Dear Shareholder:
At the start of the new year, investors continued to favor stocks of high-
technology companies and to shun old-economy companies. By the end of
February, the divergence had become startlingly large. The Nasdaq
Composite, which is heavily weighted in technology companies, had gained
12.5% while the S&P 500 and the Dow Jones Industrial Average had lost 8.2%
and 12.7%, respectively. Early in March, the Nasdaq closed over 5,000 for
the first time. In March, the Nasdaq consolidated its massive gains and the
broader market began to make up for earlier losses. At the same time,
however, stock market volatility was becoming more and more pronounced, as
the debate over stock price valuations intensified and the Federal Reserve
continued its campaign to rein in the economy by raising short-term
interest rates in February and again in March. The volatility became even
more severe in April. For example, on April 4th the Nasdaq Composite
suffered a ferocious intraday fall of 13.6% before staging a strong rally.
In mid-April, an unexpectedly negative report for the Consumer Price Index
changed the terms of the debate. Until that point, the Federal Reserve's
actions had been seen as preemptory steps to avoid a pickup in inflation.
Now, investors confronted the possibility that inflation had already begun
to accelerate and even more aggressive actions by the Federal Reserve might
now be needed to bring it under control. These concerns touched off a wave
of selling. The Nasdaq Composite plunged during the week ended April 14th.
The 25.3% decline, a record for any given week, brought the drop from the
high recorded on March 10th to 37%. The decline also swamped the broader
market. For the remainder of the month and well into May, the market
continued to be buffeted by extreme volatility as investors waded through
earnings reports and examined new reports about the state of the economy.
With little sign of an economic slowdown, the Federal Reserve's decision to
raise interest rates by 50 basis points at the end of May came as no real
surprise.
Small and mid-cap growth companies have always used convertible securities
as a means of raising capital. Recently, companies in the
telecommunication, semiconductor, Internet, and bio-technology industries
have been the predominant issuers of convertible securities. As a result,
not surprisingly, the convertible market is heavily weighted in favor of
technology and often moves in step with the Nasdaq Composite. This has
certainly been the case so far in 2000. After a rapid ascent in January and
February, the convertible market came under the same downward pressures
seen in the Nasdaq. By the end of April, the convertible market had given
up most of its gains for the year. Because Castle Convertible's main
investment objective is producing current income, its holdings tend to be
convertibles with higher yields and lower volatility than the convertible
market in general. Its portfolio, as a result, has held its ground during
the current market tumult.
We believe that upcoming reports will show that the pace of economic growth
has begun to moderate and we do not anticipate many more rounds of interest
rate hikes. We have seen evidence of a slowing economy, and anticipate
quiescent inflation which will help calm the markets.
Respectfully submitted,
/s/ David D. Alger
------------------------
David D. Alger
President
May 30, 2000
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
April 30, 2000
<TABLE>
<CAPTION>
Principal Corporate Convertible
Amount Bonds-37.7% Value
-------------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES-.6%
$ 500,000 Getty Images Inc., Cv.
Sub. Deb., 5.00%, 3/15/07(a) $ 368,750
-----------
COMMUNICATIONS-9.0%
250,000 CommScope, Inc., Cv.
Sub. Notes, 4.00%, 12/15/06(a) 310,000
50,000 CommScope, Inc., Cv.
Sub. Notes, 4.00%, 12/15/06 62,000
600,000 Digital Island, Inc., Cv.
Sub. Notes, 6.00%, 2/15/05 372,375
500,000 DSC Communications
Corporation, Cv.
Sub. Notes, 7.00%, 8/1/04(a) 536,875
1,200,000 DSC Communications
Corporation, Cv.
Sub. Notes, 7.00%, 8/1/04 1,288,500
500,000 Efficient Networks, Inc., Cv.
Sub. Notes, 5.00%, 3/15/05(a) 333,125
750,000 Exodus Communications, Inc., Cv.
Sub. Notes, 4.75%, 7/15/08(a) 1,045,313
1,250,000 Nextel Communications, Inc., Cv.
Sr. Notes, 5.25%, 1/15/10(a) 1,223,437
500,000 Primus Telecommunications
Group Incorporated, Cv. Sub.
Deb., 5.75%, 2/15/07(a) 438,125
-----------
5,609,750
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-2.7%
400,000 SCI Systems, Inc., Cv. Sub.
Notes, 3.00% 3/15/07 468,000
1,500,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 1,207,500
-----------
1,675,500
-----------
ENERGY-2.8%
1,850,000 Kerr-McGee Corporation, Cv.
Sub. Deb., 7.50%, 5/15/14 1,732,063
-----------
HEALTH CARE-4.6%
700,000 Alpharma Inc., Cv. Sub. Notes,
5.75%, 4/1/05 986,563
900,000 Omnicare, Inc., Cv. Sub. Deb.,
5.00%, 12/1/00 699,750
750,000 Sepracor Inc., Cv. Sub. Deb.,
7.00%, 12/15/05 1,192,500
-----------
2,878,813
-----------
MANUFACTURING-1.8%
1,250,000 Quanex Corporation, Cv. Sub. Deb.,
6.88%, 6/30/07 1,106,250
-----------
PRINTING-2.5%
1,695,000 Scholastic Corporation, Cv. Sub.
Notes, 5.00%, 8/15/05(a) 1,582,177
-----------
RETAILING-5.7%
$ 750,000 Amazon.com Inc., Sr. Cv. Sub.
Notes, 4.75%, 2/1/09(a) $ 639,375
1,500,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,276,007
1,500,000 Michaels Stores Inc., Cv. Sub.
Deb., 6.75%, 1/15/03 1,642,500
-----------
3,557,882
-----------
SEMICONDUCTORS-8.0%
500,000 Amkor Technology, Inc.,
Cv. Sub. Notes, 5.00%,
3/15/07(a) 623,750
500,000 ASM Lithography Holdings N.V.,
Cv. Sub. Notes, 4.25%,
11/30/04(a) 624,375
500,000 Lattice Semiconductor
Corporation, Cv. Sub. Notes, 4.75%,
11/1/06(a) 882,500
750,000 Photronics, Inc., Cv. Sub. Notes,
6.00%, 6/1/04 936,562
500,000 Semtech Corporation, Cv.
Sub. Notes, 4.50%,
2/1/07(a) 495,625
1,000,000 Triquent Semiconductor, Inc., Cv.
Sub. Notes, 4.00%,
3/1/07(a) 955,000
500,000 Vitesse Semiconductor
Corporation, Cv. Sub. Notes, 4.00%,
3/15/05(a) 435,000
-----------
4,952,812
-----------
Total Corporate Convertible Bonds
(Cost $22,275,180) 23,463,997
-----------
<CAPTION>
Convertible Preferred
Shares Securities-35.8%
-------------------------------------------------------------------------------
<S> <C> <C>
BUILDING & CONSTRUCTION-1.8%
35,000 TXI Capital Trust I,
5.50%, Cv. Pfd. 1,120,000
-----------
COMMUNICATIONS-3.6%
20,000 Entercom Communications
Capital Trust, 6.25%, Cv. Pfd. 1,240,000
1,600 McLeodUSA Incorporated, 6.75%, Cv. Pfd.,
Series A 1,000,000
-----------
2,240,000
-----------
ENERGY-11.5%
25,000 Hanover Compressor Capital
Trust, 7.25%, Cv. Pfd.(a) 2,203,125
25,000 Newfield Financial Trust I, 6.50%,
Cv. Pfd., Series A 1,510,937
40,000 Unocal Capital Trust II, 6.25%,
Cv. Pfd. 1,800,000
35,000 Weatherford International (EVI)
Inc., 5.00%, Cv. Sub. Pfd.
Equivalent Deb. 1,658,125
-----------
7,172,187
-----------
FINANCIAL SERVICES-3.2%
60,000 CNB Capital Trust I, 6.00%, Cv. Pfd. $ 1,995,000
-----------
FOODS & BEVERAGES-2.9%
35,000 Wendy's Financing Inc., $2.50,
Term Cv. Pfd., Series A 1,785,000
-----------
PACKAGING PRODUCTS-2.0%
29,000 International Paper Capital Trust,
5.25%, Cv. Pfd. 1,239,750
-----------
RAILROADS-3.0%
15,000 Canadian National Railway
Company, 5.25%, Cv. Pfd. 675,000
30,000 Union Pacific Capital Trust,
6.25%, Cv. Pfd. 1,160,625
-----------
1,835,625
-----------
RAW MATERIALS-1.3%
20,000 Bethlehem Steel Corporation,
$5.00, Cum., Pfd. 836,250
-----------
REAL ESTATE-1.6%
40,000 Prologis Trust, 7.00%, Cv.
Pfd. B 1,010,000
-----------
UTILITIES-4.9%
20,000 Calpine Capital Trust II, Term
Income Defferable, 5.50%, Cv. Pfd.(a) 1,097,500
35,000 El Paso Energy Capital Trust I,
4.75%, Cv. Pfd. C 1,925,000
-----------
3,022,500
-----------
Total Convertible Preferred
Securities (Cost $20,235,910) 22,256,312
-----------
Mandatory Convertible
Securities-8.8%
COMMUNICATIONS-3.0%
10,000 Cox Communications, Inc., 7.75%
Exch. Sub. Deb., 11/29/29(b) 1,015,625
15,000 Cox Communications, Inc.,
7.00% Income Prides,
8/15/02 (b) 866,250
-----------
1,881,875
-----------
ENERGY-4.4%
30,000 Apache Corporation, $2.015
Depositary Shares,
5/15/02 (b) 1,329,375
60,000 Enron Corp., 7.00%
Exchangable Notes, 7/31/02(b) 1,410,000
-----------
2,739,375
-----------
RETAILING-1.4%
25,000 Dollar General Corporation,
STRYPES Trust, $3.352,
5/15/01(b) $ 850,000
Total Mandatory Convertible
Securities (Cost $4,803,162) 5,471,250
-----------
Common Stocks-7.6%
COMMUNICATIONS
333 McLeodUSA Inc. Cl. A* 8,321
-----------
UTILITIES
28,000 American Electric Power
Company, Inc. 1,025,500
30,000 GPU, Inc., 841,875
28,000 New Century Energies Inc. 913,500
50,000 OGE Energy Corp. 990,625
40,000 RGS Energy Group, Inc. 940,000
-----------
4,711,500
-----------
Total Common Stocks
(Cost $4,065,802) 4,719,821
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes-9.6%
---------
<S> <C> <C>
$ 775,000 Cooperative Association of
Tractor Dealers Inc., 6.20%,
5/23/00 771,796
950,000 Dow Chemical Company,
5.99%, 5/03/00 949,365
790,000 Grainger (W.W.) Inc.,
6.03%, 5/8/00 788,807
1,950,000 GTE Funding, Inc.,
6.01%, 5/25/00 1,941,532
1,500,000 MidAmerican Energy Co.,
6.05%, 5/22/00 1,494,200
-----------
Total Short-Term Corporate
Notes (Cost $5,945,700) 5,945,700
-----------
Total Investments (Cost $57,325,754) 99.5% 61,857,080
Other Assets in Excess of Liabilities 0.5 299,296
---------------------
Net Assets 100.0% $62,156,376
---------------------
<FN>
--------------------
<F*> Non-income producing security.
<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, 2000, the net unrealized appreciation on investments,
based on cost for federal income tax purposes of $57,325,754,
amounted to $4,531,326, which consisted of aggregate gross unrealized
appreciation of $7,197,294 and aggregate gross unrealized
depreciation of $2,665,968.
</FN>
</TABLE>
CASTLE CONVERTIBLE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $57,325,754),
see accompanying schedule of investments $61,857,080
Cash 42,632
Receivable for investment securities sold 480,638
Dividends and interest receivable 567,709
Prepaid expenses 7,330
-----------
Total Assets 62,955,389
LIABILITIES:
Payable for investment securities purchased $ 734,500
Investment advisory fees payable 37,981
Directors' fees payable 2,542
Accrued expenses 23,990
----------
Total Liabilities 799,013
-----------
NET ASSETS applicable to 2,236,003 outstanding shares of $0.01
par value (10,000,000 shares authorized) $62,156,376
===========
NET ASSET VALUE PER SHARE $ 27.80
===========
</TABLE>
STATEMENT OF OPERATIONS
For the six months ended April 30, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 795,400
Dividends 1,106,240
-----------
Total Income 1,901,640
Expenses:
Investment advisory fees-Note 2(a) $ 224,659
Shareholder reports 22,811
Professional fees 17,331
Directors' fees 15,118
Custodian and transfer agent fees 13,593
Bookkeeping fees 9,000
Miscellaneous 9,498
----------
Total Expenses 312,010
-----------
NET INVESTMENT INCOME 1,589,630
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 3,000,727
Net change in unrealized appreciation (depreciation) on investments 1,130,009
----------
Net realized and unrealized gain (loss) on investments 4,130,736
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,720,366
===========
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Ended
April 30, 2000 Year Ended
(Unaudited) October 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 1,589,630 $ 2,957,745
Net realized gain on investments 3,000,727 641,934
Net change in unrealized appreciation (depreciation) on investments 1,130,009 1,732,506
------------------------------
Net increase (decrease) in net assets resulting from operations 5,720,366 5,332,185
------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (1,475,762) (3,264,564)
Net realized gains (670,800) (111,800)
------------------------------
Total dividends (2,146,563) (3,376,364)
------------------------------
Net increase (decrease) in net assets 3,573,804 1,955,821
NET ASSETS:
Beginning of period 58,582,572 56,626,751
------------------------------
End of period (including undistributed net investment income
of $218,573 and $104,705, respectively) $62,156,376 $58,582,572
==============================
</TABLE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended October 31,
April 30, ---------------------------------------------------
2000(i) 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 26.20 $ 25.32 $ 30.08 $ 29.54 $ 28.39 $ 25.77
---------------------------------------------------------------
Net investment income 0.71 1.32 1.39 1.54 1.56 1.74
Net realized and unrealized gain (loss) on
investments 1.85 1.07 (2.36) 2.08 1.89 3.29
---------------------------------------------------------------
Total from investment operations 2.56 2.39 (0.97) 3.62 3.45 5.03
---------------------------------------------------------------
Dividends from net investment income (0.66) (1.46) (1.49) (1.60) (1.59) (1.60)
Distributions from net realized gains (0.30) (0.05) (2.30) (1.48) (0.71) (0.81)
---------------------------------------------------------------
Total Distributions (0.96) (1.51) (3.79) (3.08) (2.30) (2.41)
---------------------------------------------------------------
Net asset value, end of period $ 27.80 $ 26.20 $ 25.32 $ 30.08 $ 29.54 $ 28.39
===============================================================
Market value, end of period $ 20.50 $ 21.00 $ 22.75 $ 25.75 $ 25.38 $ 25.63
===============================================================
Total investment return based on market
value per share 2.04% (1.29%) 1.66% 14.01% 8.14% 15.82%
===============================================================
Ratios and Supplemental Data:
Net assets, end of period (000's omitted) $62,156 $58,583 $56,627 $67,252 $66,050 $63,478
===============================================================
Ratio of expenses to average net assets 1.04% 1.02% 1.04% 1.00% 1.03% 1.05%
===============================================================
Ratio of net investment income to average
net assets 5.30% 5.05% 5.00% 5.26% 5.44% 6.62%
===============================================================
Portfolio Turnover Rate 43.49% 60.65% 52.99% 57.58% 63.68% 52.80%
===============================================================
<FN>
--------------------
<Fi> Unaudited. 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").
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, 2000, no reimbursement was
required pursuant to the Contract. For the six months ended April 30, 2000,
the total investment advisory fee charged to the Fund amounted to $224,659,
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, 2000, the Fund incurred fees of
approximately $6,900 for services provided by Alger Services and reimbursed
Alger Services approximately $2,100, 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, 2000, the Adviser and
its affiliates owned 445,226 shares of the Fund.
NOTE 3-Securities Transactions:
During the six months ended April 30, 2000, purchases and sales of
investment securities, excluding short-term securities, aggregated
$23,717,953 and $26,849,360, respectively.
NOTE 4-Components of Net Assets:
At April 30, 2000, the Fund's net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital $54,012,068
Undistributed net investment income 218,573
Undistributed net realized gain 3,394,409
Net unrealized appreciation 4,531,326
-----------
NET ASSETS $62,156,376
===========
</TABLE>
CASTLE |
CONVERTIBLE |
FUND, |
INC |
Board of Directors
Fred M. Alger, Chairman
David D. Alger
Lester L. Colbert, Jr.
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
-------------------------------------------------------------------------
Results of the Annual Meeting of Shareholders
The annual meeting of the shareholders of the Fund was held on December 7,
1999. The following matters were submitted to a shareholder vote and
approved:
(i) the election or reelection of the following directors of the Fund: Fred
M. Alger, David D. Alger, Lester L. Colbert, Jr., Stephen E. O'Neil, Nathan
E. Saint-Amand, and B. Joseph White. Each of the candidates elected or
reelected received at least 1,872,761 affirmative votes and no more than
27,181 votes were withheld for any candidate. There were 25,438
abstentions.
(ii) the ratification of the selection of Arthur Andersen LLP as the Funds'
independent public accountants for the fiscal year ending October 31, 2000:
For-1,907,566; Against-16,930; Abstain-24,235
-------------------------------------------------------------------------
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 |
FUND, |
INC. |
Semi-Annual Report
April 30, 2000
(Unaudited)
