Dear Shareholder:
The financial markets have been through a turbulent summer. Investors
remain concerned that the economy has excessive momentum and is operating so
close to full capacity that the Federal Reserve will eventually have to
raise short-term rates. However, we do not view the economy as being
extremely robust. We continue to expect that the rise in long-term interest
rates, so far this year, will cause economic growth to slow to a more
sustainable pace by the latter part of the year. While the rate of expansion
will be sufficient to generate continued gains in employment, the pace will
not be strong enough to support an acceleration in inflation. On the other
hand, we believe that it is possible that the Federal Reserve will tighten
monetary policy a notch to ensure that the economy returns to a more
moderate growth rate.
The bond market stabilized during the three months ended July 31 and
managed to eke out a small gain which partially offset the losses sustained
during the winter and spring months. The Lehman Government/Corporate Bond
Index, a conventional measure of the bond market, posted a negative total
return of 1.65% for the seven months ended July 31. Disappointing second
quarter earnings reported by several companies raised concerns that the
growth in corporate profits might be slowing. This prospect of weaker
corporate profits rattled investors and the stock market ran into severe
selling pressure. The market, as measured by the S&P 500, generated a
negative total return of 1.58% for the three month period ended July 31. For
the first seven months of 1996, the stock market produced a gain of 5.23%.
Castle Convertible Fund, because of its income orientation, weathered the
stock market decline. It posted a small negative total return of 0.17% on a
NAV basis during the third fiscal quarter. The Fund's total return, again on
a NAV basis, was 4.12% for the first seven months of the year.
We expect that the financial markets will continue to be unsettled as
investors analyze each new economic report to gauge the strength in the
economy and the risk of higher inflation. Upcoming earnings reports could
also cause more volatility for the stock market. Castle's conservative
stance should limit its exposure to any wide swings in the market.
Respectfully submitted,
David D. Alger
President
September 12, 1996
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
July 31, 1996
<TABLE>
<CAPTION>
Principal
Amount Corporate Bonds--51.6% Value
- ---------------------------------------------------------------------
<C> <S> <C>
BUILDING & CONSTRUCTION--1.4%
$1,000,000 Masco Corp., Cv. Sub. Deb.,
5.25%, 2/15/12....................... $ 895,000
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--9.5%
500,000 Diagnostic/Retrieval Systems, Inc.,
Sr. Sub. Cv. Notes, 9.00%,
10/1/03(a)............................ 620,000
1,500,000 Network Equipment Technologies,
Cv. Sub. Deb., 7.25%, 5/15/14......... 1,245,000
1,850,000 Seagate Technologies, Inc., Cv.
Sub. Deb., 6.75%, 3/1/01.............. 1,854,625
650,000 3Com Corp., Cv. Sub. Notes,
10.25%, 11/1/01(a).................... 911,625
750,000 VLSI Technology, Inc., Cv. Sub.
Notes, 8.25%, 10/1/05................. 658,125
750,000 Xilinx, Inc., Cv. Sub. Notes, 5.25%,
11/1/02(a)............................ 693,750
-----------
5,983,125
-----------
ENERGY--9.6%
2,100,000 Ashland Inc., Cv. Sub. Deb.,
6.75%, 7/1/14......................... 2,094,750
1,850,000 Consolidated Natural Gas, Cv. Sub.
Deb., 7.25%, 12/15/15................. 1,963,311
2,000,000 Enserch, (Eurodollar), Cv. Sub.
Deb., 6.375%, 4/1/02.................. 1,950,000
-----------
6,008,061
-----------
HEALTHCARE--12.4%
3,050,000 Beverly Enterprises, Cv. Sub. Deb.,
7.625%, 3/15/03....................... 2,882,250
1,450,000 Centocor, Inc., (Eurodollar), Cv.
Sub. Deb., 6.75%, 10/16/01............ 1,326,750
1,000,000 Medical Care International,
Cv. Sub. Deb., 6.75% 10/1/06.......... 1,000,000
1,000,000 Medical Care International,
(Eurodollar), Cv. Sub. Deb., 6.75%,
10/1/06............................... 1,000,000
500,000 Rotech Medical Corp., Cv. Sub.
Deb., 5.25%, 6/1/03(a)................ 447,500
500,000 Sepracor Inc., Cv. Sub. Deb.,
7.00%, 12/1/02(a)..................... 465,000
500,000 U.S. Diagnostic Labs, Inc., Cv.
Sub. Deb., 9.00%, 3/31/03(a).......... 627,500
-----------
7,749,000
-----------
METALS--2.1%
1,250,000 Inco Limited, Cv. Sub. Deb.,
7.75%, 3/15/16........................ 1,300,000
-----------
POLLUTION CONTROL--4.4%
2,000,000 Laidlaw Corp., Cv. Sub. Notes,
8.00%, 5/1/01......................... 2,140,000
500,000 U.S. Filter Corp., Cv. Sub. Notes,
6.00%, 9/15/05(a)..................... 608,750
-----------
2,748,750
-----------
RETAILING--9.4%
500,000 Charming Shoppes, Inc., Cv. Sub.
Notes, 7.50%, 7/15/06................ 537,500
1,240,000 Fabri-Centers of America, Inc.,
Cv. Sub. Deb., 6.25%, 3/1/02.......... 1,066,400
500,000 Nine West Group, Inc., Cv. Sub.
Notes, 5.50%, 7/15/03(a)............. 493,750
1,800,000 Price/Costco Inc., Cv. Sub. Deb.,
6.75%, 3/1/01......................... 1,885,500
2,000,000 Waban Inc., Cv. Sub. Deb., 6.50%,
7/1/02................................ 1,960,000
-----------
5,943,150
-----------
TRANSPORTATION--2.8%
1,800,000 Airborne Freight Corp., Cv. Sub.
Deb., 6.75%, 8/15/01.................. 1,764,000
-----------
Total Corporate Bonds
(Cost $31,656,134).................... 32,391,086
-----------
<CAPTION>
Convertible Preferred
Shares Stocks--26.3% Value
- ---------------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS--2.9%
15,000 Evergreen Media Corp., Cv. 6.00%
Exch. Pfd............................. 1,382,578
8,000 SFX Broadcasting, $6.50 Cum.
Cv. Exch. Pfd., Series D(a).......... 419,000
-----------
1,801,578
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--.7%
10,000 Wang Laboratories, $6.50 Cv. Pfd.,
Series B(a)........................... 442,500
-----------
CONTAINERS--2.0%
30,000 Southdown Corp., Cv. 2.875%
Pfd., Series D........................ 1,241,250
-----------
PAPER PACKAGING & FOREST
PRODUCTS--6.0%
12,000 Alco Standard, Dep. Shrs., $5.04
Cv. Pfd., Series BB................... 996,000
60,000 James River Corp., Dep. Shrs.,
$3.50 Exch. Pfd., Series L............ 2,775,000
-----------
3,771,000
-----------
PUBLISHING--2.6%
20,000 Houghton Mifflin Company,
6% Exch Nts........................... 1,600,000
-----------
RAW MATERIAL PROCESSING--2.8%
20,000 Bethlehem Steel Corporation, $5.00
Cum. Pfd.............................. 1,027,500
15,000 Howell Corp., $3.50 Cum. Pfd........... 733,125
-----------
1,760,625
-----------
REAL ESTATE--1.1%
35,400 Wellsford Residential Property
Trust, 7.00% Cum. Cv. Pfd.,
Series A.............................. 690,300
-----------
SAVINGS & LOANS--2.9%
30,000 Great Western Financial Corp.,
Dep. Shrs., 8.75% Cum. Cv.
Dep. Pfd.............................. 1,807,500
-----------
UTILITIES--2.4%
28,500 NorAm Financing I, 6.25% Cv.
Pfd................................... 1,539,000
-----------
MISCELLANEOUS--2.9%
20,000 SCI Finance LLC, $3.125 Term Cv.
Shares, Series A...................... 1,840,000
-----------
Total Convertible Preferred Stocks
(Cost $14,835,191).................... 16,493,753
-----------
Common Stocks--13.3%
UTILITIES
52,000 American Electric Power Co., Inc....... 2,158,000
35,000 Boston Edison Co....................... 791,875
38,000 Oklahoma Gas & Electric Co............. 1,491,500
65,000 Public Service Colorado................ 2,299,375
35,000 Puget Sound Power & Light Co........... 796,250
40,000 Rochester Gas & Electric Corp.......... 775,000
-----------
Total Common Stocks
(Cost $6,920,804)..................... 8,312,000
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes--7.6%
- -----------
<C> <S> <C>
$ 396,000 Dynamic Funding Corp., 5.35%,
8/5/96................................ 395,588
2,936,000 Ford Motor Credit Company,
5.23%, 8/5/96......................... 2,930,455
830,000 Honeywell Inc., 5.35%, 8/6/96.......... 829,137
643,000 Sun Life Insurance Company of
America, 5.25%, 8/5/96................ 641,875
-----------
Total Short-Term Corporate Notes
(Cost $4,797,055)..................... 4,797,055
-----------
<S> <C> <C>
Total Investments
(Cost $58,209,184)......................... 98.8% 61,993,894
Other Assets in Excess of Liabilities....... 1.2 721,648
--------------------
Total Net Assets............................ 100.0% $62,715,542
====================
Net Asset Value Per Share.............................. $ 28.05
===========
- -----------------------
<Fa> Pursuant to Securities and Exchange Commission Rule 144A, these
securities may be sold prior to their maturity only to qualified
institutional buyers.
</TABLE>
-----------------------
CASTLE CONVERTIBLE FUND, INC.
SUMMARY OF OPERATIONS
for the nine months ended July 31, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest.................................................... $1,951,282
Dividends................................................... 1,120,437
----------
Total Income.............................................. 3,071,719
Total Expenses............................................ 483,921
----------
NET INVESTMENT INCOME........................................... 2,587,798
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments.............................. $ 4,340,334
Net change in unrealized depreciation on investments.......... (3,374,697)
-------------
Net realized and unrealized gain (loss) on investments.... 965,637
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $3,553,435
==========
</TABLE>
CASTLE
CONVERTIBLE Meeting the challenge
FUND, of investing
INC.
Board of Directors
Fred M. Alger, Chairman
David D. Alger
Lester L. Colbert, Jr.
Arthur M. Dubow
Stephen E. O'Neil
Nathan E. Saint-Amand
John T. Sargent
- --------------------------------------------------
Investment Adviser
Fred Alger Management, Inc.
75 Maiden Lane
New York, N.Y. 10038
- --------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Alger Shareholder Services, Inc.
30 Montgomery Street, Box 2001
Jersey City, N.J. 07302-9811
- --------------------------------------------------
This report was prepared for distribution to shareholders and to others who
may be interested in current information concerning the Fund. It was not
prepared for use, nor is it circulated in connection with any offer to sell,
or solicitation of any offer to buy, any securities.
CASTLE
CONVERTIBLE Meeting the challenge
FUND, of investing
INC.
Quarterly Report
July 31, 1996
