Zazove Convertible Fund, L.P.
Semi-Annual Report
June 30, 1997
Unaudited
Table of Contents
Historical Performance Summary 3
Schedule of Investments 4
Balance Sheet 8
Statement of Operations 9
Statement of Changes in Partners' Capital 10
Statement of Cash Flows 11
Notes to Financial Statements 12
Zazove Convertible Fund, L.P.
Historical Performance Summary
Description:
The Semi-Annual Report includes a chart and graph that detail the
Performance of the Fund since inception. The Chart compares the
Fund's cumulative performance to the cumulative performance of
the S&P 500 Stock Index and the Lehman Int. Govt/Corp Bond Index
for the six months, one year, three year and five year periods
ended June 30, 1997 and for the period since inception (9/30/90) to
June 30,1997. These results are as follows: Fund - six month
Return 9.92%; one year return 21.55%; three year return 69.05%; five
year return 132.18%; since September 30, 1990 275.77%. S & P 500
Stock Index,including the reinvestment of dividends: six month return
20.61%; one year return 34.71%; three year return 113.94%; five year
return 146.52%; since September 30, 1990 248.16%. The Lehman Int.
Gov/Corp Bond Index: six month return 2.83%; one year return 7.23%;
three year return 24.25%; five year return 36.94%; since September 30,
1990 68.33%.
The Chart also details the average annualized returns for the Fund,
the S&P 500 Stock Index and the Lehman Int. Govt/Corp Bond Index
for the three year and five year periods ended June 30, 1997 and
for the period beginning September 30, 1990 and ending June 30,
1997. These results are as follows: Fund - three year average
annualized return 19.13%; five year average annualized return
18.35%; average annualized return since September 30, 1990 21.67%.
S&P 500 Stock Index - three year average annualized return 28.85%;
five year average annualized return 19.78%; average annualized
return since September 30, 1990 20.30%. The Lehman Int. Govt/Corp
Bond Index - three year average annualized return 7.51%; five year
average annualized return 6.49%; average annualized return since
September 30, 1990 8.02%.
The Graph details the growth of a $100,000 investment in the Fund
for the period beginning September 30, 1996 and ending June 30,
1997 ($375,774). The Graph also details the performance of the S&P
500 Stock Index ($248,159) and the Lehman Int. Govt/Corp Bond Index
($168,331) during this period. The vertical axis reflects the
cumulative dollar value of the investment and the horizontal axis
reflects the date.
The following disclosure is presenting at the bottom of the
page that includes the Historical Performance Summary:
Returns for the Fund are after all fees and expenses. The S&P
500 Stock Index includes the reinvestment of dividends. The
Lehman Intermediate Government/Corporate Bond Index includes
the reinvestment of interest. Past results are not a guarantee
of future performance.
Zazove Convertible Fund, L.P.
Schedule of Investments
As of June 30, 1997
(Unaudited)
CONVERTIBLE BONDS - 76.16% Principal Market Value
Amount (000's)
Aames Financial Corp. 900,000 983,250.00
5.500% Due 03-15-06
American Residential Services t 700,000 780,500.00
7.250% Due 04-15-04
Argosy Gaming Co. 850,000 643,875.00
12.000% Due 06-01-01
Atlantic Coast Airlines, Inc. t 750,000 787,500.00
7.000% Due 07-01-04
BankAtlantic Bancorp Inc. 500,000 731,250.00
6.750% Due 07-01-06
Boston Chicken Inc. * 400,000 87,500.00
0.000% Due 06-01-15
Boston Chicken Inc. 950,000 851,437.50
7.750% Due 05-01-04
Boston Chicken, Inc. 800,000 603,000.00
4.500% Due 02-01-04
Capstone Capital Corp. 1,200,000 1,176,000.00
6.550% Due 03-14-02
Chock Full O' Nuts 120,000 121,200.00
7.000% Due 04-01-12
Cityscape Financial Group t 950,000 847,875.00
6.000% Due 05-01-06
Complete Management Inc. 1,130,000 1,220,400.00
8.000% Due 08-15-03
Converse Inc. 700,000 796,250.00
7.000% Due 06-01-04
Diagnostic/Retrieval Systems 650,000 853,125.00
9.000% Due 10-01-03
Einstein/Noah Bagel Corp. t 1,550,000 1,338,812.50
7.250% Due 06-01-04
Emerson Radio 2,670,000 1,228,200.00
8.500% Due 08-15-02
FPA Medical Management 720,000 831,600.00
6.500% Due 12-15-01
Gilat Satellite Networks t 600,000 607,500.00
6.500% Due 06-03-04
Heartport Inc. t 900,000 843,750.00
7.250% Due 05-01-04
Huaneng Power International PLC 500,000 516,250.00
1.750% Due 05-21-04
Hybridon Inc. t 500,000 500,000.00
9.000% Due 04-01-04
ICN Pharmaceuticals 500,000 667,500.00
8.500% Due 11-15-99
Intevac Inc. t 500,000 427,500.00
6.500% Due 03-01-04
Inversiones y Representaciones S.A. t 200,000 231,000.00
4.500% Due 08-02-03
Lernout & Hauspie Speech Products t 800,000 1,088,000.00
8.000% Due 11-15-01
North American Vaccine t 500,000 456,250.00
6.500% Due 05-01-03
Occusystems Inc. t 700,000 835,625.00
6.000% Due 12-15-01
Offshore Logostics t 850,000 913,750.00
6.000% Due 12-15-03
Personnel Group t 1,000,000 1,073,750.00
5.750% Due 07-01-04
Phoenix Shannon 9.500% t x 1,300,000 650,000.00
9.500% Due 11-01-00
Plasma & Materials Tech t 450,000 319,500.00
7.125% Due 10-15-01
Reno Air 750,000 810,000.00
9.000% Due 09-30-02
Staples Inc. t 700,000 843,500.00
4.500% Due 10-01-00
Tele Communications Intl 870,000 689,475.00
4.500% Due 02-15-06
Tenet Healthcare Corp. 500,000 631,250.00
6.000% Due 12-01-05
U.S. Diagnostic Labs Incorporated 1,315,000 1,334,725.00
9.000% Due 03-31-03
Uromed Corp. t 800,000 465,000.00
6.000% Due 10-15-03
Westbridge Capital Corp. 600,000 645,000.00
7.500% Due 05-01-04
Total convertible bonds (cost--$28,640,529.25) 28,431,100.00
CONVERTIBLE PREFERRED - 20.76% Shares Market Value
Alliance Gaming Corp.PIK 11.50% 10,149 766,249.50
Banco Comerc Portugues $4.000 12,000 822,000.00
General Datacomm Industry $2.25 t 25,000 515,625.00
Globalstar Telecom $3.25 10,000 577,500.00
Lab Corp of America (Class B) PIK $4.250 32,700 1,896,600.00
Network Imaging $2.00 53,000 539,937.50
Noram Financing $3.125 24,300 1,544,690.25
Phoenix Duff & Phelps (Class A) $1.500 8,000 219,000.00
Walbro Capital Trust $2.00 6,000 172,875.00
Walden Residential Prop (Class B) $2.29 24,000 696,000.00
Total preferred stocks (cost--$7,253,059.21) $7,750,477.25
Other Securities - 6.81% Amount Market Value
Alliance Capital Management, L.P. 25,000 731,250.00
Oppenheimer Capital L.P. 25,000 984,375.00
Sunsource LP (Class B) 39,000 187,707.00
Audiovox (3/15/01, 7.125 Strike) 16,800 39,900.00
Viacom Class E Warrants 504,300 599,108.40
Total other securities (cost--$2,789,201.53) 2,542,340.40
SHORT STOCK - (.83)% Shares Market Value
Globalstar Telecommunication (10,220) (311,710.00)
Total short stock (cost--($271,667.40)) $(311,710.00)
Other assets less liabilities - (2.89%) (1,079,320.12)
PARTNERS' CAPITAL - - 100% 37,332,887.53
* Non-income producing.
t These securities are subject to contractual or legal
restrictions on there resale. As of June 30, 1997, the value
of these securities as a percentage of investment assets was 33.60%.
x This bond is in default. The November 1, 1996 and subsequent
interest payments have not been paid.
Percentages are taken as a percent of Partners' Capital as of
June 30, 1997.
The accompanying notes to financial statements are an
integral part of this statement.
ZAZOVE CONVERTIBLE FUND, L.P.
Balance Sheet
As of June 30, 1997
(Unaudited)
ASSETS:
Cash and cash equivalents $974.60
Investments, at market value -
cost $38,682,789.99 38,723,917.65
Receivables -
Dividends 1,170.00
Securities sold, not settled 1,026,250.00
Interest 425,643.77
Total Receivables 1,453,063.77
Capital Expenditures 11,422.65
Total Assets 40,189,378.67
LIABILITIES & PARTNERS' CAPITAL:
Liabilities -
Securites purchased, not settled 2,274,279.25
Securities sold short - cost $(271,667) 311,710.00
Margin account due to brokers 246,121.61
Accounting Payable 10,000.00
Margin interest payable 5,956.42
Payable for custody of assets 6,699.27
Dividend expense payable
Misc. Payable
Payable to Adviser 1,724.59
Total liabilities 2,856,491.14
Partners' Capital 37,332,887.53
Total Liabilities and Partners' Capital 40,189,378.67
The accompanying notes to financial statements are an integral
part of this statement.
ZAZOVE CONVERTIBLE FUND, L.P.
Statement of Operations
For the six months ended June 30, 1997
(Unaudited)
INVESTMENT INCOME
Dividends 370,441.86
Interest 844,848.09
Other 315.56
TOTAL INVESTMENT INCOME 1,215,605.51
EXPENSES:
Management fee 319,719.94
Margin Interest 90,849.25
Custodian fees 9,626.56
Director fees 3,000.00
Organizational expense 3,607.14
Accounting and legal expense 10,000.00
Other expense 1,589.06
Dividend expense on short positions 26.07
TOTAL EXPENSE 438,418.02
NET INVESTMENT INCOME 777,187.49
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net realized gain on investments 4,881,030.84
Net change in unrealized appreciation
or depreciation of investments (2,306,031.93)
NET GAIN ON INVESTMENTS 2,574,998.91
NET INCREASE IN PARTNERS' CAPITAL
RESULTING FROM OPERATIONS 3,352,186.40
The accompanying notes to financial statements are an integral
part of this statement.
ZAZOVE CONVERTIBLE FUND, L.P.
Statement of Changes in Partners' Capital
For the six months ended June 30, 1997
(Unaudited)
OPERATIONS:
Net investment income 777,187
Net realized gain on investments 4,881,030
Net change in unrealized appreciation/
depreciation of investments (2,306,031)
Net increase in partners' capital
resulting from operations 3,352,186
PARTNERS' CAPITAL TRANSACTIONS:
Contributions 1,841,986
Withdrawals (2,635,956)
Net Contributions (793,969)
Net increase in partners' capital 2,558,216
PARTNERS' CAPITAL
Beginning of period 34,774,671
End of period 37,332,887
The accompanying notes to financial statements are an integral part
Of this statement.
ZAZOVE CONVERTIBLE FUND, L.P.
Statement of Cash Flows
For the six months ended June 30, 1997
(Unaudited)
Cash Flows from Operating Activities:
Net increase in partner's capital from
Operations 3,352,186
Adjustments to reconcile net increase in
partner's capital from operations to cash
used in operations -
Net change in unrealized gains/losses 2,306,031
Net realized gain on investment (4,881,030)
Increase in dividends receivable (1,170)
Increase in interest receivable (81,543)
Decrease in organizational expenditures 3,607
Decrease in accounting payable (10,000)
Increase in margin interest payable 274
Increase in payable for custody of as 5,273
Decrease in dividend expense payable (5,817)
Decrease in miscellaneous payable (35,234)
Decrease in payable to advisor (1,875)
Cash received from -
Sale of securities 62,284,314
Securities sold short 3,427,036
Securities sold in prior period, 966,744
Cash paid to-
Purchase securities (58,933,585)
Cover short sales (4,618,779)
Securities bought in prior period (2,278,568)
Net cash used in operations 1,497,863
Cash Flows from Financing Activities:
Partner's contributions 1,841,986
Partner's withdrawals (2,635,956)
Decrease in margin account due to brokers (744,551)
Net cash provided by financing (1,538,521)
Net decrease in cash and cash equivalents (40,658)
Cash and Cash Equivalents, beginning of period 41,633
Cash and Cash Equivalents, end of period 974
The accompanying notes to financial statements are an integral part of
this statement.
Zazove Convertible Fund, L.P.
Notes to Financial Statements
For the Period Ended June 30, 1997
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
Zazove Convertible Fund L.P., a Delaware limited partnership, (the
"Partnership") is registered under the Investment Company Act
of l940 as a non-diversified management investment company that
operates as a closed-end interval fund. The investment objective
of the Partnership is to maximize long term appreciation and to
preserve capital primarily through investments in convertible debt
and equity securities. Zazove Associates, LLC, is the Partnership's
Investment Advisor.
The following is a summary of significant accounting policies:
Security Valuations
Securities traded on national securities exchanges are valued at the
last reported sales price or, if there are no sales, at the mean
between the bid and ask prices. Securities traded over the counter
are valued at the average of the highest current independent bid and
lowest current independent offer reported upon the close of trading on
that day. If the market for a security exists predominantly through a
limited number of market makers, the security is valued by attaining an
independent bid and offer by at least two market makers in the security
and valuing the security at the mid-point of the quote that, under the
circumstances and in the good faith judgment of the Managing General
Partner, represents the fair value of the security. Securities for
which market quotations are not available are valued at a fair value as
determined in good faith by the Managing General Partner.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash and cash equivalents
include cash and money market investments. Total interest payments
made during the first six months of 1997 were $90,849.25
Organizational Costs
Costs incurred by the Partnership in connection with its organization
and registration were $36,000. These costs are being charged
ratably against income over 60 months from commencement of operations
by the Partnership.
Other Policies
The accounts of the Partnership are kept on the accrual basis of
accounting. Security transactions are recorded on the trade date.
Realized gains or losses from sales of securities are determined on
the specific identification basis. Dividend income is recognized
on the ex-dividend date. Interest income and expense are recognized
on the accrual basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. GENERAL PARTNERS:
The Partnership's business and affairs are managed by its General
Partners, which consist of the Managing General Partner and five
Director General Partners.
Managing General Partner
The Zazove Convertible Management Limited Partnership, an Illinois
limited partnership that is an affiliate of the Investment Advisor
and is controlled by Gene T. Pretti, is responsible for the
supervision of the business and affairs of the Partnership.
Except for certain actions requiring the approval of the Partners
or the Director General Partners, the Managing General Partner has
the power and authority to take all actions that it deems necessary
and appropriate to pursue the Partnership's objective.
Director General Partners
Gene T. Pretti, Andrew J. Goodwin, III, Steven M. Kleiman, Jack L.
Hansen and Peter A. Lechman are the Partnership's Director General
Partners. The Managing General Partner must receive the approval of
the Director General Partners before taking any action on certain
major decisions (e.g., retaining the Partnership's investment
adviser and independent public accountant). Each of the three
Director General Partners who are not affiliated with the Investment
Advisor received $1,000 for their service to the Partnership during
the first six months of 1997.
3. CONTRIBUTIONS AND WITHDRAWALS:
Capital contributions may be accepted as of the first business day
of each month upon approval of the Managing General Partner. All
subscription funds received after the first business day of the
month will be added to the general funds of the Partnership at the
beginning of the following month.
Quarterly Repurchase Policy
On a quarterly basis, the Partnership offers to repurchase no less
than 5% and no more than 25% of the Partnership's outstanding Units
at the then net asset value per Unit. Notice of the terms and
conditions of each quarterly repurchase offer are sent to the
Partners in advance of the offer.
In the case of the termination of the Partnership, distributions
to the Partners will be made in proportion to their respective
Unit ownership after the payment of all Partnership creditors.
4. MANAGEMENT ARRANGEMENTS:
For the first six months of 1997, Zazove Associates, LLC, the
Partnership's Investment Adviser, received a monthly management
fee from the Partnership equal to .166% (2% annualized rate) of
the net asset value of the Partnership as of the opening of
business on the first business day of each month. The management
fee is reduced to .125% (1.5% annualized rate) for the Partnership's
net asset value in excess of $25,000,000.
5. EXPENSES:
The Partnership bears all of the costs and expenses of its
operations, including the compensation of the Investment Adviser,
reimbursement of costs paid on its behalf by the Managing General
Partner, fees for professional services, fees and reimbursements
paid to Director General Partners, custodial fees, brokerage and
other costs of portfolio transactions, the cost of regulatory
compliance, the costs associated with maintaining the Partnership's
legal existence and the costs involved with communicating with
Limited Partners.
6. INCOME TAXES:
No provision for federal income tax has been made because net
income of the Partnership is not taxable as such for federal
income tax purposes but is included in the income tax returns
of the individual partners.
7. INVESTMENT TRANSACTIONS:
For the six months ended June 30, 1997 and the year ended December 31,
1996, purchases of investment securities (excluding short-term
securities) were $63,552,365 and $96,297,367, respectively, and
proceeds from sales of investment securities were $65,711,350 and
$91,874,570, respectively. For federal income tax purposes, at June
30, 1997, the gross unrealized appreciation on investments was
approximately $1,085.06, and the gross unrealized appreciation was
approximately $3,804,041. The cost of investments for federal income
tax purposes was approximately $38,411,123 at June 30, 1997.
8. OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK:
The Partnership may engage in the short sale of securities. Securities
sold short, not yet purchased, represent obligations of the Partnership
that result in off-balance-sheet risk as the ultimate obligation may
exceed the amount shown in the accompanying financial statements due to
increases in the market values of these securities. At June 30, 1997,
the market value of the common stock sold short was $311,710. These
short positions are hedged positions and, as a result, any increase
in the Partnership's obligation related to these short positions will
generally be offset by gains in the related long convertible position.
At June 30, 1997, the three largest industry concentrations were as
follows (as a percentage of investment securities at market value):
Financial Services
10.2%
Medical Management Services
7.8%
Restaurants
7.8%
Since the Partnership does not clear its own investment
transactions, it has established an account with a brokerage
firm for this purpose. The resulting concentration of credit risk
is mitigated by the broker's obligation to comply with the rules
and regulations of the Securities and Exchange Act of 1934. At
June 30, 1997, the Partnership owed the brokerage firm $246,121.61
for securities purchased on margin. The Partnership held cash and
cash equivalents of $975 and had a receivable of $1,026,250, which
could be used to effectively offset this margin balance. The
Partnership pays interest on any margin balance which is
calculated as the daily margin account balance times the broker's
margin interest rate.
9. FINANCIAL HIGHLIGHTS:
Per Unit Operating Performance for the six months ended
June 30, 1997:
Net asset value per unit, beginning of period: $14.09
Net investment income $.32
Net gain on securities (realized and unrealized) $1.08
Net asset value per unit, end of period $15.49
Total Investment Return (after all expenses) 9.94%
Ratios/Supplemental Data
Partners' capital, end of period $37,332,888
Ratio of expenses (excludes margin interest)
to average partners' capital .99%
Ratio of net investment income
to average partners' capital 2.23%
Portfolio turnover rate 169%
Average commission rate paid per share $.04
