Dear Shareholder:
The U.S. economy continues to generate strong growth, with continued gains
in employment and robust domestic demand for goods and services. At the same
time, prospects for the global economy are improving. Europe is gaining
strength while Japan, the main economic engine for Asia, appears to have
stabilized and may be starting to expand. Many of the emerging economies in
the region have begun to produce positive economic growth. Although several
countries in Latin America are experiencing recessions and financial
dislocations, the region's downturn does not appear to be as severe as first
feared. The financial difficulties in Latin America have not have spread to
other parts of the world. That suggests that the crisis that engulfed the
financial markets one year ago has begun to abate.
Improving conditions overseas, in our view, is one factor contributing to
the recent weakness in the foreign exchange value of the U.S. dollar. While
the decline in the dollar is too recent and too modest to have had an impact
on import prices, investors now face the worry that continuing weakness in
the dollar could eventually result in rising import prices which, in turn,
could cause domestic inflation to climb. Furthermore, oil production has
dropped, excess supplies have dwindled, and oil prices have rebounded from
the lows of last year. Because of the rise in gasoline and other petroleum
products, the rate of inflation as measured by the Consumer Price Index has
begun to accelerate. It is important to note, however, that once food and
energy prices are excluded, consumer price inflation remains very tame. It
was in response to all of these trends, that the Federal Reserve acted to
slow down the U.S. economy in order to forestall a rise in the rate of
inflation and raised short-term interest rates at the end of June and again
in August.
These trends have resulted in months of unsettled trading in the financial
markets. The yield on the benchmark 30-year Treasury bond rose almost 100
basis points from 5% at the end of 1998 to 6% by early June. Since then
long-term interest rates have oscillated between 5.9% and 6.2%. The stock
market, after a strong start to the year, entered a narrow trading range in
the third fiscal quarter, with the Dow Jones Industrial Average trading
between 10,500 and 11,500. Despite the choppy financial market conditions,
Castle Convertible Fund gained ground during the summer, producing a
positive total return for the third fiscal quarter ended July 31st.
Respectfully submitted,
/s/ David D. Alger
-----------------------
David D. Alger
President
September 17, 1999
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
July 31, 1999
<TABLE>
<CAPTION>
Principal Corporate Convertible
Amount Bonds-36.1% Value
- ---------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS-1.1%
$ 500,000 Nextel Communications Inc.,
Sr. Notes, 4.75%, 7/1/07(a) $ 643,125
-----------
COMMUNICATION EQUIPMENT-3.0%
500,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04(a) 517,493
1,200,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04 1,241,982
-----------
1,759,475
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-3.2%
250,000 Doubleclick Inc., Cv. Sub.
Notes, 4.75%, 3/15/06(a) 280,313
300,000 Mindspring Enterprises Inc.,
Cv. Sub. Notes, 5.00%, 4/15/06 241,687
1,500,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 1,385,625
-----------
1,907,625
-----------
HEALTH CARE-5.0%
900,000 Alpharma Inc., Cv. Sub. Notes, 5.75%, 4/1/05 1,273,500
1,700,000 Cetus Corp., Cv. Euro, 5.25%, 5/21/02 1,700,000
-----------
2,973,500
-----------
LEISURE & ENTERTAINMENT-2.0%
850,000 Speedway Motorsport, Inc., Cv.
Sub. Deb., 5.75%, 9/30/03 1,200,625
-----------
MANUFACTURING-2.2%
1,250,000 Quanex Corp., Cv. Sub. Deb., 6.88%, 6/30/07 1,278,125
-----------
PRINTING-4.2%
1,695,000 Scholastic Corp., Cv. Sub.
Notes, 5.00%, 8/15/05(a) 1,561,519
900,000 World Color Press Inc., Cv. Sub.
Notes, 6.00%, 10/1/07 922,500
-----------
2,484,019
-----------
REAL ESTATE-1.7%
1,000,000 Developers Diversified Realty Corp.,
Cv. Sub. Deb., 7.00%, 8/15/99 1,005,000
-----------
RETAILING-8.4%
1,250,000 Amazon.com Inc., Sr. Cv. Sub.
Notes, 4.75%, 2/1/09(a) 1,021,875
1,500,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,260,938
1,500,000 Michaels Stores Inc., Cv. Sub.
Deb., 6.75%, 1/15/03 1,473,750
1,500,000 Sunglass Hut Inc., Cv. Sub.
Notes, 5.25%, 6/15/03 1,235,625
-----------
4,992,188
-----------
SEMICONDUCTORS-5.3%
1,400,000 Micron Technology, Inc., Cv. Sub.
Notes, 7.00%, 7/1/04 1,638,000
1,250,000 Photronics Inc., Cv. Sub. Notes,
6.00%, 6/1/04 1,482,031
-----------
3,120,031
-----------
Total Corporate Convertible Bonds
(Cost $20,417,785) 21,363,713
-----------
<CAPTION>
Convertible Preferred
Shares Securities-40.7% Value
- ---------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE & AIRLINES-1.8%
22,000 Coltec Capital Trust, 5.25%, Cv. Pfd.(a) $ 1,089,000
-----------
BUILDING & CONSTRUCTION-4.2%
30,000 Owens Corning Capital LLC,
$3.25 Monthly Income Pfd.(a) 1,378,125
30,000 TXI Capital Trust I, 5.50%, Cv. Pfd. 1,117,500
-----------
2,495,625
-----------
CHEMICALS & PHARMACEUTICALS-3.0%
1,800 Hercules Trust II, 6.50%, Cv. Pfd.
(Crest Units) 1,780,200
-----------
ENERGY-7.4%
35,000 Devon Financing Trust, $3.25, Cv. Pfd. 2,161,250
40,000 Unocal Capital Trust II, 6.25%, Cv. Pfd. 2,230,000
-----------
4,391,250
-----------
FINANCIAL SERVICES-3.1%
60,000 CNB Capital Trust I, 6.00%, Cv. Pfd. 1,815,000
-----------
FOODS & BEVERAGES-1.7%
30,000 Suiza Capital Trust II, 5.50%, Cv. Pfd. 1,003,125
-----------
LEISURE & ENTERTAINMENT-2.5%
10,000 Royal Caribbean Cruises Limited,
$3.625 Cv. Pfd. A 1,460,000
-----------
PACKAGING PRODUCTS-2.7%
9,000 International Paper Capital Trust,
5.25%, Cv. Pfd. 480,375
30,000 Owens-Illinois, Inc., $2.375, Cv. Pfd. Class A 1,151,250
-----------
1,631,625
-----------
RAILROADS-2.1%
25,000 Union Pacific Capital Trust, 6.25%, Cv. Pfd. 1,231,250
-----------
RAW MATERIALS-1.8%
20,000 Bethlehem Steel Corporation, $5.00, Cum. Pfd. 1,065,000
-----------
REAL ESTATE-1.7%
40,000 Prologis Trust, 7.00%, Cv. Pfd. B 985,000
-----------
RETAILING-.9%
10,000 Kmart Financing Trust I, $3.875, Cv. Pfd. 543,750
-----------
TRANSPORTATION-1.3%
14,000 Canadian National Railway Co., 5.25%, Cv. Pfd. 756,000
-----------
UTILITIES-4.8%
20,000 AES Trust II, $2.75 Cv. Pfd., Series B 1,150,000
35,000 El Paso Energy Capital Trust I,
4.75%, Cv. Pfd. C 1,728,125
-----------
2,878,125
-----------
MISCELLANEOUS-1.7%
20,000 Carriage Services Capital Trust,
Cv. Pfd. 7.00%(a) 1,010,000
-----------
Total Convertible Preferred
Securities (Cost $22,709,152) 24,134,950
-----------
Mandatory Convertible Securities-9.1%
ENERGY-.7%
10,000 Apache Corp., Conversion Pfd.
Series C, 5/15/02(b) 387,500
-----------
LEISURE & ENTERTAINMENT-2.4%
20,000 Premier Parks Inc., 7.50% Income
Equity Securities, 4/1/01(b) 1,400,000
-----------
RETAILING-3.2%
10,000 CVS Automatic Common Exchange Security Trust,
$4.23, 5/15/01(b) 894,375
25,000 Dollar General STRYPES Trust,
$3.352, 5/15/01(b) 1,035,938
-----------
1,930,313
-----------
UTILITIES-2.8%
35,000 NISOURCE Inc., 7.75% Premium
Income Equity Securities, 2/19/03(b) 1,680,000
-----------
Total Mandatory Convertible
Securities (Cost $4,877,200) 5,397,813
-----------
<CAPTION>
Shares Common Stocks-8.0% Value
- ---------------------------------------------------------------------------
<S> <C> <C>
UTILITIES
28,000 American Electric Power Co., Inc. $ 990,500
28,000 New Century Energies Inc. 971,250
50,000 OGE Energy Corp. 1,184,375
68,000 Puget Sound Energy Inc. 1,585,250
-----------
Total Common Stocks
(Cost $3,999,147) 4,731,375
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes-5.3%
- ---------------------------------------------------------------------------
<S> <C> <C>
$ 680,000 Accor, 5.09%, 8/6/99 678,269
1,200,000 GTE Funding Inc., 5.08%, 8/18/99 1,196,613
1,300,000 Toys 'R' Us Inc., 5.13%, 8/17/99 1,296,295
-----------
Total Short-Term Corporate Notes
(Cost $3,171,177) 3,171,177
-----------
Total Investments (Cost $55,174,461) 99.2% 58,799,028
Other Assets in Excess of Liabilities .8 444,821
---------------------
Total Net Assets 100.0% $59,243,849
=====================
Net Asset Value Per Share $ 26.50
===========
<FN>
- --------------------
<Fa> Pursuant to Securities and Exchange Commission Rule 144A, these
securities may be sold prior to their maturity only to qualified
institutional buyers.
<Fb> 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.
</FN>
</TABLE>
--------------------
CASTLE CONVERTIBLE FUND, INC.
SUMMARY OF OPERATIONS
For the nine months ended July 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $1,419,000
Interest 1,219,974
----------
Total Income 2,638,974
Total Expenses 454,393
----------
NET INVESTMENT INCOME 2,184,581
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments $1,115,244
Net change in unrealized appreciation on investments 1,955,756
----------
Net realized and unrealized gain (loss) on investments 3,071,000
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $5,255,581
==========
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
B. Joseph White
- ---------------------------------------------------------------------------
Investment Adviser
Fred Alger Management, Inc.
1 World Trade Center
Suite 9333
New York, N.Y. 10048
- ---------------------------------------------------------------------------
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, 1999
</TABLE>
