Dear Shareholder:
Shifting perceptions about the strength of the economy, the risk of
higher inflation and the course of monetary policy continued to produce
extremely high levels of volatility and sector rotation for the stock
market during Castle Convertible Fund's third fiscal quarter. Early in the
quarter, investors were still concerned that the Federal Reserve might have
to raise rates in order to slow the economy and avert a rise in the rate of
inflation. The economic indicators for the month of April brought some
relief since key reports for employment, retail sales, manufacturing
activity and inflation portrayed a slowing economy. The reports for May
seemed to confirm the slowdown detected in the April reports. By the time
of the June FOMC meeting, the markets had correctly concluded that the
Federal Reserve would leave interest rates unchanged. The stock market
began to turn back up at the end of May and added to its gains through the
middle of July. The rally, however, did not succeed in erasing all the
losses sustained in the month of May. For the three months ended July 31,
the S&P 500 posted a modestly negative total return of 1.21%. The NASDAQ
Composite, home to many convertible issuers, continued to lag, suffering a
negative return of 2.43%. Castle Convertible Fund, reflecting its income-
orientation, weathered the storm and produced a positive total return of
1.91% on a NAV basis during its third fiscal quarter. The market indexes
were little changed from year-end levels. From January 1 through July 31,
the S&P 500 Index produced a negative total return of 2.6%, while the
technology-laden NASDAQ Composite fell 7.4%. For the same period of time,
the Goldman Sachs/Bloomberg U.S. Convertible 100 Index produced a negative
total return of 1.90%. The Fund generated a total return of 7.87% during
the same period.
In the months ahead, investors will continue to dissect every
economic report to confirm that the U.S. economy is keeping to a more
moderate pace of growth and that inflation is being held at bay. As
evidence of a slowing economy and quiescent inflation mounts, we expect
that the stock market's tone will improve. We believe that Castle should
continue to add to its gains.
Respectfully submitted,
/s/ David D. Alger
----------------------------
David D. Alger
President
August 17, 2000
CASTLE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS (Unaudited)
July 31, 2000
Principal Corporate Convertible
Amount Bonds-32.8% Value
--------------------------------------------------------------
BUSINESS SERVICES-.7%
$ 500,000 Getty Images Inc., Cv. Sub.
Deb., 5.00%, 3/15/07(a) $ 417,500
-----------
COMMUNICATIONS-5.2%
250,000 CommScope, Inc., Cv. Sub.
Notes, 4.00%, 12/15/06(a) 258,750
50,000 CommScope, Inc., Cv. Sub.
Notes, 4.00%, 12/15/06 51,750
500,000 Efficient Networks, Inc., Cv.
Sub. Notes, 5.00%, 3/15/05(a) 343,750
750,000 Exodus Communications, Inc., Cv.
Sub. Notes, 4.75%, 7/15/08(a) 1,066,875
1,250,000 Nextel Communications, Inc., Cv.
Sr. Notes, 5.25%, 1/15/10(a) 1,262,500
500,000 Primus Telecommunications
Group Incorporated, Cv. Sub.
Deb., 5.75%, 2/15/07(a) 287,500
-----------
3,271,125
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT-4.0%
900,000 CNET Networks Inc., Cv. Sub.
Notes, 5.00% 3/1/06 891,000
400,000 SCI Systems, Inc., Cv. Sub.
Notes, 3.00% 3/15/07 424,000
1,500,000 Quantum Corporation, Cv. Sub.
Notes, 7.00%, 8/1/04 1,222,500
-----------
2,537,500
-----------
ENERGY-2.8%
1,752,000 Kerr-McGee Corporation, Cv.
Sub. Deb., 7.50%, 5/15/14 1,734,480
-----------
HEALTH CARE-5.8%
500,000 Alpharma Inc., Cv. Sub. Notes,
5.75%, 4/1/05 1,146,250
1,650,000 Omnicare, Inc., Cv. Sub.
Deb., 5.00%, 12/1/00 1,138,500
750,000 Sepracor Inc., Cv. Sub. Deb.,
7.00%, 12/15/05 1,357,500
-----------
3,642,250
-----------
MANUFACTURING-1.8%
1,250,000 Quanex Corporation, Cv. Sub.
Deb., 6.88%, 6/30/07 1,109,375
-----------
PRINTING-2.7%
1,695,000 Scholastic Corporation, Cv.
Sub. Notes, 5.00%, 8/15/05(a) 1,703,475
-----------
RETAILING-2.9%
750,000 Amazon.com Inc., Sr. Cv. Sub.
Notes, 4.75%, 2/1/09(a) 420,000
1,500,000 Genesco Inc., Cv. Sub. Notes,
5.50%, 4/15/05(a) 1,373,437
-----------
1,793,437
-----------
SEMICONDUCTORS-6.9%
500,000 Amkor Technology, Inc., Cv.
Sub. Notes, 5.00%, 3/15/07(a) 406,875
500,000 ASM Lithography Holdings N.V.,
Cv. Sub. Notes, 4.25%,
11/30/04(a) 625,000
500,000 Lattice Semiconductor
Corporation, Cv. Sub.
Notes, 4.75%, 11/1/06(a) 742,500
$ 750,000 Photronics, Inc., Cv. Sub.
Notes, 6.00%, 6/1/04 $ 776,719
500,000 Semtech Corporation, Cv.
Sub. Notes, 4.50%, 2/1/07(a) 565,000
1,000,000 Triquent Semiconductor, Inc., Cv.
Sub. Notes, 4.00%, 3/1/07(a) 805,000
500,000 Vitesse Semiconductor
Corporation, Cv. Sub. Notes,
4.00%, 3/15/05(a) 417,500
-----------
4,338,594
-----------
Total Corporate Convertible Bonds
(Cost $19,789,165) 20,547,736
-----------
Convertible Preferred
Shares Securities-33.5%
--------------------------------------------------------------
BUILDING & CONSTRUCTION-1.7%
35,000 TXI Capital Trust I, 5.50%,
Cv. Pfd. 1,071,875
-----------
COMMUNICATIONS-3.0%
20,000 Entercom Communications
Capital Trust, 6.25%, Cv. Pfd. 1,195,000
1,600 McLeodUSA Incorporated,
6.75%, Cv. Pfd., Series A 720,775
-----------
1,915,775
-----------
ENERGY-10.6%
15,000 Hanover Compressor Capital
Trust, 7.25%, Cv. Pfd.(a) 1,590,000
25,000 Newfield Financial Trust I,
6.50%, Cv. Pfd., Series A 1,354,562
40,000 Unocal Capital Trust II, 6.25%,
Cv. Pfd. 1,785,000
35,000 Weatherford International (EVI)
Inc., 5.00%, Cv. Sub. Pfd.
Equivalent Deb. 1,890,000
-----------
6,619,562
-----------
FINANCIAL SERVICES-2.9%
60,000 CNB Capital Trust I, 6.00%, Cv.
Pfd. 1,845,000
-----------
FOODS & BEVERAGES-2.5%
35,000 Wendy's Financing Inc., $2.50,
Term Cv. Pfd., Series A 1,535,625
-----------
PACKAGING PRODUCTS-1.9%
29,000 International Paper Capital Trust,
5.25%, Cv. Pfd. 1,167,250
-----------
RAILROADS-3.1%
15,000 Canadian National Railway
Company, 5.25%, Cv. Pfd. 697,500
30,000 Union Pacific Capital Trust,
6.25%, Cv. Pfd. 1,240,875
-----------
1,938,375
-----------
REAL ESTATE-1.9%
40,000 Prologis Trust, 7.00%, Cv.
Pfd. B 1,180,000
-----------
UTILITIES-5.9%
20,000 Calpine Capital Trust II, Term
Income Defferable, 5.50%, Cv.
Pfd.(a) 1,555,000
35,000 El Paso Energy Capital Trust I,
4.75%, Cv. Pfd. C $ 2,152,500
-----------
3,707,500
-----------
Total Convertible Preferred
Securities (Cost $18,756,759) 20,980,962
-----------
Mandatory Convertible
Securities-8.5%
--------------------------------------------------------------
COMMUNICATIONS-2.9%
10,000 Cox Communications, Inc., 7.75%
Exch. Sub. Deb., 11/29/29(b) 1,031,250
15,000 Cox Communications, Inc., 7.00%
Income Prides, 8/15/02(b) 761,250
-----------
1,792,500
-----------
ENERGY-4.1%
20,000 Apache Corporation, $2.015
Depositary Shares,
5/15/02 (b) 885,000
60,000 Enron Corp., 7.00%
Exchangable Notes, 7/31/02(b) 1,668,750
-----------
2,553,750
-----------
RETAILING-1.5%
25,000 Dollar General Corporation,
STRYPES Trust, $3.352,
5/15/01(b) 946,875
-----------
Total Mandatory Convertible
Securities (Cost $4,493,163) 5,293,125
-----------
Shares Common Stocks-7.2% Value
--------------------------------------------------------------
COMMUNICATIONS
333 McLeodUSA Incorporated Cl. A* 5,646
-----------
UTILITIES
28,000 American Electric Power
Company, Inc. 918,750
30,000 GPU, Inc., $ 795,000
28,000 New Century Energies Inc. 957,250
50,000 OGE Energy Corp. 950,000
40,000 RGS Energy Group, Inc. 917,500
-----------
4,538,500
-----------
Total Common Stocks
(Cost $4,065,802) 4,544,146
-----------
Principal Short-Term Corporate
Amount Notes-17.3%
--------------------------------------------------------------
$1,800,000 AES Hawaii, Inc., 6.47%,
8/11/00 1,796,759
100,000 BAUS Funding LLC,
6.47%, 8/8/00 99,874
1,700,000 Bay State Health Systems Corp.,
6.50%, 8/11/00 1,696,923
300,000 Countrywide Home Loans Inc.,
6.51%, 8/7/00 299,674
2,000,000 Duke Energy Corp., 6.47%,
8/21/00 1,992,806
350,000 FPL Fuels, Inc., 6.53%,
8/14/00 349,175
2,800,000 Hertz Corp., 6.45%, 8/3/00 2,798,993
1,800,000 Toyota Credit De Puerto Rico,
6.49%, 8/17/00 1,794,798
-----------
Total Short-Term Corporate
Notes (Cost $10,829,001) 10,829,001
-----------
Total Investments
(Cost $57,933,890) 99.3% 62,194,971
Other Assets in Excess of Liabilities 0.7 415,435
---------------------
Net Assets 100.0% $62,610,406
=====================
Net Asset Value Per Share $ 28.00
===========
--------------------
(a) Non-income producing security.
(b) Pursuant to Securities and Exchange Commission Rule 144A, these
securities may be sold prior to their maturity only to qualified
institutional buyers.
(c) 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.
CASTLE CONVERTIBLE FUND, INC.
SUMMARY OF OPERATIONS
For the nine months ended July 31, 2000 (Unaudited)
INVESTMENT INCOME:
Income:
Dividends $1,591,319
----------
Interest 1,247,380
Total Income 2,838,699
Total Expenses 484,820
----------
NET INVESTMENT INCOME 2,353,879
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments $3,698,634
----------
Net change in unrealized appreciation of investments 859,764
----------
Net realized and unrealized gain (loss) on investments 4,558,398
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,912,277
==========
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
July 31, 2000
