Dear Shareholder:
The U.S. economy turned in another outstanding performance in 1998-
the third year in a row that Gross Domestic Product (GDP) grew in excess of
3%. The continued strength in the economy was largely due to the buoyant
consumer sector. The strength in consumer spending reflects the highly
positive economic fundamentals of strong employment gains, modest inflation
and low interest rates. The rise in equity share prices also bolstered
consumers' positive views of the economy and contributed to current levels
of spending. This favorable economic climate should carry into 1999, but we
expect the rate of growth to moderate. Demand for business and consumer
services remains strong, so we expect the service sector, which is less
exposed to the pressures from overseas economic forces and inherently more
stable than the goods-producing sector, will continue to expand. We
believe that American manufacturers will face another difficult year since
demand for U.S. exports will remain weak. Much of Asia is still in
recession, growth in Europe is slowing, and Latin America is experiencing
rapid deterioration in economic growth. Under-used production capacity as
well as pressure on domestic profit margins could rein in the rapid growth
in capital spending. Since the outlook for inflation remains quite
favorable, we expect interest rates to remain steady.
The panic that engulfed the financial markets during the summer of
1998 began to subside in the fall as policy makers began to ease monetary
policy and restore liquidity to the credit markets. Investors became less
averse to risk and credit spreads, or the difference between the yield on
corporate bonds and risk-free U.S. Treasury securities started to narrow.
The U.S. stock market also rebounded. Advances by the underlying common
stocks, together with the narrowing of credit spreads, contributed to gains
in the convertible market. Castle regained some of the ground lost during
the summer months. For the three months ended January 31, the Fund produced
a total return of 5.57%, on a NAV basis. The outlook for moderate economic
growth in the U.S., low inflation, and steady interest rates, in our view
should form the backdrop for stable fixed-income markets and further
advances in the stock market. We expect Castle will continue to build on
the gains achieved in the first fiscal quarter.
Respectfully submitted,
/s/ David D. Alger
David D. Alger
President
March 11, 1999
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
January 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Corporate Convertible Bonds-36.2% Value
- --------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATION EQUIPMENT-5.8%
$1,500,000 Bay Networks Inc., Cv. Sub. Deb.,
5.25%, 5/15/03 $ 1,627,500
500,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04(a) 521,875
1,200,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04 1,252,500
-----------
3,401,875
-----------
COMPUTER RELATED & BUSINESS EQUIPMENT-6.0%
1,500,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 1,483,125
1,250,000 Read-Rite Corporation, Cv. Sub.
Notes, 6.50%, 9/1/04 992,188
1,000,000 Wind River Systems Inc., Cv.
Sub. Notes, 5.00%, 8/1/02 1,005,000
-----------
3,480,313
-----------
CONSUMER PRODUCTS & SERVICES-.8%
538,000 Fieldcrest Cannon Inc., Cv. Sub.
Deb., 6.00%, 3/15/12 446,540
-----------
HEALTH CARE-.5%
400,000 NeXstar Pharmaceuticals, Inc., Cv.
Sub. Deb., 6.25%, 8/1/04(a) 306,000
-----------
MANUFACTURING-2.0%
1,250,000 Quanex Corp., Cv. Sub. Deb., 6.88%, 6/30/07 1,159,375
-----------
METALS-2.0%
1,310,000 Inco Limited, Cv. Sub. Deb., 7.75%, 3/15/16 1,193,736
-----------
PRINTING-4.0%
1,000,000 Scholastic Corp., Cv. Sub.
Notes, 5.00%, 8/15/05(a) 980,000
1,400,000 World Color Press Inc., Cv. Sub.
Notes, 6.00%, 10/1/07 1,344,000
-----------
2,324,000
-----------
REAL ESTATE-1.7%
1,000,000 Developers Diversified Realty Corp.,
Cv. Sub. Deb., 7.00%, 8/15/99 1,020,000
-----------
RESTAURANTS & LODGING-2.1%
1,500,000 CKE Restaurants, Inc., Cv. Sub.
Notes, 4.25%, 3/15/04 1,246,875
-----------
RETAILING-6.1%
800,000 Baker (J.) Inc., Cv. Sub. Notes, 7.00%, 6/1/02 606,000
1,000,000 Genesco Inc., Cv. Sub. Notes, 5.50%, 4/15/05(a) 715,000
1,500,000 Michaels Stores Inc., Cv. Sub.
Deb., 6.75%, 1/15/03 1,327,500
1,200,000 Sunglass Hut Inc., Cv. Sub.
Notes, 5.25%, 6/15/03 924,000
-----------
3,572,500
-----------
SEMICONDUCTORS-5.2%
1,400,000 Micron Technology, Inc., Cv. Sub.
Notes, 7.00%, 7/1/04 1,842,750
750,000 National Semiconductor, Cv. Sub.
Notes, 6.50%, 10/1/02(a) 646,875
500,000 Photronics Inc., Cv. Sub. Notes, 6.00%, 6/1/04 560,000
-----------
3,049,625
-----------
Total Corporate Convertible Bonds
(Cost $21,638,106) 21,200,839
-----------
Shares Convertible Preferred Securities-33.3%
- ----------
AEROSPACE & AIRLINES-1.6%
22,000 Coltec Capital Trust, 5.25% Cv. Pfd.(a) 946,000
-----------
BROADCASTING-1.3%
15,000 Sinclair Broadcast Group, Inc.,
$3.00 Cv. Pfd., Series D. 735,000
-----------
BUILDING & CONSTRUCTION-2.5%
30,000 Owens Corning Capital LLC,
$3.25 Monthly Income Pfd.(a) 1,490,250
-----------
COMMUNICATION EQUIPMENT-2.6%
20,100 Corning Inc., $3.00 Cv. Monthly Income Pfd. 1,501,218
-----------
ENERGY-10.0%
30,000 AES Trust II, $2.75 Cv. Pfd., Series B 1,342,500
25,000 Devon Financing Trust, $3.25 Cv. Pfd. 1,262,500
30,000 El Paso Energy Trust I, Cv. Pfd. 1,440,000
40,000 Unocal Capital Trust II, 6.25% Cv. Pfd. 1,830,000
-----------
5,875000
-----------
FINANCIAL SERVICES-3.6%
80,000 CNB Capital Trust I, 6.00% Cv. Pfd. 2,125,000
-----------
FOODS & BEVERAGES-2.2%
15,000 Suiza CapitalTrust II, 5.50% Cv. Pfd.(a) 551,250
20,000 Suiza CapitalTrust II, 5.50% Cv. Pfd. 735,000
-----------
1,286,250
-----------
LEISURE & ENTERTAINMENT-2.5%
12,000 Royal Caribbean Cruises Limited,
$3.625 Cv. Pfd. A 1,474,500
-----------
PACKAGING PRODUCTS-2.1%
30,000 Owens-Illinois, Inc., $2.375 Cv. Pfd. Class A 1,260,000
-----------
RAW MATERIALS-1.9%
20,000 Bethlehem Steel Corporation, $5.00 Cum. Pfd. 1,086,250
-----------
RETAILING-1.1%
10,000 Kmart Financing Trust I, $3.875 Cv. Pfd. 627,500
-----------
REAL ESTATE-1.9%
40,000 Prologis Trust, 7.00%, Cv. Pfd. B 1,087,500
-----------
Total Convertible Preferred
Securities (Cost $18,997,374) 19,494,468
-----------
Shares Mandatory Convertible Securities-7.8% Value
- --------------------------------------------------------------------------
FOODS & BEVERAGES-1.4%
17,000 Ralston Purina Co., 7.00%
Exchangeable Notes, 12/1/00(b) $ 845,750
-----------
LEISURE & ENTERTAINMENT-2.6%
25,000 Premier Parks Inc., 7.50% Income
Equity Securities, 4/1/01(c) 1,500,000
-----------
RETAILING-3.8%
13,000 CVS Automatic Common Exchange
Security Trust, $4.23, 5/15/01(c) 1,254,500
25,000 Dollar General STRYPES Trust,
$3.352, 5/15/01(c) 950,000
-----------
2,204,500
-----------
Total Mandatory Convertible
Securities (Cost $4,352,322) 4,550,250
-----------
Common Stocks-11.9%
UTILITIES
40,000 American Electric Power Co., Inc. 1,752,500
40,000 New Century Energies Inc. 1,760,000
70,000 OGE Energy Corp. 1,771,875
68,000 Puget Sound Energy Inc. 1,712,750
-----------
Total Common Stocks
(Cost $4,945,919) 6,997,125
-----------
Principal
Amount Short-Term Corporate Notes-12.1% Value
- --------------------------------------------------------------------------
$ 350,000 Ameritech Corp., 4.78%, 2/4/99 $ 349,396
2,575,000 Banque Generale du Luxembourg, 4.81%, 2/12/99 2,570,183
200,000 Cooperative Association of Tractor
Dealers, Inc.,4.87%, 2/8/99 199,621
160,000 Metropolitan Funding Corp., 4.80%, 2/5/99 159,680
625,000 Merrill Lynch & Co., Inc., 4.84%, 2/9/99 623,824
900,000 Republic Industries Funding
Corp., 4.87%, 2/3/99 898,296
2,300,000 USA Group Secondary Marketing
Services Inc., 4.78%, 2/1/99 2,298,778
-----------
Total Short-Term Corporate Notes
(Cost $7,099,778) 7,099,778
-----------
Total Investments (Cost $57,033,499) 101.3 % 59,342,460
Liabilities in Excess of Other Assets (1.3) (747,952)
-------------------------
Total Net Assets 100.0 % $58,594,508
=========================
Net Asset Value Per Share $ 26.21
==========
- --------------------
<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.
</TABLE>
CASTLE CONVERTIBLE FUND, INC.
SUMMARY OF OPERATIONS
For the three months ended January 31, 1999 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 451,622
Interest 403,356
----------
Total Income 854,978
Total Expenses 149,008
----------
NET INVESTMENT INCOME 705,970
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments $1,784,359
Net change in unrealized appreciation of investments 640,150
----------
Net realized and unrealized gain on investments 2,424,509
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,130,479
==========
</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
- ---------------------------------------------------------------------------
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
January 31, 1999
