Dear Shareholder:
During the summer months, signs were increasing that the U.S. economy was
beginning to slow in response to earlier interest rate hikes. As a result,
the Federal Open Market Committee (FOMC) kept interest rates unchanged at
the conclusion of its meeting in late August. Investors applauded the
steady monetary policy by pushing stock prices higher. By early September,
investor sentiment began to turn negative. Oil prices were climbing amidst
reports of low inventories. As investors grew more concerned that the rise
in oil prices might lead to higher inflation, interest rates began to rise.
OPEC's decision in early September to raise production did little to stop
the steady climb. The U.S. government's decision to tap into the Strategic
Petroleum Reserve helped break the price rise but oil prices still remained
above $30 a barrel. The price increase incorporated a risk premium since
the outbreak of violence in the Middle East awoke fears that these tensions
might turn into a broader conflict that could lead to a disruption in oil
supplies. Investor confidence was further undermined when corporations
started to alert investors that earnings were falling short of earlier
projections. Some companies cited a weaker-than-expected U.S. economy as
the cause for slower growth in revenues. Others announced that higher
energy costs were having a negative impact on earnings, while yet others
stated that the strong U.S. dollar would lower their results. The steady
stream of disappointing earnings reports, together with the heightened
uncertainty about the outlook for inflation and economic growth, caused the
market to sell off. The NASDAQ Composite, home to many convertible issuers,
came under intense selling pressure. A brief rally at the end of October
did not erase all of the losses. For the three months ended October 31st,
the S&P 500 posted a modest total return of 0.18%, bringing the year-to-
date total return to a negative 1.81%. The NASDAQ Composite sustained a
loss of 17.19% for the same 10 months. Because of its income-orientation,
Castle Convertible Fund has fared better and produced a total return of
9.94% on a NAV basis for the 10 months ended October 31st.
The issues that have been worrying investors in the fall are still
bedeviling the financial markets. The bitterly contested vote-recount in
the state of Florida has been yet another concern that has added to recent
market volatility. We remain persuaded that the markets will stabilize in
coming months as investors focus on the positive underlying fundamentals.
In our opinion, the U.S. economy, while slowing, is still growing at a
healthy 3%. The rise in energy prices has had a very limited impact on the
overall rate of inflation and we expect any future passthrough effect will
be very limited. As a result, we expect that interest rates will start to
come down. While the growth in corporate profits will slow, we would
emphasize that they remain high and are still increasing. We believe that
Castle Convertible is well-positioned to reward its investors.
Respectfully submitted,
/s/ David D. Alger
David D. Alger
President
December 12, 2000
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS
October 31, 2000
<TABLE>
<CAPTION>
Principal Corporate Convertible
Amount Bonds-31.7% Value
---------------------------------------------------------------
<S> <C> <C>
BUSINESS SERVICES-1.8%
$ 500,000 Getty Images Inc., Cv. Sub.
Deb., 5.00%, 3/15/07(a) $ 375,625
1,000,000 Getty Images Inc., Cv. Sub.
Deb., 5.00%, 3/15/07 751,250
-----------
1,126,875
-----------
COMMUNICATIONS-5.1%
1,950,000 Efficient Networks, Inc., Cv.
Sub. Notes, 5.00%, 3/15/05 1,277,250
750,000 Exodus Communications, Inc., Cv.
Sub. Notes, 4.75%, 7/15/08(a) 856,406
1,250,000 Nextel Communications, Inc., Cv.
Sr. Notes, 5.25%, 1/15/10(a) 1,051,562
-----------
3,185,218
-----------
COMMUNICATIONS EQUIPMENT-1.4%
1,000,000 Redback Networks Inc., Cv. Sub.
Notes, 5.00%, 4/1/07 872,500
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-2.0%
1,250,000 CNET Networks Inc., Cv. Sub.
Notes, 5.00%, 3/1/06 1,279,688
-----------
ENERGY-3.1%
2,002,000 Kerr-McGee Corporation, Cv.
Sub. Deb., 7.50%, 5/15/14 1,971,970
-----------
HEALTH CARE-4.6%
1,900,000 Affymetrix Inc., Cv. Sub.
Notes, 4.75%, 2/15/07 1,206,500
500,000 Alpharma Inc., Cv. Sub. Notes,
5.75%, 4/1/05 731,875
750,000 Sepracor Inc., Cv. Sub. Deb.,
7.00%, 12/15/05 935,625
-----------
2,874,000
-----------
MANUFACTURING-1.8%
1,250,000 Quanex Corporation, Cv. Sub.
Deb., 6.88%, 6/30/07 1,121,875
-----------
PRINTING-3.0%
1,695,000 Scholastic Corporation, Cv.
Sub. Notes, 5.00%, 8/15/05(a) 1,901,366
-----------
RESTAURANTS & LODGING-1.9%
1,500,000 Hilton Hotels Corp., Cv. Sub.
Notes, 5.00%, 5/15/06 1,216,875
-----------
RETAILING-2.3%
1,500,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,470,938
-----------
SEMICONDUCTORS-4.7%
500,000 ASM Lithography Holdings N.V.,
Cv. Sub. Notes, 4.25%,
11/30/04(a) 506,875
500,000 Lattice Semiconductor
Corporation, Cv. Sub.
Notes, 4.75%, 11/1/06(a) 772,500
750,000 Photronics Inc., Cv. Sub. Notes,
6.00%, 6/1/04 764,062
$ 500,000 Semtech Corporation, Cv.
Sub. Notes, 4.50%, 2/1/07(a) $ 480,625
500,000 Vitesse Semiconductor
Corporation, Cv. Sub. Notes,
4.00%, 3/15/05(a) 450,000
-----------
2,974,062
-----------
Total Corporate Convertible Bonds
(Cost $19,089,165) 19,995,367
-----------
<CAPTION>
Convertible Preferred
Shares Securities-31.8%
----------
<S> <C> <C>
AEROSPACE & AIRLINES-3.0%
40,000 Coltec Capital Trust, 5.25%,
Cv. Pfd. 1,910,000
-----------
COMMUNICATIONS-3.2%
20,000 Entercom Communications
Capital Trust, 6.25%, Cv. Pfd. 1,185,000
1,600 McLeodUSA Incorporated,
6.75%, Cv. Pfd., Series A 831,800
-----------
2,016,800
-----------
ENERGY-9.0%
15,000 Hanover Compressor Capital
Trust, 7.25%, Cv. Pfd.(a) 1,477,500
25,000 Newfield Financial Trust I,
6.50%, Cv. Pfd., Series A 1,475,000
20,000 SEI Trust I, 6.25%, Cv. Pfd.,
Series A 1,216,250
35,000 Weatherford International (EVI)
Inc., 5.00%, Cv. Sub. Pfd.
Equivalent Deb. 1,531,250
-----------
5,700,000
-----------
FINANCIAL SERVICES-3.4%
60,000 CNB Capital Trust I, 6.00%, Cv.
Pfd. 2,115,000
-----------
FOODS & BEVERAGES-2.7%
35,000 Wendy's Financing Inc., $2.50,
Term Cv. Pfd., Series A 1,715,000
-----------
RAILROADS-2.2%
30,000 Canadian National Railway
Company, 5.25%, Cv. Pfd. 1,425,000
-----------
REAL ESTATE-1.7%
40,000 Prologis Trust, 7.00%, Cv.
Pfd. B 1,075,000
-----------
UTILITIES-6.6%
25,000 Calpine Capital Trust III, Term
Income Deferrable, 5.00%, Cv.
Pfd.(a) 1,400,000
35,000 El Paso Energy Capital Trust I,
4.75%, Cv. Pfd. C 2,747,500
-----------
4,147,500
-----------
Total Convertible Preferred
Securities (Cost $16,682,799) 20,104,300
-----------
<CAPTION>
Mandatory Convertible
Shares Securities-8.8% Value
---------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS-2.6%
10,000 Cox Communications, Inc., 7.75%
Exch. Sub. Deb., 11/29/29(b) $ 777,500
15,000 Cox Communications, Inc., 7.00%
Income Prides, 8/16/02 (b) 877,500
-----------
1,655,000
-----------
ENERGY-6.2%
20,000 Apache Corporation, $2.015
Depositary Shares, 5/15/02 (b) 950,000
15,000 Dominion Resources Inc.,
9.50% Premium Income Pfd.
11/16/04(b) 882,188
60,000 Enron Corp., 7.00%
Exchangable Notes, 7/31/02(b) 2,051,250
-----------
3,883,438
-----------
Total Mandatory Convertible
Securities (Cost $4,253,213) 5,538,438
-----------
Common Stocks-8.7%
COMMUNICATIONS
456 McLeodUSA Incorporated Cl.A* 8,780
-----------
UTILITIES-8.7%
28,000 American Electric Power
Company, Inc. 1,162,000
30,000 GPU, Inc. 991,875
50,000 OGE Energy Corp. 1,028,125
40,000 RGS Energy Group, Inc. 1,180,000
43,400 Xcel Energy Inc. 1,109,412
-----------
5,471,412
-----------
Total Common Stocks
(Cost $4,065,802) 5,480,192
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes-19.2% Value
---------------------------------------------------------------
<S> <C> <C>
$ 700,000 ANC Rental Funding Corp.,
6.52%, 11/16/00 $ 698,096
2,000,000 Countrywide Home Loans, Inc.,
6.52%, 11/21/00 1,992,749
2,400,000 General Re Corporation, 6.47%,
11/30/00 2,387,487
2,300,000 Homeside Lending, Inc., 6.49%,
11/2/00 2,299,583
2,500,000 Merrill Lynch & Co., Inc., 6.49%,
11/30/00 2,486,925
2,260,000 Schering Corporation, 6.42%,
11/20/00 2,252,341
-----------
Total Short-Term Corporate Notes
(Cost $12,117,181) 12,117,181
-----------
Total Investments
(Cost $56,208,160)(c) 100.2% 63,235,478
Liabilities in Excess of Other Assets (.2) (128,674)
---------------------
Net Assets 100.0% $63,106,804
=====================
<FN>
--------------------
* Non-income producing security.
(a) Pursuant to Securities and Exchange Commission Rule 144A, these
securities may be sold prior to their maturity only to qualified
institutional buyers.
(b) 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.
(c) At October 31, 2000, the net unrealized appreciation on investments,
based on cost for federal income tax purposes of $56,208,160,
amounted to $7,027,318, which consisted of aggregate gross unrealized
appreciation of $7,937,034 and aggregate gross unrealized
depreciation of $909,716.
</FN>
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2000
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $56,208,160
see accompanying schedule of investments $63,235,478
Cash 41,734
Receivable for investment securities sold 1,884,368
Dividends and interest receivable 436,036
Prepaid expenses 14,265
-----------
Total Assets 65,611,881
LIABILITIES:
Payable for investment securities purchased $2,411,243
Investment advisory fees payable 41,775
Directors' fees payable 3,425
Accrued expenses 48,634
----------
Total Liabilities 2,505,077
-----------
NET ASSETS applicable to 2,236,003 outstanding shares of
$0.01 par value (10,000,000 shares authorized) $63,106,804
===========
NET ASSET VALUE PER SHARE $ 28.22
===========
</TABLE>
STATEMENT OF OPERATIONS
For the year ended October 31, 2000
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest $ 1,711,302
Dividends 2,067,247
-----------
Total Income 3,778,549
Expenses:
Investment advisory fees-Note 2(a) $ 477,305
Professional fees 43,063
Shareholder reports 40,199
Directors' fees 32,000
Custodian and transfer agent fees 26,343
Bookkeeping fees 18,000
Miscellaneous 18,549
----------
Total Expenses 655,459
-----------
NET INVESTMENT INCOME 3,123,090
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,397,465
Net change in unrealized appreciation (depreciation)
on investments 3,626,001
----------
Net realized and unrealized gain (loss) on investments 5,023,466
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,146,556
===========
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 2000 October 31, 1999
---------------- ----------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment income $ 3,123,090 $ 2,957,745
Net realized gain on investments 1,397,465 641,934
Net change in unrealized appreciation (depreciation) on investments 3,626,001 1,732,506
--------------------------------
Net increase in net assets resulting from operations 8,146,556 5,332,185
--------------------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (2,951,523) (3,264,564)
Net realized gains (670,801) (111,800)
--------------------------------
Total dividends (3,622,324) (3,376,364)
--------------------------------
Net increase in net assets 4,524,232 1,955,821
NET ASSETS:
Beginning of year 58,582,572 56,626,751
--------------------------------
End of year (including undistributed net investment income
of $276,272 and $104,705, respectively) $63,106,804 $58,582,572
================================
</TABLE>
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the year
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 26.20 $ 25.32 $ 30.08 $ 29.54 $ 28.39
-------------------------------------------------------
Net investment income 1.40 1.32 1.39 1.54 1.56
Net realized and unrealized gain (loss) on
investments 2.24 1.07 (2.36) 2.08 1.89
-------------------------------------------------------
Total from investment operations 3.64 2.39 (0.97) 3.62 3.45
-------------------------------------------------------
Dividends from net investment income (1.32) (1.46) (1.49) (1.60) (1.59)
Distributions from net realized gains (0.30) (0.05) (2.30) (1.48) (0.71)
-------------------------------------------------------
Total Distributions (1.62) (1.51) (3.79) (3.08) (2.30)
-------------------------------------------------------
Net asset value, end of year $ 28.22 $ 26.20 $ 25.32 $ 30.08 $ 29.54
=======================================================
Market value, end of year $ 22.75 $ 21.00 $ 22.75 $ 25.75 $ 25.38
=======================================================
Total investment return based on
market value per share 16.51% (1.29%) 1.66% 14.01% 8.14%
=======================================================
Ratios and Supplemental Data:
Net assets, end of year (000's omitted) $63,107 $58,583 $56,627 $67,252 $66,050
=======================================================
Ratio of expenses to average net assets 1.06% 1.02% 1.04% 1.00% 1.03%
=======================================================
Ratio of net investment income to average net
assets 5.05% 5.05% 5.00% 5.26% 5.44%
=======================================================
Portfolio Turnover Rate 68.55% 60.65% 52.99% 57.58% 63.68%
=======================================================
</TABLE>
See Notes to Financial Statements.
CASTLE CONVERTIBLE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
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 year ended October 31, 2000, no reimbursement was
required pursuant to the Contract. For the year ended October 31, 2000, the
total investment advisory fee charged to the Fund amounted to $447,305, and
the Adviser received $18,000 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 year ended October 31, 2000, the Fund incurred fees of
approximately $11,700 for services provided by Alger Services and
reimbursed Alger Services approximately $3,500 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 October 31, 2000, the Adviser and
its affiliates owned 445,226 shares of the Fund.
NOTE 3-Securities Transactions:
During the year ended October 31, 2000, purchases and sales of
investment securities, excluding short-term securities, aggregated
$37,086,357 and $45,903,658, respectively.
NOTE 4-Components of Net Assets:
At October 31, 2000, the Fund's net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital $54,012,068
Undistributed net investment income 276,272
Undistributed net realized gain 1,791,146
Net unrealized appreciation 7,027,318
-----------
NET ASSETS $63,106,804
===========
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Castle Convertible Fund, Inc.:
We have audited the accompanying statement of assets and liabilities
of Castle Convertible Fund, Inc. (a Delaware Corporation), including the
schedule of investments, as of October 31, 2000, and the related statement
of operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities
owned as of October 31, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Castle Convertible Fund, Inc. as of October 31, 2000, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended,
in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
New York, New York
December 8, 2000
Castle Convertible Fund, Inc.
Board of Directors
Fred M. Alger, Chairman
David D. Alger
Charles F. Baird, Jr.
Roger P. Cheever
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 5,
2000. 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, Charles F. Baird, Jr., Roger P. Cheever, 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
1,963,241 affirmative votes and no more than 20,653 votes were withheld for
any candidate. There were 37,387 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, 2001:
For-2,005,787; Against-13,025; Abstain-15,598
---------------------------------------------------------------------------
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.
Annual Report
October 31, 2000
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