As filed with the Securities and Exchange Commission
on December 4 , 1995
Securities Act File No. 33-98102
Investment Company Act File No. 811-1743
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
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Pre-Effective Amendment No. 1 x
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and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
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Amendment No. 12 x
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(Check appropriate box or boxes)
SPECTRA FUND
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(Exact Name of Registrant as Specified in Charter)
75 MAIDEN LANE
NEW YORK, NEW YORK 10038
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 212-806-8800
MR. GREGORY S. DUCH
FRED ALGER MANAGEMENT, INC.
75 MAIDEN LANE
NEW YORK, NY 10038
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(Name and Address of Agent for Service)
Page 1 of ____ Pages
Exhibit Index at Page ____
<PAGE>
DECLARATION PURSUANT TO RULE 24f-2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as
amended, Registrant hereby elects to register an indefinite number or amount of
securities. The amount of the registration fee is $500.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
Registrant hereby expressly adopts the Registration Statement of Spectra
Fund, Inc. (File No. 811-1743) under the Investment Company Act of 1940.
<PAGE>
SPECTRA FUND
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
- -------- ------------------
<S> <C> <C>
1. Cover Page.......................................... Front Cover Page
2. Synopsis ........................................... Expenses
3. Condensed Financial Information .................... Financial Highlights
4. General Description of Registrant .................. Front Cover Page; Investment Objective
and Policies; Investment Practices; Man-
agement of the Fund
5. Management of the Fund ............................. Management of the Fund
6. Capital Stock and Other Securities ................. Front Cover Page; Management of the
Fund; Dividends and Taxes
7. Purchase of Securities Being Offered ............... How to Buy Shares; Net Asset Value
8. Redemption or Repurchase ........................... How to Sell Shares; How to Exchange
Shares
9. Pending Legal Proceedings .......................... Not Applicable
PART B HEADING IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
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10. Cover Page ......................................... Front Cover Page
11. Table of Contents .................................. Contents
12. General Information and History .................... Not Applicable
<PAGE>
13. Investment Objective and Policies .................. Investment Objective and Policies;
Appendix
14. Management of the Fund ............................. Management
15. Control Persons and Principal Holders of
Securities ....................................... Certain Shareholders
16. Investment Advisory and Other Services ............. Management; Custodian and Transfer
Agent; Purchases; See in the Prospectus
"Management of the Fund"
17. Brokerage Allocation and Other Practices ........... Investment Objective and Policies
18. Capital Stock and Other Securities ................. Organization; See in the Prospectus "Div-
idends and Taxes" and "Management of
the Fund"
19. Purchase, Redemption and Pricing of Secu-
rities Being Offered ............................... Net Asset Value; Purchases; Redemp-
tions
20. Tax Status ......................................... Taxes; See in the Prospectus "Taxes"
21. Underwriters ....................................... Purchases
22. Calculation of Performance Data .................... Determination of Performance; See
in the Prospectus "Performance"
23. Financial Statements ............................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
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SPECTRA FUND
75 Maiden Lane
New York, New York 10038
(800) 711-6141
Spectra Fund (the "Fund") is a non-diversified mutual fund with the investment
objective of capital appreciation. It seeks to achieve this objective by
investing primarily in common stocks. There is no sales charge on purchases of
Fund shares.
This Prospectus, which should be retained for future reference,
contains important information that you should know before investing. A
Statement of Additional Information dated ______, 1995 containing further
information about the Fund has been filed with the Securities
and Exchange Commission and is incorporated by reference into this Prospectus.
It is available at no charge by contacting the Fund at
the address or phone number above.
TABLE OF CONTENTS
Page
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Expenses....................................... ii
Financial Highlights........................... iii
How to Buy Shares.............................. 1
Special Investor Services...................... 1
How to Sell Shares............................. 2
Investment Objective and Policies.............. 3
Investment Practices........................... 3
Management of the Fund......................... 5
Net Asset Value................................ 6
Dividends and Taxes............................ 6
Performance.................................... 7
Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by any bank, and the shares are not federally
insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECUR-
ITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE
________, 1995
<PAGE>
EXPENSES
The Table below is designed to assist you in understanding the direct and
indirect costs and expenses that you will bear as a shareholder. The Example
below shows the amount of expenses you would pay on a $1,000 investment in the
Fund. These amounts assume the reinvestment of all dividends and distributions,
and payment by the Fund of operating expenses as shown in the Table under Total
Fund Expenses. The Example is an illustration only and actual expenses may be
greater or less than those shown.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases................................ None
Maximum Sales Load Imposed on Reinvested Dividends..................... None
Redemption Fees........................................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees*....................................................... 1.50%
Other Expenses (after expense reimbursements)*......................... 1.00%
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Total Fund Expenses (after expense reimbursements)..................... 2.50%
=====
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and
(2) redemption at the end of
each time period:
One Year............................................................... $ 25
Three Years............................................................ 78
Five Years............................................................. 133
Ten Years.............................................................. 284
*Based upon expenses incurred in the year ended October 31, 1995, the most
recent fiscal year of Spectra Fund, Inc., the Fund's predecessor, restated
to reflect certain changes in current fees, including a change in
compensation to be paid to the investment manager and payments to be made
under the Shareholder Servicing Agreement. Absent reimbursements, the
amounts of Other Expenses and Total Fund Expenses would be 2.47% and 3.97%,
respectively.
ii
<PAGE>
FINANCIAL HIGHLIGHTS
During the periods represented here, the Fund was a closed-end investment
company and was organized as a Massachusetts corporation. The Financial
Highlights for the years ended June 30, 1990 through October 31, 1994 have been
audited by Arthur Andersen LLP, the Fund's independent public accountants, as
indicated in their report dated December 9, 1994 on the Fund's financial
statements as of October 31, 1994 which are included in the Fund's Statement of
Additional Information. The Financial Highlights should be read in conjunction
with the Fund's financial statements and notes thereto. The Financial
Highlights, with the exception of the total return information, for the periods
prior to 1990 have been audited by other independent accountants, who have
expressed an unqualified opinion thereon. The Statement of Additional
Information may be obtained from the Fund without charge.
SPECTRA FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
Six Four
Months Months
Ended Ended Year Ended June 30,
April 30, October 31, -----------------------------------------------------------------------------------
1995** 1994** 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of year .... $18.82 $17.12 $19.02 $17.93 $19.50 $18.72 $15.12 $13.73 $23.45 $27.28 $20.43 $16.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income (loss) (0.15) (0.10) (0.28) (0.29) (0.22) (0.15) (0.13) (0.19) (0.19) (0.04) 0.01 (0.05)
Net realized and
unrealized gain
(loss) on
investments 1.67 1.80 2.66 3.70 1.65 2.25 3.83 1.66 (2.34) 2.09 8.87 4.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
investment
operations 1.52 1.70 2.38 3.41 1.43 2.10 3.70 1.47 (2.53) 2.05 8.88 4.35
Distributions
from net
realized
gains ...... (4.60) -- (4.28) (2.32) (3.00) (1.32) (0.10) (0.08) (7.19) (5.88) (2.03) (0.83)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset
value, end
of year .... $15.74 $18.82 $17.12 $19.02 $17.93 $19.50 $18.72 $15.12 $13.73 $23.45 $27.28 $20.43
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total
investment
return*** .. 18.61% 9.93% 17.53% 23.66% 11.65% 15.62% 24.76%* 10.96%* (1.36)%* -- -- --
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios and
Supplemental
Data: Net
assets, end
of year (000's
omitted) ... $4,014 $4,832 $4,394 $4,884 $4,603 $5,006 $4,805 $3,882 $3,525 $6,020 $7,003 $5,245
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of
expenses
to average
net assets 3.02% 2.75% 2.59% 2.57% 2.14% 2.74% 3.01% 4.09% 3.05% 2.39% 2.25% 2.70%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net
investment
income (loss)
to average
net assets (1.98)% (1.72)% (1.47)% (1.55)% (1.07)% (.85)% (.76)% (1.35)% (1.07)% (.19)% .07% (.27)%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Portfolio
turnover
rate ..... 49.23% 56.24% 116.61% 100.17% 63.54% 78.00% 81.70% 139.94% 139.59% 127.30% 122.00% 106.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
*Unaudited
**Ratios have been annualized; total return has not been annualized.
iii
<PAGE>
HOW TO BUY SHARES
IN GENERAL
You can buy shares of Spectra Fund (the "Fund") in any of the following ways:
through the Fund's transfer agent; through a Processing Organization, as
discussed below; through Fred Alger & Company, Incorporated ("Alger Inc."), the
Fund's distributor; or automatically from your bank account through an Automatic
Investment Plan. The Fund or the transfer agent may reject any purchase order.
You can open a Fund account with a minimum initial investment of $1,000 and
make additional investments of at least $100 at any time. There is no sales
charge on purchases or redemptions of Fund shares. The Fund reserves the right
to redeem all of the shares of any shareholder, other than a shareholder which
is an IRA or other tax-deferred retirement plan, whose account falls below $500
due to redemptions. The Fund will give shareholders 60 days' prior written
notice in which to purchase sufficient additional shares to avoid such
redemption. The Fund reserves the right to waive the minimum for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors.
PURCHASES THROUGH THE TRANSFER AGENT
You can buy shares through Alger Shareholder Services, Inc., the Fund's
transfer agent, by filling out the New Account Application and returning it with
a check drawn on a U.S. bank to Alger Shareholder Services, Inc. at 30
Montgomery Street, Box 2001, Jersey City, NJ 07302. You can also purchase shares
by wire transfer according to the instructions below.
Purchases will be processed at the next net asset value calculated after your
order is received and accepted. If your purchase is made by check or wire and is
received by the close of business of the New York Stock Exchange (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.
Third-party checks will not be honored except in the case of employer sponsored
retirement plans.
WIRE TRANSFERS
Investors establishing new accounts by wire transfer should forward their
completed New Account Applications to the transfer agent, stating that the
account was established by wire transfer and the date and amount of the
transfer. Further information regarding wire transfers is available by calling
(800) 711-6141.
The following information should be included in wire transfers to Fund
accounts:
1. Nat West NJ/CUST/021200339
2. For Account 011313045 A/C Alger/SPECTRA FUND
3. 31--Account Number (if new account indicate such)
4. Name of Account
5. Social Security or Taxpayer Identification Number
EXAMPLE:
Nat West NJ/CUST/021200339
For Account 011313045 A/C
Spectra Fund
31-123456789 or 07-New Account
John & Jane Doe
123-45-6789
PURCHASES THROUGH PROCESSING ORGANIZATIONS
You can buy shares through a "Processing Organization", which is a
broker-dealer, bank or other financial institution that purchases shares for its
customers. Processing Organizations may impose charges and restrictions in
addition to or different from those applicable if you invest with the Fund
directly. Therefore, you should read the materials provided by the Processing
Organization in conjunction with this Prospectus. Certain Processing
Organizations may receive compensation from the Fund, Alger Inc., or any of its
affiliates.
SPECIAL INVESTOR SERVICES
TELEPURCHASE PRIVILEGE
You can purchase Fund shares by telephone (minimum $1,000, maximum $50,000)
by filling out the appropriate section of the New Account Application or sending
an Additional Services Form to the transfer agent. Your funds will be
transferred from your designated bank account to your Fund account normally
within two business days. To use this service, your bank must be a member of the
Automated Clearing House.
1
<PAGE>
AUTOMATIC INVESTMENT PLAN
The Fund offers an Automatic Investment Plan which permits you to make
regular transfers to your Fund account from your bank account (minimum $100)
on the last business day of every month. Your bank must be a member of the
Automated Clearing House.
RETIREMENT PLANS
Shares of the Fund are available as an investment for your retirement plans,
including IRAs, Keogh Plans, corporate pension and profit-sharing plans,
Simplified Employee Pension IRAs, 401(k) Plans and 403(b) Plans. The minimum
initial investment for a retirement plan account is $250. Please call the Fund
at (800) 711-6141 to receive the appropriate documents which contain important
information and applications.
HOW TO SELL SHARES
You can sell (redeem) some or all of your shares on any business day. Your
shares will be sold at the next net asset value calculated after your redemption
request is received and accepted by the transfer agent and your payment will be
made by check within seven days. Redemptions may be suspended and payments
delayed under certain emergency circumstances as determined by the Securities
and Exchange Commission. The Fund's transfer agent will reject any redemption
request made within 15 days after receipt of the purchase check order against
which such redemption is requested. You can sell your shares in any of the
following ways: by mail, by telephone or through a Processing Organization.
SELLING SHARES BY MAIL
You should send a letter of instruction to the transfer agent that includes
your name, account number, the number of shares or dollar amount and where you
want the money to be sent. The letter must be signed by all registered owners
and, if the redemption is for more than $5,000 or if the proceeds are to be sent
to an address other than the address of record, the signature must be
guaranteed. The transfer agent will accept a signature guarantee by the
following financial institutions: a U.S. bank, trust company, broker, dealer,
municipal securities broker or dealer, government securities broker or dealer,
credit union which is authorized to provide signature guarantees, national
securities exchange, registered securities association or clearing agency.
If you have a certificate for your Fund shares, you should mail your
certificate to the transfer agent with a letter of instruction to deposit the
shares in your account for redemption.
SELLING SHARES BY TELEPHONE
If you wish to use this service, you should mark the appropriate box on the
New Account Application or send a written request with a guaranteed signature.
To sell shares by telephone, please call (800) 711-6141. Redemption requests
will generally be paid on the next business day. If your proceeds are less than
$5,000, they will be mailed to your address of record. If the proceeds are more
than $5,000 they will be mailed to your address of record or wired to your
designated bank account. This service is not available within 90 days of
changing your address or bank account of record.
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.
SYSTEMATIC WITHDRAWAL PLAN
If your account is $10,000 or more, you can establish a Systematic Withdrawal
Plan to receive payments of at least $50 on a monthly, quarterly or annual
basis. The maximum monthly withdrawal is one percent of the current account
value in the Fund at the time you begin participation in the Plan.
2
<PAGE>
REDEMPTION IN KIND
Under unusual circumstances, shares of the Fund may be redeemed "in kind",
which means that the redemption proceeds will be paid with securities which are
held by the Fund. Please refer to the Statement of Additional Information for
more details.
INVESTMENT OBJECTIVE
AND POLICIES
The Fund's investment objective and the restrictions summarized in the next
paragraph are fundamental which means that they may not be changed without
shareholder approval. Except where otherwise indicated, all other investment
policies and practices described below and elsewhere in this Prospectus are not
fundamental, so the Fund's Board of Trustees may change them without shareholder
approval. There is no guarantee that the Fund's objective will be achieved.
As a matter of fundamental policy, the Fund will not: (1) invest more than
25% of its total assets in any one industry; (2) borrow money or pledge its
assets, except that the Fund may borrow from banks so long as it maintains asset
coverage of at least 300% with respect to all borrowings and may pledge its
assets in connection with permissible borrowings or investments; (3) invest more
than 5% of its total assets in securities of issuers (other than U.S. government
securities) that have been in continuous operation for less than three years; or
(4) make loans to others, except through purchasing qualified debt obligations,
lending its securities or entering into repurchase agreements. The Statement of
Additional Information contains additional investment restrictions as well as
additional information on the Fund's investment practices.
The investment objective of the Fund is capital appreciation. The Fund seeks
to achieve its objective primarily 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 Fund will invest
principally in companies whose securities are traded on domestic stock exchanges
or in the over-the-counter market. In order to afford the Fund the flexibility
to take advantage of new opportunities for investments in accordance with its
investment objective, it may hold up to 15% of its total assets in money market
instruments and repurchase agreements. When management's analysis of economic
and technical market factors suggests that common stock prices will decline
sufficiently that a temporary defensive position is deemed advisable, the Fund
may invest in high-grade senior securities or U.S. Government securities or
retain cash or cash equivalents, all without limitation.
The Fund may purchase put and call options and sell (write) put and covered
call options on securities and securities indexes to increase gain and to hedge
against the risk of unfavorable price movements, and may enter into futures
contracts on securities indexes and purchase and sell call and put options on
these futures contracts.
INVESTMENT PRACTICES
The Fund may use the investment strategies and invest in the types of
securities described below, which may involve certain risks. The Statement of
Additional Information contains more detailed information about these practices
and information about other investment practices of the Fund.
REPURCHASE AGREEMENTS
In a repurchase agreement, the Fund buys a security at one price and
simultaneously agrees to sell it back at a higher price. In the event of a
bankruptcy or default of the other party to the repurchase agreement, the Fund
could experience costs and delays in liquidating the underlying security, which
is held as collateral, and the Fund might incur a loss if the value of the
collateral held declines during this period.
ILLIQUID AND RESTRICTED SECURITIES
The Fund will not invest more than 15% of its net assets in illiquid
securities. Under the policies and procedures established by the Fund's Board of
3
<PAGE>
Trustees, Alger Management determines the liquidity of the Fund's investments.
Investments may be illiquid because of the absence of an active trading market,
making it difficult to sell promptly at an acceptable price. The Fund may
purchase securities eligible for resale under Rule 144A of the Securities Act of
1933. This rule permits otherwise restricted securities to be sold to certain
institutional buyers. The Fund will limit its purchases of these securities to
those which Alger Management, under the supervision of the Fund's Board of
Trustees, determines to be liquid. A restricted security is one that has a
contractual restriction on its resale or which cannot be sold publicly until it
is registered under the Securities Act of 1933.
LENDING OF PORTFOLIO SECURITIES
In order to generate income and to offset expenses, the Fund may lend
portfolio securities with a value up to 331/3% of the Fund's total assets to
brokers, dealers and other financial organizations. Any such loan will be
continuously secured by collateral at least equal to the value of the securities
loaned. Such lending could result in delays in receiving additional collateral
or in the recovery of the securities or possible loss of rights in the
collateral should the borrower fail financially.
FOREIGN SECURITIES
The Fund may invest up to 20% of its total assets in foreign securities.
Investing in securities of foreign companies and foreign governments, which
generally are denominated in foreign currencies, may involve certain risk and
opportunity considerations not typically associated with investing in domestic
companies and could cause the Fund to be affected favorably or unfavorably by
changes in currency exchange rates and revaluations of currencies.
The Fund may purchase American Depositary Receipts ("ADRs") or U.S.
dollar-denominated securities of foreign issuers that are not included in the
20% foreign securities limitation. ADRs are receipts issued by U.S. banks or
trust companies in respect of securities of foreign issuers held on deposit for
use in the U.S. securities markets. While ADRs may not necessarily be
denominated in the same currency as the securities into which they may be
converted, many of the risks associated with foreign securities may also apply
to ADRs.
OPTIONS
The Fund may buy and sell (write) listed options in order to obtain
additional return or to hedge the value of its portfolio. As a matter of
fundamental policy, the Fund may write call options on securities only if such
options are covered. Although the Fund will generally purchase or write only
those options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular option. The Fund will not purchase options if, as a result, the
aggregate cost of all outstanding options exceeds 10% of the Fund's total
assets, although no more than 5% will be committed to transactions entered into
for non-hedging purposes. The Fund may purchase and sell put and call options on
stock indexes in order to increase its gross income or to hedge its portfolio
against price fluctuations.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. Additional discussion of these risks
and techniques is included in the Statement of Additional Information.
STOCK INDEX FUTURES AND OPTIONS ON
STOCK INDEX FUTURES
The Fund may purchase and sell stock index futures contracts and options on
stock index futures contracts. These investments may be made only for hedging,
not speculative, purposes. Hedging transactions are made to reduce the risk of
price fluctuations.
There can be no assurance of the Fund's successful use of stock index futures
as a hedging device. If Alger Management uses a hedging instrument at the wrong
time or judges market conditions incorrectly, hedging strategies may reduce the
Fund's return. The Fund could also experience losses if the prices of its
4
<PAGE>
futures and options positions were not correlated with its other investments or
if it could not close out a position because of an illiquid market for the
future or option.
LEVERAGE THROUGH BORROWING
The Fund 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 Fund'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 Fund's shares will decrease faster than would otherwise be
the case. The Fund 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 Fund 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.
PORTFOLIO TURNOVER
Portfolio changes will generally be made without regard to the length of time
a security has been held or whether a sale would result in a profit or loss.
Higher levels of portfolio activity generally result in higher transaction costs
and may also result in taxes on realized capital gains to be borne by the Fund's
shareholders.
MANAGEMENT OF THE FUND
ORGANIZATION
From its inception in 1968 until , 1995, the Fund was organized as a
Massachusetts business corporation, and it had operated as a registered
closed-end investment company since 1978. Shares of closed-end investment
companies, unlike those of open-end companies, are ordinarily not redeemable and
are not continuously offered for sale to the public. On , 1995, the Fund
reorganized as a Massachusetts business trust and also converted to an open-end
investment company, or "mutual fund." In connection with the reorganization, the
name of the Fund was changed from "Spectra Fund, Inc." to "Spectra Fund." The
Fund is authorized to offer an unlimited number of shares.
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.
BOARD OF TRUSTEES
The Fund is governed by a Board of Trustees which is responsible for
protecting the interests of shareholders under Massachusetts law. The Statement
of Additional Information contains general background information about each
Trustee and officer of the Fund.
INVESTMENT MANAGER
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 Fund, places
orders to purchase and sell securities on behalf of the Fund 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
Fund's transactions on securities exchanges and will retain commissions in
accordance with certain regulations of the Securities and Exchange Commission.
The Fund will consider sales of its shares as a factor in the selection of
broker-dealers to execute over-the-counter portfolio transactions, subject to
the requirements of best price and execution. In addition, Alger Management
employs professional securities analysts who provide research services
exclusively to the Fund and other accounts for which Alger Management or its
affiliates serve as investment adviser or subadviser.
5
<PAGE>
Alger Management has been in the business of providing investment advisory
services since 1964 and, as of September 30, 1995, had approximately $4.8
billion under management, $2.8 billion in mutual fund accounts and $2.0 billion
in other advisory accounts. Alger Management is owned by Alger Inc. which in
turn is owned by Alger Associates, Inc., ("Associates"), a financial services
holding company. At , 1995, the date on which the Fund converted to an open-end
investment company, Associates held 34.40% of the Fund's shares and could
therefore be deemed to control the Fund as of that date. Fred M. Alger, III and
his brother, David D. Alger, are the majority shareholders of Associates and may
be deemed to control that company, its subsidiaries and indirectly (through
Associates' investment in the Fund) the Fund. Further investment in the Fund by
Associates or a period of net redemptions of Fund shares by other shareholders
could cause this percentage to increase. Conversely, Associates' relative
position in the Fund could decrease as a result of strong sales of Fund shares
to the public, even if Associates makes additional investments in the Fund.
PORTFOLIO MANAGERS
David D. Alger, President of Alger Management, is primarily responsible for
the day-to-day management of the Fund. He has been employed by Alger Management
as Executive Vice President and Director of Research since 1971 and as President
since 1995 and he serves as portfolio manager for other mutual funds and
investment accounts managed by Alger Management. Also participating in the
management of the Fund are Ronald Tartaro and Seilai Khoo. Mr. Tartaro has been
employed by Alger Management since 1990 and he serves as a senior research
analyst. Prior to 1990, he was a member of the technical staff at AT&T Bell
Laboratories. Ms. Khoo has been employed by Alger Management since 1989 and she
serves as a senior research analyst.
Alger Management personnel ("Access Persons") are permitted to engage in
personal securities transactions 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) 711-6141.
FEES AND EXPENSES
The Fund pays Alger Management a management fee computed daily and paid
monthly at an annual rate of 1.50% of the value of the Fund's average daily net
assets. The management fee paid by the Fund is higher than that paid by most
other registered investment companies.
The Fund pays other expenses related to its daily operations, such as
custodian fees, Trustees' fees, transfer agency fees, legal and auditing costs.
More information about the Fund's investment management agreement and other
expenses paid by the Fund is included in the Statement of Additional
Information, which also contains information about the Fund's brokerage policies
and practices.
DISTRIBUTOR
Alger Inc. serves as the Fund's distributor and also distributes the shares
of other mutual funds managed by Alger Management.
TRANSFER AGENT
Alger Shareholder Services, Inc., an affiliate of Alger Management, serves as
transfer agent for the Fund. Certain record-keeping services that would
otherwise be performed by Alger Shareholder Services, Inc. may be performed by
other entities providing similar services to their customers who invest in the
Funds. The Fund, Alger Shareholder Services, Inc., Alger Inc. or any of its
affiliates may elect to enter into a contract to pay them for such services.
SHAREHOLDER SERVICING AGREEMENT
The Fund pays Alger Inc. a shareholder servicing fee of .25% of the average
daily net assets of the Fund for ongoing service and maintenance of shareholder
accounts. Alger Inc. will compensate processing organizations from this fee who
provide personal service and maintenance of shareholder accounts.
6
<PAGE>
NET ASSET VALUE
The price of one share of the Fund is its "net asset value." The net asset
value is computed by adding the value of the Fund's investments plus cash and
other assets, deducting liabilities and then dividing the result by the number
of its shares outstanding. The net asset value is calculated on each day the New
York Stock Exchange is open as of the close of business (normally 4:00 p.m.
Eastern time).
DIVIDENDS AND TAXES
DIVIDENDS
Dividends and distributions will be automatically reinvested on the payment
date in additional Fund shares at net asset value, unless you elected on the New
Account Application to have all dividends and distributions paid in cash.
Dividends are declared and paid annually. Distributions of any net realized
short-term and long-term capital gains usually will be made annually after the
close of the fiscal year in which the gains are earned.
TAXES
The Fund intends to qualify and elect to be treated each year as a "regulated
investment company" for federal income tax purposes. A regulated investment
company is not subject to regular income tax on any income or capital gains
distributed to its shareholders if it, among other things, distributes at least
90 percent of its investment company taxable income to them within applicable
time periods.
For federal income tax purposes dividends and distributions are taxable to
you whether paid in cash or reinvested in additional shares. You may also be
liable for tax on any gain realized upon the redemption of shares in the Fund.
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 the Fund. This
discussion is not intended to address the tax consequences of an investment by a
nonresident alien.
PERFORMANCE
All performance figures are based on historical earnings and are not intended
to indicate future performance. Further information about the Fund's performance
is contained in its Annual Report to Shareholders, which may be obtained without
charge by contacting the Fund.
The Fund may include quotations of "total return" in advertisements or
reports to shareholders or prospective investors. Total return figures show the
aggregate or average percentage change in value of an investment in the Fund
from the beginning date of the measuring period to the end of the measuring
period. These figures reflect changes in the price of the Fund's shares and
assume that any income dividends and/or capital gains distributions made by the
Fund during the period were reinvested in shares of the Fund. Figures will be
given for recent 1, 5, and 10 year periods, including periods during which the
Fund operated as a closed-end investment company, and may be given for other
periods as well (such as from commencement of the Fund's operations, or on a
year-by-year basis) and may utilize dollar cost averaging. The Fund may also use
"aggregate" total return figures for various periods, representing the
cumulative change in value of an investment in the Fund for the specific period
(again reflecting changes in share net asset value and assuming reinvestment of
dividends and distributions) as well as "actual annual" and "annualized" total
return figures. Total returns may be shown by means of schedules, charts or
graphs, and may indicate subtotals of the various components of total return
(i.e., change in value of initial investment, income dividends and capital gains
distributions). "Total return" will vary based on changes in market conditions.
In addition, since the deduction of expenses is reflected in the total return
figures, "total return" will also vary based on the level of the Fund's
expenses.
The Statement of Additional Information further describes the method used to
determine the yields and total return figures. Current total return quotations
may be obtained by contacting the Fund.
7
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, the Statement of
Additional Information or the Fund's official sales literature in connection
with the offering of the Fund's shares, and if given or made, such other
information or representations must not be relied on as having been authorized
by the Fund. This Prospectus does not constitute an offer in any state in which,
or to any person to whom, such offer may not be lawfully made.
----------
INVESTMENT MANAGER:
Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
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
AUDITORS:
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
COUNSEL:
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
SPECTRA MEETING THE CHALLENGE
FUND OF INVESTING
PROSPECTUS , 1995
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION , 1995
- ----------------------
75 Maiden Lane
Spectra New York, New York 10038
Fund (800)711-6141
This Statement of Additional Information is not a Prospectus. This document
contains additional information about Spectra Fund and supplements information
in the Prospectus dated ______, 1995. 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
Investment Objective and Policies......................................... 2
Net Asset Value........................................................... 8
Purchases................................................................. 8
Redemptions............................................................... 9
Management................................................................ 9
Taxes..................................................................... 11
Custodian and Transfer Agent.............................................. 12
Certain Shareholders...................................................... 12
Organization.............................................................. 13
Determination of Performance.............................................. 13
Financial Statements...................................................... F-1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
CERTAIN SECURITIES AND INVESTMENT TECHNIQUES
The Prospectus discusses the investment objective of the Fund and the policies
to be employed to achieve this objective. This section contains supplemental
information concerning the types of securities and other instruments in which
the Fund may invest, the investment policies and portfolio strategies that the
Fund 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.
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.
REPURCHASE AGREEMENTS
Under the terms of a repurchase agreement, the Fund 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 Fund to
resell, the instrument at an agreed price (including accrued interest) and time,
thereby determining the yield during the Fund's holding period. Repurchase
agreements may be seen to be loans by the Fund collateralized by the underlying
instrument. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during the Fund'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. The Fund bears a risk of loss in the event that the other party to a
repurchase agreement defaults on its obligations and the Fund 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 Fund 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, acting
under the supervision of the Fund's Board of Trustees, reviews the credit
worthiness of those banks and dealers with which the Fund enters 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.
WARRANTS AND RIGHTS
The Fund 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
The Fund may invest in restricted securities issued under Rule 144A of 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. Examples of factors that the
Fund's Board of Trustees will take 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). In accordance with Rule
144A, the Board has delegated its responsibility to Alger Management to
determine the liquidity of each restricted security purchased pursuant to the
Rule, subject to the Board's oversight and review. Because institutional trading
in restricted securities is relatively new, it is not possible to predict how
institutional markets will develop. If institutional trading in restricted
securities were to decline to limited levels, the liquidity of the Fund's
portfolio could be adversely affected.
-2-
<PAGE>
SHORT SALES
The Fund may sell securities "short against the box." While a short sale is the
sale of a security the Fund does not own, it is "against the box" if at all
times when the short position is open the Fund 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
The Fund may lend securities to brokers, dealers and other financial
organizations. The Fund will not lend securities to Alger Management or its
affiliates. By lending its securities, the Fund 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 are used as collateral. The Fund will adhere to the following
conditions whenever its securities are loaned: (a) the Fund 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 Fund must be able to terminate the loan at any time; (d) the Fund 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 Fund 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. The Fund bears a risk of loss in the event that
the other party to a stock loan transaction defaults on its obligations and the
Fund 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 Fund 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.
FOREIGN SECURITIES
The Fund may invest up to 20% of the value of its total assets in foreign
securities (not including American Depositary Receipts ("ADRs")). 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 Fund 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
A call option is a contract that gives the holder of the option the right to buy
from the writer (seller) of the call option, in return for a premium paid, 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 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.
A call option on a security is "covered" if the Fund 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 by its custodian) upon conversion or
exchange of other securities held in its portfolio. A call option is also
covered if the Fund 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 Fund in cash, U.S. Government
securities or other high grade short-term obligations in a segregated account
held with its custodian. A put option is "covered" if the Fund maintains cash or
other high grade short-term obligations with a value equal to the exercise price
-3-
<PAGE>
in a segregated account held with its custodian, 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 Fund 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 Fund has
been assigned an exercise notice, the Fund will be unable to effect a closing
purchase transaction. Similarly, if the Fund 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 Fund so desires.
The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to purchase the option; the Fund will realize a loss from
a closing transaction if the price of the transaction is 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 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. Although the Fund will
generally purchase or write only those options for which there appears to be an
active secondary market, 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 Fund
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 Fund, as a
covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise or
otherwise covers the position.
In addition to options on securities, the Fund 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 Fund is obligated, in return for the premium received, to
make delivery of this amount. The Fund 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 Fund 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 Fund'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 will 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 may be forced to liquidate
portfolio securities to meet settlement obligations.
The Fund has qualified and intends to continue to qualify as a "Regulated
Investment Company" under the Internal Revenue Code. One requirement for such
qualification is that the Fund must derive less than 30% of its gross income
from gains from the sale or other disposition of securities held for less than
three months. Therefore, the Fund may be limited in its ability to engage in
options transactions.
Although Alger Management will attempt to take appropriate measures to minimize
the risks relating to the Fund's writing of put and call options, there can be
no assurance that the Fund will succeed in any option-writing program it
undertakes.
-4-
<PAGE>
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES
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 Fund, 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. With respect to stock indexes that
are permitted investments, the Fund intends to purchase and sell futures
contracts on the stock index for which it can obtain the best price with
considerations also given to liquidity. While incidental to its securities
activities, the Fund may use index futures as a substitute for a comparable
market position in the underlying securities.
The risk of imperfect correlation increases as the composition of the Fund
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 Fund may 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 Fund'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 Fund will 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 can be effected or that there will
be correlation between price movements in the options on stock index futures and
price movements in the Fund's securities which are the subject of the hedge. In
addition, the Fund's purchase of such options will be based upon predictions as
to anticipated market trends, which could prove to be inaccurate.
The Fund's use 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 for bona fide hedging, risk management or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option thereon
requires the Fund 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 Fund. If the Fund 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. In order to cover its potential obligations when the Fund
enters into futures contracts and options thereon, the Fund will maintain a
segregated account with its custodian which will contain only liquid assets such
as cash or U.S. government securities in an amount equal to the total market
value of such futures contracts less the amount of initial margin on deposit for
such contracts.
The Fund 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 Fund'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.
-5-
<PAGE>
INVESTMENT RESTRICTIONS
Under the Investment Company Act of 1940, as amended (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. A "nonfundamental policy" may be changed by vote of a majority of the
Fund's Board of Trustees at any time.
As a matter of fundamental policy, the Fund may not:
1. Issue senior securities, except that the writing of covered options on
securities and stock indexes, and transactions in stock index futures and
options thereon, shall not be deemed to be the issuance of a senior security.
2. Purchase securities on margin; but it may obtain such short-term credits from
banks as may be necessary for the clearance of purchases and sales of
securities.
3. Make short sales of securities or maintain a short position, unless, at all
times when a short position is open, it owns an equal amount of such securities
or owns securities convertible into or exchangeable for, without payment of any
further consideration, securities of the same issuer at least equal in amount to
the securities sold short.
4. Borrow money, except that the Fund may borrow from banks if, immediately
after such borrowing the value of the total assets of the Fund (including the
amount borrowed) less its liabilities (not including any borrowing) is at least
300% of the amount of the borrowings.
5. Pledge, mortgage, hypothecate or otherwise encumber its assets except in
connection with permissible borrowings or investments.
6. Act as a securities underwriter, or act as a distributor of securities issued
by it except through an underwriter, acting as principal or agent, who may not
be obligated to sell or take up any specific amount of securities, except that
the Fund might be deemed an underwriter within the meaning of Section 2(11) of
the Securities Act of 1933 in making sales of securities not registered under
Federal Securities law.
7. Participate on a joint or joint and several basis in any securities trading
account.
8. Make any investment in a particular industry if, immediately after the making
of such investment, 25% or more of the Fund's total assets would be invested in
such industry.
9. Purchase or sell real estate or interests therein or real estate mortgages,
provided that the Fund may purchase marketable securities of real estate
investment trusts.
10. Purchase or sell commodities or commodity contracts, nor invest in oil, gas
or other mineral exploration development programs, including mineral leases,
except that the Fund may purchase or sell stock index futures contracts and
related options thereon if, thereafter, no more than 5% of its total assets are
invested in margin and premiums.
11. Make loans to others, except through purchasing qualified debt obligations,
lending its securities or entering into repurchase agreements.
12. Make any investment in warrants or rights if, immediately after the making
of such investment, more than 5% of the Fund's net assets would be so invested
or more than 2% of the Fund's net assets would be invested in warrants not
listed on the New York Stock Exchange or the American Stock Exchange, provided,
however, that warrants or rights which are attached to other securities shall be
deemed to have no value for purposes hereof.
13. Purchase or retain the securities of any issuer, if, to the knowledge of the
Treasurer of the Fund, those officers and directors of the Fund or the Adviser
owning individually more the 1/2 of 1% of the securities of such issuer together
own more than 5% of the securities of such issuer.
14. Purchase any security if, as a result, the Fund would then have more than 5%
of its total assets invested in securities of issuers (including predecessors)
that have been in continuous operation for less than three years. This
limitation shall not apply to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
15. Purchase the securities of any other investment company, except that it may
make such a purchase in the open market involving no commission or profit to a
sponsor or dealer (other than the customary broker's commission), provided that
not more than 5% of the Fund's total assets (taken at market or other current
value) would be invested in such securities immediately after the making of any
such investment, or the Fund may make such a purchase as part of a merger,
consolidation or acquisition of assets.
16. The Fund may purchase and sell (write) put and call options on securities
and stock indexes, but only if such options are exchange-traded or traded on an
-6-
<PAGE>
automated quotation system of a national securities association; provided,
however, that options on securities written by the Fund must be covered.
The following restriction is nonfundamental:
17. The Fund may not invest more than 15% of its net assets in repurchase
agreements which have a maturity of longer than seven days or in other illiquid
securities, including securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Except in the case of the 300% limitation set forth in Investment Restriction
No. 4, the percentage limitations contained in the foregoing restrictions 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 Fund's assets will not constitute a violation of the restriction.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities and other financial instruments for the
Fund 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 the Fund are reviewed independently from
those of the other accounts managed by Alger Management, investments of the type
the Fund may make may also be made by these other accounts. When the Fund and
one or more other 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 the Fund or the
size of the position obtained or disposed of by the Fund.
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 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 Fund a rate consistent with that
charged to comparable unaffiliated customers in similar transactions. Such
transactions will be fair and reasonable to the Fund'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, 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 Fund and/or the 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 Fund 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
Fund to determine if the commissions paid over representative periods of time
are reasonable in relation to the benefits inuring to the Fund. During the
fiscal years ended June 30, 1994, 1993 and the shortened fiscal year ended
October 31, 1994, the Fund paid an aggregate of approximately $11,278, $13,265
-7-
<PAGE>
and $6,769, respectively, in commissions to broker-dealers in connection with
portfolio transactions, substantially all of which was paid to 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 Prospectus discusses the time at which the net asset value of the Fund is
determined for purposes of sales and redemptions. The New York Stock Exchange is
currently open on each Monday through Friday, except (i) January 1st,
Presidents' Day (the third Monday in February), Good Friday, Memorial Day (the
last Monday in May), July 4th, Labor Day (the first Monday in September),
Thanksgiving Day (the fourth Thursday in November) and December 25th and (ii)
the preceding Friday when any one of those holidays falls on a Saturday, or the
subsequent Monday when any one of those holidays falls on a Sunday. The
following is a description of the procedures used in valuing the Fund's assets.
The assets of the Fund 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.
PURCHASES
Shares of the Fund 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 a distribution agreement (the "Distribution Agreement"). Under the
Distribution Agreement, Alger Inc. bears all selling expenses, including the
costs of advertising and of printing prospectuses and distributing them to
prospective shareholders.
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.
EXPENSES OF THE FUND
Operating expenses for the Fund 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, the Fund may compensate Alger Inc. for servicing shareholder
accounts. From time to time, Alger Management, in its sole discretion and as it
deems appropriate, may assume certain expenses of the Fund while retaining the
ability to be reimbursed by the Fund for such amounts prior to the end of the
fiscal year. This will have the effect of lowering the Fund's overall expense
ratio and of increasing return to investors, or the converse, at the time such
amounts are assumed or reimbursed, as the case may be. Alger Management will not
be reimbursed for such amounts if such action would violate the provisions of
any applicable state securities laws relating to the limitation of the Fund's
expenses.
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. 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 the
Transfer Agent receives the investment from the shareholder's bank, which is
normally two banking days. While there is no charge to shareholders for this
service, a charge of $10.00 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.
-8-
<PAGE>
AUTOMATIC INVESTMENT PLAN
While there is no charge to shareholders for this service, a charge of $10.00
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.
REDEMPTIONS
The right of redemption of shares of the Fund may be suspended or the date of
payment postponed for more than seven days (a) for any periods during which the
New York Stock Exchange (the "NYSE") is closed (other than for customary weekend
and holiday closings), (b) when trading in the markets the Fund normally
utilizes is restricted, or an emergency, as defined by the rules and regulations
of the SEC, exists, making disposal of the Fund's investments or determination
of its net asset value not reasonably practicable or (c) for such other periods
as the SEC by order may permit for protection of the Fund's shareholders.
REDEMPTIONS IN KIND
The Prospectus states that 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 Fund to make payment of a redemption order wholly or partly
in cash, the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of securities from the Fund, in lieu of cash, in
conformity with applicable rules of the Securities and Exchange Commission. The
Fund has elected to be governed by Rule 18f-1 under the Act, pursuant to which
the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net assets of the Fund 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.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan (the "Withdrawal Plan") is available to
shareholders who own shares of the Fund 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 Fund) may be made under the Withdrawal Plan by redeeming as many shares
of the Fund 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 Fund, 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 Fund.
Shareholders who wish to participate in the Withdrawal Plan and who hold their
shares in certificated form must deposit their share certificates of the Fund
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 Fund. For additional information regarding the
Withdrawal Plan, contact the Fund.
MANAGEMENT
TRUSTEES AND OFFICERS OF THE FUND
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 Fund, Inc.
("Castle"), a registered closed-end investment company, The Alger Fund, The
Alger American Fund and The Alger Defined Contribution Trust, registered
open-end management investment companies, for 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 75 Maiden Lane, New York, New York 10038.
-9-
<PAGE>
<TABLE>
<CAPTION>
NAME, POSITION WITH
THE FUND AND ADDRESS PRINCIPAL OCCUPATIONS
<S> <C>
Fred M. Alger III Chairman of the Board of Alger Associates, Inc.
Chairman of the Board ("Associates"), Alger Inc., Alger Management, Alger Properties, Inc.
("Properties"), Alger Shareholder Services, Inc. ("Services"), Alger Life Insurance Agency,
Inc. ("Agency"), and Analysts Resources, Inc. ("ARI").
David D. Alger President and Director of Associates, Alger Management, Alger Inc.,
President and Trustee Properties, Services and Agency; Executive Vice President and Director
of ARI.
Gregory S. Duch Executive Vice President, Treasurer and Director of Alger Management
Treasurer and Properties; Executive Vice President and Treasurer of Associates, Alger Inc., ARI,
Services and Agency.
Nanci K. Staple Secretary of Associates, Alger Management, Alger Inc., Properties,
Secretary ARI, Services and Agency.
Arthur M. Dubow President of Fourth Estate, Inc.; private investor since 1985;
Trustee Director of Coolidge Investment Corporation; formerly
P.O. Box 969 Chairman of the Board of Institutional Shareholder Services, Inc.,
Wainscott, NY 11975
Stephen E. O'Neil Of Counsel to the law firm of Baker, Nelson, Mishkin & Kohler;
Trustee Private investor since 1981; Director of NovaCare, Inc., Syntro
460 Park Avenue Corporation and Brown-Forman Corporation; formerly
New York, NY 10022 President and Vice Chairman of City Investing Company
and Director of Centerre Bancorporation.
Nathan Emile Saint-Amand, M. D. Medical doctor in private practice.
Trustee
2 East 88th Street
New York, NY 10128
John T. Sargent Private investor since 1987; Director of River Bank America
Trustee and Atlantic Mutual Insurance Co.
14 E. 69th Street
New York, NY 10021
</TABLE>
-10-
<PAGE>
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 Trustee who is not a director, officer or employee
of Alger Management or its affiliates an annual fee of $250.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION PAID TO TRUSTEES FROM
THE ALGER DEFINED CONTRIBUTION TRUST,
AGGREGATE THE ALGER FUND,
COMPENSATION THE ALGER AMERICAN FUND,
FROM CASTLE CONVERTIBLE FUND, INC. AND
NAME OF PERSON, POSITION SPECTRA FUND SPECTRA FUND, INC.
------------------------ --------------- ---------------------------------------
<S> <C> <C>
Arthur M. Dubow, Trustee $250 $28,130
Stephen E. O'Neil, Trustee $250 $28,130
Nathan E. Saint-Amand, Trustee $250 $28,130
John T. Sargent, Trustee $250 $28,130
</TABLE>
INVESTMENT MANAGER
Alger Management serves as investment manager to the Fund pursuant to a written
agreement (the "Management Agreement"). Certain of the services provided by, and
the fees paid by the Fund to, Alger Management under the Management Agreement
are described in the Prospectus. Alger Management pays the salaries of all
officers who are employed by both it and the Fund. 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 value, net
income and realized capital gains or losses of the Fund. 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 Agreement.
Alger Management has agreed that, if in any fiscal year the aggregate expenses
of the Fund (including fees payable pursuant to its Management Agreement but
excluding interest, taxes, brokerage commissions, distribution expenses,
litigation expenses and if permitted by the relevant state securities
commissions, extraordinary expenses) exceed the expense limitation of any state
having jurisdiction over the Fund, Alger Management will reimburse the Fund for
that excess expense to the extent of its fee. An expense reimbursement, if any,
will be estimated and reconciled daily and paid on a monthly basis. At the date
of this Statement of Additional Information, the most restrictive annual expense
limitation applicable to the Fund is 2.5 percent of the Fund's first $30 million
of average net assets, 2.0 percent of the next $70 million of average net assets
and 1.5 percent of the remaining average net assets. However, under this
limitation, Alger Management will not be required to reimburse the Fund an
amount in excess of its management fee.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP serves as independent public accountants for the Fund.
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. The Fund 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, the Fund will pay
no federal income taxes on its investment company taxable 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, the Fund must, among other things distribute to its shareholders at least 90%
of its taxable net investment income and net realized short-term capital gains.
In so qualifying the Fund may be restricted in the selling of securities held by
the Fund for less than three months and in the utilization of certain of the
investment techniques described above and in the Fund's prospectus. As a
regulated investment company, the Fund 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 to make additional distributions or
change the timing of its distributions so as to avoid the application of this
tax.
-11-
<PAGE>
In general, any gain or loss on the redemption or exchange of Fund 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 Fund 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 th e Fund's 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 Fund. Only dividends that reflect a
Fund's income from certain dividend-paying stocks will be eligible for the
federal dividends-received deduction for corporate shareholders.
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.
CUSTODIAN AND TRANSFER AGENT
NatWest Bank N.A., 10 Exchange Place, Jersey City, New Jersey 07302, serves as
custodian for the Fund pursuant to a custodian agreement. 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. processes purchases
and redemptions of shares of the Fund, maintains the shareholder account records
for the Fund, handles certain communications between shareholders and the Fund
and distributes any dividends and distributions payable by the Fund.
CERTAIN SHAREHOLDERS
Set forth below is certain information regarding significant shareholders of the
Fund. In the aggregate, Associates (a Delaware corporation), Fred M. Alger III
and David D. Alger owned beneficially or of record 43.24% of the shares of the
Fund at November 15, 1995. Alger Management is a wholly owned subsidiary of
Alger Inc., which in turn is a wholly owned subsidiary of Associates. Fred M.
Alger III and David D. Alger are the majority shareholders of Associates and may
be deemed to control that company and its subsidiaries. As a result of these
securities holdings, these persons and Associates individually and jointly may
be deemed to control the Fund, which may have the effect of proportionately
diminishing the voting power of other shareholders of the Fund.
The following table contains information regarding persons who own beneficially
or of record five percent or more of the shares of the Fund. Unless otherwise
noted, the address of each owner is 75 Maiden Lane, New York, New York 10038.
All holdings are expressed as a percentage of a Portfolio's outstanding shares
as of November 15, 1995.
Record/Beneficial
Ownership
------------------
Alger Associates, Inc. ....................... 34.40%/34.40%
Fred M. Alger III ............................ */26.59%
William Scheerer II .......................... 5.85%/5.85%
200 East 71st St.
New York, NY 10021
All Trustees and ............................. 10.89%/45.29%
Officers as a Group
- ---------------
* Indicates shareholder owns less than 5%.
-12-
<PAGE>
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 July 5, 1995 (the "Trust Agreement").
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 are transferable but have no preemptive, conversion or
subscription rights. In the interest of economy and convenience, certificates
representing shares of the Fund are physically issued only upon specific written
request of a shareholder.
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.
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 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.
DETERMINATION OF PERFORMANCE
The "total return" described in the Prospectus, is computed according to
formulas prescribed by the SEC. These performance figures are calculated in the
following manner:
A. Total Return--The Fund's average annual total return described in the
Prospectus is computed according to the following formula:
P (1+T)n=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);
The average annual total returns for the Fund, for the periods indicated below
were as follows:
Period
Five from
Years Inception
Year-Ended Ended through
10/31/94 10/31/94 10/31/94
---------- -------- --------
IN GENERAL
Current performance information for the Fund may be obtained by calling the Fund
at the telephone number provided on the cover page of this Statement of
Additional Information. The Fund's quoted performance may not be indicative of
future performance. The Fund's performance will depend upon factors such as the
Fund's expenses and the types of instruments held by the Fund.
From time to time, advertisements or reports to shareholders may compare the
yield or performance of the Fund to that of other mutual funds with a similar
investment objective. The performance of the Fund, for example, might be
compared to rankings prepared by Lipper Analytical Services Inc., which is a
widely recognized, independent service that monitors the performance of mutual
funds, as well as to various unmanaged indices, such as the S&P 500. In
addition, evaluations of the Fund published by nationally recognized ranking
services or articles regarding performance, rankings and other Fund
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
-13-
<PAGE>
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 the Fund's performance for any future period.
-14-
<PAGE>
SPECTRA FUND, INC.
SCHEDULE OF INVESTMENTS
APRIL 30, 1995 (UNAUDITED)
SHARES COMMON STOCKS--95.5% VALUE
- ------------------------------------------------------
APPAREL--1.2%
1,600 Gymboree Corp.*................. $ 37,600
500 Tommy Hilfiger Corporation*..... 11,500
----------
49,100
----------
COMMUNICATIONS--11.5%
1,000 Century Telephone Enterprises, Inc. 29,750
500 DSC Communications Corporation*. 18,500
1,000 Glenayre Technologies Inc.*..... 61,500
1,000 Motorola Inc.................... 56,875
2,000 Premisys Communications Inc.*... 91,000
----------
463,650
----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--6.5%
1,200 Bay Networks Inc.*.............. 43,650
1,000 Chipcom Corporation*............ 32,750
1,400 Hewlett-Packard Co.............. 92,575
1,000 International Business Machines
Corp. ........................ 94,750
----------
263,725
----------
COMPUTER SOFTWARE--3.8%
700 Electronics For Imaging, Inc.*.. 31,850
1,800 Informix Corp.*................. 70,875
2,000 Softkey International Inc.*..... 49,000
----------
151,725
----------
COMPUTER TECHNOLOGY--4.0%
1,000 Medic Computer Systems*......... 44,000
1,000 Merix Corporation*.............. 22,750
2,500 Silicon Graphics Inc.*.......... 93,750
----------
160,500
----------
CONSUMER PRODUCTS--.8%
1,200 Nabisco Holdings Corp. CI.A*.... 33,450
----------
DEFENSE--6.4%
1,800 Lockheed Martin Corp.*.......... 103,950
2,600 Loral Corp...................... 122,200
500 McDonnell Douglas Corp.......... 31,000
----------
257,150
----------
FINANCIAL SERVICES--6.1%
600 First Financial Management Corp. 43,875
2,000 Merrill Lynch & Co., Inc........ 91,000
500 Morgan Stanley Group Inc........ 34,750
2,250 Charles Schwab Corp............. 77,062
----------
246,687
----------
FREIGHT--.7%
1,000 Landstar Systems Inc.*.......... 29,000
----------
HEALTH CARE--13.6%
600 Amgen Inc.*..................... $ 43,613
1,000 Cardinal Health Inc............. 46,125
800 Forest Laboratories Inc.*....... 36,000
500 Integrated Health Services Inc.. 17,313
700 Johnson & Johnson............... 45,500
500 Lilly (Eli) Co.................. 37,375
1,500 Medtronic Inc................... 111,563
1,800 Merck & Co., Inc................ 77,174
900 Pfizer, Inc..................... 77,963
1,000 Sybron International Corp.*..... 37,125
500 United Healthcare Corp.......... 18,125
----------
547,876
----------
LEISURE & ENTERTAINMENT--3.2%
2,000 Callaway Golf Corp.............. 24,750
1,500 Circus Circus Enterprises Inc.*. 49,688
1,000 Disney (Walt) Co................ 55,374
----------
129,812
----------
MANUFACTURING--3.5%
1,500 Lam Research Corp.*............. 75,750
1,200 Thermo Electron Corp.*.......... 64,650
----------
140,400
----------
POLLUTION CONTROL--1.0%
2,600 USA Waste Services Inc.*........ 39,000
----------
RESTAURANTS--5.2%
3,000 Landrys Seafood Restaurants Inc.* 103,875
3,500 Lone Star Steakhouse and Saloon,
Inc.*.......................... 107,187
----------
211,062
----------
RETAILING--5.8%
4,000 Guest Supply Inc.*.............. 84,000
400 Home Depot Inc.................. 16,700
2,000 OfficeMax Inc.*................. 51,250
3,000 Viking Office Products Inc.*.... 82,500
----------
234,450
----------
SEMI-CONDUCTORS--15.2%
2,500 Adaptec Inc.*................... 80,000
1,000 Altera Corp.*................... 80,875
1,500 Intel Corp...................... 153,563
1,000 LSI Logic Corp.*................ 66,625
2,500 Linear Technology Corp.......... 149,375
3,000 Microchip Technology, Inc.*..... 84,750
----------
615,188
----------
SEMI-CONDUCTORS
CAPITAL EQUIPMENT--4.3%
1,400 Applied Materials Inc.*......... 86,275
2,500 Semitool Inc.*.................. 59,375
1,000 Silicon Valley Group Inc.*...... 29,000
----------
174,650
----------
F-1
<PAGE>
SHARES COMMON STOCKS (Continued) VALUE
- ------------------------------------------------------
TOBACCO--1.7%
1,000 Philip Morris Companies Inc..... $ 67,750
----------
MISCELLANEOUS--1.0%
1,500 Loewen Group Inc................ 42,305
----------
Total Common Stocks
(Cost $2,961,223).............. 3,857,480
----------
SHARES WARRANTS VALUE
- ------------------------------------------------------
MANUFACTURING
----------
72 Windmere Corp. Warrants,*
expires 1/19/98 (Cost $54)..... $ 9
----------
PREFERRED STOCK--1.6%
COMMUNICATIONS
1,600 Nokia Corporation, ADR
(Cost $52,011)................. 65,600
----------
Total Investments
(Cost $3,013,288)(a) ...... 97.1% 3,923,089
Other Assets in Excess
of Liabilities ............ 2.9 117,823
-----------------------
Net Assets................... 100.0% $4,040,912
========================
- ------------------------------------
* Non-income producing security.
(a) At April 30, 1995, the net unrealized appreciation on investments, based on
cost for federal income tax purposes of $3,013,288, amounted to $909,801
which consisted of aggregate gross unrealized appreciation of $975,661 and
aggregate gross unrealized depreciation of $65,860.
----------
SPECTRA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments in securities, at value (cost $3,013,288), see accompanying
schedule of investments........................................................ $ 3,923,089
Cash............................................................................ 72,856
Receivable for investment securities sold....................................... 100,065
Dividends receivable............................................................ 644
Prepaid expenses................................................................ 302
------------
Total Assets.............................................................. 4,096,956
LIABILITIES:
Investment advisory fee payable................................................. $ 38,786
Directors' fees payable......................................................... 340
Accrued expenses................................................................ 16,918
----------
Total Liabilities......................................................... 56,044
------------
NET ASSETS applicable to 256,720 outstanding shares of $1.00 par value
(2,000,000 shares authorized)..................................................... $ 4,040,912
============
NET ASSET VALUE PER SHARE.......................................................... $ 15.74
============
See Notes to Financial Statements.
</TABLE>
F-2
<PAGE>
SPECTRA FUND, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends...................................................................... $ 13,242
Interest....................................................................... 7,335
------------
Total Income................................................................ 20,577
Expenses:
Investment advisory fees--Note 2(a)............................................. $ 38,786
Professional fees.............................................................. 7,059
Custodian and transfer agent fees.............................................. 6,878
Shareholder reports............................................................ 4,525
Directors' fees................................................................ 500
Miscellaneous.................................................................. 1,782
-----------
Total Expenses.............................................................. 59,530
------------
NET INVESTMENT LOSS.................................................................. (38,953)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments.................................................. 20,821
Net increase in unrealized appreciation of investments............................ 408,387
-----------
Net realized and unrealized gain on investments............................. 429,208
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................. $ 390,255
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS FOUR MONTHS
ENDED ENDED YEAR ENDED
APRIL 30, OCTOBER 31, JUNE 30,
1995* 1994 1994
---------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment loss............................................ $ (38,953) $ (26,632) $ (73,090)
Net realized gain on investments............................... 20,821 186,474 1,369,880
Net change in unrealized appreciation of investments........... 408,387 277,536 (687,387)
------------- ------------- -------------
Net increase in net assets resulting from operations..... 390,255 437,378 609,403
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gains............................................. (1,180,910) -- (1,098,761)
------------- ------------- -------------
Total increase (decrease) in net assets.................. (790,655) 437,378 (489,358)
NET ASSETS:
Beginning of period............................................ 4,831,567 4,394,189 4,883,547
------------- ------------- -------------
End of period (including accumulated net investment
loss of $641,820, $602,867 and $576,235, respectively)........ $ 4,040,912 $ 4,831,567 $ 4,394,189
============= ============= =============
</TABLE>
- ------------------------------------
* Unaudited.
See Notes to Financial Statements.
F-3
<PAGE>
SPECTRA FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
SIX MONTHS FOUR MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
APRIL 30, OCTOBER 31, ---------------------------------------------
1995* 1994*** 1994 1993 1992 1991 1990
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period..... $18.82 $17.12 $19.02 $17.93 $19.50 $18.72 $15.12
-------------------------------------------------------------------
Net investment loss...................... (0.15) (0.10) (0.28) (0.29) (0.22) (0.15) (0.13)
Net realized and unrealized gain
on investments.......................... 1.67 1.80 2.66 3.70 1.65 2.25 3.83
-------------------------------------------------------------------
Total from investment operations......... 1.52 1.70 2.38 3.41 1.43 2.10 3.70
Dividends from net realized gains........ (4.60) -- (4.28) (2.32) (3.00) (1.32) (0.10)
-------------------------------------------------------------------
Net asset value, end of period........... $15.74 $18.82 $17.12 $19.02 $17.93 $19.50 $18.72
===================================================================
Market value, end of period.............. $13.00 $14.00 $14.00 $16.00 $13.50 $14.00 $14.00
===================================================================
Total investment return based on market
value per share......................... 31.69% 0.00% 14.25% 38.16% 17.09% 11.00% 17.56%**
===================================================================
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted)...................... $4,041 $4,832 $4,394 $4,884 $4,603 $5,006 $4,805
===================================================================
Ratio of expenses to average net
assets............................... 3.02% 2.75% 2.59% 2.57% 2.14% 2.74% 3.01%
===================================================================
Ratio of net investment loss to
average net assets................... (1.98)% (1.72)% (1.47)% (1.55)% (1.07)% (.85)% (.76)%
===================================================================
Portfolio turnover rate............... 49.23% 56.24% 116.61% 100.17% 63.54% 78.00% 81.70%
===================================================================
</TABLE>
- ------------------------------------
* Unaudited. Ratios have been annualized; total return has not been
annualized.
** Information with respect to total investment return for 1990 has not been
audited.
*** Ratios have been annualized; total return has not been annualized.
See Notes to Financial Statements.
F-4
<PAGE>
SPECTRA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Spectra Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as a non-diversified, closed-end management investment company. The
Fund's investment adviser is Fred Alger Management, Inc. (the "Adviser").
Effective October 31, 1994, the Fund changed its fiscal year end from June
30 to October 31.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
(a) Investment Valuation--Investments in securities are valued at 4:00 p.m.
Eastern time. Listed and unlisted securities for which such information is
regularly reported are valued at the last reported sales price or, in the
absence of reported sales, at the mean between the bid and asked price, or in
the absence of a recent bid or asked price, the equivalent as obtained from one
or more of the major market makers for the securities to be valued. Short-term
corporate notes are valued at amortized cost which approximates market value.
(b) Securities Transactions and Investment Income--Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the basis of the first-in, first-out method.
Dividend income is recognized on the ex-dividend date and interest income is
recognized on the accrual basis.
(c) Dividends to Shareholders--Dividends payable to shareholders are recorded by
the Fund on the ex-dividend date. Dividends from net investment income and
dividends from net realized gains are declared and paid annually after the end
of the fiscal year in which earned.
(d) Federal Income Taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including net realized
capital gains, to its shareholders. Therefore, no Federal income tax provision
is required.
NOTE 2--INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES:
(a) Investment Advisory Fees--The management agreement with the Adviser provides
that the Fund pay the Adviser its costs for providing services to the Fund.
For the six months ended April 30, 1995, the total advisory fee charged
amounted to $38,786.
(b) Transfer Agent Fees--Alger Shareholder Services, Inc. ("Alger Services"), an
affiliate of the Adviser, serves as transfer agent for the Fund. During the six
months ended April 30, 1995, the Fund incurred fees of approximately $2,500 for
services provided by Alger Services and reimbursed Alger Services approximately
$750 for transfer agent related expenses paid by Alger Services on behalf of the
Fund.
(c) Brokerage Commissions--During the six months ended April 30, 1995, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of the
Adviser, $6,596 in connection with securities transactions.
(d) Directors' Fees--Certain directors and officers of the Fund are directors
and officers of the Adviser, Alger Inc. and Alger Services. The Fund pays each
director who is not affiliated with the Adviser or its affiliates an annual fee
of $250.
(e) Other Transactions With Affiliates--At April 30, 1995, the Adviser and its
affiliates owned 111,016 shares of the Fund.
NOTE 3--SECURITIES TRANSACTIONS:
During the six months ended April 30, 1995, purchases and sales of
investment securities, excluding short-term securities, aggregated $1,851,469
and $2,926,509, respectively.
F-5
<PAGE>
SPECTRA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
NOTE 4--COMPONENTS OF NET ASSETS:
At April 30, 1995, the Fund's net assets consisted of:
Paid-in capital..................... $ 3,727,393
Accumulated net investment loss..... (641,820)
Undistributed net realized gain..... 45,538
Net unrealized appreciation......... 909,801
------------
NET ASSETS.......................... $ 4,040,912
============
NOTE 5--SUBSEQUENT EVENT:
On May 24, 1995, the Board of Directors of the Fund considered and approved
for submission to shareholders of the Fund a proposal to convert the Fund from a
closed-end investment company to an open-end investment company. Shareholders
are expected to vote on this proposal in September 1995.
F-6
<PAGE>
SPECTRA FUND, INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1994
SHARES COMMON STOCKS-92.3% VALUE
------ -----
APPAREL-1.4%
1,500 Tommy Hilfiger Corporation* ............................ $ 66,188
--------
APPLIANCES-1.6%
1,500 Whirlpool Corp. ........................................ 78,000
--------
AUTOMOTIVE-7.6%
3,500 Chrysler Corporation ................................... 170,625
3,000 Cooper Tire & Rubber Co. ............................... 73,875
1,800 Pep Boys-Manny, Moe & Jack ............................. 64,350
1,500 Varity Corp.* .......................................... 57,375
--------
366,225
--------
BANKS-1.2%
3,200 Grupo Financiero Serfin S.A. de
C.V. ADR ............................................. 56,800
--------
BROKERAGE-5.2%
2,900 Lehman Brothers Holdings, Inc. .......................... 44,950
3,000 Merrill Lynch & Co., Inc. ............................... 118,125
500 Morgan Stanley Group Inc. ............................... 32,687
1,500 Charles Schwab Corp. .................................... 53,250
--------
249,012
--------
CASINOS & RESORTS-3.2%
5,000 Circus Circus Enterprises Inc.* ......................... 111,250
2,000 Mirage Resorts Inc.* .................................... 41,500
--------
152,750
--------
CHEMICALS-1.5%
1,000 Dow Chemical Company .................................... 73,500
--------
COMMUNICATIONS-13.3%
4,000 AirTouch Communications Inc.* ........................... 119,500
2,000 Century Telephone Enterprises, Inc. ..................... 60,000
3,000 ECI Telecom Ltd. ........................................ 58,125
800 Grupo Televisa, S.A. de C.V.,
Global Depository Shares............................... 35,500
2,878 LDDS Communications Inc.* ............................... 67,633
3,600 Telephone and Data Systems, Inc. ........................ 178,200
2,500 Tellabs, Inc.* .......................................... 121,875
--------
640,833
--------
COMPUTER RELATED & BUSINESS EQUIPMENT-8.8%
2,000 Bay Networks Inc.* ...................................... 50,625
2,500 Cabletron Systems, Inc.* ................................ 125,624
1,500 Compaq Computer Corporation* ............................ 60,188
1,500 International Business Machines Corp. ................... 111,750
4,500 Western Digital Corp.* .................................. 76,500
--------
424,687
--------
COMPUTER TECHNOLOGY-2.1%
2,500 Merix Corporation* ...................................... 33,750
1,700 Micron Technology, Inc. ................................. 67,362
--------
101,112
--------
DEFENSE-3.8%
2,600 Loral Corp. ............................................. 103,025
1,800 Martin Marietta Corp. ................................... 82,575
--------
185,600
--------
HEALTH CARE-13.4%
700 American Cyanamid Co. ................................... 69,125
2,000 Cardinal Health Inc. .................................... 93,500
2,500 Integrated Health Services Inc.* ........................ 101,875
1,500 Medtronic Inc. .......................................... 78,188
3,000 Merck & Co., Inc. ....................................... 107,250
2,000 Sybron International Corp.* ............................. 69,250
2,500 United Healthcare Corp. ................................. 131,875
--------
651,063
--------
LEISURE & ENTERTAINMENT-.8%
1,000 Callaway Golf Corp. ..................................... 38,250
--------
PAPER PRODUCTS & FOREST PRODUCTS-2.0%
1,300 International Paper Co. ................................. 96,850
--------
POLLUTION CONTROL-.7%
2,600 USA Waste Services Inc.* ................................ 35,100
--------
RESTAURANTS-4.5%
3,800 Brinker International Inc.* ............................. 87,875
300 Buffets, Inc.* .......................................... 3,113
5,000 Lone Star Steakhouse Saloon, Inc.* ...................... 128,125
--------
219,113
--------
RETAILING-4.6%
4,000 Guest Supply Inc.* ...................................... 72,000
1,500 Toys "R" Us, Inc. ....................................... 57,750
3,000 Viking Office Products Inc.* ............................ 93,000
--------
222,750
--------
SEMI-CONDUCTORS-12.7%
2,500 Adaptec Inc.* ........................................... 58,125
3,000 Epic Design Technology, Inc.* ........................... 66,375
3,000 Intel Corp. ............................................. 186,375
2,500 Linear Technology Corporation ........................... 120,000
2,500 LSI Logic Corp.* ........................................ 106,250
5,000 Pri Automation Inc.* .................................... 76,250
--------
613,375
--------
TECHNOLOGY-2.6%
5,000 Quad Systems Corp.* ..................................... 70,000
1,200 Thermo Electron Corp.* .................................. 54,750
--------
124,750
--------
TOBACCO-1.3%
1,000 Philip Morris Companies Inc. ............................ 61,250
---------
Total Common Stocks
(Cost $3,971,061) ..................................... 4,457,208
---------
F-7
<PAGE>
SHARES WARRANTS VALUE
------ -----
72 Windmere Corp. Warrants,
expire 1/19/98 (Cost $54) ............................. $ 153
---------
PREFERRED STOCK-2.3%
COMMUNICATIONS
1,500 Nokia Corporation, ADR
(Cost $97,520) ........................................ 112,688
---------
Principal Short-Term Corporate Notes-
Amount 3.1% Value
------ -----
$148,000 Ford Motor Credit Corp., 4.76%,
11/07/94 (Cost $148,000) .............................. $148,000
----------
Total Investments (Cost $4,216,635)(a) ..................... 97.7% 4,718,049
Other Assets ............................................... 2.3 113,518
----- ----------
Net Assets ................................................. 100.0% $4,831,567
===== ==========
- ----------
* Non-income producing security.
(a) At October 31, 1994, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $4,216,635, amounted to $501,414
which consisted of aggregate gross unrealized appreciation of $600,759 and
aggregate gross unrealized depreciation of $99,345.
----------
SPECTRA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
ASSETS:
Investments in securities, at value
(cost $4,216,635), see accompanying
schedule of investments ....................... $4,718,049
Cash ............................................. 921
Receivable for investment securities sold ........ 566,609
Dividends receivable ............................. 1,207
Prepaid expenses ................................. 1,120
----------
Total Assets .................................. 5,287,906
LIABILITIES:
Payable for investment securities purchased ...... $ 403,411
Investment advisory fee payable .................. 26,357
Directors' fees payable .......................... 833
Accrued expenses ................................. 25,738
----------
Total Liabilities ............................. 456,339
----------
NET ASSETS applicable to 256,720 outstanding
shares of $1.00 par value
(2,000,000 shares authorized) .................... $4,831,567
==========
NET ASSET VALUE PER SHARE .......................... $ 18.82
==========
See Notes to Financial Statements.
F-8
<PAGE>
SPECTRA FUND, INC.
STATEMENT OF OPERATIONS
FOR THE FOUR MONTHS ENDED OCTOBER 31, 1994
INVESTMENT INCOME:
Income:
Dividends ....................................... $ 9,461
Interest ........................................ 6,471
--------
Total Income .................................. 15,932
Expenses:
Investment advisory fees-Note 2(a) .............. $ 26,357
Professional fees ............................... 5,592
Custodian and transfer agent fees ............... 4,759
Shareholder reports ............................. 3,215
Directors' fees ................................. 338
Miscellaneous ................................... 2,303
--------
Total Expenses ................................ 42,564
--------
NET INVESTMENT LOSS .................................. (26,632)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ............... 186,474
Net increase in unrealized
appreciation of investments ..................... 277,536
Net realized and unr ealized gain --------
on investments ............................... 464,010
NET INCREASE IN NET ASSETS ---------
RESULTING FROM OPERATIONS .......................... $ 437,378
=========
STATEMENTS OF CHANGES IN NET ASSETS
Four Months
Ended Year Ended
October 31, June 30,
1994 1994
----------- -----------
FROM INVESTMENT ACTIVITIES:
Net investment loss ..................... $ (26,632) $ (73,090)
Net realized
gain on investments .................. 186,474 1,369,880
Net increase (decrease) in unrealized
appreciation of investments ........ 277,536 (687,387)
----------- -----------
Net increase in net assets
resulting from operations ............ 437,378 609,403
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gains ..................... -- (1,098,761)
----------- -----------
Total increase (decrease)
in net assets ...................... 437,378 (489,358)
NET ASSETS:
Beginning of year ..................... 4,394,189 4,883,547
----------- -----------
End of year
(including accumulated net investment
loss of $602,867 and $576,235,
respectively) ........................ $ 4,831,567 $ 4,394,189
=========== ===========
See Notes to Financial Statements.
F-9
<PAGE>
SPECTRA FUND, INC. FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period:
Four
Months
Ended Year Ended June 30,
October 31, --------------------------------------
1994** 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
Net asset value,
beginning of year ........... $17.12 $19.02 $17.93 $19.50 $18.72 $15.12
------- ------- ------- ------- ------- -------
Net investment loss .......... (0.10) (0.28) (0.29) (0.22) (0.15) (0.13)
Net realized and unrealized
gain on investments ........ 1.80 2.66 3.70 1.65 2.25 3.83
------- ------- ------- ------- ------- -------
Total from investment
operations ................. 1.70 2.38 3.41 1.43 2.10 3.70
Dividends from net
realized gains ............. - (4.28) (2.32) (3.00) (1.32) (0.10)
Net asset value,
end of year ................ $18.82 $17.12 $19.02 $17.93 $19.50 $18.72
======= ======= ======= ======= ====== ======
Market value, end of year .... $14.00 $14.00 $16.00 $13.50 $14.00 $14.00
======= ======= ======= ======= ====== ======
Total investment return
based on market
value per share ............ 0.00% 14.25% 38.16% 17.09% 11.00% 17.56%*
======= ======= ======= ======= ====== ======
Ratios and Supplemental Data:
Net assets, end of year
(000's omitted) $4,832 $4,394 $4,884 $4,603 $5,006 $4,805
======= ======= ======= ======= ====== ======
Ratio of expenses to average
net assets 2.75% 2.59% 2.57% 2.14% 2.74% 3.01%
======= ======= ======= ======= ====== ======
Ratio of net investment
loss to average net assets (1.72)% (1.47)% (1.55)% (1.07)% (.85)% (.76)%
======= ======= ======= ======= ====== ======
Portfolio turnover rate 56.24% 116.61% 100.17% 63.54% 78.00% 81.70%
======= ======= ======= ======= ====== ======
* Information with respect to total investment return for 1990 has not
been audited.
** Ratios have been annualized; total return has not been annualized.
See Notes to Financial Statements.
F-10
<PAGE>
SPECTRA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Spectra Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as a non-diversified, closed-end management investment company. The
Fund's investment adviser is Fred Alger Management, Inc. (the "Adviser").
Effective October 31, 1994, the Fund changed its fiscal year end from June
30 to October 31.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
(a)Investment Valuation-Investments in securities are valued at 4:00 p.m.
Eastern time. Listed and unlisted securities for which such information is
regularly reported are valued at the last reported sales price or, in the
absence of reported sales, at the mean between the bid and asked price, or in
the absence of a recent bid or asked price, the equivalent as obtained from one
or more of the major market makers for the securities to be valued. Short-term
corporate notes are valued at amortized cost which approximates market value.
(b)Securities Transactions and Investment Income-Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions are recorded on the basis of the first-in, first-out method.
Dividend income is recognized on the ex-dividend date and interest income is
recognized on the accrual basis.
(c)Dividends to Shareholders-Dividends payable to shareholders are recorded by
the Fund on the ex-dividend date. Dividends from net investment income and
dividends from net realized gains are declared and paid annually after the end
of the fiscal year in which earned.
(d)Federal Income Taxes-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including net realized capital gains, to
its shareholders. Therefore, no Federal income tax provision is required.
NOTE 2-INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
(a)Investment Advisory Fees-The management agreement with the Adviser provides
that the Fund pay the Adviser its costs for providing services to the Fund.
For the four months ended October 31, 1994, the total advisory fee charged
amounted to $26,357.
(b)Transfer Agent Fees-Alger Shareholder Services, Inc. ("Alger Services"), an
affiliate of the Adviser, serves as transfer agent for the Fund. During the four
months ended October 31, 1994, the Fund incurred fees of approximately $1,900
for services provided by Alger Services and reimbursed Alger Services
approximately $600 for transfer agent related expenses paid by Alger Services on
behalf of the Fund.
(c)Brokerage Commissions-During the four months ended October 31, 1994, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of the
Adviser, $6,769 in connection with securities transactions.
(d)Directors' Fees Certain directors and officers of the Fund are directors and
officers of the Adviser, Alger Inc. and Alger Services. The Fund pays each
director who is not affiliated with the Adviser or its affiliates an annual fee
of $250.
(e)Other Transactions With Affiliates_At October 31, 1994, the Adviser and its
affiliates owned 111,016 shares of the Fund.
NOTE 3 Securities Transactions:
During the four months ended October 31, 1994, purchases and sales of investment
securities, excluding short-term securities, aggregated $2,791,285 and
$2,357,339, respectively.
F-11
<PAGE>
SPECTRA FUND, INC.
Notes to Financial Statement (continued)
NOTE 4 COMPONENTS OF NET ASSETS:
At October 31, 1994, the Fund's net assets consisted of:
Paid-in capital ......................... $3,727,393
Accumulated net investment loss ......... (602,867)
Undistributed net realized gain ......... 1,205,627
Net unrealized appreciation ............. 501,414
----------
NET ASSETS .............................. $4,831,567
==========
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Spectra Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of Spectra
Fund, Inc. (a Massachusetts Corporation), including the schedule of investments,
as of October 31, 1994, and the related statement of operations for the four
months then ended, the statements of changes in net assets for the four months
in the period then ended, and for the year ended June 30, 1994 and the financial
highlights for the four months in the period then ended, and for each of the
five years in the period ended June 30, 1994. These financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights of Spectra
Fund, Inc. for the year ended June 30, 1990 (with the exception of total
investment return) were audited by other auditors whose report dated August 7,
1990, expressed an unqualified opinion on such information.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1994, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Spectra Fund, Inc. as of October 31, 1994, the results of its operations for the
four months then ended, the changes in its net assets for the four months then
ended and the year ended June 30, 1994, and the financial highlights for the
four months ended October 31, 1994 and each of the five years in the period
ended June 30, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
December 9, 1994
F-12
<PAGE>
Investment Manager:
Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
- --------------------------------------------------------------------------------
Distributor:
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
- --------------------------------------------------------------------------------
Custodian:
NatWest N.A.
10 Exchange Place
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 Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
- --------------------------------------------------------------------------------
================================================================================
SPECTRA Meeting the challenge
FUND of investing
STATEMENT
OF ADDITIONAL , 1995
INFORMATION
================================================================================
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Financial Statements included in Part A:
Condensed Financial Information
(2) Financial Statements included in Part B:
(i) Report of Independent Accountants;
(ii) Financial Statements as of October 31, 1994 and for
the period then ended.
(iii) Financial Statements as of April 30, 1995
(unaudited).
(b) Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
1 Agreement and Declaration of Trust (1)
2 By-laws of Registrant (1)
3 Not applicable
4 Form of Specimen Share Certificate *
5 Form of Investment Management Agreement (1)
6 Form of Distribution Agreement (1)
7 Not applicable
<PAGE>
8 Custody Agreement *
9 Shareholder Servicing Agreement (1)
10 Opinion and Consent of Hollyer, Brady, Smith,
Troxell, Barrett, Rocket, Hines & Mone LLP *
10(a) Opinion and Consent of Sullivan & Worcester
11 Consent of Arthur Andersen LLP (1)
12 Not applicable
13 Not applicable
14 Not applicable
15 Not applicable
16 Schedule for computation of performance quotations
provided in the Statement of Additional Information
- ---------------------
* to be filed by amendment
(1) Incorporated by reference to Registrant's Registration Statement
(the "Registration Statement") filed with the Securities and
Exchange Commission (the "SEC") on October 6, 1995.
Item 25. Persons Controlled by or Under Common Control with Registrant
None.
<PAGE>
Item 26. Number of Holders of Securities
As of September 15, 1995, there were 713 record holders of Registrant's
shares.
Item 27. Indemnification
Under Section 8.4 of Registrant's Agreement and Declaration of Trust, any
past or present Trustee or officer of Registrant (including persons who serve at
Registrant's request as directors, officers or Trustees of another organization
in which Registrant has any interest as a shareholder, creditor or
otherwise[hereinafter referred to as a "Covered Person"]) is indemnified to the
fullest extent permitted by law against liability and all expenses reasonably
incurred by him in connection with any action, suit or proceeding to which he
may be a party or otherwise involved by reason of his being or having been a
Covered Person. This provision does not authorize indemnification when it is
determined, in the manner specified in the Agreement and Declaration of Trust,
that such Covered Person has not acted in good faith in the reasonable belief
that his actions were in or not opposed to the best interests of Registrant.
Moreover, this provision does not authorize indemnification when it is
determined , in the manner specified in the Agreement and Declaration of Trust,
that such Covered Person would otherwise be liable to Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties. Expenses may be paid by Registrant in advance
of the final disposition of any action, suit or proceeding upon receipt of an
undertaking by such Covered Person to repay such expenses to Registrant in the
event that it is ultimately determined that indemnification of such expenses is
not authorized under the Agreement and Declaration of Trust and either (i) the
Covered Person provides security for such undertaking, (ii) Registrant is
insured against losses from such advances, or (iii) the disinterested Trustees
or independent legal counsel determines, in the manner specified in the
Agreement and Declaration of Trust, that there is reason to believe the Covered
Person will be found to be entitled to indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to Trustees, officers and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission (the "SEC") such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of Registrant in the successful defense of any action, suit
or proceeding) is asserted by such Trustee, officer or controlling person in
<PAGE>
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Alger Management, which serves as investment manager to Registrant, is
generally engaged in rendering investment advisory services to institutions and,
to a lesser extent, individuals. Alger Management presently serves as investment
adviser to one closed-end investment company and to three other open-end
investment companies. The list required by this Item 28 regarding any other
business, profession, vocation or employment of a substantial nature engaged in
by officers and directors of Alger Management during the past two years is
incorporated by reference to Schdules A and D of Form ADV filed by Alger
Management pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-06709).
Item 29. Principal Underwriter
(a) Alger Inc. acts as principal underwriter for Registrant, The Alger
Fund, The Alger American Fund and The Alger Defined Contribution Trust and has
acted as subscription agent for Castle Convertible Fund, Inc.
(b) The information required by this Item 29 with respect to each director,
officer or partner of Alger Inc. is incorporated by reference to Schedule A of
Form BD filed by Alger Inc. pursuant to the Securities Exchange Act of 1934 (SEC
File No. 8-6423).
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts and records of Registrant are maintained by Mr. Gregory S.
Duch, Fred Alger & Company, Incorporated, 30 Montgomery Street, Jersey City, NJ
07302.
<PAGE>
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to provide its annual repor without
charge to any recipient of its Prospectus who requests the
information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of New York and State of New York on the 30th day
of November, 1995.
SPECTRA FUND
By: /s/ David D. Alger
-------------------------
David D. Alger, President
ATTEST: /s/ Gregory S.Duch
--------------------------
Gregory S. Duch, Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Fred M. Alger III Chairman of the Board November 30, 1995
- ------------------------------
Fred M. Alger III
/s/ David D. Alger President and Trustee November 30, 1995
- ------------------------------ (Chief Executive Officer)
David D. Alger
/s/ Gregory S. Duch Treasurer November 30, 1995
- ------------------------------ (Chief Financial and
Gregory S. Duch Accounting Officer)
/s/ Nathan E. Saint-Amand* Trustee November 30, 1995
- ------------------------------
Nathan E. Saint-Amand
/s/ Stephen E. O'Neill* Trustee November 30, 1995
- ------------------------------
Stephen E. O'Neil
/s/ Arthur M. Dubow* Trustee November 30, 1995
- ------------------------------
Arthur M. Dubow
/s/ John T. Sargent Trustee November 30, 1995
- ------------------------------
John T. Sargent
* By: Gregory S. Duch
- ------------------------------
Gregory S. Duch
Attorney-in-Fact
<PAGE>
Securities Act File No. 2-30454
Investment Company Act File No. 811-1743
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
---
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x
---
---
Pre-Effective Amendment No. 1 x
---
and/or
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
---
---
Amendment No. 12 x
---
(Check appropriate box or boxes)
SPECTRA FUND
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
--------------------------
E X H I B I T S
--------------------------
<PAGE>
INDEX TO EXHIBITS
Exhibit Page Number in Sequential
No. Number System
------- -------------------------
10(a) Opinion and Consent of Sullivan & Worcester ..
<PAGE>
E X H I B I T 10(a)
<PAGE>
Boston
November 29, 1995
Spectra Fund
c/o Fred Alger Management, Inc.
75 Maiden Lane
New York, New York 10038
Re: Spectra Fund: Registration Statement on Form N1-A
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts law
relating to Spectra Fund, an open-end management investment company organized as
a trust with transferable shares (the "Trust") under Massachusetts law,
established pursuant to a Declaration of Trust dated July 5, 1995 (the
"Declaration"). We understand that the Trust and Spectra Fund, Inc., a
closed-end management investment company organized as a Massachusetts business
corporation (the "Predecessor Fund"), are entering into an Agreement and Plan of
Reorganization and Liquidation dated as of November 29, 1995 (the Reorganization
Agreement") under which the Trust is to acquire the assets, subject to
liabilities, of the Predecessor Fund in exchange for shares of beneficial
interest, one mil ($.001) par value, of the Spectra Fund Portfolio authorized by
the Declaration (the "Shares"), and that, as successor to the Predecessor Fund,
the Trust has filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form N1A (i) registering an indefinite number of
shares of the Trust under the Securities Act of 1933, as amended (the Securities
Act"), Registration No. 33-98102, and (ii) constituting Post-Effective Amendment
No. 11 to the registration statements heretofore filed by the Predecessor Fund
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), Registration No. 811-1743 (collectively, the "Registration Statement"),
and is about to file an amendment to the Registration Statement (the
"Amendment"), constituting Pre-Effective Amendment No. 1 under the Securities
Act and Amendment No. 12 under the Investment Company Act.
We acted as your Massachusetts counsel in connection with the drafting,
execution and delivery of the Declaration and the drafting of the Bylaws of the
Trust, and for purposes of this opinion we have reviewed the actions of the
Trustees to organize your Trust and to authorize the execution and delivery of
the Reorganization Agreement and the issuance and sale of its Shares. In this
connection, we have examined the Reorganization Agreement, the Prospectus and
the Statement of Additional Information included in the Amendment, certificates
of public
<PAGE>
Spectra Fund -2 November 29, 1995
officials and of Trustees and officers of the Trust as to matters of fact, and
such other documents and instruments, certified or otherwise identified to our
satisfaction, and such questions of law and fact, as we have considered
necessary or appropriate for purposes of the opinions expressed herein. We have
assumed the genuineness of the signatures on, and the authenticity of, all
documents furnished to us, and the conformity to the originals of documents
submitted to us as copies, which facts we have not independently verified.
Based upon and subject to the foregoing, we hereby advise you that, in our
opinion, under Massachusetts law:
1. The Trust is validly existing as a trust with transferable shares of
the type commonly called a Massachusetts business trust.
2. The Trust is authorized to issue an unlimited number of Shares; the
Shares which it is to issue to the Predecessor Fund pursuant to the
Reorganization Agreement (the "Initial Shares") and the Shares to be
registered pursuant to the Amendment (the "Offered Shares") have been
duly and validly authorized by all requisite action of Trustees of the
Trust, and no action of the shareholders of the Trust is required in
such connection.
3. The Initial Shares, when issued by the Trust in accordance with the
provisions of the Reorganization Agreement, and the Offered Shares,
when issued and sold as contemplated by the Amendment, will have been
validly and legally issued, and will be fully paid and nonassessable
by the Trust.
With respect to the opinion stated in paragraph 3 above, we wish to point
out that the shareholders of a Massachusetts business trust may under some
circumstances be subject to assessment at the instance of creditors to pay the
obligations of such trust if its assets are insufficient for the purpose.
This letter expresses our opinions as to the provisions of the Declaration
and the laws of Massachusetts applying to business trusts generally, but does
not extend to the Massachusetts Securities Act, or to federal securities or
other laws.
We hereby consent to the filing of this opinion with the SEC as an exhibit
to the Amendment, but we do not thereby concede that we come within the category
of persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Sullivan & Worcester, L.L.P.
SULLIVAN & WORCESTER
(A REGISTERED LIMITED LIABILITY PARTNERSHIP)
<PAGE>
