As filed with the Securities and Exchange Commission
on May 7, 1996
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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Post-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. 14 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>
It is proposed that this filing will become effective (check appropriate box):
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x immediately upon filing pursuant to paragraph (b), or
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on May 1, 1996 pursuant to paragraph (b), or
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60 days after filing pursuant to paragraph (a), or
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on (date) pursuant to paragraph (a) or Rule 485
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DECLARATION PURSUANT TO RULE 24f-2
Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933, as amended, pursuant to Securities (a)(1) of
Rule 24f-2 under the Investment Company Act of 1940, as amended. The Rule 24f-2
Notice for Registrant's fiscal year ended October 31, 1995 was filed on February
7, 1996.
SPECTRA FUND
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
PART A
ITEM NO. PROSPECTUS HEADING
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<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;
Management of the Fund
5. Management of the Fund ............................... Management of the Fund
5a. Management's Discussion of Fund Perfor-
mance ................................................ Management's Discussion of
Performance
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
11. Table of Contents .................................... Contents
12. General Information and History ...................... Not Applicable
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 | 75 Maiden Lane
FUND | 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 May 7, 1996 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
Investment Objective and Policies.............. 1
Risk Factors and Investment Practices.......... 1
How to Buy Shares.............................. 4
Special Investor Services...................... 5
How to Sell Shares............................. 5
Management of the Fund......................... 6
Net Asset Value................................ 7
Dividends and Taxes............................ 8
Performance.................................... 8
Management's Discussion of Performance ........ 8
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 SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
MAY 7, 1996
<PAGE>
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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
----
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 in connection with the Fund's
conversion from a closed-end fund to an open-end fund, including a change in
compensation to be paid to the investment manager (subject to a provision for
reimbursement by the investment manager of Fund expenses in excess of
state-imposed limits) 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.
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ii
<PAGE>
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FINANCIAL HIGHLIGHTS
During the periods July 1, 1975 to August 23, 1978, the Fund was an
open-end investment company. From August 23, 1978 through October 31, 1995 the
Fund was a closed-end investment company. For the periods presented here, the
Fund was organized as a Massachusetts corporation. The Financial Highlights for
the years ended June 30, 1991 through October 31, 1995 have been audited by
Arthur Andersen LLP, the Fund's independent public accountant, as indicated in
their report dated December 14, 1995 on the Fund's financial statements as of
October 31, 1995 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 1991
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>
Four
Year Months
Ended Ended Year Ended June 30,
Oct. 31, Oct. 31, --------------------------------------------------------------------------
1995 1994* 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <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
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income (loss) .... (0.53) (0.10) (0.28) (0.29) (0.22) (0.15) (0.13) (0.19) (0.19) (0.04) 0.01
Net realized and unrealized
gain (loss) on investments .... 7.24 1.80 2.66 3.70 1.65 2.25 3.83 1.66 (2.34) 2.09 8.87
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. 6.71 1.70 2.38 3.41 1.43 2.10 3.70 1.47 (2.53) 2.05 8.88
Dividends from net investment
income ........................ -- -- -- -- -- -- -- -- -- -- --
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)
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions ............. (4.60) -- (4.28) (2.32) (3.00) (1.32) (0.10) (0.08) (7.19) (5.88) (2.03)
------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year .... $ 20.93 $18.82 $17.12 $19.02 $17.93 $19.50 $18.72 $15.12 $13.73 $23.45 $27.28
======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return*** ............ .... 57.72% 9.93% 17.53% 23.66% 11.65% 15.63% 24.76% 10.96% (1.36)% 11.88% 49.02%
======= ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios and Supplemental Data:
Net assets, end of year
(000's omitted) ............. $ 5,374 $4,832 $4,394 $4,884 $4,603 $5,006 $4,805 $3,881 $3,525 $6,021 $7,003
======== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to average
net assets ...... ........... 3.76%** 2.75% 2.59% 2.57% 2.14% 2.74% 3.01% 4.09% 3.05% 2.39% 2.25%
======== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net investment income
(loss) to average net assets. (3.05)% (1.72)% (1.47)% (1.55)% (1.07)% (0.85)% (0.76)% (1.35)% (1.07)% (0.19)% 0.07%
======== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Portfolio turnover rate... .... 207.25% 56.24% 116.61% 100.17% 63.54% 78.00% 81.70% 139.94% 139.59% 127.30% 122%
======== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Year Ended June 30,
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1985 1984 1983 1982 1981 1980 1979 1978 1977 1976
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year .............. $16.91 $22.86 $11.80 $14.39 $ 9.17 $ 7.23 $ 5.98 $ 4.87 $ 4.99 $ 4.14
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income (loss) .... (0.05) (0.04) (0.14) (0.02) (0.12) (0.14) (0.11) (0.02) 0.00 0.01
) 0.01
Net realized and unrealized
gain (loss) on investments .... 4.40 (4.35) 11.20 (2.57) 5.34 2.08 1.36 1.14 (0.11) 0.88
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ................. 4.35 (4.39) 11.06 (2.59) 5.22 1.94 1.25 1.12 (0.11) 0.89
Dividends from net investment
income ........................ -- -- -- -- -- -- -- (0.01) (0.01) (0.04)
Distributions from net realized
gains ......................... (0.83) (1.56) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions ............. (0.83) (1.56) -- -- -- -- -- (0.01) (0.01) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year .... $20.43 $16.91 $22.86 $11.80 $14.39 $ 9.17 $ 7.23 $ 5.98 $ 4.87 $ 4.99
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return*** ............ .... 27.08% (19.03)% 93.73% (18.00)% 56.92% 26.83% 20.90% 22.94% (2.14)% 21.84%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios and Supplemental Data:
Net assets, end of year
(000's omitted) ............. $5,244 $4,340 $5,870 $3,028 $3,694 $2,355 $1,857 $2,077 $1,910 $2,248
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to average
net assets ...... ........... 2.70% 2.73% 2.47% 3.10% 2.59% 4.19% 3.92% 2.64% 1.57% 1.84%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net investment income
(loss) to average net assets. (0.27)% (0.23)% (0.82)% (0.19)% (0.90)% (1.66)% (1.65)% (0.48)% 0.15% .26%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Portfolio turnover rate... .... 106% 84% 94% 85% 94% 133% 162% 142% 124% 167%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
*Ratios have been annualized; total return has not been annualized.
**Reflects total expenses, including fees offset by earnings credits. The
expense ratio net of earnings credits would have been 3.69%.
***Reflects reinvestment of dividends and distributions at market value for
those paid when the Fund was a closed-end investment company and at net
asset value when the Fund was an open-end investment company.
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iii
<PAGE>
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. Investing in equity securities involves
inherent risks since the Fund's price per share generally fluctuates with
changes in stock market prices. Many factors affect stock prices including
economic and financial trends and expectations about business activity and, as a
result, there can be a wide variability of returns on stocks in any one year.
The companies in which the Fund will invest may still be in the developmental
stage, may be older companies that appear to be entering a new stage of growth
progress owing to factors such as management changes or development of new
technology, products or markets or may be companies providing products or
services with a high unit volume growth rate. Investing in smaller, newer
issuers generally involves greater risk than investing in larger, more
established issuers. Such companies may have limited product lines, markets or
financial resources and may lack management depth. Their securities may have
limited marketability and may be subject to more abrupt or erratic market
movements than securities of larger, more established companies or the market
averages in general.
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) covered 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.
RISK FACTORS AND
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
1
<PAGE>
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
Trustees, the Fund's investment manager, Fred Alger Management, Inc. ("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. 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. There may also be less publicly
available information about foreign issuers than about domestic issuers. In
addition, 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. Historically, the Fund has not invested in
foreign securities. If it does so in the future, the Fund intends to limit such
investments to more established issuers and markets.
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 their underlying securities, 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
2
<PAGE>
fundamental policy, the Fund may write 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 (speculative) 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
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.
Diversification
The Fund is classified as a "non-diversified" investment company under the
Investment Company Act of 1940. A "diversified" investment company is required,
with respect to 75% of its total assets, to limit its investment in any one
issuer (other than the U.S. Government) to no more than 5% of the investment
company's total assets. Because the Fund is not subject to this requirement, its
portfolio may at times not show as much diversification among securities, and
thus diversification of risk, as it would if the Fund had elected to register as
3
<PAGE>
a "diversified" company. However, the Fund intends to continue to qualify as a
"regulated investment company" under the Internal Revenue Code; one of the
requirements for such qualification is a quarterly diversification test,
applicable to 50% (rather than 75%) of the Fund's assets, similar to the
requirement stated above.
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. 30--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
30-123456789 or 30-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
4
<PAGE>
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.
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
5
<PAGE>
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.
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.
MANAGEMENT OF THE FUND
Organization
From its inception in 1968 until February 12, 1996, 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 February 12, 1996, 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.
Alger Management has been in the business of providing investment advisory
services since 1964 and, as of December 31, 1995, had approximately $4.8 billion
under management, $3.0 billion in mutual fund accounts and $1.8 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 February 12, 1996, the date on which the Fund converted to an
open-end investment company, Associates held 34.43% of the Fund's shares and
could therefore be deemed to control the Fund as of that date. 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.
6
<PAGE>
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. 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.
Portfolio Managers
David D. Alger, Seilai Khoo and Ron Tartaro are primarily responsible for the
day-to-day management of the Fund. Mr. Alger has been employed by Alger
Management as Executive Vice President and Director of Research since 1971 and
as President since 1995. Ms. Khoo has been employed by Alger Management since
1989 and as a Senior Vice President since 1995. Mr. Tartaro has been employed by
Alger Management since 1990 and as a Senior Vice President since 1995.
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. Prior to the date of this Prospectus,
Alger Management received no management fee but was reimbursed for its expenses
by the Fund.
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. may compensate other organizations from this fee who
provide personal service and maintenance of shareholder accounts.
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).
7
<PAGE>
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.
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.
MANAGEMENT'S DISCUSSION OF
PERFORMANCE
Even against the background of strong advances in the stock market, Spectra
Fund, Inc. recorded exceptional results for the fiscal year ended October 31,
1995, with gains well in excess of those posted by the S&P 500. For the year,
the net asset value of an investment in the Fund (with dividends and
distributions reinvested at the market value of the Fund's shares) increased
57.7% versus a gain of 26.4% for the S&P 500. The Fund's strong performance was
due primarily to a calculated over commitment to technology related stocks,
which represented approximately 55% of the Fund on October 31, 1995. Among the
holdings included in this sector, Intel Corporation, Bay Networks, Inc. and PRI
Automation, Inc. were held for the entire year and performed particularly well,
each posting gains in excess of 100%. Throughout the twelve-month period, we
added 38 new stocks, eliminated 42 and held 14 for the entire year. Each of the
stocks held for the entire period posted gains of 20% or more.
8
<PAGE>
- --------------------------------------------------------------------------------
$10,000 HYPOTHETICAL INVESTMENT ON July 1, 1985
- --------------------------------------------------------------------------------
[THE TABLE BELOW WAS REPRESENTED BY A CHART IN THE PRINTED MATERIAL]
ALGER SPECTRA S&P 500
` ------------- -------
June 30, 1985 ................. 10,000 10,000
June 30, 1986 ................. 14,902 13,581
June 30, 1987 ................. 16,672 16,995
June 30, 1988 ................. 16,446 15,824
June 30, 1989 ................. 18,249 19,075
June 30, 1990 ................. 22,768 22,220
June 30, 1991 ................. 26,325 23,864
June 30, 1992 ................. 29,393 27,069
June 30, 1993 ................. 36,346 30,758
June 30, 1994 ................. 42,717 31,191
October 31, 1994 .............. 46,959 33,449
October 31, 1995 .............. 74,063 42,296
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in Spectra Fund and the S&P 500 on July 1, 1985. During the
period depicted, the Fund was organized as a Massachusetts corporation and
operated as a closed-end investment company. See "Management of the
Fund-Organization." The figures for both Spectra Fund and the S&P 500, an
unmanaged index of common stocks, include reinvestment of dividends.
Effective October 31, 1994, Spectra changed its fiscal year end from June 30
to October 31.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON THROUGH October 31, 1995
- --------------------------------------------------------------------------------
Average Annual Return
1 Year 5 Years 10 Years
-----------------------------------------------
Spectra Fund 57.72% 31.73% 22.21%
S&P 500 26.44% 17.25% 15.43%
-----------------------------------------------
The Fund's average annual total returns include changes in share price and
reinvestment of dividends and capital gain distributions at market value. Past
performance does not guarantee future results. Investment return and principal
will fluctuate and the Fund's shares when redeemed may be worth more or less
than their original cost.
<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 | May 7, 1996
|
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION
- ----------------------
May 7, 1996
SPECTRA | 75 Maiden Lane
FUND | New York, New York 10038
| (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 May 7, 1996. 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................................................................ 8
Management................................................................. 9
Taxes...................................................................... 11
Custodian and Transfer Agent............................................... 12
Certain Shareholders....................................................... 12
Organization............................................................... 12
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 will
be taken into account in evaluating the liquidity of a Rule 144A security, both
with respect to the initial purchase and on an ongoing basis, will include,
among others: (1) the frequency of trades and quotes for the security; (2) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). 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
-3-
<PAGE>
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 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.
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<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.
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<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 a recognized domestic stock exchange, provided, however, that warrants
or rights which are attached to other securities shall be deemed to have no
value for purposes hereof. Pursuant to applicable state securities laws, as a
non-fundamental policy, the Fund will not invest more than 2% of its net assets
in warrants not listed on the New York Stock Exchange or the American Stock
Exchange.
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.
-6-
<PAGE>
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
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
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<PAGE>
periods of time are reasonable in relation to the benefits inuring to the Fund.
During the fiscal periods ended October 31, 1995, October 31, 1994, June 30,
1994 and June 30, 1993, the Fund paid an aggregate of approximately $11,681,
$6,769, $11,278 and $13,265, respectively, in commissions to broker-dealers in
connection with portfolio transactions, 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 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, 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.
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 after the purchase is initiated. 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.
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
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<PAGE>
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, and compensation
during the year ended October 31, 1995 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 Retirement Fund, 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.
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<PAGE>
Name, Position with
the Fund and Address Principal Occupations
Fred M. Alger III Chairman of the Board of Alger Associates,
Chairman of the Board Inc. ("Associates"), Alger Inc., Alger
Management, Alger Properties, Inc.
("Properties"), Alger Shareholder Services,
Inc. ("Services"), Alger Life Insurance
Agency, Inc. ("Agency"), and Analysts
Resources, Inc. ("ARI").
David D. Alger President and Director of Associates, Alger
President and Trustee Management, Alger Inc., Properties, Services
and Agency; Executive Vice President and
Director of ARI.
Gregory S. Duch Executive Vice President, Treasurer and
Treasurer Director of Alger Management and Properties;
Executive Vice President and Treasurer of
Associates, Alger Inc., ARI, Services and
Agency.
Arthur M. Dubow President of Fourth Estate, Inc.; private
Trustee investor since 1985; Director of Coolidge
P.O. Box 969 Investment Corporation; formerly Chairman of
Wainscott, NY 11975 the Board of Institutional Shareholder
Services, Inc.,
Stephen E. O'Neil Of Counsel to the law firm of Baker, Nelson,
Trustee Mishkin & Kohler; Private investor since
460 Park Avenue 1981; Director of NovaCare, Inc., Syntro
New York, NY 10022 Corporation and Brown-Forman Corporation;
formerly 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
Trustee of River Bank Americaand Atlantic
14 E. 69th Street Mutual Insurance Co.
New York, NY 10021
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 Retirement Fund,
Aggregate The Alger Fund,
Compensation The Alger American Fund,
from Castle Convertible Fund, Inc. and
Name of Person, Position Spectra Fund, Inc. Spectra Fund, Inc.
------------------------ ------------------ ---------------------------------------
<S> <C> <C>
Arthur M. Dubow, Trustee $250 $28,250
Stephen E. O'Neil, Trustee $250 $28,250
Nathan E. Saint-Amand, Trustee $250 $28,250
John T. Sargent, Trustee $250 $28,250
</TABLE>
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<PAGE>
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.
Prior to the date of this Statement of Additional Information, Alger Management
received no management fee but was reimbursed for its expenses by the Fund.
During the fiscal periods ended October 31, 1995, October 31, 1994, June 30,
1994 and June 30, 1993, Alger Management received $78,214, $26,537, $79,286 and
$76,567, respectively, from the Fund under this arrangement.
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.
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-
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<PAGE>
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.
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 the 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 January 15, 1996. 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 the Fund's outstanding shares as
of January 15, 1996.
Record/Beneficial
Ownership
------------------
Alger Associates, Inc............... 34.43%/34.43%
Fred M. Alger III................... */8.32%
William Scheerer II................. */5.85%
200 East 71st St.
New York, NY 10021
All Trustees and
Officers as a Group................. 6.94%/9.22%
Cede & Co........................... 48.50%/0%
- ---------------
* Indicates shareholder owns less than 5%.
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
-12-
<PAGE>
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,
during which the Fund operated as a closed-end investment company, were as
follows:
Five Ten
Years Years
Year-Ended Ended Ended
10/31/95 10/31/95 10/31/95
---------- -------- --------
57.72% 31.73% 22.21%
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
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.
-13-
<PAGE>
SPECTRA FUND, INC.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1995
SHARES COMMON STOCKS--94.4% VALUE
- ------------------------------------------------------
COMMUNICATIONS--2.1%
500 DSC Communications Corporation*. $ 18,500
1,000 U.S. Robotics Corp.............. 92,500
----------
111,000
----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--21.0%
3,100 Altera Corporation.............. 187,550
800 Ascend Communications, Inc.*.... 52,000
2,700 Bay Networks Inc.*.............. 178,875
4,000 Dell Computer Corporation*...... 186,500
3,000 Digital Equipment Corporation*.. 162,375
2,000 ESS Technology, Inc.*........... 60,000
1,400 Hewlett-Packard Company......... 129,675
1,300 Summit Technology Inc.*......... 57,850
2,400 Xilinx, Inc.*................... 110,400
----------
1,125,225
----------
COMPUTER SOFTWARE--4.1%
1,500 Activision Inc.................. 25,125
1,300 Microsoft Corporation*.......... 130,000
2,000 Softkey International Inc.*..... 63,000
----------
218,125
----------
COMPUTER TECHNOLOGY--3.8%
4,000 Microchip Technology
Incorporated* ................. 158,750
1,500 Pinnacle Systems, Inc.*......... 47,062
----------
205,812
----------
CONSUMER PRODUCTS--1.3%
2,000 Oakley, Inc.*................... 69,000
----------
DEFENSE--3.6%
5,200 Loral Corporation............... 154,050
500 McDonnell Douglas Corporation... 40,875
----------
194,925
----------
FINANCIAL SERVICES--6.0%
952 First Data Corporation.......... 62,920
2,000 Merrill Lynch & Co., Inc........ 111,000
500 Morgan Stanley Group, Inc....... 43,500
4,500 Schwab (Charles)
Corporation (The) ............. 102,937
----------
320,357
----------
HEALTH CARE--18.3%
3,000 Biochem Pharma Inc.*............ 114,750
3,500 CellPro Incorporated*........... 40,687
1,000 Genzyme Corp.--General
Division*. .................... 58,250
5,000 IMNET Systems, Inc.*............ 126,875
1,200 Lilly (Eli) Co.................. 115,950
4,000 Liposome Company Inc.*.......... 61,500
HEALTH CARE (CONTINUED)
1,800 Merck & Co., Inc................ 103,500
1,600 Metra Biosystems, Inc.*......... 29,600
1,000 Nellcor Puritan Bennett Inc.*... 57,500
2,000 Oxford Health Plans, Inc.*...... 156,500
1,000 Sybron International Corp.*..... 42,500
1,000 Target Therapeutics, Inc.*...... 77,500
----------
985,112
----------
POLLUTION CONTROL--1.1%
2,700 USA Waste Services, Inc.*....... 56,700
----------
RESTAURANTS & LODGING--2.5%
3,500 Lone Star Steakhouse &
Saloon, Inc.* ................. 135,187
----------
RETAILING--3.7%
----------
1,000 CompUSA Inc.*................... 38,250
3,000 OfficeMax Inc.*................. 74,250
2,000 Viking Office Products, Inc.*... 89,000
----------
201,500
----------
SEMI-CONDUCTORS--21.0%
1,500 Alliance Semiconductor Corp.*... 46,124
2,500 Cirrus Logic, Inc.*............. 105,312
6,000 C.P. Clare Corporation*......... 155,250
4,000 Integrated Device
Technology, Inc.* ............. 76,000
2,000 Intel Corporation............... 139,750
3,800 LSI Logic Corporation*.......... 179,074
5,000 Linear Technology Corporation... 218,750
2,800 Maxim Integrated Products, Inc*. 209,300
----------
1,129,560
----------
SEMI-CONDUCTORS
CAPITAL EQUIPMENT--4.8%
3,400 Applied Materials, Inc.*........ 170,425
1,000 PRI Automation, Inc.*........... 37,000
1,200 Tencor Instruments*............. 51,150
----------
258,575
----------
MISCELLANEOUS--1.1%
1,500 Loewen Group Inc................ 60,070
----------
Total Common Stocks
(Cost $4,985,316).............. 5,071,148
----------
WARRANTS--1.4%
2,000 Intel Corp. Warrants,
expire 3/14/98................. 74,000
72 Windmere Corp. Warrants,
expire 1/19/98................. 0
----------
Total Warrants (Cost $68,750)... 74,000
----------
F-1
<PAGE>
PRINCIPAL SHORT-TERM CORPORATE
AMOUNT NOTES--7.3% VALUE
- ------------------------------------------------------
$241,000 Associates Corporation of North
America, 5.76%, 11/7/95........ $ 241,000
152,000 Ford Motor Credit Company,
5.73%, 11/2/95................. 152,000
----------
Total Short-Term Corporate Notes
(Cost $393,000)................ 393,000
----------
Total Investments
(Cost $5,447,066)(a) 103.1% 5,538,148
Liabilities in Excess Of
Other Assets (3.1) (164,073)
------ ----------
Net Assets........................ 100.0% $5,374,075
====== ==========
- ------------------------------------
* Non-income producing security.
(a) At October 31, 1995, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $5,447,066, amounted to $91,082
which consisted of aggregate gross unrealized appreciation of $199,731 and
aggregate gross unrealized depreciation of $108,649.
================================================================================
SPECTRA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
<TABLE>
<CAPTION>
ASSETS:
<S> <C> <C>
Investments in securities, at value (cost $5,447,066), see accompanying
schedule of investments........................................................ $ 5,538,148
Cash............................................................................ 255,938
Receivable for investment securities sold....................................... 97,165
Dividends and interest receivable............................................... 539
Prepaid expenses................................................................ 1,315
------------
Total Assets.............................................................. 5,893,105
LIABILITIES:
Payable for investment securities purchased..................................... $ 397,876
Investment advisory fee payable................................................. 78,214
Directors' fees payable......................................................... 845
Accrued expenses................................................................ 42,095
-----------
Total Liabilities......................................................... 519,030
------------
NET ASSETS applicable to 256,720 outstanding shares of $1.00 par value
(2,000,000 shares authorized)..................................................... $ 5,374,075
============
NET ASSET VALUE PER SHARE.......................................................... $ 20.93
============
</TABLE>
See Notes to Financial Statements.
F2
<PAGE>
SPECTRA FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C> <C>
Income:
Dividends..................................................................... $ 21,137
Interest...................................................................... 8,101
------------
Total Income............................................................... 29,238
Expenses:
Investment advisory fees--Note 2(a)........................................... $ 78,214
Professional fees............................................................. 47,264
Shareholder reports........................................................... 27,193
Custodian and transfer agent fees............................................. 12,845
Directors' fees............................................................... 1,000
Miscellaneous................................................................. 2,958
------------
169,474
Less, earnings credits--Note 1(e)............................................. (2,962)
-------------
Total Net Expenses......................................................... 166,512
------------
NET INVESTMENT LOSS................................................................. (137,274)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................................................. 2,271,024
Net decrease in unrealized appreciation of investments........................... (410,332)
-------------
Net realized and unrealized gain on investments............................ 1,860,692
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................................ $ 1,723,418
============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR FOUR MONTHS
ENDED ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31, JUNE 30,
1995 1994 1994
- -------------------------------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
<S> <C> <C> <C>
Net investment loss............................................ $ (137,274) $ (26,632) $ (73,090)
Net realized gain on investments............................... 2,271,024 186,474 1,369,880
Net change in unrealized appreciation (depreciation)
of investments............................................... (410,332) 277,536 (687,387)
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations..... 1,723,418 437,378 609,403
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gains............................................. (1,180,910) -- (1,098,761)
- --------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets.................. 542,508 437,378 (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 $740,141, $602,867 and $576,235, respectively)........ $ 5,374,075 $ 4,831,567 $ 4,394,189
====================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
SPECTRA FUND, INC.
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
<TABLE>
<CAPTION>
YEAR FOUR MONTHS
ENDED ENDED
OCTOBER 31,OCTOBER 31, YEAR ENDED JUNE 30,
------------------------------------------------------------------
1995 1994* 1994 1993 1992 1991
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $18.82 $17.12 $19.02 $17.93 $19.50 $18.72
------------------------------------------------------------------
Net investment loss............................... (0.53) (0.10) (0.28) (0.29) (0.22) (0.15)
Net realized and unrealized gain
on investments................................... 7.24 1.80 2.66 3.70 1.65 2.25
------------------------------------------------------------------
Total from investment operations.................. 6.71 1.70 2.38 3.41 1.43 2.10
Dividends from net realized gains................. (4.60) -- (4.28) (2.32) (3.00) (1.32)
------------------------------------------------------------------
Net asset value, end of period.................... $20.93 $18.82 $17.12 $19.02 $17.93 $19.50
==================================================================
Market value, end of period....................... $20.93 $14.00 $14.00 $16.00 $13.50 $14.00
==================================================================
Total investment return based on market
value per share***............................... 112.02% 0.00% 14.25% 38.16% 17.09% 11.00%
==================================================================
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted)............................... $5,374 $4,832 $4,394 $4,884 $4,603 $5,006
==================================================================
Ratio of expenses to average net
assets........................................ 3.76%** 2.75% 2.59% 2.57% 2.14% 2.74%
==================================================================
Ratio of net investment loss to
average net assets............................ (3.05)% (1.72)% (1.47)% (1.55)% (1.07)% (.85)%
==================================================================
Portfolio turnover rate........................ 207.25% 56.24% 116.61% 100.17% 63.54% 78.00%
==================================================================
</TABLE>
- ------------------------------------
* Ratios have been annualized; total return has not been annualized.
** Reflects total expenses, including fees offset by earnings credits. The
expense ratio net of earnings credits would have been 3.69%.
*** Total investment return based on net asset value per share with dividends
and distributions reinvested at market value was 57.72%, 9.93%, 17.53%,
23.66%, 11.65% and 15.63% for the fiscal period ended October 31, 1995,
October 31, 1994, June 30, 1994, June 30, 1993, June 30, 1992 and June 30,
1991, respectively.
See Notes to Financial Statements.
F-4
<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 (see note 5). 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. (e) EARNINGS CREDITS--The Fund's custodian fees have been reduced
as a result of earnings credits received on overnight cash balances. Balances
left on deposit with the custodian preclude their use elsewhere.
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 (see
note 5).
For the year ended October 31, 1995, the total advisory fee charged
amounted to $78,214.
(b) TRANSFER AGENT FEES--Alger Shareholder Services, Inc. ("Alger Services"), an
affiliate of the Adviser, serves as transfer agent for the Fund. During the year
ended October 31, 1995, the Fund incurred fees of approximately $5,200 for
services provided by Alger Services and reimbursed Alger Services approximately
$1,600 for transfer agent related expenses paid by Alger Services on behalf of
the Fund.
(c) BROKERAGE COMMISSIONS--During the year ended October 31, 1995, the Fund paid
Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of the Adviser,
$11,681 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, 1995, the Adviser and its
affiliates owned 111,119 shares of the Fund.
NOTE 3--SECURITIES TRANSACTIONS:
During the year ended October 31, 1995, purchases and sales of
investment securities, excluding short-term securities, aggregated $9,063,270
and $10,347,734, respectively.
F-5
<PAGE>
SPECTRA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--COMPONENTS OF NET ASSETS:
At October 31, 1995, the Fund's net assets consisted of:
Paid-in capital..................... $ 3,727,393
Accumulated net investment loss..... (740,141)
Undistributed net realized gain..... 2,295,741
Net unrealized appreciation......... 91,082
- -----------------------------------------------------
NET ASSETS.......................... $ 5,374,075
=====================================================
NOTE 5--FUND REORGANIZATION:
On September 28, 1995, the Fund's shareholders voted (i) to convert the
Fund from a closed-end investment company to an open-end investment company,
(ii) to provide for payment of an investment management fee at an annual rate of
1.5% of the Fund's average daily net assets, and (iii) to convert the Fund from
a Massachusetts corporation to a Massachusetts business trust. Such changes are
expected to be effective in January 1996.
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, 1995, and the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the four months in the period ended October 31, 1994, and for the
year ended June 30, 1994, and the financial highlights for the year ended
October 31, 1995, for the four months in the period ended October 31, 1994, and
for each of the four 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.
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, 1995, 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, 1995, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended, for the four months in the period ended October 31, 1994, and for
the year ended June 30, 1994, and the financial highlights for the year ended
October 31, 1995, for the four months in the period ended October 31, 1994, and
for each of the four years in the period ended June 30, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
December 14, 1995.
F-6
<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 | May 7, 1996
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,
1995 and for the period then ended.
(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 (3)
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 Rockett Hines & Mone LLP (3)
10(a) Opinion and Consent of Sullivan & Worcester (2)
11 Consent of Arthur Andersen LLP
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
- ------------------------------
(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.
(2) Incorporated by reference to Pre-Effective Amendment No. 1 to
the Registration Statement, filed with the SEC on December 4,
1995.
(3) Incorporated by reference to Pre-Effective Amendment No. 2 to
the Registration Statement, filed with the SEC on February 6,
1996.
Item 25. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
As of December 31, 1995, there were 707 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
<PAGE>
or proceeding) is asserted by such Trustee, officer orcontrolling person in
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) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, Registrant certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933, and has duly caused
this Amendment 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 7th day of May,
1996.
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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Fred M. Alger III* May 7, 1996
- ----------------------------------------------------- Chairman of the Board ----------------------
Fred M. Alger III
/s/ David D. Alger May 7, 1996
- ----------------------------------------------------- President and Trustee ----------------------
David D. Alger (Chief Executive Officer)
/s/ Gregory S. Duch May 7, 1996
- ----------------------------------------------------- Treasurer ----------------------
Gregory S. Duch (Chief Financial and Accounting
Officer)
/s/ Nathan E. Saint-Amand* May 7, 1996
- ----------------------------------------------------- Trustee ----------------------
Nathan E. Saint-Amand
/s/ Stephen E. O'Neil* May 7, 1996
- ----------------------------------------------------- Trustee ----------------------
Stephen E. O'Neil
/s/ Arthur M. Dubow* May 7, 1996
- ----------------------------------------------------- Trustee ----------------------
Arthur M. Dubow
/s/ John T. Sargent* May 7, 1996
- ----------------------------------------------------- Trustee ----------------------
John T. Sargent
*By: Gregory S. Duch
--------------------------
Gregory S. Duch
Attorney-in-Fact
</TABLE>
<PAGE>
Securities Act File No. 33-98102
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
---
---
Post-Effective Amendment No. 1 x
---
and/or
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
---
---
Amendment No. 14 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
Page Number
Exhibit in Sequential
No. Number System
--- -------------
8 Form of Custody Agreement............................. E-1
11 Consent of Arthur Andersen LLP........................ E-22
16 Schedule for computation of performance quota-
tions provided in the Statement of Additional
Information........................................... E-23
CUSTODY AGREEMENT
AGREEMENT made as of February 12, 1996 by and between Spectra Fund, a
Massachusetts business trust (hereinafter called the "Fund"), and National
Westminster Bank NJ, a national banking association organized and existing under
the laws of the United States (hereinafter called the "Custodian").
WITNESSETH:
WHEREAS, the Fund desires that its securities and funds shall be
hereafter held and administered by the Custodian pursuant to the terms of this
agreement:
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Fund and the Custodian agree as follows:
SECTION 1. Definitions
The word "securities" as used herein includes stocks, shares, bonds,
debentures, bills, notes, mortgages, certificates of deposit, bank time
deposits, banker's acceptances, commercial paper, scrip, warrants, participation
certificates, chooses in action, evidences of indebtedness, or other obligations
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase, or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets.
E-1
<PAGE>
The term "Officer's Certificates shall mean a direction, instruction or
certification in writing signed in the name of *he Fund by any two of the
President, a Vice President, the Secretary and the Treasurer of the Fund, or any
other persons duly authorized to sign by the Board of Directors or the Executive
Committee, if any, of the Fund.
SECTION 2. Names. Titles and Signatures of Fund's Officers
The Secretary or an Assistant Secretary of the Fund will certify to the
Custodian the names and the signatures of those persons authorized to sign
Officers' Certificates, as defined in Section 1 hereof, and the names of the
Trustee and the members of the Executive Committee thereof, if any, together
with any changes which may occur from time to time and the Custodian shall be
fully protected in acting in reliance thereon.
SECTION 3. Receipt and Disbursement of Funds
A. The Custodian shall open and maintain a separate account or accounts
in the name of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Agreement. The Custodian shall hold in such
account or accounts, subject to the provisions hereof, all funds received by it
from or for the account of the Fund. The Fund will deliver or cause to be
delivered to the Custodian all funds owned by the Fund, including cash received
for the issuance of its shares during the period of this Agreement. The
Custodian shall make payments of funds to, or for the account of, the Fund from
such funds only:
E-2
<PAGE>
(a) for the purchase of securities for the portfolio of the Funds (i) upon the
delivery of such securities to the Custodian (or to any bank, banking firm or
trust company doing business in the United States and designated by the
Custodian as its sub-custodian or agent for this purpose), registered (if
registerable) in the name of the Fund or of the nominee of the Custodian
referred to in Section 8 or in proper form for transfer, or (ii) in the case of
repurchase agreements entered into between the Fund and the Custodian or other
bank, upon delivery of the receipt evidencing purchase by the Fund of securities
owned by the Custodian or other bank along with written evidence of the
agreement by the Custodian or other bank to repurchase such securities from the
Fund; (b) for the repurchase or redemption of shares of the Fund upon written
advice thereof to the Custodian from the Fund's Transfer Agent, in the amount
specified in such advice; (c) for the payment of interest, dividends, taxes,
management or supervisory fees, or operating expenses (including, without
limitation thereto, trustees' fees and expenses, and fees for legal, accounting
and auditing services); (d) for payments in connection with the conversion,
exchange or surrender of securities owned of subscribed to by the Fund held by
or to be delivered to the Custodian; (e) for the payment to any bank of interest
on or any portion of the principal of any loan made by such bank to the Fund;
(f) for the payment to any person, firm or corporation who has borrowed the
Fund's portfolio securities the amount deposited with the Custodian as
collateral for such borrowing upon the delivery of such
E-3
<PAGE>
securities to the Custodian, registered (if registerable) in eve name of the
Fund or of the nominee of the Custodian referred to in Section 8 or in proper
form for transfer or (g) for other proper purposes of the Fund. Before making
any such payment the Custodian shall receive (and may rely upon) an officers
Certificate directing such payment and stating that it is for a purpose
permitted under the terms of items (a), (b), (c), (d), (e) or (f) of this
subsection A. In respect of item (g), the Custodian will take such action only
upon receipt of an Officer's Certificate and a certified copy of a resolution of
the Trustees or of the Executive Committee of the Fund, if any, signed by an
officer of the Fund and certified by the Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose of the
Fund, and naming the person or persons to whom such payment is to be made. In
respect of item (f), the Custodian shall make payment to the borrower of
securities loaned by the Fund of part of the collateral deposited with the
Custodian upon receipt of an Officers' Certificate stating that the market value
of the securities loaned has declined and specifying the amount to be paid by
the Custodian without receipt or return of any of the securities loaned by the
Fund. In respect of item (a), in the case of repurchase agreements entered into
with a bank which is a member of the Federal Reserve System, the custodian may
transfer funds to the account of such bank, which may be itself, prior to
receipt of the safekeeping receipt and repurchase agreement,
E-4
<PAGE>
provided that such documents are received prior to the c use of business on the
same day.
B. Notwithstanding anything herein to the contrary, the Custodian may
at any time or times, appoint (and may at any time remove) any other bank or
trust company as its subcustodian or agent to carry out such of the provisions
of Subsections A of this Section 3 as the Fund may from time to time request;
provided, however, that the appointment of such sub-custodian or agent shall not
relieve the custodian of any of its responsibilities hereunder; and provided,
further, that the Fund will not request the appointment of any bank as
sub-custodian unless it meets the requirements of Section 26 of the Investment
Company Act.
C. The Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by the
Custodian for the account of the Fund.
SECTION 4. Receipt of Securities
A. The Custodian shall hold in a separate account, and physically
segregated at all times from those of any other person, firms, corporations or
trust, pursuant to the provisions hereof, all securities received by it from or
for the account of the Fund and the Fund will deliver or cause to be delivered
to the Custodian all securities owned by the Fund. All such securities are to be
held or disposed of by the Custodian for, and subject at all times to the
instructions of, the Fund pursuant to the terms of this Agreement. The Custodian
shall have no power or authority to assign, hypothecate, pledge or otherwise
dispose of any such
E-5
<PAGE>
securities and investments, except pursuant to the directive of the Fund and
only for the account of the Fund as set forth in Section 5 of this Agreement.
B. Notwithstanding anything herein to the contrary, the Custodian may
at any time or times, appoint (and may at any time remove) any other bank or
trust company as its subcustodian or agent to carry out such of the provisions
of Subsection A of this Section 4 and of Section 5 of this Agreement, as the
Fund may from time to time request, provided, however, that the appointment of
such sub-custodian or agent shall not relieve the Custodian of any of its
responsibilities hereunder, and provided, further, that the Fund will not
request the appointment of any bank as subcustodian unless it meets the
requirements of Section 26 of the Investment Company Act.
SECTION 5. Transfer. Exchange. Redelivery. etc. of Securities.
The Custodian shall have sole power to release or deliver any
securities of the Fund held by it pursuant to this Agreement. The Custodian
agrees to transfer, exchange or deliver securities held by it hereunder only:
(a) for sales of such securities for the account of the Fund upon receipt by the
Custodian of payment therefor, (b) when such securities mature or are called,
redeemed or retired or otherwise become payable, (c) for examination by any
broker selling any such securities in accordance with "street delivery" custom,
(d) in exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization
E-6
<PAGE>
or readjustment, or otherwise, (e) upon conversion of such securities pursuant
to their terms into other securities, (f) upon exercise of subscription,
purchase or other similar rights represented by such securities, (g) for the
purpose of exchanging interim receipts for temporary securities for definitive
securities, (h) for the purpose of effecting a loan of the Fund's portfolio
securities to any person, firm, corporation or trust upon the receipt by the
Custodian of cash or cash equivalent collateral at least equal to the market
value of the securities loaned, (i) to any bank for the purpose of
collateralizing the obligation of the Fund to repay any moneys borrowed by the
Fund from such bank; provided, however, that the Custodian may at the option of
such lending bank keep such collateral in its possession, subject to the rights
of such bank given to it by virtue of any promissory note or agreement executed
and delivered by the Fund to such bank, or (j) for other proper purposes of the
Fund. As to any deliveries made by the Custodian pursuant to items (a), (b),
(c), (d), (e), (f), (g), and (h), securities or funds receivable in exchange
therefor shall be deliverable to the Custodian. Before making any such transfer,
exchange or delivery, the Custodian shall receive (and may rely upon) an
Officers' Certificate requesting such transfer, exchange, or delivery and
stating that it is for a purpose permitted under the terms of items (a), (b),
(c), (d), (e), (f), (g), (h), or (i) of this Section 5, and, in respect of item
(j), upon receipt of an Officers' Certificate and a certified copy of a
resolution of the Trustees or of the Executive Committee, if any,
E-7
<PAGE>
signed by an officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such purpose to be a proper
purpose of the Fund, and naming the person or persons to whom delivery of such
securities shall be made. In respect of item (h), the Officers' Certificate
shall state the market value of the securities to be loaned and the
corresponding amount of collateral to be deposited with the Custodian;
thereafter, upon receipt of an Officers' Certificate stating that the market
value of the securities loaned has increased and specifying the amount of
increase, the Custodian shall collect from the borrower additional cash
collateral in such amount.
SECTION 6. Federal Reserve Book-Entry System
Notwithstanding any other provisions of this Agreement, it is
expressly understood and agreed that the Custodian is authorized in the
performance of its duties hereunder to deposit in the book entry deposit system
operated by the Federal Reserve Bank (the "System"), United States government,
instrumentality and agency securities and any other securities deposited in the
System ("Securities") and to use the facilities of the System, as permitted by
Rule 17f-4 under the Investment Company Act of 1940, in accordance with the
following terms and provisions:
(a) The Custodian may keep securities of the Fund in the System
provided that such Securities are represented in an account ("Account") of the
Custodian's in the System which shall not
E-8
<PAGE>
include any assets of the Custodian other than assets held in a fiduciary or
custodian capacity.
(b) The records of the Custodian with respect to the Fund's
participation in the System through the Custodian shall identify by book entry
Securities belonging to the Fund which are included with other securities
deposited in the Account and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission.
(c) The Custodian shall pay for securities purchased for the account
of the Fund upon: (i) receipt of advice from the System that such securities
have been transferred to the Account and (ii) the making of an entry on the
records of the Custodian to reflect such payment and transfer for the account of
the Fund. The Custodian shall transfer Securities sold for the account of the
Fund upon: (i) receipt of advice from the System that payment for such
securities has been transferred to the Account an (ii) the making of an entry on
the records of the Custodian to reflect such transfer and payment for the
account of the Fund. The Custodian shall send the Fund a confirmation of any
transfers to or from the account of the Fund.
(d) The Custodian will provide the Fund with any report obtained by
the Custodian on the System's accounting system, internal accounting control
and procedures for safekeeping securities deposited in the System. The
Custodian will provide the
E-9
<PAGE>
Fund, at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities including Securities
deposited in the System relating to the services provided by the Custodian under
this Agreement; such reports shall detail material inadequacies disclosed by
such examination, and, if there are no such inadequacies, shall so state, and
shall be of such scope and in detail as the Fund may reasonably require and
shall be of sufficient scope to provide reasonable assurance that any material
inadequacies would be disclosed.
SECTION 6A. Use of Depository Trust Company Facilities
Notwithstanding any other provisions of the Agreement, the Custodian
may, in connection with transactions in portfolio securities by the Fund, use
the facilities of the Depository Trust Company ("DTC"), as permitted by Rule
17f-4 under the Investment Company Act of 1940, in accordance with the following
terms and provisions:
(a) DTC may be used to receive and hold eligible securities owned by
the Fund; (b) payment for securities purchased may be made through the clearing
medium employed by DTC for transactions of participants acting through it; (c)
securities of the Fund deposited in DTC will at all times be segregated from any
assets and cash controlled by the Custodian in other than a fiduciary or
custodian capacity but may be commingled with other assets held in such
capacity. Subject to the provisions of the Agreement with
E-10
<PAGE>
regard to "Officers' Certificates", the Custodian wilt pay cut money only upon
receipt of securities or notification thereof and will deliver securities only
upon the receipt of money or notification thereof; (d) all books and records
maintained by the Custodian which related to the Fund's participation in DTC
shall identify by book entry securities belonging to the Fund which are
deposited in DTC and shall at all times during the Custodian's regular business
hours be open to inspection by the Fund's duly authorized officers, employees,
agents and auditors, and the Fund will be furnished with all the information in
respect of the services rendered to it as it may require; (e) the Custodian will
make available to the Fund copies of any internal control reports concerning DTC
to it by either internal or external auditors within ten days after receipt of
such a report by the Custodian; and (f) confirmations of transactions using the
facilities of DTC shall be provided as set forth in Rule 17f-4.
SECTION 7. Custodians Acts Without Instructions
Unless and until Custodian receives an Officer's Certificate to the
contrary, the Custodian shall:
(a) Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the funds received by it upon such payment for the account of the Fund: (b)
collect interest and cash dividends received, with notice to the Fund, for the
account of the Fund: (c) hold for the account of the Fund hereunder all stock
dividends, rights and similar securities issued with respect to any
E-11
<PAGE>
securities held by in hereunder; (d) execute as agent on behalf of the Fund all
necessary ownership certificates required by the Internal Revenue Code or the
Income Tax Regulations of the United States Treasury Department or under the
laws of any state now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent At
may lawfully do so; (e) transmit promptly to the Fund all reports, notices and
other written information received by the Custodian from or concerning issuers
of the Fund's portfolio securities; and (f) collect from the borrower the
securities loaned and delivered by the Custodian pursuant to item (h) of Section
5 hereof, any interest or cash dividends paid on such securities, and all stock
dividends, rights an similar securities issued with respect to any such loaned
securities.
With respect to securities of foreign issue, it is expected that the
Custodian will use its best efforts to effect collection of dividends, interest
and other income, and to notify the Fund of any call for redemption, offer of
exchange, right of subscription, reorganization, or other proceedings affecting
such securities, or any default in payments due thereon. It is understood,
however, that the Custodian shall be under no responsibility for any failure or
delay in effecting such collections or giving such notice with respect to
securities of foreign issue, regardless of whether or not the relevant
information is published in any financial service available to it unless such
failure or delay is due to its negligence; however, this sentence shall not be
construed as
E-12
<PAGE>
creating any such responsibility with respect to securities or. non-foreign
issue, other than such responsibility as may be part of the general
responsibility of the Custodian as stated in this Section 7. Collections of
income in foreign currency are, to the extent possible, to be converted into
United States dollars unless otherwise instructed in writing, and in effecting
such conversion the Custodian may use such methods or agencies as it may see fit
it, including the facilities of its own foreign division at customary rates. All
risk and expenses incident to such collection and conversion is for the account
of the Fund and the Custodian shall have no responsibility for fluctuations in
exchange rates affecting any such conversion.
SECTION 8. Registration of Securities
Except as otherwise directed by an Officer's Certificate, the Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of the Custodian as defined in the Internal Revenue Code
and any Regulation of the Treasury Department issued thereunder or in any
provision of any subsequent Federal tax law exempting such transaction from
liability for stock transfer taxes, and shall execute and deliver such
certificates in connection therewith as may be required by such laws or
Regulations or under the laws of any State. The Custodian shall ensure that the
specific securities held by it hereunder shall be at all times identifiable in
its records.
The Fund shall from time to time furnish to the Custodian appropriate
instruments to enable the Custodian hold or deliver in
E-13
<PAGE>
proper form for transfer, or to register in the name of .~s registered nominee,
any securities which it may hold for the account of the Fund and which may from
time to time be registered in the name of the Fund.
SECTION 9. Voting and Other Actions
Neither the Custodian nor any nominee of the Custodian shall vote any
of the securities held hereunder by or for the account of the Fund, except in
accordance with the instructions contained in an Officers' Certificate. The
Custodian shall, promptly after receipt, execute and deliver, or cause to be
executed and delivered, to the Fund all notices, proxies and proxy soliciting
materials with relation to such securities (excluding any securities loaned and
delivered by the Custodian pursuant to item (h) of Section 5 hereof), such
proxies to be executed by the registered holder such securities (if registered
otherwise than in the name of the Fund), But without indicating the manner in
which such proxies are to be voted.
SECTION 10. Transfer Tax and Other Disbursements
The Fund shall pay or reimburse the Custodian from time to time for any
transfer taxes payable upon transfers of securities made hereunder and for all
other necessary and proper disbursements and expenses made or incurred by the
Custodian in the performance of this Agreement.
The Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provision of the Internal
E-14
<PAGE>
Revenue Code and any Regulations of the Treasury Department issued thereunder,
or under the laws of any State, to exempt from taxation any exemptible transfer
and/or deliveries of any such securities. SECTIONS 11. Concerning the Custodian
A. The Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to time be agreed
upon in writing between the two parties.
B. The Custodian shall not be liable for any action taken in good faith
upon any Officers' Certificate as herein defined or certified copy of any
resolution of the Trustees or of the Executive Committee, if any, and may rely
on the genuineness of any such document which it may in good faith believe to
have been validly executed.
C. The Custodian shall not be liable for any loss or damage, resulting
from its action or omission to act or otherwise, except for any such loss or
damage arising out of its own negligence or willful misconduct and except that
the Custodian shall be responsible for the acts of any subcustodian or agent
appointed hereunder. The Custodian may apply for and obtain the advice and
opinion of counsel to the Fund or of its own counsel with respect to questions
of law, and shall be fully protected with respect to anything done or omitted by
it in good faith, in conformity with such advice or opinion.
D. Without limiting the generality of the foregoing, the Custodian
shall be under no duty or obligation to inquire into, and shall not be liable
for:
E-15
<PAGE>
(a) The validity of the issue of any securities purchased by
or for the Fund, the legality of the purchase thereof, or the propriety
of the amount paid therefor;
(b) The legality of the issue or sale of any securities by or
for the Fund, or the propriety of the amount for which the same are
sold;
(c) The legality of the issue or sale of any shares of the
Fund, or the sufficiency of the amount to be received thereof;
(d) The legality of the redemption of any shares of the Fund,
or the propriety of the amount to be paid therefor;
(e) The legality of the declaration of any dividend or
distribution by the Fund, or the legality of the issue of any shares of
the Fund in payment of any dividend or distribution in shares;
(f) The legality of the delivery of any securities held for
the Fund for the purpose of collateralizing the obligation of the Fund
to repay any moneys borrowed by the Fund; or
(g) The legality of the delivery of any securities held for
the Fund for the purpose of lending said securities to any person, firm
or corporation.
E. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount, if the securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by
written instructions signed in the name of the Fund by one of its executive
E-16
<PAGE>
officers, and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
F. The Custodian shall not be under any duty or obligation to ascertain
whether any securities at any time delivered to or held by it for the account of
the Fund, are such as may properly be held by the Fund under the provisions of
its Declaration of Fund as amended from time to time.
G. The Fund agrees to indemnify and hold harmless the Custodian and its
nominee from all taxes, charges, expenses, assessments, claims, liabilities, and
losses (including counsel fees) incurred or assessed against it or its nominee
in connection with the performance of this Agreement, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct. The Custodian is authorized to charge any account of the
Fund for such items. In the event of any advance of funds for any purpose made
by the Custodian resulting from orders or instructions of the Fund, or in the
event that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with the
performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor.
H. In the event that, pursuant to this Agreement, the Fund instructs
the Custodian to pay for securities on behalf of the
E-17
<PAGE>
Fund, the Fund hereby grants to the Custodian a security interest in such
securities, until the Custodian has been reimbursed by the Fund in immediately
available funds. The Fund's written instructions designating the securities to
be paid shall be considered the requisite description and designation of the
securities pledged to the Custodian for purposes of the requirements of the
Uniform Commercial Code.
SECTION 12. Reports by the Custodian
A. The Custodian shall furnish the Fund daily with a statement
summarizing all transactions and entries for the account of the Fund. The
Custodian shall furnish the Fund at the end of every month with a list of the
portfolio securities held by it as Custodian for the Fund, adjusted for all
commitments confirmed by the Fund as of such time certified by a duly authorized
officer of the Custodian. The books and records of the Custodian pertaining to
its actions under this Agreement shall be open to inspection and audit at
reasonable times by officers of the Fund, its independent accountants and
officers of its investment advisors.
B. The Custodian will maintain such books and records relating to
transactions effected by it as are required by the Investment Company Act of
1940, as amended from time to time and any rule or regulation thereunder; or by
any other applicable provision of the law to be maintained by the Fund or its
Custodian, with respect to such transactions, and preserving or causing to be
preserved, any such books and records for such periods as may be required by any
such rule or regulations.
E-18
<PAGE>
SECTION 13. Termination or Assignment
This agreement may be terminated by the Fund, or by the Custodian, on
sixty (60) days notice, given in writing and sent by registered mail to the
Custodian, or to the Fund, as the case may be, at the address hereinafter set
forth. Upon any termination of this Agreement, pending appointment of a
successor to the Custodian or a vote of the shareholders of the Fund to dissolve
or to function without a Custodian of its funds, securities and other property,
the Custodian shall not deliver funds, securities or other property of the Fund
to the Fund, but may deliver them to a bank or trust company of its own
selection having an aggregate capital, surplus and undivided profits, as shown
by its last published report of not less than ten million dollars ($10,000,000)
as a Custodian for the Fund to be held under terms similar to those of this
Agreement; provided, however, that the Custodian shall not be required to make
any such delivery or payment until full payment shall have been made by the Fund
of all liabilities constituting a charge on or against the properties then held
by the Custodian or on or against the Custodian, and until full payment shall
have been made to the Custodian of all its fees, compensations, costs and
expenses, subject to the provisions of Section 11 of this Agreement.
SECTION 14. Miscellaneous
A. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be
E-19
<PAGE>
sufficiently given if addressed to the Custodian and mailed or delivered to it
at its office at 10 Exchange Place, Jersey City, New Jersey 07302, or at such
other place as the Custodian may from time to time designate in writing.
B. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund, shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at 75 Maiden Lane, New
York, New York 10038, or at such other place as the Fund may from time to time
designate In writing.
C. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement, and authorized or approved by a resolution of the Board of
Directors.
D. This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and assigns, provided, however,
that this Agreement shall not be assignable by the Fund without the written
consent of the Custodian or by the Custodian without the written consent of the
Fund, authorized or approved by a resolution of its Directors.
E. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute but one instrument.
E-20
<PAGE>
F. This Agreement and the rights and obligations of the Fund and the
Custodian hereunder shall be construed and interpreted in accordance with the
laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
Executed in several counterparts, each of which is an original.
NATIONAL WESTMINSTER BANK NJ
Attest
/s/ Philip Principato By: /s/ Francine Asselta
- ------------------------- -------------------------------
SPECTRA FUND
Attest
By: /s/ Rosemary Kiernan By: Gregory Duch
- ------------------------- -------------------------------
E-21
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 14, 1995 on the financial statements of Spectra Fund, Inc. for
the period ended October 31, 1995 and to all references to our Firm included in
or made a part of the registration statement of Spectra Fund, Inc. filed on Form
N-1A (Amendment No. 14), Investment Company Act File No. 811-1743 with the
Securities and Exchange Commission.
ARTHUR ANDERSEN LLP
New York, New York
May 7, 1996
E-22
AVERAGE ANNUAL RETURN COMPUTATION
The Average Annual Return for the Fund was computed according to the
following formula:
n
FORMULA: P(1+T) =ERV
Where: P = a hypothetical investment 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 (or other) periods
at the end of the 1, 5, or 10 year (or
other) periods (or fractional portion
thereof)
<TABLE>
<CAPTION>
CONTINGENT
ENDING AVERAGE DEFERRED
PERIOD REDEEMABLE ANNUAL RATE SALES CHARGE
COVERED VALUE OF RETURN FORMULA * IN EFFECT
------- ---------- ---------- ------------ ---------
<S> <C> <C> <C>
10 YEARS ENDED 10/31/95 7,429.27 22.21% @RATE(7112.83,1000,10) 0.00%
5 YEARS ENDED 10/31/95 3,967.16 31.73% @RATE(3967.16,1000,5) 2.00%
YEAR ENDED 10/31/95 1,577.18 57.72% @RATE(1577.18,1000,1) 5.00%
</TABLE>
E-23
================================================================================
SPECTRA FUND
CUSIP 847561 10 7
Shares of beneficial interest with a $1.00 par value of Spectra Fund
(hereinafter called the "Fund"), transferable on the books of the Fund by the
holder hereof in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Agreement and Declaration of Trust of the Fund, a copy of which is on file with
the Secretary of State of the Commonwealth of Massachusetts, to all of which the
holder by acceptance hereof assents. This certificate is not valid until
countersigned by the Transfer Agent.
Witness the signatures of the Fund's duly authorized officers
or facsimiles thereof.
Dated:
/s/Gregory S. Duch /s/David D. Alger
TREASURER PRESIDENT
SEE REVERSE
FOR CERTAIN DEFINITIONS
This certifies that is the owner of
COUNTERSIGNED AND REGISTERED:
ALGER SHAREHOLDER SERVICES, INC.
30 MONTGOMERY STREET
JERSEY CITY, NEW JERSEY 07302
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
================================================================================
E-26
