Dear Shareholder:
The U.S. economy continues to generate robust growth, with first-
quarter GDP rising 4.1%. Increases in consumer spending and business
investment in technology accounted for most of the strength. Job growth
continued to be robust and the unemployment rate reached its lowest point
in three decades. Wage gains, while modest, exceeded the rate of inflation
and real personal income continued to climb. Employment gains and low
inflation contributed to buoyant consumer confidence and consumer spending
grew at a 6.8% annual rate in the first quarter, an acceleration from the
already strong spending trends of 1998. Low interest rates led to a boom in
mortgage refinancing and residential construction also posted strong gains.
There were also more and more signs that the global financial crisis is
abating and that the global economy is beginning to bottom out.
Yields on long-term U.S. Treasury bonds rose roughly 50 basis points
during the month of February before leveling off at 5.60% by month-end and
then remained unchanged through March and April. The stock market held
steady as interest rates climbed and then began to move up once the fixed-
income markets stabilized. In March, the Dow Jones Industrial Average broke
through the 10,000 mark several times in intra-day trading before finally
closing above that milestone at month-end. The market continued to build on
the earlier gains in April. The stock market advance created a favorable
backdrop for the convertible market. Castle Convertible Fund, we are
pleased to report, continued to make up for the ground lost in 1998.
The increase in long-term interest rates that has already occurred,
as well as a possible modest tightening by the Federal Reserve, should
cause the U.S. economy to slow to a more sustainable expansion rate in the
second half of the year. Because the outlook for moderating economic growth
should ensure that inflation remains low and interest rates steady, the
capital markets, in our opinion, will continue to reward investors in the
months ahead.
Respectfully submitted,
/s/David D. Alger
------------------------------
David D. Alger
President
June 22, 1999
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
April 30, 1999
<TABLE>
<CAPTION>
Principal Corporate Convertible
Amount Bonds-44.0% Value
- -----------------------------------------------------------------
<C> <S> <C>
COMMUNICATION EQUIPMENT-5.5%
$1,500,000 Bay Networks Inc., Cv. Sub. Deb.,
5.25%, 5/15/03 $ 1,539,375
500,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04(a) 520,000
1,200,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04 1,248,000
-----------
3,307,375
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-6.5%
250,000 Doubleclick Inc., Cv. Sub.
Notes, 4.75%, 3/15/06(a) 458,750
300,000 Mindspring Enterprises Inc.,
Cv. Sub. Notes, 5.00%, 4/15/06 314,625
1,500,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 1,393,125
1,250,000 Read-Rite Corporation, Cv. Sub.
Notes, 6.50%, 9/1/04 600,000
1,000,000 Wind River Systems Inc., Cv.
Sub. Notes, 5.00%, 8/1/02 1,068,750
-----------
3,835,250
-----------
HEALTH CARE-5.2%
1,700,000 Cetus Corp., Cv. Euro, 5.25%,
5/21/02 1,697,875
1,500,000 Omnicare Inc., Cv. Sub.
Deb., 5.00%, 12/1/07 1,361,250
-----------
3,059,125
-----------
LEISURE & ENTERTAINMENT-2.2%
850,000 Speedway Motorsport, Inc., Cv.
Sub. Deb., 5.75%, 9/30/03 1,292,000
-----------
MANUFACTURING-2.1%
1,250,000 Quanex Corp., Cv. Sub. Deb.,
6.88%, 6/30/07 1,250,000
-----------
PRINTING-5.1%
1,695,000 Scholastic Corp., Cv. Sub.
Notes, 5.00%, 8/15/05(a) 1,608,130
1,400,000 World Color Press Inc., Cv. Sub.
Notes, 6.00%, 10/1/07 1,426,250
-----------
3,034,380
-----------
REAL ESTATE-1.7%
1,000,000 Developers Diversified Realty Corp.,
Cv. Sub. Deb., 7.00%, 8/15/99 1,005,000
-----------
RESTAURANTS & LODGING-1.9%
1,500,000 CKE Restaurants, Inc., Cv. Sub.
Notes, 4.25%, 3/15/04 1,125,000
-----------
RETAILING-9.2%
1,250,000 Amazon.com Inc., Sr. Cv. Sub.
Notes, 4.75%, 2/1/09(a) 1,598,437
1,500,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,261,875
1,500,000 Michaels Stores Inc., Cv. Sub.
Deb., 6.75%, 1/15/03 1,378,125
1,500,000 Sunglass Hut Inc., Cv. Sub.
Notes, 5.25%, 6/15/03 1,222,500
-----------
5,460,937
-----------
SEMICONDUCTORS-4.6%
$1,400,000 Micron Technology, Inc., Cv. Sub.
Notes, 7.00%, 7/1/04 $ 1,396,500
1,250,000 Photronics Inc., Cv. Sub. Notes,
6.00%, 6/1/04 1,371,875
-----------
2,768,375
-----------
Total Corporate Convertible Bonds
(Cost $25,648,569) 26,137,442
-----------
<CAPTION>
Convertible Preferred
Shares Securities-32.3%
- -----------------------------------------------------------------
<C> <S> <C>
AEROSPACE & AIRLINES-1.8%
22,000 Coltec Capital Trust, 5.25% Cv.
Pfd.(a) 1,067,000
-----------
BUILDING & CONSTRUCTION-2.4%
30,000 Owens Corning Capital LLC,
$3.25 Monthly Income Pfd.(a) 1,406,250
-----------
ENERGY-7.4%
35,000 Devon Financing Trust, $3.25 Cv.
Pfd. 2,047,500
40,000 Unocal Capital Trust II, 6.25%
Cv. Pfd. 2,320,000
-----------
4,367,500
-----------
FINANCIAL SERVICES-3.4%
80,000 CNB Capital Trust I, 6.00% Cv.
Pfd. 2,020,000
-----------
LEISURE & ENTERTAINMENT-1.9%
10,000 Royal Caribbean Cruises Limited,
$3.625 Cv. Pfd. A 1,148,750
-----------
PACKAGING PRODUCTS-2.9%
9,000 International Paper Capital Trust
5.25% Cv. Pfd. 489,375
30,000 Owens-Illinois, Inc., $ 2.375 Cv.
Pfd. Class A 1,222,500
-----------
1,711,875
-----------
RAILROADS-2.3%
25,000 Union Pacific Capital Trust
6.25%, Cv. Pfd. 1,362,500
-----------
RAW MATERIALS-1.8%
20,000 Bethlehem Steel Corporation,
$5.00 Cum. Pfd. 1,092,500
-----------
REAL ESTATE-1.8%
40,000 Prologis Trust, 7.00%, Cv. Pfd. B 1,075,000
-----------
RETAILING-.9%
10,000 Kmart Financing Trust I, $3.875
Cv. Pfd. 561,875
-----------
UTILITIES-5.7%
30,000 AES Trust II, $2.75 Cv. Pfd.,
Series B 1,582,500
35,000 El Paso Energy Capital Trust I,
Cv. Pfd. CLC, 4.75% 1,802,500
-----------
3,385,000
-----------
Total Convertible Preferred
Securities (Cost $17,984,851) 19,198,250
-----------
<CAPTION>
Mandatory Convertible
Shares Securities-8.7%
- -----------------------------------------------------------------
<C> <S> <C>
LEISURE & ENTERTAINMENT-2.1%
20,000 Premier Parks Inc., 7.50% Income
Equity Securities, 4/1/01(b) $ 1,270,000
-----------
RETAILING-3.6%
13,000 CVS Automatic Common
Exchange Security Trust,
$4.23, 5/15/01(b) 1,105,813
25,000 Dollar General STRYPES Trust,
$3.352, 5/15/01(b) 1,025,000
-----------
2,130,813
-----------
UTILITIES-3.0%
35,000 NISOURCE Inc., 7.75% Premium
Income Equity Securities,
2/19/03(b) 1,776,250
-----------
Total Mandatory Convertible
Securities (Cost $4,779,660) 5,177,063
-----------
<CAPTION>
Shares Common Stocks-8.5% Value
- -----------------------------------------------------------------
<C> <S> <C>
UTILITIES
28,000 American Electric Power Co., Inc. $ 1,160,250
28,000 New Century Energies Inc. 980,000
50,000 OGE Energy Corp. 1,184,375
68,000 Puget Sound Energy Inc. 1,678,750
-----------
Total Common Stocks
(Cost $3,999,147) 5,003,375
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes-5.5%
- -----------------------------------------------------------------
<C> <S> <C>
$ 850,000 Florida Power Corp.,
4.77%, 5/6/99 849,437
1,100,000 General Motors Acceptance
Corp., 4.80%, 5/10/99 1,098,680
1,300,000 National Australia Funding, Inc.,
4.77%, 5/13/99 1,297,933
-----------
Total Short-Term Corporate Notes
(Cost $3,246,050) 3,246,050
-----------
Total Investments
(Cost $55,658,277)(c) 99.0% 58,762,180
Other Assets in Excess of Liabilities 1.0 593,573
-----------------------
Total Net Assets 100.0% $59,355,753
=======================
<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.
<Fc> At April 30, 1999, the net unrealized appreciation on investments,
based on cost for federal income tax purposes of $55,658,277,
amounted to $3,103,903, which consisted of aggregate gross unrealized
appreciation of $4,475,969 and aggregate gross unrealized
depreciation of $1,372,066.
</FN>
</TABLE>
-------------------
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $55,658,277), see accompanying
schedule of investments $58,762,180
Cash 74,203
Dividends and interest receivable 612,946
-----------
Total Assets 59,449,329
LIABILITIES:
Investment advisory fees payable $35,825
Directors' fees payable 3,260
Accrued expenses 54,491
-------
Total Liabilities 93,576
-----------
NET ASSETS applicable to 2,236,003 outstanding shares of $0.01 par value
(10,000,000 shares authorized) $59,355,753
-----------
NET ASSET VALUE PER SHARE $ 26.55
===========
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
STATEMENT OF OPERATIONS
For the six months ended April 30, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 830,790
Dividends 964,622
-----------
Total Income 1,795,412
Expenses:
Investment advisory fees-Note 2(a) $ 216,191
Shareholder reports 22,111
Directors' fees 19,836
Custodian and transfer agent fees 13,999
Professional fees 9,438
Bookkeeping fees 9,000
Miscellaneous 13,837
-----------
Total Expenses 304,412
NET INVESTMENT INCOME 1,491,000
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,703,512
Net change in unrealized appreciation on investments 1,435,092
Net realized and unrealized gain (loss) on investments 3,138,604
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,629,604
===========
STATEMENTS OF CHANGES IN NET ASSETS
Six Months Ended
April 30, 1999 Year Ended
Unaudited) October 31, 1998
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Net investment income $ 1,491,000 $ 3,107,464
Net realized gain on investments 1,703,512 248,589
Net change in unrealized appreciation (depreciation) on investments 1,435,092 (5,507,167)
------------------------------
Net increase (decrease) in net assets resulting from operations 4,629,604 (2,151,114)
------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (1,788,802) (3,331,584)
Net realized gains (111,800) (5,142,806)
------------------------------
Total dividends (1,900,602) (8,474,390)
------------------------------
Net increase (decrease) in net assets 2,729,002 (10,625,504)
NET ASSETS:
Beginning of period 56,626,751 67,252,255
------------------------------
End of period (including undistributed net investment income of $113,722
and $411,524, respectively) $59,355,753 $56,626,751
==============================
</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
April 30, ---------------------------------- October 31, June 30,
1999(i)(ii) 1998 1997 1996 1995 1994(ii) 1994
----------- ---- ---- ---- ---- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $25.32 $30.08 $29.54 $28.39 $25.77 $25.07 $27.29
------------------------------------------------------------------------
Net investment income 0.67 1.39 1.54 1.56 1.74 0.52 1.62
Net realized and unrealized gain
(loss) on investments 1.41 (2.36) 2.08 1.89 3.29 0.58 (1.60)
------------------------------------------------------------------------
Total from investment operations 2.08 (0.97) 3.62 3.45 5.03 1.10 0.02
------------------------------------------------------------------------
Dividends from net investment income (0.80) (1.49) (1.60) (1.59) (1.60) (0.40) (1.67)
Distributions from net realized gains (0.05) (2.30) (1.48) (0.71) (0.81) - (0.57)
------------------------------------------------------------------------
Total Distributions (0.85) (3.79) (3.08) (2.30) (2.41) (0.40) (2.24)
------------------------------------------------------------------------
Net asset value, end of period $26.55 $25.32 $30.08 $29.54 $28.39 $25.77 $25.07
========================================================================
Market value, end of period $21.75 $22.75 $25.75 $25.38 $25.63 $24.38 $22.25
========================================================================
Total investment return based on
market value per share (0.75%) 1.66% 14.01% 8.14% 15.82% 11.28% (8.41%)
========================================================================
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) $59,356 $56,627 $67,252 $66,050 $63,478 $57,207 $55,665
=========================================================================
Ratio of expenses to average net
assets 1.06% 1.04% 1.00% 1.03% 1.05% 1.04% 1.05%
========================================================================
Ratio of net investment income to
average net assets 5.18% 5.00% 5.26% 5.44% 6.62% 6.02% 6.02%
========================================================================
Portfolio Turnover Rate 29.79% 52.99% 57.58% 63.68% 52.80% 8.65% 29.38%
========================================================================
<FN>
- --------------------
<Fi> Unaudited.
<Fii> Ratios have been annualized; total investment return has not been
annualized.
</FN>
</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. Distributions 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, 1999, no reimbursement was
required pursuant to the Contract. For the six months ended April 30, 1999,
the total investment advisory fee charged to the Fund amounted to $216,191,
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, 1999, the Fund incurred fees of
approximately $3,900 for services provided by Alger Services and reimbursed
Alger Services approximately $1,100 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, 1999, the Adviser and
its affiliates owned 420,426 shares of the Fund.
NOTE 3-Securities Transactions:
During the six months ended April 30, 1999, purchases and sales of
investment securities, excluding short-term securities, aggregated
$22,589,763 and $15,346,350, respectively.
NOTE 4-Components of Net Assets:
At April 30, 1999, the Fund's net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital $54,012,068
Undistributed net investment income 113,722
Undistributed net realized gain 2,126,060
Net unrealized appreciation 3,103,903
-----------
NET ASSETS $59,355,753
===========
</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
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
- ---------------------------------------------------------------------------
Results of the Annual Meeting of Shareholders
The annual meeting of the shareholders of the Fund was held on December 8,
1998. 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 1,908,538 affirmative votes and no more than 40,592 votes
were withheld for any director. There were 11,182 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, 1999:
For-1,909,043; Against-14,161; Abstain-34,170
- ---------------------------------------------------------------------------
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 |Metting the challenge
FUND, |of investing
INC. |
Semi-Annual Report
April 30, 1999
