Dear Shareholder:
At the start of 1998, expectations that the turmoil in Asia would
dampen economic growth in the U.S. led investors to conclude that
inflationary pressures in the near term would remain muted and, therefore,
the Federal Reserve would leave monetary policy unchanged. As a result,
long-term interest rates during the first three months of the year remained
in a narrow 5.75% to 6.00% trading range, following the gradual decline in
long-term interest rates since April 1997. In addition to the positive
backdrop of a strong U.S. economy, low inflation, stable interest rates, and
a neutral monetary policy, greater stability in overseas financial markets
formed the foundation for continued gains in the stock market. By the end of
March, monthly economic indicators suggested that the economy was not
slowing as quickly as expected and worries mounted that the Federal Reserve
would take preemptive action to slow the economy in order to avert an
acceleration in the rate of inflation. At the same time, political
uncertainty and social unrest in Indonesia began to cause renewed
instability in the Asian financial markets. As a result, for the past two
months long-term interest rates have remained steady and the stock market
has traded in a narrow band, roughly equivalent to 9,000 to 9,200 for the
Dow Jones Industrial Average.
As upcoming reports document slower growth and continued low
inflation, fears of a Fed tightening should begin to recede. Continued
reports of low inflation should also alleviate underlying worries about a
possible acceleration in inflation and interest rates should decline. Given
our positive outlook for inflation, we think long-term interest rates could
drift down in the second half of the year. Under those circumstances, the
stock market should continue to add to the gains of the first three months
of 1998.
Castle Convertible Fund is primarily intended to produce current
income and, as such, it does not fully participate in sharp advances in the
stock market. Still, the convertibility of its holdings does typically
enable the Fund to capture some of a stock market rally and enhance total
returns, as has been the case for the first six months of fiscal 1998. For
the six months ended April 30, 1998, the total return for the Fund equaled
4.85% on a NAV basis, exceeding the 3.65% total return for the Lehman
Brothers Government/Corporate Bond Index, a common measure of fixed-income
returns. Castle should, we believe, add to these gains in the months to
come.
Respectfully submitted,
/s/ David D. Alger
David D. Alger
President
May 25, 1998
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
April 30, 1998
<TABLE>
<CAPTION>
Principal Corporate Convertible
Amount Bonds-36.0% Value
- -------------------------------------------------------------------
<C> <S> <C>
AEROSPACE-2.2%
$ 250,000 Atlantic Coast Airlines, Inc., Cv.
Sub. Notes, 7.00%, 7/1/04(a) $ 788,125
500,000 Kellstrom Industries Inc., Cv. Sub.
Notes, 5.75%, 10/15/02(a) 585,000
-----------
1,373,125
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-5.0%
1,000,000 Bay Networks Inc., Cv. Sub. Deb.,
5.25%, 5/15/03 965,000
500,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04(a) 465,625
1,000,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 998,750
900,000 Read-Rite Corporation, Cv. Sub.
Notes, 6.50%, 9/1/04 733,500
-----------
3,162,875
-----------
CONSUMER PRODUCTS
& SERVICES-1.8%
1,250,000 Fieldcrest Cannon Inc., Cv. Sub.
Deb., 6.00%, 3/15/12 1,156,250
-----------
ENERGY-1.0%
650,000 Parker Drilling Corp., Cv. Sub.
Notes, 5.50%, 8/1/04 648,375
-----------
HEALTHCARE-1.3%
500,000 ESC Medical Systems Ltd., Cv.
Sub. Notes, 6.00%, 9/1/02(a) 498,750
400,000 NeXstar Pharmaceuticals, Inc., Cv.
Sub. Deb., 6.25%, 8/1/04(a) 347,000
-----------
845,750
-----------
LEISURE & ENTERTAINMENT-.4%
200,000 Family Golf Centers, Inc., Cv. Sub.
Notes, 5.75%, 10/15/04(a) 259,000
-----------
MANUFACTURING-2.0%
1,250,000 Quanex Corp., Cv. Sub. Deb.,
6.88%, 6/30/07 1,312,500
-----------
METALS-2.8%
1,750,000 Inco Limited, Cv. Sub. Deb.,
7.75%, 3/15/16 1,785,000
-----------
PRINTING-2.4%
1,400,000 World Color Press Inc., Cv. Sub.
Notes, 6.00%, 10/1/07 1,498,875
-----------
REAL ESTATE-1.8%
1,000,000 Developers Diversified Realty Corp.,
Cv. Sub. Deb., 7.00%, 8/15/99 1,170,000
-----------
RETAILING-7.8%
1,000,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,047,500
600,000 Men's Wearhouse Inc., Cv. Sub.
Notes, 5.25%, 3/1/03 784,500
1,500,000 Michaels Stores Inc., Cv. Sub.
Deb., 6.75%, 1/15/03 1,498,125
700,000 Saks Holdings Inc., Cv. Sub.
Notes, 5.50%, 9/15/06 607,250
1,200,000 Sunglass Hut Inc., Cv. Sub.
Notes, 5.25%, 6/15/03 993,000
-----------
4,930,375
-----------
SEMICONDUCTORS-7.5%
$ 750,000 Integrated Process Equipment
Corp., Cv. Sub. Notes, 6.25%,
9/15/04(a) $ 660,938
1,400,000 Micron Technology, Inc., Cv. Sub.
Notes, 7.00%, 7/1/04 1,366,750
750,000 National Semiconductor, Cv. Sub.
Notes, 6.50%, 10/1/02(a) 749,062
500,000 Photronics Inc., Cv. Sub. Notes,
6.00%, 6/1/04 743,750
1,250,000 VLSI Technology, Inc., Cv. Sub.
Notes, 8.25%, 10/1/05 1,237,500
-----------
4,758,000
-----------
Total Corporate Convertible Bonds
(Cost $21,508,919) 22,900,125
-----------
Convertible Preferred
Shares Securities-19.2%
- ----------
AEROSPACE & AIRLINES-1.8%
22,000 Coltec Capital Trust, 5.25% Cv.
Pfd.(a) 1,171,500
-----------
BROADCASTING-2.1%
20,000 Sinclair Broadcast Group, Inc.,
$3.00 Cv. Pfd., Series D 1,300,000
-----------
ENERGY-2.6%
10,000 Hvide Capital Trust, 6.5% Cv.
Pfd.(a). 470,000
20,000 AES Trust II, $2.75 Cv. Pfd.,
Series B 1,175,000
-----------
1,645,000
-----------
FOODS & BEVERAGES-3.7%
18,000 Chiquita Brands International Inc.,
$2.875 Cv. Pfd. A 855,000
30,000 Suiza CapitalTrust II, 5.50% Cv.
Pfd.(a) 1,462,500
-----------
2,317,500
-----------
LEISURE & ENTERTAINMENT-2.9%
17,000 Royal Caribbean Cruises Limited,
$3.625 Cv. Pfd. A 1,867,875
-----------
PRINTING-.5%
5,000 Big Flower Trust I, 6.00% Cv.
Pfd.(a) 305,000
-----------
RAW MATERIALS-3.6%
20,000 Bethlehem Steel Corporation,
$5.00 Cum. Pfd. 1,106,250
5,000 Howell Corp., $3.50 Cv. Pfd. 242,500
10,000 TIMET Capital Trust I, 6.625%
Cv. Pfd. (a) 480,000
10,000 TIMET Capital Trust I, 6.625%
Cv. Pfd. 480,000
-----------
2,308,750
-----------
REAL ESTATE-2.0%
40,000 Security Capital Industrial Trust,
7.00%, Cv. Pfd. B 1,260,000
-----------
Total Convertible Preferred
Securities (Cost $10,592,236) 12,175,625
-----------
Mandatory Convertible
Shares Securities-9.6% Value
- -------------------------------------------------------------------
COMMUNICATIONS-2.1%
30,000 AirTouch Communications, Inc.,
6.00% Cv. Pfd., Class B,
8/16/99(c) $ 1,331,250
-----------
ENERGY-1.5%
30,100 MCN Corporation, 8.75%, Pfd.,
4/30/99(c) 966,963
-----------
FINANCIAL SERVICES-2.2%
45,000 The Money Store Inc., $1.72 Cv.
Pfd., 12/1/99(c) 1,378,125
-----------
FOODS & BEVERAGES-1.6%
17,000 Ralston Purina Co., 7.00%
Exchangeable Notes, 12/1/00(b) 1,034,875
-----------
LEISURE & ENTERTAINMENT-2.2%
25,000 Premier Parks Inc., 7.50% Income
Equity Securities, 4/1/01(c) 1,406,250
-----------
Total Mandatory Convertible
Securities (Cost $5,275,282) 6,117,463
-----------
Common Stocks-12.2%
UTILITIES
45,000 American Electric Power Co., Inc. 2,148,750
50,000 New Century Energies Inc. 2,375,000
38,000 OGE Energy Corp. 2,087,625
43,000 Puget Sound Energy Inc. 1,131,437
-----------
Total Common Stocks
(Cost $4,733,197) 7,742,812
-----------
Principal Short-Term Corporate
Amount Notes-22.1% Value
- -------------------------------------------------------------------
$3,000,000 Aetna Services Inc., 5.55%,
5/5/98 $ 2,998,150
1,600,000 B.A.T. Capital Corp., 5.60%,
5/12/98 1,597,262
3,000,000 Cooperative Association of Tractor
Dealers Inc., 5.52%, 5/4/98 2,998,620
3,000,000 General Motors Acceptance
Corp., 5.49%, 5/5/98 2,998,170
360,000 Household Finance Corp., 5.49%,
5/6/98 359,726
1,850,000 Hydro-Quebec., 5.52%, 5/11/98 1,847,163
1,200,000 Merrill Lynch & Co., Inc., 5.51%,
5/7/98 1,198,898
-----------
Total Short-Term Corporate Notes
(Cost $13,997,989) 13,997,989
-----------
Total Investments
(Cost $56,107,623)(d) 99.1% 62,934,014
Other Assets in Excess of Liabilities .9 599,874
----------------------
Total Net Assets 100.0% $63,533,888
======================
- --------------------
<Fa> Pursuant to Securities and Exchange Commission Rule 144A, these
securities may be sold prior to their maturity only to qualified
institutional buyers.
<Fb> Exchangeable into common stock of Interstate Bakeries Corporation.
<Fc> These securities are required to be converted on the date listed; they
generally may be converted prior to this date at the option of the
holder.
<Fd> At April 30, 1998, the net unrealized appreciation on investments,
based on cost for federal income tax purposes of $56,107,623, amounted
to $6,826,391, which consisted of aggregate gross unrealized
appreciation of $7,440,991 and aggregate gross unrealized depreciation
of $614,600.
</TABLE>
--------------------
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $56,107,623), see accompanying
schedule of investments $62,934,014
Cash 45,007
Receivable for investment securities sold 440,833
Dividends and interest receivable 387,731
Prepaid expenses 11,547
-----------
Total Assets 63,819,132
LIABILITIES:
Payable for investment securities purchased $212,604
Investment advisory fees payable 39,620
Directors' fees payable 3,260
Accrued expenses 29,760
--------
Total Liabilities 285,244
-----------
NET ASSETS applicable to 2,236,003 outstanding shares of $0.01 par value
(10,000,000 shares authorized) $63,533,888
===========
NET ASSET VALUE PER SHARE $ 28.41
===========
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
STATEMENT OF OPERATIONS
For the six months ended April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $1,221,233
Dividends 680,647
----------
Total Income 1,901,880
Expenses:
Investment advisory fees-Note 2(a) $ 239,750
Shareholder reports 25,511
Directors' fees 19,836
Custodian and transfer agent fees 16,399
Professional fees 11,527
Bookkeeping fees 9,000
Miscellaneous 7,764
----------
Total Expenses 329,787
----------
NET INVESTMENT INCOME 1,572,093
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,057,756
Net change in unrealized depreciation on investments (349,587)
----------
Net realized and unrealized gain (loss) on investments 1,708,169
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,280,262
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
April 30, 1998 Year Ended
(Unaudited) October 31, 1997
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 1,572,093 $ 3,433,579
Net realized gain on investments 2,057,756 5,386,112
Net change in unrealized depreciation on investments (349,587) (730,772)
-------------------------------
Net increase in net assets resulting from operations 3,280,262 8,088,919
-------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (1,855,823) (3,577,609)
Net realized gains (5,142,806) (3,309,288)
-------------------------------
Total dividends (6,998,629) (6,886,897)
-------------------------------
Net increase (decrease) in net assets (3,718,367) 1,202,022
NET ASSETS:
Beginning of period 67,252,255 66,050,233
-------------------------------
End of period (including undistributed net investment income
of $351,914 and $635,644, respectively) $63,533,888 $67,252,255
===============================
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
Six Four
Months Months
Ended Year Ended October 31, Ended Year Ended June 30,
April 30, ----------------------------- October 31, -------------------
1998(i)(ii) 1997 1996 1995 1994(ii) 1994 1993
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 30.08 $ 29.54 $ 28.39 $ 25.77 $ 25.07 $ 27.29 $ 24.20
------------------------------------------------------------------------------
Net investment income .71 1.54 1.56 1.74 0.52 1.62 1.68
Net realized and unrealized gain
(loss) on investments .75 2.08 1.89 3.29 0.58 (1.60) 3.23
------------------------------------------------------------------------------
Total from investment operations 1.46 3.62 3.45 5.03 1.10 0.02 4.91
------------------------------------------------------------------------------
Dividends from net investment
income (0.83) (1.60) (1.59) (1.60) (0.40) (1.67) (1.82)
Distributions from net realized gains (2.30) (1.48) (0.71) (0.81) - (0.57) -
------------------------------------------------------------------------------
Total Distributions (3.13) (3.08) (2.30) (2.41) (0.40) (2.24) (1.82)
------------------------------------------------------------------------------
Net asset value, end of period $ 28.41 $ 30.08 $ 29.54 $ 28.39 $ 25.77 $ 25.07 $ 27.29
==============================================================================
Market value, end of period $ 25.44 $ 25.75 $ 25.38 $ 25.63 $ 24.38 $ 22.25 $ 26.50
==============================================================================
Total investment return based on
market value per share 10.61% 14.01% 8.14% 15.82% 11.28% (8.41%) 34.26%
==============================================================================
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) $63,534 $67,252 $66,050 $63,478 $57,207 $55,665 $60,365
==============================================================================
Ratio of expenses to average net
assets 1.03% 1.00% 1.03% 1.05% 1.04% 1.05% 1.06%
==============================================================================
Ratio of net investment income to
average net assets 4.92% 5.26% 5.44% 6.62% 6.02% 6.02% 6.50%
==============================================================================
Portfolio Turnover Rate 21.16% 57.58% 63.68% 52.80% 8.65% 29.38% 52.63%
==============================================================================
Average Commission Rate Paid $ .0692 $ .0693 $ .0703
===============================
- --------------------
<Fi> Unaudited.
<Fii> Ratios have been annualized; total investment return has not been
annualized.
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1-Summary of Significant Accounting Policies:
Castle Convertible Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as a diversified, closed-end management
investment company. The Fund's investment adviser is Fred Alger Management,
Inc. (the "Adviser").
Effective October 31, 1994, the Fund changed its fiscal year end from
June 30 to October 31.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
(a) Investment Valuation-Investments in securities are valued at 4:00 p.m.
Eastern time. Listed and unlisted securities for which such information is
regularly reported are valued at the last reported sales price or, in the
absence of reported sales, at the mean between the bid and asked price or,
in the absence of a recent bid or asked price, the equivalent as obtained
from one or more of the major market makers for the securities to be valued.
Securities for which market quotations are not readily available are valued
at fair value, as determined in good faith pursuant to procedures
established by the Board of Directors. Short-term corporate notes are valued
at amortized cost which approximates market value.
(b) Securities Transactions and Investment Income-Securities transactions
are recorded on a trade date basis. Realized gains and losses from
securities transactions are recorded on the basis of the first-in, first-out
method. Dividend income is recognized on the ex-dividend date and interest
income is recognized on the accrual basis.
(c) Dividends to Shareholders-Dividends payable to shareholders are recorded
by the Fund on the ex-dividend date. Dividends from net investment income
are declared and paid quarterly. Dividends from net realized gains are
declared and paid annually after the end of the fiscal year in which earned.
(d) Federal Income Taxes-It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including net
realized capital gains, to its shareholders. Therefore, no federal income
tax provision is required.
(e) Other-These financial statements have been prepared using estimates and
assumptions that affect the reported amounts therein. Actual results may
differ from those estimates.
NOTE 2-Investment Advisory Fees and Other Transactions with Affiliates:
(a) Investment Advisory Fees-Fees incurred by the Fund, pursuant to the
provisions of an Investment Advisory Contract (the "Contract") with the
Adviser, are payable monthly and computed at an annual rate of .75% based on
the Fund's average weekly net asset value.
The Contract further provides that if in any fiscal year the aggregate
expenses of the Fund (excluding interest, brokerage commissions, taxes and
extraordinary expenses) should exceed 1.5% of the first $30 million of
average net assets and 1.0% of the average net assets of the Fund over $30
million, the Adviser will reimburse the Fund for such excess expenses. For
the six months ended April 30, 1998, no reimbursement was required pursuant
to the Contract. For the six months ended April 30, 1998, the total
investment advisory fee charged to the Fund amounted to $239,750, and the
Adviser received $9,000 for bookkeeping services supplied to the Fund at
cost.
(b) Transfer Agent Fees-Alger Shareholder Services, Inc. ("Alger Services"),
an affiliate of the Adviser, serves as transfer agent for the Fund. During
the six months ended April 30, 1998, the Fund incurred fees of approximately
$7,600 for services provided by Alger Services and reimbursed Alger Services
approximately $1,300 for transfer agent related expenses paid by Alger
Services on behalf of the Fund.
(c) Directors' Fees-Certain directors and officers of the Fund are directors
and officers of the Adviser and Alger Services. The Fund pays each director
who is not affiliated with the Adviser or its affiliates an annual fee of
$8,000, payable quarterly, which is reduced proportionately by any meetings
not attended during the quarter.
(d) Other Transactions With Affiliates-At April 30, 1998, the Adviser and
its affiliates owned 318,756 shares of the Fund.
NOTE 3-Securities Transactions:
During the six months ended April 30, 1998, purchases and sales of
investment securities, excluding short-term securities, aggregated
$11,260,625 and $22,251,049, respectively.
NOTE 4-Components of Net Assets:
At April 30, 1998, the Fund's net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital $54,012,068
Undistributed net investment income 351,914
Undistributed net realized gain 2,343,515
Net unrealized appreciation 6,826,391
-----------
NET ASSETS $63,533,888
===========
</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
- --------------------------------------------------
Results of the Annual Meeting of Shareholders
The annual meeting of the shareholders of the Fund was held on December 9,
1997. The following matters were submitted to a shareholder vote and
approved:
(i) the reelection of the following directors of the Fund: Fred M. Alger,
David D. Alger, Lester L. Colbert, Jr., Arthur M. Dubow, Stephen E. O'Neil,
Nathan E. Saint-Amand, and John T. Sargent. Each of the directors reelected
received at least 1,917,378 affirmative votes and no more than 18,744 votes
were withheld for any director. There were 15,330 abstentions.
(ii) the ratification of the selection of Arthur Andersen LLP as the Fund's
independent public accountants for the fiscal year ending October 31, 1998:
For-1,920,285; Against-19,997; Abstain-16,348
(iii) the approval of the removal of an investment restriction of the Fund:
For-1,257,692; Against-65,637; Abstain-56,182.
- --------------------------------------------------
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. |
Semi-Annual Report
April 30, 1998
