STATEMENT OF
ADDITIONAL INFORMATION
SEPTEMBER 29, 2000
AS SUPPLEMENTED NOVEMBER 2, 2000
THE | ONE WORLD TRADE CENTER--SUITE 9333
ALGER | NEW YORK, NEW YORK 10048
FUND | (800) 922-3863
================================================================================
The Alger Fund (the "Fund") is a registered investment company--a mutual
fund--that presently offers interests in the following six portfolios (the
"Portfolios"):
* Alger Money Market Portfolio
* Alger Balanced Portfolio
* Alger LargeCap Growth Portfolio
* Alger MidCap Growth Portfolio
* Alger Small Capitalization Portfolio
* Alger Capital Appreciation Portfolio
With the exception of the Alger Money Market Portfolio, each Portfolio
offers three classes of shares, each with a different combination of sales
charges, ongoing fees and other features.
The Fund's financial statements for the year ended October 31, 1999 and for
the six months ended April 30, 2000 are contained in its annual and semi-annual
reports to shareholders and are incorporated by reference into this Statement of
Additional Information.
This Statement of Additional Information is not a Prospectus. This document
contains additional information about The Alger Fund and supplements information
in the Prospectus dated September 29, 2000. It should be read together with the
Prospectus which may be obtained free of charge by writing or calling the Fund
at the address or toll-free number shown above.
CONTENTS
The Portfolios ............................................................ 2
Investment Strategies and Policies ........................................ 3
Net Asset Value ........................................................... 11
Classes of Shares ......................................................... 12
Purchases ................................................................. 13
Redemptions ............................................................... 16
Exchanges and Conversions ................................................. 19
Management ................................................................ 21
Code of Ethics ............................................................ 24
Taxes ..................................................................... 24
Dividends ................................................................. 25
Custodian and Transfer Agent .............................................. 26
Certain Shareholders ...................................................... 26
Organization .............................................................. 27
Determination of Performance .............................................. 28
Appendix .................................................................. A-1
<PAGE>
THE PORTFOLIOS
ALGER MONEY MARKET PORTFOLIO
The Portfolio may invest in "money market" instruments, including certificates
of deposit, time deposits and bankers' acceptances; U.S. Government securities;
corporate bonds having less than 397 days remaining to maturity; and commercial
paper, including variable rate master demand notes. The Portfolio may also enter
into repurchase agreements, reverse repurchase agreements and firm commitment
agreements.
The Portfolio will invest at least 95% of its total assets in money market
securities which are rated within the highest credit category assigned by at
least two established rating agencies (or one rating agency if the security is
rated by only one) and will only invest in money market securities rated at the
time of purchase within the two highest credit categories or, if not rated, of
equivalent investment quality as determined by Fred Alger Management, Inc.
("Alger Management"), the Fund's investment manager. Alger Management subjects
all securities eligible for investment to its own credit analysis and considers
all securities purchased by the Portfolio to present minimal credit risks.
The Portfolio has a policy of maintaining a stable net asset value of $1.00.
This policy has been maintained since its inception; however, the $1.00 price is
not guaranteed or insured, nor is its yield fixed. The Portfolio generally
purchases securities which mature in 13 months or less. The average maturity of
the Portfolio will not be greater than 90 days.
The Portfolio's minimum initial and subsequent investments may be waived under
certain circumstances.
ALGER SMALL CAPITALIZATION PORTFOLIO
Except during temporary defensive periods, the Portfolio invests at least 65% of
its total assets in equity securities of companies that, at the time of purchase
of the securities, have total market capitalization within the range of
companies included in the Russell 2000 Growth Index(R) or the S&P SmallCap 600
Index(R), updated quarterly. Both indexes are broad indexes of small
capitalization stocks. The Portfolio may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization outside this combined range, and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
ALGER MIDCAP GROWTH PORTFOLIO
Except during temporary defensive periods, the Portfolio invests at least 65% of
its total assets in equity securities of companies that, at the time of purchase
of the securities, have total market capitalization within the range of
companies included in the S&P MidCap 400 Index(R), updated quarterly. The S&P
MidCap 400 Index(R) is designed to track the performance of medium
capitalization companies. The Portfolio may invest up to 35% of its total assets
in equity securities of companies that, at the time of purchase, have total
market capitalization outside the range of companies included in the S&P MidCap
400 Index(R) and in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
ALGER LARGECAP GROWTH PORTFOLIO (FORMERLY ALGER GROWTH PORTFOLIO)
Except during temporary defensive periods, the Portfolio invests at least 65% of
its total assets in equity securities of companies that, at the time of purchase
of the securities, have total market capitalization--present market value per
share multiplied by the total number of shares outstanding--of $10 billion or
greater. Accordingly, the Portfolio may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization of less than $10 billion.
ALGER BALANCED PORTFOLIO
The Portfolio intends to invest based on combined considerations of risk,
income, capital appreciation and protection of capital value. Normally, it will
invest in common stocks and investment grade fixed income securities (preferred
stock and debt securities), as well as securities convertible into common
stocks. Except during temporary defensive periods, the Portfolio will maintain
at least 25% of its net assets in fixed income (senior) securities. With respect
to debt securities, the Portfolio will invest only in instruments which are
rated in one of the four highest rating categories by any established rating
agency, or if not rated, which are determined by Alger Management to be of
comparable quality to instruments so rated.
The Portfolio may invest up to 35% of its total assets in money market
instruments and repurchase agreements and in excess of that amount (up to 100%
of its assets) during temporary defensive periods.
ALGER CAPITAL APPRECIATION PORTFOLIO
Except during temporary defensive periods, the Portfolio invests at least 85% of
its net assets in equity securities of companies of any size.
The Portfolio may purchase put and call options and sell (write) covered call
and put options on securities and securities indexes to increase gain and to
hedge against the risk of unfavorable price movements, and
-2-
<PAGE>
may enter into futures contracts on securities indexes and purchase and sell
call and put options on these futures contracts. The Portfolio may also borrow
money (leverage) for the purchase of additional securities. The Portfolio may
borrow only from banks and may not borrow in excess of one-third of the market
value of its total assets, less liabilities other than such borrowing. These
practices are deemed to be speculative and may cause the Portfolio's net asset
value to be more volatile than the net asset value of a fund that does not
engage in these activities.
IN GENERAL
Alger Small Capitalization Portfolio, Alger MidCap Growth Portfolio, Alger
LargeCap Growth Portfolio, Alger Capital Appreciation Portfolio, and the equity
portion of Alger Balanced Portfolio seek to achieve their objectives by
investing in equity securities, such as common or preferred stocks, or
securities convertible into or exchangeable for equity securities, including
warrants and rights. The Portfolios will invest primarily in companies whose
securities are traded on domestic stock exchanges or in the over-the-counter
market. These companies may be in the developmental stage, may be older
companies that appear to be entering a new stage of growth progress owing to
factors such as management changes or development of new technology, products or
markets or may be companies providing products or services with a high unit
volume growth rate. In order to afford the Portfolios the flexibility to take
advantage of new opportunities for investments in accordance with their
investment objectives and to meet redemptions, they may hold up to 15% of their
net assets (35% of total assets, in the case of Alger Balanced Portfolio) in
money market instruments and repurchase agreements and in excess of that amount
(up to 100% of their assets) during temporary defensive periods. This amount may
be higher than that maintained by other funds with similar investment
objectives.
There is no guarantee that any Portfolio's objectives will be achieved.
INVESTMENT STRATEGIES AND POLICIES
CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The Prospectus discusses the investment objectives of each Portfolio and the
primary strategies to be employed to achieve those objectives. This section
contains supplemental information concerning the types of securities and other
instruments in which the Portfolios may invest, the investment policies and
portfolio strategies that the Portfolios may utilize and certain risks attendant
to those investments, policies and strategies.
U.S. GOVERNMENT OBLIGATIONS
Bills, notes, bonds, and other debt securities issued by the U.S. Treasury are
direct obligations of the U.S. Government and differ mainly in the length of
their maturities.
U.S. GOVERNMENT AGENCY SECURITIES
These securities are issued or guaranteed by U.S. Government sponsored
enterprises and federal agencies. These include securities issued by the Federal
National Mortgage Association, Government National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Banks for
Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank, Farm
Credit Banks, the Small Business Administration, Federal Housing Administration
and Maritime Administration. Some of these securities are supported by the full
faith and credit of the U.S. Treasury; and the remainder are supported only by
the credit of the instrumentality, which may or may not include the right of the
issuer to borrow from the Treasury.
BANK OBLIGATIONS
These are certificates of deposit, bankers' acceptances, and other short-term
debt obligations. Certificates of deposit are short-term obligations of
commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. Certificates of deposit may have fixed or variable rates.
The Portfolios will not invest in any debt security issued by a commercial bank
unless (i) the bank has total assets of at least $1 billion, or the equivalent
in other currencies, or, in the case of domestic banks which do not have total
assets of at least $1 billion, the aggregate investment made in any one such
bank is limited to $100,000 and the principal amount of such investment is
insured in full by the Federal Deposit Insurance Corporation, (ii) in the case
of U.S. banks, it is a member of the Federal Deposit Insurance Corporation, and
(iii) in the case of foreign banks, the security is, in the opinion of Fred
Alger Management, Inc. ("Alger Management"), the Fund's investment manager, of
an investment quality comparable to other debt securities which may be purchased
by the Portfolios. These limitations do not prohibit investments in securities
issued by foreign branches of U.S. banks, provided such U.S. banks meet the
foregoing requirements.
FOREIGN BANK OBLIGATIONS
Investments by the Portfolios in foreign bank obligations and obligations of
foreign branches of domestic banks present certain risks, including the impact
of future political and economic developments, the pos-
-3-
<PAGE>
sible imposition of withholding taxes on interest income, the possible seizure
or nationalization of foreign deposits, the possible establishment of exchange
controls and/or the addition of other foreign governmental restrictions that
might affect adversely the payment of principal and interest on these
obligations. In addition, there may be less publicly available and reliable
information about a foreign bank than about domestic banks owing to different
accounting, auditing, reporting and recordkeeping standards. In view of these
risks, Alger Management will carefully evaluate these investments on a
case-by-case basis.
SHORT-TERM CORPORATE DEBT SECURITIES
These are outstanding nonconvertible corporate debt securities (e.g., bonds and
debentures) which have one year or less remaining to maturity. Corporate notes
may have fixed, variable, or floating rates.
COMMERCIAL PAPER
These are short-term promissory notes issued by corporations primarily to
finance short-term credit needs.
VARIABLE RATE MASTER DEMAND NOTES
These are unsecured instruments that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate. Because these notes
are direct lending arrangements between the Portfolio and the issuer, they are
not normally traded. Although no active secondary market may exist for these
notes, the Portfolio may demand payment of principal and accrued interest at any
time or may resell the note to a third party. While the notes are not typically
rated by credit rating agencies, issuers of variable rate master demand notes
must satisfy Alger Management that the same criteria for issuers of commercial
paper are met. In addition, when purchasing variable rate master demand notes,
Alger Management will consider the earning power, cash flows and other liquidity
ratios of the issuers of the notes and will continuously monitor their financial
status and ability to meet payment on demand. In the event an issuer of a
variable rate master demand note were to default on its payment obligations, the
Portfolio might be unable to dispose of the note because of the absence of a
secondary market and could, for this or other reasons, suffer a loss to the
extent of the default.
REPURCHASE AGREEMENTS
Under the terms of a repurchase agreement, a Portfolio would acquire a high
quality money market instrument for a relatively short period (usually not more
than one week) subject to an obligation of the seller to repurchase, and the
Portfolio to resell, the instrument at an agreed price (including accrued
interest) and time, thereby determining the yield during the Portfolio's holding
period. Repurchase agreements may be seen to be loans by the Portfolio
collateralized by the underlying instrument. This arrangement results in a fixed
rate of return that is not subject to market fluctuations during the Portfolio's
holding period and not necessarily related to the rate of return on the
underlying instrument. The value of the underlying securities, including accrued
interest, will be at least equal at all times to the total amount of the
repurchase obligation, including interest. A Portfolio bears a risk of loss in
the event that the other party to a repurchase agreement defaults on its
obligations and the Portfolio is delayed in or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a possible
decline in the value of the underlying securities during the period in which the
Portfolio seeks to assert these rights, the risk of incurring expenses
associated with asserting these rights and the risk of losing all or part of the
income from the agreement. Alger Management reviews the credit worthiness of
those banks and dealers with which the Portfolios enter into repurchase
agreements to evaluate these risks and monitors on an ongoing basis the value of
the securities subject to repurchase agreements to ensure that the value is
maintained at the required level.
REVERSE REPURCHASE AGREEMENTS (ALGER MONEY MARKET PORTFOLIO AND ALGER BALANCED
PORTFOLIO)
Reverse repurchase agreements are the same as repurchase agreements except that,
in this instance, the Portfolio would assume the role of seller/borrower in the
transaction. Each Portfolio will maintain segregated accounts consisting of cash
or liquid securities that at all times are in an amount equal to its obligations
under reverse repurchase agreements. The Portfolios will invest the proceeds in
money market instruments or repurchase agreements maturing not later than the
expiration of the reverse repurchase agreement. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price of the securities. Under the Investment
Company Act of 1940, as amended (the "Act"), reverse repurchase agreements may
be considered borrowings by the seller; accordingly, the Portfolio will limit
its investments in reverse repurchase agreements and other borrowings to no more
than one-third of its total assets.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED PURCHASES
Firm commitment agreements and "when-issued" purchases call for the purchase of
securities at an agreed price on a specified future date and would be used, for
-4-
<PAGE>
example, when a decline in the yield of securities of a given issuer is
anticipated and a more advantageous yield may be obtained by committing
currently to purchase securities to be issued later. When the Portfolio
purchases a security under a firm commitment agreement or on a when-issued basis
it assumes the risk of any decline in value of the security occurring between
the date of the agreement or purchase and the settlement date of the
transaction. The Portfolio will not use these transactions for leveraging
purposes and, accordingly, will segregate cash or liquid securities in an amount
sufficient at all times to meet its purchase obligations under these agreements.
WARRANTS AND RIGHTS
Each Portfolio may invest in warrants and rights. A warrant is a type of
security that entitles the holder to buy a proportionate amount of common stock
at a specified price, usually higher than the market price at the time of
issuance, for a period of years or to perpetuity. In contrast, rights, which
also represent the right to buy common shares, normally have a subscription
price lower than the current market value of the common stock and a life of two
to four weeks. Warrants are freely transferable and are traded on the major
securities exchanges.
RESTRICTED SECURITIES
Each Portfolio may invest in restricted securities governed by Rule 144A under
the Securities Act of 1933. In adopting Rule 144A, the Securities and Exchange
Commission specifically stated that restricted securities traded under Rule 144A
may be treated as liquid for purposes of investment limitations if the board of
trustees (or the fund's adviser acting subject to the board's supervision)
determines that the securities are in fact liquid. The Board of Trustees has
delegated its responsibility to Alger Management to determine the liquidity of
each restricted security purchased pursuant to the Rule, subject to the Board of
Trustees' oversight and review. Examples of factors that will be taken into
account in evaluating the liquidity of a Rule 144A security, both with respect
to the initial purchase and on an ongoing basis, will include, among others: (1)
the frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and the
mechanics of transfer). If institutional trading in restricted securities were
to decline to limited levels, the liquidity of the Portfolio could be adversely
affected.
SHORT SALES
Each Portfolio other than Alger Money Market Portfolio may sell securities
"short against the box." While a short sale is the sale of a security the
Portfolio does not own, it is "against the box" if at all times when the short
position is open the Portfolio owns an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities sold short.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio may lend securities to brokers, dealers and other financial
organizations. The Portfolios will not lend securities to Alger Management or
its affiliates. By lending its securities, a Portfolio can increase its income
by continuing to receive interest or dividends on the loaned securities as well
as by either investing the cash collateral in short-term securities or by
earning income in the form of interest paid by the borrower when U.S. Government
securities or letters of credit are used as collateral. Each Portfolio will
adhere to the following conditions whenever its securities are loaned: (a) the
Portfolio must receive at least 100 percent cash collateral or equivalent
securities from the borrower; (b) the borrower must increase this collateral
whenever the market value of the securities including accrued interest exceeds
the value of the collateral; (c) the Portfolio must be able to terminate the
loan at any time; (d) the Portfolio must receive reasonable interest on the
loan, as well as any dividends, interest or other distributions on the loaned
securities and any increase in market value; (e) the Portfolio may pay only
reasonable custodian fees in connection with the loan; and (f) voting rights on
the loaned securities may pass to the borrower; provided, however, that if a
material event adversely affecting the investment occurs, the Fund's Board of
Trustees must terminate the loan and regain the right to vote the securities. A
Portfolio bears a risk of loss in the event that the other party to a stock loan
transaction defaults on its obligations and the Portfolio is delayed in or
prevented from exercising its rights to dispose of the collateral including the
risk of a possible decline in the value of the collateral securities during the
period in which the Portfolio seeks to assert these rights, the risk of
incurring expenses associated with asserting these rights and the risk of losing
all or a part of the income from the transaction.
-5-
<PAGE>
FOREIGN SECURITIES
Each Portfolio other than Alger Money Market Portfolio may invest up to 20% of
the value of its total assets in foreign securities (not including American
Depositary Receipts, American Depositary Shares or U.S. dollar-denominated
securities of foreign issuers). Foreign securities investments may be affected
by changes in currency rates or exchange control regulations, changes in
governmental administration or economic or monetary policy (in the United States
and abroad) or changed circumstances in dealing between nations. Dividends paid
by foreign issuers may be subject to withholding and other foreign taxes that
may decrease the net return on these investments as compared to dividends paid
to the Portfolio by domestic corporations. It should be noted that there may be
less publicly available information about foreign issuers than about domestic
issuers, and foreign issuers are not subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those of domestic
issuers. Securities of some foreign issuers are less liquid and more volatile
than securities of comparable domestic issuers and foreign brokerage commissions
are generally higher than in the United States. Foreign securities markets may
also be less liquid, more volatile and less subject to government supervision
than those in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation and potential difficulties in enforcing
contractual obligations. Securities purchased on foreign exchanges may be held
in custody by a foreign branch of a domestic bank.
OPTIONS (ALGER CAPITAL APPRECIATION PORTFOLIO)
The Portfolio may purchase put and call options and sell (write) covered put and
call options on securities and securities indexes to increase gain or to hedge
against the risk of unfavorable price movements, although, as in the past, it
does not currently intend to rely on these strategies extensively, if at all.
A call option on a security is a contract that gives the holder of the option
the right, in return for a premium paid, to buy from the writer (seller) of the
call option the security underlying the option at a specified exercise price at
any time during the term of the option. The writer of the call option has the
obligation upon exercise of the option to deliver the underlying security upon
payment of the exercise price during the option period. A put option on a
security is a contract that, in return for the premium, gives the holder of the
option the right to sell to the writer (seller) the underlying security at a
specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying security upon
exercise at the exercise price during the option period.
The Portfolio will not sell options that are not covered. A call option written
by the Portfolio on a security is "covered" if the Portfolio owns the underlying
security covered by the call or has an absolute and immediate right to acquire
that security without additional cash consideration (or for additional cash
consideration held in a segregated account) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Portfolio
holds a call on the same security as the call written where the exercise price
of the call held is (1) equal to or less than the exercise price of the call
written or (2) greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash, U.S. Government securities or
other high grade short-term obligations in a segregated account. A put option is
"covered" if the Portfolio maintains cash or other high grade short-term
obligations with a value equal to the exercise price in a segregated account, or
else holds a put on the same security as the put written where the exercise
price of the put held is equal to or greater than the exercise price of the put
written.
If the Portfolio has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Portfolio has been assigned an exercise notice, the Portfolio will be unable to
effect a closing purchase transaction. Similarly, if the Portfolio is the holder
of an option it may liquidate its position by effecting a closing sale
transaction. This is accomplished by selling an option of the same series as the
option previously purchased. There can be no assurance that either a closing
purchase or sale transaction can be effected when the Portfolio so desires.
The Portfolio would realize a profit from a closing transaction if the price of
the transaction were less than the premium received from writing the option or
is more than the premium paid to purchase the option; the Portfolio would
realize a loss from a closing transaction if the price of the transaction were
less than the premium paid to purchase the option. Since call option prices
generally reflect increases in the price of the underlying security, any loss
resulting from the repurchase of a call option may also be wholly or partially
offset by unrealized appreciation of the underlying security. Other principal
factors affecting the market value of a put or a call option include supply and
-6-
<PAGE>
demand, interest rates, the current market price and price volatility of the
underlying security and the time remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. There is no assurance that a
liquid secondary market on an exchange will exist for any particular option. In
such event it might not be possible to effect closing transactions in particular
options, so that the Portfolio would have to exercise its option in order to
realize any profit and would incur brokerage commissions upon the exercise of
the options. If the Portfolio, as a covered call option writer, were unable to
effect a closing purchase transaction in a secondary market, it would not be
able to sell the underlying security until the option expired or it delivered
the underlying security upon exercise or otherwise covered the position.
In addition to options on securities, the Portfolio may also purchase and sell
call and put options on securities indexes. A stock index reflects in a single
number the market value of many different stocks. Relative values are assigned
to the stocks included in an index and the index fluctuates with changes in the
market values of the stocks. The options give the holder the right to receive a
cash settlement during the term of the option based on the difference between
the exercise price and the value of the index. By writing a put or call option
on a securities index, the Portfolio is obligated, in return for the premium
received, to make delivery of this amount. The Portfolio may offset its position
in stock index options prior to expiration by entering into a closing
transaction on an exchange or it may let the option expire unexercised.
Use of options on securities indexes entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase these options unless Alger
Management is satisfied with the development, depth and liquidity of the market
and Alger Management believes the options can be closed out.
Price movements in the Portfolio's securities may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indexes
cannot serve as a complete hedge and would depend, in part, on the ability of
Alger Management to predict correctly movements in the direction of the stock
market generally or of a particular industry. Because options on securities
indexes require settlement in cash, Alger Management might be forced to
liquidate portfolio securities to meet settlement obligations.
Although Alger Management will attempt to take appropriate measures to minimize
the risks relating to any trading by the Portfolio in put and call options,
there can be no assurance that the Portfolio will succeed in any option trading
program it undertakes.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES (ALGER CAPITAL
APPRECIATION PORTFOLIO)
If the Portfolio utilizes these investments, it will do so only for hedging, not
speculative, purposes. Futures are generally bought and sold on the commodities
exchanges where they are listed with payment of initial and variation margin as
described below. The sale of a futures contract creates a firm obligation by the
Portfolio, as seller, to deliver to the buyer the net cash amount called for in
the contract at a specific future time. Put options on futures might be
purchased to protect against declines in the market values of securities
occasioned by a decline in stock prices and securities index futures might be
sold to protect against a general decline in the value of securities of the type
that comprise the index. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position.
A stock index future obligates the seller to deliver (and the purchaser to take)
an amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made. While incidental to its securities
activities, the Portfolio may use index futures as a substitute for a comparable
market position in the underlying securities, although it has not invested in
index futures in the past.
If the Fund uses futures, or options thereon, for hedging, the risk of imperfect
correlation will increase as the composition of the Portfolio varies from the
composition of the stock index. In an effort to compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the stock index futures, the Portfolio may, if it uses
a hedging strategy, buy or sell stock index futures contracts in a greater or
lesser dollar amount than the dollar amount of the securities being hedged if
the historical volatility of the stock index futures has been less or greater
than that of the securities. Such "over hedging" or "under hedging" may
adversely affect the Port-
-7-
<PAGE>
folio's net investment results if market movements are not as anticipated when
the hedge is established.
An option on a stock index futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in a stock index futures contract at a
specified exercise price at any time prior to the expiration date of the option.
The Portfolio would sell options on stock index futures contracts only as part
of closing purchase transactions to terminate its options positions. No
assurance can be given that such closing transactions could be effected or that
there would be correlation between price movements in the options on stock index
futures and price movements in the Portfolio's securities which were the subject
of the hedge. In addition, any purchase by the Portfolio of such options would
be based upon predictions as to anticipated market trends, which could prove to
be inaccurate.
The Portfolio's use, if any, of stock index futures and options thereon will in
all cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading Commission
and will be entered into only, if at all, for bona fide hedging, risk management
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon will require the Portfolio to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on stock index futures involves payment of
a premium for the option without any further obligation on the part of the
Portfolio. If the Portfolio exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur.
The Portfolio will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Portfolio's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
BORROWING
Alger Capital Appreciation Portfolio may borrow money from banks and use it to
purchase additional securities. This borrowing is known as leveraging. Leverage
increases both investment opportunity and investment risk. If the investment
gains on securities purchased with borrowed money exceed the interest paid on
the borrowing, the net asset value of the Portfolio's shares will rise faster
than would otherwise be the case. On the other hand, if the investment gains
fail to cover the cost (including interest) of borrowings, or if there are
losses, the net asset value of the Portfolio's shares will decrease faster than
would otherwise be the case. The Portfolio may also borrow from banks for
temporary or emergency purposes. The Portfolio is required to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If such
asset coverage should decline below 300% as a result of market fluctuations or
other reasons, the Portfolio may be required to sell some of its portfolio
holdings within three days to reduce the debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time.
INVESTMENT RESTRICTIONS
The investment restrictions numbered 1 through 13 below have been adopted by the
Fund with respect to each of the Portfolios as fundamental policies. Under the
Act, a "fundamental" policy may not be changed without the vote of a "majority
of the outstanding voting securities" of the Fund, which is defined in the Act
as the lesser of (a) 67 percent or more of the shares present at a Fund meeting
if the holders of more than 50 percent of the outstanding shares of the Fund are
present or represented by proxy or (b) more than 50 percent of the outstanding
shares. The Portfolios' investment objectives are fundamental policies. A
fundamental policy affecting a particular Portfolio may not be changed without
the vote of a majority of the outstanding voting securities of the affected
Portfolio. Investment restrictions 14 through 19 may be changed by vote of a
majority of the Fund's Board of Trustees at any time.
The investment policies adopted by the Fund prohibit each Portfolio from:
1. Purchasing the securities of any issuer, other than U.S. Government
securities, if as a result more than
-8-
<PAGE>
five percent of the value of the Portfolio's total assets would be invested in
the securities of the issuer, except that up to 25 percent of the value of the
Portfolio's (other than Alger Money Market Portfolio's) total assets may be
invested without regard to this limitation.
2. Purchasing more than 10 percent of the outstanding voting securities of any
one issuer or more than 10 percent of the outstanding voting securities of any
class of any one issuer. This limitation shall not apply to investments in U.S.
Government securities.
3. Selling securities short or purchasing securities on margin, except that the
Portfolio may obtain any short-term credit necessary for the clearance of
purchases and sales of securities. These restrictions shall not apply to
transactions involving selling securities "short against the box."
4. Borrowing money, except that (a) all Portfolios may borrow for temporary or
emergency purposes including the meeting of redemption requests that might
otherwise require the untimely disposition of securities, in an amount not
exceeding 10 percent of the value of the Portfolio's total assets (including the
amount borrowed) valued at the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made; (b) Alger
Money Market Portfolio and Alger Balanced Portfolio may engage in transactions
in reverse repurchase agreements; and (c) Alger Capital Appreciation Portfolio
may borrow from banks for investment purposes in order to leverage (see
"Borrowing" above). Whenever borrowings described in (a) exceed five percent of
the value of the Portfolio's total assets, the Portfolio will not make any
additional investments. Immediately after any borrowing, including reverse
repurchase agreements, the Portfolio will maintain asset coverage of not less
than 300 percent with respect to all borrowings.
5. Pledging, hypothecating, mortgaging or otherwise encumbering more than 10
percent of the value of the Portfolio's total assets except in connection with
borrowings as noted in 4(c) above. These restrictions shall not apply to
transactions involving reverse repurchase agreements or the purchase of
securities subject to firm commitment agreements or on a when-issued basis.
6. Issuing senior securities, except in connection with borrowings permitted
under restriction 4.
7. Underwriting the securities of other issuers, except insofar as the Portfolio
may be deemed to be an underwriter under the Securities Act of 1933, as amended,
by virtue of disposing of portfolio securities.
8. Making loans to others, except through purchasing qualified debt obligations,
lending portfolio securities or entering into repurchase agreements.
9. Investing in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation, reorganization, acquisition of
assets or offer of exchange.
10. Purchasing any securities that would cause more than 25 percent of the value
of the Portfolio's total assets to be invested in the securities of issuers
conducting their principal business activities in the same industry; provided
that (a) there shall be no limit on the purchase of U.S. Government securities,
and (b) there shall be no limit on the purchase by Alger Money Market Portfolio
of obligations issued by bank and thrift institutions described in the
Prospectus and this Statement of Additional Information.
11. Investing in commodities, except that Alger Capital Appreciation Portfolio
may purchase or sell stock index futures contracts and related options thereon
if, thereafter, no more than 5 percent of its total assets are invested in
margin and premiums.
12. Investing more than 10 percent (15 percent in the case of Alger Capital
Appreciation Portfolio) of its net assets in securities which are illiquid by
virtue of legal or contractual restrictions on resale or the absence of a
readily available market. However, securities with legal or contractual
restrictions on resale may be purchased by Alger Money Market Portfolio if they
are determined to be liquid, and such purchases would not be subject to the 10
percent limit stated above. The Board of Trustees will in good faith determine
the specific types of securities deemed to be liquid and the value of such
securities held in Alger Money Market Portfolio. Alger Money Market Portfolio
will not purchase time deposits maturing in more than seven calendar days and
will limit to no more than 10 percent of its assets its investment in time
deposits maturing in excess of two business days, together with all other
illiquid securities.
13. Purchasing or selling real estate or real estate limited partnerships,
except that the Portfolio may purchase and sell securities secured by real
estate, mortgages or interests therein and securities that are issued by
companies that invest or deal in real estate.
14. Writing or selling puts, calls, straddles, spreads or combinations thereof,
except that Alger Capital Appreciation Portfolio may buy and sell (write)
options.
15. Investing in oil, gas or other mineral exploration or development programs,
except that the Portfolio may
-9-
<PAGE>
invest in the securities of companies that invest in or sponsor those programs.
16. Purchasing any security if, as a result, the Portfolio would then have more
than five percent of its total assets invested in securities of issuers
(including predecessors) that have been in continual operation for less than
three years. This limitation shall not apply to investments in U.S. Government
securities.
17. Making investments for the purpose of exercising control or management.
18. Investing in warrants, except that the Portfolio may invest in warrants if,
as a result, the investments (valued at the lower of cost or market) would not
exceed five percent of the value of the Portfolio's net assets, of which not
more than two percent of the Portfolio's net assets may be invested in warrants
not listed on a recognized domestic stock exchange. Warrants acquired by the
Portfolio as part of a unit or attached to securities at the time of acquisition
are not subject to this limitation.
19. Purchasing or retaining the securities of any issuer if, to the knowledge of
the Fund, any of the officers, directors or trustees of the Fund or Alger
Management individually owns more than .5 percent of the outstanding securities
of the issuer and together they own beneficially more than five percent of the
securities.
Shares of Alger LargeCap Growth Portfolio, Alger Small Capitalization Portfolio
and Alger MidCap Growth Portfolio are registered for sale in Germany. As long as
Alger LargeCap Growth Portfolio, Alger Small Capitalization Portfolio and Alger
MidCap Growth Portfolio are registered in Germany, these Portfolios may not
without prior approval of their shareholders:
a. Invest in the securities of any other domestic or foreign investment
company or investment fund except in connection with a plan of merger or
consolidation with or acquisition of substantially all the assets of such
other investment company or investment fund;
b. Purchase or sell real estate or any interest therein, and real estate
mortgage loans, except that the Portfolios may invest in securities of
corporate or governmental entities secured by real estate or marketable
interests therein or securities issued by companies (other than real estate
limited partnerships, real estate investment trusts and real estate funds)
that invest in real estate or interests therein;
c. Borrow money, except for temporary or emergency (but not leveraging)
purposes including the meeting of redemption requests that might otherwise
require the untimely disposition of securities, in an amount not exceeding
10 percent of the value of the Portfolio's total assets (including the
amount borrowed) valued at the lesser of cost or market, less liabilities
(not including the amount borrowed) at the time the borrowing is made;
d. Pledge, hypothecate, mortgage or otherwise encumber their assets except to
secure indebtedness permitted under section c.;
e. Purchase securities on margin or make short sales; or
f. Redeem their securities in kind.
These Portfolios will comply with the more restrictive policies required by the
German regulatory authorities, as stated above, as long as such Portfolios are
registered in Germany.
Except in the case of the 300 percent limitation set forth in Investment
Restriction No. 4 and as may be stated otherwise, the percentage limitations
contained in the foregoing restrictions and in the Fund's other investment
policies apply at the time of the purchase of the securities and a later
increase or decrease in percentage resulting from a change in the values of the
securities or in the amount of the Portfolio's assets will not constitute a
violation of the restriction.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities and other financial instruments for a
Portfolio are made by Alger Management, which also is responsible for placing
these transactions, subject to the overall review of the Fund's Board of
Trustees. Although investment requirements for each Portfolio are reviewed
independently from those of the other accounts managed by Alger Management and
those of the other Portfolios, investments of the type the Portfolios may make
may also be made by these other accounts or Portfolios. When a Portfolio and one
or more other Portfolios or accounts managed by Alger Management are prepared to
invest in, or desire to dispose of, the same security or other financial
instrument, available investments or opportunities for sales will be allocated
in a manner believed by Alger Management to be equitable to each. In some cases,
this procedure may affect adversely the price paid or received by a Portfolio or
the size of the position obtained or disposed of by a Portfolio.
Transactions in equity securities are in many cases effected on U. S. stock
exchanges and involve the payment of negotiated brokerage commissions. There is
generally no stated commission in the case of securities
-10-
<PAGE>
traded in the over-the-counter markets, but the prices of those securities
include undisclosed commissions or mark-ups. Purchases and sales of money market
instruments and debt securities usually are principal transactions. These
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. The cost of securities purchased
from underwriters includes an underwriting commission or concession and the
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down. U. S. Government securities are generally
purchased from underwriters or dealers, although certain newly-issued U. S.
Government securities may be purchased directly from the U. S. Treasury or from
the issuing agency or instrumentality.
To the extent consistent with applicable provisions of the Act and the rules and
exemptions adopted by the Securities and Exchange Commission (the "SEC")
thereunder, as well as other regulatory requirements, the Fund's Board of
Trustees has determined that portfolio transactions will be executed through
Fred Alger & Company, Incorporated ("Alger Inc.") if, in the judgment of Alger
Management, the use of Alger Inc. is likely to result in price and execution at
least as favorable as those of other qualified broker-dealers and if, in
particular transactions, Alger Inc. charges the Portfolio involved a rate
consistent with that charged to comparable unaffiliated customers in similar
transactions. Such transactions will be fair and reasonable to the Portfolio's
shareholders. Over-the-counter purchases and sales are transacted directly with
principal market makers except in those cases in which better prices and
executions may be obtained elsewhere. Principal transactions are not entered
into with affiliates of the Fund except pursuant to exemptive rules or orders
adopted by the SEC.
In selecting brokers or dealers to execute portfolio transactions on behalf of a
Portfolio, Alger Management seeks the best overall terms available. In assessing
the best overall terms available for any transaction, Alger Management will
consider the factors it deems relevant, including the breadth of the market in
the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis. In
addition, Alger Management is authorized, in selecting parties to execute a
particular transaction and in evaluating the best overall terms available, to
consider the brokerage and research services, as those terms are defined in
section 28(e) of the Securities Exchange Act of 1934, provided to the Portfolio
involved, the other Portfolios and/or other accounts over which Alger Management
or its affiliates exercise investment discretion. The Fund will consider sales
of its shares as a factor in the selection of broker-dealers to execute
over-the-counter transactions, subject to the requirements of best price and
execution. Alger Management's fees under its agreements with the Portfolios are
not reduced by reason of its receiving brokerage and research service. The
Fund's Board of Trustees will periodically review the commissions paid by the
Portfolios to determine if the commissions paid over representative periods of
time are reasonable in relation to the benefits inuring to the Portfolios.
During the fiscal years ended October 31, 1997, 1998, and 1999, the Fund paid an
aggregate of approximately $2,948,963, $4,649,613 and $4,937,439 in brokerage
commissions, of which approximately $2,875,727, $4,603,119 and $4,923,562,
respectively, was paid to Alger Inc. The commissions paid to Alger Inc. during
the fiscal year ended October 31, 1999 constituted 99% of the aggregate
brokerage commissions paid by the Fund; during that year, 99% of the aggregate
dollar amount of transactions by the Fund involving the payment of brokerage
commissions was effected through Alger Inc. Alger Inc. does not engage in
principal transactions with the Fund and, accordingly, received no compensation
in connection with securities purchased or sold in that manner, which include
securities traded in the over-the-counter markets, money market investments and
most debt securities.
NET ASSET VALUE
The price of one share of a class is based on its "net asset value." The net
asset value is computed by adding the value of the Portfolio's investments plus
cash and other assets allocable to the class, deducting applicable liabilities
and then dividing the result by the number of its shares outstanding. The net
asset value of a share of a given class may differ from that of one or more
other classes. Net asset value is calculated as of the close of business
(normally 4:00 p.m. Eastern time) or, for Alger Money Market Portfolio, as of
12:00 noon Eastern time on each day the New York Stock Exchange ("NYSE") is
open.
Purchases for Alger Money Market Portfolio will be processed at the net asset
value calculated after your order is received and accepted. If your purchase is
made by wire and is received by 12:00 noon Eastern time, your account will be
credited and begin earning dividends on the day of receipt. If your wire
purchase is received after 12:00 noon Eastern time, it will be credited and
begin earning dividends the next business day. Exchanges are credited the day
the request is
-11-
<PAGE>
received by mail or telephone, and begin earning dividends the next business
day. If your purchase is made by check, and received by the close of business of
the NYSE (normally 4:00 p.m. Eastern time), it will be credited and begin
earning dividends the next business day.
Purchases for the other Portfolios will be based upon the next net asset value
calculated for each class after your order is received and accepted. If your
purchase is made by check, wire or exchange and is received by the close of
business of the NYSE (normally 4:00 p.m. Eastern time), your account will be
credited on the day of receipt. If your purchase is received after such time, it
will be credited the next business day.
The NYSE is generally open on each Monday through Friday, except New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), Independence Day, Labor Day
(the first Monday in September), Thanksgiving Day (the fourth Thursday in
November) and Christmas Day.
The assets of the Portfolios other than Alger Money Market Portfolio are
generally valued on the basis of market quotations. Securities whose principal
market is on an exchange or in the over-the-counter market 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. Bonds and other fixed income securities may be
valued on the basis of prices provided by a pricing service when the Fund's
Board of Trustees believes that these prices reflect the fair market value of
the securities. Other investments and other assets, including restricted
securities and securities for which market quotations are not readily available,
are valued at fair value under procedures approved by the Fund's Board of
Trustees. Short-term securities with maturities of 60 days or less are valued at
amortized cost, as described below, which constitutes fair value as determined
by the Fund's Board of Trustees.
The valuation of the securities held by Alger Money Market Portfolio, as well as
money market instruments with maturities of 60 days or less held by the other
Portfolios, is based on their amortized cost which does not take into account
unrealized capital gains or losses. Amortized cost valuation involves initially
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. Although this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price a
Portfolio would receive if it sold the instrument.
Alger Money Market Portfolio's use of the amortized cost method of valuing its
securities is permitted by a rule adopted by the SEC. Under this rule, the
Portfolio must maintain a dollar-weighted average portfolio maturity of 90 days
or less, purchase only instruments having remaining maturities of less than 397
days, as determined in accordance with the provisions of the rule, and invest
only in securities determined by Alger Management, acting under the supervision
of the Fund's Board of Trustees, to be of high quality with minimal credit
risks.
Pursuant to the rule, the Fund's Board of Trustees also has established
procedures designed to stabilize, to the extent reasonably possible, Alger Money
Market Portfolio's price per share as computed for the purpose of sales and
redemptions at $1.00. These procedures include review of the Portfolio's
holdings by the Fund's Board of Trustees, at such intervals as it deems
appropriate, to determine whether the Portfolio's net asset value calculated by
using available market quotations or market equivalents deviates from $1.00 per
share based on amortized cost.
The rule also provides that the extent of any deviation between the Portfolio's
net asset value based on available market quotations or market equivalents and
$1.00 per share net asset value based on amortized cost must be examined by the
Fund's Board of Trustees. In the event the Fund's Board of Trustees determines
that a deviation exists that may result in material dilution or other unfair
results to investors or existing shareholders, pursuant to the rule the Fund's
Board of Trustees must cause the Portfolio to take such corrective action as the
Fund's Board of Trustees regards as necessary and appropriate, including:
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends or paying
distributions from capital or capital gains, redeeming shares in kind or
establishing net asset value per share by using available market quotations.
CLASSES OF SHARES
As described in the Prospectus, the equity portfolios of the Fund have three
classes of shares: Class A Shares, which are generally subject to a front-end
load, Class B Shares, which are generally subject to a back-end load, and Class
C Shares, which are generally subject to a front-end load and a back-end load.
-12-
<PAGE>
CLASS A SHARES AND CLASS C SHARES
From time to time, Alger Inc. may reallow to brokers or financial intermediaries
all or substantially all of the initial sales charge. To the extent that it does
so, such persons may be deemed to be underwriters of the Fund as defined in the
Securities Act of 1933, as amended.
CONVERSION OF CLASS B AND CLASS C SHARES
Class B Shares, and Class C Shares purchased prior to August 1, 2000, will
automatically convert to Class A Shares eight and twelve years, respectively,
after the end of the calendar month in which the order to purchase was accepted
and will thereafter not be subject to the original Class's Rule 12b-1 fees. The
conversion will be completed on the basis of the relative net asset values per
share without the imposition of any sales charge, fee or other charge. At
conversion, a proportionate amount of shares representing reinvested dividends
and reinvested capital gains will also be converted into Class A Shares. Because
Alger Money Market Portfolio is not subject to any distribution fees, the
running of the applicable conversion period is suspended for any period of time
in which shares received in exchange for Class B or Class C Shares are held in
that Portfolio.
The conversion of Class B Shares and Class C Shares is subject to the continuing
availability of an opinion of counsel to the effect that the conversion of
shares does not constitute a taxable event under Federal income tax laws. The
conversion of Class B and Class C Shares may be suspended if such an opinion is
no longer available.
CLASS C SHARES PURCHASED AFTER AUGUST 1, 2000
Class C Shares purchased on or after August 1, 2000, are generally subject to a
1% front-end load. Furthermore, Class C Shares purchased after that date will no
longer be eligible for conversion to Class A Shares after twelve years. As Class
C Shares they will remain subject to the Class's annual Rule 12b-1 fee.
PURCHASES
Shares of the Portfolios are offered continuously by the Fund and are
distributed on a best efforts basis by Alger Inc. as principal underwriter for
the Fund pursuant to distribution agreements (the "Distribution Agreements").
Under the Distribution Agreements, Alger Inc. bears all selling expenses,
including the costs of advertising and of printing prospectuses and distributing
them to prospective shareholders. Each of the officers of the Fund and Messrs.
David D. Alger and Fred M. Alger III, Trustees of the Fund, are "affiliated
persons," as defined in the Act, of the Fund and of Alger Inc.
Third-party checks will not be honored except in the case of employer-sponsored
retirement plans. You will be charged a fee for any check returned by your bank.
DISTRIBUTION PLANS
As stated in the Prospectus, in connection with the distribution activities of
Alger Inc. in respect of the Fund's Class B and Class C Shares, respectively,
the Fund has adopted two Distribution Plans (the "Plans") pursuant to Rule 12b-1
under the Act, one for each class. In each case, the Rule 12b-1 fee, sometimes
described as an "asset-based sales charge," allows investors to buy shares with
little or no initial sales charge while allowing Alger Inc. to compensate
dealers that sell Class B or C Shares of the Portfolios. Typically, Alger Inc.,
in its discretion or pursuant to dealer agreements, pays sales commissions of up
to 5.00% of the amount invested in Class B Shares, and up to 1% of the amount
invested in Class C Shares, to dealers from its own resources at the time of
sale and pays continuing commissions after purchase to dealers selling Class C
Shares. In addition, the 1% initial sales charge on Class C shares is also
reallowed to dealers. For Class B Shares, Alger Inc. retains the asset-based
sales charge to recoup the sales commissions and other sales-related expenses
its pays. For Class C Shares, the asset-based sales charge is retained by Alger
Inc. in the first year after purchase; in subsequent years, all or a portion of
it typically is paid to the dealers who sold the Class C Shares. In some cases,
the selling dealer is Alger Inc.
The Class B Plan is a "reimbursement" plan under which Alger Inc. is reimbursed
for its actual distribution expenses. Any contingent deferred sales charges
("CDSCs") on Class B Shares received by Alger Inc. will reduce the amount to be
reimbursed under the Class B Plan. Under the Class B Plan, any excess
distribution expenses may be carried forward, with interest, and reimbursed in
future years. At October 31, 1999, the following approximate amounts were
carried forward under the Class B Plan: Alger Small Capitalization
Portfolio--$15,666,000 (3.7% of net assets); Alger MidCap Growth
Portfolio--$4,023,000 (1.6% of net assets); Alger LargeCap Growth
Portfolio--$15,036,000 (2.0% of net assets); Alger Balanced Portfolio--$906,000
(1.7% of net assets); and Alger Capital Appreciation Portfolio--$9,013,000 (1.5%
of net assets).
Reimbursable distribution expenses covered under the Class B Plan may include
payments made to and expenses of persons who are engaged in, or provide support
services in connection with, the distribution of the class's shares, such as
answering routine telephone inquiries for prospective shareholders; compensation
-13-
<PAGE>
in the form of sales concessions and continuing compensation paid to securities
dealers whose customers hold shares of the class; costs related to the
formulation and implementation of marketing and promotional activities,
including direct mail promotions and television, radio, newspaper, magazine and
other mass media advertising; costs of printing and distributing prospectuses
and reports to prospective shareholders of the class; costs involved in
preparing, printing and distributing sales literature for the class; and costs
involved in obtaining whatever information, analyses and reports with respect to
marketing and promotional activities on behalf of the class that the Fund deems
advisable.
Historically, distribution expenses incurred by Alger Inc. have exceeded the
Class B assets available for reimbursement under the Plan; it is possible that
in the future the converse may be true. Distribution expenses incurred in a year
in respect of Class B Shares of a Portfolio in excess of CDSCs received by Alger
Inc. relating to redemptions of shares of the class during that year and .75
percent of the class' average daily net assets may be carried forward and sought
to be reimbursed in future years. Interest at the prevailing broker loan rate
may be charged to the applicable Portfolio's Class B Shares on any expenses
carried forward and those expenses and interest will be reflected as current
expenses on the Portfolio's statement of operations for the year in which the
amounts become accounting liabilities, which is anticipated to be the year in
which these amounts are actually paid. Although the Fund's Board of Trustees may
change this policy, it is currently anticipated that payments under the Plan in
a year will be applied first to distribution expenses incurred in that year and
then, up to the maximum amount permitted under the Plan, to previously incurred
but unreimbursed expenses carried forward plus interest thereon.
The Plan for Class C Shares annually pays a flat percentage (up to .75 percent)
of the class's average daily net assets to Alger Inc., regardless of whether the
associated distribution expenses incurred are higher or lower than the fee. No
excess distribution expense shall be carried forward to subsequent years under
this Plan. Distribution services for which Alger Inc. is compensated under the
Class C Plan may include, but are not limited to, organizing and conducting
sales seminars, advertising programs, payment of finders' fees, printing of
prospectuses and statements of additional information and reports for other than
existing shareholders, preparation and distribution of advertising material and
sales literature, overhead, supplemental payments to dealers and other
institutions as asset-based sales charges or as payments of commissions or
service fees, and the costs of administering the Plan.
Alger Inc. has acknowledged that payments under the Plans are subject to the
approval of the Fund's Board of Trustees and that no Portfolio is contractually
obligated to make payments in any amount or at any time, including payments in
reimbursement of Alger Inc. for expenses and interest thereon incurred in a
prior year.
Under their terms, the Plans remain in effect from year to year, provided such
continuation is approved in each case annually by vote of the Fund's Board of
Trustees, including a majority of the Trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in the operation
of the Plan ("Independent Trustees"). A Plan may not be amended to increase
materially the amount to be spent for the services provided by Alger Inc.
without the approval of shareholders of the applicable class, and all material
amendments of a Plan must be approved by the Trustees in the manner described
above. A Plan may be terminated at any time, without penalty, by vote of a
majority of the Independent Trustees or, with respect to the Class B or Class C
Shares of any Portfolio to which a Plan relates, by a vote of a majority of the
outstanding voting securities of the class, on not more than thirty days'
written notice to any other party to the Plan. If a Plan is terminated, or not
renewed with respect to any one or more Portfolios, it may continue in effect
with respect to the Class B or Class C Shares of any Portfolio as to which it
has not been terminated, or has been renewed. Alger Inc. will provide to the
Board of Trustees quarterly reports of amounts expended under each Plan and the
purpose for which such expenditures were made. During the fiscal year ended
October 31, 1999, the Fund reimbursed approximately $12,724,000 to Alger Inc. as
the Fund's underwriter, under the provisions of the Class B Shares' Plan. Alger
Inc.'s selling expenses during that period totaled $30,440,314 which consisted
of $1,199,401 in printing and mailing of prospectuses and other sales literature
to prospective investors; $1,488,411 in advertising; $23,673,475 in compensation
to dealers; $1,393,641 in compensation to sales personnel; $299,574 in other
marketing expenses; and $2,385,812 in interest, carrying or other financing
charges. If in any month, the costs incurred by Alger Inc. are in excess of the
distribution expenses charged to Class B Shares of a Portfolio, the excess may
be carried forward, with interest, and sought to be paid in future periods.
During the fiscal year ended October 31, 1999, the Fund paid approximately
$374,366 to Alger Inc. under the provisions of the Class C Shares' Plan.
-14-
<PAGE>
The Fund has not adopted a Distribution Plan for the Money Market Portfolio;
however, Alger Inc. or the Portfolio's investment adviser, Fred Alger
Management, Inc., may, from its own resources without reimbursement by the Fund,
compensate dealers that have sold shares of the Portfolio.
SHAREHOLDER SERVICING AGREEMENT
Payments under the Shareholder Servicing Agreement are not tied exclusively to
the shareholder servicing expenses actually incurred by Alger Inc. and the
payments may exceed expenses actually incurred by Alger Inc. The Fund's Board of
Trustees evaluates the appropriateness of the Shareholder Servicing Agreement
and its payment terms on a continuing basis and in doing so considers all
relevant factors, including expenses borne by Alger Inc. and the amounts it
receives under the Shareholder Servicing Agreement. During the Fund's fiscal
year ended October 31, 1999, the Fund paid approximately $5,281,000 to Alger
Inc. under the Shareholder Servicing Agreement.
EXPENSES OF THE FUND
Each Portfolio will bear its own expenses. Operating expenses for each Portfolio
generally consist of all costs not specifically borne by Alger Management,
including investment management fees, fees for necessary professional and
brokerage services, costs of regulatory compliance and costs associated with
maintaining legal existence and shareholder relations. In addition, Class B and
Class C of each Portfolio other than Alger Money Market Portfolio may pay Alger
Inc. for expenses incurred in distributing shares of that class and each such
Portfolio may compensate Alger Inc. for servicing shareholder accounts. Fundwide
expenses not identifiable to any particular portfolio or class will be allocated
in a manner deemed fair and equitable by the Board of Trustees. From time to
time, Alger Management, in its sole discretion and as it deems appropriate, may
assume certain expenses of one or more of the Portfolios while retaining the
ability to be paid by the applicable Portfolio for such amounts prior to the end
of the fiscal year. This will have the effect of lowering the applicable
Portfolio's overall expense ratio and of increasing yield to investors, or the
converse, at the time such amounts are assumed or reimbursed, as the case may
be.
PURCHASES THROUGH PROCESSING ORGANIZATIONS
When shares are purchased this way, the Processing Organization, rather than its
customer, may be the shareholder of record of the shares. The minimum initial
and subsequent investments in classes of the Portfolios for shareholders who
invest through a Processing Organization will be set by the Processing
Organization. Processing Organizations may charge their customers a fee in
connection with services offered to customers.
TELEPURCHASE PRIVILEGE
The price the shareholder will receive will be the price next computed after
Alger Shareholder Services, Inc. (the "Transfer Agent") receives the investment
from the shareholder's bank, which is normally one banking day. While there is
no charge to shareholders for this service, a fee will be deducted from a
shareholder's Fund account in case of insufficient funds. This privilege may be
terminated at any time without charge or penalty by the shareholder, the Fund,
the Transfer Agent or Alger Inc. Class A Share purchases will remain subject to
the initial sales charge.
AUTOMATIC INVESTMENT PLAN
While there is no charge to shareholders for this service, a fee will be
deducted from a shareholder's Fund account in the case of insufficient funds. A
shareholder's Automatic Investment Plan may be terminated at any time without
charge or penalty by the shareholder, the Fund, the Transfer Agent or Alger Inc.
Transfers from your bank account to a fund-sponsored retirement account are
considered current year contributions. If the fifteenth day of the month falls
on a weekend or a NYSE holiday, the purchase will be made on the next business
day. Class A Share purchases will remain subject to the initial sales charge.
AUTOMATIC EXCHANGE PLAN
The Fund also offers an Automatic Exchange Plan which permits you to exchange a
specified amount from your Alger Money Market Portfolio account into one or more
of the other Portfolios on or about the fifteenth day of the month. The minimum
monthly exchange amount is $25 per Portfolio.
There is no charge to shareholders for this service. A shareholder's Automatic
Exchange Plan may be terminated at any time without charge or penalty by the
shareholder, the Fund, the Transfer Agent or Alger Inc. If the automatic
exchange amount exceeds the Alger Money Market Portfolio balance, any remaining
balance in Alger Money Market Portfolio will be exchanged. Shares held in
certificate form are not eligible for this service. Class A and Class C Share
purchases will remain subject to the front-end load.
RIGHT OF ACCUMULATION (CLASS A SHARES)
Class A Shares of the Fund may be purchased by "any person" (which includes an
individual, his or her spouse and children, or a trustee or other fiduciary of a
single trust, estate or single fiduciary account) at a reduced sales charge as
determined by aggregating the
-15-
<PAGE>
dollar amount of the new purchase and the current value (at offering price) of
all Class A Shares of the Fund then held by such person and applying the sales
charge applicable to such aggregate. In order to obtain such discount, the
purchaser must provide sufficient information at the time of purchase to permit
verification that the purchase qualifies for the reduced sales charge. The right
of accumulation is subject to modification or discontinuance at any time with
respect to all shares purchased thereafter.
LETTER OF INTENT (CLASS A SHARES)
A Letter of Intent ("LOI") contemplating aggregate purchases of $100,000 or more
provides an opportunity for an investor to obtain a reduced sales charge by
aggregating investments over a 13-month period, provided that the investor
refers to such LOI when placing orders. For purposes of a LOI, the "Purchase
Amount" as referred to in the preceding sales charge table includes purchases by
"any person" (as defined above) of all Class A Shares of the Fund offered with a
sales charge over the following 13 months. An alternative is to compute the
13-month period starting up to 90 days before the date of execution of the LOI.
The minimum initial investment under the LOI is 5% of the total LOI amount. Each
investment made during the period receives the reduced sales charge applicable
to the total amount of the investment goal. Shares purchased with the first 5%
of the total LOI amount will be held in escrow by the Transfer Agent to assure
any necessary payment of a higher applicable sales charge if the investment goal
is not met. If the goal is not achieved within the period, the investor must pay
the difference between the sales charges applicable to the purchases made and
the charges previously paid, or an appropriate number of escrowed shares will be
redeemed.
REDEMPTIONS
The right of redemption of shares of a Portfolio may be suspended or the date of
payment postponed for more than seven days (a) for any periods during which the
NYSE is closed (other than for customary weekend and holiday closings), (b) when
trading in the markets the Portfolio normally utilizes is restricted, or an
emergency, as defined by the rules and regulations of the SEC, exists, making
disposal of the Portfolio's investments or determination of its net asset values
not reasonably practicable or (c) for such other periods as the SEC by order may
permit for protection of the Fund's shareholders.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks.
CHECK REDEMPTION PRIVILEGE (ALGER MONEY MARKET PORTFOLIO)
You may redeem shares in your Alger Money Market Portfolio account by writing a
check for at least $500. Dividends are earned until the check clears. If you
mark the appropriate box on the New Account Application and sign the signature
card, the Fund will send you redemption checks. There is no charge for this
privilege.
Your redemption may be reduced by any applicable CDSC (see "Contingent Deferred
Sales Charge"). If your account is not adequate to cover the amount of your
check and any applicable CDSC, the check will be returned marked insufficient
funds. As a result, checks should not be used to close an account. Shares held
in any Alger retirement plan and shares issued in certificate form are not
eligible for this service.
Unless investors elect otherwise, checks drawn on jointly-owned accounts will be
honored with the signature of either of the joint owners. Shareholders should be
aware that use of the check redemption procedure does not give rise to a banking
relationship between the shareholder and the Transfer Agent, which will be
acting solely as transfer agent for the Portfolio; nor does it create a banking
relationship between the shareholder and the Fund. When a check is presented to
the Transfer Agent for payment, the Transfer Agent, as the investor's agent,
will cause the Fund to redeem a sufficient number of shares from the investor's
account to cover the amount of the check.
The check redemption privilege may be modified or terminated at any time by the
Fund or by the Transfer Agent.
TELEPHONE REDEMPTIONS
You automatically have the ability to make redemptions by telephone unless you
refuse the telephone redemption privilege. To sell shares by telephone, please
call (800) 992-3863. If your redemption request is received before 12:00 noon
Eastern time for Alger Money Market Portfolio, your redemption proceeds will
generally be mailed on the next business day. Redemption requests for Portfolios
other than Alger Money Market Portfolio received prior to the close of business
of the NYSE (normally 4:00 p.m. Eastern time) will generally be mailed on the
next business day. Requests received after 12:00 noon Eastern time for Alger
Money Market Portfolio will generally be mailed on the business day following
the next business day. Shares held in any Alger retirement plan and shares
issued in certificate form are not eligible for this service.
-16-
<PAGE>
Redemption proceeds are mailed to the address of record. Any request for
redemption proceeds to be sent to the address of record must be in writing with
the signature(s) guaranteed if made within 60 days of changing your address.
Redemption requests made before 12:00 noon Eastern time for Alger Money Market
Portfolio will not receive a dividend for that day.
The Fund, the Transfer Agent and their affiliates are not liable for acting in
good faith on telephone instructions relating to your account, so long as they
follow reasonable procedures to determine that the telephone instructions are
genuine. Such procedures may include recording the telephone calls and requiring
some form of personal identification. You should verify the accuracy of
telephone transactions immediately upon receipt of your confirmation statement.
REDEMPTIONS IN KIND
Payment for shares tendered for redemption is ordinarily made in cash. However,
if the Board of Trustees of the Fund determines that it would be detrimental to
the best interest of the remaining shareholders of the Portfolio to make payment
of a redemption order wholly or partly in cash, the Portfolio may pay the
redemption proceeds in whole or in part by a distribution "in kind" of
securities from the Portfolio, in lieu of cash, in conformity with applicable
rules of the SEC. The Fund has elected to be governed by Rule 18f-1 under the
Act, pursuant to which a Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of the net assets of the Portfolio during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The method of valuing securities used to make redemptions
in kind will be the same as the method the Fund uses to value its portfolio
securities and such valuation will be made as of the time the redemption price
is determined.
CONTINGENT DEFERRED SALES CHARGE
No CDSC is imposed on the redemption of shares of Alger Money Market Portfolio,
except that shares of the Portfolio acquired in exchange for shares of the other
Portfolios will bear any CDSC that would apply to the exchanged shares.
With respect to Class B Shares, there is no initial sales charge on purchases of
shares of any Portfolio, but a CDSC may be charged on certain redemptions. The
CDSC is imposed on any redemption that causes the current value of your account
in the Class B shares of the Portfolio to fall below the amount of purchase
payments made during a six-year holding period.
Certain Class A Shares also are subject to a CDSC. Those Class A Shares
purchased in an amount of $1 million or more which have not been subject to the
Class's initial sales charge and which have not been held for a full year are
subject to a CDSC of 1% at the time of redemption.
Class C Shares are subject to a CDSC of 1% if redeemed within one year of
purchase.
For purposes of the CDSC, it is assumed that the shares of the Portfolio from
which the redemption is made are the shares of that Portfolio which result in
the lowest charge, if any.
Redemptions of shares of each of the Portfolios are deemed to be made first from
amounts, if any, to which a CDSC does not apply. There is no CDSC on redemptions
of (i) shares that represent appreciation on your original investment, or (ii)
shares purchased through reinvestment of dividends and capital gains. Since no
charge is imposed on shares purchased and retained in Alger Money Market
Portfolio, you may wish to consider redeeming those shares, if any, before
redeeming shares that are subject to a CDSC.
WAIVERS OF SALES CHARGES
No initial sales charge (Class A or C) or CDSC (Class A, B or C) is imposed on
purchases or redemptions (1) by (i) employees of Alger Inc. and its affiliates,
(ii) IRAs, Keogh Plans and employee benefit plans for those employees and (iii)
spouses, children, siblings and parents of those employees and trusts of which
those individuals are beneficiaries, as long as orders for the shares on behalf
of those individuals and trusts were placed by the employees; (2) by (i)
accounts managed by investment advisory affiliates of Alger Inc. that are
registered under the Investment Advisers Act of 1940, as amended, (ii)
employees, participants and beneficiaries of those accounts, (iii) IRAs, Keogh
Plans and employee benefit plans for those employees, participants and
beneficiaries and (iv) spouses and minor children of those employees,
participants and beneficiaries as long as orders for the shares were placed by
the employees, participants and beneficiaries; (3) by directors or trustees of
any investment company for which Alger Inc. or any of its affiliates serves as
investment adviser or distributor; (4) of shares held through defined
contribution plans as defined by ERISA; (5) by an investment company registered
under the 1940 Act in connection with the combination of the investment company
with the Fund by merger, acquisition of assets or by any other transaction; (6)
by registered investment advisers for their own accounts; (7) on behalf of their
clients by registered investment advisers, banks, trust companies and other
financial institu-
-17-
<PAGE>
tions, including broker-dealers with which either the Fund or Alger Inc. has
entered into agreements contemplating the waiver of such charges; (8) by a
Processing Organization, as shareholder of record on behalf of (i) investment
advisers or financial planners trading for their own accounts or the accounts of
their clients and who charge a management, consulting or other fee for their
services and clients of such investment advisers or financial planners trading
for their own accounts if the accounts are linked to the master account of such
investment adviser or financial planner on the books and records of the
Processing Organization, and (ii) retirement and deferred compensation plans and
trusts used to fund those plans; and (9) by registered representatives of
broker-dealers which have entered into Selected Dealer Agreements with Alger
Inc., and their spouses, children, siblings and parents.
Class C shares may be purchased without an initial sales charge by any investor
who buys Class C shares through an omnibus account with Merrill Lynch Pierce
Fenner & Smith, Inc. or Morgan Stanley Dean Witter & Co. A CDSC may apply,
however, if the shares are sold within 12 months of purchase.
In addition, no initial sales charge will be imposed on purchases of Class A
shares by members of a "qualified group." A qualified group is one which: (i)
has been in existence for more than six months; (ii) was not organized for the
purpose of buying shares of the Portfolios or making similar investments; and
(iii) satisfies uniform criteria established by Alger Inc. that result in
economy of sales effort or expense, such as a criterion that purchases be made
through a central administration or through a single dealer. A qualified group
does not include a group whose sole organizational connection is participation
as credit card holders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer, clients of an investment adviser or
a similar connection. Shares purchased by members of a qualified group will be
subject to a CDSC of 1% if redeemed within one year of purchase.
Investors purchasing Class A or Class CShares subject to one of the foregoing
waivers are required to claim and substantiate their eligibility for the waiver
at the time of purchase. It is also the responsibility of shareholders redeeming
shares otherwise subject to a CDSC but qualifying for a waiver of the charge to
assert this status at the time of redemption. Information regarding these
procedures is available by contacting the Fund at (800) 992-3863.
CERTAIN WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE
Any CDSC which otherwise would be imposed on redemptions of Fund shares will be
waived in certain instances, including (a) redemptions of shares held at the
time a shareholder becomes disabled or dies, including the shares of a
shareholder who owns the shares with his or her spouse as joint tenants with
right of survivorship, provided that the redemption is requested within one year
after the death or initial determination of disability, (b) redemptions in
connection with the following retirement plan distributions: (i) lump-sum or
other distributions from a qualified corporate or Keogh retirement plan
following retirement, termination of employment, death or disability (or in the
case of a five percent owner of the employer maintaining the plan, following
attainment of age 70 l/2); (ii) required distributions from an Individual
Retirement Account ("IRA") following the attainment of age 70 l/2 or from a
custodial account under Section 403(b)(7) of the Internal Revenue Code of 1986,
following the later of retirement or attainment of age 70 l/2; and (iii) a
tax-free return of an excess contribution to an IRA, and (c) systematic
withdrawal payments. For purposes of the waiver described in (a) above, a person
will be deemed "disabled" if the person is unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or to be of long-continued
and indefinite duration.
Shareholders claiming a waiver must assert their status at the time of
redemption.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed shares in the Fund may reinvest all or part of
the redemption proceeds in the Fund without an initial sales charge and receive
a credit for any CDSC paid on the redemption, provided the reinvestment is made
within 30 days after the redemption. Reinvestment will be at the net asset value
of the Portfolio next determined upon receipt of the proceeds and letter
requesting this privilege be exercised, subject to confirmation of the
shareholder's status or holdings, as the case may be. You will also receive a
pro rata credit for any CDSC imposed. This reinstatement privilege may be
exercised only once by a shareholder. Reinstatement will not alter any capital
gains tax payable on the redemption and a loss may not be allowed for tax
purposes.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares of a Port-
-18-
<PAGE>
folio with a value exceeding $10,000 and who wish to receive specific amounts of
cash periodically. Withdrawals of at least $50 monthly (but no more than one
percent of the value of a shareholder's shares in the Portfolio) may be made
under the Withdrawal Plan by redeeming as many shares of the Portfolio as may be
necessary to cover the stipulated withdrawal payment. To the extent that
withdrawals exceed dividends, distributions and appreciation of a shareholder's
investment in the Portfolio, there will be a reduction in the value of the
shareholder's investment and continued withdrawal payments may reduce the
shareholder's investment and ultimately exhaust it. Withdrawal payments should
not be considered as income from investment in a Portfolio.
Shareholders who wish to participate in the Withdrawal Plan and who hold their
shares in certificated form must deposit their share certificates of the
Portfolio from which withdrawals will be made with Alger Shareholder Services,
Inc., as agent for Withdrawal Plan members. All dividends and distributions on
shares in the Withdrawal Plan are automatically reinvested at net asset value in
additional shares of the Portfolio involved. For additional information
regarding the Withdrawal Plan, contact the Fund.
EXCHANGES AND CONVERSIONS
IN GENERAL
Except as limited below, shareholders may exchange some or all of their shares
for shares of another portfolio. However, one class of shares may not be
exchanged for another class of shares. Alger Money Market Portfolio shares
acquired by direct purchase may be exchanged for Class A, B or C Shares of
another portfolio; however, any applicable sales charge will apply to the shares
acquired, depending upon their class. Shares of Alger Money Market Portfolio
acquired by exchange rather than by direct purchase may be exchanged for shares
of another portfolio, but only for shares of the same class as those originally
exchanged for Alger Money Market Portfolio shares. Once an initial sales charge
has been imposed on a purchase of Class A or Class C Shares, no additional
charge is imposed in connection with their exchange. For example, a purchase of
Alger Money Market Portfolio shares and subsequent exchange to Class A or Class
C Shares of Alger Small Capitalization Portfolio, Alger Midcap Portfolio, Alger
LargeCap Growth Portfolio, Alger Balanced Portfolio or Alger Capital
Appreciation Portfolio (each a "Charge Portfolio") would result in the
imposition of an initial sales charge at the time of exchange; but if the
initial purchase had been of Class A or Class C Shares in a Charge Portfolio, an
exchange to the same class of shares of any other Portfolio would not result in
an additional initial sales charge. No CDSC is assessed in connection with
exchanges at any time. In addition, no CDSC is imposed on the redemption of
reinvested dividends or capital gains distributions or on increases in the net
asset value of shares of a Portfolio above purchase payments made with respect
to that Portfolio during the six-year holding period for Class B Shares and the
one-year holding period for Class C Shares and certain Class A Shares.
For purposes of calculating the eight-year holding periods for automatic
conversion of Class B Shares to Class A Shares, shares acquired in an exchange
are deemed to have been purchased on the date on which the shares given in
exchange were purchased, provided, however, that if Class B Shares are exchanged
for shares of Alger Money Market Portfolio, the period during which the Alger
Money Market Portfolio shares are held will not be included in the holding
period for purposes of determining eligibility for automatic conversion, and the
running of the holding period will recommence only when those shares are
reexchanged for shares of the original class. The same calculation method shall
be used to determine the automatic conversion of Class C Shares purchased prior
to August 1, 2000, and held for 12 years.
You automatically have the ability to make exchanges by telephone unless you
refuse the telephone exchange privilege. Exchanges can be made among Portfolios
of the same class of shares for identically registered accounts. For tax
purposes, an exchange of shares is treated as a sale of the shares exchanged
and, therefore, you may realize a taxable gain or loss when you exchange shares.
Shares exchanged prior to the close of business of the NYSE (normally 4:00 p.m.
Eastern time) from Alger Money Market Portfolio to any other Portfolio will
receive dividends from Alger Money Market Portfolio for the day of the exchange.
Shares of Alger Money Market Portfolio received in exchange for shares of any
other Portfolio will earn dividends beginning on the next business day after the
exchange.
You may make up to six exchanges annually by telephone or in writing. The Fund
may charge a transaction fee for each exchange, although it does not intend to
do so at present. You will be notified at least 60 days in advance if the Fund
decides to impose this fee. The Fund reserves the right to terminate or modify
the exchange privilege upon notice to shareholders.
-19-
<PAGE>
FOR SHAREHOLDERS MAINTAINING AN ACTIVE ACCOUNT ON OCTOBER 17, 1992. Class B
Shares acquired in an exchange are deemed to have been purchased on, and
continuously held since, the date on which the shares given in exchange were
purchased; thus, an exchange would not affect the running of any CDSC-related
holding period. No initial sales charge or CDSC would apply to an exchange of
shares of a Charge Portfolio for shares of Alger Money Market Portfolio, but
redemptions of shares of that Portfolio acquired by exchange of shares from one
or more of the Charge Portfolios are subject to any applicable CDSC on the same
terms as the shares given in exchange. If shares of Alger Money Market Portfolio
are exchanged for shares of any of the Charge Portfolios, any later redemptions
of those shares would be subject to any applicable CDSC based on the period of
time since the shares given in exchange were purchased.
The following example illustrates the operation of the CDSC for active accounts
established prior to October 17, 1992. Assume that on the first day of year 1 an
investor purchases $1,000 of shares of each of Alger Money Market Portfolio and
Alger Small Capitalization Portfolio, Class B. The shareholder may at any time
redeem the shares of Alger Money Market Portfolio without imposition of the
charge. If in year 3 the shareholder redeems all the Class B Shares of Alger
Small Capitalization Portfolio purchased in year 1, a charge of three percent of
the current net asset value of those shares would be imposed on the redemption.
The shareholder could redeem without imposition of the charge any of his or her
shares of that Portfolio that were purchased through reinvestment of dividends
and capital gains distributions as well as an amount of Class B Shares not
exceeding any increase in the net asset value of the $1,000 of shares originally
purchased. The shareholder could also at any time exchange the Class B Shares of
Alger Small Capitalization Portfolio for Class B Shares of any other Portfolio
without imposition of the charge. If those shares were later redeemed, however,
the redemption would be subject to the charge based on the current net asset
value of the shares and the period of time since the original purchase payment
was made (with adjustments for partial exchanges and redemptions and any
accretions in the shareholder's account by reason of increases in net asset
value and reinvestment of dividends and capital gains distributions). If the
foregoing exchange were made by the shareholder for additional shares of Alger
Money Market Portfolio, any subsequent redemption of shares of that Portfolio
would be deemed to have been made first from the $1,000 of shares of Alger Money
Market Portfolio originally purchased in year 1, which are not subject to the
charge, and then from the shares acquired in the exchange, which are subject to
the charge. If, instead, the shareholder exchanged the shares of Alger Money
Market Portfolio originally purchased in year 1 for additional Class B Shares of
Alger Small Capitalization Portfolio (or of the other Charge Portfolios) any
later redemption of those shares would be subject to the charge in accordance
with the foregoing rules based on the period of time since the original purchase
payment was made. Thus, the period of time shares were held in Alger Money
Market Portfolio would be counted toward the six-year holding period.
FOR NEW SHAREHOLDERS OPENING AN ACCOUNT AFTER OCTOBER 17, 1992. EFFECTIVE
OCTOBER 17, 1992, new shareholders of the Fund are subject to the following
terms and conditions regarding the exchange of shares of the Fund's Portfolios.
A CDSC, if any, is assessed on redemptions of Class B and Class C Shares and
certain Class A Shares of the Charge Portfolios and of shares of Alger Money
Market Portfolio that have been acquired in exchange for shares of a Charge
Portfolio, based solely on the period of time the shares are retained in the
Charge Portfolio. Thus, the period of time shares are held in Alger Money Market
Portfolio will not be counted towards the holding period described above in the
calculation of a CDSC.
The following examples illustrate the operation of the CDSC for accounts opened
after October 17, 1992: (1) An investor purchases Class B Shares of Alger Small
Capitalization Portfolio on the first day of year 1 and exchanges those shares
for shares of Alger Money Market Portfolio in year 2. No charge is assessed at
the time of the exchange. If in year 4 the shareholder redeems all the shares, a
charge of four percent of the current net asset value of those shares would be
imposed on the redemption based on the period of time the shares were retained
in Class B of the Alger Small Capitalization Portfolio. The time period during
which the shares of Alger Money Market Portfolio are held is not included when
the amount of the charge is calculated. The shareholder could redeem without
imposition of the charge any of his shares that were purchased through
reinvestment of dividends and capital gains distributions as well as an amount
of shares not exceeding any increase in the net asset value of the original
purchase. (2) An investor purchases shares of Alger Money Market Portfolio on
the first day of year 1 and exchanges those shares for Class B Shares of Alger
Small Capitalization Portfolio on the first day of year 2. No charge is assessed
at the time of the exchange. If in year 4 the shareholder redeems all the
shares, a charge of three percent of the current net asset value of those shares
-20-
<PAGE>
would be imposed on the redemption based on the period of time the shares were
retained in Class B of Alger Small Capitalization Portfolio. The time period
during which the shares of Alger Money Market Portfolio are held is not included
when the amount of the charge is calculated. The shareholder could redeem
without imposition of the charge any of his or her shares that were purchased
through reinvestment of dividends and capital gains distributions as well as an
amount of shares not exceeding any increase in the net asset value of the
original purchase.
CERTAIN ALGER MONEY MARKET PORTFOLIO SHARES
Shares of Alger Money Market Portfolio that have been acquired in exchange for
shares of Spectra Fund (a mutual fund managed by Alger Management), together
with Alger Money Market Portfolio shares acquired through reinvestment of
dividends on such shares, may be exchanged for Spectra Fund shares. These
exchanges will be effected at the respective net asset values of Spectra Fund
and Alger Money Market Portfolio next determined after the exchange request is
accepted, with no sales charge or transaction fee imposed. For more information
about such exchanges, please call (800) 992-3863. The Alger Fund reserves the
right to terminate or modify this exchange privilege upon notice to
shareholders.
CERTAIN 401(k) PLANS
Alger Inc. has entered into an agreement with Merrill Lynch Group Employees
Services ("Merrill Lynch") pursuant to which Merrill Lynch will make Class A
Shares of the Portfolios available to participants in certain 401(k) plans (each
a "Plan") at net asset value with no CDSC if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has $3 million or more in assets invested in broker-dealer
funds not advised or managed by Merrill Lynch Asset Management, L.P. ("MLAM")
each of which is made available pursuant to a Services Agreement between Merrill
Lynch and the fund's principal underwriter or distributor and in funds advised
or managed by MLAM (collectively, the "Applicable Investments"); or
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or alliance
arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Plan has $3 million or more
in assets, excluding money market funds, invested in Applicable Investments; or
(iii) the Plan has 500 or more eligible employees, as determined by the Merrill
Lynch plan conversion manager, on the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert (by means of a CDSC-free redemption/purchase
at net asset value) to A shares once the Plan has reached $5 million invested in
Applicable Investments. The Plan will receive a Plan level share conversion.
Also under the agreement, Class B Shares of the Portfolios are to be made
available to Plan participants at net asset value with no CDSC if:
(i) the Plan is recordkept on a daily valuation basis by Merrill Lynch and, on
the date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement, the Plan has less than $3 million in assets invested in broker-dealer
funds not advised or managed by MLAM each of which is made available pursuant to
a Services Agreement between Merrill Lynch and the fund's principal underwriter
or distributor and in funds advised or managed by MLAM (collectively, the
"Applicable Investments"); or
(ii) the Plan is recordkept on a daily valuation basis by an independent
recordkeeper whose services are provided through a contract or alliance
arrangement with Merrill Lynch, and on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement, the Plan has less than $3 million
in assets, excluding money market funds, invested in Applicable Investments; or
(iii) the Plan has less than 500 eligible employees, as determined by the
Merrill Lynch plan conversion manager, on the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement.
Plans recordkept on a daily basis by Merrill Lynch or an independent
recordkeeper under a contract with Merrill Lynch that are currently investing in
Class B shares of the Fund convert (by means of a CDSC-free redemption/purchase
at net asset value) to A shares once the Plan has reached $5 million invested in
Applicable Investments. The Plan will receive a Plan level share conversion.
MANAGEMENT
TRUSTEES AND OFFICERS OF THE FUND
The Fund is governed by a Board of Trustees which is responsible for protecting
the interests of shareholders under Massachusetts law. The names of the Trustees
and officers of the Fund, together with information concerning their principal
business occupations, are set forth below. Each of the officers of the Fund is
also an officer, and each of the Trustees is also a director or trustee, as the
case may be, of Castle Convertible
-21-
<PAGE>
Fund, Inc., a registered closed-end investment company, and of The Alger
American Fund, The Alger Retirement Fund and Spectra Fund, registered open-end
management investment companies, for all of which Alger Management serves as
investment adviser. Fred M. Alger III and David D. Alger are "interested
persons" of the Fund, as defined in the Act. Fred M. Alger III and David D.
Alger are brothers. Unless otherwise noted, the address of each person named
below is One World Trade Center, Suite 9333, New York, New York 10048.
NAME, AGE AND POSITION WITH
THE FUND AND ADDRESS PRINCIPAL OCCUPATIONS
Fred M. Alger III (65) Chairman of the Boards of Alger Associates,
Chairman of the Board Inc. ("Associates"), Alger Inc., Alger
Management, Alger Properties, Inc.
("Properties"), Alger Shareholder Services,
Inc. ("Services"), Alger Life Insurance
Agency, Inc. ("Agency"), The Alger American
Fund ("American"), The Alger Retirement Fund
("Retirement"), Castle Convertible Fund,
Inc. ("Castle"), Spectra Fund ("Spectra"),
Fred Alger International Advisory S.A.
("International"), The Alger American Asset
Growth Fund ("Asset Growth") and Analysts
Resources, Inc. ("ARI").
David D. Alger (56) President and Director of Associates, Alger
President and Trustee Management, Alger Inc., Properties,
Services, Agency, International, ARI and
Castle; President and Trustee of American,
Retirement, Spectra; Director of Asset
Growth
Gregory S. Duch (49) Executive Vice President, Treasurer and
Treasurer Director of Alger Management, Properties and
Associates; Executive Vice President and
Treasurer of Alger, Inc., ARI, Services and
Agency; Treasurer and Director of
International; Treasurer of American,
Retirement, Castle and Spectra.
Dorothy G. Sanders (45) Senior Vice President, General Counsel and
Secretary Secretary of Alger Inc.; General Counsel and
Secretary of Associates Agency, Properties,
Services, ARI and Alger Management;
Secretary of International, American
Retirement, Castle and Spectra. Senior Vice
President, Fleet Financial Group (12/94 -
4/99).
Frederick A. Blum (46) Senior Vice President, Alger Inc.; Assistant
Assistant Secretary and Treasurer and Assistant Secretary of
Assistant Treasurer American, Retirement, Castle and Spectra.
Charles F. Baird, Jr. (47) Managing Partner of North Castle Partners, a
Trustee private equity securities group, since 1997;
60 Arch Street Trustee of Retirement and Spectra. Formerly
Greenwich, CT 06830 Managing Associate Dean of Development,
Harvard University, since 1997. Trustee of
Director of AEA Investors, Inc.
Roger P. Cheever (55) Retirement and Spectra. Formerly Deputy
Trustee Director of the Harvard University Fund.
124 Mount Auburn Street
Cambridge, MA02138-5762
Lester L. Colbert, Jr. (66) Private investor since 1988; Director of
Trustee Castle; Trustee of Retirement and Spectra.
551 Fifth Avenue Formerly Chairman of the Board and Chief
Suite 3800 Executive Officer of Xidex Corporation.
New York, NY 10176
Stephen E. O'Neil (67) Attorney; Private investor since 1981;
Trustee Director of NovaCare, Inc., Brown Forman
460 Park Avenue Corporation and Castle; Trustee of American,
New York, NY 10022 Retirement and Spectra. Formerly President
and Vice Chairman of City Investing Company
and Director of Centerre Bancorporation and
Syntro Corporation.
Nathan E. Saint-Armand, M.D. (62) Medical doctor in private practice; Director
Trustee of Castle; Trustee of American, Retirement,
2 East 88th Street and Spectra.
New York, NY 100128
-22-
<PAGE>
B. Joseph White (54) Dean, University of Michigan Business
Trustee School; President, William David- son
701 Tappan Street Institute at the University of Michigan
Ann Arbor, MI 48109 Business School; professor of Business
Administration, University of Michigan
Business School; Director, Gordon Food
Service and Castle; Trustee and Chair, Audit
Committee, Equity Residential Properties
Trust; Director and Chair, Compensation
Committee, Kelly Services, Inc.; Trustee of
American, Retirement and Spectra.
No director, officer or employee of Alger Management or its affiliates will
receive any compensation from the Fund for serving as an officer or Trustee of
the Fund. The Fund pays each independent Trustee $2,000 for each meeting he
attends, to a maximum of $8,000, plus travel expenses incurred for attending the
meeting.
The Fund did not offer its Trustees any pension or retirement benefits during or
prior to the fiscal year ended October 31, 1999. The following table provides
compensation amounts paid to current independent Trustees of the Fund for the
fiscal year ended October 31, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION PAID TO TRUSTEES FROM
THE ALGER RETIREMENT FUND,
AGGREGATE THE ALGER FUND,
COMPENSATION THE ALGER AMERICAN FUND,
FROM CASTLE CONVERTIBLE FUND, INC. AND
NAME OF PERSON, POSITION THE ALGER FUND SPECTRA FUND
------------------------ ------------------ ---------------------------------------
<S> <C> <C>
STEPHEN E. O'NEIL, TRUSTEE $8,000 $34,250
NATHAN E. SAINT-AMAND, TRUSTEE $8,000 $34,250
B. JOSEPH WHITE $6,000 $27,000
</TABLE>
INVESTMENT MANAGER
Alger Management serves as investment manager to each of the Portfolios pursuant
to separate written agreements (the "Management Agreements").
Alger Management is the Fund's investment manager and is responsible for the
overall administration of the Fund, subject to the supervision of the Board of
Trustees. Alger Management makes investment decisions for the Portfolios,
provides administrative services, places orders to purchase and sell securities
on behalf of the Portfolios and selects broker-dealers that, in its judgment,
provide prompt and reliable execution at favorable prices and reasonable
commission rates. It is anticipated that Alger Inc. will serve as the Fund's
broker in effecting substantially all of the Portfolios' transactions on
securities exchanges and will retain commissions in accordance with certain
regulations of the SEC. In addition, Alger Management employs professional
securities analysts who provide research services exclusively to the Portfolios
and other accounts for which Alger Management or its affiliates serve as
investment adviser or subadviser.
Alger Management pays the salaries of all officers who are employed by it. Alger
Management has agreed to maintain office facilities for the Fund, furnish the
Fund with statistical and research data, clerical, accounting and bookkeeping
services, and certain other services required by the Fund, and to compute the
net asset values, net income and realized capital gains or losses of the
Portfolios. Alger Management prepares semi-annual reports to the SEC and to
shareholders, prepares federal and state tax returns and filings with state
securities commissions, maintains the Fund's financial accounts and records and
generally assists in all aspects of the Fund's operations. Alger Management
bears all expenses in connection with the performance of its services under the
Management Agreements.
Alger Management has been in the business of providing investment advisory
services since 1964 and, as of June 30, 2000, had approximately $21.15 billion
under management, $13.21 billion in mutual fund accounts and $7.94 billion in
other advisory accounts. Alger Management is owned by Alger Inc. which in turn
is owned by Alger Associates, Inc., a financial services holding company. Fred
M. Alger, III and his brother, David D. Alger, are the majority shareholders of
Alger Associates, Inc. and may be deemed to control that company and its
subsidiaries. Fred Alger holds his shares through a limited liability company,
of which he is president and majority shareholder.
Each Management Agreement provides that if, in any fiscal year, the aggregate
expenses of the Portfolio (exclusive of certain specified categories of expense)
exceed the expense limitation of any state having jurisdiction over the
Portfolio, Alger Management will reimburse the Portfolio for that excess expense
to the
-23-
<PAGE>
extent required by state law. At the date of this Statement of Additional
Information, there is no state expense limitation applicable to any Portfolio.
Each Portfolio pays Alger Management a management fee computed daily and paid
monthly at annual rates based on a percentage of the value of the relevant
Portfolio's average daily net assets, as follows: Alger Money Market
Portfolio--.50%; Alger Small Capitalization Portfolio and Alger Capital
Appreciation Portfolio--.85%; Alger MidCap Growth Portfolio--.80%; Alger
LargeCap Growth Portfolio (formerly Alger Growth Portfolio) and Alger Balanced
Portfolio--.75%. During the fiscal years ended October 31, 1997, 1998 and 1999,
Alger Management earned under the terms of the Management Agreements $1,104,000,
$1,116,000 and $1,417,000, respectively, in respect of the Alger Money Market
Portfolio; $4,715,000 $4,679,000 and $4,578,000, respectively, in respect of the
Alger Small Capitalization Portfolio; $2,396,000, $3,133,000 and $5,775,000,
respectively, in respect of the Alger Growth Portfolio (re-named Alger LargeCap
Growth Portfolio); $96,000, $126,000 and $347,000, respectively, in respect of
the Alger Balanced Portfolio; $1,236,000, $1,517,000 and $2,093,000,
respectively, in respect of the Alger MidCap Growth Portfolio; and $1,587,000,
$2,192,000 and $4,213,000, respectively, in respect of the Alger Capital
Appreciation Portfolio. Some of these fees for Alger Money Market Portfolio,
however, were offset in whole or in part by various expense reimbursements and
waivers.
DISTRIBUTOR
Alger Inc., the corporate parent of Alger Management, serves as the Fund's
principal underwriter, or distributor, and receives payments from the Fund under
the Fund's Distribution Plans (see "Purchases--Distribution Plans") and the
Shareholder Servicing Agreement (see "Purchases--Shareholder Servicing
Agreement"). It also receives brokerage commissions from the Fund (see
"Investment Strategies and Policies--Portfolio Transactions"). During the Fund's
fiscal year ended October 31, 1999, Alger Inc. retained approximately $2,681,000
in CDSCs and $139,000 in initial sales charges.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountant for the Fund.
CODE OF ETHICS
Alger Management personnel ("Access Persons") are permitted to engage in
personal securities transactions, including transactions in securities that may
be purchased or held by the Fund, subject to the restrictions and procedures of
the Fund's Code of Ethics. Pursuant to the Code of Ethics, Access Persons
generally must preclear all personal securities transactions prior to trading
and are subject to certain prohibitions on personal trading. You can get a copy
of the Fund's Code of Ethics by calling the Fund toll-free at (800) 992-3863.
TAXES
The following is a summary of selected federal income tax considerations that
may affect the Fund and its shareholders. The summary is not intended to
substitute for individual tax advice and investors are urged to consult their
own tax advisers as to the federal, state and local tax consequences of
investing in the Fund.
Each Portfolio intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). If
qualified as a regulated investment company, a Portfolio will pay no federal
income taxes on its taxable net investment income (that is, taxable income other
than net realized capital gains) and its net realized capital gains that are
distributed to shareholders. To qualify under Subchapter M, a Portfolio must,
among other things: (1) distribute to its shareholders at least 90% of its
taxable net investment income and net realized short-term capital gains; (2)
derive at least 90% of its gross income from dividends, interest, payments with
respect to loans of securities, gains from the sale or other disposition of
securities, or other income (including, but not limited to, gains from options,
futures and forward contracts) derived with respect to the Portfolio's business
of investing in securities; and (3) diversify its holdings so that, at the end
of each fiscal quarter of the Portfolio (a) at least 50% of the market value of
the Portfolio's assets is represented by cash, U.S. Government securities and
other securities, with those other securities limited, with respect to any one
issuer, to an amount no greater in value than 5% of the Portfolio's total assets
and to not more than 10% of the outstanding voting securities of the issuer, and
(b) not more than 25% of the market value of the Portfolio's assets is invested
in the securities of any one issuer (other than U.S. Government securities or
securities of other regulated investment companies) or of two or more issuers
that the Portfolio controls and that are determined to be in the same or similar
trades or businesses or related trades or businesses. In meeting these
requirements, a Portfolio may be restricted in the utilization of certain of the
investment techniques described above and in the Fund's prospectus. As a
regulated investment company, each Portfolio is subject to a non-deductible
excise tax of 4% with respect to certain undistributed amounts of income and
capital gains during the calendar year. The Fund expects each Portfolio to make
additional distributions or change the timing of its distributions so as to
avoid the application of this tax. Although the Fund expects each Portfolio to
make such distributions as are necessary to avoid the application of this tax,
certain of such distributions, if made in January, might be included in the
taxable income of shareholders in the year ended in the previous December.
Payments reflecting the dividend income of the Portfolios will not qualify for
the dividends-received deduction for corporations if the Portfolio sells the
underlying stock before satisfying a 46-day holding period requirement (91 days
for certain preferred stock). Dividends-received deductions will be allowed to a
corporate shareholder
-24-
<PAGE>
only if similar holding period requirements with respect to shares of the
Portfolio have been met. None of the dividends paid by Alger Money Market
Portfolio will be eligible for the dividends-received deduction.
In general, any gain or loss on the redemption or exchange of Portfolio shares
will be long-term capital gain or loss if held by the shareholder for more than
one year, and will be short-term capital gain or loss if held for one year or
less. However, if a shareholder receives a distribution taxable as long-term
capital gain with respect to Portfolio shares, and redeems or exchanges the
shares before holding them for more than six months, any loss on the redemption
or exchange up to the amount of the distribution will be treated as a long-term
capital loss.
Dividends of a Portfolio's net investment income and distributions of its
short-term capital gains will be taxable as ordinary income. Distributions of
long-term capital gains will be taxable as such at the appropriate rate,
regardless of the length of time you have held shares of the Portfolio.
If a Portfolio is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Portfolio's gross income as of the later of (a) the date such stock became
ex-dividend with respect to such dividends (i.e., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (b) the date the Portfolio acquired such stock. Accordingly, in order to
satisfy its income distribution requirements, a Portfolio may be required to pay
dividends based on anticipated earnings and shareholders may receive dividends
in an earlier year than would otherwise be the case.
Investors considering buying shares of a Portfolio just prior to a record date
for a taxable dividend or capital gain distribution should be aware that,
regardless of whether the price of the Portfolio shares to be purchased reflects
the amount of the forthcoming dividend or distribution payment, any such payment
will be a taxable dividend or distribution payment.
If a shareholder fails to furnish a correct taxpayer identification number,
fails to fully report dividend or interest income, or fails to certify that he
or she has provided a correct taxpayer identification number and that he or she
is not subject to such withholding, then the shareholder may be subject to a 31
percent "backup withholding tax" with respect to (i) any taxable dividends and
distributions and (ii) any proceeds of any redemption of Fund shares. An
individual's taxpayer identification number is his or her social security
number. The 31 percent backup withholding tax is not an additional tax and may
be credited against a shareholder's regular federal income tax liability.
Shortly after the close of each calendar year, you will receive a statement
setting forth the dollar amounts of dividends and any distributions for the
prior calendar year and the tax status of the dividends and distributions for
federal income tax purposes. You should consult your tax adviser to assess the
federal, state and local tax consequences of investing in each Portfolio. This
discussion is not intended to address the tax consequences of an investment by a
nonresident alien.
DIVIDENDS
Each class will be treated separately in determining the amounts of dividends of
investment income and distributions of capital gains payable to holders of its
shares. Dividends and distributions will be automatically reinvested at net
asset value on the payment date in additional shares of the class that paid the
dividend or distribution at net asset value, unless you elected in writing to
have all dividends and distributions paid in cash or reinvested at net asset
value into another identically registered Alger Portfolio account you have
established. In addition, accounts whose dividend/distribution checks have been
returned as undeliverable shall reinvest that dividend/distribution at the net
asset value next determined after the Transfer Agent receives the undelivered
check. Furthermore, all future dividend/distribution checks shall be reinvested
automatically at net asset value on the payment date until a written request for
reinstatement of cash distribution and a valid mailing address are provided by
the shareholder(s). Shares purchased through reinvestment of dividends and
distributions are not subject to a CDSC or front-end sales charge. Any dividends
of Alger Money Market Portfolio are declared daily and paid monthly, and any
dividends of the other Portfolios are declared and paid annually. Distributions
of any net realized short-term and long-term capital gains earned by a Portfolio
usually will be made annually after the close of the fiscal year in which the
gains are earned.
The classes of a Portfolio may have different dividend and distribution rates.
Class A dividends generally will be greater than those of Classes B and C due to
the Rule 12b-1 fees associated with Class B and C Shares. However, dividends
paid to each class of shares in a Portfolio will be declared and paid at the
same time and will be determined in the same manner as those paid to each other
class.
Shortly after the close of each calendar year, you will receive a statement
setting forth the dollar amounts of dividends and any distributions for the
prior calendar year and the tax status of the dividends and distributions for
federal income tax purposes. You should consult your tax adviser to assess the
federal, state and local tax consequences of investing in each Portfolio. This
discussion is not intended to address the tax consequences of an investment by a
nonresident alien.
-25-
<PAGE>
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110 serves as custodian of the Fund assets pursuant to a custodian agreement
under which it holds the Portfolios' assets. Alger Shareholder Services, Inc.,
30 Montgomery Street, Jersey City, New Jersey 07302, serves as transfer agent
for the Fund pursuant to a transfer agency agreement. Under the transfer agency
agreement Alger Shareholder Services, Inc. ("Services") processes purchases and
redemptions of shares of the Fund, maintains the shareholder account records for
each Portfolio, handles certain communications between shareholders and the Fund
and distributes any dividends and distributions payable by the Fund. Pursuant to
the transfer agency agreement, Services is compensated on a per-account and, for
certain transactions, a per-transaction basis. Certain record-keeping services
that would otherwise be performed by Services may be performed by other entities
providing similar services to their customers who invest in the Portfolios. The
Fund, Services, Alger Inc. or any of its affiliates may elect to enter into a
contract to pay them for such services.
CERTAIN SHAREHOLDERS
The following table contains information regarding persons who own of record, or
are known to own beneficially, five percent or more of the shares of any
Portfolio. All holdings are expressed as a percentage of a Portfolio's
outstanding shares as of September 15, 2000 and record and beneficial holdings
are in each instance denoted as follows: record/beneficial.
--------------------------------------------------------------------------------
ALGER SMALL CAPITALIZATION PORTFOLIO - CLASS C
Merrill Lynch FBO 33.22%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER LARGECAP GROWTH PORTFOLIO - CLASS A
Charles Schwab 9.94%/+
Special Custody Acct
101 Montgomery St
San Francisco, CA 94104
Mellon Bank as Agent 20.69%/+
Dreyfus Retirement
135 Santilli Highway
Everett, MA 02149
Merrill Lynch FBO 23.71%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER LARGECAP GROWTH PORTFOLIO - CLASS B
Merrill Lynch FBO 5.59%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Reliastar Life Insurance Co. 5.98%/+
Route 3145
20 Washington Ave. South
Minneapolis, MN 55440
ALGER LARGECAP GROWTH PORTFOLIO - CLASS C
Merrill Lynch FBO 23.99%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER MIDCAP GROWTH PORTFOLIO - CLASS A
Charles Schwab 9.13%/+
Special Custody Acct
101 Montgomery St
San Francisco, CA 94104
Merrill Lynch FBO 20.37%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER MIDCAP GROWTH PORTFOLIO - CLASS B
Merrill Lynch FBO 7.77%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Reliastar Life Insurance Co. 13.05%/+
Route 3145
20 Washington Ave. South
Minneapolis, MN 55440
ALGER MIDCAP GROWTH PORTFOLIO - CLASS C
Merrill Lynch FBO 31.68%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER CAPITAL APPRECIATION PORTFOLIO - CLASS A
Charles Schwab 9.97%/+
Special Custody Acct
101 Montgomery St
San Francisco, CA 94104
Merrill Lynch FBO 23.13%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER CAPITAL APPRECIATION PORTFOLIO - CLASS B
Merrill Lynch FBO 10.19%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Reliastar Life Insurance Co. 5.45%/+
Route 3145
20 Washington Ave. South
Minneapolis, MN 55440
ALGER CAPITAL APPRECIATION PORTFOLIO - CLASS C
Merrill Lynch FBO 34.85%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER BALANCED PORTFOLIO - CLASS A
Merrill Lynch FBO 26.99%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
Putnam Fiduciary Trust Co. FBO 13.61%/+
CDICorporation 401(k) Savings Plan
859 Willard St. MS-E-2-C
Attn: Trading Services
Quincy, MA 02269-9110
ALGER BALANCED PORTFOLIO - CLASS B
Merrill Lynch FBO 33.51%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
ALGER BALANCED PORTFOLIO - CLASS C
Merrill Lynch FBO 40.66%/+
its Customers
4800 Deer Lake Drive East
Jacksonville, FL 32246
+ The Fund believes that the underlying customers are the beneficial owners.
-26-
<PAGE>
As of June 30, 2000 the Trustees and officers of the Fund, as a group, hold less
than 1% of the shares of any class of any Portfolio, except that they hold 3.81%
of the Class A shares of Alger Small Capitalization Portfolio and 1.80% of the
Class A shares of the Alger LargeCap Growth Portfolio.
ORGANIZATION
The Fund has been organized as an unincorporated business trust under the laws
of the Commonwealth of Massachusetts pursuant to an Agreement and Declaration of
Trust dated March 20, 1986 (the "Trust Agreement"). Alger Money Market
Portfolio, Alger Small Capitalization Portfolio and Alger Growth Portfolio
commenced operations on November 11, 1986. On September 29, 2000, Alger Growth
Portfolio was re-named Alger LargeCap Growth. Alger Balanced Portfolio commenced
operations on June 1, 1992, Alger MidCap Growth Portfolio commenced operations
on May 24, 1993 and Alger Capital Appreciation Portfolio commenced operations on
November 1, 1993. Prior to March 27, 1995 Alger Capital Appreciation Portfolio
was known as Alger Leveraged AllCap Portfolio. The word "Alger" in the Fund's
name has been adopted pursuant to a provision contained in the Trust Agreement.
Under that provision, Alger Management may terminate the Fund's license to use
the word "Alger" in its name when Alger Management ceases to act as the Fund's
investment manager. On December 31, 1996, Class A Shares were added to all
portfolios of the Fund except Alger Money Market Portfolio. Class A shares have
an initial sales charge. The previously existing shares in those portfolios,
subject to a CDSC, were designated Class B Shares on that date. Class C Shares,
which are subject to a CDSC, were created on August 1, 1997.
Shares of each Portfolio other than Alger Money Market Portfolio are thus
divided into three classes, Class A, Class B and Class C. The classes differ in
that: (a) each class has a different class designation; (b) the Class A Shares,
and Class C Shares issued after August 1, 2000, are subject to initial sales
charges (c) the Class B and Class C Shares are subject to CDSCs, and certain
Class A Shares may also be subject to a CDSC; (d) only the Class B and Class C
Shares (as described below) are subject to distribution fees under plans adopted
pursuant to Rule 12b-1 under the Act (each, a "Rule 12b-1 Plan"); (e) to the
extent that one class alone is affected by a matter submitted to a vote of the
shareholders, then only that class has voting power on the matter; and (f) the
exchange privileges and conversion rights of each class differ from those of the
others.
Although, as a Massachusetts business trust, the Fund is not required by law to
hold annual shareholder meetings, it may hold meetings from time to time on
important matters, and shareholders have the right to call a meeting to remove a
Trustee or to take other action described in the Trust's Declaration of Trust.
Meetings of shareholders normally will not be held for the purpose of electing
Trustees unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
Under the Act, shareholders of record of no less than two-thirds of the
outstanding shares of the Fund may remove a Trustee through a declaration in
writing or by vote cast in person or by proxy at a meeting called for that
purpose. Under the Trust Agreement, the Trustees are required to call a meeting
of shareholders for the purpose of voting on the question of removal of any such
Trustee when requested in writing to do so by the shareholders of record of not
less than 10 percent of the Fund's outstanding shares.
Shares do not have cumulative voting rights, which means that holders of more
than 50 percent of the shares voting for the election of Trustees can elect all
Trustees. Shares have equal voting rights, which cannot be adversely modified
other than by majority vote. Shares are transferable but have no preemptive,
conversion or subscription rights. Shareholders generally vote by Portfolio,
except with respect to the election of Trustees and the ratification of the
selection of independent accountants, and by class within a Portfolio on matters
in which the interests of one class differ from those of another; see also item
(e) in the preceding para-graph. In the interest of economy and convenience,
certificates representing shares of a Portfolio are physically issued only upon
specific written request of a shareholder.
Massachusetts law provides that shareholders could, under certain circumstances,
be held personally liable for the obligations of the Fund. However, the Trust
Agreement disclaims shareholder liability for acts or obligations of the Fund
and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or a
-27-
<PAGE>
Trustee. The Trust Agreement provides for indemnification from the Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Fund. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations, a possibility
that the Fund believes is remote. Upon payment of any liability incurred by the
Fund, the shareholder paying the liability will be entitled to reimbursement
from the general assets of the Fund. The Trustees intend to conduct the
operations of the Fund in a manner so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Fund.
The Fund is classified as a "diversified" investment company under the
Investment Company Act of 1940. A "diversified" investment company is required,
with respect to 75% of its assets, to limit its investment in any one issuer
(other than the U.S. government) to no more than 5% of the investment company's
total assets. The Fund intends to continue to qualify as a "regulated investment
company" under the Internal Revenue Code; one of the requirements for such
qualification is a quarterly diversification test, applicable to 50% (rather
than 75%) of the Fund's assets, similar to the requirement stated above.
DETERMINATION OF PERFORMANCE
ALGER MONEY MARKET PORTFOLIO
The Alger Money Market Portfolio's "yield" and "effective yield" are calculated
according to formulas prescribed by the SEC. The Portfolio's seven-day "yield"
is computed by determining the net change, exclusive of capital changes and
income other than investment income, in the value of a hypothetical pre-existing
account in the Portfolio having a balance of one share at the beginning of the
period, dividing the net change in account value by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7). The Portfolio's "effective yield"
is computed by compounding the unannualized base period return (calculated as
above), by adding one to it, raising the sum to a power equal to 365 divided by
seven, and subtracting one from the result. When Alger Money Market Portfolio
includes quotations of "yield" and "effective yield" that are based on income
generated by an investment in the Portfolio over a thirty-day, or one month,
period, it will calculate the "yield" and "effective yield" in the manner
described above except that, in annualizing the "yield" and "effective yield,"
the formula will be adjusted to reflect the proper period.
For the seven-day period ended April 30, 2000, the annualized yield was 5.09%,
and the compounded effective yield was 5.22%.
OTHER PORTFOLIOS
The "total return" and "yield" as to each of the Classes of the Portfolios,
other than Alger Money Market Portfolio, are also computed according to formulas
prescribed by the SEC. These performance figures are calculated in the following
manner:
A. Total Return--A Class' average annual total return described in the
Prospectus is computed according to the following formula:
n
P(1+T) =ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5, or 10 year periods at the end of the 1, 5
and 10 year periods (or fractional portion thereof);
-28-
<PAGE>
The average annual total returns for Class A, B and C Shares of the Portfolios,
other than Alger Money Market Portfolio, for the periods indicated below were as
follows:
<TABLE>
<CAPTION>
PERIOD
FIVE TEN FROM
YEAR YEARS YEARS INCEPTION
ENDED ENDED ENDED THROUGH
4/30/00 4/30/00 4/30/00 4/30/00
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Alger Small Capitalization
Portfolio* --Class A++ 13.12% N/A N/A 12.37%
--Class B 13.42% 15.51% 15.74% 16.84%
--Class C+++ 16.14% N/A N/A 10.90%
Alger LargeCap Growth Portfolio*
--Class A++ 19.15% N/A N/A 29.92%
--Class B 19.11% 27.41% 22.85% 18.98%
--Class C+++ 21.88% N/A N/A 26.23%
Alger Balanced Portfolio**
--Class A++ 13.95% N/A N/A 23.24%
--Class B 13.70% 21.11% N/A 15.00%
--Class C+++ 16.50% N/A N/A 20.88%
Alger MidCap Growth
Portfolio*** --Class A++ 39.17% N/A N/A 27.79%
--Class B 39.85% 27.00% N/A 25.77%
--Class C+++ 42.54% N/A N/A 26.94%
Alger Capital Appreciation
Portfolio+ --Class A++ 33.28% N/A N/A 35.09%
--Class B 33.96% 36.62% N/A 32.52%
--Class C+++ 36.49% N/A N/A 32.15%
</TABLE>
* Commenced operations on November 11, 1986 (formerly Alger Growth Portfolio).
** Commenced operations on June 1, 1992.
*** Commenced operations on May 24, 1993.
+ Commenced operations on November 1,
1993.
++ Initially offered January 1, 1997.
+++ Initially offered August 1, 1997.
B. Yield--a Class' net annualized yield is computed according to the following
formula:
a-b 6
YIELD = 2[(----- + 1) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = The average daily number of shares outstanding during the period
that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
IN GENERAL
Current performance information for the Classes of the Portfolios may be
obtained by calling the Fund at (800) 992-3863. Quoted performance may not be
indicative of future performance. The performance of a Class will depend upon
factors such as its expenses and the types and maturities of securities held by
the Portfolio.
From time to time, advertisements or reports to shareholders may compare the
yield or performance of a Portfolio with that of other mutual funds with a
similar investment objective. The yield of the Alger Money Market Portfolio
might be compared with, for example, averages compiled by IBC/DONOGHUE'S MONEY
FUND REPORT, a widely recognized, independent publication that monitors the
performance of money market mutu-
-29-
<PAGE>
al funds. The yield of the Alger Money Market Portfolio might also be compared
with the average yield reported by the Bank Rate Monitor for money market
deposit accounts offered by the 50 leading banks and thrift institutions in the
top five standard metropolitan areas. Similarly, the performance of the other
Portfolios, for example, might be compared with rankings prepared by Lipper
Analytical Services Inc., which is a widely recognized, independent service that
monitors the performance of mutual funds, as well as with various unmanaged
indices, such as the S&P 500 Index(R), the Russell 2000 Growth Index(R), the S&P
SmallCap 600 Index(R), the Wilshire Small Company Growth Index(R), the Lehman
Brothers Government/Corporate Bond Index(R) or the S&P MidCap 400 Index(R). In
addition, evaluations of the Portfolios published by nationally recognized
ranking services or articles regarding performance, rankings and other Portfolio
characteristics may appear in national publications including, but not limited
to, BARRON'S, BUSINESS WEEK, FORBES, INSTITUTIONAL INVESTOR, INVESTOR'S BUSINESS
DAILY, KIPLINGER'S PERSONAL FINANCE, MONEY, MORNINGSTAR, THE NEW YORK TIMES, USA
TODAY AND THE WALL STREET JOURNAL and may be included in advertisements or
communications to shareholders. Any given performance comparison should not be
considered as representative of such Portfolio's performance for any future
period.
FINANCIAL STATEMENTS
The Fund's audited financial statements for the year ended October 31, 1999 and
its unaudited financial statements for the six months ended April 30, 2000, are
contained in its Annual and Semi-Annual Reports to Shareholders for those
periods and are hereby incorporated by reference. Copies of the Annual and
Semi-Annual Reports to Shareholders may be obtained by telephoning (800)
992-3863.
-30-
<PAGE>
APPENDIX
Description of the highest commercial paper, bond and other short and long
term rating categories assigned by Standard & Poor's Corporation ("S&P"),
Moody's Investors Service, Inc. ("Moody's"), "Fitch" Investors Service, Inc.
("Fitch") and Duff and Phelps, Inc. ("Duff").
COMMERCIAL PAPER AND SHORT-TERM RATINGS
The designation A-l by S&P indicates that the degree of safety reading timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus sign (+)
designation. Capacity for timely payment on issues with an A-2 designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-l.
The rating Prime-l (P-l) is the highest commercial paper rating assigned by
Moody's. Issuers of P-l paper must have a superior capacity for repayment of
short term promissory obligations and ordinarily will be evidenced by leading
market positions in well established industries, high rates of return of funds
employed, conservative capitalization structures with moderate reliance on debt
and ample asset protection, broad margins in earnings coverage of fixed
financial charges and high internal cash generation, and well established access
to a range of financial markets and assured sources of alternate liquidity.
Issues rated Prime-2 (P-2) have a strong capacity for repayment of short-term
promissory obligations. This ordinarily will be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
The rating Fitch-l (Highest Grade) is the highest commercial paper rating
assigned by Fitch. Paper rated Fitch-l is regarded as having the strongest
degree of assurance for timely payment. The rating Fitch-2 (Very Good Grade) is
the second highest commercial paper rating assigned by Fitch which reflects an
assurance of timely payment only slightly less in degree than the strongest
issues.
The rating Duff-l is the highest commercial paper rating assigned by Duff.
Paper rated Duff-l is regarded as having very high certainty of timely payment
with excellent liquidity factors which are supported by ample asset protection.
Risk factors are minor. Paper rated Duff-2 is regarded as having good certainty
of timely payment, good access to capital markets and sound liquidity factors
and company fundamentals. Risk factors are small.
BOND AND LONG-TERM RATINGS
Bonds rated AA by S&P are judged by S&P to be high-grade obligations and in
the majority of instances differ only in small degree from issues rated AAA
(S&P's highest rating). Bonds rated AAA are considered by S&P to be the highest
grade obligations and possess the ultimate degree of protection as to principal
and interest. With AA bonds, as with AAA bonds, prices move with the long-term
money market. Bonds rated A by S&P have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
S&P's BBB rated bonds, or medium-grade category bonds, are borderline between
definitely sound obligations and those where the speculative elements begin to
predominate. These bonds have adequate asset coverage and normally are protected
by satisfactory earnings. Their susceptibility to changing conditions,
particularly to depressions, necessitates constant watching. These bonds
generally are more responsive to business and trade conditions than to interest
rates. This group is the lowest that qualifies for commercial bank investment.
Bonds rated Aa by Moody's are judged to be of high quality by all standards.
Together with bonds rated Aaa (Moody's highest rating) they comprise what are
generally known as high-grade bonds. Aa bonds are rated lower than Aaa bonds
because margins of protection may not be as large as those of Aaa bonds, or
fluctuation of protective elements may be of greater amplitude, or there may be
other elements present that make the long-term risks appear somewhat larger than
those applicable to Aaa securities. Bonds that are rated A by Moody's possess
many favorable investment attributes and are to be considered as upper
A-1
<PAGE>
APPENDIX
(continued)
medium grade obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present that suggest a susceptibility
to impairment in the future.
Moody's Baa rated bonds are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Moody's applies the numerical modifiers 1, 2 and 3 to each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade,
broadly marketable, suitable for investment by trustees and fiduciary
institutions and liable to but slight market fluctuation other than through
changes in the money rate. The prime feature of an AAA bond is a showing of
earnings several times or many times interest requirements, with such stability
of applicable earnings that safety is beyond reasonable question whatever
changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be
of safety virtually beyond question and are readily salable, whose merits are
not unlike those of the AAA class, but whose margin of safety is less strikingly
broad. The issue may be the obligation of a small company, strongly secured but
influenced as to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated Duff-l are judged by Duff to be of the highest credit quality
with negligible risk factors; only slightly more than U.S. Treasury debt. Bonds
rated Duff-2, 3 and 4 are judged by Duff to be of high credit quality with
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions.
A-2
<PAGE>
INVESTMENT MANAGER:
Fred Alger Management, Inc.
One World Trade Center
Suite 9333
New York, New York 10048
--------------------------------------------------------------------------------
DISTRIBUTOR:
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
--------------------------------------------------------------------------------
TRANSFER AGENT:
Alger Shareholder Services, Inc.
30 Montgomery Street
Box 2001
Jersey City, New Jersey 07302
--------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS:
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
--------------------------------------------------------------------------------
COUNSEL:
Hollyer Brady Smith & Hines LLP
551 Fifth Avenue
New York, New York 10176
