Dear Shareholder:
The U.S. economy continues its robust expansion, with Gross Domestic
Product (GDP) expanding an estimated 6.9% during the fourth quarter of
1999. As the monthly economic indicators confirmed the brisk pace of
growth, the financial markets realized that the Federal Reserve would
continue to raise interest rates to prevent the rate of inflation from
accelerating. As a result, long-term interest rates, as measured by the
yield on the 30-year U.S. Treasury bond, edged upwards from 6.16% at the
end of October to 6.75% by January 18th. Although the announcement that
the U.S. Treasury would begin to use the growing government surplus to buy
back government debt caused prices for 30-year U.S. Treasury bonds to
rebound, the bond market, as measured by the Lehman Government/Corporate
Bond Index, produced a negative total return of 0.70% for the three months
ended January 31st. The stock market, which began to rally in late October,
continued to build on those gains during the final two months of 1999. The
market gave up some of the gains in January as investors started to focus
on the upcoming Federal Reserve meeting in February. As a result, the stock
market, as measured by the S&P 500, produced only a modest total return of
2.62% for the same three-month period. Castle Convertible Fund, despite its
fixed-income orientation, participated in the stock market rally and
produced a return of 2.79% for its first fiscal quarter.
We expect that the U.S. economy will produce solid gains in 2000 but the
rate of expansion should slow from the rapid pace produced during the last
several years since domestic demand should cool in response to tighter
monetary policy and higher energy costs. We expect that signs of a slowdown
will be pervasive by the second half of the year. The rate of inflation, as
measured by both the overall producer and consumer price indices, has
picked up but nearly all of that acceleration has been the result of
dramatic gains in the cost of energy. Since the rapid rise in oil prices
reflects the pick-up in world economic activity as well as OPEC production
cuts, the price hikes are largely a one-time event and, in our view, do not
mark an acceleration in the underlying core rate of inflation.
Consequently, we anticipate inflation to remain low. We currently expect
that the Federal Reserve will remain vigilant and raise short-term interest
rates during the first half of the year. We believe the Federal Reserve's
activities will make for very volatile markets in the coming months.
Respectfully submitted,
/s/ David D. Alger
-----------------------
David D. Alger
President
March 21, 2000
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
January 31, 2000
<TABLE>
<CAPTION>
Principal Corporate Convertible
Amount Bonds-38.3% Value
- -----------------------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES-.5%
$ 250,000 Checkfree Holdings Corp., Cv.
Sub. Notes, 6.50%, 12/1/06(a) $ 263,750
-----------
COMMUNICATION EQUIPMENT-6.0%
500,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04(a) 521,250
1,200,000 DSC Communications Corp., Cv.
Sub. Notes, 7.00%, 8/1/04 1,251,000
1,000,000 Exodus Communications, Inc., Cv.
Sub. Notes, 4.75%, 5/15/08(a) 1,753,125
-----------
3,525,375
-----------
COMMUNICATIONS-2.5%
250,000 Commscope Inc., Cv. Sub.
Notes, 4.00%, 12/15/06(a) 263,750
1,250,000 Nextel Communications, Inc., Cv.
Sr. Notes, 5.25%, 1/15/10(a) 1,193,750
-----------
1,457,500
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-2.0%
1,500,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 1,147,500
-----------
CONSUMER PRODUCTS &
SERVICES-1.1%
450,000 Lamar Advertising Co., Cv.
Sub. Notes, 5.25%, 9/15/06 641,531
-----------
ENERGY-2.4%
1,500,000 Kerr-McGee Corp., Cv. Sub.
Deb., 7.50%, 5/15/14 1,425,000
-----------
HEALTH CARE-3.6%
700,000 Alpharma Inc., Cv. Sub. Notes,
5.75%, 4/1/05 819,000
1,000,000 Sepracor Inc., Cv. Sub. Deb.,
7.00%, 12/15/05 1,312,500
-----------
2,131,500
-----------
MANUFACTURING-1.9%
1,250,000 Quanex Corp., Cv. Sub. Deb.,
6.88%, 6/30/07 1,137,500
-----------
PRINTING-2.9%
1,695,000 Scholastic Corp., Cv. Sub.
Notes, 5.00%, 8/15/05(a) 1,690,763
-----------
RETAILING-7.9%
1,000,000 Amazon.com Inc., Sr. Cv. Sub.
Notes, 4.75%, 2/1/09(a) 985,000
1,500,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,126,875
1,500,000 Michaels Stores Inc., Cv. Sub.
Deb., 6.75%, 1/15/03 1,396,875
1,500,000 Sunglass Hut Inc., Cv. Sub.
Notes, 5.25%, 6/15/03 1,162,500
-----------
4,671,250
-----------
SEMICONDUCTORS-7.5%
500,000 ASM Lithography Holdings N.V.,
Cv. Sub. Notes, 4.25%,
11/30/04(a) 640,625
500,000 Lattice Semiconductor Corp.,
Cv. Sub. Notes, 4.75%,
11/1/06(a) 703,750
1,400,000 Micron Technology, Inc., Cv. Sub.
Notes, 7.00%, 7/1/04 1,601,250
$1,250,000 Photronics Inc., Cv. Sub. Notes,
6.00%, 6/1/04 $ 1,478,125
-----------
4,423,750
-----------
Total Corporate Convertible Bonds
(Cost $20,859,993) 22,515,419
-----------
<CAPTION>
Convertible Preferred
Shares Securities-34.3%
- -----------------------------------------------------------------------------
BUILDING & CONSTRUCTION-3.5%
<S> <C> <C>
30,000 Owens Corning Capital LLC,
$3.25 Monthly Income Pfd.(a) 978,750
30,000 TXI Capital Trust I, 5.50%, Cv. Pfd. 1,072,500
-----------
2,051,250
-----------
CHEMICALS & PHARMACEUTICALS-1.8%
1,800 Hercules Trust II, 6.50%, Cv. Pfd.
(Crest Units) 1,035,000
-----------
COMMUNICATIONS-4.6%
3,000 Emmis Communications
Corporation, 6.25%, Cv. Pfd.,
Series A 196,688
20,000 Entercom Communications
Capital Trust, 6.25%, Cv. Pfd. 1,380,000
2,000 McLeodUSA Inc., 6.75%, Cv. Pfd.,
Series A 1,150,437
-----------
2,727,125
-----------
ENERGY-9.5%
20,000 Calpine Capital Trust Income
Equity, 5.75%, Cv. Pfd. 965,000
25,000 Hanover Compressor Capital
Trust, 7.25%, Cv. Pfd.(a) 1,609,375
25,000 Newfield Financial Trust I, 6.50%,
Cv. Pfd., Series A 1,212,500
40,000 Unocal Capital Trust II, 6.25%, Cv. Pfd. 1,790,000
-----------
5,576,875
-----------
FINANCIAL SERVICES-3.2%
60,000 CNB Capital Trust I, 6.00%, Cv. Pfd. 1,890,000
-----------
FOODS & BEVERAGES-1.8%
30,000 Suiza Capital Trust II, 5.50%, Cv. Pfd. 1,074,375
-----------
PACKAGING PRODUCTS-.8%
9,000 International Paper Capital
Trust, 5.25%, Cv. Pfd. 447,750
-----------
RAILROADS-3.1%
20,000 Canadian National Railway Co.,
5.25%, Cv. Pfd. 830,000
25,000 Union Pacific Capital Trust,
6.25%, Cv. Pfd. 993,750
-----------
1,823,750
-----------
RAW MATERIALS-1.6%
20,000 Bethlehem Steel Corporation,
$5.00, Cum., Pfd. 951,250
-----------
REAL ESTATE-1.7%
40,000 Prologis Trust, 7.00%, Cv. Pfd. B 980,000
-----------
UTILITIES-2.7%
35,000 El Paso Energy Capital Trust I,
4.75%, Cv. Pfd. C $ 1,601,250
-----------
Total Convertible Preferred
Securities (Cost $20,769,655) 20,158,625
-----------
Mandatory Convertible
Securities-10.2%
COMMUNICATIONS-3.4%
10,000 Cox Communicaitons, Inc., 7.75%
Exch. Sub. Deb., 11/29/29(b) 1,040,000
15,000 Cox Communications, Inc.,
7.00% Income Prides,
8/15/02 (b) 989,062
-----------
2,029,062
-----------
ENERGY-3.5%
30,000 Apache Corp., $2.015
Depositary Shares
5/15/02 (b) 1,048,125
60,000 Enron Corp., 7.00%
Exchangable Notes 7/31/02(b) 1,020,000
-----------
2,068,125
-----------
LEISURE & ENTERTAINMENT-1.8%
20,000 Premier Parks Inc., 7.50%
Income Equity Securities,
4/1/01(b) 1,080,000
-----------
RETAILING-1.5%
25,000 Dollar General STRYPES Trust,
$3.352, 5/15/01(b) 857,813
-----------
Total Mandatory Convertible
Securities (Cost $5,883,163) 6,035,000
-----------
COMMUNICATIONS
121 McLeodUSA Inc. Cl.A* $ 8,334
-----------
UTILITIES- 7.3%
28,000 American Electric Power Co., Inc. 938,000
28,000 New Century Energies Inc. 810,250
50,000 OGE Energy Corp. 1,015,625
68,000 Puget Sound Energy Inc. 1,530,000
-----------
4,293,875
-----------
Total Common Stocks
(Cost $4,007,584) 4,302,209
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes-10.1%
- ---------
<S> <C> <C> <C>
$2,050,000 A.I. Credit Corporation, 5.54%,
2/9/00 2,047,471
950,000 Alabama Power Company,
5.65%, 2/17/00 947,613
1,000,000 BCI Funding Corporation,
5.61%, 2/11/00 998,437
1,925,000 Caisse Centrale Desjardins du
Quebec, 5.65%, 2/14/00 1,921,065
-----------
Total Short-Term Corporate Notes
(Cost $5,914,586) 5,914,586
-----------
Total Investments (Cost $57,434,981) 100.2% 58,925,839
Liabilities in Excess of Other Assets (0.2) (112,145)
---------------------
Total Net Assets 100.0% $58,813,694
=====================
Net Asset Value Per Share $ 26.30
===========
<FN>
- --------------------
* 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.
</FN>
</TABLE>
CASTLE CONVERTIBLE FUND, INC.
SUMMARY OF OPERATIONS
For the three months ended January 31, 2000 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 541,554
Interest 373,817
----------
Total Income 915,371
Total Expenses 154,431
----------
NET INVESTMENT INCOME 760,940
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments $2,789,322
Net change in unrealized appreciation of investments (1,910,459)
-----------
Net realized and unrealized gain on investments 878,863
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,639,803
==========
</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.
One 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
FUND,
INC.
Quarterly Report
January 31, 2000
