Spectra Fund
PROSPECTUS
February 25, 2000
TABLE OF CONTENTS
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2 .........................Risk/Return Summary: Investments,
Risks & Performance
3 .........................Fees & Expenses
4 .........................Additional Information About
the Fund's Investments
4 .........................Management & Organization
5 .........................Shareholder Information
5 .........................Purchasing and Redeeming
Fund Shares
6 .........................Investment Instructions
7 .........................Redemption Instructions
8 .........................Financial Highlights
Back Cover ................How to obtain more information
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[GRAPHIC]
Risk/Return Summary: Investments, Risks & Performance
Investment Goal and Approach
The Fund seeks long-term capital appreciation.
It invests primarily in equity securities, such as common or preferred stocks,
which are listed on U.S. exchanges or in the over-the-counter market. The Fund
invests primarily in "growth" stocks. The Fund's Manager, Fred Alger Management,
Inc., believes that these companies tend to fall into one of two categories:
o High Unit Volume Growth
Vital, creative companies which offer goods or services to a rapidly
expanding marketplace. They include both established and emerging firms,
offering new or improved products, or firms simply fulfilling an increased
demand for an existing line.
o Positive Life Cycle Change
Companies experiencing a major change which is expected to produce
advantageous results. These changes may be as varied as new management,
products or technologies; restructuring or reorganization; or merger and
acquisition.
The Fund can leverage, that is, borrow money, to buy additional securities for
its portfolio. By borrowing money, the Fund has the potential to increase its
returns if the increase in the value of the securities purchased exceeds the
cost of borrowing, including interest paid on the money borrowed.
Principal Risks
The main risks in investing in the Fund are:
o fluctuation in Fund price per share due to changes in the market prices of
its investments
o the tendency of stocks, especially "growth" stocks, to be more volatile
than some other investments you could make, such as bonds
o the risk that the cost of borrowing money to leverage will exceed the
returns for the securities purchased or that the securities purchased may
actually go down in value; thus, the Fund's net asset value could decrease
more quickly than if it had not borrowed
Prices of growth stocks tend to be higher in relation to their companies'
earnings, and may be more sensitive to market, political and economic
developments than other stocks, making their prices more volatile.
The Fund's trading in some stocks may be relatively short-term, meaning that the
Fund may buy a security and sell it a short time later to take advantage of
current gains if it is believed that an alternative investment may provide
greater future growth. This activity may create higher transaction costs due to
commissions and other expenses. In addition, a high level of short-term trading
may increase the Fund's realized gains, thereby increasing the amount of taxable
distributions to shareholders at the end of the year.
As with any equity fund, your investment will go up or down in value, and the
loss of your investment is a risk of investing. Based on the Fund's investment
objective, an investment in the Fund may be better suited for investors who seek
long-term capital growth and can tolerate fluctuations in their investment's
value.
2
<PAGE>
Performance
The following bar chart shows the changes in the Fund's performance from year to
year and gives you some indication of the risks of investing in the Fund. The
table beneath it compares the Fund's performance over several periods with a
broad measure of market performance. The performance reflects reinvestment of
dividends and distributions.* Remember that the Fund's performance in the past
is not necessarily an indication of how it will perform in the future.
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* Dividends and distributions paid prior to February 12, 1996, when the Fund
converted from a closed-end fund, are reflected as reinvested at market value.
Annual Total Return as of December 31 each year (%)
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
1990 2.81
1991 57.30
1992 8.49
1993 27.56
1994 3.66
1995 47.69
1996 19.48
1997 24.69
1998 47.94
1999 71.94
Best Quarter: Q4 1999 44.34%
Worst Quarter: Q3 1990 - 19.18%
The following table compares the Fund's performance with that of the S&P(R) 500
Index.
Average Annual Total Return as of December 31, 1999
1 Year 5 Years 10 Years 20 Years
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Spectra Fund 71.94% 41.12% 29.22% 23.73%
S&P 500 Index 21.04% 28.56% 18.21% 17.89%
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S&P 500 Index is an unmanaged index composed of 500 large company
stocks.Investors cannot make investments directly into an index.
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[GRAPHIC]
Fees and Expenses
Investors incur certain fees and expenses in connection with an investment in
the Fund. The table below shows the fees and expenses that you may incur if you
buy and hold shares of the Fund.
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 1.50%
Distribution Fees None
Other Expenses 0.35%
-----
Total Annual Fund Operating Expenses 1.85%
Example
The example below is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods
indicated. The example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same as in the table
above. The figures shown would be the same whether you sold your shares at the
end of each period or kept them. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
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1 Year 3 Years 5 Years 10 Years
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$188 $582 $1,001 $2,169
3
<PAGE>
The Fund pays its Distributor, Fred Alger & Company, Incorporated, a shareholder
servicing fee of .25% of the value of the Fund's average daily net assets for
service and maintenance of shareholder accounts. The Distributor may pay some of
this fee to other organizations that also provide service and maintenance of
shareholder accounts.
Additional Information About the Fund's Investments
The Fund may invest up to 100% of its assets in cash, commercial paper,
high-grade bonds, or cash equivalents for temporary defensive reasons if the
Manager believes that adverse market or other conditions warrant. This is to
attempt to protect the Fund's assets from a temporary unacceptable risk of loss,
rather than directly to promote the Fund's investment objective.
Other securities the Fund may invest in are discussed in the Fund's Statement of
Additional Information (see back cover).
[GRAPHIC]
Management and Organization
Manager
Fred Alger Management, Inc.
One World Trade Center
Suite 9333
New York, NY 10048
The Manager has been an investment adviser since 1964, and manages investments
totaling (at 12/31/99) $10.69 billion in mutual fund assets as well as $6.75
billion in other assets. The Manager makes investment decisions for the Fund and
continuously reviews and administers the Fund's investment program. These
management responsibilities are subject to the Fund's Board ofTrustees'
supervision. The Fund has had the same Manager since 1974, and pays the Manager
a fee at an annual rate of 1.50% of its average daily net assets.
Portfolio Managers
David Alger and David Hyun are the individuals responsible for the day-to-day
management of the Fund's portfolio and have served in that capacity since 1974
and 1998, respectively. Mr. Alger, has been employed by the Manager as Executive
Vice President and Director of Research since 1971, and as President since 1995.
Mr. Hyun has been employed by the Manager as an Analyst since 1991 and as a
Senior Vice President and co-manager since 1998.
4
<PAGE>
[GRAPHIC]
Shareholder Information
Distributor
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
Transfer Agent
Alger Shareholder Services, Inc.
30 Montgomery Street
Jersey City, New Jersey 07302
Net Asset Value
The price of one share is its "net asset value", or NAV. The NAV is calculated
as of the close of business (normally 4:00 p.m. Eastern time) every day the New
York Stock Exchange is open. Generally, the Exchange is closed on weekends and
various national holidays. It may close on other days from time to time.
The Fund generally values its assets on the basis of market quotations. Where
market quotations are not readily available, the Manager makes a good faith
determination on the basis of fair value, under procedures adopted by the Board
of Trustees.
Dividends and Distributions
Dividends of the Fund's net investment income and distributions of its net
realized capital gains are declared and paid annually by the Fund. The Fund
expects that these annual payments to shareholders will consist primarily of
capital gains, which may be taxable to you at different rates depending upon how
long the Fund held the securities that it sold to create the gains. Unless you
choose to receive cash payments by checking the appropriate box on your New
Account Application, any dividends and distributions will be reinvested
automatically at the NAV on their payment dates. If you have chosen cash
payments and a payment is returned to the Fund as undeliverable, upon receipt
that payment will be reinvested in Fund shares at the next NAV. All subsequent
payments will be reinvested until you reinstate your cash election and provide a
valid mailing address.
Regardless of whether you choose to take distributions in cash or reinvest them
in the Fund, they may be subject to federal and state taxes. Because everyone's
tax situation is unique, see a tax advisor about federal, state and local tax
consequences of investing in the Fund.
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NAV (net asset value) is computed by adding together the value of the
Fund's investments plus cash and other assets, subtracting its
liabilities and then dividing the result by the number of its
outstanding shares.
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Purchasing and Redeeming Fund Shares
No sales charge is imposed on Fund shares. You can purchase or redeem some or
all of your shares on any day the New York Stock Exchange is open. They will be
processed at the NAV next calculated after your purchase or redemption request
is received in good order by the Transfer Agent. Ordinarily, your redemption
check will be issued within 7 days after your redemption request is accepted by
the Transfer Agent. However, when you purchase shares with a check or via
TelePurchase or Automatic Investment Plan, no check will be issued against those
funds for 15 days. The Transfer Agent or Fund may reject any purchase order. The
Fund does not impose a sales charge for redemptions.
Different ways to purchase and redeem are listed on the following pages. For
telephone redemptions, the Fund and Transfer Agent have reasonable procedures in
place to determine that the instructions are genuine. They include requesting
personal identification and recording calls. If the Fund and Transfer Agent
follow these procedures, they are not liable for acting in good faith on
telephone instructions.
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Minimum Investments
Initial Subsequent
Investment Investment
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Regular account $1,000 $100
Traditional IRA $250 $100
Roth IRA $250 $100
Education IRA $100 $100
SIMPLE IRA $250 $100
Keogh $250 $100
401(k) $250 $100
403(b) $250 $100
Automatic Investment $25 $25
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5
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Investment Instructions
To open an account:
By Mail:
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(make checks payable to Spectra Fund)
Mail your completed application and check to:
Alger Shareholder Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302
By Fed Wire:
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Have your bank wire funds to:
Instructions Example
State Street Bank & State Street Bank &
Trust Company Trust Company
Boston, MA 02101 Boston, MA 02101
ABA # 011000028 ABA #011000028
BNF: Spectra Fund BNF=Spectra Fund
AC-00797548 AC-00797548
Originator To
Beneficiary Information= OBI=Spectra Fund
New Account New Account*
Shareholder Name(s) John & Jane Doe
Tax ID Number 123-45-6789
Forward the completed New Account Application to Alger Shareholder Services
stating that the account was established by wire transfer and the date and
amount of the transfer.
*If you already have an account number assigned to you, insert it here.
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Contact:
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Call or visit your investment adviser, or bank or other financial institution.
Automatically:
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Complete the Automatic Investment Plan option on your account application.
Minimum automatic investment is $25.
Via Our Website:
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Visit the Spectra Fund website to download a new account application -
www.spectrafund.com
Mail completed application with your investment to Alger Shareholder Services,
Inc.
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To make additional investments in an existing account:
By Mail:
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Complete and return the Invest by Mail slip attached to your Spectra Statement
and return the slip with your investment to:
Alger Shareholder Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302
By Telephone or Fed Wire:
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TelePurchase* allows you to purchase shares by telephone (minimum $500, maximum
$50,000) by filling out the appropriate section of the New Account Application
or returning the Telephone Services Form. The funds will be transferred from
your designated bank account to your Fund account, normally within one business
day.
Wire - Have your bank wire funds to:
State Street Bank & Trust Company. (See wire instructions at left.)
*not available for Retirement Plans
Contact:
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Call or visit your investment adviser, or bank or other financial institution.
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Automatically:
Spectra Fund Automatic Investment Plan allows you to make automatic purchases on
the 15th and/or the last business day of each month. Fill out the appropriate
information on the New Account Application or contact Spectra Fund to receive an
Additional Services Form. Minimum automatic investment is $25.
Government Direct Deposit* allows you to arrange direct deposit of U.S. federal
government payments into your Spectra Fund account and Payroll Savings Plan*
allows you to arrange direct deposit of a portion of your payroll directly to
your Spectra Fund Account. Call for a Payroll Savings Plan Form.
*not available for Retirement Plans
Via Our Website:
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Visit the Spectra Fund website to download all forms to add services to your
account - www.spectrafund.com
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Mail your completed forms to Alger Shareholder Services, Inc. In addition, you
can perform certain transactions electronically via our website.
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6
<PAGE>
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Redemption Instructions
By Mail:
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Send a letter of instruction to Alger Shareholder Services, Inc. which includes
- account number
- number of shares or dollar amount of redemption
- where to send the proceeds
- signature(s) of registered owner(s)
- a signature guarantee is required if
-- your redemption is for more than $25,000; or
-- you want the check sent to a different address than the one we
have on file; or
-- you want the check to be made payable to someone other than the
registered owner(s) we have on file; or
-- you have changed your address on file within the past 60 days.
By Telephone:*
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Call 800-711-6141 to sell shares (unless you refuse this service on your New
Account Application). The Fund will send you a check for amounts up to $5,000.
You can choose to receive a check or a wire** for amounts over $5,000. Note: you
cannot request a check if you have changed your address on file within the past
60 days.
TeleRedemption allows you to redeem shares by telephone by filling out the
appropriate section of the New Account Application or returning the Telephone
Services Form. The funds will be transferred to your bank account in an amount
between $500 and $50,000, normally within 2 business days. Shares issued in
certificate form are not eligible for this service.
*not available for Retirement Plans
**only if the appropriate section of the application
is completed xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Contact:
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Call or visit your investment adviser, or bank or other financial institution.
Automatically:
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Systematic Withdrawal Plan allows you to receive regular monthly, quarterly or
annual payments. Your account value must be at least $10,000, and the payments
must be for $50 or more. The maximum monthly withdrawal is 1% of the current
account value in the Fund at the time you begin participation in the Plan.
Via Our Website:
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Visit the Spectra Fund website to download all forms to add redemption
privileges to your existing account - www.spectrafund.com.
Mail your completed forms to Alger Shareholder Services, Inc. In addition, you
can now perform certain transactions electronically via our web site.
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To speak with a Spectra Fund Representative call 1-800-711-6141
e-mail: [email protected]
web address: www.spectrafund.com
Representatives are available to assist you with any questions you have.
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Signature Guarantee is a guarantee by a financial institution that
your signature is authentic. The financial institution accepts
liability for any forgery or fraud if the signature it guarantees
proves to be counterfeit. It is an ideal means to protect investors
and their assets. A notarization by a Notary Public is not an
acceptable substitute.
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Unless your account is a Spectra-sponsored tax-deferred retirement plan, if it
falls below $500 because of redemptions, the Fund may send you written notice
providing 60 days to restore it to the minimum balance. After 60 days, the Fund
may close your account and redeem all of your shares.
Under unusual circumstances, the Fund may redeem some of your shares "in kind",
which means that some of the proceeds will be paid with securities the Fund owns
instead of cash.
Shares may be worth more or less when you redeem them than they are at the time
you buy them. This means that you may realize a taxable gain or loss when you
redeem shares.
Exchanges
You can exchange shares of the Fund for shares of Alger Money Market Portfolio
of The Alger Fund, another portfolio advised by the Manager. If you would like a
prospectus describing the Money Market Portfolio, please call the Fund at (800)
711-6141. Remember that for tax purposes, an exchange is considered a sale and a
purchase. Thus, you may realize a taxable gain or loss when you exchange shares.
Certain exchange transactions can be performed on our website. Contact the Fund
for details.
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7
<PAGE>
[GRAPHIC]
Financial Highlights
The Financial Highlights table is intended to help you understand the Fund's
financial performance for the past 10 years. During this 10-year period, the
Fund was a closed-end fund until February 12, 1996, when it became an open-end
investment company. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned or lost on an investment in the Fund (assuming reinvestment of
all dividends and distributions).
The Financial Highlights for the fiscal periods ended June 30, 1991 through
October 31, 1999 have been audited by Arthur Andersen LLP, the Fund's
independent public accountants. The Financial Highlights, with the exception of
the total return information, for the period ended June 30, 1990 has been
audited by other independent accountants, who have expressed an unqualified
opinion thereon. Arthur Andersen LLP's report, along with the financial
statements of the Fund, is contained in the Fund's Annual Report, which is
available by contacting the Fund at (800) 711-6141.
For a share outstanding throughout the period(i)
<TABLE>
<CAPTION>
Four
Months
Ended
Year Ended October 31, Oct. 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994(ii)
------------ ----------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.65 $ 5.74 $ 4.54 $ 6.98 $ 6.27 $ 5.71
------------ ----------- ------- -------- -------- -------
Net investment income (loss) (0.07) (0.02) (0.06)(iii) (0.08)(iii) (0.17) (0.04)
Net realized and unrealized gain (loss) on investments 4.22 0.98 1.26 0.41 2.41 0.60
------------ ----------- ------- -------- -------- -------
Total from investment operations 4.15 0.96 1.20 0.33 2.24 0.56
Distributions from net realized gains (0.04) (0.05) -- (2.77) (1.53) --
------------ ----------- ------- -------- -------- -------
Net asset value, end of period $ 10.76 $ 6.65 $ 5.74 $ 4.54 $ 6.98 $ 6.27
============ =========== ======= ======== ======== =======
Total return(iv) 62.66% 16.94% 26.45% 12.68% 57.72% 9.93%
============ =========== ======= ======== ======== =======
Ratios and Supplemental Data:
Net assets, end of period (000's omitted) $ 548,656 $ 193,039 $84,988 $ 11,485 $ 5,374 $ 4,832
============ =========== ======= ======== ======== =======
Ratio of expenses excluding interest to
average net assets 1.83% 1.90%
============ ===========
Ratio of expenses including interest to
average net assets 1.85% 1.96% 2.12% 2.55%(v) 3.76% 2.75%
============ =========== ======= ======== ======== =======
Ratio of net investment income (loss) to
average net assets (1.52)% (1.24)% (1.06)% (1.69)% (3.05)% (1.72)%
============ =========== ======= ======== ======== =======
Portfolio Turnover Rate 102.54% 190.74% 133.98% 197.04% 207.25% 56.24%
============ =========== ======= ======== ======== =======
Amount of debt outstanding at end of period -- $ 705,000
Average amount of debt outstanding during the period $ 986,981 $ 1,044,096
============ ===========
Average daily number of shares outstanding
during the period 40,946,839 22,865,292
============ ===========
Average amount of debt per share during the period $ 0.02 $ 0.05
============ ===========
</TABLE>
(i) Per share data has been adjusted to reflect the effect of a 3 for 1
stock split which occurred April 23, 1999.
(ii) Ratios have been annualized; total return has not been annualized.
(iii) Amount was computed based on average shares outstanding during the
year.
(iv) Distributions paid when the Fund operated as a closed-end fund (i.e.
prior to February 12, 1996), have been reflected as being reinvested
at market value.
(v) Amount has been reduced by 0.69% due to expense reimbursements made
pursuant to applicable state expense limits.
(vi) Unaudited.
8
<PAGE>
Year Ended June 30,
1994 1993 1992 1991 1990
- --------- ----------- --------- ------------ -----------
6.34 $ 5.98 $ 6.50 $ 6.24 $ 5.04
- --------- ----------- --------- ------------ -----------
(0.09) (0.10) (0.07) (0.05) (0.04)
0.89 1.23 0.55 0.75 1.27
- --------- ----------- --------- ------------ -----------
0.80 1.13 0.48 0.70 1.23
(1.43) (0.77) (1.00) (0.44) (0.03)
- --------- ----------- --------- ------------ -----------
5.71 $ 6.34 $ 5.98 $ 6.50 $ 6.24
========= =========== ========= ============ ===========
17.53% 23.66% 11.65% 15.63% 24.76%(vi)
========= =========== ========= ============ ===========
4,394 $ 4,884 $ 4,603 $ 5,006 $ 4,805
========= =========== ========= ============ ===========
2.59% 2.57% 2.14% 2.74% 3.01%
========= =========== ========= ============ ===========
(1.47)% (1.55)% (1.07)% (0.85)% (0.76)%
========= =========== ========= ============ ===========
116.61% 100.71% 63.54% 78.00% 81.70%
========= =========== ========= ============ ===========
9
<PAGE>
For Fund Information:
By telephone: 1-800-711-6141
By mail: Spectra Fund
One World Trade Center
Suite 9333
New York, NY 10048
By Internet: Text versions of Fund documents can be downloaded from the
following sources:
> The Fund: http://www.spectrafund.com
> SEC (EDGAR database): http://www.sec.gov
Statement of Additional Information
For more detailed information about the Fund and its policies, investments, and
risks, please read the Statement of Additional Information, which is
incorporated by reference into (is legally made a part of) this Prospectus. You
can get a free copy of the Statement of Additional Information by calling the
Fund's toll-free number or by writing to the address above. The Statement of
Additional Information is on file with the Securities and Exchange Commission.
Annual and Semi-annual Reports
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during the period covered by the
report. You can receive free copies of these reports by calling the Fund's
toll-free number or by writing to the address above.
Another way you can review and copy Fund documents is by visiting the SEC's
Public Reference Room in Washington, D.C. Copies can also be obtained, for a
duplicating fee, by E-mail request to [email protected] or by writing to the
SEC's Public Reference Section, Washington, DC 20549-0102. Information on the
operation of the Public Reference Room is available by calling 1-202-942-8090.
Distributor: Fred Alger & Company, Incorporated
Spectra Fund
SEC File #811-1743
SP20
[LOGO]
Spectra Fund
Investing in companies of all sizes to achieve capital appreciation
PROSPECTUS
February 25, 2000
As with all mutual funds, the Securities and Exchange Commission has not
determined if the information in this Prospectus is accurate or complete, nor
has it approved or disapproved these securities. It is a criminal offense to
represent otherwise.
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
STATEMENT OF
ADDITIONAL INFORMATION FEBRUARY 25, 2000
SPECTRA One World Trade Center--Suite 9333
FUND New York, New York 10048
(800)711-6141
================================================================================
This Statement of Additional Information is not a Prospectus. This document
contains additional information about Spectra Fund (the "Fund") and supplements
information in the Prospectus dated February 25, 2000. It should be read
together with the Prospectus which may be obtained free of charge by writing or
calling the Fund at the address or toll-free number shown above.
The Fund's financial statements for the year ended October 31, 1999 are
contained in its annual report to shareholders and are incorporated by reference
into this Statement of Additional Information.
CONTENTS
Investment Strategies and Policies ....................................... 2
Net Asset Value .......................................................... 9
Purchases and Redemptions ................................................ 9
Management ............................................................... 11
Taxes .................................................................... 14
Custodian and Transfer Agent ............................................. 14
Diversification .......................................................... 14
Certain Shareholders ..................................................... 14
Organization ............................................................. 15
Determination of Performance ............................................. 15
Financial Statements ..................................................... 16
Appendix A-1
<PAGE>
INVESTMENT STRATEGIES AND POLICIES
The Prospectus discusses the investment objective of the Fund and the principal
strategies 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.
Cash Position
In order to afford the Fund the flexibility to take advantage of new
opportunities for investments in accordance with its investment objective or to
meet redemptions, it may, under normal circumstances, hold up to 15% of its
total assets in money market instruments including, but not limited to,
certificates of deposit, time deposits and bankers' acceptances issued by
domestic bank and thrift institutions, U.S. Government securities, commercial
paper 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.
Small Capitalization Investments
Certain 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.
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 declares bankruptcy or 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. Fred
Alger Management, Inc. ("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 securities convertible into or exchangeable for equity
securities including 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.
Portfolio Depositary Receipts
To the extent otherwise consistent with its investment policies and applicable
law, the Fund may invest up to 5% of its total assets in Portfolio Depositary
Receipts, exchange-traded shares issued by investment companies,
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typically unit investment trusts, holding portfolios of common stocks designed
to replicate and, therefore, track the performance of various broad securities
indexes or sectors of such indexes. For example, the Fund may invest in Standard
&Poor's Depositary Receipts(R) (SPDRs), issued by a unit investment trust whose
portfolio tracks the S&P 500 Composite Stock Price Index, or Standard &Poor's
MidCap 400 Depositary Receipts(R) (MidCap SPDRs), similarly linked to the S&P
MidCap 400 Index.
Illiquid and Restricted Securities
The Fund will not invest more than 15% of its net assets in "illiquid"
securities, which include restricted securities, securities for which there is
no readily available market and repurchase agreements with maturities of greater
than 7 days; however, restricted securities that are determined by the Board of
Trustees to be liquid are not subject to this limitation.
The Fund may invest in restricted securities governed by Rule 144A under the
Securities Act of 1933. In adopting Rule 144A, the Securities and Exchange
Commission specifically stated that restricted securities traded under Rule 144A
may be treated as liquid for purposes of investment limitations if the board of
trustees (or the fund's adviser acting subject to the board's supervision)
determines that the securities are in fact liquid. The Board 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. Examples of factors that will be taken into account in evaluating the
liquidity of a Rule 144A security, both with respect to the initial purchase and
on an ongoing basis, will include, among others: (1) the frequency of trades and
quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). If institutional trading in restricted securities were to decline to
limited levels, the liquidity of the Fund's portfolio could be adversely
affected.
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
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, including all
collateral for such loans, less liabilities exclusive of the obligation to
return such collateral, 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 loaned 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, American Depositary
Shares or U.S. dollar denominated securities of foreign issuers). Foreign
securities investments may be affected by changes in currency rates or exchange
control regulations, changes in governmental administration or economic or
monetary policy (in the United States and abroad) or changed circumstances in
dealing between nations. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes that may decrease the net return on these
investments as compared to dividends paid to the Fund by domestic corporations.
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
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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 subject to less
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 bank or a foreign branch of a domestic bank.
The Fund may purchase American Depositary Receipts ("ADRs"), American Depositary
Shares ("ADSs") or U.S. dollar-denominated securities of foreign issuers which
are not subject to the 20% foreign securities limitation. ADRs and ADSs are
traded in U.S. securities markets and represent the securities of foreign
issuers. While ADRs and ADSs may not necessarily be denominated in the same
currency as the foreign securities they represent, many of the risks associated
with foreign securities may also apply to ADRs and ADSs.
Options
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 or to
hedge against the risk of unfavorable price movements although, as in the past,
it does not currently intend to rely on these strategies extensively, if at all.
A call option on a security is a contract that gives the holder of the option
the right 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 on a
security is a contract that, in return for the premium, gives the holder of the
option the right to sell to the writer (seller) the underlying security at a
specified price during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying security upon
exercise at the exercise price during the option period.
The Fund will not sell options that are not covered. A call option written by
the Fund 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) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security as the call written where the exercise price
of the call held is (1) equal to or less than the exercise price of the call
written or (2) greater than the exercise price of the call written if the
difference is maintained by the Fund in cash, U.S. Government securities or
other high grade short-term obligations in a segregated account. 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 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 not purchase or write options that appear to lack 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
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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.
Although Alger Management will attempt to take appropriate measures to minimize
the risks relating to any trading by the Fund in put and call options, there can
be no assurance that the Fund will succeed in any option trading program it
undertakes.
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.
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. While incidental to its securities
activities, the Fund may use index futures as a substitute for a comparable
market position in the underlying securities.
If the Fund uses futures, or options thereon, for hedging, 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, if it uses a hedging strategy, buy or
sell stock index futures contracts in a greater or lesser dollar amount than the
dollar amount of the securities being hedged if the historical volatility of the
stock index futures has been less or greater than that of the securities. Such
"over hedging" or "under hedging" may adversely affect the 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
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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, if any, of stock index futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only, if at all, for bona fide hedging, risk management or other
portfolio management purposes. Typically, maintaining a futures contract or
selling an option thereon will require the 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 either that the position can be offset
prior to settlement at an advantageous price, or that delivery will occur. In
order to cover its potential obligations if the Fund enters into futures
contracts or options thereon, the Fund will maintain a segregated account which
will contain only liquid assets 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.
Borrowing
The Fund may borrow money from banks and use it to purchase additional
securities. This borrowing is known as leveraging. Leveraging increases both
investment opportunity and investment risk. If the investment gains on
securities purchased with borrowed money exceed the cost of borrowing, including
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 may also borrow from banks for
temporary or emergency purposes. 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.
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. The Fund's investment objective is a fundamental policy. 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 in connection with borrowings permitted in
restriction 4 and 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.
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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. 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 than 1/2 of 1% of the
securities of such issuer together own more than 5% of the securities of such
issuer.
14. Purchase any security if, as a result, the Fund would then have more than 5%
of its total assets invested in securities of issuers (including predecessors)
that have been in continuous operation for less than three years. This
limitation shall not apply to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
15. Purchase the securities of any other investment company, except that it may
make such a purchase in the open market involving no commission or profit to a
sponsor or dealer (other than the customary broker's commission), provided that
not more than 5% of the Fund's total assets (taken at market or other current
value) would be invested in such securities immediately after the making of any
such investment, or the Fund may make such a purchase as part of a merger,
consolidation or acquisition of assets.
16. The Fund may purchase and sell (write) put and call options on securities
and stock indexes, but only if such options are exchange-traded or traded on an
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
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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.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere. Principal transactions are not entered into with affiliates
of the Fund except pursuant to exemptive rules or orders adopted by the SEC.
In selecting brokers or dealers to execute portfolio transactions, Alger
Management seeks the best overall terms available. In assessing the best overall
terms available for any transaction, Alger Management will consider the factors
it deems relevant, including the breadth of the market in the investment, the
price of the investment, the financial condition and execution capability of the
broker or dealer and the reasonableness of the commission, if any, for the
specific transaction and on a continuing basis. In addition, Alger Management is
authorized, in selecting parties to execute a particular transaction and in
evaluating the best overall terms available, to consider the brokerage and
research services, as those terms are defined in section 28(e) of the Securities
Exchange Act of 1934, provided to the Fund and/or the other accounts over which
Alger Management or its affiliates exercise investment discretion. The Fund will
consider sales of its shares as a factor in the selection of broker-dealers to
execute over-the-counter transactions, subject to the requirements of best price
and execution. Alger Management's fees under its agreements with the Fund are
not reduced by reason of its receiving brokerage and research service. The
Fund's Board of Trustees will periodically review the commissions paid by the
Fund to determine if the commissions paid over representative periods of time
are reasonable in relation to the benefits inuring to the Fund. During the
fiscal years ended October 31, 1999, October 31, 1998, and October 31, 1997, the
Fund paid an aggregate of approximately $505,953, $569,102, and $128,857, in
brokerage commissions, of which approximately $504,630, $562,849, and $127,576,
respectively, was paid to Alger Inc. The commissions paid to Alger Inc. during
the fiscal year ended October 31, 1999 constituted 99% of the aggregate
brokerage commissions paid by the Fund; during that year, 99% of the aggregate
dollar amount of transactions by the Fund involving the payment of brokerage
commissions was effected through Alger Inc. Alger Inc. does not engage in
principal transactions with the Fund and, accordingly, received no compensation
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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 New York Stock Exchange ("NYSE") is generally open on each Monday through
Friday, except New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day
(the third Monday in February), Good Friday, Memorial Day (the last Monday in
May), Independence Day, Labor Day (the first Monday in September), Thanksgiving
Day (the fourth Thursday in November) and Christmas Day.
The assets of the 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 AND REDEMPTIONS
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. Each of the officers of the Fund and Messrs. David D.
Alger and Fred M. Alger III, Trustees of the Fund, are "affiliated persons," as
defined in the Act, of the Fund and of Alger Inc.
Third Party checks will not be honored except in the case of employer sponsored
retirement plans. You will be charged a fee for any check returned by your bank.
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 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.
No interest will accrue on amounts represented by uncashed distribution or
redemption checks.
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. 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 impose charges and restrictions in addition to or
different from those applicable if you invest with the Fund directly. Therefore,
you should read the materials provided by the Processing Organization in
conjunction with the Prospectus. Certain Processing Organizations may receive
compensation from the Fund, Alger Inc., or any of its affiliates.
Automatic Investment Plan
Purchases into your account will be made on the fifteenth and/or last business
day of each month. If the fifteenth falls on a weekend or a NYSE holiday, the
purchase shall be made on the next business day. In order to participate, your
account must be held by a bank which is a member of the Automated Clearing
House. Please note that transfers from your bank account to a fund sponsored
retirement account will be considered current year contributions. While there is
no charge to shareholders for this service, a fee will be deducted from a
shareholder's Fund account in the case of insufficient funds. A shareholder's
Automatic Investment Plan may be terminated at any time without charge or
penalty by the shareholder, the Fund, the Transfer Agent or Alger Inc.
TelePurchase and TeleRedemption
You can apply for TelePurchase or TeleRedemption by completing a Telephone
Services Form and returning it to the Transfer Agent. Although the Fund is
authorized to charge a fee of $17 for each automated Clearing House redemption,
it does not currently intend to
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<PAGE>
do so. To use these privileges, your bank must be a member of the automated
Clearing House. Shares held in any Spectra retirement plan and shares issued in
certificate form are not eligible for this service. Signature Guarantees 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.
Selling Shares by Telephone
The Fund, the Transfer Agent and their affiliates are not liable for acting in
good faith on telephone instructions relating to your account, so long as they
follow reasonable procedures to determine that the telephone instructions are
genuine. Such procedures may include recording the telephone calls and requiring
some form of personal identification. You should verify the accuracy of
telephone transactions immediately upon receipt of your confirmation statement.
Redemption requests generally will be paid on the next business day. This
service is not available within 60 days of changing your address or bank account
of record.
Exchange Privilege
Shareholders may exchange shares of Spectra Fund for shares of Alger Money
Market Portfolio of The Alger Fund (the "Portfolio"), another mutual fund
managed by Alger Management. Portfolio shares acquired in such exchanges,
together with Portfolio shares acquired through reinvestment of dividends on
such shares, may be exchanged for shares of the Fund. These exchanges will be
effected at the respective net asset values of the Fund and Portfolio next
determined after the exchange request is accepted, with no sales charge or
transaction fee imposed. Shares of the Portfolio received in an exchange will
earn dividends beginning on the next business day after the exchange. Before
exchanging Fund shares for Portfolio shares, an investor should carefully read a
Prospectus describing the Portfolio. To obtain a Prospectus for The Alger Fund
and more information about such exchanges, please call (800) 711-6141. The Fund
reserves the right to terminate or modify this exchange privilege or to charge a
per-exchange fee upon notice to shareholders.
For tax purposes, an exchange of shares is treated as a sale of the shares
exchanged and therefore you may realize a taxable gain or loss when you exchange
shares.
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.
Redemptions in Kind
Payment for shares tendered for redemption is ordinarily made in cash. However,
if the Board of Trustees of the Fund determines that it would be detrimental to
the best interest of the remaining shareholders of the Fund to make payment of a
redemption order wholly or partly in cash, the Fund may pay the redemption
proceeds in whole or in part by a distribution "in kind" of securities from the
Fund, in lieu of cash, in conformity with applicable rules of the SEC. 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
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<PAGE>
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.
MANAGEMENT
Trustees and Officers of the Fund
The Fund is governed by a Board of Trustees which is responsible for protecting
the interests of shareholders under Massachusetts law. The names of the Trustees
and officers of the Fund, together with information concerning their principal
business occupations, and compensation during the fiscal year ended October 31,
1999 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., a registered closed-end investment company, and
The Alger Fund, The Alger American Fund and The Alger Retirement Fund,
registered open-end management investment companies, for all of which Alger
Management serves as investment adviser. Fred M. Alger III and David D. Alger
are "interested persons" of the Fund, as defined in the Act. Fred M. Alger III
and David D. Alger are brothers. Unless otherwise noted, the address of each
person named below is One World Trade Center, Suite 9333, New York, New York
10048.
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<PAGE>
<TABLE>
<CAPTION>
Name, Age, Position with
the Fund and Address Principal Occupations
<S> <C>
Fred M. Alger III (65) Chairman of the Boards of Alger Associates, Inc. ("Associates"), Alger
Chairman of the Board Inc., Alger Management, Alger Properties, Inc. ("Properties"), Alger
Shareholder Services, Inc. ("Services"), Alger Life Insurance Agency,
Inc. ("Agency"), The Alger American Asset Growth Fund ("Asset
Growth"), Fred Alger International Advisory S.A. ("International"),
and Analysts Resources, Inc. ("ARI").
David D. Alger (56) President and Director of Associates, Alger Management, Alger Inc.,
President and Trustee Properties, Services, International, ARI and Agency; Director of Asset
Growth.
Gregory S. Duch (48) Executive Vice President, Treasurer and Director of Alger Management,
Treasurer Associates and Properties; Executive Vice President and Treasurer of
Alger Inc., ARI, Services and Agency; Treasurer and Director of
International.
Mary E. Marsden-Cochran (47) General Counsel, Vice President and Secretary of Associates, Alger
Secretary Management, Alger Inc., Properties, ARI, Services, and Agency
(2/96-present); Secretary of International (7/97-present); formerly
Associate General Counsel and Vice President, Smith Barney Inc.
Frederick A. Blum (46) Senior Vice President of Alger Inc.
Assistant Secretary
and Assistant Treasurer
Stephen E. O'Neil (67) Attorney; private investor since 1981; Director of NovaCare, Inc. and
Trustee Brown-Forman Distillers Corporation; formerly President and Vice
805 Third Avenue Chair- man of City Investing Company and Director of Centerre
New York, NY 10022 Bancorporation and Syntro Corporation.
Nathan E. Saint-Amand, M.D. (62) Medical doctor in private practice.
Trustee
2 East 88th Street
New York, NY 10128
B. Joseph White (54) Dean, University of Michigan Business School; President, William
Trustee Davidson Institute at the University of Michigan BusinessSchool;
University of Michigan Professor of Business Administration, University of Michigan Business
Business School School; Director, Gordon Food Service; Trustee and Chair, Audit
701 Tappan Street Committee, Equity Residential Properties Trust; Director and Chair,
Ann Arbor, MI 48109 Compensation Committee, Kelly Services, Inc.
</TABLE>
No director, officer or employee of Alger Management or its affiliates
receives any compensation from the Fund for serving as an officer or
Trustee of the Fund. The fund pays each independent trustee $2,000 for
each meeting he attends, to a maximum of $8,000, plus travel expenses
incurred for attending the meeting.
The Fund did not offer its Trustees any pension or retirement benefits
during or prior to the fiscal year ended October 31, 1999. The
following table provides compensation amounts paid to disinterested
Trustees of the Fund for the fiscal year ended October 31, 1999.
Compensation Table
<TABLE>
<CAPTION>
Total Compensation Paid to Trustees from
The Alger Retirement Fund,
Aggregate The Alger Fund,
Compensation The Alger American Fund,
from Castle Convertible Fund, Inc. and
Name of Person, Position Spectra Fund Spectra Fund
------------------------ ------------ ------------------------------------------
<S> <C> <C>
Stephen E. O'Neil, Trustee $6,250 $34,250
Nathan E. Saint-Amand, Trustee $6,250 $34,250
B. Joseph White, Trustee $6,000 $27,000
</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"), subject to the
supervision of the Board of Trustees. The services provided by Alger
Management under the Management Agreement include: providing
administrative services, making investment decisions for the Fund,
placing orders to purchase and sell securities on behalf of the Fund,
and selecting 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. 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 is owned by Alger Inc. which in turn is owned by
Alger Associates, Inc. ("Associates"), a financial services holding
company. Fred M. Alger III and his brother, David D. Alger, are the
majority shareholders of Associates and maybe deemed to control that
company and its subsidiaries. Fred Alger holds his shares through a
limited liability company, of which he is the president and majority
shareholder.
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 for the SEC and
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.
For the fiscal years ended October 31, 1999, October 31, 1998, and
October 31, 1997, Alger Management received $5,716,197, $2,172,536 and
$573,068, respectively, from the Fund under these arrangements.
Shareholder Servicing Agreement
Under a Shareholder Servicing Agreement, the Fund pays Alger Inc. a
shareholder servicing fee of .25% of the value of the Fund's average
daily net assets for service and maintenance of shareholder accounts.
Alger Inc. may pay some of this fee to other organizations that also
provide shareholder services and maintenance of shareholder accounts.
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
periodic basis and in doing so considers all relevant factors,
including expenses borne by Alger Inc. and the amounts it receives
under the Shareholder Servicing Agreement. During the fiscal year
ended October 31, 1999, the Fund paid Alger Inc. $952,698 under the
Shareholder Servicing Agreement.
Code of Ethics
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.
Expenses of the Fund
Operating expenses for the Fund generally consist of all costs not
specifically borne by Alger Management, including custodian fees,
Trustees' fees, transfer agency fees, legal fees, auditing costs,
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.
Independent Public Accountants
Arthur Andersen LLP serves as independent public accountants for the
Fund.
-13
<PAGE>
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 long-term capital
gains) and its net realized long-term capital gains that are
distributed to shareholders. To qualify under Subchapter M, the Fund
must, among other things, distribute to its shareholders at least 90%
of its taxable net investment income and net realized short-term
capital gains. In so qualifying the Fund may be restricted in the
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 net investment income and distributions of its
short-term capital gains will be taxable as ordinary income.
Distributions of long-term capital gains will be taxable as such at
the appropriate rate, regardless of the length of time you have held
shares of the 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
State Street Bank & Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as custodian of the Fund's assets pursuant
to a custodian agreement. Alger Shareholder Services, Inc.
("Services"), 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 Services 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.
Under the transfer agency agreement, Services is compensated on a
per-account and, for certain transactions, a per-transaction basis.
DIVERSIFICATION
The Fund is classified as a "diversified" investment company under the
Investment Company Act of 1940. A "diversified" investment company is
required, with respect to 75% of its assets, to limit its investment
in any one issuer (other than the U.S. government) to no more than 5%
of the investment company's total assets. The Fund intends to continue
to qualify as a "regulated investment company" under the Internal
Revenue Code; one of the requirements for such qualification is a
quarterly diversification test, applicable to 50% (rather than 75%) of
the Fund's assets, similar to the requirement stated above.
CERTAIN SHAREHOLDERS
Set forth below is certain information regarding significant
shareholders of the Fund. Charles Schwab & Co., Inc.--Special Custody
Acct. owned beneficially or of record 30.24% of the shares of the Fund
at February 8, 2000, and 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 are
known by the Fund to own beneficially or of record five percent or
more of the shares of the Fund. Unless otherwise noted, the address of
each owner is One World Trade Center, Suite 9333, New York, New York
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<PAGE>
10048. All holdings are expressed as a percentage of the Fund's
outstanding shares as of February 8, 2000.
Record/Beneficial
Ownership
-----------------
Charles Schwab & Co., Inc.
Special Custody Acct.
101 Montgomery St.
San Francisco, CA 94104 ............................... 30.24%/--%
Record/Beneficial
Ownership
------------------
National Financial Services
200 Liberty Street
New York, NY 10281 .................................... 9.18%/--%
The Fund's Trustees and officers as a group hold directly less than 2%
of the Fund's outstanding shares. However, Alger Associates, Inc., of
which Fred M.Alger III and David D. Alger are the majority
shareholders, owns 2.2% of the Fund's shares.
ORGANIZATION
The Fund is a diversified, open-end management investment company.
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. Meetings of shareholders normally
will not be held for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees holding office have
been elected by shareholders, at which time the Trustees then in
office will call a shareholders' meeting for the election of Trustees.
Under the Act, shareholders of record of no less than two-thirds of
the outstanding shares of the Fund may remove a Trustee through a
declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. Under the Trust Agreement, the
Trustees are required to call a meeting of shareholders for the
purpose of voting on the question of removal of any such Trustee when
requested in writing to do so by the shareholders of record of not
less than 10 percent of the Fund's outstanding shares.
Shares do not have cumulative voting rights, which means that holders
of more than 50 percent of the shares voting for the election of
Trustees can elect all Trustees. Shares have equal voting rights,
which cannot be adversely modified other than by majority vote. Shares
are transferable but have no preemptive, conversion or subscription
rights. In the interest of economy and convenience, certificates
representing shares of the Fund are physically issued only upon
specific written request of a shareholder.
Massachusetts law provides that shareholders could, under certain
circumstances, be held personally liable for the obligations of the
Fund. However, the Trust Agreement disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such
disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Fund or a 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 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 short-, mid-, and long-term periods (ordinarily for 1, 5 and 10
years), including periods during which the Fund operated as
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<PAGE>
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. Current total return
quotations may be obtained by contacting the Fund. Further information
about the Fund's performance is contained in its Annual Report to
Shareholders, which may be obtained without charge by contacting the
Fund.
The average annual "total return" is computed according to formulas
prescribed by the SEC. These performance figures are calculated in the
following manner:
A. Total Return--The Fund's average annual total return described in
the Prospectus is computed according to the following formula:
P (1+T)n=ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5, or 10 year
periods at the end of the 1, 5 and 10 year periods (or
fractional portion thereof);
The average annual total returns for the Fund for the periods
indicated below were as follows:
Five Ten
Years Years
Year Ended Ended Ended
10/31/99 10/31/99 10/31/99
--------- -------- --------
62.66% 33.71% 25.93%
B. Yield--the Fund's net annualized yield described in the
Prospectus is computed according to the following formula: a-b
YIELD = 2[(a-b/cd + 1)^6 - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = The average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the maximum offering price per share on the last
day of the period.
In General
Current performance information for the 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 Index(R). 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.
Financial Statements
The Fund's financial statements for the year ended October 31, 1999,
are contained in the Annual Report to shareholders and are hereby
incorporated by reference. A copy of the Fund's Annual Report may be
obtained free of charge by telephoning (800) 711-6141.
-16-
<PAGE>
APPENDIX
Corporate Bond Ratings
Bonds rated Aa by Moody's Investors Service, Inc. ("Moody's") are
judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa (Moody's highest rating) they comprise what are
generally known as high-grade bonds. Aa bonds are rated lower than Aaa
bonds because margins of protection may not be as large as those of
Aaa bonds, or fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the
long-term risks appear somewhat larger than those applicable to Aaa
securities. Bonds that are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present that suggest a
susceptibility to impairment in the future.
Moody's Baa rated bonds are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.
Bonds rated Ba by Moody's are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
Bonds which are rated B by Moody's generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Moody's applies the numerical modifiers 1, 2 and 3 to each
generic rating classification from Aa through B. The modifier 1
indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Bonds rated AA by Standard & Poor's Corporation ("S&P") are
judged by S&P to be high-grade obligations and in the majority of
instances differ only in small degree from issues rated AAA (S&P's
highest rating). Bonds rated AAA are considered by S&P to be the
highest grade obligations and possess the ultimate degree of
protection as to principal and interest. With AA bonds, as with AAA
bonds, prices move with the long-term money market. Bonds rated A by
S&P have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
S&P's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the
speculative elements begin to predominate. These bonds have adequate
asset coverage and normally are protected by satisfactory earnings.
Their susceptibility to changing conditions, particularly to
depressions, necessitates constant watching. These bonds generally are
more responsive to business and trade conditions than to interest
rates. This group is the lowest that qualifies for commercial bank
investment.
Bonds rated BB and B by S&P are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. These
ratings may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories. Debt rated
BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions that could lead to
inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BBB- rating. Debt rated B
has a greater vulnerability to default but currently has the capacity
to meet interest payments and principal repayments. Adverse business,
financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category
is also used for debt subordinated to senior debt that is assigned an
actual or implied BB or BB- rating.
Bonds rated AAA by Fitch Investors Service, Inc. ("Fitch") are
judged by Fitch to be strictly high grade, broadly marketable,
suitable for investment by trustees and fiduciary institutions and
liable to but slight market fluctuation other than through changes in
the money rate. The prime feature of an AA bond is a showing of
earnings several times or many times interest requirements, with such
stability of applicable earnings that safety is beyond reasonable
question
A-1
<PAGE>
APPENDIX
(continued)
whatever changes occur in conditions. Bonds rated AA by Fitch are
judged by Fitch to be of safety virtually beyond question and are
readily salable, whose merits are not unlike those of the AAA class,
but whose margin of safety is less strikingly broad. The issue may be
the obligation of a small company, strongly secured but influenced as
to rating by the lesser financial power of the enterprise and more
local type of market.
Bonds rated Duff-1 are judged by Duff and Phelps, Inc. ("Duff")
to be of the highest credit quality with negligible risk factors; only
slightly more than U. S. Treasury debt. Bonds rated Duff-2, 3 and 4
are judged by Duff to be of high credit quality with strong protection
factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
Commercial Paper Ratings
Moody's Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an
original maturity in excess of nine months. The rating Prime-1 is the
highest commercial paper rating assigned by Moody's. Issuers rated
Prime-1, or related supporting institutions, are considered to have a
superior capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2, or related supporting institutions, are
considered to have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-l, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample liquidity is
maintained.
Commercial paper ratings of S&P are current assessments of the
likelihood of timely payment of debts having original maturities of no
more than 365 days. Commercial paper rated A-1 by S&P indicates that
the degree of safety regarding timely payment is either overwhelming
or very strong. Those issues determined to possess overwhelming safety
characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is strong, but the relative degree of
safety is not as high as for issues designated A-1. The rating Fitch-1
(Highest Grade) is the highest commercial paper rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree
of assurance for timely payment. The rating Fitch-2 (Very Good Grade)
is the second highest commercial paper rating assigned by Fitch which
reflects an assurance of timely payment only slightly less in degree
than the strongest issues.
The rating Duff-1 is the highest commercial paper rating assigned
by Duff. Paper rated Duff-1 is regarded as having very high certainty
of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2
is regarded as having good certainty of timely payment, good access to
capital markets and sound liquidity factors and company fundamentals.
Risk factors are small.
A-2
<PAGE>
Investment Manager:
Fred Alger Management, Inc.
One World Trade Center
Suite 9333
New York, New York 10048
- ----------------------------------------------------------------------
Distributor:
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, New Jersey 07302
- ----------------------------------------------------------------------
Transfer Agent:
Alger Shareholder Services, Inc.
30 Montgomery Street
Box 2001
Jersey City, New Jersey 07302
- ----------------------------------------------------------------------
Independent Public Accountants:
Arthur Andersen LLP
1345 Avenue of the Americas
New York, New York 10105
- ----------------------------------------------------------------------
Counsel:
Hollyer Brady Smith Troxell
Barrett Rockett Hines & Mone LLP
551 Fifth Avenue
New York, New York 10176
- ----------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in the 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. The Prospectus
does not constitute an offer in any state in which, or to any person
to whom, such offer may not lawfully be made.Statement
================================================================================
One World Trade Center
Suite 9333
SPECTRA New York, New York 10048
FUND (800) 711-6141
Statement
of Additional February 25, 2000
Information
================================================================================
