Zazove Convertible Fund, L.P.
Semi-Annual Report
June 30, 1998
(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 details
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, Russell 2000 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, 1998 and for
the period since inception (9/30/90) to June 30,1998. These
results are as follows: Fund - six month Return 7.20%; one
year return 6.58%; three year return 64.90%; five year
return 88.47%; since September 30, 1990 300.50%.
S & P 500 Stock Index: six month return 17.71%; one year
return 30.18%; three year return 120.96%; five year return
182.41%; since September 30, 1990 353.22%. The Russell 2000
Stock Index: six month return 4.92%; one year return 16.50%;
three year return 67.89%; five year return 110.46%; since
September 30,1990 307.32%. The Lehman Int. Gov/Corp Bond
Index: six month return 3.47%; one year return 8.54%;
three year return 22.19%; five year return 34.51%; since
September 30,1990 82.70%.
The Chart also details the average annualized returns for
the Fund, the S&P 500 Stock Index, the Russell 2000 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 18.14%; five year average annualized return
13.51%; average annualized return since September 30, 1990
19.61%.S&P 500 Stock Index - three year average annualized
return 30.25%;five year average annualized return 23.08%;
average annualized return since September 30, 1990 21.53%. The
Russell 2000 Stock Index - three year average annualized return
18.85%; five year average annualized return 16.05%; average
annualized return since September 30, 1990 19.87%.The Lehman
Int. Govt/Corp Bond Index - three year average annualized
return 6.91%; five year average annualized return 6.11%;
average annualized return since September 30, 1990 8.09%.
The Graph details the growth of a $100,000 investment in the
Fund for the period beginning September 30, 1990 and ending
June 30, 1998 ($400,500). The Graph also details the performance
of the S&P 500 Stock Index ($453,228), the Russell 2000 Stock
Index ($407,318) and the Lehman Int. Govt/Corp Bond Index
($182,701) 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 and the Russell 2000 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.
Balance Sheet
As of June 30, 1998
(Unaudited)
ASSETS:
Cash and cash equivalents 14,230
Investments, at market value
cost $48,967,174 41,412,178
Receivables -
Securities sold, not settled 10,813
Dividends 61,952
Interest 603,210
Total Receivables 675,976
Capital Expenditures 4,208
Total Assets 42,106,592
LIABILITIES & PARTNERS' CAPITAL:
Liabilities -
Securities sold short
cost $(449,851) 413,000
Margin account due to brokers 1,122,463
Accounting Payable 10,000
Broker payable 9,275
Payable for custody of assets 2,332
Misc. Payable 965
Contributions held in advance 836,434
Payable to Adviser 3,044
Total liabilities 2,397,514
Partners' Capital
General Partners' Capital 415,552
Limited Partners' Capital 39,293,526
Total Partners' Capital 39,709,078
Total Liabilities and
Partners' Capital 42,106,592
Zazove Convertible Fund, L.P.
Schedule of Investments
As of June 30, 1998
Unaudited)
Principal Market Value
CONVERTIBLE BONDS - 72.29%
AMF Bowling * 7,350,000 1,956,938
0.000 % Due 05-12-18
APP Finance VII Mauritius*+ 1,670,000 1,336,000
3.500 % Due 04-30-03
APP Global Finance 1,600,000 324,000
0.000 % Due 11-18-12
Affiliated Computer Services * 950,000 1,036,688
4.000 % Due 03-15-05
Altos Hornos De Mexico 500,000 368,750
5.500 % Due 12-15-01
Amkor Technology, Inc. 1,700,000 1,572,500
5.750 % Due 05-01-03
Boston Chicken Inc. + 400,000 21,000
0.000% Due 06-01-15
Boston Chicken Inc. 95,000 16,625
7.750% Due 05-01-04
China Petrochemical Dev Corp*1,500,000 1,245,000
1.000 % Due 05-08-08
Chock Full O' Nuts 120,000 118,650
7.000% Due 04-01-12
Cityscape Financial Corp. ^ 5,200,000 234,000
6.00 % Due 05-01-06
Complete Management Inc. 660,000 349,800
8.000% Due 08-15-03
Concentra Managed Care * 830,000 751,150
4.500 % Due 03-15-03
DRS Technologies Inc. 140,000 192,588
9.000 % Due 10-01-03
FPA Medical Management^ 2,845,000 256,050
6.500% Due 12-15-01
Fuisz Technologies Ltd. 600,000 612,000
7.000 % Due 10-15-04
General DataComm Ind.Inc. * 1,000,000 1,030,000
7.750 % Due 09-30-02
Gilat Satellite Networks * 300,000 314,250
6.500% Due 06-03-04
Heartport Inc. 900,000 625,500
7.250% Due 05-01-04
Intevac Inc. 500,000 423,750
6.500% Due 03-01-04
Inversiones y Rep. S.A. * 200,000 219,000
4.500% Due 08-02-03
New World Infrastructure * 500,000 362,500
1.000 % Due 04-15-03
New World Infrastructure * 95,000 75,050
5.000 % Due 07-15-01
North American Vaccine 640,000 490,400
6.500% Due 05-01-03
Paliburg Int'l (Regal Hotel) 1,050,000 782,250
3.500 % Due 02-06-01
Phoenix Inv. Partners Ltd. 402,500 478,975
6.000 % Due 11-01-15
Pride International Inc. + 2,000,000 697,500
0.000 % Due 04-24-18
Reno Air 875,000 840,000
9.000% Due 09-30-02
Sabratek Corporation * 1,350,000 1,117,125
6.000 % Due 04-15-05
Sepracor, Inc. * 745,000 835,331
6.250 % Due 02-15-05
SpaceHab Inc. 250,000 271,875
8.000 % Due 10-15-07
Sunbeam Corporation * 7,000,000 1,592,500
0.000 % Due 03-25-18
Tel-Save Holdings, Inc. 700,000 556,500
4.500 % Due 09-15-02
Thermo Fibertek Inc. * 675,000 688,500
4.500 % Due 07-15-04
Thermo Fibertek Inc. * 500,000 510,000
4.500 % Due 07-15-04
Thermo Optek Inc. * 1,000,000 1,110,000
5.000 % Due 10-15-00
Tingyi Holding Corp. * 250,000 152,500
1.625 % Due 07-17-02
Triarc Companies *+ 6,450,000 1,725,375
0.000 % Due 02-09-18
U.S. Diagnostic Labs Inc. 1,440,000 1,065,600
9.000% Due 03-31-03
U.S. Diagnostic Labs Inc. * 630,000 459,900
6.500 % Due 06-30-01
Westbridge Capital Corp. ^ 590,000 177,000
7.500% Due 05-01-04
Western Digital Corporation *+3,200,000 854,000
0.000 % Due 02-18-18
World Airways, Inc. * 1,300,000 825,500
8.000 % Due 08-26-04
World Airways, Inc. * 55,000 34,925
8.000 % Due 08-26-04
Total convertible bonds
(cost--$36,310,013.00) 28,707,544
CONVERTIBLE PREFERRED - 23.01% Shares arket Value
BTI Capital Trust $3.25 * 10,000 431,250
Elsag Bailey $2.75 20,000 860,000
General Datacomm Ind. $2.25 25,000 337,500
Hybridon Inc. $6.50 PIK 5,044 277,420
Lab Corp of
America(Class B)$4.250 PIK 38,201 2,053,304
Metromedia Int'l
Group, Inc. $3.625 17,000 875,500
Reno Air $2.25 60,000 1,395,000
Titanium Metal Inc. $3.3125 20,000 870,000
Treev $0.84 PIK 153,400 1,342,250
Walden Res. Prop(Class B)$2.29 24,400 695,400
Total preferred stocks
(cost--$10,291,373.83) 9,137,624
Other Securities - 8.98% Amount Market Value
Alliance Capital Management, L.P. 28,000 708,750
Pimco Advisors Holdings LP 34,050 1,161,956
Treev Inc. 22,079 18,629
Audiovox (3/15/01, 7.125 Strike) 16,800 18,379
Hybridon Class A Wts '03 29,671 3,709
Viacom Class E Wts ' 99 519,400 1,655,588
Total other securities
(cost--$2,364,786.87) 3,567,011
SHORT STOCK - (1.04%) Shares Market Value
Reno Air (59,000) (413,000)
Total short stock
(cost--($449,840.56)) (449,850) (413,000)
Other assets less liabilities - (3.24%) (1,290,100)
PARTNERS' CAPITAL - - 100% 39,709,078
+ Nonincome producing.
* These securities are subject to contractual or legal
restrictions on their resale. As of June 30, 1998 the
value of these securities as a percentage of investment
assets was 45.07%.
^ Bond is currently in default on its previous coupon interest
payment.
Percentages are taken as a percent of Partners's Capital on June
30, 1998.
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, 1998
(Unaudited)
INVESTMENT INCOME
Dividends 487,561
Interest 873,747
Other 16,011
TOTAL INVESTMENT INCOME 1,377,320
EXPENSES:
Management fee 367,292
Margin Interest 111,440
Custodian fees 12,310
Director fees 3,000
Other fees -
clearance fees; filing fees 2,263
Organizational expense 3,607
Accounting and
legal expense10,000
Foreign currency loss 25,959
Mailing costs 1,562
TOTAL EXPENSE 537,435
NET INVESTMENT INCOME 839,885
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS:
Net realized gain on
Investments 5,242,711
Net change in unrealized
appreciation or
depreciation of
investments (3,302,252)
NET GAIN ON INVESTMENTS 1,940,459
NET INCREASE IN PARTNERS' CAPITAL
RESULTING FROM OPERATIONS 2,780,344
ZAZOVE CONVERTIBLE FUND, L.P.
Statement of Changes in Partners' Capital
For the six months ended June 30, 1998
(Unaudited)
OPERATIONS:
Net investment income 839,885
Net realized gain on investments 5,242,711
Net change in unrealized
appreciation/depreciation
of investments (3,302,252)
Net increase in partners' capital
resulting from operations 2,780,345
PARTNERS' CAPITAL TRANSACTIONS:
Contributions 2,843,806
Withdrawals (3,262,739)
Net Contributions (418,933)
Net increase in partners' capital 2,361,411
PARTNERS' CAPITAL
Beginning of period 37,347,668
End of period 39,709,079
ZAZOVE CONVERTIBLE FUND, L.P.
Statement of Cash Flows
For the six months ended June 30, 1998
(Unaudited)
Cash Flows from Operating Activities:
Net increase in partner's capital
from operations 2,780,344
Adjustments to reconcile net decrease
in partner's capital from operations
to cash used in operations -
Net change in unrealized gains/losses
on investments 3,302,252
Net realized gain on investment (5,242,711)
Increase in dividends receivable (31,448)
Increase in interest receivable (162,654)
Decrease in organizational expenditures 3,607
Decrease in accounting payable (6,499)
Increase in margin interest payable 3,661
Increase in payable for custody of assets 107
Increase in misc. payable 964
Increase in contributions held in advance 663,761
Increase in adviser payable 1,589
Cash received from -
Sale of securities 112,048,559
Securities sold short 737,326
Securities sold in prior period,
settled this period 547,162
Cash paid to-
Purchase securities (113,859,477)
Cover short sales (390,274)
Securities bought in prior period,
settled this period (1,078,312)
Net cash used in operations (682,043)
Cash Flows from Financing Activities:
Partner's contributions 2,843,806
Partner's withdrawals (3,262,739)
Increase in margin account due to brokers 1,108,024
Net cash provided by financing 689,091
Net increase in cash and cash equivalents 7,048
Cash and Cash Equivalents,
beginning of period 7,181
Cash and Cash Equivalents, end of period 14,229
Zazove Convertible Fund, L.P.
Notes to Financial Statements
For the Period Ended June 30, 1998
(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
1998 were $111,440.
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 registration of 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 1998.
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 1998, 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, 1998 and the year ended
December 31, 1997, purchases of investment securities
(excluding short-term securities) were $113,859,477
and $160,603,091, respectively, and proceeds from sales of
investment securities were $112,048,559 and $161,289,777,
respectively. For federal income tax purposes, at June 30,
1998, the gross unrealized depreciation on investments was
approximately $9,542,419, and the gross unrealized appreciation
was approximately $2,024,419. The cost at June 30, 1998 of
investments and short positions for federal income tax purposes
was approximately $48,967,174 and -449,850 , respectively.
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, 1998, the
market value of the common stock sold short was $413,000.
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, 1998, the three largest industry concentrations
were as follows (as a percentage of investment securities
at market value):
Medical Diagnotic Services 8.74%
Air Transport 6.63%
Financial Services 6.25%
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, 1998, the Partnership
owed the brokerage firm $1,122,463 for securities purchased
on margin. The Partnership held cash and cash equivalents
of $14,230 and had a receivable of $10,813, 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, 1998:
Net asset value per unit, beginning of period:
$15.40
Net investment income
$.35
Net gain on securities (realized and unrealized)
$.76
Net asset value per unit, end of period
$16.51
Total Investment Return
Ratios/Supplemental Data
Partners' capital, end of period
$39,709,078
Ratio of expenses (excludes margin interest) to
average partners' capital
1.04%
Ratio of net investment income to average partners' capital
2.06%
Portfolio turnover rate
275%
Average commission rate paid per share
$.04
