruments, but
may decline in value in response to rising interest rates if, for example, the rates at which they pay interest do not rise as
much, or as quickly, as market interest rates in general. Conversely, variable and floating rate instruments generally will not
increase in value if interest rates decline. The Fund also may invest in inverse floating rate debt securities, which may decrease
in value if interest rates increase, and which also may exhibit greater price volatility than fixed rate debt obligations with
similar credit quality. To the extent the Fund holds variable or floating rate instruments, a decrease (or, in the case of inverse
floating rate securities, an increase) in market interest
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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rates
will adversely affect the income received from such securities, which may adversely affect the net asset value of the Fund’s common
shares.
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Issuer
Risk. Issuer risk is the risk that the value of an income or dividend paying security
may decline for a number of reasons which directly relate to the issuer, such as management
performance, financial leverage, reduced demand for the issuer’s goods and services,
historical and prospective earnings of the issuer and the value of the assets of the
issuer.
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Credit
Risk. Credit risk is the risk that one or more income or dividend paying securities
in the Fund’s portfolio will decline in price or fail to pay interest/distributions or
principal when due because the issuer of the security experiences a decline in its financial
status. Credit risk is increased when a portfolio security is downgraded or the perceived
creditworthiness of the issuer deteriorates. To the extent the Fund invests in below
investment grade securities, it will be exposed to a greater amount of credit risk than
a fund which only invests in investment grade securities. See “—Non-Investment
Grade Securities.” The degree of credit risk depends on the issuer’s financial condition
and on the terms of the securities.
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Prepayment
Risk. Prepayment risk is the risk that during periods of declining interest rates,
borrowers may exercise their option to prepay principal earlier than scheduled. For income
or dividend paying securities, such payments often occur during periods of declining
interest rates, forcing the Fund to reinvest in lower yielding securities, resulting
in a possible decline in the Fund’s income and distributions to shareholders. This is
known as prepayment or “call” risk. Below investment grade securities frequently
have call features that allow the issuer to redeem the security at dates prior to its
stated maturity at a specified price (typically greater than par) only if certain prescribed
conditions are met (“call protection”). For premium bonds (bonds acquired at
prices that exceed their par or principal value) purchased by the Fund, prepayment risk
may be enhanced.
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Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline
if the Fund invests the proceeds from matured, traded or called fixed income securities
at market interest rates that are below the Fund portfolio’s current earnings rate.
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Duration
and Maturity Risk. The Fund has no set policy regarding portfolio maturity or duration
of the fixed-income securities it may hold. The Investment Adviser may seek to adjust
the duration or maturity of the Fund’s fixed-income holdings based on its assessment
of current and projected market conditions and all other factors that the Investment
Adviser deems relevant. In comparison to maturity (which is the date on which the issuer
of a debt instrument is obligated to repay the principal amount), duration is a measure
of the price volatility of a debt instrument as a result in changes in market rates of
interest, based on the weighted average timing of the instrument’s expected principal
and interest payments. Specifically, duration measures the anticipated percentage change
in NAV that is expected for every percentage point change in interest rates. The two
have an inverse relationship. Duration can be a useful tool to estimate anticipated price
changes to a fixed pool of income securities associated with changes in interest rates.
For example, a duration of five years means that a 1% decrease in interest rates will
increase the NAV of the portfolio by approximately 5%; if interest rates increase by 1%,
the NAV will decrease by 5%. However, in a managed portfolio of fixed income securities
having differing interest or dividend rates or payment schedules, maturities, redemption
provisions, call or prepayment provisions and credit qualities, actual price changes
in response to changes in interest rates may differ significantly from a duration-based
estimate at any given time. Actual price movements experienced by a portfolio of
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Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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fixed
income securities will be affected by how interest rates move (i.e., changes in the relationship of long term interest rates to
short term interest rates), the magnitude of any move in interest rates, actual and anticipated prepayments of principal through
call or redemption features, the extension of maturities through restructuring, the sale of securities for portfolio management
purposes, the reinvestment of proceeds from prepayments on and from sales of securities, and credit quality-related considerations
whether associated with financing costs to lower credit quality borrowers or otherwise, as well as other factors. Accordingly,
while duration maybe a useful tool to estimate potential price movements in relation to changes in interest rates, investors are
cautioned that duration alone will not predict actual changes in the net asset or market value of the Fund’s shares and that actual
price movements in the Fund’s portfolio may differ significantly from duration-based estimates. Duration differs from maturity
in that it takes into account a security’s yield, coupon payments and its principal payments in addition to the amount of time
until the security matures. As the value of a security changes over time, so will its duration. Prices of securities with longer
durations tend to be more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of
securities with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter
duration. Any decisions as to the targeted duration or maturity of any particular category of investments will be made based on
all pertinent market factors at any given time. The Fund may incur costs in seeking to adjust the portfolio average duration or
maturity. There can be no assurance that the Investment Adviser’s assessment of current and projected market conditions will be
correct or that any strategy to adjust duration or maturity will be successful at any given time.
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LIBOR
Risk. The Fund may be exposed to financial instruments that are tied to the London
Interbank Offered Rate (“LIBOR”) to determine payment obligations, financing
terms, hedging strategies or investment value. The Fund’s investments may pay interest
at floating rates based on LIBOR or may be subject to interest caps or floors based on
LIBOR. The Fund may also obtain financing at floating rates based on LIBOR. Derivative
instruments utilized by the Fund may also reference LIBOR.
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The
United Kingdom’s Financial Conduct Authority announced a phase out of LIBOR such that after December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S. dollar LIBOR settings will cease to be published
or will no longer be representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S. dollar
LIBOR settings will cease to be published or will no longer be representative. The Fund may have investments linked to other interbank
offered rates, such as the Euro Overnight Index Average (“EONIA”), which may also cease to be published. Various financial
industry groups have begun planning for the transition away from LIBOR, but there are challenges to converting certain securities
and transactions to a new reference rate (e.g., the Secured Overnight Financing Rate, which is intended to replace the U.S. dollar
LIBOR).
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of, new hedges placed against, instruments whose terms
currently include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of
any such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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may
have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add
alternative rate-setting provisions in certain existing instruments. Moreover, these alternative rate-setting provisions may not
be designed for regular use in an environment where LIBOR ceases to be published, and may be an ineffective fallback following
the discontinuation of LIBOR.
In
addition, a liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. There
may also be challenges for the Fund to enter into hedging transactions against such newly-issued instruments until a market for
such hedging transactions develops. All of the aforementioned may adversely affect the Fund’s performance or net asset value.
Corporate
Bonds Risk (Principal). The market value of a corporate bond generally may be expected to rise and fall inversely
with interest rates. The market value of intermediate and longer term corporate bonds is generally more sensitive to changes
in interest rates than is the market value of shorter term corporate bonds. The market value of a corporate bond also may be
affected by factors directly related to the issuer, such as investors’ perceptions of the creditworthiness of the
issuer, the issuer’s financial performance, perceptions of the issuer in the market place, performance of management of
the issuer, the issuer’s capital structure and use of financial leverage and demand for the issuer’s goods and
services. Certain risks associated with investments in corporate bonds are described elsewhere in this Annual Report in
further detail, including under “—Fixed Income Securities Risks—Credit Risk,” “—Fixed
Income Securities Risks—Interest Rate Risk,” “—Fixed Income Securities Risks— Prepayment Risk”
and —General Risks—Inflation Risk.” There is a risk that the issuers of corporate bonds may not be able to
meet their obligations on interest or principal payments at the time called for by an instrument. Corporate bonds of below
investment grade quality are often high risk and have speculative characteristics and may be particularly susceptible to
adverse issuer-specific developments. Corporate bonds of below investment grade quality are subject to the risks
described herein under “—Non-Investment Grade Securities.”
Non-Investment
Grade Securities (Principal). The Fund may invest in below investment-grade debt securities, also known as high- yield
fixed income securities. These securities, which may be preferred stock or debt, are predominantly speculative and involve major
risk exposure to adverse conditions. Debt securities that are rated lower than “BBB” by S&P or lower than “Baa”
by Moody’s (or unrated debt securities of comparable quality) are referred to in the financial press as “junk bonds”
and generally pay a premium above the yields of U.S. government securities or debt securities of investment grade issuers because
they are subject to greater risks than these securities. These risks, which reflect their speculative character, include the following:
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greater
credit risk and risk of default;
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potentially
greater sensitivity to general economic or industry conditions;
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potential
lack of attractive resale opportunities (illiquidity); and
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additional
expenses to seek recovery from issuers who default.
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In
addition, the prices of these non-investment grade securities are more sensitive to negative developments, such as a decline in
the issuer’s revenues or a general economic downturn, than are the prices of higher grade securities. Non-investment grade
securities tend to be less liquid than investment grade securities. The market value of non-investment grade securities may be
more volatile than the market value of investment
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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grade
securities and generally tends to reflect the market’s perception of the creditworthiness of the issuer and short term market
developments to a greater extent than investment grade securities, which primarily reflect fluctuations in general levels of interest
rates.
Ratings
are relative and subjective and not absolute standards of quality. Securities ratings are based largely on the issuer’s historical
financial condition and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer’s current financial condition.
As a part of its investments in non-investment
grade fixed-income securities, the Fund may invest in the securities of issuers in default. The Fund invests in securities of
issuers in default only when the Investment Adviser believes that such issuers will honor their obligations and emerge from bankruptcy
protection and that the value of such issuers’ securities will appreciate. By investing in the securities of issuers in default,
the Fund bears the risk that these issuers will not continue to honor their obligations or emerge from bankruptcy protection or
that the value of these securities will not otherwise appreciate.
Smaller
Companies Investment Risk (Non-Principal). The Fund may invest in the securities of smaller, less seasoned
companies. Smaller companies offer investment opportunities and additional risks. They may not be well known to the investing
public, may not be significantly owned by institutional investors and may not have steady earnings growth. These companies
may have limited product lines and markets, as well as shorter operating histories, less experienced management and more
limited financial resources than larger companies. In addition, the securities of such companies may be more vulnerable to
adverse general market or economic developments, more volatile in price, have wider spreads between their bid and ask prices
and have significantly lower trading volumes than the securities of larger capitalization companies. As such, securities of
these smaller companies may be less liquid than those of larger companies, and may experience greater price fluctuations than
larger companies. In addition, small-cap or mid-cap company securities may not be widely followed by investors, which may
result in reduced demand.
As
a result, the purchase or sale of more than a limited number of shares of the securities of a smaller company may affect its market
price. The Investment Adviser may need a considerable amount of time to purchase or sell its positions in these securities, particularly
when other Investment Adviser-managed accounts or other investors are also seeking to purchase or sell them.
The
securities of smaller capitalization companies generally trade in lower volumes and are subject to greater and more unpredictable
price changes than larger capitalization securities or the market as a whole. In addition, smaller capitalization securities may
be particularly sensitive to changes in interest rates, borrowing costs and earnings. Investing in smaller capitalization securities
requires a longer-term view.
Securities
of emerging companies may lack an active secondary market and may be subject to more abrupt or erratic price movements than securities
of larger, more established companies or stock market averages in general. Competitors of certain companies, which may or may
not be in the same industry, may have substantially greater financial resources than the companies in which the Fund may invest.
U.S.
Government Securities and Credit Rating Downgrade Risk (Non-Principal). The Fund may invest in direct obligations of the
government of the United States or its agencies. Obligations issued or guaranteed by the U.S. government, its agencies, authorities
and instrumentalities and backed by the full faith and credit of the
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U.S.
guarantee only that principal and interest will be timely paid to holders of the securities. These entities do not guarantee that
the value of such obligations will increase, and, in fact, the market values of such obligations may fluctuate. In addition, not
all U.S. government securities are backed by the full faith and credit of the United States; some are the obligation solely of
the entity through which they are issued. There is no guarantee that the U.S. government would provide financial support to its
agencies and instrumentalities if not required to do so by law.
In
2011, S&P lowered its long term sovereign credit rating on the U.S. to “AA+” from “AAA.” The downgrade
by S&P increased volatility in both stock and bond markets, resulting in higher interest rates and higher Treasury yields,
and increased the costs of all kinds of debt. Repeat occurrences of similar events could have significant adverse effects on the
U.S. economy generally and could result in significant adverse impacts on issuers of securities held by the Fund itself. The Investment
Adviser cannot predict the effects of similar events in the future on the U.S. economy and securities markets or on the Fund’s
portfolio. The Investment Adviser monitors developments and seeks to manage the Fund’s portfolio in a manner consistent with achieving
the Fund’s investment objective, but there can be no assurance that it will be successful in doing so and the Investment Adviser
may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Foreign
Securities Risk (Principal). Investments in the securities of foreign issuers involve certain considerations and risks
not ordinarily associated with investments in securities of domestic issuers and such securities may be more volatile than those
of issuers located in the United States. Foreign companies are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to U.S. companies. Foreign securities exchanges, brokers and listed
companies may be subject to less government supervision and regulation than exists in the United States. Dividend and interest
income may be subject to withholding and other foreign taxes, which may adversely affect the net return on such investments. There
may be difficulty in obtaining or enforcing a court judgment abroad. In addition, it may be difficult to effect repatriation of
capital invested in certain countries. In addition, with respect to certain countries, there are risks of expropriation, confiscatory
taxation, political or social instability or diplomatic developments that could affect assets of the Fund held in foreign countries.
Dividend income the Fund receives from foreign securities may not be eligible for the special tax treatment applicable to qualified
dividend income. Moreover, certain equity investments in foreign issuers classified as passive foreign investment companies may
be subject to additional taxation risk.
There
may be less publicly available information about a foreign company than a U.S. company. Foreign securities markets may have substantially
less volume than U.S. securities markets and some foreign company securities are less liquid than securities of otherwise comparable
U.S. companies. A portfolio of foreign securities may also be adversely affected by fluctuations in the rates of exchange between
the currencies of different nations and by exchange control regulations. Foreign markets also have different clearance and settlement
procedures that could cause the Fund to encounter difficulties in purchasing and selling securities on such markets and may result
in the Fund missing attractive investment opportunities or experiencing loss. In addition, a portfolio that includes foreign securities
can expect to have a higher expense ratio because of the increased transaction costs on non-U.S. securities markets and the increased
costs of maintaining the custody of foreign securities.
The Fund also may purchase ADRs or U.S. dollar-denominated securities
of foreign issuers. ADRs are receipts issued by U.S. banks or trust companies in respect of securities of foreign issuers held
on deposit for use
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in
the U.S. securities markets. While ADRs may not necessarily be denominated in the same currency as the securities into which they
may be converted, many of the risks associated with foreign securities may also apply to ADRs. In addition, the underlying issuers
of certain depositary receipts, particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited
securities.
The following provides more detail on certain pronounced risks with foreign investing:
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Foreign
Currency Risk. The Fund may invest in companies whose securities are denominated
or quoted in currencies other than U.S. dollars or have significant operations or markets
outside of the United States. In such instances, the Fund will be exposed to currency
risk, including the risk of fluctuations in the exchange rate between U.S. dollars (in
which the Fund’s shares are denominated) and such foreign currencies, the risk of currency
devaluations and the risks of non-exchangeability and blockage. As non-U.S. securities
may be purchased with and payable in currencies of countries other than the U.S. dollar,
the value of these assets measured in U.S. dollars may be affected favorably or unfavorably
by changes in currency rates and exchange control regulations. Fluctuations in currency
rates may adversely affect the ability of the Investment Adviser to acquire such securities
at advantageous prices and may also adversely affect the performance of such assets.
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Certain
non-U.S. currencies, primarily in developing countries, have been devalued in the past and might face devaluation in the future.
Currency devaluations generally have a significant and adverse impact on the devaluing country’s economy in the short and intermediate
term and on the financial condition and results of companies’ operations in that country. Currency devaluations may also be accompanied
by significant declines in the values and liquidity of equity and debt securities of affected governmental and private sector
entities generally. To the extent that affected companies have obligations denominated in currencies other than the devalued currency,
those companies may also have difficulty in meeting those obligations under such circumstances, which in turn could have an adverse
effect upon the value of the Fund’s investments in such companies. There can be no assurance that current or future developments
with respect to foreign currency devaluations will not impair the Fund’s investment flexibility, its ability to achieve its investment
objective or the value of certain of its foreign currency-denominated investments.
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Tax
Consequences of Foreign Investing. The Fund’s transactions in foreign currencies,
foreign currency-denominated debt obligations and certain foreign currency options, futures
contracts and forward contracts (and similar instruments) may give rise to ordinary income
or loss to the extent such income or loss results from fluctuations in the value of the
foreign currency concerned. This treatment could increase or decrease the Fund’s ordinary
income distributions to you, and may cause some or all of the Fund’s previously distributed
income to be classified as a return of capital. In certain cases, the Fund may make an
election to treat gain or loss attributable to certain investments as capital gain or
loss.
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EMU
and Redenomination Risk. As the European debt crisis progressed, the possibility
of one or more Eurozone countries exiting the European Monetary Union (“EMU”),
or even the collapse of the Euro as a common currency, arose, creating significant volatility
at times in currency and financial markets generally. The effects of the collapse of
the Euro, or of the exit of one or more countries from the EMU, on the U.S. and global
economies and securities markets are impossible to predict, and any such events could
have a significant adverse impact on the value and risk profile of the Fund’s portfolio.
Any partial or com-
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plete
dissolution of the EMU could have significant adverse effects on currency and financial markets, and on the values of the Fund’s
portfolio investments. If one or more EMU countries were to stop using the Euro as its primary currency, the Fund’s investments
in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments
could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject
to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated
in Euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments,
or should the Euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such
investments particularly difficult to value or dispose of. The Fund may incur additional expenses to the extent it is required
to seek judicial or other clarification of the denomination or value of such securities.
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Emerging
Markets Risk. The considerations noted above in “Foreign Securities Risk”
are generally inten-sified for investments in emerging market countries. Emerging market
countries typically have economic and political systems that are less fully developed,
and can be expected to be less stable than those of more developed countries. Investing
in securities of companies in emerging markets may entail special risks relating to potential
political and economic instability and the risks of expropriation, nationalization, confiscation
or the imposition of restrictions on foreign investment, the lack of hedging instruments
and restrictions on repatriation of capital invested. Economies of such countries can
be subject to rapid and unpredictable rates of inflation or deflation. Emerging securities
markets are substantially smaller, less developed, less liquid and more volatile than
the major securities markets. The limited size of emerging securities markets and limited
trading volume compared to the volume of trading in U.S. securities could cause prices
to be erratic for reasons apart from factors that affect the quality of the securities.
For example, limited market size may cause prices to be unduly influenced by traders
who control large positions. Adverse publicity and investors’ perceptions, whether or
not based on fundamental analysis, may decrease the value and liquidity of portfolio
securities, especially in these markets. Other risks include high concentration of market
capitalization and trading volume in a small number of issuers representing a limited
number of industries, as well as a high concentration of investors and financial intermediaries;
overdependence on exports, including gold and natural resources exports, making these
economies vulnerable to changes in commodity prices; overburdened infrastructure and
obsolete or unseasoned financial systems; environmental problems; less developed legal
systems; and less reliable securities custodial services and settlement practices. Certain
emerging markets may also face other significant internal or external risks, including
the risk of war and civil unrest. For all of these reasons, investments in emerging markets
may be considered speculative.
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Eurozone
Risk. A number of countries in the EU have experienced, and may continue to experience,
severe economic and financial difficulties. In particular, many EU nations are susceptible
to economic risks associated with high levels of debt, notably due to investments in
sovereign debt of countries such as Greece, Italy, Spain, Portugal, and Ireland. As a
result, financial markets in the EU have been subject to increased volatility and declines
in asset values and liquidity. Responses to these financial problems by European governments,
central banks, and others, including austerity measures and reforms, may not work, may
result in social unrest, and may limit future growth and economic recovery or have other
unintended consequences. Further defaults or restructurings by governments and others
of their debt
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Fund Ltd.
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could
have additional adverse effects on economies, financial markets, and asset valuations around the world. Greece, Ireland, and Portugal
have already received one or more “bailouts” from other Eurozone member states, and it is unclear how much additional
funding they will require or if additional Eurozone member states will require bailouts in the future. One or more other countries
may also abandon the euro and/or withdraw from the EU, placing its currency and banking system in jeopardy. The impact of these
actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far-reaching.
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Brexit
Risk. On June 23, 2016, the United Kingdom held a referendum in which voters approved
an exit from the EU, commonly referred to as “Brexit.” The United Kingdom’s
withdrawal from the EU occurred on January 31, 2020, and the United Kingdom remained
in the EU’s customs union and single market until December 31, 2020. The United
Kingdom and the EU have entered into a Trade and Cooperation Agreement (the “TCA”).
While the TCA regulates a number of important areas, significant parts of the United
Kingdom economy are not addressed in detail by the TCA, including in particular the services
sector, which represents the largest component of the United Kingdom’s economy.
A number of issues, particularly in relation to the financial services sector, remain
to be resolved through further bilateral negotiations. As a result, the new relationship
between the United Kingdom and the EU could in the short-term, and possibly for longer,
cause disruptions to and create uncertainty in the United Kingdom and European economies,
prejudice to financial services businesses that are conducting business in the EU and
which are based in the United Kingdom, legal uncertainty regarding achievement of compliance
with applicable financial and commercial laws and regulations, and the unavailability
of timely information as to expected legal, tax and other regimes
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In addition, certain
European countries have recently experienced negative interest rates on certain fixed-income
instruments. A negative interest rate policy is an unconventional central bank monetary
policy tool where nominal target interest rates are set with a negative value (i.e.,
below zero percent) intended to help create self-sustaining growth in the local economy.
Negative interest rates may result in heightened market volatility and may detract from
the Fund’s performance to the extent the Fund is exposed to such interest rates. Among
other things, these developments have adversely affected the value and exchange rate
of the euro and pound sterling, and may continue to significantly affect the economies
of all EU countries, which in turn may have a material adverse effect on the Fund’s investments
in such countries, other countries that depend on EU countries for significant amounts
of trade or investment, or issuers with exposure to debt issued by certain EU countries.
To
the extent the Fund has exposure to European markets or to transactions tied to the value of the euro, these events could negatively
affect the value and liquidity of the Fund’s investments. All of these developments may continue to significantly affect the economies
of all EU countries, which in turn may have a material adverse effect on the Fund’s investments in such countries, other countries
that depend on EU countries for significant amounts of trade or investment, or issuers with exposure to debt issued by certain
EU countries.
Restricted
and Illiquid Securities Risk (Principal). Unregistered securities are securities that cannot be sold publicly in the United
States without registration under the Securities Act. An illiquid investment is a security or other investment that cannot be
disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the investment.
Unregistered securities often can be resold only in
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privately
negotiated transactions with a limited number of purchasers or in a public offering registered under the Securities Act. Considerable
delay could be encountered in either event and, unless otherwise contractually provided for, the Fund’s proceeds upon sale may
be reduced by the costs of registration or underwriting discounts. The difficulties and delays associated with such transactions
could result in the Fund’s inability to realize a favorable price upon disposition of unregistered securities, and at times might
make disposition of such securities impossible. The Fund may be unable to sell illiquid investments when it desires to do so,
resulting in the Fund obtaining a lower price or being required to retain the investment. Illiquid investments generally must
be valued at fair value, which is inherently less precise than utilizing market values for liquid investments, and may lead to
differences between the price a security is valued for determining the Fund’s net asset value and the price the Fund actually
receives upon sale.
Special
Risks Related to Investment in Derivatives (Non-Principal). The Fund may participate in derivative transactions. Such
transactions entail certain execution, market, liquidity, hedging and tax risks. Participation in derivatives transactions involves
investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Investment
Adviser’s prediction of movements in the direction of the securities or other referenced instruments or markets is inaccurate,
the consequences to the Fund may leave the Fund in a worse position than if it had not used such strategies. Risks inherent in
the use of derivative transactions include:
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dependence
on the Investment Adviser’s ability to predict correctly movements in the direction
of the relevant measure;
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imperfect
correlation between the price of the derivative instrument and movements in the prices
of the referenced assets;
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the
fact that skills needed to use these strategies are different from those needed to select
portfolio securities;
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the
possible absence of a liquid secondary market for any particular instrument at any time;
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the
possible need to defer closing out certain positions to avoid adverse tax consequences;
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the
possible inability of the Fund to purchase or sell a security or instrument at a time
that otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a security or instrument at a disadvantageous time due to a need for the Fund
to maintain “cover” or to segregate securities in connection with the hedging
techniques; and
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the
creditworthiness of counterparties.
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Certain
derivatives may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions
in the United States, may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected
by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data
on which to make trading decisions, (iii) delays in the ability of the Fund to act upon economic events occurring in the foreign
markets during non-business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States and (v) less trading volume. Exchanges on which derivatives are traded may impose
limits on the positions that the Fund may take in certain circumstances.
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Many
OTC derivatives are valued on the basis of dealers’ pricing of these instruments. However, the price at which dealers value a
particular derivative and the price which the same dealers would actually be willing to pay for such derivative should the Fund
wish or be forced to sell such position may be materially different. Such differences can result in an overstatement of the Fund’s
net asset value and may materially adversely affect the Fund in situations in which the Fund is required to sell derivative instruments.
Exchange-traded derivatives and OTC derivative transactions submitted for clearing through a central counterparty have become
subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as possible margin requirements
mandated by the SEC or the Commodity Futures Trading Commission (the “CFTC”). These regulators also have broad discretion
to impose margin requirements on non-cleared OTC derivatives. These margin requirements will increase the overall costs for the
Fund.
While
hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and the underlying security, and there can be no assurance that the Fund’s hedging transactions will be
effective.
Derivatives
may give rise to a form of leverage and may expose the Fund to greater risk and increase its costs. Recent legislation calls for
new regulation of the derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some
time. New regulation may make derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect
the value or performance of derivatives.
Counterparty
Risk (Non-Principal). The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts
purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract
due to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract
in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such
circumstances.
The
counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivative transactions since generally a
clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees the
parties’ performance under the contract as each party to a trade looks only to the clearing organization for performance of financial
obligations under the derivative contract. However, there can be no assurance that a clearing organization, or its members, will
satisfy its obligations to the Fund, or that the Fund would be able to recover the full amount of assets deposited on its behalf
with the clearing organization in the event of the default by the clearing organization or the Fund’s clearing broker. In addition,
cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements
applicable to intermediaries. Uncleared OTC derivative transactions generally do not benefit from such protections. This exposes
the Fund to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of
a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing
the Fund to suffer a loss. Such “counterparty risk” is accentuated for contracts with longer maturities where events
may intervene to prevent settlement, or where the Fund has concentrated its transactions with a single or small group of counterparties.
Short
Sales Risk (Non-Principal). Short-selling involves selling securities which may or may not be owned and borrowing
the same securities for delivery to the purchaser, with an obligation to replace the borrowed securities at a later date. If
the price of the security sold short increases between the time of the short sale and
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Fund Ltd.
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the
time the Fund replaces the borrowed security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize
a capital gain. Any gain will be decreased, and any loss will be increased, by the transaction costs incurred by the Fund, including
the costs associated with providing collateral to the broker-dealer (usually cash and liquid securities) and the maintenance of
collateral with its Custodian. Although the Fund’s gain is limited to the price at which it sold the security short, its potential
loss is theoretically unlimited.
Short-selling
necessarily involves certain additional risks. Purchasing securities to close out the short position can itself cause the price
of the securities to rise further, thereby exacerbating the loss. There is the risk that the securities borrowed by the Fund in
connection with a short-sale must be returned to the securities lender on short notice. If a request for return of borrowed securities
occurs at a time when other short-sellers of the security are receiving similar requests, a “short squeeze” can occur,
and the Fund may be compelled to replace borrowed securities previously sold short with purchases on the open market at the most
disadvantageous time, possibly at prices significantly in excess of the proceeds received at the time the securities were originally
sold short.
In
September 2008, in response to spreading turmoil in the financial markets, the SEC temporarily banned short selling in the stocks
of numerous financial services companies, and also promulgated new disclosure requirements with respect to short positions held
by investment managers. The SEC’s temporary ban on short selling of such stocks has since expired, but should similar restrictions
and/or additional disclosure requirements be promulgated, especially if market turmoil occurs, the Fund may be forced to cover
short positions more quickly than otherwise intended and may suffer losses as a result. Such restrictions may also adversely affect
the ability of the Fund to execute its investment strategies generally. Similar emergency orders were also instituted in non-U.S.
markets in response to increased volatility. The Fund’s ability to engage in short sales is also restricted by various regulatory
requirements relating to short sales.
Significant
Holdings Risk (Non-Principal). The Fund may invest up to 25% of its total assets in securities of a single industry. Should
the Fund choose to do so, the net asset value of the Fund will be more susceptible to factors affecting those particular types
of companies, which, depending on the particular industry, may include, among others: governmental regulation; inflation; cost
increases in raw materials, fuel and other operating expenses; technological innovations that may render existing products and
equipment obsolete; and increasing interest rates resulting in high interest costs on borrowings needed for capital investment,
including costs associated with compliance with environmental and other regulations. In such circumstances, the Fund’s investments
may be subject to greater risk and market fluctuation than a fund that had securities representing a broader range of industries.
Healthcare
Sector Risk (Principal). The Fund has in the past invested, and may in the future invest, a significant portion of its
total assets in securities issued by companies in the healthcare sector. The profitability of companies in the healthcare sector
may be affected by legislative activities and extensive government regulations, restrictions on government reimbursement for medical
expenses, rising costs of medical products and services, pricing pressure, an increased emphasis on outpatient services, limited
number of products, industry innovation, changes in technologies and other market developments. Many healthcare companies are
heavily dependent on patent protection. The expiration of a company’s patents may adversely affect that company’s profitability.
Many healthcare companies are subject to extensive civil litigation based on product liability and similar claims. Healthcare
companies are subject to competitive forces that may make it difficult
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to
raise prices and, in fact, may result in price discounting. Many new products in the healthcare sector may be subject to regulatory
approvals. The process of obtaining such approvals may be long and costly, and such efforts ultimately may be unsuccessful. Companies
in the healthcare sector may be thinly capitalized and may be susceptible to product obsolescence.
Information
Technology Sector Risk (Principal). The Fund has in the past invested, and may in the future invest, a significant portion
of its total assets in securities issued by information technology companies. Information technology companies face intense competition,
both domestically and internationally, which may have an adverse effect on profit margins. These companies are heavily dependent
on patent protection and the expiration of or infringement on patents may adversely affect the profitability of such companies.
The
securities of information technology companies tend to exhibit a greater degree of market risk and sharp price fluctuations than
other types of securities. These securities may fall in and out of favor with investors rapidly, which may cause sudden selling
and dramatically lower market prices. Technology securities also may be affected adversely by changes in technology, consumer
and business purchasing patterns, government regulation, product and/or service obsolescence, unpredictable changes in growth
rates and competition for the services of qualified personnel. In addition, a rising interest rate environment tends to negatively
affect information technology companies. These companies having high market valuations may appear less attractive to investors,
which may cause sharp decreases in their market prices. Further, those information technology companies seeking to finance expansion
would have increased borrowing costs, which may negatively impact earnings.
Financial
Services Company Risk (Principal). The Fund has in the past invested, and may in the future invest, a significant
portion of its total assets in securities issued by financial services companies. Financial services are generally involved
in banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and
custody, corporate lending, insurance, financial investments, or real estate.
The
profitability of many types of financial services companies may be adversely affected in certain market cycles, including periods
of rising interest rates, which may restrict the availability and increase the cost of capital, and declining economic conditions,
which may cause credit losses due to financial difficulties of borrowers. Financial services companies are also subject to extensive
government regulation, including policy and legislative changes in the United States and other countries.
Additional
risks include the effects of changes in interest rates on the profitability of financial services companies, the rate of corporate
and consumer debt defaults, price competition, governmental limitations on a company’s loans, other financial commitments,
product lines and other operations, and recent ongoing changes in financial services companies (including consolidations, development
of new products and changes to such companies’ regulatory framework). Some financial services companies have recently experienced
significant losses in value and the possible recapitalization of such companies may present greater risks of loss. Insurance companies
have additional risks, such as heavy price competition, claims activity and marketing competition, and can be particularly sensitive
to specific events such as man-made and natural disasters (including weather catastrophes), terrorism, mortality risks and morbidity
rates.
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Leverage
Risk (Principal). The Fund currently uses financial leverage for investment purposes by issuing preferred shares. As of
October 31, 2021, the amount of leverage represented approximately 14% of the Fund’s net assets. The Fund’s leveraged capital
structure creates special risks not associated with unleveraged funds that have a similar investment objective and policies. These
include the possibility of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset
coverage for any preferred shares or debt outstanding. Such volatility may increase the likelihood of the Fund having to sell
investments in order to meet its obligations to make distributions on the preferred shares or principal or interest payments on
debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use of leverage
may require it to sell portfolio investments at inopportune times in order to raise cash to redeem preferred shares or otherwise
de-leverage so as to maintain required asset coverage amounts or comply with the mandatory redemption terms of any outstanding
preferred shares. The use of leverage magnifies both the favorable and unfavorable effects of price movements in the investments
made by the Fund. To the extent the Fund is leveraged in its investment operations, the Fund will be subject to substantial risk
of loss. The Fund cannot assure that borrowings or the issuance of preferred shares or notes will result in a higher yield or
return to the holders of the common shares. Also, to the extent the Fund utilizes leverage, a decline in net asset value could
affect the ability of the Fund to make common share distributions and such a failure to make distributions could result in the
Fund ceasing to qualify as a RIC under the Code. For more information regarding the risks of a leverage capital structure to holders
of the Fund’s common shares, see “Special Risks to Holders of Common Shares— Leverage Risk.”
Market
Discount Risk (Principal). The Fund is a diversified, closed-end management investment company. Whether investors will
realize gains or losses upon the sale of additional securities of the Fund will depend upon the market price of the securities
at the time of sale, which may be less or more than the Fund’s net asset value per share or the liquidation value of any Fund
preferred shares issued. Since the market price of any additional securities the Fund may issue will be affected by such factors
as the Fund’s dividend and distribution levels (which are in turn affected by expenses), dividend and distribution stability,
net asset value, market liquidity, the relative demand for and supply of such securities in the market, general market and economic
conditions and other factors beyond the control of the Fund, we cannot predict whether any such securities will trade at, below
or above net asset value or at, below or above their public offering price or at, below or above their liquidation value, as applicable.
For example, common shares of closed-end funds often trade at a discount to their net asset values and the Fund’s common shares
may trade at such a discount. This risk may be greater for investors expecting to sell their securities of the Fund soon after
the completion of a public offering for such securities. The risk of a market price discount from net asset value is separate
and in addition to the risk that net asset value itself may decline. The Fund’s securities are designed primarily for long term
investors, and investors in the shares should not view the Fund as a vehicle for trading purposes.
Long
Term Objective; Not a Complete Investment Program (Principal). The Fund is intended for investors seeking long term growth
of capital. The Fund is not meant to provide a vehicle for those who wish to play short term swings in the stock market. An investment
in shares of the Fund should not be considered a complete investment program. Each shareholder should take into account the Fund’s
investment objective as well as the shareholder’s other investments when considering an investment in the Fund.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
Management
Risk (Principal). The Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser
will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these will produce the desired results.
Dependence
on Key Personnel (Principal). The Investment Adviser is dependent upon the expertise of Messrs. Thomas Dinsmore and
James Dinsmore, who serve as the Fund’s portfolio managers, in providing advisory services with respect to the
Fund’s investments. If the Investment Adviser were to lose the services of Mr. Thomas Dinsmore or Mr. James Dinsmore,
its ability to service the Fund could be adversely affected. There can be no assurance that a suitable replacement could be
found for Mr. Thomas Dinsmore or Mr. James Dinsmore in the event of their death, resignation, retirement or inability to act
on behalf of the Investment Adviser.
Market
Disruption and Geopolitical Risk (Principal). The occurrence of events similar to those in recent years, such as
localized wars, instability, new and ongoing pandemics (such as COVID-19), epidemics or outbreaks of infectious diseases in
certain parts of the world, natural/environmental disasters, terrorist attacks in the United States and around the world,
social and political discord, debt crises sovereign debt downgrades, increasingly strained relations between the United
States and a number of foreign countries, new and continued political unrest in various countries, the exit or potential exit
of one or more countries from the EU or the EMU, continued changes in the balance of political power among and within the
branches of the U.S. government, government shutdowns, among others, may result in market volatility, may have long term
effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the United States and
worldwide.
The
current contentious domestic political environment, as well as political and diplomatic events within the United States and abroad,
such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, may in the future
result in additional government shutdowns, which could have a material adverse effect on the Fund’s investments and operations.
In addition, the Fund’s ability to raise additional capital in the future through the sale of securities could be materially affected
by a government shutdown. Additional and/or prolonged U.S. government shutdowns may affect investor and consumer confidence and
may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree.
While
the extreme volatility and disruption that U.S. and global markets experienced for an extended period of time beginning in 2007
and 2008 had, until the recent coronavirus (COVID-19) outbreak, generally subsided, uncertainty and periods of volatility still
remain, and risks to a robust resumption of growth persist. Federal Reserve policy, including with respect to certain interest
rates, may adversely affect the value, volatility and liquidity of dividend and interest paying securities. Market volatility,
dramatic changes to interest rates and/or a return to unfavorable economic conditions may lower the Fund’s performance or impair
the Fund’s ability to achieve its investment objective.
The
occurrence of any of the above events could have a significant adverse impact on the value and risk profile of the Fund’s portfolio.
The Fund does not know how long the securities markets may be impacted by similar events and cannot predict the effects of similar
events in the future on the U.S. economy and securities markets. There can be no assurance that similar events and other market
disruptions will not have other material and adverse implications.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
As
previously discussed, Brexit has led to volatility in the financial markets of the UK and more broadly across Europe and may also
lead to weakening in consumer, corporate and financial confidence in such markets. The decision made in the British referendum
may also lead to a call for similar referendums in other European jurisdictions which may cause increased economic volatility
in the European and global markets. This mid- to long-term uncertainty may have an adverse effect on the economy generally and
on the ability of the Fund and its investments to execute its respective strategies and to receive attractive returns. In particular,
currency volatility may mean that the returns of the Fund and its investments are adversely affected by market movements and may
make it more difficult, or more expensive, for the Fund to execute prudent currency hedging policies. Potential decline in the
value of the British Pound and/or the Euro against other currencies, along with the potential downgrading of the United Kingdom’s
sovereign credit rating, may also have an impact on the performance of portfolio companies or investments located in the UK or
Europe. In light of the above, no definitive assessment can currently be made regarding the impact that Brexit will have on the
Fund, its investments or its organization more generally.
In
addition, the rules dealing with the U.S. federal income taxation are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Treasury Department. The Tax Cuts and Jobs Act made substantial changes to the Code. Among
those changes were a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of
individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject
to “sunset” provisions, the elimination or modification of various previously allowed deductions (including substantial
limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes),
certain additional limitations on the deduction of net operating losses, certain preferential rates of taxation on certain dividends
and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers,
and significant changes to the international tax rules. In addition, the Biden administration has indicated that it intends to
modify key aspects of the Code, including by increasing corporate and individual tax rates. The effect of these and other changes
is uncertain, both in terms of the direct effect on the taxation of an investment in the Fund’s shares and their indirect effect
on the value of the Fund’s assets, the Fund’s shares or market conditions generally.
Regulation
and Government Intervention Risk (Principal). The global financial crisis led the U.S. government and certain
foreign governments to take a number of unprecedented actions designed to support certain financial institutions and segments
of the financial markets that experienced extreme volatility, and in some cases a lack of liquidity, including through direct
purchases of equity and debt securities. Federal, state and other governments and certain foreign governments and their
regulatory agencies or self-regulatory organizations may take legislative and regulatory actions that affect the regulation
of the instruments in which the Fund invests, or the issuers of such instruments, in ways that are unforeseeable. Such
legislation or regulation may change the way in which the Fund is regulated and could limit or preclude the Fund’s
ability to achieve its investment objective.
The
SEC and its staff are also reportedly engaged in various initiatives and reviews that seek to improve and modernize the regulatory
structure governing investment companies. These efforts appear to be focused on risk identification and controls in various areas,
including embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, valuation, enhanced
regulatory and public reporting requirements
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
and
the evaluation of systemic risks. Any new rules, guidance or regulatory initiatives resulting from these efforts could increase
the Fund’s expenses and impact its returns to shareholders or, in the extreme case, impact or limit its use of various portfolio
management strategies or techniques and adversely impact the Fund.
On
October 28, 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“Rule
18f-4”). The Fund will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4
will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used
by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities so that a failure to comply with the
limits would result in a statutory violation and require funds whose use of derivatives is more than a limited specified exposure
amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
In
the aftermath of the global financial crisis, there appears to be a renewed popular, political and judicial focus on finance related
consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case
of transactions between financial institutions and the general public, there may be a greater tendency toward strict interpretation
of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk
allocation and/or where consumers are perceived as not having had an opportunity to exercise informed consent to the transaction.
In the event of conflicting interests between retail investors holding common shares of a closed-end investment company such as
the Fund and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of
retail investors.
Changes
enacted by the current presidential administration could significantly impact the regulation of financial markets in the United
States. Areas subject to potential change, amendment or repeal include trade and foreign policy, corporate tax rates, energy and
infrastructure policies, the environment and sustainability, criminal and social justice initiatives, immigration, healthcare
and the oversight of certain federal financial regulatory agencies and the Federal Reserve. Certain of these changes can, and
have, been effectuated through executive order. For example, the current administration has taken steps to address the COVID-19
pandemic, rejoin the Paris climate accord of 2015, cancel the Keystone XL pipeline and change immigration enforcement priorities.
Other potential changes that could be pursued by the current presidential administration could include an increase in the corporate
income tax rate; changes to regulatory enforcement priorities; and spending on clean energy and infrastructure. It is not possible
to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities markets or the
financial stability of the United States. The Fund may be affected by governmental action in ways that are not foreseeable, and
there is a possibility that such actions could have a significant adverse effect on the Fund and its ability to achieve its investment
objective.
Additional
risks arising from the differences in expressed policy preferences among the various constituencies in the branches of the U.S.
government have led in the past, and may lead in the future, to short term or prolonged policy impasses, which could, and have,
resulted in shutdowns of the U.S. federal government. U.S. federal government shutdowns, especially prolonged shutdowns, could
have a significant adverse impact on the economy in general and could impair the ability of issuers to raise capital in the securities
markets. Any of these effects could have an adverse impact on companies in the Fund’s portfolios and consequently on the value
of their securities and the Fund’s net asset values.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
Deflation
Risk (Non-Principal). Deflation risk is the risk that prices throughout the economy decline over time, which may have
an adverse effect on the market valuation of companies, their assets and their revenues. In addition, deflation may have an adverse
effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value
of the Fund’s portfolio.
Loans
of Portfolio Securities Risk (Non-Principal). Consistent with applicable regulatory requirements and the Fund’s investment
restrictions, the Fund may lend its portfolio securities to securities broker-dealers or financial institutions, provided that
such loans are callable at any time by the Fund (subject to notice provisions described in the SAI), and are at all times secured
by cash or cash equivalents, which are maintained in a segregated account pursuant to applicable regulations and that are at least
equal to the market value, determined daily, of the loaned securities. The advantage of such loans is that the Fund continues
to receive the income on the loaned securities while at the same time earning interest on the cash amounts deposited as collateral,
which will be invested in short term obligations. The Fund will not lend its portfolio securities if such loans are not permitted
by the laws or regulations of any state in which its shares are qualified for sale. The Fund’s loans of portfolio securities will
be collateralized in accordance with applicable regulatory requirements.
Legal,
Tax and Regulatory Risks (Principal). Legal, tax and regulatory changes could occur that may have material adverse effects
on the Fund or its shareholders. For example, the regulatory and tax environment for derivative instruments in which the Fund
may participate is evolving, and such changes in the regulation or taxation of derivative instruments may have material adverse
effects on the value of derivative instruments held by the Fund and the ability of the Fund to pursue its investment strategies.
Similarly, the Biden administration has indicated that it intends to modify key aspects of the Code, including by increasing corporate
and individual tax rates. Changes to the U.S. federal tax laws and interpretations thereof could adversely affect an investment
in the Fund.
We
cannot assure you what percentage of the distributions paid on the Fund’s shares, if any, will consist of tax-advantaged qualified
dividend income or long term capital gains or what the tax rates on various types of income will be in future years.
To
qualify for the favorable U.S. federal income tax treatment generally accorded to RICs, the Fund must, among other things, meet
certain asset diversification tests, derive in each taxable year at least 90% of its gross income from certain prescribed sources
and distribute for each taxable year at least 90% of its “investment company taxable income.” Statutory limitations
on distributions on the common shares if the Fund fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize
the Fund’s ability to meet such distribution requirements. While the Fund presently intends to purchase or redeem notes or preferred
shares, if any, to the extent necessary in order to maintain compliance with such asset coverage requirements, there can be no
assurance that such actions can be effected in time to meet the Code requirements. If for any taxable year the Fund does not qualify
as a RIC, all of its taxable income for that year (including its net capital gain) would be subject to tax at regular corporate
rates without any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to
the extent of the Fund’s current and accumulated earnings and profits. The resulting corporate taxes would materially reduce the
Fund’s net assets and the amount of cash available for distribution to shareholders. For a more complete discussion of these and
other U.S. federal income tax considerations. See “Taxation.”
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
Anti-Takeover
Provisions (Principal). The Agreement and Declaration of Trust and By-Laws of the Fund include provisions that could limit
the ability of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. See
“Anti-Takeover Provisions of the Fund’s Governing Documents.”
Legislation
Risk (Non-Principal). At any time after the date of this Annual Report, legislation may be enacted that could negatively
affect the assets of the Fund. Legislation or regulation may change the way in which the Fund itself is regulated. The Investment
Adviser cannot predict the effects of any new governmental regulation that may be implemented and there can be no assurance that
any new governmental regulation will not adversely affect the Fund’s ability to achieve its investment objective.
Reliance
on Service Providers Risk (Non-Principal). The Fund must rely upon the performance of service providers to perform certain
functions, which may include functions that are integral to the Fund’s operations and financial performance. Failure by any service
provider to carry out its obligations to the Fund in accordance with the terms of its appointment, to exercise due care and skill
or to perform its obligations to the Fund at all as a result of insolvency, bankruptcy or other causes could have a material adverse
effect on the Fund’s performance and returns to shareholders. The termination of the Fund’s relationship with any service provider,
or any delay in appointing a replacement for such service provider, could materially disrupt the business of the Fund and could
have a material adverse effect on the Fund’s performance and returns to shareholders.
Cyber
Security Risk (Principal). The Fund and its service providers are susceptible to cyber security risks that include, among
other things, theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted
data; denial of service attacks; unauthorized access to relevant systems, compromises to networks or devices that the Fund and
its service providers use to service the Fund’s operations; or operational disruption or failures in the physical infrastructure
or operating systems that support the Fund and its service providers. Cyber attacks are becoming increasingly common and more
sophisticated, and may be perpetrated by computer hackers, cyber-terrorists or others engaged in corporate espionage. Cyber attacks
against or security breakdowns of the Fund or its service providers may adversely impact the Fund and its stockholders, potentially
resulting in, among other things, financial losses; the inability of Fund stockholders to transact business and the Fund to process
transactions; inability to calculate the Fund’s NAV; violations of applicable privacy and other laws; regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs; and/or additional compliance costs. The Fund may incur additional
costs for cyber security risk management and remediation purposes. In addition, cyber security risks may also impact issuers of
securities in which the Fund invests, which may cause the Fund’s investment in such issuers to lose value. There have been a number
of recent highly publicized cases of companies reporting the unauthorized disclosure of client or customer information, as well
as cyberattacks involving the dissemination, theft and destruction of corporate information or other assets, as a result of failure
to follow procedures by employees or contractors or as a result of actions by third parties, including actions by terrorist organizations
and hostile foreign governments. Although service providers typically have policies and procedures, business continuity plans
and/or risk management systems intended to identify and mitigate cyber incidents, there are inherent limitations in such plans
and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber
security policies, plans and systems put in place by its service providers or any other third parties whose operations may affect
the Fund or its shareholders. There can be no assurance that the Fund or
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
its
service providers will not suffer losses relating to cyber attacks or other information security breaches in the future.
Because
technology is consistently changing, new ways to carry out cyber attacks are always developing. Therefore, there is a chance that
some risks have not been identified or prepared for, or that an attack may not be detected, which puts limitations on the Fund’s
ability to plan for or respond to a cyber attack. In addition to deliberate cyber attacks, unintentional cyber incidents can occur,
such as the inadvertent release of confidential information by the Fund or its service providers. Like other funds and business
enterprises, the Fund and its service providers are subject to the risk of cyber incidents occurring from time to time.
Misconduct
of Employees and of Service Providers Risk (Non-Principal). Misconduct or misrepresentations by employees of the
Investment Adviser or the Fund’s service providers could cause significant losses to the Fund. Employee misconduct may
include binding the Fund to transactions that exceed authorized limits or present unacceptable risks and unauthorized trading
activities, concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or
losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions by the
Fund’s service providers, including, without limitation, failing to recognize trades and misappropriating assets. In
addition, employees and service providers may improperly use or disclose confidential information, which could result in
litigation or serious financial harm, including limiting the Fund’s business prospects or future marketing activities.
Despite the Investment Adviser’s due diligence efforts, misconduct and intentional misrepresentations may be undetected
or not fully comprehended, thereby potentially undermining the Investment Adviser’s due diligence efforts. As a result,
no assurances can be given that the due diligence performed by the Investment Adviser will identify or prevent any
such misconduct.
Special
Risks to Holders of Common Shares (Principal)
Dilution
Risk. If the Fund determines to conduct a rights offering to subscribe for common shares, holders of common shares may
experience dilution of the aggregate net asset value of their common shares. Such dilution will depend upon whether (i) such shareholders
participate in the rights offering and (ii) the Fund’s net asset value per common share is above or below the subscription price
on the expiration date of the rights offering.
Shareholders who do not exercise their subscription rights may, at the completion
of such an offering, own a smaller proportional interest in the Fund than if they exercised their subscription rights. As a result
of such an offering, a shareholder may experience dilution in net asset value per share if the subscription price per share is
below the net asset value per share on the expiration date. If the subscription price per share is below the net asset value per
share of the Fund’s shares on the expiration date, a shareholder will experience an immediate dilution of the aggregate net asset
value of such shareholder’s shares if the shareholder does not participate in such an offering and the shareholder will experience
a reduction in the net asset value per share of such shareholder’s shares whether or not the shareholder participates in such
an offering. The Fund cannot state precisely the extent of this dilution (if any) if the shareholder does not exercise such shareholder’s
subscription rights because the Fund does not know what the net asset value per share will be when the offer expires or what proportion
of the subscription rights will be exercised.
Leverage
Risk. The Fund currently uses financial leverage for investment purposes by issuing preferred shares and is also permitted
to use other types of financial leverage, such as through the issuance of debt securities
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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or
additional preferred shares and borrowing from financial institutions. As provided in the 1940 Act and subject to certain exceptions,
the Fund may issue additional senior securities (which may be stock, such as preferred shares, and/or securities representing
debt) only if immediately after such issuance the value of the Fund’s total assets, less certain ordinary course liabilities,
exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding. As
of October 31, 2021, the amount of leverage represented approximately 14% of the Fund’s assets.
The
Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment objective
and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset value of
the Fund and the asset coverage for the preferred shares. Such volatility may increase the likelihood of the Fund having to sell
investments in order to meet its obligations to make distributions on the preferred shares or principal or interest payments on
debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use of leverage
may require it to sell portfolio investments at inopportune times in order to raise cash to redeem preferred shares or otherwise
de-leverage so as to maintain required asset coverage amounts or comply with the mandatory redemption terms of any outstanding
preferred shares. The use of leverage magnifies both the favorable and unfavorable effects of price movements in the investments
made by the Fund. To the extent that the Fund employs leverage in its investment operations, the Fund is subject to substantial
risk of loss. The Fund cannot assure you that borrowings or the issuance of preferred shares or notes will result in a higher
yield or return to the holders of the common shares. Also, since the Fund utilizes leverage, a decline in net asset value could
affect the ability of the Fund to make common share distributions and such a failure to make distributions could result in the
Fund ceasing to qualify as a RIC under the Code.
Any decline in the net asset value of the Fund’s investments would be borne entirely
by the holders of common shares. Therefore, if the market value of the Fund’s portfolio declines, the leverage will result in
a greater decrease in net asset value to the holders of common shares than if the Fund were not leveraged. This greater net asset
value decrease will also tend to cause a greater decline in the market price for the common shares. The Fund might be in danger
of failing to maintain the required asset coverage of its borrowings, notes or preferred shares or of losing its ratings on its
notes or preferred shares or, in an extreme case, the Fund’s current investment income might not be sufficient to meet the distribution
or interest requirements on the preferred shares or notes. In order to counteract such an event, the Fund might need to liquidate
investments in order to fund a redemption of some or all of the preferred shares or notes.
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●
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Preferred
Share and Note Risk. The issuance of preferred shares or notes causes the net asset
value and market value of the common shares to become more volatile. If the dividend
rate on the preferred shares or the interest rate on the notes approaches the net rate
of return on the Fund’s investment portfolio, the benefit of leverage to the holders
of the common shares would be reduced. If the dividend rate on the preferred shares or
the interest rate on the notes plus the management fee annual rate of 0.80% of the first
$100,000,000 of average weekly net assets and 0.55% of average weekly net assets in excess
of $100,000,000 exceeds the net rate of return on the Fund’s portfolio, the leverage
will result in a lower rate of return to the holders of common shares than if the Fund
had not issued preferred shares or notes. (The Fund’s “net” assets for this
purpose includes the liquidation of any preferred shares outstanding.) If the Fund has
insufficient investment income and gains, all or a portion of the distributions
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Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
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to
preferred shareholders or interest payments to note holders would come from the common shareholders’ capital. Such distributions
and interest payments reduce the net assets attributable to common shareholders. The Prospectus Supplement relating to any sale
of preferred shares will set forth dividend rate on such preferred shares.
In
addition, the Fund would pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and
ongoing maintenance of the preferred shares or notes, including the advisory fees on the incremental assets attributable to the
preferred shares or notes.
Holders
of preferred shares and notes may have different interests than holders of common shares and may at times have disproportionate
influence over the Fund’s affairs. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior securities
(which may be stock, such as preferred shares, and/or securities representing debt, such as notes) only if immediately after such
issuance the value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt
outstanding (i.e., for every dollar of indebtedness outstanding, the Fund is required to have at least three dollars of assets)
and exceeds 200% of the amount of preferred shares and debt outstanding (i.e., for every dollar in liquidation preference of preferred
stock outstanding, the Fund is required to have two dollars of assets), which is referred to as the “asset coverage”
required by the 1940 Act. In the event the Fund fails to maintain an asset coverage of 100% for any notes outstanding for certain
periods of time, the 1940 Act requires that either an event of default be declared or that the holders of such notes have the
right to elect a majority of the Fund’s Trustees until asset coverage recovers to 110%. In addition, holders of preferred shares,
voting separately as a single class, have the right (subject to the rights of noteholders) to elect two members of the Board at
all times and in the event dividends become two full years in arrears would have the right to elect a majority of the Trustees
until such arrearage is completely eliminated. In addition, preferred shareholders have class voting rights on certain matters,
including changes in fundamental investment restrictions and conversion of the Fund to open-end status, and accordingly can veto
any such changes. Further, interest on notes will be payable when due as described in a Prospectus Supplement and if the Fund
does not pay interest when due, it will trigger an event of default and the Fund expects to be restricted from declaring dividends
and making other distributions with respect to common shares and preferred shares. Upon the occurrence and continuance of an event
of default, the holders of a majority in principal amount of a series of outstanding notes or the trustee will be able to declare
the principal amount of that series of notes immediately due and payable upon written notice to the Fund. The 1940 Act also generally
restricts the Fund from declaring distributions on, or repurchasing, common or preferred shares unless notes have an asset coverage
of 300% (200% in the case of declaring distributions on preferred shares). The Fund’s common shares are structurally subordinated
as to income and residual value to any preferred shares or notes in the Fund’s capital structure, in terms of priority to income
and payment in liquidation.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and preferred
shares, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to maintain its qualification
as a RIC for U.S. federal income tax purposes. While the Fund intends to redeem its preferred shares or notes to the extent necessary
to enable the
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
Fund
to distribute its income as required to maintain its qualification as a RIC under the Code, there can be no assurance that such
actions can be effected in time to meet the Code requirements.
|
|
●
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Portfolio
Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility. In order
to obtain and maintain attractive credit quality ratings for preferred shares or borrowings,
the Fund must comply with investment quality, diversification and other guidelines established
by the relevant rating agencies. These guidelines could affect portfolio decisions and
may be more stringent than those imposed by the 1940 Act. In the event that a rating
on the Fund’s preferred shares or notes is lowered or withdrawn by the relevant rating
agency, the Fund may also be required to redeem all or part of its outstanding preferred
shares or notes, and the common shares of the Fund will lose the potential benefits associated
with a leveraged capital structure.
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●
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Impact
on Common Shares. Assuming that leverage will (1) be equal in amount to approximately
14% of the Fund’s total net assets (the Fund’s average amount of outstanding financial
leverage during the fiscal year ended October 31, 2021), and (2) charge interest or involve
dividend payments at a projected blended annual average leverage dividend or interest
rate of 5.375%, (the average interest rate on the Fund’s outstanding financial
leverage during the fiscal year ended October 31, 2021) then the total return generated
by the Fund’s portfolio (net of estimated expenses) must exceed approximately 0.79% in
order to cover such interest or dividend payments and other expenses specifically related
to leverage. Of course, these numbers are merely estimates, used for illustration. Actual
dividend rates, interest or payment rates may vary frequently and may be significantly
higher or lower than the rate estimated above. The following table is furnished in response
to requirements of the SEC. It is designed to illustrate the effect of leverage on common
share total return, assuming investment portfolio total returns (comprised of net investment
income of the Fund, realized gains or losses of the Fund and changes in the value of
the securities held in the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed
investment portfolio returns are hypothetical figures and are not necessarily indicative
of the investment portfolio returns experienced or expected to be experienced by the
Fund. The table further reflects leverage representing 14% of the Fund’s total assets
(the Fund’s average amount of outstanding financial leverage during the fiscal
year ended October 31, 2021), the Fund’s current projected blended annual average leverage
dividend or interest rate of 5.375% (the average interest rate on the Fund’s outstanding
financial leverage during the fiscal year ended October 31, 2021), a base management
fee at an annual rate of 0.55% of the liquidation preference of any outstanding preferred
shares and estimated annual incremental expenses attributable to any outstanding preferred
shares of 0.03% of the Fund’s net assets attributable to common shares. These assumed
investment portfolio returns are hypothetical figures and are not necessarily indicative
of the investment portfolio returns experienced or expected to be experienced by the
Fund. See “Risk Factors and Special Considerations.”.
|
|
Assumed
Return on Portfolio (Net of Expenses)
|
|
|
(10
|
)%
|
|
|
(5
|
)%
|
|
|
0
|
%
|
|
|
5
|
%
|
|
|
10
|
%
|
|
Corresponding
Return to Common Shareholder
|
|
|
(12.66
|
)%
|
|
|
(6.84
|
)%
|
|
|
(1.02
|
)%
|
|
|
4.81
|
%
|
|
|
10.63
|
%
|
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
Common
share total return is composed of two elements—the common share distributions paid by the Fund (the amount of which is largely
determined by the taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or dividends
on any preferred shares) and unrealized gains or losses on the value of the securities the Fund owns. As required by SEC rules,
the table assumes that the Fund is more likely to suffer capital losses than to enjoy total return. For example, to assume a total
return of 0% the Fund must assume that the income it receives on its investments is entirely offset by expenses and losses in
the value of those investments.
|
|
●
|
Market
Discount Risk. As described above in “–General Risks—Market Discount
Risk,” common shares of closed-end funds often trade at a discount to their net
asset values and the Fund’s common shares may trade at such a discount. This risk may
be greater for investors expecting to sell their common shares of the Fund soon after
completion of a public offering. The common shares of the Fund are designed primarily
for long-term investors and investors in the shares should not view the Fund as a vehicle
for trading purposes.
|
Special
Risks to Holders of Preferred Shares (Principal)
Illiquidity
Prior to Exchange Listing. Prior to an offering, there will be no public market for any series of fixed rate
preferred shares. In the event any series of fixed rate preferred shares are issued, we expect to apply to list such shares
on a national securities exchange, which will likely be the NYSE or the NYSE American. However, during an initial period,
which is not expected to exceed 30 days after the date of its initial issuance, such shares may not be listed on any
securities exchange. During such period, the underwriters may make a market in such shares, though they will have no
obligation to do so. Consequently, an investment in such shares may be illiquid during such period.
Market
Price Fluctuation. Fixed rate preferred shares may trade at a premium to or discount from liquidation value for
various reasons, including changes in interest rates, perceived credit quality and other factors.
Special
Risks to Holders of Notes (Principal)
An
investment in our notes is subject to special risks. Our notes are not likely to be listed on an exchange or automated quotation
system. We cannot assure you that any market will exist for our notes or if a market does exist, whether it will provide holders
with liquidity. Broker-dealers that maintain a secondary trading market for the notes are not required to maintain this market,
and the Fund is not required to redeem notes if an attempted secondary market sale fails because of a lack of buyers. To the extent
that our notes trade, they may trade at a price either higher or lower than their principal amount depending on interest rates,
the rating (if any) on such notes and other factors.
Special
Risks of Notes to Holders of Preferred Shares (Principal)
As
provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue notes. In the event
the Fund were to issue such securities, the Fund’s obligations to pay dividends or make
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
distributions
and, upon liquidation of the Fund, liquidation payments in respect of its preferred shares would be subordinate to the Fund’s
obligations to make any principal and interest payments due and owing with respect to its outstanding notes. Accordingly, the
Fund’s issuance of notes would have the effect of creating special risks for the Fund’s preferred shareholders that would not
be present in a capital structure that did not include such securities.
Special
Risks to Holders of Notes and Preferred Shares (Principal)
Common
Share Repurchases. Repurchases of common shares by the Fund may reduce the net asset coverage of the notes and preferred
shares, which could adversely affect their liquidity or market prices.
Common
Share Distribution Policy. In the event the Fund does not generate a total return from dividends and interest
received and net realized capital gains in an amount at least equal to its distributions for a given year, the Fund may
return capital as part of its distribution. This would decrease the asset coverage per share with respect to the Fund’s
notes or preferred shares, which could adversely affect their liquidity or market prices.
For the fiscal year ended October 31, 2021, the Fund made distributions of $3.21 per common share, none of which
constituted a return of capital. The composition of each distribution is estimated based on earnings as of the record date for
the distribution. The actual composition of each distribution may change based on the Fund’s investment activity through the end
of the calendar year.
Credit
Quality Ratings. The Fund may obtain credit quality ratings for its preferred shares or notes; however, it is not
required to do so and may issue preferred shares or notes without any rating. If rated, the Fund does not impose any minimum
rating necessary to issue such preferred shares or notes. In order to obtain and maintain attractive credit quality ratings
for preferred shares or notes, if desired, the Fund’s portfolio must satisfy over-collateralization tests established
by the relevant rating agencies. These tests are more difficult to satisfy to the extent the Fund’s portfolio
securities are of lower credit quality, longer maturity or not diversified by issuer and industry.
These
guidelines could affect portfolio decisions and may be more stringent than those imposed by the 1940 Act. A rating (if any) by
a rating agency does not eliminate or necessarily mitigate the risks of investing in our preferred shares or notes, and a rating
may not fully or accurately reflect all of the securities’ credit risks. A rating (if any) does not address liquidity or any other
market risks of the securities being rated. A rating agency could downgrade the rating of our notes or preferred shares, which
may make such securities less liquid in the secondary market. If a rating agency downgrades the rating assigned to notes or preferred
shares, we may alter our portfolio or redeem the preferred securities or notes under certain circumstances.
Special
Risk to Holders of Subscription Rights (Principal)
There
is a risk that changes in market conditions may result in the underlying common or preferred shares purchasable upon exercise
of the subscription rights being less attractive to investors at the conclusion of the subscription period. This may reduce or
eliminate the value of the subscription rights. Investors who receive subscription rights may find that there is no market to
sell rights they do not wish to exercise. If investors
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
exercise
only a portion of the rights, the number of common or preferred shares issued may be reduced, and the common or preferred shares
may trade at less favorable prices than larger offerings for similar securities.
HOW
THE FUND MANAGES RISK
Investment Restrictions
The
Fund has adopted certain fundamental investments policies designed to limited investment risk and maintain portfolio diversification.
Under the 1940 Act, a fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act, of the
outstanding voting securities of the Fund (voting together as a single class subject to class approval rights of any preferred
shares). The Fund may become subject to rating agency guidelines that are more limiting than its current investment restrictions
in order to obtain and maintain a desired rating on its preferred shares, if any.
INVESTMENT
RESTRICTIONS
Fundamental
Restrictions and Policies
The
Fund operates under the following restrictions that constitute fundamental policies under the 1940 Act and that, except as otherwise
noted, cannot be changed without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding voting securities
(voting together as a single class) of the Fund. If the Fund issues and has outstanding preferred shares, which it presently does,
the affirmative vote of the holders of a majority (as defined under the 1940 Act) of the outstanding preferred shares of the Fund
voting as a separate class would also be required to change a fundamental policy. Except as otherwise noted, all percentage limitations
set forth below apply immediately after a purchase or initial investment and any subsequent change in any applicable percentage
resulting from market fluctuations does not require any action:
(1) The Fund will not make investments that will result in the
concentration (as that term may be defined or interpreted by the 1940 Act laws, interpretations and exemptions) of its investments
in the securities of issuers primarily engaged in the same industry. This restriction does not limit the Fund’s investments in
(i) obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities or (ii) tax-exempt obligations
issued by governments or political subdivisions of government.
(2)
The Fund may not purchase the securities of any issuer if, as a result, the Fund would fail to be a diversified company within
the meaning of the 1940 Act, and the rules and regulations promulgated thereunder, as such statute, rules and regulations are
amended from time to time or are interpreted from time to time by the SEC staff (collectively, the 1940 Act laws and interpretations)
or except to the extent that the Fund may be permitted to do so by exemptive order or similar relief (collectively, with the 1940
Act laws and interpretations, the 1940 Act laws, interpretations and exemptions). In complying with this restriction, however,
the Fund may purchase securities of other investment companies to the extent permitted by the 1940 Act laws, interpretations and
exemptions.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
(3)
The Fund may not issue senior securities, except as permitted by the 1940 Act laws, interpretations and exemptions.
(4)
The Fund may not borrow money, except as permitted by the 1940 Act laws, interpretations and exemptions.
(5) The Fund may not
underwrite the securities of other issuers. This restriction does not prevent the Fund from engaging in transactions involving
the acquisition, disposition or resale of its portfolio securities, even if engaging in such transactions may cause the Fund to
be considered an underwriter under the Securities Act.
(6) The Fund may not purchase real estate or sell real estate unless acquired
as a result of ownership of securities or other instruments. This restriction does not prevent the Fund from investing in issuers
that invest, deal or otherwise engage in transactions in real estate or interests therein, or investing in securities that are
secured by real estate or interests therein, including real estate investment trusts.
(7)
The Fund may not purchase physical commodities or sell physical commodities unless acquired as a result of ownership of securities
or other instruments. This restriction does not prevent the Fund from engaging in transactions involving futures contracts and
options thereon or investing in securities that are secured by physical commodities.
(8)
The Fund will not make personal loans or loans of its assets to persons who control or are under common control with the Fund,
except as permitted by the 1940 Act laws, interpretations and exemptions. This restriction does not prevent the Fund from, among
other things, purchasing debt obligations, entering into repurchase agreements, loaning its assets to broker-dealers or institutional
investors, or investing in loans, including assignments and participation interests.
With
respect to investment restriction (3), the 1940 Act permits the Fund to issue senior securities (which may be stock, such as preferred
shares, and/or securities representing debt, such as notes) only if immediately after such issuance the value of the Fund’s total
assets, less certain ordinary course liabilities, exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount
of preferred shares (measured by liquidation value) and debt outstanding, which is referred to as the “asset coverage”
required by the 1940 Act. The 1940 Act also generally restricts the Fund from declaring cash distributions on, or repurchasing,
common or preferred shares unless outstanding debt securities have an asset coverage of 300% (200% in the case of declaring distributions
on preferred shares), or from declaring cash distributions on, or repurchasing, common shares unless preferred shares have an
asset coverage of 200% (in each case, after giving effect to such distribution or repurchase).
With
respect to investment restriction (4), the 1940 Act permits the Fund to borrow money in amounts of up to one-third of the Fund’s
total assets from banks for any purpose, and to borrow up to 5% of the Fund’s total assets from banks or other lenders for temporary
purposes. The Fund’s total assets include the amounts being borrowed. To limit the risks attendant to borrowing, the 1940 Act
requires the Fund to maintain at all times an “asset coverage” of at least 300% of the amount of its borrowings. Asset
coverage means the ratio that the value of the Fund’s total assets (including amounts borrowed), minus liabilities other than
borrowings, bears to the aggregate amount of all borrowings. Borrowing money to increase portfolio holdings is known as “leveraging.”
Certain trading practices and investments, such as reverse repurchase agreements, may be considered to be borrowings or involve
leverage and thus are subject to the 1940 Act restrictions. In accordance with SEC
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
staff
guidance and interpretations, when the Fund engages in certain such transactions, other than reverse repurchase agreements, the
Fund, instead of maintaining asset coverage of at least 300%, may segregate or earmark liquid assets, or enter into an offsetting
position, in an amount at least equal to the Fund’s exposure to the transaction (as calculated pursuant to requirements of the
SEC). From the outset of the transaction, in accordance with Investment Company Act Release 10666, “Securities Trading Practices
of Registered Investment Companies” (April 18, 1979), for reverse repurchase agreements, the Fund will segregate the full
amount of the Fund’s actual or potential cash payment obligations that the Fund will owe at settlement. The investment restriction
regarding borrowing money, described above, will be interpreted to permit the Fund to (a) engage in trading practices and investments
that may be considered to be borrowing or to involve leverage to the extent permitted by the 1940 Act, (b) segregate or earmark
liquid assets or enter into offsetting positions in accordance with SEC staff guidance and interpretation, (c) engage in securities
lending in accordance with the SEC staff guidance and interpretations and (d) settle securities transactions within the ordinary
settlement cycle for such transactions.
Non-Fundamental
Restrictions and Policies
The
Fund has adopted the following non-fundamental restrictions and policies which may be changed by the Fund’s Board of Trustees
without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding voting securities of the Fund.
(1)
The Fund will not purchase the securities of an issuer if, after giving effect to such purchase, more than 20% of its net assets
would be invested in illiquid securities.
(2)
In complying with the fundamental restriction described above in paragraph (2), the Fund will not, with respect to 75% of its
total assets, purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any
of its agencies or instrumentalities), if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities
of that issuer or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. The Fund may purchase
securities of other investment companies as permitted by Section 12(d)(1) of the 1940 Act.
(3)
In complying with the fundamental restriction described above in paragraph (8), the Fund may lend up to 33-1/3% of its total assets.
(4)
In complying with the fundamental restriction described above in paragraph (1), the Fund may invest up to 25% of its total assets
in the securities of issuers whose principal business activities are in the same industry.
(5) The Fund will not make short sales
of securities, unless at the time of sale the Fund owns or has the right to acquire, with or without payment of further consideration
through its ownership of convertible or exchangeable securities or warrants or rights, an equal amount of such securities.
(6)
The Fund will not purchase securities on margin, except that the Fund may obtain such short-term credits as are necessary for
the clearance of portfolio transactions.
(7)
The Fund will not invest in puts, calls, or combinations thereof; provided that, notwithstanding the foregoing, the Fund may invest
up to 5% of its net assets in put options on common stock or market indices and may write covered call options and may purchase
call options to close out written covered call options.
Bancroft
Fund Ltd.
Additional Fund Information (Continued) (Unaudited)
|
(8)
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
percentage restrictions on investments set forth above apply only at the time an investment is made. Thus, a later increase or
decrease in percentage resulting from a change in values of portfolio securities or amount of total assets will not be considered
a violation of any of the foregoing restrictions.
Additionally,
the Fund may become subject to rating agency guidelines that are more limiting than its current investment restrictions in order
to obtain and maintain a desired rating on its preferred shares, if any. Neither the Fund’s investment objective nor, except as
expressly stated above, any of its policies are fundamental, and each may be modified by the Board without shareholder approval.
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
MANAGEMENT
OF THE FUND
Trustees
and Officers
The
business and affairs of the Fund are managed under the direction of the Fund’s Board of Trustees. Information pertaining
to the Trustees and officers of the Fund is set forth below. The Fund’s Statement of Additional Information includes additional
information about the Fund’s Trustees and is available without charge, upon request, by calling 800-GABELLI (800-422-3554)
or by writing to Bancroft Fund Ltd. at One Corporate Center, Rye, NY 10580-1422.
Name,
Position(s)
Address1
and Age
|
|
Term
of Office
and Length of
Time Served2
|
|
Number
of
Funds
in Fund
Complex
Overseen by
Trustee3
|
|
Principal
Occupation(s)
During Past Five Years
|
|
Other
Directorships
Held by Trustee4
|
|
INTERESTED
TRUSTEES5:
|
|
|
|
|
|
|
|
|
|
|
Mario
J. Gabelli, CFA
Trustee and Chairman
Age: 79
|
|
Since
2015*
|
|
31
|
|
Chairman,
Chief Executive Officer, and Chief Investment Officer– Value Portfolios of GAMCO Investors, Inc. and Chief Investment
Officer– Value Portfolios of Gabelli Funds, LLC and GAMCO Asset Management Inc.; Director/ Trustee or Chief Investment
Officer of other registered CIBL, Inc. (broadcasting and investment companies within the Fund Complex; Chief Executive Officer
of GGCP, Inc.; Executive Chairman of Associated Capital Group, Inc.
|
|
Director
of Morgan Group Holdings, Inc. (holding company); Chairman of the Board and Chief Executive Officer of LICT Corp. (multimedia
and communication services company); Director of wireless communications); Director of ICTC Group Inc.(communications) (2013-2018)
|
|
|
|
|
|
|
|
|
|
|
Jane
D. O’Keeffe
Trustee and President
Age: 66
|
|
Since
1995**
|
|
1
|
|
President
of the Bancroft Fund Ltd.; Consultant for Gabelli Funds, LLC; Executive Vice President of the Ellsworth Growth and Income
Fund Ltd. (2014-2015); President of Dinsmore Capital Management (1996-2015); President of the Ellsworth Growth and Income
Fund Ltd. (1996-2014)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
INDEPENDENT
TRUSTEES6:
|
|
|
|
|
|
|
Kinchen
C. Bizzell
Trustee
Age: 67
|
|
Since
2008***
|
|
2
|
|
Managing
Director of Drexel Hamilton (securities broker-dealer); Private Investor (2017-2020); Managing Director of CAVU Securities
(securities broker- dealer) (2013- 2016); Investor Relations Managing Director (1998-2013) and Senior Counselor (after 2013)
at Burson- Marsteller (global public relations and communications)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Elizabeth
C. Bogan
Trustee
Age: 77
|
|
Since
1990**
|
|
12
|
|
Senior
Lecturer in Economics at Princeton University
|
|
—
|
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Name,
Position(s)
Address1
and Age
|
|
Term
of Office
and Length of
Time Served2
|
|
Number
of
Funds
in Fund
Complex
Overseen by
Trustee3
|
|
Principal
Occupation(s)
During Past Five Years
|
|
Other
Directorships
Held by Trustee4
|
James
P. Conn
Age: 83
Trustee
|
|
Since
2015**
|
|
23
|
|
Former
Managing Director and Chief Investment Officer of Financial Security Assurance Holdings Ltd. (1992-1998)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Frank
J. Fahrenkopf, Jr.7
Trustee
Age: 82
|
|
Since
2015***
|
|
11
|
|
Co-Chairman
of the Commission on Presidential Debates; Former President and Chief Executive Officer of the American Gaming Association
(1995-2013); Former Chairman of the Republican National Committee (1983-1989)
|
|
Director
of First Republic Bank (banking); Director of Eldorado Resorts, Inc. (casino entertainment company)
|
|
|
|
|
|
|
|
|
|
|
Daniel
D. Harding
Trustee
Age: 69
|
|
Since
2007*
|
|
3
|
|
Managing
General Partner of the Global Equity Income Fund (private investment fund); Director of TRC (private asset management); General
Partner of Latitude Capital Partners, LLC (private investment)
|
|
Atlantic
Health Systems, Ocean Reef Community Foundation and Ocean Reef Medical Center Foundation
|
|
|
|
|
|
|
|
|
|
|
Michael
J. Melarkey8
Trustee
Age: 71
|
|
Since
2015***
|
|
21
|
|
Of
Counsel in the law firm of McDonald Carano Wilson LLP; Partner in the law firm of Avansino, Melarkey, Knobel, Mulligan &
McKenzie (1980-2015)
|
|
Chairman
of Southwest Gas Corporation (natural gas utility)
|
|
|
|
|
|
|
|
|
|
|
Agnes
Mullady
Trustee
Age: 63
|
|
Since
2021***
|
|
11
|
|
Senior
Vice President of GAMCO Investors, Inc. (2008 - 2019); Executive Vice President of Associated Capital Group, Inc. (November
2016 - 2019); President and Chief Operating Officer of the Fund Division of Gabelli Funds, LLC (2010 - 2019); Vice President
of Gabelli Funds, LLC (2006 - 2019); Chief Executive Officer of G.distributors, LLC (2011 - 2019); and an officer of all of
the Gabelli/GAMCO/Teton Funds (2006 -2019)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Kuni
Nakamura8
Trustee
Age: 53
|
|
Since
2015*
|
|
35
|
|
President
of Advanced Polymer, Inc. (chemical manufacturing company); President of KEN Enterprises, Inc. (real estate); Trustee on Long
Island University Board of Trustees
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Nicolas
W. Platt
Trustee
Age: 68
|
|
Since
1997*
|
|
2
|
|
Private
Investor; Member of NYSE American LLC Committee on Securities; Township Committee Member, Harding, New Jersey; Former Mayor
of Township of Harding, New Jersey (2013-2016)
|
|
—
|
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Name,
Position(s)
Address1
and Age
|
|
Term
of Office
and Length of
Time Served2
|
|
Number
of
Funds
in Fund
Complex
Overseen by
Trustee3
|
|
Principal
Occupation(s)
During Past Five Years
|
|
Other
Directorships
Held by Trustee4
|
Anthonie
C. van Ekris7
Trustee
Age: 87
|
|
Since
2015**
|
|
23
|
|
Chairman
and Chief Executive Officer of BALMAC International, Inc.(global import/export company)
|
|
—
|
Name,
Position(s)
Address1
and Age
|
|
Term
of Office
and Length of
Time Served9
|
|
Principal
Occupation(s)
During Past Five Years
|
|
OFFICERS:
|
|
|
|
|
Jane
D. O’Keeffe
Age: 66
President
|
|
Since
1995
|
|
President
of the Bancroft Fund Ltd.; Consultant for Gabelli Funds, LLC; Executive Vice President of the Ellsworth Growth and Income
Fund Ltd. (2014-2015); President of Dinsmore Capital Management (1996-2015); President of the Ellsworth Growth and Income
Fund Ltd. (1996-2014)
|
|
|
|
|
|
|
John
C. Ball
Treasurer
Age: 45
|
|
Since
2017
|
|
Treasurer
of registered investment companies within the Fund Complex since 2017; Vice President and Assistant Treasurer of AMG Funds
(2014-2017); Chief Executive Officer, G.distributors, LLC since December 2020
|
|
|
|
|
|
|
Peter
Goldstein
Secretary and Vice President
Age: 68
|
|
Since
2020
|
|
General
Counsel, Gabelli Funds, LLC since July 2020; General Counsel and Chief Compliance Officer, Buckingham Capital Management,
Inc. (2012-2020); Chief Legal Officer and Chief Compliance Officer, The Buckingham Research Group, Inc. (2012-2020)
|
|
|
|
|
|
|
Richard
J. Walz
Chief Compliance officer
Age: 62
|
|
Since
2015
|
|
Chief
Compliance Officer of registered investment companies within the Fund Complex since 2013; Chief Compliance Officer for Gabelli
Funds, LLC since 2015
|
|
|
|
|
|
|
Daniel
Plourde
Vice President
Age: 41
|
|
Since
2021
|
|
Vice
President of registered investment companies within the Fund Complex since 2021; Assistant Treasurer of the North American
SPDR ETFs and State Street Global Advisors Mutual Funds (2017-2021); Fund Administration at State Street Bank (2009-2017)
|
|
|
|
|
|
|
Laurissa
M. Martire
Vice President and Ombudsman
Age: 44
|
|
Since
2015
|
|
Vice
President and/or Ombudsman of closed-end funds within the Fund Complex; Senior Vice President (since 2019) and other positions
(2003-2019) of GAMCO Investors, Inc.
|
|
|
|
|
|
|
|
Bethany
A. Uhlein
|
|
Since
2017
|
|
Vice
President and/or Ombudsman of closed-end funds within the Fund Complex
|
Vice
President and Ombudsman
Age: 31
|
|
|
|
since
2017: Senior Vice President (since 2021), Vice President (2018-2021), and other positions (2013-2018) of GAMCO Asset Management
Inc.
|
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
|
|
1
|
Address:
One Corporate Center, Rye, NY 10580-1422, unless otherwise noted.
|
|
|
2
|
The
Fund’s Board of Trustees is divided into three classes, each class having a term
of three years. Each year the term of office of one class expires and the successor or
successors elected to such class serve for a three year term. The three year term for
each class expires as follows:
|
|
|
*
|
Term
expires at the Fund’s 2022 Annual Meeting of Shareholders or until their successors
are duly elected and qualified.
|
|
|
**
|
Term
expires at the Fund’s 2023 Annual Meeting of Shareholders or until their successors
are duly elected and qualified.
|
|
|
***
|
Term
expires at the Fund’s 2024 Annual Meeting of Shareholders or until their successors
are duly elected and qualified.
|
Each
officer will hold office for an indefinite term until the date he or she resigns or retires or until his or her successor is elected
and qualified.
|
|
3
|
The
“Fund Complex” includes all the U.S. registered investment companies that
are considered part of the same fund complex as the Fund because they have common or
affiliated investment advisers.
|
|
|
4
|
This
column includes only directorships of companies required to report to the SEC under the
Securities Exchange Act of 1934, as amended, i.e., public companies, or other investment
companies registered under the 1940 Act.
|
|
|
5
|
Interested
person” of the Fund, as defined in the 1940 Act. Mr. Gabelli and Ms. O’Keeffe
are each considered to be an “interested person” of the Fund because of their
affiliation with the Fund’s Adviser.
|
|
|
6
|
Trustees
who are not considered to be “interested persons” of the Fund as defined
in the 1940 Act are considered to be “Independent” Trustees.
|
|
|
7
|
Mr.
Fahrenkopf’s daughter, Leslie F. Foley, serves as a director of other funds in
the Fund Complex. Mr. van Ekris is an independent director of Gabelli International Ltd.,
Gabelli Fund LDC, Gama Capital Opportunities Master Ltd., and GAMCO International SICAV,
all of which may be deemed to be controlled by Mario J. Gabelli and/or affiliates and,
in that event, would be deemed to be under common control with the Fund’s Adviser.
|
|
|
8
|
This
Trustee is elected solely by and represents the shareholders of the preferred shares
issued by this Fund.
|
|
|
9
|
Includes
time served in prior officer positions with the Fund.
|
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
General
The
Fund’s Board has overall responsibility for the management of the Fund. The Board decides upon matters of general policy and reviews
the actions of the Investment Adviser, Gabelli Funds, LLC, One Corporate Center, Rye, New York 10580-1422, and the Sub-Administrator
(as defined below). Pursuant to an investment advisory agreement between the Fund and the Investment Adviser (the “Investment
Advisory Agreement”), the Investment Adviser, under the supervision of the Board, provides a continuous investment program
for the Fund’s portfolio; provides investment research and makes and executes recommendations for the purchase and sale of securities;
and provides all facilities and personnel, including officers required for its administrative management, and pays the compensation
of Trustees of the Fund who are officers or employees of the Investment Adviser or its affiliates. As compensation for its services
rendered and the related expenses borne by the Investment Adviser, the Fund pays the Investment Adviser a monthly fee computed
at an annual rate of 0.80% of the first $100,000,000 of average weekly net assets and 0.55% of average weekly net assets in excess
of $100,000,000. The Fund’s average weekly net assets shall be determined at the end of each month on the basis of the Fund’s
average net assets for each week during the month. The assets for each weekly period shall be determined by averaging the net
assets at the end of a week with the net assets at the end of the prior week. The value of the Fund’s average weekly net assets
shall be deemed to be the average weekly value of the Fund’s total assets minus the sum of the Fund’s liabilities (such liabilities
shall exclude the aggregate liquidation preference of outstanding preferred shares and accumulated dividends, if any, on those
shares). Therefore, the Fund will pay an advisory fee on any assets attributable to certain types of leverage it uses. Consequently,
if the Fund has preferred shares outstanding, the investment management fees and other expenses as a percentage of net assets
attributable to common shares may be higher than if the Fund does not utilize a capital structure leveraged with preferred equity.
Because
the investment advisory fee is based on a percentage of the Fund’s net assets without deduction for the liquidation preference
of any outstanding preferred shares, the Investment Adviser may have a conflict of interest in the input it provides to the Board
regarding whether to use or increase the Fund’s use of preferred share leverage. The Board bases its decision, with input from
the Investment Adviser, regarding whether and how much preferred share leverage to use for the Fund on its assessment of whether
such use of leverage is in the best interests of the Fund, and the Board seeks to manage the Investment Adviser’s potential conflict
of interest by retaining the final decision on these matters and by periodically reviewing the Fund’s performance and use of leverage.
The
Investment Adviser
The
Investment Adviser is a New York limited liability company which serves as an investment adviser to registered investment companies
with combined aggregate net assets of approximately $20.5 billion as of September 30, 2021. The Investment Adviser is a registered
investment adviser under the Investment Advisers Act of 1940, as amended, and is a wholly owned subsidiary of GAMCO Investors,
Inc. (“GBL”). Mr. Gabelli owns a majority of the stock of GGCP, Inc. (“GGCP”) which holds a majority of the
capital stock and voting power of GBL. The Investment Adviser has several affiliates that provide investment advisory services:
GAMCO Asset Management Inc., a wholly owned subsidiary of GBL, acts as investment adviser for individuals, pension trusts, profit
sharing trusts, and endowments, and as a sub-adviser to certain third party investment funds, which include registered investment
companies, having assets under management of approximately of $13.1 billion as
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
of September 30, 2021; Teton Advisors, Inc., and its wholly owned investment adviser,
Keeley Teton Advisers, LLC, with assets under management of approximately $2.0 billion as of September 30, 2021, acts as investment
adviser to The TETON Westwood Funds, the KEELEY Funds, and separately managed accounts; and Gabelli & Company Investment Advisers,
Inc. (formerly, Gabelli Securities, Inc.), a wholly owned subsidiary of Associated Capital Group, Inc. (“Associated Capital”),
acts as investment adviser for certain alternative investment products, consisting primarily of risk arbitrage and merchant banking
limited partnerships and offshore companies, with assets under management of approximately $1.7 billion as of September 30, 2021.
Teton Advisors, Inc., was spun off by GBL in March 2009 and is an affiliate of GBL by virtue of Mr. Gabelli’s ownership of GGCP,
the principal shareholder of Teton Advisors, Inc., as of September 30, 2021. Associated Capital was spun off from GBL on November
30, 2015, and is an affiliate of GBL by virtue of Mr. Gabelli’s ownership of GGCP, the principal shareholder of Associated Capital.
A
discussion regarding the basis for the Fund’s Board approval of the Investment Advisory Agreement with the Investment Adviser
is available in this Annual Report.
Payment
of Expenses
The
Investment Adviser is obligated to pay expenses associated with providing the services contemplated by the Investment Advisory
Agreement including compensation of and office space for its officers and employees connected with investment and economic research,
trading and investment management and administration of the Fund (but excluding costs associated with the calculation of the net
asset value and allocated costs of the chief compliance officer function and officers of the Fund who are employed by the Fund
and are not employed by the Investment Adviser although such officers may receive incentive-based variable compensation from affiliates
of the Investment Adviser), as well as the fees of all Trustees of the Fund who are officers or employees of the Investment Adviser
or its affiliates.
In
addition to the fees of the Investment Adviser, the Fund, and indirectly the holders of its common shares, is responsible for
the payment of all its other expenses incurred in the operation of the Fund, which include, among other things, underwriting compensation
and reimbursements in connection with sales of the Fund’s securities, expenses for legal and the Fund’s independent registered
public accounting firm’s services, stock exchange listing fees and expenses, costs of printing proxies, share certificates and
shareholder reports, charges of the Fund’s Custodian, any sub-custodian and any transfer agent and distribution disbursing agent,
expenses in connection with the Fund’s automatic dividend reinvestment plan and the voluntary cash purchase plan, SEC fees and
preparation of filings with the SEC, fees and expenses of Trustees who are not officers or employees of the Investment Adviser
or its affiliates, accounting and printing costs, the Fund’s pro rata portion of membership fees in trade organizations, compensation
and other expenses of officers and employees of the Fund (including, but not limited to, the Chief Compliance Officer, Vice President
and Ombudsman) as approved by the Fund’s Trustees, fidelity bond coverage for the Fund’s officers and employees, Trustees’ and
officers’ errors and omissions insurance coverage, interest, brokerage costs, taxes, expenses of qualifying the Fund’s shares
for sale in various states, expenses of personnel performing shareholder servicing functions, rating agency fees, organizational
expenses, litigation and other extraordinary or non-recurring expenses and other expenses properly payable by the Fund.
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
Selection
of Securities Brokers
The
Investment Advisory Agreement contains provisions relating to the selection of securities brokers to effect the portfolio transactions
of the Fund. Under those provisions, the Investment Adviser may (i) direct Fund portfolio brokerage to G.research, LLC (“G.research”),
an affiliate of the Investment Adviser, or to other broker-dealer affiliates of the Investment Adviser and (ii) pay commissions
to brokers other than G.research that are higher than might be charged by another qualified broker to obtain brokerage and/or
research services considered by the Investment Adviser to be useful or desirable for its investment management of the Fund and/
or its other investment advisory accounts or those of any investment adviser affiliated with it. The SAI contains further information
about the Investment Advisory Agreement, including a more complete description of the investment advisory and expense arrangements,
exculpatory and brokerage provisions, as well as information on the brokerage practices of the Fund.
Portfolio
Managers
Thomas
Dinsmore, CFA, serves as a portfolio manager of the Fund since 1996. He joined Gabelli Funds, LLC in 2015. He currently serves
as portfolio manager of the Fund and the Ellsworth Fund Ltd. fund. From 1996 to 2015, Mr. Dinsmore was Chairman and CEO of Dinsmore
Capital and CEO and Portfolio Manager of the Fund and the Ellsworth Fund Ltd. fund. He has a B.S. in Economics from the Wharton
School of Business, and an M.A. in Economics from Fairleigh Dickinson University.
James
Dinsmore, CFA, serves as a portfolio manager of the Fund since 2011. He joined Gabelli Funds, LLC in 2015. He currently serves
as portfolio manager of the Fund and the Ellsworth Fund Ltd. fund and is President and a trustee of the Ellsworth Fund Ltd. fund.
Mr. Dinsmore received a BA in Economics from Cornell University and an MBA from Rutgers University.
Non-Resident
Trustee
Anthonie
C. van Ekris, Trustee of the Fund, resides outside of the United States and all or a significant portion of his assets are located
outside the United States. Mr. van Ekris does not have an authorized agent in the United States to receive service of process.
As a result, it may not be possible for investors to effect service of process within the United States or to enforce against
Mr. van Ekris in U.S. court judgments predicated upon the civil liability provisions of U.S. securities laws. It may also not
be possible to enforce against Mr. van Ekris in foreign courts judgments of U.S. courts or liabilities in original actions predicated
upon civil liability provisions of the United States.
Sub-Administrator
The
Investment Adviser has entered into a sub-administration agreement with BNY Mellon Investment Servicing (US) Inc. (the “Sub-Administrator”)
pursuant to which the Sub-Administrator provides certain administrative services necessary for the Fund’s operations which do
not include the investment and portfolio management services provided by the Investment Adviser. For these services and the related
expenses borne by the Sub-Administrator, the Investment Adviser pays an annual fee based on the value of the aggregate average
daily net assets of all funds under its administration managed by the Investment Adviser, GAMCO and Teton Advisors, Inc. as follows:
0.0275%—first $10 billion, 0.0125%—exceeding $10 billion but less than $15 billion, 0.01%—
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
over $15 billion but less than $20 billion and 0.008% over $20 billion. The Sub-Administrator
has its principal office at 103 Bellevue Parkway, Wilmington, Delaware 19809.
NET
ASSET VALUE
The
net asset value of the Fund’s shares is computed based on the market value of the securities it holds and is determined daily
as of the close of the regular trading day on the NYSE. For purposes of determining the Fund’s net asset value per share, portfolio
securities listed or traded on a nationally recognized securities exchange or traded in the U.S. OTC market for which market quotations
are readily available are valued at the last quoted sale price or a market’s official closing price as of the close of business
on the day the securities are being valued. If there were no sales that day, the security is valued at the average of the closing
bid and asked prices, or, if there were no asked prices quoted on that day, then the security is valued at the closing bid price
on that day. If no bid or asked prices are quoted on such day, the security is valued at the most recently available price or
if the Board so determines, by such other method as the Board shall determine in good faith to reflect its fair market value.
Portfolio securities traded on more than one national securities exchange or market are valued according to the broadest and most
representative market, as determined by the Investment Adviser.
Portfolio
securities primarily traded on a foreign market are generally valued at the preceding closing values of such securities on the
relevant market, but may be fair valued pursuant to procedures established by the Board if market conditions change significantly
after the close of the foreign market but prior to the close of business on the day the securities are being valued. Debt instruments
with remaining maturities of 60 days or less that are not credit impaired are valued at amortized cost, unless the Board determines
such amount does not reflect the securities’ fair value, in which case these securities will be fair valued as determined by the
Board. Debt instruments having a maturity greater than 60 days for which market quotations are readily available are valued at
the average of the latest bid and asked prices. If there were no asked prices quoted on such day, the security is valued using
the closing bid price. Futures contracts are valued at the closing settlement price of the exchange or board of trade on which
the applicable contract is traded.
Options
are valued using market quotations. When market quotations are not readily available, options are valued from broker quotes. In
limited circumstances when neither market quotations nor broker quotes are readily available, options are valued using a Black
Scholes model.
Securities
and assets for which market quotations are not readily available are fair valued as determined by the Board. Fair valuation methodologies
and procedures may include, but are not limited to: analysis and review of available financial and non-financial information about
the company; comparisons to the valuation and changes in valuation of similar securities, including a comparison of foreign securities
to the equivalent U.S. dollar value ADR securities at the close of the U.S. exchange; and evaluation of any other information
that could be indicative of the value of the security.
The
Fund obtains valuations on the basis of prices provided by a pricing service approved by the Board. All other investment assets,
including restricted and not readily marketable securities, are valued in good faith at fair value under procedures established
by and under the general supervision and responsibility of the Board.
Bancroft
Fund Ltd.
Additional
Fund Information (Continued) (Unaudited)
In
addition, whenever developments in one or more securities markets after the close of the principal markets for one or more portfolio
securities and before the time as of which the Fund determines its net asset value would, if such developments had been reflected
in such principal markets, likely have more than a minimal effect on the Fund’s net asset value per share, the Fund may fair value
such portfolio securities based on available market information as of the time the Fund determines its net asset value.
NYSE
American Closings. The holidays (as observed) on which the NYSE American is closed, and therefore days upon which shareholders
will not be able to purchase or sell common shares currently are: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day,
Good Friday, Memorial Day, Juneteenth, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day, and on the preceding
Friday or subsequent Monday when a holiday falls on a Saturday or Sunday, respectively.
Bancroft
Fund Ltd.
Board
Consideration and Re-Approval of Investment Advisory Agreement (Unaudited)
At
its meeting on August 18, 2021, the Board of the Fund approved the continuation of the investment advisory agreement with the
Adviser for the Fund on the basis of the recommendation by the trustees who are not interested persons of the Fund (the Independent
Board Members). The following paragraphs summarize the material information and factors considered by the Independent Board Members
as well as their conclusions relative to such factors.
Nature,
Extent, and Quality of Services. The Independent Board Members considered information regarding the portfolio managers, the
depth of the analyst pool available to the Adviser and the portfolio managers, the scope of supervisory, administrative, shareholder,
and other services supervised or provided by the Adviser, and the absence of significant service problems reported to the Board.
The Independent Board Members noted the experience, length of service, and reputation of the portfolio managers as well as the
Independent Board Members’ satisfaction with the performance of the portfolio managers since the Adviser assumed control
of the Fund in 2015.
The
Independent Board Members also noted that they were impressed with the overall quality of the materials relating to the Board’s
consideration of the Advisory Agreement.
Investment
Performance. The Independent Board Members reviewed the performance of the Fund for the one, three, five, and ten year periods
(as of June 30, 2021) against a peer group of 11 convertible funds prepared by the Adviser (the Adviser Peer Group) and against
a larger peer group of 25 closed-end funds constituting the Fund’s Lipper category (Closed-End Core, Convertible and Value
Equity Funds) (the Lipper Peer Group). The Independent Board Members noted that the Fund’s performance was in the third
quartile for the one year period (8 out of 12 funds), and the second quartile for the three, five, and ten year periods for the
Adviser Peer Group, and in the fourth quartile for the one year period and the second quartile for the three, five, and ten year
periods for the Lipper Peer Group.
Profitability. The Independent Board Members reviewed summary data regarding the profitability
of the Fund to the Adviser both with an administrative overhead charge and without such a charge and noted the Adviser’s
estimated pre-tax operating margin attributable to the Fund in both scenarios.
Economies
of Scale. The Independent Board Members considered the major elements of the Adviser’s cost structure and the relationship
of those elements to potential economies of scale. The Independent Board Members noted that the Fund was a closed-end fund and
unlikely to realize any economies of scale potentially available through growth in the absence of additional offerings.
Sharing
of Economies of Scale. The Independent Board Members noted that the Fund’s advisory fee contained a reduction for assets
in excess of $100 million, which would indicate a sharing even if economies of scale were not experienced at such a low asset
level.
Service
and Cost Comparisons. The Independent Board Members compared the expense ratios of the investment management fee, other expenses,
and total expenses of the Fund with similar expense ratios of the Adviser Peer Group and the Lipper Peer Group. The Independent
Board Members noted that the Adviser’s management fee includes substantially all administrative services for the Fund as
well as investment advisory services. The Independent Board Members noted that the Fund’s investment management fee and
total expense ratio were above the Adviser and Lipper Peer Group averages. It was noted that within the Lipper Peer Group, 5
Bancroft
Fund Ltd.
Board
Consideration and Re-Approval of Investment Advisory Agreement (Unaudited) (Continued)
of the other 23 funds employ leverage.
The Independent Board Members also noted that the management fee structure was different from that in effect for most of the Gabelli
funds, in that it contains a reduction for assets in excess of $100 million and is lower than the management fees in effect for
most other Gabelli funds due to the retention of the Fund’s historical fee structure when the Adviser assumed the management
of the Fund in 2015.
Conclusions.
The Independent Board Members concluded that the Fund enjoyed highly experienced portfolio management services and good ancillary
services, and that the Fund’s performance record has been acceptable since the Adviser assumed control of the Fund in 2015.
The Independent Board Members concluded that the profitability to the Adviser of managing the Fund was acceptable and that economies
of scale were not a significant factor in their thinking at this point. The Independent Board Members did not view the potential
profitability of ancillary services as material to their decision. On the basis of the foregoing and without assigning particular
weight to any single conclusion, the Independent Board Members determined to recommend continuation of the Advisory Agreement
to the full Board.
Based
on a consideration of all these factors in their totality, the Board Members, including all of the Independent Board Members,
determined that the Fund’s advisory fee was appropriate in light of the quality of services provided and in light of the
other factors described above that the Board deemed relevant. Accordingly, the Board Members determined to approve the continuation
of the Fund’s Advisory Agreement. The Board Members based their decision on evaluations of all these factors as a whole
and did not consider any one factor as all important or controlling.
BANCROFT
FUND LTD.
INCOME
TAX INFORMATION (Unaudited)
October
31, 2021
Cash
Dividends and Distributions
|
|
|
Payable
Date
|
|
Record
Date
|
|
Total
Amount
Paid
Per Share (a)
|
|
Ordinary
Investment
Income (a)
|
|
Long
Term
Capital
Gains (a)
|
|
Dividend
Reinvestment
Price
|
|
Common Stock
|
|
|
|
12/29/20
|
|
11/25/20
|
|
$2.25000
|
|
$0.73583
|
|
$1.51417
|
|
$27.90150
|
|
|
|
03/24/21
|
|
03/17/21
|
|
0.32000
|
|
0.10465
|
|
0.21535
|
|
|
|
|
|
06/23/21
|
|
06/16/21
|
|
0.32000
|
|
0.10465
|
|
0.21535
|
|
|
|
|
|
09/23/21
|
|
09/16/21
|
|
0.32000
|
|
0.10465
|
|
0.21535
|
|
|
|
|
|
|
|
|
|
$3.21000
|
|
$1.04978
|
|
$2.16022
|
|
|
|
5.375% Series A Cumulative Preferred
Shares
|
|
|
|
12/28/20
|
|
12/18/20
|
|
0.33594
|
|
0.10986
|
|
0.22608
|
|
|
|
|
|
03/26/21
|
|
03/19/21
|
|
0.33594
|
|
0.10986
|
|
0.22608
|
|
|
|
|
|
06/28/21
|
|
06/21/21
|
|
0.33594
|
|
0.10986
|
|
0.22608
|
|
|
|
|
|
09/27/21
|
|
09/20/21
|
|
0.33593
|
|
0.10986
|
|
0.22607
|
|
|
|
|
|
|
|
|
|
$1.34375
|
|
$0.43944
|
|
$0.90431
|
|
|
Corporate
Dividends Received Deduction, Qualified Dividend Income, and U.S. Government Securities Income
For
the fiscal year ended October 31, 2021, the Fund paid to common shareholders and 5.375% Series A preferred shareholders ordinary
income distributions (inclusive of short term capital gains) totaling $1.04978 and $0.43944 per share respectively, and long term
capital gains totaling $12,712,829 or the maximum allowable. The distribution of long term capital gains has been designated as
a capital gain dividend by the Fund’s Board of Trustees. For the fiscal year ended October 31, 2021, 18.60% of the ordinary
income distribution qualifies for the dividends received deduction available to corporations. The Fund designates 19.57% of the
ordinary income distribution as qualified dividend income pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003.
The Fund designates 56.85% of the ordinary income distribution as qualified interest income pursuant to the Tax Relief, Unemployment
Reauthorization, and Job Creation Act of 2010. The Fund designates 100% of the ordinary income distribution as qualified short
term capital gain pursuant to the American Jobs Creation Act of 2004.
U.S.
Government Income:
The
percentage of the ordinary income distribution paid by the Fund during the fiscal year ended October 31, 2021 which was derived
from U.S. Treasury securities was 0.02%. Such income is exempt from state and local tax in all states. However, many states, including
New York and California, allow a tax exemption for a portion of the income earned only if a mutual fund has invested at least
50% of its assets at the end of each quarter of the Fund’s fiscal year in U.S. Government securities. Bancroft Fund Ltd.
did not meet this strict requirement in 2021. The percentage of U.S. Government securities held as of October 31, 2021 was 8.4%.
Due to the diversity in state and local tax law, it is recommended that you consult your personal tax adviser as to the applicability
of the information provided to your specific situation.
BANCROFT
FUND LTD.
INCOME
TAX INFORMATION (Unaudited) (Continued)
October
31, 2021
Historical
Distribution Summary
|
|
|
Investment
Income(b)
|
|
Short Term
Capital
Gains(b)
|
|
Long Term
Capital
Gains
|
|
Total
Distributions(a)
|
|
Common Shares
|
|
2021
|
|
$0.38818
|
|
$0.66160
|
|
$2.16022
|
|
$3.21000
|
|
2020
|
|
0.49411
|
|
0.31822
|
|
1.02767
|
|
1.84000
|
|
2019
|
|
0.41120
|
|
0.04180
|
|
1.94700
|
|
2.40000
|
|
2018
|
|
0.71000
|
|
0.10000
|
|
0.35000
|
|
1.16000
|
|
2017
|
|
0.28460
|
|
0.09380
|
|
0.88890
|
|
1.26730
|
|
|
|
|
|
|
|
|
|
|
|
5.375% Series A Cumulative Preferred
|
|
2021
|
|
$0.16249
|
|
$0.27695
|
|
$0.90431
|
|
$1.34375
|
|
2020
|
|
0.36084
|
|
0.23240
|
|
0.75051
|
|
1.34375
|
|
2019
|
|
0.23293
|
|
—
|
|
1.11082
|
|
1.34375
|
|
2018
|
|
0.13390
|
|
—
|
|
1.20985
|
|
1.34375
|
|
2017
|
|
0.28761
|
|
—
|
|
1.05614
|
|
1.34375
|
(a)
Total amounts may differ due to rounding.
(b)
Taxable as ordinary income for Federal tax purposes.
All
designations are based on financial information available as of the date of this annual report and, accordingly, are subject to
change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code
and the regulations thereunder.
This
page was intentionally left blank.
This
page was intentionally left blank.
This
page was intentionally left blank.
Bancroft
Fund Ltd.
One
Corporate Center
Rye,
NY 10580-1422
(Y)our
Portfolio Management Team Biographies
Thomas
H. Dinsmore, CFA, joined Gabelli Funds, LLC in 2015. He currently serves as a portfolio manager of Gabelli Funds, LLC and
manages several funds within the Fund Complex. Previously Mr. Dinsmore was Chairman and CEO of Dinsmore Capital Management; CEO
and Portfolio Manager of Bancroft Fund Ltd; and CEO, Portfolio Manager, and co-founder of Ellsworth Growth and Income Fund Ltd.
He received a BS in Economics from the Wharton School of Business and an MA degree in Economics from Fairleigh Dickinson University.
James
A. Dinsmore, CFA, joined Gabelli Funds, LLC in 2015. He currently serves as a portfolio manager of Gabelli Funds, LLC and
manages several funds within the Fund Complex. Mr. Dinsmore received a BA in Economics from Cornell University and an MBA degree
from Rutgers University.
Consultant
to Portfolio Management Team
Jane
D. O’Keeffe joined Gabelli Funds, LLC in 2015. She currently serves as a consultant to Gabelli Funds, LLC.
Previously Ms. O’Keeffe was President and Director of Dinsmore Capital Management where she was also a Portfolio
Manager of Bancroft Fund Ltd. and Ellsworth Growth and Income Fund Ltd. Prior to joining Dinsmore Capital Management, Ms.
O’Keeffe held positions of increasing responsibilities at IDS Progressive Fund, Soros Fund Management Company, Simms
Capital Management, and Fiduciary Trust International. She earned a BA from the University of New Hampshire and attended the
Lubin Graduate School of Business at Pace University.
|
We
have separated the portfolio managers’ commentary from the financial statements and investment portfolio due to corporate
governance regulations stipulated by the Sarbanes-Oxley Act of 2002. We have done this to ensure that the contents of the
portfolio managers’ commentary are unrestricted. Both the commentary and the financial statements, including the portfolio
of investments, will be available on our website at www.gabelli.com.
|
The
net asset value per share appears in the Publicly Traded Funds column, under the heading “Specialized Equity Funds,”
in Monday’s The Wall Street Journal. It is also listed in Barron’s Mutual Funds/Closed End Funds section under the
heading “Convertible Securities Funds.”
The
net asset value per share may be obtained each day by calling (914) 921-5070 or visiting www.gabelli.com.
The
NASDAQ symbol for the net asset value is “XBCVX.”
|
Notice
is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may from
time to time purchase its common shares in the open market when the Fund’s shares are trading at a discount of 10% or
more from the net asset value of the shares. The Fund may also, from time to time, purchase its preferred shares in the open
market when the preferred shares are trading at a discount to the liquidation value.
|
BANCROFT
FUND LTD.
One
Corporate Center
Rye,
New York 10580-1422
|
|
t
|
800-GABELLI
(800-422-3554)
|
|
TRUSTEES
Mario
J. Gabelli, CFA
Chairman
and
Chief
Executive Officer,
GAMCO
Investors, Inc.
Executive
Chairman,
Associated
Capital Group, Inc.
Kinchen
C. Bizzell
Former
Managing Director,
CAVU
Securities
Elizabeth
C. Bogan
Senior
Lecturer in Economics
Princeton
University
James
P. Conn
Former
Managing Director &
Chief
Investment Officer,
Financial
Security Assurance
Holdings
Ltd.
Frank
J. Fahrenkopf, Jr.
Former
President &
Chief
Executive Officer,
American
Gaming Association
Daniel
D. Harding
Managing
General Partner,
Global
Equity Income Fund
Michael
J. Melarkey
Of
Counsel,
McDonald
Carano Wilson LLP
Agnes
Mullady
Former
Senior Vice President,
GAMCO
Investors, Inc.
Kuni
Nakamura
President,
Advanced
Polymer, Inc.
Jane
D. O’Keeffe
Former
Portfolio Manager,
Gabelli
Funds, LLC
|
Nicolas
W. Platt
Former
Managing Director,
FTI
Consulting, Inc.
Anthonie
C. van Ekris
Chairman,
BALMAC
International, Inc.
OFFICERS
Jane
D. O’Keeffe
President
John
C. Ball
Treasurer
Peter
Goldstein
Secretary
& Vice President
Richard
J. Walz
Chief
Compliance Officer
Daniel
Plourde
Vice
President
Laurissa
M. Martire
Vice
President & Ombudsman
Bethany
A. Uhlein
Vice
President & Ombudsman
INVESTMENT
ADVISER
Gabelli
Funds, LLC
CUSTODIAN
State
Street Bank and Trust
Company
COUNSEL
Skadden,
Arps, Slate, Meagher &
Flom
LLP
TRANSFER
AGENT AND
REGISTRAR
American
Stock Transfer and Trust
Company
|
BCV
Q4/2021
