SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement.
|_| Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2)).
|X| Definitive Proxy Statement.
|_| Definitive Additional Materials.
|_| Soliciting Material Pursuant to sec. 240.14a-12.
THE ALGER INSTITUTIONAL FUNDS
(Name of Registrant as Specified in its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
THE ALGER INSTITUTIONAL FUNDS
111 FIFTH AVENUE
NEW YORK, NEW YORK 10003
November 15, 2006
Dear Shareholder:
A special meeting (the "Meeting") of The Alger Institutional Funds (the
"Trust") will be held at the offices of Fred Alger Management, Inc., 111 Fifth
Avenue, 3rd Floor, New York, New York 10003 on Wednesday, January 17, 2007, at
1:00 p.m. (Eastern time), to vote on the following proposals:
1. To elect six Trustees of the Trust;
2. To approve an Investment Advisory Agreement with Fred Alger
Management, Inc.;
3. To approve changes to the fundamental investment policies of the
portfolios of the Trust;
4. To approve a new Distribution Plan pursuant to Rule 12b-1 (CLASS I
SHARES ONLY);
5. To amend the Trust's Agreement and Declaration of Trust; and
6. To transact such other business as may properly come before the
meeting and any adjournments thereof.
As a shareholder of Alger SmallCap Growth Institutional Fund ("SmallCap"),
Alger MidCap Growth Institutional Fund ("MidCap"), Alger LargeCap Growth
Institutional Fund ("LargeCap"), Alger Capital Appreciation Institutional Fund
("Capital Appreciation") and/or Alger Green Institutional Fund ("Green" and
collectively, the "Funds"), you will receive separate proxy materials proposing
that your Fund(s) be reorganized into new and separate portfolios of The Alger
Funds (the "Reorganizations"). Shareholders of SmallCap, MidCap, LargeCap and
Capital Appreciation are being asked to approve the reorganization of their
Fund(s) into corresponding portfolios of The Alger Funds. Shareholders of Green
are being asked to approve the reorganization of their Fund into a corresponding
portfolio of Spectra Fund (with The Alger Funds, the "Acquiring Funds"). Each of
the Acquiring Funds is an open-end investment company managed by Fred Alger
Management, Inc., the Funds' investment adviser.
Shareholders of the Acquiring Funds also have received separate proxy
materials asking them to vote on identical proposals as presented in the
enclosed proxy statement, as applicable. Shareholder meetings for the Acquiring
Funds (the "Acquiring Funds' Meetings") are scheduled to occur on the same date
as this Meeting. The shareholder meeting to vote on the Reorganization(s) of
your
Fund(s), however, is scheduled to occur prior to this Meeting and the Acquiring
Funds' Meetings. If the Reorganization(s) for your Fund(s) is approved at that
meeting, that Reorganization will be consummated and you would no longer be a
shareholder of the Fund(s), but would become a shareholder of the corresponding
portfolio of the relevant Acquiring Fund(s) prior to this Meeting and the
Acquiring Funds' Meeting. However, you will not have the right to vote as a
shareholder of the Acquiring Fund at the Acquiring Funds' Meeting because you
will not own Acquiring Fund shares on the record date for the Acquiring Funds'
Meeting.
If shareholders of the Acquiring Funds approve the proposals at the
Acquiring Funds' Meetings, that Acquiring Fund will be governed by the same
Board of Trustees and Agreement and Declaration of Trust, and will have the same
investment advisory agreement, fundamental investment policies and distribution
plan (Class I shares only) as proposed for your Fund(s).
It is important that you vote on the proposals contained in this proxy
statement even if you are voting to approve the Reorganization(s) of your
Fund(s). If the Reorganization is not approved, you will remain a shareholder of
your Fund(s).
THE TRUSTEES OF THE TRUST RECOMMEND THAT YOU VOTE "FOR" EACH OF THE
PROPOSALS. However, before you vote, please read the full text of the proxy
statement for an explanation of each of the proposals.
Your vote is extremely important, no matter how large or small your Fund
holdings.
TO VOTE, YOU MAY USE ANY OF THE FOLLOWING METHODS:
o BY MAIL. Please complete, date and sign the enclosed proxy card and
mail it in the enclosed, postage-paid envelope.
o BY INTERNET. Have your proxy card available. Go to the website
listed on the proxy card. Enter your control number from your proxy
card. Follow the instructions on the website.
o BY TELEPHONE. Have your proxy card available. Call the toll-free
number listed on the proxy card. Enter your control number from your
proxy card. Follow the recorded instructions.
o IN PERSON. Any shareholder who attends the meeting in person may
vote by ballot at the meeting.
Further information about the proposals to be voted on is contained in the
enclosed materials, which you should review carefully before you vote. If you
have any questions about the proposals to be voted on, please call Computershare
Fund Services at 1-866-904-8740.
Sincerely,
Daniel C. Chung
President
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TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ..................................................... I
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS ................................. V
PROXY STATEMENT ........................................................... 1
Vote Required and Manner of Voting Proxies .......................... 2
PROPOSAL 1: TO ELECT SIX TRUSTEES ......................................... 5
Nominees and Executive Officers ..................................... 5
Compensation ........................................................ 9
Equity Securities Owned by the Nominees ............................. 9
Attendance of Trustees at Annual Meeting; Board Meetings ............ 10
Standing Committees of the Board .................................... 10
Certain Legal Proceedings ........................................... 12
Shareholder Approval ................................................ 12
PROPOSAL 2: TO APPROVE AN INVESTMENT ADVISORY AGREEMENT ................... 12
Background Information .............................................. 13
The New Investment Advisory Agreement ............................... 15
Board Considerations ................................................ 16
Additional Information About Alger Management ....................... 20
Shareholder Approval ................................................ 22
PROPOSAL 3: TO REVISE OR REMOVE FUNDAMENTAL INVESTMENT POLICIES ........... 22
Proposal 3-A: Convert the Fund's investment objective from
fundamental to non-fundamental ........................ 24
Proposal 3-B: Revise the fundamental policy relating to
borrowing money ....................................... 25
Proposal 3-C: Revise the fundamental policy relating to underwriting 26
Proposal 3-D: Revise the fundamental policy relating to lending ..... 27
Proposal 3-E: Revise the fundamental policy relating to issuing
senior securities ..................................... 29
Proposal 3-F: Revise the fundamental policy relating to real estate . 30
Proposal 3-G: Revise the fundamental policy relating to
commodities ........................................... 31
Proposal 3-H: Revise the fundamental policy relating to
concentration ......................................... 32
Proposal 3-I: Revise the fundamental policies relating
to diversification .................................... 33
Proposal 3-J: Remove the fundamental policy relating to both
purchasing securities on margin and engaging
in short sales ........................................ 33
i
Proposal 3-K: Remove the fundamental policy relating to investment
in other investment companies ......................... 35
Proposal 3-L: Remove the fundamental policy relating to
pledging assets ....................................... 36
PROPOSAL 4: TO APPROVE A DISTRIBUTION PLAN UNDER RULE 12B-1 ............... 37
Background Information .............................................. 37
Current Arrangement ................................................. 38
Board Considerations ................................................ 38
Required Vote ....................................................... 39
PROPOSAL 5: TO APPROVE AMENDMENTS TO THE TRUST'S AGREEMENT AND
DECLARATION OF TRUST .......................................... 39
Proposal 5-A: Eliminate the requirement that shareholders approve
the liquidation of a Fund or a class of shares of a
Fund .................................................. 40
Proposal 5-B: Eliminate the requirement that shareholders approve
the termination of the Trust .......................... 41
Proposal 5-C: Eliminate (subject to a qualification) the requirement
that shareholders approve the reorganization of the
Trust or a Fund ....................................... 41
Proposal 5-D: Add a demand requirement for shareholder
derivative suits ...................................... 42
Required Vote ....................................................... 43
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................ 44
ADDITIONAL INFORMATION .................................................... 45
5% Share Ownership .................................................. 45
Submission of Shareholder Proposals ................................. 45
Annual Reports ...................................................... 45
Shareholder Communications .......................................... 46
Expense of Proxy Solicitation ....................................... 46
Voting Results ...................................................... 47
Fiscal Year ......................................................... 47
General ............................................................. 47
APPENDIX A: FUND INFORMATION AND SHARE OWNERSHIP .......................... A-1
APPENDIX B: AUDIT COMMITTEE CHARTER ....................................... B-1
APPENDIX C: NOMINATING COMMITTEE CHARTER .................................. C-1
APPENDIX D: LEGAL PROCEEDINGS ............................................. D-1
APPENDIX E: NEW INVESTMENT ADVISORY AGREEMENT ............................. E-1
APPENDIX F: FUNDAMENTAL INVESTMENT RESTRICTIONS ........................... F-1
APPENDIX G: NEW DISTRIBUTION PLAN ......................................... G-1
APPENDIX H: REPORT OF THE AUDIT COMMITTEE ................................. H-1
ii
IMPORTANT NEWS
FOR FUND SHAREHOLDERS
WHILE WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY
STATEMENT, FOR YOUR CONVENIENCE, WE HAVE PROVIDED A BRIEF OVERVIEW OF THE
MATTERS TO BE VOTED ON.
QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. As a shareholder of one or more portfolios (each, a "Fund") of The Alger
Institutional Funds (the "Trust"), you are being asked to vote on several
proposals.
Q. WHAT AM I BEING ASKED TO VOTE "FOR" IN THIS PROXY STATEMENT?
A. Shareholders are being asked to approve several proposals. The proposals
cannot be effected without shareholder approval. The Board of Trustees of
the Trust has approved these proposals, believes they are in shareholders'
best interests and recommends that you approve them.
o PROPOSAL 1: ELECT TRUSTEES. Shareholders are being asked to elect
six Trustees to the Board of Trustees of the Trust.
o PROPOSAL 2: APPROVE INVESTMENT ADVISORY AGREEMENT. Shareholders of
each Fund are being asked to approve a new investment advisory
agreement with Fred Alger Management, Inc. ("Alger Management").
o PROPOSAL 3: REVISE FUNDAMENTAL INVESTMENT POLICIES. Shareholders are
being asked to approve a series of proposals to standardize the
Funds' fundamental investment policies.
The Trust has certain investment policies on behalf of the Funds
that cannot be changed without shareholder approval. It is proposed
that these restrictions be standardized for substantially all of the
Alger Management-advised funds, including the Funds, to the extent
practicable to provide Alger Management with the flexibility to
manage the funds more effectively. Also, the Board of Trustees of
the Trust has determined that certain existing restrictions should
be removed or revised due to the development of new practices or
changes in applicable law. To the extent the Funds engage in new
investment practices, the Funds may be subject to additional risks.
Alger Management has advised the Board that, with limited exceptions
as described in the Proxy Statement, the proposed revisions to, and
eliminations of, fundamental policies are not expected to materially
affect the manner in which a Fund's investment program is being
conducted at this time. Before a material change is made in a Fund's
investment practices in response to the revised
I
policies, the Board must approve that change and the Fund's
prospectus and/or statement of additional information will be
revised to disclose the change and, as applicable, any additional
risks.
o PROPOSAL 4: APPROVE A NEW DISTRIBUTION PLAN PURSUANT TO RULE 12B-1.
Holders of Class I shares of the Funds are being asked to approve
the adoption of a new Rule 12b-1 Plan.
o PROPOSAL 5: AMEND TRUST AGREEMENT. Shareholders are being asked to
approve amendments to the Trust's Agreement and Declaration of Trust
to eliminate the requirement of shareholder approval to liquidate a
class, a Fund or the Trust, or to effect certain reorganizations
involving a Fund or the Trust, and to add a requirement for a prior
demand upon the Trust's Board before commencing any shareholder
derivative legal action.
Q: HOW DOES THE PROPOSED NEW INVESTMENT ADVISORY AGREEMENT DIFFER FROM THE
CURRENT AGREEMENT FOR MY FUND(S)?
A: Other than the method of allocating general expenses among the Funds, the
new investment advisory agreement is similar in all material respects to
each Fund's current investment advisory agreement.
Q: WILL THE TOTAL FEES PAYABLE UNDER MY CURRENT INVESTMENT ADVISORY AGREEMENT
INCREASE?
A: No. The total fees payable under the new investment advisory agreement,
including waivers and expense reimbursements, will be no higher than the
fees under each Fund's current investment advisory agreement.
Q: WILL I BE RECEIVING OTHER PROXY MATERIALS?
A: Yes. As a shareholder of Alger SmallCap Growth Institutional Fund
("SmallCap"), Alger MidCap Growth Institutional Fund ("MidCap"), Alger
LargeCap Growth Institutional Fund ("LargeCap"), Alger Capital
Appreciation Institutional Fund ("Capital Appreciation") and/or Alger
Green Institutional Fund ("Green" and collectively, the "Funds"), you will
receive separate proxy materials proposing that your Fund(s) be
reorganized into new and separate portfolios of The Alger Funds (the
"Reorganizations"). Shareholders of SmallCap, MidCap, LargeCap and Capital
Appreciation are being asked to approve the reorganization of their
Fund(s) into corresponding portfolios of The Alger Funds. Shareholders of
Green are being asked to approve the reorganization of their Fund into a
corresponding portfolio of Spectra Fund (with The Alger Funds, the
"Acquiring Funds"). Each of the Acquiring Funds is an open-end investment
company managed by Fred Alger Management, Inc., the Funds' investment
adviser.
II
Shareholders of the Acquiring Funds also have received separate proxy
materials asking them to vote on identical proposals as presented in the
enclosed proxy statement, as applicable. Shareholder meetings for the
Acquiring Funds (the "Acquiring Funds' Meetings") are scheduled to occur
on the same date as this Meeting. The shareholder meeting to vote on the
Reorganization(s) of your Fund(s), however, is scheduled to occur prior to
this Meeting and the Acquiring Funds' Meetings. If the Reorganization(s)
for your Fund(s) is approved at that meeting, that Reorganization will be
consummated and you would no longer be a shareholder of the Fund(s), but
would become a shareholder of the corresponding series of the relevant
Acquiring Fund(s) prior to this Meeting and the Acquiring Funds' Meeting.
However, you will not have the right to vote as a shareholder of the
Acquiring Fund at the Acquiring Funds' Meeting because you will not own
Acquiring Fund shares on the record date for the Acquiring Funds' Meeting.
Q: HOW DO THE TRUSTEES SUGGEST I VOTE IN CONNECTION WITH THE MATTERS TO BE
CONSIDERED AT THE MEETING?
A: After careful consideration, the Trust's Board of Trustees, including each
Trustee who is not an "interested person" (as defined in the Investment
Company Act of 1940, as amended) of the Trust, recommends that you vote on
the proposals being presented to shareholders at the meeting as follows:
o FOR the election of each nominee for Trustee;
o FOR approval of the investment advisory agreement for your Fund(s);
o FOR approval of the changes to the Funds' fundamental investment
policies;
o FOR approval of the adoption of the Funds' Rule 12b-1 plan (Class I
shares only); and
o FOR approval of the amendments to the Trust's Agreement and
Declaration of Trust.
Q. WILL MY VOTE MAKE A DIFFERENCE?
A. Yes. Your vote is important and makes a difference in the governance of
your Fund(s), no matter how many shares you own. Your vote will help
ensure that the proposals can be implemented. We encourage all
shareholders to participate in the governance of their Fund(s).
It is important that you vote on the proposals contained in this proxy
statement even if you are voting to approve the reorganization of your
Fund(s). If the reorganization is not approved, you will remain a
shareholder of your Fund(s).
III
Q. IS THE TRUST PAYING FOR PREPARATION, PRINTING AND MAILING OF THIS PROXY?
A. No. Alger Management, the Funds' investment adviser, will bear such costs.
Q. WHO DO I CALL IF I HAVE QUESTIONS?
A. If you need any assistance, or have any questions regarding the proposals
or how to vote your shares, please call Computershare Fund Services at
1-866-904-8740.
Q. HOW DO I VOTE MY SHARES?
A. You can vote your shares in person at the shareholder meeting, or by
completing, signing and dating the enclosed proxy card and mailing it in
the enclosed postage-paid envelope. Alternatively, you may vote by
telephone by calling the toll-free number on the proxy card or by computer
by going to the Internet address provided on the proxy card and following
the instructions, using your proxy card as a guide.
IT IS IMPORTANT THAT YOU VOTE PROMPTLY.
IV
THE ALGER INSTITUTIONAL FUNDS
111 FIFTH AVENUE
NEW YORK, NEW YORK 10003
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 17, 2007
A special meeting (the "Meeting") of the shareholders of The Alger
Institutional Funds (the "Trust"), a Massachusetts business trust, will be held
at the offices of Fred Alger Management, Inc., 111 Fifth Avenue, 3rd Floor, New
York, New York 10003, at 1:00 p.m. (Eastern time) on Wednesday, January 17,
2007, for the following purposes:
PROPOSAL 1. To elect six Trustees.
PROPOSAL 2. To approve an investment advisory agreement with Fred Alger
Management, Inc.
PROPOSAL 3. To approve changes to the fundamental investment policies of the
portfolios of the Trust.
PROPOSAL 4. To approve a new Distribution Plan pursuant to Rule 12b-1 (Class I
shares only).
PROPOSAL 5. To approve amendments to the Trust's Agreement and Declaration of
Trust.
PROPOSAL 6. To transact such other business as may properly come before the
Meeting and any adjournments thereof.
THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" EACH PROPOSAL UPON
WHICH YOU ARE BEING ASKED TO VOTE.
Shareholders of record on October 27, 2006 are entitled to vote at the
Meeting and at any adjournments or postponements thereof.
IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY TO COMPUTERSHARE FUND
SERVICES, 280 OSER AVENUE, HAUPPAUGE, NEW YORK 11788, IN THE PREPAID RETURN
ENVELOPE ENCLOSED FOR YOUR USE OR OTHERWISE VOTE PROMPTLY BY TELEPHONE OR
INTERNET.
By Order of the Board of Trustees,
Hal Liebes
Secretary
November 15, 2006
New York, New York
V
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THE ALGER INSTITUTIONAL FUNDS
111 FIFTH AVENUE
NEW YORK, NEW YORK 10003
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
JANUARY 17, 2007
This Proxy Statement is furnished in connection with the solicitation by
the Board of Trustees (the "Board") of The Alger Institutional Funds (the
"Trust"), a Massachusetts business trust, of proxies to be voted at the special
meeting of shareholders of the Trust (the "Meeting"), to be held at 1:00 p.m.
(Eastern time) on Wednesday, January 17, 2007, at the offices of Fred Alger
Management, Inc., 111 Fifth Avenue, 3rd Floor, New York, New York 10003, and at
any and all adjournments or postponements thereof. The Meeting will be held for
the purposes set forth in the accompanying Notice.
The Trust is an open-end investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), consisting of the
following investment portfolios (each, a "Fund"):
Alger SmallCap Growth Alger Capital Appreciation
Institutional Fund Institutional Fund
Alger MidCap Growth Alger LargeCap Growth
Institutional Fund Institutional Fund
Alger Green Institutional Fund
This Proxy Statement and the accompanying Notice of Annual Meeting and
form of proxy were sent to shareholders on or about November 15, 2006.
Shareholders of record at the close of business on October 27, 2006 (the "Record
Date") are entitled to vote at the Meeting. Shareholders are entitled to one
vote for each Fund share held and fractional votes for each fractional Fund
share held.
The number of shares of each Fund outstanding on the Record Date and the
net assets of each Fund as of that date are shown in Appendix A.
The Fund of which you are a shareholder is named on the proxy card
included with this Proxy Statement. If you own shares in more than one Fund as
of the Record Date, you may receive more than one proxy card. Please complete,
sign, date and return EACH proxy card you receive, or if you vote by telephone
or over the Internet, please vote on the proposals affecting EACH Fund you own.
If you vote by telephone or over the Internet, you will be asked to enter a
unique code that has been assigned to you, which is printed on your proxy
card(s). This code is designed to confirm your identify, provide access into the
voting sites and confirm that your instructions are properly recorded.
1
All properly executed proxies received prior to the Meeting will be voted
at the Meeting. On the matters coming before the Meeting as to which a
shareholder has specified a choice on that shareholder's proxy, the shares will
be voted accordingly. If a proxy is properly executed and returned and no choice
is specified with respect to one or more proposals, the shares will be voted
"FOR" each such proposal. Shareholders who execute proxies may revoke them with
respect to any or all proposals at any time before a vote is taken on a proposal
by filing with the Fund a written notice of revocation, by delivering a duly
executed proxy bearing a later date or by attending the Meeting and voting in
person.
VOTE REQUIRED AND MANNER OF VOTING PROXIES
A quorum of shareholders, consisting of a majority of the outstanding
shares entitled to vote on a proposal, is required to take action on that
proposal at the Meeting. A quorum of the shareholders of the Trust as a whole is
required in order to take any action at the Meeting with respect to Proposals 1
and 5. For each Fund, a quorum of the shareholders for that Fund is required in
order for action to be taken on Proposals 2 and 3 with respect to that Fund,
whether or not there is a quorum of the shareholders of the other Funds. A
quorum of Class I shareholders of a Fund is required in order for action to be
taken by the shareholders of that class with respect to Proposal 4.
Votes cast by proxy or in person at the Meeting will be tabulated by the
Inspectors of Election appointed for the Meeting. The Inspectors of Election,
who are employees of the proxy solicitor engaged by the Funds' investment
adviser, Fred Alger Management, Inc. ("Alger Management"), will determine
whether or not a quorum is present at the Meeting. The Inspectors of Election
will treat abstentions and "broker non-votes" (I.E., shares held by brokers or
nominees, typically in "street name," as to which proxies have been returned but
(a) instructions have not been received from the beneficial owners or persons
entitled to vote and (b) the broker or nominee does not have discretionary
voting power on a particular matter) as present for purposes of determining a
quorum.
If you hold your shares directly (not through a broker-dealer, bank or
other financial institution or intermediary), and if you return a signed proxy
card that does not specify how you wish to vote on a proposal, your shares will
be voted "FOR" the nominees in Proposal 1 and "FOR" Proposals 2, 3, 4 and 5, as
applicable.
Broker-dealer firms holding shares of a Fund in "street name" for the
benefit of their customers and clients will request the instructions of such
customers and clients on how to vote their shares on each proposal before the
Meeting. The New York Stock Exchange (the "NYSE") may take the position that a
broker-dealer that is a member of the NYSE and that has not received
instructions from a customer or client prior to the date specified in the
broker-dealer firm's
2
request for voting instructions may not vote such customer's or client's shares
with respect to Proposals 2, 3, 4 and 5. A signed proxy card or other
authorization by a beneficial owner of Fund shares that does not specify how the
beneficial owner's shares should be voted on a proposal may be deemed an
instruction to vote such shares in favor of the applicable proposal.
If you hold shares of a Fund through a bank or other financial institution
or intermediary (called a service agent) that has entered into a service
agreement with the Fund or the distributor of the Fund, the service agent may be
the record holder of your shares. At the Meeting, a service agent will vote
shares for which it receives instructions from its customers in accordance with
those instructions. A signed proxy card or other authorization by a shareholder
that does not specify how the shareholder's shares should be voted on a proposal
may be deemed to authorize a service provider to vote such shares in favor of
the applicable proposal. Depending on its policies, applicable law or
contractual or other restrictions, a service agent may be permitted to vote
shares with respect to which it has not received specific voting instructions
from its customers. In those cases, the service agent may, but may not be
required to, vote such shares in the same proportion as those shares for which
the service agent has received voting instructions. This practice is commonly
referred to as "echo voting."
If you beneficially own shares that are held in "street name" through a
broker-dealer or that are held of record by a service agent, and if you do not
give specific voting instructions for your shares, they may not be voted at all
or, as described above, they may be voted in a manner that you may not intend.
Therefore, you are strongly encouraged to give your broker-dealer or service
agent specific instructions as to how you want your shares to be voted.
Each nominee named in Proposal 1 must be elected by a plurality of the
voting power of the shares of the Trust voted at the Meeting. The shareholders
of the Funds will vote together as a single class, and the votes of the shares
of all the Funds will be counted together in determining the results of the
voting for Proposal 1.
Approval of Proposals 2 and 3 requires the affirmative vote of a 1940 Act
Majority Vote of the outstanding voting securities of the applicable Fund. A
"1940 Act Majority Vote" of the outstanding voting securities of a Fund, or a
particular class of shares of a Fund, means the affirmative vote of the lesser
of (a) 67% or more of the outstanding voting securities of the Fund, or that
class, that are present at the Meeting or represented by proxy (if holders of
shares representing more than 50% of the outstanding voting securities of the
Fund, or that class, are present or represented by proxy) or (b) more than 50%
of the outstanding voting securities of the Fund, or that class.
3
Approval of Proposal 4 requires the affirmative vote of a 1940 Act
Majority Vote of the outstanding voting securities of the Class I shareholders
of the applicable Fund.
Approval of Proposal 5 requires the affirmative vote of a majority of the
outstanding shares of the Trust. The shareholders of the Funds will vote
together as a single class, and the votes of the shares of all the Funds will be
counted together in determining the results of the voting for Proposal 5.
The following table summarizes these voting requirements:
SHAREHOLDERS VOTE REQUIRED
PROPOSAL ENTITLED TO VOTE FOR APPROVAL
- ------------------ -------------------- --------------------------
1. Election of Shareholders of ALL Each nominee must
Trustees Funds vote together be elected by a plurality
as a single class. of the shares of the Trust
voted at the Meeting.
2. Approval of Shareholders of EACH Approved by a 1940 Act
Investment Fund vote separately. Majority Vote of the
Advisory outstanding voting
Agreement securities of the Fund.
3. Approval of Shareholders of EACH Approved by a 1940 Act
Revisions to Fund vote separately. Majority Vote of the
Fundamental outstanding voting
Investment securities of the Fund.
Policies
4. Approval of Class I shareholders Approved by a 1940 Act
New Rule 12b-1 of EACH Fund vote Majority Vote of the
Distribution Plan separately. outstanding voting
securities of the Class I
shares of the Fund.
5. Approval of Shareholders of ALL Approved by a majority
Amendment to Funds vote together of the outstanding shares
Trust Agreement as a single class. of the Trust.
Approval of each proposal will occur only if a sufficient number of votes
at the Meeting are cast "FOR" that proposal. Abstentions and broker non-votes
are not considered "votes cast" and, therefore, do not constitute a vote "FOR"
proposals. Abstentions and broker non-votes effectively result in a vote
"AGAINST" proposals in Proposals 2, 3, 4 and 5. Abstentions and broker non-votes
will have no effect on the results of the voting on Proposal 1.
4
PROPOSAL 1: TO ELECT SIX TRUSTEES
The purpose of this proposal is to elect six Trustees of the Trust to
assume office upon their acceptance of their elections and commencement of
service as Trustees. It is intended that the enclosed proxy card will be voted
for all nominees (each a "Nominee" and collectively, the "Nominees") for the
Board, unless a proxy contains specific instructions to the contrary. The Board
is composed of a single class of Trustees. All shareholders will vote for all
Nominees. The Board has determined that the number of Trustees shall be fixed at
the number of Trustees elected in accordance with this Proxy Statement.
Shareholders of each Fund are being asked to elect Ms. Hilary M. Alger and
Messrs. Charles F. Baird, Jr., Roger P. Cheever, Lester L. Colbert, Jr., Stephen
E. O'Neil and Nathan E. Saint-Amand as Trustees. If elected, each will serve for
an indefinite term until a successor is duly elected and qualified.
Each of the Nominees is currently a Trustee of the Trust; all have
indicated an intention to serve if elected and have consented to be named in
this Proxy Statement. If any of these Nominees is not available for election at
the time of the Meeting, the persons named as proxies will vote for such
substitute Nominee as the Board may recommend. Each of the Nominees was
nominated by the Nominating Committee of the Board, consisting of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust (the
"Independent Trustees").
The Board, including all of the Independent Trustees, unanimously proposed
all of the Nominees for election at Meeting.
NOMINEES AND EXECUTIVE OFFICERS
The Nominees, their ages, their principal occupations during the past five
years (their titles may have varied during that period), the number of
portfolios in the Fund Complex the Nominees currently oversee, and other board
memberships they hold are set forth below. The address of each Nominee is c/o
Fred Alger Management, Inc., 111 Fifth Avenue, New York, New York 10003. For
purposes of this Proxy Statement, "Fund Complex" means the Trust and the other
five registered investment companies advised by Alger Management.
5
NUMBER OF
PORTFOLIOS IN THE
FUND COMPLEX
NAME (AGE) WHICH ARE
POSITION WITH THE PRINCIPAL OCCUPATIONS AND OVERSEEN BY
TRUST (SINCE) OTHER BOARD MEMBERSHIPS TRUSTEE**
- -----------------------------------------------------------------------------------------
INTERESTED TRUSTEE*
Hilary M. Alger, CFA Director of Development, 27
(44) Trustee (2003) Pennsylvania Ballet since 2004;
Associate Director of Development,
College of Arts and Sciences and
Graduate School, University of
Virginia 1999-2003.
INDEPENDENT TRUSTEES
Stephen E. O'Neil Attorney; Private investor since 1981; 27
(73) Trustee (1986) Director of Brown-Forman Corporation
since 1978. Formerly of Counsel to the
law firm of Kohler & Barnes.
Charles F. Baird, Jr. Managing Partner of North Castle Partners, 27
(52) Trustee (2000) a private equity securities group; Chairman
of Equinox, Leiner Health Products,
Elizabeth Arden Day Spas, Grand
Expeditions of EAS. Formerly Managing
Director of AEA Investors, Inc.
Roger P. Cheever Senior Associate Dean of Development, 27
(60) Trustee (2000) Harvard University. Formerly Deputy
Director of the Harvard College Fund.
Lester L. Colbert, Jr. Private investor since 1988; Chairman of 27
(72) Trustee (2000) the Board, President and Chief Executive
Officer of Xidex Corporation 1972-87.
Nathan E. Saint- Medical doctor in private practice; Member 27
Amand, M.D. (68) of the Board of the Manhattan Institute since
Trustee (1986) 1988. Formerly Co-Chairman, Special
Projects Committee, Memorial Sloan Kettering.
- --------------------------------------------------------------------------------
* Ms. Alger is an "interested person"(as defined in the 1940 Act) of the
Trust by virtue of her pending ownership control of Alger Associates, Inc.
("Alger Associates"), which indirectly controls Alger Management and its
affiliates.
** Each of the Nominees also is nominated to serve on the Boards of
Trustees/Directors of the other five registered investment companies
advised by Alger Management. If the Nominees are elected to serve on the
boards of
6
those funds, each Nominee would oversee all the portfolios in the Fund
Complex. At the time of the mailing of this Proxy Statement, there were 27
portfolios in the Fund Complex. Prior to the Meeting, certain of those
portfolios will be liquidated and shareholders of certain portfolios are
being solicited in separate proxy materials to approve the reorganization
of their portfolios into other portfolios in the Fund Complex. If all of
the proposed liquidations and reorganizations are approved by
shareholders, each Nominee will oversee 19 portfolios in the Fund Complex.
The Trust's executive officers are Messrs. Daniel C. Chung, Frederick A.
Blum, Hal Liebes, Michael D. Martins and Barry J. Mullen, and Ms. Lisa A. Moss.
Set forth below is the name and certain biographical and other information for
Messrs. Chung, Blum, Liebes, Martins and Mullen, and Ms. Moss, as reported by
them to the Trust.
NAME, (AGE),
POSITION WITH THE
TRUST AND ADDRESS(1) PRINCIPAL OCCUPATIONS OFFICER SINCE(2)
- -------------------------------------------------------------------------------------------
Daniel C. Chung (44) President since September 2003 and 2001
President* Chief Investment Officer and Director
since 2001 of Alger Management;
President since 2003 and Director
since 2001 of Alger Associates,
Alger Shareholder Services, Inc.
("Services"), Fred Alger International
Advisory S.A. ("International")
(Director since 2003) and Analysts
Resources, Inc. ("ARI").
Frederick A. Blum (52) Executive Vice President and Treasurer 1997
Treasurer of Fred Alger & Company, Incorporated
("Alger Inc."), Alger Management, Alger
Associates, ARI and Services since
September 2003 and Senior Vice
President prior thereto; Director of
Alger SICAV and International.
7
NAME, (AGE),
POSITION WITH THE
TRUST AND ADDRESS(1) PRINCIPAL OCCUPATIONS OFFICER SINCE(2)
- -------------------------------------------------------------------------------------------
Hal Liebes (42) Executive Vice President, Chief 2005
Secretary Operating Officer, Chief Legal Officer
and Secretary of Alger Inc. and Alger
Management. Formerly, Chief
Compliance Officer of AMVESCAP
PLC from 2004-2005; U.S. General
Counsel (1994-2002) and Global General
Counsel (2002-2004) of Credit Suisse
Asset Management; Chief Compliance
Officer of the Fund Complex from
2005-2006.
Michael D. Martins (41) Senior Vice President of Alger 2005
Assistant Treasurer Management. Formerly, Vice President,
Brown Brothers Harriman & Co.
from 1997-2004.
Lisa A. Moss (41) Vice President and Assistant General 2006
Assistant Secretary Counsel of Alger Management since
June 2006. Formerly, Director of
Merrill Lynch Investment Managers,
L.P. from 2005-2006; Assistant General
Counsel of AIM Management, Inc.
from 1995-2005.
Barry J. Mullen (53) Senior Vice President and Director 2006
Chief Compliance of Compliance of Alger Management
Officer since May 2006. Formerly, Director
of BlackRock, Inc. from 2005-2006;
Vice President of J.P. Morgan
Investment Management from
1996-2004.
- --------------------------------------------------------------------------------
1. The address of each officer is c/o Fred Alger Management, Inc., 111 Fifth
Avenue, New York, NY 10003.
2. Each officer's term of office is one year. Each officer serves in the same
capacity for the other funds in the Fund Complex.
* Mr. Chung has served as a Trustee since 2000, but is not standing for
re-election at the Meeting. He also is serving as a Board member of
certain funds in the Fund Complex, but is not standing for re-election by
shareholders at special meetings of those funds, which also are scheduled
to be held in January 2007.
8
COMPENSATION
No director, officer or employee of Alger Management or its affiliates
receives any compensation from the Trust for serving as an officer or Trustee of
the Trust. Each Fund now pays each Independent Trustee $500 for each meeting
attended, to a maximum of $2,000 per annum, plus travel expenses incurred for
attending the meeting. The Trust did not offer its Trustees any pension or
retirement benefits during or prior to the fiscal year ended October 31, 2005.
The following table provides compensation amounts paid to current Independent
Trustees of the Trust for the fiscal year ended October 31, 2005. Through
September 2006, the Trust paid each Independent Trustee $2,000 for each meeting
attended, to a maximum of $8,000 per annum, plus travel expenses incurred for
attending the meeting.
TOTAL COMPENSATION
AGGREGATE FROM THE FUND COMPLEX
COMPENSATION (NUMBER OF REGISTERED
TRUSTEE FROM THE TRUST INVESTMENT COMPANIES)
- ---------------------- -------------- ----------------------
Charles F. Baird, Jr. $ 4,500 $22,500 (4)
Roger P. Cheever $ 6,000 $30,000 (4)
Lester L. Colbert, Jr. $ 6,000 $38,000 (5)
Stephen E. O'Neil $10,000 $65,000 (6)
Nathan E. Saint-Amand $ 6,000 $44,000 (6)
None of the Independent Trustees and none of their immediate family
members owns any securities issued by Alger Management, Alger Inc. or any
company (other than a registered investment company) controlling, controlled by
or under common control with Alger Management.
EQUITY SECURITIES OWNED BY THE NOMINEES
The following table sets forth the amount of equity securities owned by
each Nominee in each Fund, and in the portfolios in the Fund Complex (in the
aggregate), overseen by that Trustee, as of the Record Date. For purposes of
this table, ownership interests are presented in the following ranges: A = none;
B = $1-$10,000; C = $10,001-$50,000; D = $50,001-$100,000; and E = over
$100,000.
9
Hilary M. Charles F. Roger P. Lester L. Stephen E. Nathan E.
Fund Alger Baird, Jr. Cheever Colbert, Jr. O'Neil Saint-Amand
- ------------------------------------------------------------------------------------------------------
Alger SmallCap
Growth
Institutional
Fund A A A A A A
Alger MidCap
Growth
Institutional
Fund A A A A A A
Alger LargeCap
Growth
Institutional
Fund A A A A A A
Alger Capital
Appreciation
Institutional
Fund A A A A A A
Alger Green
Institutional
Fund A A A A A A
Fund Complex
in the
Aggregate E A D D A E
ATTENDANCE OF TRUSTEES AT ANNUAL MEETING; BOARD MEETINGS
The Trust does not have a policy with regard to attendance of Trustees at
annual meetings. The Trust did not hold an annual meeting during its most recent
fiscal year.
During the fiscal year ended October 31, 2005, the Board met four times.
Each Nominee attended at least 75% of the aggregate number of meetings of the
Board and of each committee of the Board on which the Nominee served.
STANDING COMMITTEES OF THE BOARD
AUDIT COMMITTEE. The Board has a standing Audit Committee comprised of
Messrs. Colbert, O'Neil and Saint-Amand, each of whom is an Independent Trustee.
The primary purposes of the Board's Audit Committee are to assist the Board in
the oversight of the integrity of the Trust's financial statements, the
independent auditor's qualifications and independence, the performance of the
Trust's independent auditors, and the Trust's compliance with legal and
regulatory requirements pertaining to its accounting and financial reporting.
The Audit Committee prepares an audit committee report, if required by the
Securities
10
and Exchange Commission (the "SEC"), to be included in the Trust's annual proxy
statement, if any. The Audit Committee oversees the scope of the annual audit of
the Trust's financial statements and any special audits, the quality and
objectivity of the Trust's financial statements, the Trust's accounting and
financial reporting policies and practices and its internal controls relating
thereto. The Audit Committee determines, and recommends to the Board, including
the Independent Trustees, for its ratification, the selection, appointment,
retention or termination of the Trust's independent auditors, as well as
approving the compensation of the auditors and in connection therewith,
evaluation of the independence of the auditors. The Audit Committee also
pre-approves all audit and certain permissible non-audit services provided to
the Trust and certain other persons by such independent auditors. Finally, the
Audit Committee acts as a liaison between the Trust's independent auditors and
the Board. During the Trust's fiscal year ended October 31, 2005, the Audit
Committee met three times. A copy of the Audit Committee Charter is included in
Appendix B.
NOMINATING COMMITTEE. At a meeting of the Board on September 12, 2006, the
Board authorized the establishment of a Nominating Committee comprised of all
Independent Trustees. The Nominating Committee convened its initial meeting on
September 12, 2006.
The Nominating Committee is responsible for assisting the Board in its
selection and evaluation of members to oversee the Trust so that the interests
of the shareholders are well-served. The Nominating Committee's responsibilities
include the nomination of new Trustees and the evaluation of the Board and its
committee structure. The Nominating Committee may consider candidates submitted
by shareholders, or from other sources it deems appropriate. Shareholders who
wish to recommend a nominee should send recommendations to the Trust's Secretary
that include all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of Trustees. A
recommendation must be accompanied by such individual's written consent to being
named in the proxy statement as a nominee and to serving as a Trustee (if
elected). A copy of the Nominating Committee Charter is included in Appendix C.
In nominating candidates, the Nominating Committee will search for those
qualified candidates who can bring to the Board the skills, experience and
judgment necessary to address the issues directors of investment companies
confront in their duties to shareholders. The Nominating Committee shall review
and make recommendations with regard to the tenure of Trustees, including any
term limits, limits on the number of boards on which a Trustee may sit and
normal retirement age. The Nominating Committee may retain and terminate a
search firm to identify Trustee nominees, subject to the Board's sole authority
to approve the search firm's fees and other retention terms. The Nominating
Committee may, in its discretion, establish specific, minimum qualifications
(including skills) that
11
must be met by Committee-nominated or shareholder-nominated candidates. The
Nominating Committee also is responsible for the analysis of the appropriateness
of establishing minimum shareholding levels for Trustees.
CERTAIN LEGAL PROCEEDINGS
Alger Management and certain of its affiliates are subject to various
legal proceedings, a summary of which is set forth in Appendix D. Under Section
9(a) of the 1940 Act, if any of the various regulatory proceedings or lawsuits
were to result in a court injunction against Alger Management or Alger Inc.,
those entities would, in the absence of exemptive relief granted by the SEC, be
barred from serving as investment adviser/sub-adviser or distributor for any
registered investment company, including the Trust. While exemptive relief from
Section 9(a) of the 1940 Act has been granted in certain other cases, there is
no assurance that such exemptive relief would be granted if sought. In addition,
it is possible that these matters and/or other developments resulting from these
matters could result in increased redemptions from the Funds, loss of personnel
of Alger Management, diversion of time and attention of Alger Management's
personnel, diminishment of financial resources of, or other consequences
potentially adverse to the Trust. Alger Management cannot predict the potential
effect of such actions upon Alger Management or the Trust. There can be no
assurance that the effect, if any, would not be material.
SHAREHOLDER APPROVAL
The election of the Nominees, whose term of office will commence upon
their acceptance of their elections and commencement of service as Trustees,
must be approved by a plurality of the votes cast in person or by proxy at the
Meeting at which a quorum exists. The votes of all the Funds will be counted
together with respect to the election of the Nominees to the Board.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES.
PROPOSAL 2: TO APPROVE AN INVESTMENT ADVISORY AGREEMENT
Shareholders of each Fund are being asked to vote on a new investment
advisory agreement between the Trust, on behalf of the Fund, and Alger
Management, the Fund's investment adviser. A pending transfer of indirect
ownership control of Alger Management, as described below, will, upon
consummation, result in an "assignment" (as defined in the 1940 Act) of each
Fund's existing investment advisory agreement with Alger Management. As a
result, the Board of Trustees has determined to seek shareholder approval of a
new investment advisory agreement with Alger Management.
12
BACKGROUND INFORMATION
Alger Management has provided investment advisory services to each Fund
since its inception under the supervision of the Trust's Board and has been
responsible for the overall administration of each Fund, including the
management of the Fund's assets according to its investment objective and the
placing of orders with broker-dealers to purchase and sell securities on behalf
of the Fund. Each Fund's advisory agreement with Alger Management covering these
services was last approved by Alger Management, as the sole shareholder of the
Fund in connection with the commencement of the Fund's operations.
During the fiscal year ended October 31, 2005, Alger Management earned the
following amounts from the Funds for providing them with advisory and
administrative services:
Alger SmallCap Growth Institutional Fund ........... $ 569,374
Alger MidCap Growth Institutional Fund ............. $8,060,299
Alger LargeCap Growth Institutional Fund ........... $ 712,120
Alger Capital Appreciation Institutional Fund ...... $1,098,969
Alger Green Institutional Fund ..................... $ 12,369
Prior to September 12, 2006, Alger Management provided both advisory
services and administrative services to each Fund pursuant to a separate
investment management agreement with each Fund. Pursuant to the approval of the
Board of Trustees at a meeting held on September 12, 2006, the services provided
by Alger Management to each Fund were bifurcated into two separate agreements -
an investment advisory agreement (the "Current Investment Advisory Agreement")
and a separate administration agreement (each, an "Administration Agreement").
Under each Administration Agreement, Alger Management provides the Fund with
various administrative services, including the following: maintenance of office
facilities; furnishing of clerical, accounting and bookkeeping services;
computation of Fund net asset value, net income and realized capital gains and
losses; preparation of semi-annual reports to shareholders and to the SEC;
preparation of federal and state tax returns and filings with state securities
commissions; and maintenance of Fund financial accounts and records. The amounts
reflected in the table are the fees paid to Alger Management by each Fund under
its previous investment management agreement for both advisory and
administrative services. The aggregate management fees payable to Alger
Management by each Fund did not change as a result of the bifurcation, but
separate advisory fees and administrative fees are now charged under the Fund's
Current Investment Advisory Agreement and Administration Agreement,
respectively.
13
A breakdown of the advisory and administrative fees payable by each Fund
is as follows:
ORIGINAL NEW NEW
INVESTMENT INVESTMENT ADMINIS-
MANAGEMENT ADVISORY TRATIVE
FEE FEE FEE
---------- ---------- --------
Alger SmallCap Growth Institutional
Fund .................................. .85% .81% .04%
Alger MidCap Growth Institutional
Fund .................................. .80% .76% .04%
Alger LargeCap Growth Institutional
Fund .................................. .75% .71% .04%
Alger Capital Appreciation Institutional
Fund .................................. .85% .81% .04%
Alger Green Institutional Fund .......... .75% .71% .04%
FUTURE ASSIGNMENT OF CURRENT INVESTMENT ADVISORY AGREEMENT. At the time of
mailing of this Proxy Statement, over 25% of the outstanding voting securities
of Alger Associates is indirectly held by Mr. Frederick M. Alger, III, the
former Chairman of the Board of Alger Management and of the Trust's Board. As of
October 2, 2006, Mr. Alger has retired as Chairman of the Board of Alger
Management and of the Trust's Board and commenced the process to relinquish
ownership control of Alger Associates and, indirectly, Alger Management. Upon
consummation of this process, Alger Associates and, indirectly, Alger
Management, will be controlled by Mr. Alger's three daughters, Hilary M. Alger,
Nicole D. Alger and Alexandra D. Alger, each of whom will own approximately 33%
of the voting rights of Alger Management. This process is expected to be
completed in February 2007.
Although the consummation of the relinquishment of Mr. Alger's control of
Alger Associates has not caused, and is not expected to cause, any diminution in
the overall control of Alger Management by Alger Associates, the completion of
the process will result in an "assignment" (as that term is defined in the 1940
Act) of each Fund's Current Investment Advisory Agreement with Alger Management,
and will therefore cause the Current Investment Advisory Agreement to terminate
in accordance with its terms as required by the 1940 Act.
As a result of the pending transfer of ownership control of Alger
Associates from Mr. Alger to his daughters (and any subsequent transfers among
Mr. Alger's daughters), the Board of Trustees of the Trust has determined to
seek shareholder approval of a new investment advisory agreement (the "New
Investment Advisory Agreement" and together with the Current Investment Advisory
Agreement, the "Advisory Agreements") which, except as noted below, is
substantially identical to the Current Investment Advisory Agreement. As
discussed below, the Board, including the Independent Trustees, has unanimously
14
approved, and has recommended that each Fund's shareholders approve, the New
Investment Advisory Agreement.
THE NEW INVESTMENT ADVISORY AGREEMENT
On September 12, 2006, the Board approved the New Investment Advisory
Agreement for the Funds, under which, subject to its approval by a Fund's
shareholders, Alger Management will continue to serve as the investment adviser
to that Fund. The New Investment Advisory Agreement, if approved by a Fund's
shareholders, will replace that Fund's Current Investment Advisory Agreement.
THE TERMS OF THE NEW INVESTMENT ADVISORY AGREEMENT ARE IDENTICAL IN
SUBSTANTIALLY ALL RESPECTS TO THOSE OF THE CURRENT INVESTMENT ADVISORY
AGREEMENTS, EXCEPT THAT THE NEW INVESTMENT ADVISORY AGREEMENT HAS A DIFFERENT
EFFECTIVE DATE AND TERMINATION DATE, AND EXCEPT THAT FOR ADMINISTRATIVE
CONVENIENCE, THE SEPARATE CURRENT INVESTMENT ADVISORY AGREEMENTS BETWEEN ALGER
MANAGEMENT AND THE FUNDS HAVE BEEN COMBINED INTO A SINGLE NEW INVESTMENT
ADVISORY AGREEMENT BETWEEN ALGER MANAGEMENT AND THE TRUST, ON BEHALF OF THE
FUNDS, WITH EACH FUND'S FEE IDENTIFIED ON A SCHEDULE TO THE NEW AGREEMENT.
Additionally, as a result principally of changes in certain of the Funds'
service agreements, including their transfer agency agreements, non-specific
Fund expenses will now be allocated among the Funds in a manner determined by
Alger Management to be fair and equitable to each Fund, rather than pro rata
based on net assets as the Current Investment Advisory Agreements provide.
None of the personnel providing portfolio management services, and none of
the other service providers, to the Funds have changed. Under the New Investment
Advisory Agreement, Alger Management will continue to be responsible for
selecting portfolio securities and for providing a continuous investment program
for each Fund, including purchasing, retaining and selling securities for the
Fund and placing orders for the execution of the Fund's portfolio transactions,
all in accordance with the 1940 Act and any rules thereunder, the supervision
and control of the Board of Trustees, and the investment objective, policies and
restrictions of the Fund. The services of Alger Management to the Funds are not
exclusive, and Alger Management is free to render investment advisory services
to others.
Fees paid by each Fund to Alger Management under the New Investment
Advisory Agreement will be calculated at the same rate as the fees previously
charged under its Current Investment Advisory Agreement.
Alger Management is not liable for any error or judgment or mistake of law
or for any loss suffered by a Fund in connection with matters relating to the
Advisory Agreements. Alger Management, however, is liable for a loss resulting
from willful misfeasance, bad faith, or gross negligence in the performance of,
or from reckless disregard of, its obligations and duties under the Advisory
Agreements.
15
Pursuant to the New Investment Advisory Agreement, Alger Management will
bear all expenses incurred by Alger Management or by a Fund in managing the
investment and reinvestment of the assets of the Fund; the Trust or Fund, as
applicable, will pay the other expenses of the Fund, including but not limited
to the following: taxes, interest, brokerage fees and commissions, if any;
compensation of Independent Trustees; SEC fees and state Blue Sky qualification
fees; charges of custodians and transfer and dividend disbursing agents; charges
of any independent pricing service retained to assist in valuing the assets of
the Fund; the Fund's proportionate share of insurance premiums; outside auditing
and legal expenses; costs of maintenance of the Fund's existence; costs
attributable to shareholder services, including, without limitation, telephone
and personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of the shareholders of the Fund and of the officers or Board of
Trustees; and any extraordinary expenses. Expenses not specifically identifiable
to a Fund will be allocated among all Funds in such manner as Alger Management
shall, in its reasonable judgment, determine to be fair and equitable to each
Fund.
The New Investment Advisory Agreement, if approved by a Fund's
shareholders, will continue in effect with respect to that Fund for an initial
period that will commence upon approval by shareholders of the Fund and will end
on September 30, 2008, and will continue from year to year thereafter, provided
that its continuance is specifically approved (1) by the Board of Trustees or
(2) by a 1940 Act Majority Vote of the Fund's shareholders.
The New Investment Advisory Agreement may be terminated with respect to a
Fund at any time, without payment of any penalty, by vote of the Board or by a
1940 Act Majority Vote of the Fund's shareholders, in each case, on 60 days'
prior written notice to Alger Management or by Alger Management upon not less
than 60 days' written notice to the Fund. The New Investment Advisory Agreement
will automatically and immediately terminate in the event of its assignment (as
defined in the 1940 Act).
The description of the New Investment Advisory Agreement in this Proxy
Statement is only a summary. The New Investment Advisory Agreement, which you
should read in full, is attached hereto as Appendix E.
BOARD CONSIDERATIONS
At an in-person meeting held on September 12, 2006, the Trustees,
including the Independent Trustees, unanimously approved, subject to the
required shareholder approval described herein, the New Investment Advisory
Agreement for each Fund. The Independent Trustees were assisted in their review
by independent legal counsel and met with counsel in executive session separate
from representatives of Alger Management.
16
For each Fund, in evaluating the New Investment Advisory Agreement, the
Trustees drew on materials that they requested and which were provided to them
in advance of the meeting by Alger Management and by counsel to the Trust. The
materials covered, among other matters, (i) the nature, extent and quality of
the services provided by Alger Management under the Current Investment Advisory
Agreement, (ii) the investment performance of the Fund, (iii) the costs to Alger
Management of its services and the profits realized by Alger Management and
Alger Inc. from their relationship with the Fund, and (iv) the extent to which
economies of scale would be realized if and as the Fund grows and whether the
fee level in the New Investment Advisory Agreement reflects these economies of
scale. These materials included an analysis of the Fund and Alger Management's
services by Callan Associates Inc. ("Callan"), an independent consulting firm
whose specialties include assistance to fund trustees and directors in their
review of advisory contracts pursuant to Section 15(c) of the 1940 Act. At the
meeting, senior Callan personnel provided a presentation to the Trustees based
on the Callan materials.
In deciding whether to approve the New Investment Advisory Agreement, the
Trustees considered various factors, including those enumerated above. They also
considered other direct and indirect benefits to Alger Management and its
affiliates from their relationship with the Funds.
NATURE, EXTENT AND QUALITY OF SERVICES. In considering the nature, extent
and quality of the services proposed to be provided by Alger Management pursuant
to the New Investment Advisory Agreement, the Trustees relied on their prior
experience as Trustees of the Trust, their familiarity with the personnel and
resources of Alger Management and its affiliates and the materials provided at
the meeting, and considered the nature, extent and quality of the services
provided by Alger Management pursuant to the Current Investment Advisory
Agreements. For each Fund, they noted that under the Advisory Agreements, Alger
Management is responsible for managing the investment operations of the Fund.
They also noted that administrative, compliance, reporting and accounting
services necessary for the conduct of the Funds' affairs are provided under the
separate Administration Agreements. The Trustees reviewed the background and
experience of Alger Management's senior investment management personnel,
including the individuals currently responsible for the investment operations of
the Funds. They also considered the resources, operational structures and
practices of Alger Management in managing each Fund's portfolio and
administering the Fund's affairs, as well as Alger Management's overall
investment management business. The Trustees concluded that Alger Management's
experience, resources and strength in those areas of importance to the Funds are
considerable. The Trustees considered the level and depth of Alger Management's
ability to execute portfolio transactions to effect investment decisions,
including those through Alger Inc. The Trustees also considered the ongoing
enhancements to the control and compliance environment at Alger Management and
within the Trust.
17
TRANSFER OF OWNERSHIP OF ALGER ASSOCIATES. The Trustees assessed the
implications for Alger Management of the pending transfer of ownership control
of Alger Associates and Alger Management's ability to continue to provide
services to the Funds of the same scope and quality as are currently provided.
In particular, the Board inquired as to the impact of the pending transfer on
Alger Management's personnel, management, facilities and financial capabilities,
and received assurances in this regard from senior management of Alger
Management that the pending transfer would not affect Alger Management's ability
to fulfill its obligations under the New Investment Advisory Agreement, and to
operate its business in a manner consistent with past practices. The Board also
considered that the New Investment Advisory Agreement, and the fees paid
thereunder, are substantively identical in all respects to each Fund's Current
Investment Advisory Agreement, except for the time periods covered by the
Agreements and, that for administrative convenience, the separate Current
Investment Advisory Agreements were being combined into a single New Investment
Advisory Agreement between Alger Management and the Trust, on behalf of the
Funds.
INVESTMENT PERFORMANCE OF THE FUNDS. Drawing upon information provided at
the meeting by Alger Management as well as Callan and upon reports provided to
the Trustees by Alger Management throughout the preceding year, the Trustees
noted that the performance of some of the Funds (Alger SmallCap Growth
Institutional Fund, Alger Capital Appreciation Institutional Fund and Alger
Green Institutional Fund) had been generally excellent, consistently
outperforming the relevant benchmarks and fund peer groups for various periods
through August 31, 2006, while other Funds (Alger LargeCap Growth Institutional
Fund and Alger MidCap Growth Institutional Fund) had underperformed their
benchmarks and fund peer groups for at least the year ended August 31, 2006. The
Trustees discussed with Alger Management the performance of the two
underperforming Funds, inquiring into both the reasons for the underperformance
and Alger Management's plans for improving the Funds' performance.
FUND FEES AND EXPENSE RATIOS; PROFITABILITY TO ALGER MANAGEMENT AND ITS
AFFILIATES. The Trustees reviewed each Fund's advisory fees and expense ratios
and compared them to a group of comparable funds. In order to assist the
Trustees in this comparison, Callan had provided the Trustees with comparative
information with respect to fees paid, and expense ratios incurred, by similar
funds. That information indicated that, while some of the Funds' advisory fees
and expense ratios were at or near (and in one case below) the median for the
Fund's Callan peer group, other Funds' fees (Alger LargeCap Growth Institutional
Fund, Alger MidCap Growth Institutional Fund and Alger Capital Appreciation
Institutional Fund) and/or expense ratios (Alger LargeCap Growth Institutional
Fund, Alger MidCap Growth Institutional Fund, Alger Green Institutional Fund, R
shares of Alger SmallCap Growth Institutional Fund and R shares of Alger Capital
Appreciation Institutional Fund) were higher than those of most of the funds in
the Callan peer group. In the latter cases, the Trustees determined that such
information should be taken into account in weighing the size of the fee
18
against the nature, extent and quality of the services provided. In addition,
the Trustees considered the profitability of each Current Investment Advisory
Agreement to Alger Management and its affiliates, and the methodology used by
Alger Management in determining such profitability. The Trustees reviewed
previously-provided data on each Fund's profitability to Alger Management and
its affiliates for the year ended June 30, 2006. After discussing with
representatives of Alger Management and Callan the methodologies used in
computing the costs that formed the bases of the profitability calculations, the
Trustees turned to the profitability data provided. After analysis and
discussion, they concluded that, to the extent that Alger Management's and its
affiliates' relationships with the Funds had been profitable to those entities,
the profit margin in each case was modest.
ECONOMIES OF SCALE. On the basis of their discussions with management and
their analysis of information provided at the meeting, the Trustees determined
that the nature of the Funds and their operations is such that Alger Management
is likely to realize economies of scale in the management of each Fund at some
point as it grows in size, but that in view of the current levels of
profitability of each of the Funds to Alger Management and its affiliates, such
economies as might already exist were subsumed in the level of the advisory
fees, and that adoption of breakpoints in one or more advisory fees, while
possibly appropriate at a later date, could await further analysis of the
sources and potential scale of the economies and the fee structure that would
best reflect them. Accordingly, the Trustees requested that Alger Management
address this topic with the Trustees at future meetings.
OTHER BENEFITS TO ALGER MANAGEMENT. The Trustees considered whether Alger
Management benefits in other ways from its relationship with the Funds. They
noted that Alger Management maintains soft-dollar arrangements in connection
with the Funds' brokerage transactions, data on which is regularly supplied to
the Trustees at their quarterly meetings. The Trustees also noted that Alger
Inc. provides a substantial portion of the Funds' equity brokerage and that
Alger Shareholder Services, Inc. receives fees from the Funds under a
shareholder services agreement. The Trustees had been provided with information
regarding, and had considered, the brokerage and shareholder servicing fee
benefits in connection with their review of the profitability to Alger
Management and its affiliates of their relationships with the Funds. As to other
benefits received, the Trustees decided that none were so significant as to
render Alger Management's fees excessive.
At the conclusion of these discussions, each of the Independent Trustees
expressed the opinion that he had been furnished with sufficient information to
make an informed business decision with respect to approval of the New
Investment Advisory Agreement. Based on its discussions and considerations as
described above, the Board made the following conclusions and determinations, as
to each Fund:
19
o The Board concluded that the nature, extent and quality of the
services provided by Alger Management are adequate and appropriate.
o The Board determined that the pending transfer of ownership control
of Alger Associates would not be a detriment to Alger Management's
ability to continue to provide services to the Fund of the same
scope and quality as provided under the Current Investment Advisory
Agreement, and that the pending transfer would not affect Alger
Management's ability to fulfill its obligations under the New
Investment Advisory Agreement, and to operate its business in a
manner consistent with past practices.
o The Board was satisfied with the performance of the Funds that had
shown excellent performance, but determined to monitor closely the
progress of Alger Management's steps to improve the performance of
the underperforming Funds.
o The Board concluded that the Fund's fee paid to Alger Management,
which was proposed to be the same under the New Investment Advisory
Agreement as under the Current Investment Advisory Agreement, was
reasonable in light of comparative performance and expense and
advisory fee information, costs of the services provided and profits
to be realized and benefits derived or to be derived by Alger
Management from the relationship with the Fund.
o The Board determined that there were not at this time significant
economies of scale to be realized by Alger Management in managing
the Fund's assets and that, to the extent that material economies of
scale had not been shared with the Fund, the Board would seek to do
so.
The Board considered these conclusions and determinations and, without any
one factor being dispositive, determined that approval of the New Investment
Advisory Agreement was in the best interests of each Fund and its shareholders.
ADDITIONAL INFORMATION ABOUT ALGER MANAGEMENT
Alger Management is a registered investment adviser with its principal
offices located at 111 Fifth Avenue, New York, New York 10003. Alger Management
is a wholly-owned subsidiary of Alger Inc., which is a wholly-owned subsidiary
of Alger Associates, a financial services holding company. Until October 2,
2006, Mr. Frederick M. Alger, III was the principal executive officer of Alger
Management and was the Chairman of the Board. Mr. Daniel C. Chung serves as
Chairman and Chief Executive Officer of Alger Management, and Mr. Hal Liebes
serves as a Director of Alger Management. Mr. Chung also serves as Alger
Management's Principal Executive Officer with Mr. Frederick A. Blum serving as
Principal Financial Officer. For a list of officers of the Trust who also serve
as officers of Alger Management, please refer to Proposal 1 above.
20
Alger Associates is a closely-held New York corporation, the stockholders
of which primarily consist of Mr. Frederick M. Alger, III, who holds Class A
shares through Alger Two, LLC, and his three daughters, Hilary M. Alger, Nicole
D. Alger and Alexandra D. Alger, each of whom hold Class C shares. The principal
business address of Alger Management, Alger Inc. and Alger Associates, and the
address of each officer and director of Alger Management is 111 Fifth Avenue,
New York, New York 10003.
DISTRIBUTOR AND ADMINISTRATOR. Alger Inc. serves as distributor of each
Fund's shares. As noted above, Alger Management serves as each Fund's
administrator.
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 Funds and/or the other accounts over which
Alger Management or its affiliates exercise investment discretion. Alger
Management's fees under its agreements with the Funds are not reduced by reason
of its receiving brokerage and research service. The Board of Trustees will
periodically review the commissions paid by the Funds to determine if the
commissions paid over representative periods of time are reasonable in relation
to the benefits inuring to the Funds.
For the fiscal year ended October 31, 2005, the Funds paid an aggregate of
approximately $7,216,482 in commissions, of which $3,630,957 was paid to Alger,
Inc. The commissions paid to Alger Inc. constituted 50% of the aggregate
brokerage commissions paid by the Funds. For the fiscal year ended October 31,
2005, 56% of the aggregate dollar amount of transactions by the Funds involving
the payment of brokerage commissions was effected through Alger Inc. Alger Inc.
does not engage in principal transactions with the Funds and, accordingly,
receives no compensation in connection with securities purchased or sold in that
manner, which include securities traded in the over-the-counter markets, money
market investments and most debt securities. During the fiscal year ended
October 31, 2005, $312,296,526 in portfolio transactions, incurring $709,386 in
commissions, was allocated to brokers who supplied research to the Trust or
Alger Management.
21
SHAREHOLDER APPROVAL
To become effective with respect to a Fund, the New Investment Advisory
Agreement must be approved by a 1940 Act Majority Vote of the outstanding voting
securities of the Fund which means the affirmative vote of lesser of (a) 67% or
more of the voting power of the voting securities of the Fund that are present
at the Meeting or represented by proxy if holders of shares representing more
than 50% of the voting power of the outstanding voting securities of the Fund
are present or represented by proxy or (b) more than 50% of the voting power of
the outstanding voting securities of the Fund.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE NEW INVESTMENT ADVISORY
AGREEMENT.
PROPOSAL 3: TO REVISE OR REMOVE FUNDAMENTAL INVESTMENT POLICIES
The Trust, on behalf of the Funds, like all mutual funds, is required by
law to have policies governing certain of the Funds' investment practices that
may only be changed with shareholder approval. These policies are referred to as
"fundamental." While the number of investment practices that must be governed by
fundamental policies currently is small, this has not always been the case. As a
result, the Funds have fundamental policies that are no longer required by law.
In addition, certain of the Funds' policies that continue to be required by law,
as currently adopted by the Funds, are more restrictive than required by law,
and the policies on any given investment practice vary, sometimes considerably,
from Fund to Fund.
The Board has reviewed the Funds' current fundamental policies and has
concluded that certain policies should be revised and certain other policies
should be eliminated. A list of the fundamental policies that will apply to each
Fund if each proposal is approved by shareholders of that Fund appears in
Appendix F. At the Meeting, shareholders will be asked to approve the revised
policies and to eliminate other fundamental policies. Additionally, shareholders
of each of the Funds are being asked to reclassify their Fund's investment
objective as non-fundamental (see Proposal 3-A).
The revised fundamental policies are expected to facilitate the management
of the Funds' assets, simplify the process of monitoring compliance with the
Funds' fundamental investment policies and provide Alger Management with the
flexibility to manage the Funds more effectively. The revised policies also
provide consistency and uniformity across the Funds to the extent possible (the
Funds will continue to be subject to a number of investment policies that are
not uniform, as described in their respective prospectuses).
22
In addition, the revised fundamental policies are intended to provide the
Funds with flexibility to respond to changing markets, new investment
opportunities and future changes in applicable law. Accordingly, the policies
are written, and should be interpreted, broadly. The revised policies generally
allow the investment practice in question to be conducted to the extent
permitted by the 1940 Act. It is possible that as the financial markets continue
to evolve over time, the 1940 Act and the related rules may be further amended
to address changed circumstances and new investment opportunities. It is also
possible that the 1940 Act and the related rules could change for other reasons.
For flexibility, the revised policies should be interpreted to refer to the 1940
Act and the related rules as they are in effect from time to time. This should
allow the Funds to take advantage of future changes in applicable law without
seeking additional costly and time-consuming shareholder approvals. Approval of
the revised fundamental policies do not necessarily mean that the Funds will
broaden their investment practices to the extent permitted under the policies.
To the extent the Funds engage in new investment practices, the Funds may be
subject to additional risks. Before a material change is made in a Fund's
investment practices in response to the revised policies, the Board will be
asked to approve such change and the Fund's prospectus and/or statement of
additional information will be revised to disclose the change and, as
applicable, any additional risks.
The revised fundamental policies also refer to interpretations or
modifications of, or relating to, the 1940 Act from the SEC or members of its
staff, as well as interpretations or modifications of other authorities having
jurisdiction over the Funds. These authorities could include courts. From time
to time the SEC and members of its staff, and others, issue formal or informal
views on various provisions of the 1940 Act and the related rules, including
through no-action letters and exemptive orders. The revised policies should be
interpreted to refer to these interpretations or modifications as they are given
from time to time. Again, this should allow the Funds the flexibility to take
advantage of future changes in the interpretations of regulators and others
without the expense and delay of seeking further shareholder approvals.
Lastly, when a revised policy provides that an investment practice may be
conducted as permitted by the 1940 Act, the policy should be interpreted to mean
that there is either an express or affirmative permission, or a lack of a
prohibition, for the practice.
The revised fundamental policies give, in certain cases, the Funds an
increased ability to engage in certain investment practices (although only
technical or minor wording changes are being made for certain policies), as
described in more detail below. If a particular Fund takes advantage of that
increased ability (to borrow money, for example), there could be a material
increase in the level of investment risk associated with an investment in that
Fund. Certain of the increased risks to the Funds are described below. Except
where indicated below,
23
the actual investment practices of the Funds currently are not expected to
change as a result of the revised policies. However, these practices could
change in the future, and for various reasons. Before a material change is made
in a Fund's investment practices in response to the revised policies,
shareholders will be notified in advance of the change, and the Fund's
prospectus or statement of additional information will be revised to disclose
the change.
The Trust's Board recommends that shareholders of each Fund vote to revise
or eliminate that Fund's fundamental policies as discussed below. Except as
noted below, the proposed changes are apply to each Fund. Each section sets out
the fundamental policy that will apply to each Fund if shareholders of that Fund
approve the policy in that section. The descriptions in each section of the
Funds' existing fundamental policies are general, and are qualified by reference
to the actual text of the existing policies that appears in Appendix F. The
chart in Appendix F sets out in the left column the current fundamental policies
of each Fund that are proposed to be revised or eliminated, and in the right
column the proposed revised policy, if applicable.
Shareholders of each Fund will vote separately from shareholders of other
Funds with respect to their Fund's fundamental policies. In addition,
shareholders will be asked to vote on each revised policy for their Fund
separately on the enclosed proxy card. No proposal to revise or eliminate any
fundamental policy is contingent upon the approval of any other such proposal.
As a result, it may be the case that certain of a Fund's fundamental policies
will be changed or eliminated, and others will not. If any proposal is not
approved for a Fund, the Fund's existing fundamental policy on that investment
practice will remain in effect.
The revised policies that are approved will take effect March 1, 2007.
To be approved for a Fund, each proposal must receive a 1940 Act Majority
Vote of the outstanding voting securities of that Fund, as such term is defined
above in "Vote Required and Manner of Voting Proxies."
PROPOSAL 3-A: CONVERT THE FUND'S INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO
NON-FUNDAMENTAL
If shareholders of a Fund approve this proposal, the Fund's investment
objective will become non-fundamental, meaning that it can be changed without
shareholder approval. There are no current plans to change the investment
objective of any of the Funds.
DISCUSSION. The 1940 Act does not require that a Fund's investment
objective be fundamental, and, in fact, it is common for funds to have
non-fundamental investment objectives. If a Fund's investment objective is
non-fundamental, the objective may be changed by the Board when the Board
believes it is in the best interests of shareholders to do so. As noted above,
however, shareholders would be given prior notice of any change in a Fund's
investment
24
objective. This notice is expected to take the form of a supplement to the
Fund's prospectus or a revised prospectus, which would be sent to the Fund's
shareholders.
If a Fund is able to change its investment objective without shareholder
approval, the Fund will have flexibility to respond to changing conditions in a
manner that the Board deems to be in the best interests of Fund shareholders
without the expense and delay of seeking further shareholder approval.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-B: REVISE THE FUNDAMENTAL POLICY RELATING TO BORROWING MONEY
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on the borrowing of money will be revised to read as follows:
Except as otherwise permitted by the 1940 Act (which currently limits
borrowing to no more than 331/3% of the value of the Fund's total assets),
or interpretations or modifications by, or exemptive or other relief from,
the SEC or other authority with appropriate jurisdiction, and disclosed to
investors, the Fund may not borrow money.
DISCUSSION. All mutual funds are required to have a fundamental policy
about the borrowing of money. The 1940 Act permits a fund to borrow money in
amounts of up to one-third of the fund's total assets from banks for any
purpose, and to borrow up to 5% of the fund's total assets from banks or other
lenders for temporary purposes. To limit the risks attendant to borrowing, the
1940 Act requires a fund to maintain at all times an "asset coverage" of at
least 300% of the amount of its borrowings. Asset coverage means the ratio that
the value of the fund's total assets, minus liabilities other than borrowings,
bears to the aggregate amount of all borrowings. Certain trading practices and
investments, such as reverse repurchase agreements, dollar rolls and certain
derivatives, may be considered to be borrowings and thus subject to the 1940 Act
restrictions. On the other hand, certain practices and investments may involve
leverage but are not considered to be borrowing.
Currently, the borrowing policies of certain Funds limit borrowings to 10%
of a Fund's total assets. Certain of the Funds' policies also limit the ability
to purchase securities when borrowings are outstanding. The Funds' current
borrowing policies are described in their prospectus or statement of additional
information. The revised policy will permit the Funds to borrow money, and to
engage in trading practices that may be considered to be borrowing, to the full
extent permitted by the 1940 Act and related interpretations, as in effect from
time to time. The revised policy also will eliminate restrictions that
borrowings be made only from banks and that limit the purchase of securities
when loans are outstanding.
25
As noted above, the revised policy will be interpreted to permit a Fund to
engage in trading practices and investments that may be considered to be
borrowing, such as reverse repurchase agreements, dollar rolls, options,
futures, options on futures and forward contracts. In addition, short-term
credits necessary for the settlement of securities transactions and arrangements
with respect to securities lending will not be considered to be borrowings under
the revised policy. Practices and investments that may involve leverage but are
not considered to be borrowings are not subject to the revised policy.
If this proposal is approved, certain Funds may be permitted by this
fundamental policy to borrow in situations and under circumstances in which they
previously could not do so. Borrowing may cause the value of a Fund's shares to
be more volatile than if the Fund did not borrow. This is because borrowing
tends to magnify the effect of any increase or decrease in the value of the
Fund's portfolio holdings. Borrowed money thus creates an opportunity for
greater gains, but also greater losses. There also are costs associated with
borrowing money, and these costs would offset and could eliminate a Fund's net
investment income in any given period.
Alger Management has advised the Board that the proposed revisions to the
fundamental policy on borrowing are not expected to materially affect the manner
in which a Fund's investment program is being conducted at this time, as
reflected in the Fund's current prospectus or statement of additional
information. Before a material change is made in a Fund's investment practices
in response to this revised policy, shareholders will be notified in advance of
the change, and the Fund's prospectus and/or statement of additional information
will be revised to disclose the change, the purpose of the changed practice and,
as applicable, any additional risks.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-C: REVISE THE FUNDAMENTAL POLICY RELATING TO UNDERWRITING
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on the underwriting of securities of other issuers will be
revised to read as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not act as an underwriter of securities of other issuers, except
to the extent the Fund may be deemed an underwriter under the Securities
Act of 1933, as amended, by virtue of disposing of portfolio securities.
DISCUSSION. All mutual funds are required to have a fundamental policy
about engaging in the business of underwriting the securities of other issuers.
The
26
Funds' current underwriting policies are disclosed in their prospectus and/or
statement of additional information. Each Fund's current fundamental policy has
an exception to the prohibition on underwriting that states that the Fund will
not be deemed to be an underwriter in connection with the disposition of
portfolio securities. This exception refers to a technical provision of the
Securities Act of 1933, as amended (the "Securities Act"), which deems certain
persons to be "underwriters" if they purchase a security from the issuer and
later sell it to the public. Under the Securities Act, an underwriter may be
liable for material omissions or misstatements in an issuer's registration
statement or prospectus. It is not, however, believed that the application of
this Securities Act provision would cause a Fund to be engaged in the business
of underwriting the securities of other issuers. The revised policy does not
generally give the Funds any greater authority to engage in the underwriting
business or to underwrite the securities of other issuers, but clarifies the
foregoing exception and creates a uniform standard among the Funds.
Securities purchased from an issuer and not registered for sale under the
Securities Act are considered restricted securities. There may be a limited
market for these securities. If these securities are registered under the
Securities Act, they may then be eligible for sale, but participating in the
sale may subject the seller to underwriter liability. These risks could apply to
a Fund investing in restricted securities.
Alger Management has advised the Board that the proposed revisions to the
fundamental policy on underwriting are not expected to materially affect the
manner in which a Fund's investment program is being conducted at this time, as
reflected in the Fund's current prospectus and/or statement of additional
information. Before a material change is made in a Fund's investment practices
in response to this revised policy, shareholders will be notified in advance of
the change, and the Fund's prospectus or statement of additional information
will be revised to disclose the change, the purpose of the changed practice and,
as applicable, any additional risks.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-D: REVISE THE FUNDAMENTAL POLICY RELATING TO LENDING
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on the lending of money or other assets will be revised to
read as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not lend any securities or make loans to others. For purposes of
this investment restriction, the purchase of debt obligations (including
27
acquisitions of loans, loan participations or other forms of debt
instruments) and the entry into repurchase agreements shall not constitute
loans by the Fund.
DISCUSSION. All mutual funds are required to have a fundamental policy
about lending money and other assets. The 1940 Act does not prohibit a fund from
making loans; however, SEC staff interpretations currently prohibit funds from
lending more than one-third of their total assets, except through the purchase
of debt obligations or the use of repurchase agreements. (A repurchase agreement
is an agreement to purchase a security, coupled with an agreement to sell that
security back to the original seller on an agreed-upon date at a price that
generally depends on current interest rates. The SEC considers repurchase
agreements to be loans.)
The Funds' current fundamental policies, which are disclosed in the Funds'
prospectus and/or statement of additional information, generally prohibit the
making of loans, but specify that investments in debt obligations and repurchase
agreements, and the lending of portfolio securities, are not subject to the
restriction. The revised policy will permit securities lending and the use of
repurchase agreements and will be interpreted not to prevent a Fund from
purchasing or investing in debt obligations and loans.
If this proposal is approved, Funds will be permitted by this fundamental
policy to make loans of securities or money in situations and under
circumstances in which they previously could not do so. While lending securities
may be a source of income to the Funds, as with other extensions of credit,
there are risks of delay in recovery or even loss of rights in the underlying
securities should the borrower fail financially. However, loans would be made
only when Alger Management believes the income justifies the attendant risks.
The Funds also will be permitted by this policy to make loans of money,
including to other Funds and other Alger Management-advised funds. A Fund would
have to obtain exemptive relief from the SEC to make loans to other Funds and
other Alger Management-advised funds.
Alger Management has advised the Board that the proposed revisions to the
fundamental policy on lending are not expected to materially affect the manner
in which a Fund's investment program is being conducted at this time, as
reflected in the Fund's current prospectus and/or statement of additional
information. Before a material change is made in a Fund's investment practices
in response to this revised policy, shareholders will be notified in advance of
the change, and the Fund's prospectus or statement of additional information
will be revised to disclose the change, the purpose of the changed practice and,
as applicable, any additional risks.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
28
PROPOSAL 3-E: REVISE THE FUNDAMENTAL POLICY RELATING TO ISSUING SENIOR
SECURITIES
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on the issuing of senior securities will be revised to read
as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not issue any senior security (as such term is defined in Section
18(f) of the 1940 Act), except insofar as the Fund may be deemed to have
issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies. For purposes of this investment
restriction, collateral, escrow, or margin or other deposits with respect
to the making of short sales, the purchase or sale of futures contracts or
options, purchase or sale of forward foreign currency contracts, and the
writing of options on securities are not deemed to be an issuance of
senior security.
DISCUSSION. All mutual funds are required to have a fundamental policy
about issuing "senior securities," which are generally defined as fund
obligations that have a priority over the fund's shares with respect to the
payment of dividends or the distribution of fund assets. The 1940 Act prohibits
a fund from issuing senior securities except that the fund may borrow money in
amounts of up to one-third of the fund's total assets from banks for any
purpose. A fund also may borrow up to 5% of the fund's total assets from banks
or other lenders for temporary or emergency purposes, and these borrowings are
not considered senior securities.
Currently, the Funds are not permitted to issue senior securities except
to the extent that borrowings or certain investment practices (such as writing
options) may be deemed to be the issuance of senior securities. The Funds'
current policies concerning the issuance of senior securities are described in
their prospectus and/or statement of additional information. The revised policy
will permit the Funds to issue senior securities to the full extent permitted by
the 1940 Act and related interpretations, as in effect from time to time.
Certain widely used investment practices that involve a commitment by a
fund to deliver money or securities in the future are not considered by the SEC
to be senior securities. These include repurchase and reverse repurchase
agreements, dollar rolls, options, futures and forward contracts, provided that
in each case a fund segregates cash or liquid securities in an amount necessary
to pay the obligation or the fund holds an offsetting commitment from another
party. The revised policy will not affect the Funds' existing abilities to
engage in these practices. Similarly, the revised policy will be interpreted not
to prevent collateral arrangements with respect to swaps, options, forward or
futures contracts or other derivatives, or the posting of initial or variation
margin.
29
Alger Management has advised the Board that the proposed revisions to the
fundamental policy on the issuance of senior securities are not expected to
materially affect the manner in which a Fund's investment program is being
conducted at this time, as reflected in the Fund's current prospectus and/or
statement of additional information. Before a material change is made in a
Fund's investment practices in response to this revised policy, shareholders
will be notified in advance of the change, and the Fund's prospectus or
statement of additional information will be revised to disclose the change, the
purpose of the changed practice and, as applicable, any additional risks.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-F: REVISE THE FUNDAMENTAL POLICY RELATING TO REAL ESTATE
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on real estate will be revised to read as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not purchase, hold or deal in real estate, but the Fund may
purchase and sell securities that are secured by real estate or issued by
companies that invest or deal in real estate or real estate investment
trusts and may acquire and hold real estate or interests therein through
exercising rights or remedies with regard to such securities.
DISCUSSION. All mutual funds are required to have a fundamental policy
about purchasing and selling real estate. The 1940 Act does not prohibit a fund
from owning real estate; however, a mutual fund is limited in the amount of
illiquid assets it may purchase (real estate is generally considered illiquid).
Investing in real estate may involve risks, including that real estate is
generally considered illiquid and may be difficult to value and sell. Owners of
real estate may be subject to various liabilities, including environmental
liabilities. Currently, the Funds have fundamental policies prohibiting them
from purchasing or selling real estate or real estate limited partnerships,
except that they may purchase or sell securities secured by real estate or
interests therein, as well as securities issued by companies that invest or deal
in real estate. The revised policies clarify each Fund's policy prohibiting
investments in real estate, but preserves the flexibility to invest in real
estate-related companies and companies whose business consists in whole or in
part of investing in real estate.
Alger Management has advised the Board that the proposed revisions to the
fundamental policy on investment in real estate are not expected to materially
affect the manner in which a Fund's investment program is being conducted at
this time, as reflected in the Fund's current prospectus and/or statement of
additional information. Before a material change is made in a
30
Fund's investment practices in response to this revised policy, shareholders
will be notified in advance of the change, and the Fund's prospectus and/or
statement of additional information will be revised to disclose the change, the
purpose of the changed practice and, as applicable, any additional risks.
To the extent that investments in real estate are considered illiquid, a
Fund will be limited in the amount of assets it may devote to such investments.
The current SEC staff position generally limits a fund's purchases of illiquid
securities to 15% of net assets (10% of net assets for money market funds).
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-G: REVISE THE FUNDAMENTAL POLICY RELATING TO COMMODITIES
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on commodities will be revised to read as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not invest in physical commodities or physical commodities
contracts, except that the Fund may purchase and sell options, forward
contracts, futures contracts, including those related to indices, and
options on futures contracts or indices and enter into swap agreements and
other derivative instruments.
DISCUSSION. All mutual funds are required to have a fundamental policy
about purchasing and selling commodities. The 1940 Act does not prohibit a fund
from owning commodities, whether physical commodities and contracts related to
physical commodities (such as oil or grains and related futures contracts), or
financial commodities and contracts related to financial commodities (such as
currencies and, possibly, currency futures). However, a mutual fund is limited
in the amount of illiquid assets it may purchase (certain commodities
(especially physical commodities) may be considered to be illiquid). The value
of commodities and commodity-related instruments may be extremely volatile and
may be affected either directly or indirectly by a variety of factors. There
also may be storage charges and risks of loss associated with physical
commodities.
Currently, the Funds are not permitted to invest in physical commodities
or commodity contracts, but some of them are permitted to invest in certain
types of derivatives and financial commodities such as futures contracts and
options on futures contracts. The Funds' current policies concerning investment
in commodities are described in their prospectus and/or statement of additional
information. The revised policy does not generally give the Funds any greater
authority to invest in physical commodities but clarifies the Funds' ability to
enter into the various derivative instruments identified in the revised policy.
31
Alger Management has advised the Board that the proposed revisions to the
fundamental policy on investment in commodities and commodity contracts are not
expected to materially affect the manner in which a Fund's investment program is
being conducted at this time, as reflected in the Fund's current prospectus or
statement of additional information. Before a material change is made in a
Fund's investment practices in response to this revised policy, shareholders
will be notified in advance of the change, and the Fund's prospectus and/or
statement of additional information will be revised to disclose the change, the
purpose of the changed practice and, as applicable, any additional risks.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-H: REVISE THE FUNDAMENTAL POLICY RELATING TO CONCENTRATION
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy on concentration will be revised to read as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not invest more than 25% of the value of its total assets in the
securities of issuers in any single industry, provided that there shall be
no limitation on the purchase of obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities or as otherwise
permitted by the SEC.
DISCUSSION. All mutual funds are required to have a fundamental policy
about concentration of their investments in a particular industry or group of
industries. While the 1940 Act does not define what constitutes "concentration"
in an industry, the SEC has taken the position that investment of 25% or more of
a fund's total assets in one or more issuers conducting their principal
activities in the same industry constitutes concentration. It is possible that
interpretations of concentration could change in the future.
Each Fund currently has a fundamental policy that prohibits the Fund from
concentrating its investments in a particular industry. The Funds' current
policies about concentration are disclosed in their prospectus or statement of
additional information. These existing policies reflect the 25% test noted above
that is the SEC's current interpretation of concentration. The revised policy
does not generally give the Funds any greater authority to concentrate its
investments in one or more industries. However, if the SEC's interpretation of
concentration were to change, the Funds would be able to change their
concentration policies without seeking shareholder approval.
The revised policy will be interpreted to permit investment without limit
in the following: securities of the U.S. government and its agencies or
32
instrumentalities; securities of state, territory, possession or municipal
governments and their authorities, agencies, instrumentalities or political
subdivisions; securities of foreign governments; and repurchase agreements
collateralized by any of such obligations. Accordingly, issuers of the foregoing
securities will not be considered to be members of any industry. There also will
be no limit on investment in issuers domiciled in a single jurisdiction or
country. Also, under the revised policy, positions in futures contracts will be
interpreted not to be subject to this concentration restriction.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-I: REVISE THE FUNDAMENTAL POLICIES RELATING TO DIVERSIFICATION
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policies on diversification of investments will be revised to read
as follows:
Except as otherwise permitted by the 1940 Act, or interpretations or
modifications by, or exemptive or other relief from, the SEC or other
authority with appropriate jurisdiction, and disclosed to investors, the
Fund may not (a) invest more than 5% of its assets in the obligations of
any single issuer, except that up to 25% of the value of the Fund's total
assets may be invested, and securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities and securities of other
investment companies may be purchased, without regard to any such
limitation, nor (b) hold more than 10% of the outstanding voting
securities of any single issuer (this restriction in clause (b) applies
only with respect to 75% of the Fund's total assets).
DISCUSSION. The 1940 Act requires every mutual fund to state whether it is
diversified (meaning that it is subject to certain restrictions that limit the
percentage of the fund's assets that may be invested in a single issuer) or
non-diversified. Each of the Funds has elected to be classified as a diversified
fund. In general, the Funds' existing diversification policies simply recite
portions of the existing 1940 Act requirements about diversification. The Funds'
current policies about diversification are disclosed in their prospectus and/or
statement of additional information. The foregoing proposed policy clarifies
certain of the portfolio conditions required of the Funds in order to qualify as
diversified funds and creates a uniform standard among the Funds.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-J: REMOVE THE FUNDAMENTAL POLICY RELATING TO BOTH PURCHASING
SECURITIES ON MARGIN AND ENGAGING IN SHORT SALES
33
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy prohibiting the Fund from purchasing securities on margin and
making short sales of securities will be eliminated.
DISCUSSION. The Funds currently have a fundamental policy that prohibits
both the purchase of securities on margin and the entry into short sales.
The 1940 Act does not require that a Fund have a fundamental policy
relating to purchasing securities on margin. Margin purchases involve borrowing
money from a broker to purchase securities. The risks associated with purchasing
securities on margin are generally similar to those of borrowing money. For a
discussion of those risks, please see Proposal 3-B.
The Funds believe that this fundamental policy is unnecessary and may be
unduly restrictive. The Funds' ability to borrow is governed by the fundamental
policy on borrowing discussed in Proposal 3-B. To the extent that purchasing
securities on margin may be considered the issuance of a senior security, the
issuance of senior securities is governed by the fundamental policy discussed in
Proposal 3-E. The Funds believe that these other fundamental policies provide
adequate protection on this topic. If this fundamental policy is eliminated, the
Funds will be permitted to purchase securities on margin subject to the Funds'
other investment policies and applicable law. Shareholders should note that it
is the current position of the SEC's staff that purchasing securities on margin
by a mutual fund constitutes the issuance of a senior security by the fund,
which is not permitted by the 1940 Act.
A short sale involves the sale of a security that is borrowed from a
broker or other institution to complete the sale. Short sales expose a fund to
the risk that the fund will be required to acquire, convert or exchange
securities to replace the borrowed securities at a time when the securities sold
short have appreciated in value, thus resulting in a loss to the fund. Other
risks and costs to a fund of engaging in short sales include that the fund may
be required to sell securities if would otherwise retain in order to raise cash
to replace the borrowed securities, thus foregoing possible gains and/or selling
at inopportune times, as well as incurring transaction costs. Under the 1940
Act, a fund is generally restricted from making short sales unless the sale is
"against the box" and the securities sold are segregated, or the fund's
obligation to deliver the securities sold short is "covered" by segregating cash
or liquid securities in an amount equal to the market value of the securities
sold short. A sale is not made "against the box" if a fund sells a security it
does not own in anticipation of a decline in market price. Losses from short
sales can theoretically be unlimited, although, as noted above, under the 1940
Act, a fund is required to "cover" its exposure under any short position. Mutual
funds are not required to have a fundamental policy about engaging in short
sales.
The Funds believe this fundamental policy is unduly restrictive. There may
be circumstances in which Alger Management believes that a short sale is
34
in the best interests of shareholders. If this fundamental policy is eliminated,
the Fund will be able to engage in short sales subject to the Fund's other
investment policies and applicable law. Before a Fund engages in short sales to
any material extent, the Board will be consulted and the Fund's prospectus
and/or statement of additional information will be revised to disclose the
practice. The Fund will be subject to any limitations on engaging in short sales
imposed by the Board from time to time, as well as the Fund's other investment
policies.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-K: REMOVE THE FUNDAMENTAL POLICY RELATING TO INVESTMENT IN OTHER
INVESTMENT COMPANIES
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy prohibiting or limiting the Fund from purchasing securities
of other investment companies will be eliminated.
DISCUSSION. Each Fund is prohibited from investing more than a particular
percentage of its net assets in other investment companies, or except as
permitted under the 1940 Act or except where such purchase is part of a plan of
merger or reorganization.
The 1940 Act addresses the extent to which mutual funds may invest in
other funds. Until recently, the 1940 Act limited these investments to
relatively small percentages of fund assets unless a "master-feeder" or
"fund-of-funds" structure was utilized. Outside of the "master-feeder" and
"fund-of-funds" structures and subject to certain other exceptions, the 1940 Act
limited a fund's investments in a single investment company to 3% of the
purchased investment company's outstanding voting stock and to 5% of the fund's
total assets and capped a fund's investments in all investment companies at 10%
of the fund's total assets.
Recent rule changes now permit funds to invest an unlimited portion of
their assets in affiliated investment companies though investments in
unaffiliated investment companies are still subject to certain limitations. In
addition, the SEC has recently granted exemption from the 1940 Act limits for
funds investing in certain exchange-traded funds.
Because of the existing 1940 Act limitations and in light of the recent
changes to, and exemptions from, these limitations, the Funds believe that their
existing fundamental policies are unnecessary and may be unduly restrictive. If
a Fund's fundamental policy on this topic is eliminated, the Fund will be able
to invest in other investment companies to the full extent permitted by the 1940
Act and related interpretations, as in effect from time to time, and the Funds'
other investment policies.
Mutual funds invest in other investment companies for a variety of
reasons. Using a master-feeder structure may provide access to a larger
investment
35
portfolio and may in crease opportunities for economies of scale. Using a
fund-of-funds structure may provide access to a broader investment portfolio or
mix of investment styles and strategies. Investing in investment companies also
is a way to equitize cash in a fund's portfolio and to achieve investment
exposure to a particular asset class or type of investment.
When a Fund invests in other funds, it bears not only its own expenses but
also its proportionate share of the operating expenses of the other funds.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3-L: REMOVE THE FUNDAMENTAL POLICY RELATING TO PLEDGING ASSETS
If shareholders of a Fund approve this proposal, the Fund's current
fundamental policy limiting the Fund's ability to pledge its assets will be
eliminated.
DISCUSSION. The Funds currently are restricted in their ability to pledge
their assets. With respect to one Fund, pledging of assets is permissible in
connection with authorized borrowings, and all of the Funds are permitted to
pledge up to 10% their assets without restriction. The Funds believe this
fundamental policy is unduly restrictive and may prevent Alger Management from
acting in a manner it believes to be in the shareholders' best interest. If this
fundamental policy is eliminated, the Funds will be able to pledge their assets
to the extent permitted under the 1940 Act, subject to the Funds' other
investment policies.
The Funds (other than Alger Capital Appreciation Institutional Fund) have
no present intention to borrow money (other than possibly to meet redemption
requests), and intend to pledge their assets only to support their investment
practices. It is impossible to predict what the lending practices will be in the
future if and when the Funds decide to borrow money, and what collateral
coverage would be required. In any event, the Funds would take into account any
then-applicable legal guidance, would be guided by the judgment of the Board and
Alger Management regarding the terms of any credit facility or arrangement,
including any collateral required, and would not pledge more collateral than, in
their judgment, was necessary for a Fund to obtain the credit sought.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
36
PROPOSAL 4: TO APPROVE A DISTRIBUTION PLAN UNDER RULE 12B-1
This proposal is to be voted on by shareholders of Class I shares ("Class
I Shares") of each Fund.
Holders of Class I Shares are being asked to approve a new Distribution
Plan pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan"), to
permit the use of Fund assets to finance the sale and distribution of Fund
shares, subject to certain conditions. A copy of the proposed Distribution Plan
is attached as Appendix G.
BACKGROUND INFORMATION
Class I Shares of the Funds are not currently subject to a Distribution
Plan, but each Fund compensates certain entities (other than Alger Inc. and its
affiliates) for providing recordkeeping and/or administrative services to
participating institutional accounts holding Class I shares at an annual rate of
up to 0.25% of the net asset value of Class I shares of the Fund held by those
accounts.
The Board has approved the implementation of a Distribution Plan for the
Funds' Class I Shares, pursuant to which Class I Shares would pay the providers
of such services fees at an annual rate of up to 0.25% of the value of the
average daily net assets of Class I shares held by the accounts serviced by each
provider.
Pursuant to Rule 12b-1 under the 1940 Act, an investment company acting as
a distributor of its shares must do so pursuant to a written plan that describes
"all material aspects of the proposed financing of the distribution." The Rule
states that an investment company is deemed to be acting as a distributor of its
shares "if it engages directly or indirectly in financing any activity which is
primarily intended to result in the sale" of its shares. Currently, Class I
Shares of the Funds do not include the above-referenced fees and the services
related to those fees as part of a Distribution Plan. The Board believes that
the fees in question have historically not been used to result in sales of Class
I Shares (I.E., are not for "distribution" services, for purposes of Rule
12b-1), but also recognizes that there are post-sale administrative services
provided to existing shareholders. Nonetheless, to eliminate any doubt that may
arise in the future regarding whether the fees are for "distribution" services,
the Board has approved, and recommends that the shareholders of Class I Shares
approve the adoption of, a Distribution Plan, which authorizes the payment of
recordkeeping and administrative service fees pursuant to Rule 12b-1 under the
1940 Act.
Class I Shares currently are subject to identical service fees across the
Funds, and this proposal would affect those fees equally. If shareholders
approve the adoption of the Distribution Plan, the fees paid by Class I Shares
for
37
recordkeeping and administrative services will not change. The fees currently
payable by Class I Shares for such services, and the Rule 12b-1 fees that would
be payable under the proposed Distribution Plan are as follows:
CURRENT FEES PROPOSED FEES
----------------------- ----------------------
Non 12b-1 Non 12b-1
Rule 12b-1 Service Rule 12b-1 Service
Fees Fees Fees Fees
---------- --------- ---------- ---------
Class I Shares (ALL FUNDS) None .25% .25% None
CURRENT ARRANGEMENT
The Board considers the appropriateness of the current arrangement on a
continuing basis and in doing so considers all relevant factors, including the
amounts paid. For the fiscal year ended October 31, 2005, Class I Shares of the
Funds paid servicing fees pursuant to the current arrangement, as follows:
AS A PERCENTAGE
OF THE CLASS I SHARES'
FUND FEE PAID AVERAGE NET ASSETS
- ---- -------- ------------------
Alger SmallCap Growth
Institutional Fund $164,202 .25%
Alger MidCap Growth
Institutional Fund $2,475,256 .25%
Alger LargeCap Growth
Institutional Fund $228,904 .25%
Alger Capital Appreciation
Institutional Fund $320,950 .25%
Alger Green Institutional Fund $3,504 .25%
BOARD CONSIDERATIONS
In recommending adoption of a Distribution Plan for Class I Shares, the
Board considered a variety of factors. The Board examined the nature of the
recordkeeping and administrative services provided, and the benefits such
services provide to the Funds and their shareholders. In addition, the Board was
advised by independent counsel regarding the requirements of Rule 12b-1. The
Board concluded that with the adoption of this Proposal 4, each Fund will be
provided with additional flexibility in obtaining services under the
Distribution Plan.
In addition, as noted above, the Board believes that the services
performed by the recipients of the service fees are not primarily intended to
result in sales of Class I Shares (I.E., "distribution" services, for purposes
of Rule 12b-1), but rather are post-sale administrative services provided to
existing shareholders. However, to eliminate any doubt regarding continued
payments of service fees that may arise in the future, the Board has approved,
and recommends that the holders of Class I Shares approve, the adoption of a
Distribution Plan as set forth herein.
38
The Board noted that if holders of Class I Shares approve this Proposal 4,
the service fees charged to such Class of each Fund will not change. In
addition, the Board considered that the services currently provided to such
shareholders pursuant to the current arrangement are appropriate services to
provide to shareholders.
REQUIRED VOTE
Holders of Class I Shares of each Fund will vote separately on this
Proposal 4. To be approved, this proposal must be approved by a 1940 Act
Majority Vote of the outstanding voting securities of a Fund's Class I Shares,
which means the affirmative vote of the lesser of (a) 67% or more of the
outstanding voting securities of the class that are present at the Meeting or
represented by proxy (if holders of shares representing more than 50% of the
outstanding voting securities of the class are present or represented by proxy)
or (b) more than 50% of the outstanding voting securities of the class.
If the holders of Class I Shares do not approve the adoption of a
Distribution Plan, the applicable Fund will continue to pay service fees under
its current arrangement.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 5: TO APPROVE AMENDMENTS TO THE TRUST'S
AGREEMENT AND DECLARATION OF TRUST
As a Massachusetts business trust, the Trust is subject to Massachusetts
law, pursuant to which the organizational and operational document of a business
trust is its Agreement and Declaration of Trust. Thus, the Trust (and each Fund)
operates under the Trust's Agreement and Declaration of Trust, as previously
amended or restated (the "Trust Agreement"), which sets forth various provisions
relating primarily to the operation and governance of the Trust. Shareholders
are being asked to approve four amendments to the Trust Agreement.
The first three proposed amendments to the Trust Agreement would eliminate
the requirements that shareholders consent to (A) the liquidation of a Fund, or
a class of shares of that Fund, (B) termination of the Trust, and (C) except to
the extent that the 1940 Act requires shareholder approval, reorganization of
the Trust or a Fund by merger or transfer of assets. Currently, the Trust
Agreement provides that each of the actions specified in items (A) - (C) may be
authorized by a vote of a majority of the Trustees, subject to shareholder
approval. If any of Proposals 5-A through 5-C is approved by shareholders, then
the Trust Agreement will be modified to require, for the action specified, only
the vote of a majority of the Trustees.
The Board believes that it is in the best interests of the Trust and its
shareholders to adopt the foregoing three amendments. As a general principle,
39
the Board has, pursuant to the Trust Agreement, full, entire, exclusive and
absolute power, control and authority over, and management of, the business of
the Trust. The Board believes that it is in the best position to determine if
and when any Fund (or class thereof) should be liquidated, the Trust should be
terminated, or (except as otherwise provided in the 1940 Act) reorganization of
the Trust or a Fund thereof should be carried out, and that to require
shareholder approval only adds the cost and delay of solicitation and a
shareholder meeting when the Board has already determined that the action in
question is in the shareholders' best interests. Any determination by the Board
to take such an action would be subject to the Trustees' general fiduciary
responsibilities to act in the best interests of shareholders.
The fourth proposed amendment would add a provision to the Trust Agreement
requiring that before bringing a derivative action on behalf of the Trust a
shareholder first make a demand upon the Trustees to bring the action (unless
such demand is excused), and that a derivative action commenced after rejection
by the Trustees of a demand is to be dismissed by the court if the court makes
certain findings.
PROPOSAL 5-A: ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS APPROVE THE
LIQUIDATION OF A FUND OR A CLASS OF SHARES OF A FUND
If shareholders approve this proposal, Section 6.2(d) of the Trust
Agreement will be amended by removing the italicized language as follows:
[SECTION 6.2](d) Liquidation.... The liquidation of any Portfolio, or any
Class of any Portfolio, may be authorized by vote of a Majority of the
Trustees, SUBJECT TO THE AFFIRMATIVE VOTE OF "A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES" OF THE SERIES REPRESENTING THE BENEFICIAL
INTERESTS IN THAT PORTFOLIO, OR IN THAT CLASS OF SUCH SERIES, AS THE
QUOTED PHRASE IS DEFINED IN THE 1940 ACT....
DISCUSSION. The Board's reasoning in advancing Proposal 5-A is as set
forth above in the third paragraph of the general discussion of Proposal 5. The
Trustees, in whom responsibility for the management of the affairs of the Trust
is vested, believe that they are in the best position to determine, in the
exercise of their business judgment and subject to their fiduciary duty to the
affected shareholders, the advisability of a liquidation, which should be
permitted without the Trust's first undertaking a lengthy and costly
solicitation to obtain the required shareholder approval. Additionally,
eliminating the requirement of soliciting shareholder approval before
liquidating a class or Fund will likely result in cost savings to shareholders
of such class or Fund.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
40
PROPOSAL 5-B: ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS APPROVE THE
TERMINATION OF THE TRUST
If shareholders approve this proposal, Section 9.1 of the Trust Agreement
will be amended by removing the italicized language as follows:
SECTION 9.1 Duration and Termination of Trust.... The Trust may be
terminated at any time by a Majority of the Trustees, SUBJECT TO THE
FAVORABLE VOTE OF THE HOLDERS OF NOT LESS THAN A MAJORITY OF THE SHARES
OUTSTANDING AND ENTITLED TO VOTE OF EACH PORTFOLIO OF THE TRUST, OR BY AN
INSTRUMENT OR INSTRUMENTS IN WRITING WITHOUT A MEETING, CONSENTED TO BY
THE HOLDERS OF NOT LESS THAN A MAJORITY OF SUCH SHARES, OR BY SUCH GREATER
OR DIFFERENT VOTE OF SHAREHOLDERS OF ANY SERIES AS MAY BE ESTABLISHED BY
THE CERTIFICATE OF DESIGNATION BY WHICH SUCH SERIES WAS AUTHORIZED....
DISCUSSION. The Board's reasoning in advancing Proposal 5-B is as set
forth above in the general discussion of Proposal 5. As in the case of Proposal
5-A, the Trustees, in whom responsibility for the management of the affairs of
the Trust is vested, believe that they are in the best position to determine, in
the exercise of their business judgment and subject to their fiduciary duty to
the affected shareholders, the advisability of terminating the Trust, which
should be permitted without the Trust's first undertaking a lengthy and costly
solicitation to obtain the required shareholder approval.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 5-C: ELIMINATE (SUBJECT TO A QUALIFICATION) THE REQUIREMENT THAT
SHAREHOLDERS APPROVE THE REORGANIZATION OF THE TRUST OR A FUND
If shareholders approve this proposal, Section 9.2 of the Trust Agreement
will be amended by removing the italicized language from, and adding the
capitalized language to, Section 9.2 as follows:
SECTION 9.2 Reorganization. SUBJECT TO SUCH ADDITIONAL REQUIREMENTS OR
CONDITIONS AS MAY BE IMPOSED BY OR UNDER THE 1940 ACT, [t]he Trustees may
sell, convey and transfer all or substantially all of the assets of the
Trust, or the assets belonging to any one or more Portfolios, to another
trust, partnership, association or corporation organized under the laws of
any state of the United States, or may transfer such assets to another
Portfolio of the Trust, in exchange for cash, Shares or other Securities
(including, in the case of transfer to another Portfolio of the Trust,
Shares of such other Portfolio), or to the extent permitted by law then in
effect may merge or consolidate the Trust or any Portfolio with any other
Trust or any corporation, partnership or association organized under the
laws of any state of the
41
United States, all upon such terms and conditions and for such
consideration when and as authorized by vote or written consent of a
Majority of the Trustees AND APPROVED BY THE AFFIRMATIVE VOTE OF THE
HOLDERS OF NOT LESS THAN A MAJORITY OF THE SHARES OUTSTANDING AND ENTITLED
TO VOTE OF EACH PORTFOLIO WHOSE ASSETS ARE AFFECTED BY SUCH TRANSACTION,
OR BY AN INSTRUMENT OR INSTRUMENTS IN WRITING WITHOUT A MEETING, CONSENTED
TO BY THE HOLDERS OF NOT LESS THAN A MAJORITY OF SUCH SHARES, AND/OR BY
SUCH OTHER VOTE OF ANY SERIES AS MAY BE ESTABLISHED BY THE CERTIFICATE OF
DESIGNATION WITH RESPECT TO SUCH SERIES....
DISCUSSION. Under certain circumstances, Rule 17a-8 under the 1940 Act
requires shareholder approval of the reorganization of a registered investment
company, such as the Trust or a Fund, by merger with or transfer of
substantially all of its assets to another registered investment company that
stands in any of certain affiliation relationships (as specified in the 1940
Act) with the Trust or such Fund. Accordingly, the Trust Agreement's current
requirement of shareholder approval cannot be removed for reorganizations
involving the Trust or a Fund unless a qualification allowing for the
restrictions of Rule 17a-8 is included. However, allowing for such qualification
(represented in the capitalized language in the proposed amendment to Section
9.2), the Board believes that the general reasoning underlying Proposals 5-A and
5-B also justifies this Proposal 5-C.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 5-D: ADD A DEMAND REQUIREMENT FOR SHAREHOLDER DERIVATIVE SUITS
If shareholders approve this proposal, the following Section 7.9 will be
added to the Trust Agreement:
SECTION 7.9. Derivative Actions. A Shareholder may bring a derivative
action on behalf of the Trust only if the Shareholder first makes a
pre-suit demand upon the Trustees to bring the subject action unless an
effort to cause the Trustees to bring such action is excused. A demand on
the Trustees shall only be excused if a Majority of the Trustees, or a
majority of any committee established to consider such action, has a
personal financial interest in the action at issue. A Trustee shall not be
deemed to have a personal financial interest in an action or otherwise be
disqualified from ruling on a Shareholder demand by virtue of the fact
that such Trustee receives remuneration from his or her service as a
Trustee of the Trust or as a Trustee or Director of one or more investment
companies with the same or an affiliated investment advisor or
underwriter. A derivative action commenced after rejection of a demand by
the Trustees shall be dismissed by the court on motion by the Trust if the
court finds that a Majority of the Trustees, or a majority of any
committee established to consider such action, which does not
42
have a personal interest in the action at issue, has determined in good
faith after conducting a reasonable inquiry upon which its conclusions are
based that the maintenance of the derivative action is not in the best
interests of the Trust.
DISCUSSION. It is recognized in the law that a shareholder may bring an
action on behalf of a corporation to enforce a right of the corporation.
However, a shareholder is generally required, before commencing a derivative
action, to make demand upon the board of the corporation to sue to enforce the
corporation's claim. And the circumstances under which a derivative plaintiff
will be excused from the demand requirement are typically very narrowly drawn.
Indeed, under Massachusetts corporate law, which imposes a demand requirement by
statute, demand is never excused. Furthermore, a derivative suit commenced after
demand is rejected is typically subjected to searching scrutiny by a court and
is rarely if ever permitted to proceed if the board's decision not to commence
litigation was made in good faith in the interests of the corporation after
reasonable inquiry.
These general principles reflect the fundamental precept that management
of the business and affairs of a corporation, including decisions whether to
litigate or refrain from litigating a claim on behalf of the corporation,
resides with the corporation's board in the exercise of its business judgment,
not with the corporation's shareholders, so that a derivative action should be
permitted to proceed only where the board has failed in its duty to the
corporation with respect to the claim in question.
Shareholder derivative suits may also be brought on behalf of
Massachusetts business trusts, such as the Trust. Proposed Section 7.9 would add
to the Trust Agreement a demand requirement that comports with the general
contours of corporate law regarding such suits. The Board believes that the
general policy considerations underlying the demand requirement as applied to
corporations apply with equal force to Massachusetts business trusts, and that
the proposed section reasonably balances the Board's right to conduct the
affairs of the Trust with the right of a shareholder to sue on behalf of the
Trust if the Board demonstrably fails in its duty.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
REQUIRED VOTE
To become effective, each amendment to the Trust Agreement must be
approved by a vote of shareholders holding a majority of all shares of the Trust
outstanding and entitled to vote, without regard to series. Accordingly, the
votes of the entire Trust, including the votes of all the Funds, will be counted
together with respect to a proposal, and the shareholders of each Fund will vote
together as a single class.
43
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The 1940 Act requires that the Trust's independent registered public
accounting firm be selected by a majority of the Independent Trustees. One of
the purposes of the Audit Committee is to recommend to the Board the selection,
retention or termination of the independent registered public accounting firm
for the Trust. At a meeting held on September 12, 2006, the Trust's Audit
Committee selected and recommended and the Trust's Board, including a majority
of the Independent Trustees, approved the selection of Ernst & Young LLP ("E&Y")
as the Trust's independent registered public accounting firm for the fiscal year
ending October 31, 2007. E&Y has served as the Trust's independent registered
public accounting firm since July 3, 2002. A representative of E&Y will be
present at the Meeting and will be available to respond to appropriate
questions.
After reviewing the Trust's audited financial statements for the fiscal
year ended October 31, 2005, the Trust's Audit Committee recommended to the
Board that such statements be included in the Trust's Annual Report to
shareholders. A copy of the Audit Committee's report for the Trust is attached
as Appendix H to this Proxy Statement.
Sets forth below for the Trust's two most recent fiscal years, are the
fees billed by E&Y for all audit and non-audit services provided directly to the
Trust. The fee information is presented under the following captions:
(a) AUDIT FEES - fees related to the audit and review of the financial
statements included in annual reports and registration statements,
and other services that are normally provided in connection with
statutory and regulatory filings or engagements.
(b) AUDIT-RELATED FEES - fees related to assurance and related services
that are reasonably related to the performance of the audit or
review of financial statements, but not reported under "Audit Fees,"
including accounting consultations, agreed-upon procedure reports,
attestation reports, comfort letters and internal control reviews
not required by regulators.
(c) TAX FEES - fees associated with tax compliance, tax advice and tax
planning, including services relating to the filing or amendment of
federal, state or local income tax returns, regulated investment
company qualification reviews and tax distribution and analysis
reviews.
(d) ALL OTHER FEES - fees for products and services provided to the
Trust other than those reported under "Audit Fees," "Audit-Related
Fees" and "Tax Fees."
44
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2005
---------------- ----------------
Audit Fees $35,350 $117,600
Audit-Related Fees None None
Tax Fees* $25,300 $24,570
All Other Fees** $13,500 $13,500
- ----------
* Fees for tax advice, tax compliance and tax planning
** Other Fees include costs for review and consent for the Trust's
registration statement filing and a review of the semi-annual financial
statements.
Substantially all services to be performed by the Fund's independent
registered public accounting firm must be pre-approved by the Fund's Audit
Committee. All of the services represented in the table were pre-approved by the
Audit Committee. E&Y performed no services for Alger Management or any entity
controlling, controlled by or under common control with Alger Management that
provides ongoing services to the Funds during the fiscal years ended October 31,
2004 and 2005. Aggregate non-audit fees billed by E&Y for the fiscal years ended
October 31, 2004 and 2005, were $157,449 and (euro)82,300 and $201,831 and
(euro)56,050, respectively.
ADDITIONAL INFORMATION
5% SHARE OWNERSHIP
As of the Record Date, the persons listed in Appendix A owned of record
the amounts indicated of the shares of the class of Funds indicated in Appendix
A.
SUBMISSION OF SHAREHOLDER PROPOSALS
The Trust does not hold annual meetings of shareholders. A shareholder
proposal intended to be presented at a future special meeting of shareholders of
a Fund must be received at the offices of the Trust, 111 Fifth Avenue, New York,
New York 10003, at a reasonable time before the Trust begins to print and mail
its proxy materials. Timely submission of a proposal does not guarantee that
such proposal will be included in a proxy statement.
ANNUAL REPORTS
A COPY OF THE TRUST'S MOST RECENT SEMI-ANNUAL AND ANNUAL REPORTS WILL BE
SENT TO YOU WITHOUT CHARGE UPON WRITTEN REQUEST TO THE TRUST C/O FRED ALGER
MANAGEMENT, INC., 111 FIFTH AVENUE, NEW YORK, NEW YORK 10003 OR BY CALLING
800-992-3863. COPIES OF THE TRUST'S SHAREHOLDER REPORTS ALSO ARE AVAILABLE ON
THE EDGAR DATABASE ON THE SEC'S INTERNET SITE AT WWW.SEC.GOV.
Please note that only one annual report or Proxy Statement may be
delivered to two or more shareholders of a Fund who share an address, unless the
Fund has received instructions to the contrary. To request a separate copy of an
45
annual report or this Proxy Statement, or for instructions as to how to request
a separate copy of these documents or as to how to request a single copy if
multiple copies of these documents are received, shareholders should contact the
Trust at the address and phone number set forth above.
SHAREHOLDER COMMUNICATIONS
Shareholders who want to communicate with the Board or any individual
Trustee should write their Fund to the attention of Secretary, 111 Fifth Avenue,
New York, New York 10003. The letter should indicate that you are a Fund
shareholder. If the communication is intended for a specific Trustee and so
indicates, it will be sent only to that Trustee. If a communication does not
indicate a specific Trustee it will be sent to the chair of the Nominating
Committee and the outside counsel to the Independent Trustees for further
distribution as deemed appropriate by such persons.
Additionally, shareholders with complaints or concerns regarding
accounting matters may address letters to the Trust's Chief Compliance Officer
("CCO"), 111 Fifth Avenue, New York, New York 10003. Shareholders who are
uncomfortable submitting complaints to the CCO may address letters directly to
the Chair of the Audit Committee of the Board. Such letters may be submitted on
an anonymous basis.
EXPENSE OF PROXY SOLICITATION
Alger Management will bear the costs of printing, mailing and soliciting
proxies. Such costs are estimated to be approximately $92,000. Solicitation may
be made by letter or telephone by officers or employees of Alger Management, or
by dealers and their representatives. Brokerage houses, banks and other
fiduciaries may be requested to forward proxy solicitation material to their
principals to obtain authorization for the execution of proxies. Alger
Management will reimburse brokerage firms, custodians, banks and fiduciaries for
their expenses in forwarding this Proxy Statement and proxy materials to the
Fund's shareholders. In addition, Alger Management has retained Computershare
Fund Services ("CFS"), 280 Oser Avenue, Hauppauge, New York 11788, a proxy
solicitation firm, to assist in the solicitation of proxies. CFS may solicit
proxies personally and by telephone.
Authorizations to execute proxies may be obtained by telephonic or
electronically transmitted instructions in accordance with procedures designed
to authenticate the shareholder's identity. In all cases where a telephonic
proxy is solicited (but not when you call the toll free number directly to vote
or when you vote via the Internet using the Control Number that appears on your
proxy card), the shareholder will be asked to provide his or her full name,
address, social security number or taxpayer identification number and the number
of shares owned and to confirm that the stockholder has received the Proxy
Statement and proxy card in the mail. Within 72 hours of receiving a
shareholder's telephonic or electronically
46
transmitted voting instructions, a confirmation will be sent to the shareholder
to ensure that the vote has been taken in accordance with the shareholder's
instructions and to provide a telephone number to call immediately if the
shareholder's instructions are not correctly reflected in the confirmation. Any
shareholder giving a proxy may revoke it at any time before its exercise by
submitting a written notice of revocation or a subsequently executed proxy to
the Fund, by voting by telephone or through the Internet or by attending the
Meeting and voting in person.
VOTING RESULTS
The Trust will advise shareholders of the voting results of the matters
voted upon at the Meeting in the 2007 Semi-Annual Report to Shareholders. The
Trust may make a public announcement of the results of the Meeting if the Board
deems it necessary and appropriate.
FISCAL YEAR
The fiscal year end of each Fund is October 31.
GENERAL
Management does not intend to present and does not have reason to believe
that any other items of business will be presented at the Meeting. However, if
other matters are properly presented to the Meeting for a vote, the proxies will
be voted by the persons acting under the proxies upon such matters in accordance
with their judgment of the best interests of the Trust or Fund, as applicable.
A list of shareholders entitled to be present and to vote at the Meeting
will be available at the offices of the Trust, 111 Fifth Avenue, New York, New
York 10003, for inspection by any shareholder during regular business hours
beginning ten days prior to the date of the Meeting.
Failure of a quorum to be present at the Meeting will necessitate
adjournment. The persons named in the enclosed proxy may also move for an
adjournment of the Meeting to permit further solicitation of proxies with
respect to any of the proposals if they determine that adjournment and further
solicitation are reasonable and in the best interests of the shareholders. Under
the Trust's By-Laws, an adjournment of the Meeting requires the affirmative vote
of the shares present in person or represented by proxy at the Meeting.
PLEASE VOTE PROMPTLY BY COMPLETING, SIGNING AND DATING EACH ENCLOSED PROXY
CARD AND RETURNING IT IN THE ACCOMPANYING PREPAID RETURN ENVELOPE OR BY
FOLLOWING THE ENCLOSED INSTRUCTIONS TO VOTE BY TELEPHONE OR OVER THE INTERNET.
Hal Liebes
Secretary
November 15, 2006
47
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APPENDIX A: FUND INFORMATION AND SHARE OWNERSHIP
The following table lists, with respect to each Fund, the total number of
shares outstanding and the net assets of the Fund on October 27, 2006, the
record date for voting at the Meeting.
TOTAL SHARES
FUND OUTSTANDING NET ASSETS
- ---- ----------- ----------
Alger SmallCap Growth Institutional Fund 13,062,625 $ 312,325,740
Alger MidCap Growth Institutional Fund 81,025,860 $1,406,545,190
Alger LargeCap Growth Institutional Fund 8,461,627 $ 112,114,539
Alger Capital Appreciation Institutional Fund 10,867,497 $ 171,377,396
Alger Green Institutional Fund 485,573 $ 3,199,470
As of the Record Date, the following shareholders were known by the Trust
to own of record 5% or more of a class of a Fund's outstanding voting
securities:
FUND CLASS PERCENT NAME AND ADDRESS
- ---- ----- ------- ----------------
Alger SmallCap Growth I 16.95% NFS LLC FBO
Institutional Fund FIIOC As Agent For
Qualified Employee Benefit Plans (401k)
Finops-IC Funds
100 Magellan Way KW1C
Covington, KY 41015-1987
Alger SmallCap Growth I 10.94% Prudential Investment Management Sr
Institutional Fund FBO: Mutual Fund Clients
Attn: Prochoice Unit
Mail Stop NJ 05-11-20
100 Mulberry Street
Newark, NJ 07102-4056
Alger SmallCap Growth I 8.61% Citigroup Global Markets, Inc.
Institutional Fund 33 West 34th Street - 3rd Floor
New York, NY 10001-2402
Alger SmallCap Growth I 5.23% Eighth District Electrical Pension Fund
Institutional Fund Annuity Plan
2821 South Parker Road Suite 1005
Aurora, CO 80014-2714
Alger SmallCap Growth R 56.18% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger SmallCap Growth R 8.09% MG Trust Company Trustee
Institutional Fund Ampac Tire Distributors, Inc. 401(k)
700 17th Street
Suite 300
Denver, CO 80202-3531
A-1
FUND CLASS PERCENT NAME AND ADDRESS
- ---- ----- ------- ----------------
Alger SmallCap Growth R 6.60% PIMS/Prudential Retirement As Nominee For
Institutional Fund The Trustee/Custodian
PL 104 Shiel Sexton Company, Inc.
Attn: Debbie Stone
902 North Capitol Avenue
Indianapolis, IN 46204--1005
Alger MidCap Growth I 24.21% NFS LLC FBO
Institutional Fund Qualified Employee Benefit Plans (401k)
Finops-IC Funds
100 Magellan Way KW1C
Covington, KY 41015-1987
Alger MidCap Growth I 17.97% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger MidCap Growth I 10.03% Reliance Trust Company Directed Trustee for
Institutional Fund MetLife Retirement & Savings
2 Montgomery Street, Floor 3
Jersey City, NJ 07302-3802
Alger MidCap Growth R 60.42% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger MidCap Growth R 22.12% Hartford Life Insurance Company
Institutional Fund Separate Account
Attn: Unit Operations
P.O. Box 2999
Hartford, CT 06104-2999
Alger MidCap Growth R 7.06% MFS Heritage Trust Company Trustees FBO
Institutional Fund Certain Company Retirement
P.O. Box 55824
Boston, MA 02205-5824
Alger LargeCap Growth I 27.66% Wachovia Bank FBO
Institutional Fund Various Retirement Plans
1525 West WT Harris Boulevard
Charlotte, NC 28288-0001
Alger LargeCap Growth I 24.25% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97 RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger LargeCap Growth I 14.06% Ameriprise Trust Company FBO Ameriprise
Institutional Fund Trust Retirement Services Plans
50534 AXP Financial Center
Minneapolis, MN 55474-0505
A-2
FUND CLASS PERCENT NAME AND ADDRESS
- ---- ----- ------- ----------------
Alger LargeCap Growth I 12.45% Mercer Trust Company
Institutional Fund CDI Corporation 401(k) Savings Plan
Attn: DC Plan Admin. Team
One Investors Way
Mailstop: C4D
Norwood, MA 02062-1584
Alger LargeCap Growth R 89.94% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger LargeCap Growth R 8.85% MG Trust Company Custodian FBO
Institutional Fund Skyline Windows, LLC 401(k) Plan
700 17th Street
Suite 300
Denver, CO 80202-3531
Alger Capital Appreciation I 38.25% NFS LLC FBO
Institutional Fund FIIOC As Agent For
Qualified Employee Benefit Plans (401k)
Finops-IC Funds
100 Magellan Way KW1C
Covington, KY 41015-1987
Alger Capital Appreciation I 16.48% The Vanguard Fiduciary Trust Company
Institutional Fund Alger Capital Appreciation Retirement Portfolio
P.O. Box 2600, VM 613
Attn: Outside Funds
Valley Forge, PA 19482-2600
Alger Capital Appreciation I 14.60% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger Capital Appreciation I 12.80% State Street Bank & Trust Company Trustee
Institutional Fund ADP/Morgan Stanley Alliance
105 Rosemont Road
Westwood, MA 02090-2318
Alger Capital Appreciation I 5.48% Charles Schwab & Co., Inc.
Institutional Fund Special Custody Account
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4151
Alger Capital Appreciation R 51.24% MLPF&S For the Sole Benefit of its Customers
Institutional Fund Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
A-3
FUND CLASS PERCENT NAME AND ADDRESS
- ---- ----- ------- ----------------
Alger Capital Appreciation R 41.18% Hartford Life Insurance Company
Institutional Fund Separate Account
Attn: Unit Operations
P.O. Box 2999
Hartford, CT 06104-2999
Alger Capital Appreciation R 5.19% MG Trust Company Custodian FBO
Institutional Fund Skyline Windows, LLC 401(k) Plan
700 17th Street
Suite 300
Denver, CO 80202-3531
Alger Green Institutional Fund I 69.42% Fred Alger Management, Inc.
C/O Robert Kincel
30 Montgomery Street
Jersey City, NJ 07302-3829
Alger Green Institutional Fund I 14.60% LPL Financial Services
9785 Towne Centre Drive
San Diego, CA 92121-1968
Alger Green Institutional Fund R 55.97% MLPF&S For the Sole Benefit of its Customers
Attn: Fund Administration 97RM2
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32246-6484
Alger Green Institutional Fund R 27.48% MFS Heritage Trust Company FBO Certain
Company Retirement Plan
500 Boylston Street
Boston, MA 02116-3740
Alger Green Institutional Fund R 12.22% Fred Alger Management, Inc.
C/O Robert Kincel
30 Montgomery Street
Jersey City, NJ 07302-3829
A-4
APPENDIX B: AUDIT COMMITTEE CHARTER
This document serves as the Charter for the Audit Committee (the
"Committee") of the Board of Directors/Trustees (the "Board") of each fund (the
"Fund" and collectively, the "Funds") advised by Fred Alger Management, Inc.
("FAM") listed on Appendix A hereto (each such Charter being a separate
Charter).
PURPOSE
The primary purposes of the Committee are to:
o assist the Board in the oversight of
1. the integrity of the Fund's financial statements
2. the independent auditor's qualifications and independence
3. the performance of the Fund's independent auditors
4. the Fund's compliance with legal and regulatory requirements
pertaining to its accounting and financial reporting
o prepare an audit committee report, if required by the SEC, to be
included in the Fund's annual proxy statement, if any;
o oversee the scope of the annual audit of the Fund's financial
statements and any special audits, the quality and objectivity of
the Fund's financial statements, the Fund's accounting and financial
reporting policies and practices and its internal controls relating
thereto;
o determine the selection, appointment, retention and termination of
the Fund's independent auditors, as well as approving the
compensation of the auditors and in connection therewith, evaluation
of the independence of the auditors;
o pre-approve all audit and permissible non-audit services provided to
the Fund and certain other persons (as described below) by such
independent auditors; and
o act as a liaison between the Fund's independent auditors and the
Board.
The Fund's independent auditors shall report directly to the Committee.
The primary function of the Committee is oversight.
The Fund's management is responsible for (i) the preparation, presentation
and integrity of the Fund's financial statements, (ii) the maintenance of
appropriate accounting and financial reporting principles and policies, and
B-1
(iii) the maintenance of internal controls and procedures designed to ensure
compliance with accounting standards and applicable laws and regulations.
The independent auditors are responsible for planning and carrying out
proper audits and reviews in accordance with generally accepted auditing
standards.
In fulfilling their responsibilities hereunder, it is recognized that
members of the Committee are not full-time employees of the Fund. As such, it is
not the duty or responsibility of the Committee or its members to conduct "field
work" or other types of auditing or accounting reviews or procedures or to set
auditor independence standards. Each member of the Committee shall be entitled
to rely on (i) the integrity of those persons and organizations within and
outside the Fund from which it receives information, (ii) the accuracy of the
financial and other information provided to the Committee by such persons and
organizations absent actual knowledge to the contrary (which shall be promptly
reported to the Fund's Board), and (iii) statements made by the officers and
employees of the Fund, FAM or other third parties as to any information
technology, internal audit and other permissible non-audit services provided by
the independent auditors to the Fund. In addition, the evaluation of the Fund's
financial statements by the Committee is not of the same scope as, and does not
involve the extent of detail as, audits performed by the independent auditors,
nor does the Committee's evaluation substitute for the responsibilities of the
Fund's management for preparing, or the independent auditors for auditing, the
financial statements.
COMPOSITION AND QUALIFICATIONS
The Committee shall consist of at least three Board members none of whom
is an "interested person," as that term is defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended (the "Independent Board Members"),
each of whom shall be financially literate and able to read and understand
fundamental financial statements, including the Fund's balance sheet, income
statement and cash flow statement, and at least one of whom shall have
accounting or related financial management expertise as determined by the Fund's
Board in its business judgment. In the event that there are not three
Independent Board Members, the committee shall consist of all of the Independent
Board Members. Each member of the Committee must also meet the American Stock
Exchange's independence requirements for audit committee members of listed
companies and the independence requirements applicable to investment companies
set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
If one or more members of the Committee qualify as an "audit committee financial
expert" ("ACFE"), within the meaning of the rules adopted and implemented under
Section 407 of the Sarbanes-Oxley Act of 2002, at least one such member shall be
designated as the Committee's ACFE. The Committee shall elect a chairperson, who
shall preside over Committee meetings (the
B-2
"Chairperson"). The Chairperson shall serve as such until his successor is
selected by the Committee.
The designation of a person as an ACFE shall not impose any greater
responsibility or liability on that person than the responsibility and liability
imposed on such person as a member of the Committee, nor does it decrease the
duties and obligations of other Committee members or the Board.
With respect to any subsequent changes to the composition of the
Committee, and otherwise approximately once each year, the Board shall
determine:
o that each member of the Audit Committee is "independent" pursuant to
the American Stock Exchange ("AMEX") governance standards or
applicable law;
o that each Audit Committee member is financially literate and able to
read and understand fundamental financial statements, including the
Fund's balance sheet, income statement and cash flow statement;
o that at least one of the Committee members has accounting or related
financial management expertise and, for a Fund whose securities are
listed on the AMEX, is "financially sophisticated" pursuant to AMEX
rules; and
o the adequacy of the Charter.
DUTIES AND POWERS
To carry out its purposes, the Committee shall have the following duties
and powers to be exercised at such times and in such manner as the Committee
shall deem necessary or appropriate:
(a) to determine, and recommend to the Independent Board Members for their
ratification and approval, the selection, appointment, compensation, retention
and termination of the Fund's independent auditors (or any other public
accounting firm engaged for the purposes of performing other audit, review or
attest services for the Fund);
(b) to resolve any disagreements between management and the independent
auditors regarding financial and to evaluate and accept the determination of
independence made by the independent auditors;
B-3
(c) to pre-approve (i) all audit and permissible non-audit services(1) to
be provided by the independent auditors to the Fund, and (ii) all permissible
non-audit services to be provided by the independent auditors to FAM and any
service provider to the Fund controlling, controlled by or under common control
with FAM that provides ongoing services to the Fund ("Covered Services
Provider"), if the engagement relates directly to the operations and financial
reporting of the Fund. The Committee may delegate its responsibility to
pre-approve any such audit and permissible non-audit services to the Chairperson
of the Committee, and the Chairperson shall report to the Committee, at its next
regularly scheduled meeting after the Chairperson's pre-approval of such
services, his or her decision(s). The Committee may also establish detailed
pre-approval policies and procedures for pre-approval of such services in
accordance with applicable laws, including the delegation of some or all of the
Committee's pre-approval responsibilities to other persons (other than FAM or
the Fund's officers);
- ----------
1. The Committee is responsible for pre-approving (i) all audit and
permissible non-audit services to be provided by the independent auditors
to the Fund and (ii) all permissible non-audit services to be provided by
the independent auditors to FAM and any service provider to the Fund
controlling, controlled by or under common control with FAM that provided
ongoing services to the Fund ("Covered Services Provider") if the
engagement relates directly to the operations and financial reporting of
the registrant. The Committee may establish pre-approval policies and
procedures for pre-approval of such services in accordance with applicable
laws, including the delegation of some or all of the Committee's
pre-approval responsibilities to other persons (other than FAM or the
Fund's officers). Pre-approval by the Committee of any permissible
non-audit services shall not be required so long as: (i) the aggregate
amount of all such permissible non-audit services provided to the Fund,
FAM and any Covered Services Provider constitutes not more than 5% of the
total amount of revenues paid by the registrant to its independent
auditors during the fiscal year in which the permissible non-audit
services are provided; (ii) the permissible non-audit services were not
recognized by the registrant at the time of the engagement to be non-audit
services; and (iii) such services are promptly brought to the attention of
the Committee and approved by the Committee (or its delegates(s)) prior to
the completion of the audit.
B-4
(d) to meet with the Fund's independent auditors, including meetings apart
from management, on a regular basis: (i) to review the arrangements for and
scope of the proposed annual audit and any special audits; (ii) to review the
scope of and approve non-audit services being provided and proposed to be
provided; (iii) to discuss any matters of importance relating to the Fund's
financial statements, including any adjustments to such statements recommended
by the independent auditors, or other results of said audits; (iv) to consider
the independent auditors' comments communicated to the Committee with respect to
the Fund's financial policies, procedures and internal accounting controls and
management's responses thereto; (v) to obtain annually in writing from the
independent auditors their letter as to the adequacy of such controls as
required by Form N-SAR; (vi) to review the form of report the independent
auditors propose to render to the Board and shareholders; (vii) to discuss with
the independent auditors any disclosed relationships or services that may
diminish the objectivity and independence of the independent auditors, and
(viii) receive reports at least annually from the independent auditors regarding
their independence (including receiving the independent auditors' specific
representations as to independence consistent with current statements of the
Independence Standards Board), and discuss such reports with the independent
auditors, and, if so determined by the Committee, recommend that the Board take
appropriate action to ensure the independence of the independent auditors;
(e) to review with the Fund's management and independent auditors: (i)
critical accounting policies and practices applied by the Fund and communicated
to the Committee by the independent auditors and/or management in preparing its
financial statements; (ii) alternative treatments within generally accepted
accounting principles for policies and practices related to material items that
have been discussed with management communicated to the Committee; (iii) other
material written communications between the independent auditors and the Fund,
including any management letter, report on observations and recommendations on
internal controls, report of any unadjusted differences (including a listing of
adjustments and reclassifications not recorded, if any) communicated to the
Committee, engagement letter and independence letter; and (iv) any audit
problems or difficulties and management's response, including any restrictions
on the scope of the auditor's activities or on access to requested information,
and any significant disagreements with management;
(f) to consider and evaluate the effect upon the Fund of significant
changes in accounting principles, practices, controls or procedures proposed or
contemplated by management or the independent auditors;
(g) to review with management in a general manner, but not assume
responsibility for, the Fund's processes with respect to risk assessment and
risk management, and the steps taken to monitor and control such risks and
exposures;
B-5
(h) to discuss generally the types of information to be disclosed in press
releases concerning dividends, as well as financial information provided to
analysts and rating agencies, and the type of presentation to be made;
(i) to establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal accounting controls or auditing
matters, including procedures for the confidential, anonymous submission by
employees of the Fund and its service providers (as and to the extent required
with respect to service providers by applicable rules, regulations or listing
requirements or otherwise deemed advisable) of concerns regarding questionable
accounting or auditing matters pertaining to the Fund;
(j) to establish policies governing the hiring by entities within the
Fund's investment company complex of employees or former employees of the
independent auditors consistent with government regulations;
(k) at least annually, to obtain and review a report by the Fund's
independent auditors describing: (1) the audit firm's internal quality-control
procedures; (2) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried out by the audit
firm, and any steps taken to deal with any such issues; and (3) for the purpose
of assessing the auditor's independence, all relationships between the
independent auditors and the Fund, as well as FAM and any Covered Services
Provider;
(l) to review and evaluate the qualifications, performance and
independence of the lead audit partner of the independent auditors on the Fund's
engagement;
(m) to oversee the regular rotation of such lead audit partner and the
reviewing partner, and to consider whether there should be a regular rotation of
the audit firm itself;
(n) to review and discuss the Fund's audited and unaudited financial
statements with management and, in the case of the audited financials, the
independent auditor, including the Fund's disclosure of management's discussion
of Fund performance, and to recommend to the Board, as appropriate, the
inclusion of the Fund's audited financial statements in the Fund's annual
report;
(o) to report regularly to the full Board any issues that arise with
respect to: (1) the quality or integrity of the Fund's financial statements, (2)
the Fund's compliance with legal or regulatory requirements and (3) the
performance and independence of the Fund's independent auditors, and make such
recommendations with respect to the matters within the scope of its authority
and other matters, as the Committee may deem necessary or appropriate; and
B-6
(p) to meet periodically with Fund management on all relevant matters,
apart from the Fund's independent auditors.
The Committee shall meet as frequently as necessary to carry out its
obligations, but not less frequently than twice a year, and shall hold special
meetings as circumstances require. A majority of the total number of members of
the Committee shall constitute a quorum of the Committee. A majority of the
members of the Committee present shall be empowered to act on behalf of the
Committee. The Committee shall regularly meet (typically, on the same day as
regular Committee meetings), in separate executive sessions, with
representatives of the Fund's management, the Fund's independent auditors and
the Fund's other service providers as the members of the Committee deem
necessary. Members of the Committee may participate in a meeting of the
Committee in person or by means of a conference call or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
The Committee shall have the resources and authority appropriate to
discharge its responsibilities at the expense of the Fund. The Fund shall
provide appropriate funding for the Committee to carry out its duties and its
responsibilities, including appropriate funding, as determined by the Committee
(a) for payment of compensation to the Fund's independent auditors or other
public accounting firm providing audit, review or attest services for the Fund,
(b) for payment of compensation to any advisors employed by the Committee and
(c) for the ordinary administrative expenses of the Committee that are necessary
or appropriate in carrying out its duties. In performing its duties, the
Committee shall consult as it deems appropriate with the members of the Board,
officers and employees of the Fund, FAM, the Fund's sub-advisor(s), if any, the
Fund's counsel and the Fund's other service providers.
The Committee shall evaluate its performance under this Charter annually.
The Committee shall review the adequacy of this Charter at least annually
and recommend any changes to the full Board. The Board also shall review and
approve this Charter at least annually.
This Charter may be altered, amended or repealed, or a new Charter may be
adopted, by the Board by the affirmative vote of a majority of Independent Board
Members.
The Principal Executive Officer (the "PEO") of each Fund shall certify to
the Audit Committee of each Fund annually that he is not aware of any violation
by the Fund of any corporate governance standards or policies to which the Fund
is subject. In addition, the PEO of the Fund must promptly notify the relevant
Audit Committee in writing after any executive officer of the Fund becomes aware
of any material non-compliance with any applicable corporate governance listing
standard or policy.
B-7
FOR CLOSED-END FUNDS ONLY. Each Fund whose securities are listed on the
AMEX shall provide to the AMEX notice upon receipt of a report by an executive
officer of any material non-compliance with the requirements of Rule 10A-3 under
the Securities Exchange Act of 1934 relating to audit committees, copies of any
such notice shall be provided to the Audit Committee of the relevant Fund.
Adopted: September 12, 2006
APPENDIX A
OPEN-END FUNDS:
1---------------
The Alger Funds
The Alger Institutional Funds
The Alger American Fund
The China-U.S. Growth Fund
Spectra Fund
CLOSED-END FUNDS:
- -----------------
Castle Convertible Fund, Inc.
B-8
APPENDIX C: NOMINATING COMMITTEE CHARTER
This document serves as the Charter for the Nominating Committee (the
"Committee") of the Board of Directors/Trustees (the "Board") of each fund (the
"Fund" and collectively the "Funds") advised by Fred Alger Management, Inc.
("FAM") listed on Appendix A hereto (each such Charter being a separate
Charter).
PURPOSE & SCOPE
The purpose of the Nominating Committee is to assure assist the Board is
in its selection and evaluation of members to oversee the Funds so that the
interests of shareholders in the Funds are well-served.
In pursuit of this purpose, the scope of the Committee's responsibilities
shall include:
o the nomination of new independent Directors.
o the evaluation of the Board and its committee structure.
o the analyses of the appropriateness of establishing minimum
shareholding levels for Directors.
MEMBERSHIP
The Committee for each Fund shall consist of all of the Directors who are
not "interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), and, if applicable, "independent" as such
term is defined by the listing standards of the principal national securities
exchange upon which the Fund's shares are listed, if any.
The Committee shall appoint its Chairperson by a majority vote of its
members.
There shall be no compensation to any member of the Committee.
NOMINATION AND APPOINTMENT POLICY AND RESPONSIBILITIES
In nominating candidates, the Committee will search for the those
qualified candidates who can bring to the Board the skills, experience,
commitment and judgment necessary to address the issues directors of investment
companies confront in fulfilling their duties to fund shareholders. In doing so,
it will take into consideration such factors as it deems appropriate. These
factors may include demonstrated business judgment, skill sets relevant to
oversight of portfolio management and operational functions , financial
literacy, experience with investment companies and other organizations of
comparable purpose, complexity, size and subject to similar legal restrictions
and oversight, the interplay of the candidate's experience with the experience
of other Board members and the extent to which the candidate would add to the
Board's diversity
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of outlook and expertise. The Committee may, in its discretion, establish
specific, minimum qualifications (including skills) that must be met by
Committee-nominated or shareholder-nominated candidates. The Committee is also
responsible for the analysis of the appropriateness of establishing minimum
shareholding levels for Directors.
The Committee will consider candidates submitted by shareholders or from
other sources it deems appropriate. Any recommendation should be submitted to
the Secretary of the each Fund, c/o Fred Alger Management, Inc. 111 Fifth
Avenue, New York, New York 10003. Any submission should include, at a minimum,
the following information as to each individual proposed for election or
re-election as Director: the name, age, business address, residence address and
principal occupation or employment of such individual, the class, series and
number of shares of stock of the Fund that are beneficially owned by such
individual, the date such shares were acquired and the investment intent of such
acquisition, whether such stockholder believes such individual is, or is not, an
"interested person" of the Fund (as defined in the 1940 Act), and information
regarding such individual that is sufficient, in the discretion of the
Committee, to make such determination, and all other information relating to
such individual that is required to be disclosed in solicitation of proxies for
election of Directors in an election contest (even if an election contest is not
involved) or is otherwise required, in each case pursuant to Regulation 14A (or
any successor provision) under the Securities Exchange Act of 1934, as amended,
and the rules thereunder (including such individual's written consent to being
named in the proxy statement as a nominee and to serving as a Director (if
elected)). Any such submission must also be submitted by such date and contain
such information as may be specified in the Fund's By-laws, or as required by
any relevant stock exchange listing standards.
ADDITIONAL RIGHTS AND RESPONSIBILITIES
The Committee shall review, as it deems necessary, and make
recommendations with regard to the tenure of the Directors, including any term
limits, limits on the number of boards (or committees) on which a Director may
sit and normal retirement age.
The Committee shall have the authority to retain and terminate any a
search firm to be used to identify Director nominees, subject to the Board's
sole authority to approve the search firm's fees and other retention terms.
The Committee shall be responsible for overseeing an annual evaluation of
the Board and its committee structure to determine whether the Board and its
committee structure is functioning effectively. The Committee shall determine
the nature of the evaluation, supervise the conduct of the evaluation and
prepare an assessment of the performance of the Board and its committees, to be
discussed with the Board.
C-2
The Committee shall have the authority to delegate all or a portion of its
duties and responsibilities to a subcommittee of the Committee.
The Committee shall have any other duties or responsibilities expressly
delegated to the Committee by the Board from time to time relating to the
nomination of the Board members or any Committee members.
PROCEDURAL MATTERS
The Committee shall meet at least once a year.
The Committee shall keep written minutes of its meetings, which minutes
shall be maintained with the books and records of the Fund, and the Committee
shall report to the Board on its meetings.
The Committee shall, from time to time as it deems appropriate, review and
reassess the adequacy of this Charter and recommend any proposed changes to the
Board for approval. The Charter shall be posted on the Fund's website.
The Board has granted to the Committee access to the resources and
authority to make reasonable expenditures related to the aforementioned duties
and tasks, that will be reimbursed by the Fund.
Adopted: September 12, 2006
APPENDIX A
OPEN-END FUNDS:
- ---------------
The Alger Funds
The Alger Institutional Funds
The Alger American Fund
The China-U.S. Growth Fund
Spectra Fund
CLOSED-END FUNDS:
- -----------------
Castle Convertible Fund, Inc.
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APPENDIX D: LEGAL PROCEEDINGS
Alger Management has responded to inquiries, document requests and/or
subpoenas from various regulatory authorities in connection with their
investigations of practices in the mutual fund industry identified as "market
timing" and "late trading." On October 11, 2006, Alger Management, Alger Inc.
and Alger Shareholder Services, Inc. executed an Assurance of Discontinuance
with the Office of the New York State Attorney General ("NYAG"). On October 24,
2006, Alger Management and Alger Inc. executed Offers of Settlement with the
SEC, and the settlement is subject to approval of the SEC. As part of the
settlements with the SEC and the NYAG, without admitting or denying liability,
the firms will consent to the payment of $30 million dollars to reimburse fund
shareholders; a fine of $10 million; and certain other remedial measures
including a reduction in management fees of $1 million per year for five years.
The entire $40 million and fee reduction will be available for the benefit of
investors. Alger Management has advised the Funds that the proposed settlement
payment is not expected to adversely affect the operations of Alger Management,
Alger Inc. or their affiliates, or adversely affect their ability to continue to
provide services to the Funds.
On August 31, 2005, the West Virginia Securities Commissioner (the
"WVSC"), in an ex parte Summary Order to Cease and Desist and Notice of Right to
Hearing, concluded that Alger Management and Alger Inc. had violated the West
Virginia Uniform Securities Act (the "WVUSA"), and ordered Alger Management and
Alger Inc. to cease and desist from further violations of the WVUSA by engaging
in the market-timing-related conduct described in the order. The ex parte order
provided notice of their right to a hearing with respect to the violations of
law asserted by the WVSC. Other firms unaffiliated with Alger Management were
served with similar orders. Alger Management and Alger Inc. intend to request a
hearing for the purpose of seeking to vacate or modify the order.
In addition, in 2003 and 2004 several purported class actions and
shareholder derivative suits were filed against various parties in the mutual
fund industry, including Alger Management, certain mutual funds managed by Alger
Management, including the Funds (the "Alger Mutual Funds"), and certain current
and former Alger Mutual Fund trustees and officers, alleging wrongful conduct
related to market-timing and late-trading by mutual fund shareholders. These
cases were transferred to the U.S. District Court of Maryland by the Judicial
Panel on Multidistrict Litigation for consolidated pre-trial proceedings. In
September 2004, consolidated amended complaints involving these cases-a
Consolidated Amended Fund Derivative Complaint (the "Derivative Complaint") and
two substantially identical Consolidated Amended Class Action Complaints
(together, the "Class Action Complaint") were filed in the Maryland federal
district court under the caption number 1:04-MD-15863 (JFM). In April 2005, a
civil lawsuit involving similar allegations was filed by the West Virginia
D-1
Attorney General and also transferred to the Maryland District Court, but such
lawsuit has since been withdrawn.
The Derivative Complaint alleged (i) violations, by Alger Management and,
depending on the specific offense alleged, by Alger Inc. and/or the fund trustee
defendants, of Sections 36(a), 36(b), 47, and 48 of the Investment Company Act
of 1940, as amended (the "1940 Act") and of Sections 206 and 215 of the
Investment Advisers Act of 1940, as amended, breach of fiduciary duty, and
breach of contract, (ii) various offenses by other third-party defendants, and
(iii) unjust enrichment by all the named defendants. The Class Action Complaint
alleged, in addition to the offenses listed above, (i) violations, by Alger
Management, Alger Inc., their affiliates, the funds named as defendants,
including the Funds, and the current and former fund trustees and officers, of
Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended,
Sections 10(b) (and Rule 10b-5 thereunder) and 20(a) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and Section 34(b) of the 1940 Act,
(ii) breach of contract by the funds named as defendants, and (iii) unjust
enrichment of the defendants.
Motions to dismiss the Class Action Complaint and the Derivative Complaint
were subsequently filed. On November 3, 2005, the district court issued letter
rulings dismissing both complaints in their entirety with respect to the Alger
Mutual Funds and dismissing all claims against the other Alger defendants, other
than the claims under the 1934 Act and Section 36(b) of the 1940 Act (as to
which the court deferred ruling with respect to the Alger Mutual Fund trustees),
with leave to the class action plaintiffs to file amended complaints against
those defendants with respect to claims under state law. Orders implementing the
letter rulings were entered. On March 31, 2006, attorneys for the class action
plaintiffs informed the district court that they had decided not to file amended
complaints with respect to the plaintiffs' state law claims. Answers to the
Class Action Complaint were filed by the Alger defendants on April 24, 2006.
In subsequent orders, all remaining claims in the Class Action Complaint
and the Derivative Complaint have been dismissed, other than claims under the
1934 Act against Alger Management, Alger Inc., Alger Associates, Inc. and Alger
Shareholder Services, Inc., and certain present and former members of the senior
management of Alger Management and/or Alger Inc., and claims under Section 36(b)
of the 1940 Act against Alger Management, Alger Inc., Alger Associates and Alger
Shareholder Services, Inc.
D-2
APPENDIX E: NEW INVESTMENT ADVISORY AGREEMENT
THE ALGER INSTITUTIONAL FUNDS
[__________], 2007
Fred Alger Management, Inc.
111 Fifth Avenue
New York, New York 10003
Dear Sirs:
The Alger Institutional Funds (the "Fund"), an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts, on behalf
of the portfolios named on Schedule I hereto, as such Schedule may be revised
from time to time (each, a "Portfolio"), hereby confirms its agreement with Fred
Alger Management, Inc. ("Alger Management") as follows
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Fund desires to employ the capital of each Portfolio by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Agreement and Declaration of Trust and in its Prospectus and
Statement of Additional Information, as from time to time in effect, and in such
manner and to such extent as may from time to time be approved by the Board of
Trustees of the Fund. Copies of the Fund's Prospectus, Statement of Additional
Information and Agreement and Declaration of Trust, as each may from time to
time be amended, have been or will be submitted to Alger Management. The Fund
desires to employ and hereby appoints Alger Management to act as the investment
manager for each Portfolio. Alger Management accepts the appointment and agrees
to furnish the services for the compensation set forth below.
2. SERVICES AS INVESTMENT MANAGER
Subject to the supervision and direction of the Board of Trustees of the
Fund, Alger Management will (a) act in strict conformity with the Fund's
Agreement and Declaration of Trust, the Investment Company Act of 1940 (the
"1940 Act"), and the Investment Advisers Act of 1940, as the same may from time
to time be amended; (b) manage each Portfolio in accordance with such
Portfolio's investment objective and policies as stated in the Fund's Prospectus
and Statement of Additional Information as from time to time in effect; (c) make
general investment decisions for such Portfolio involving decisions concerning
(i) the specific types of securities to be held by such Portfolio and the
proportion of such Portfolio's assets that should be allocated to such
investments during particular market cycles and (ii) the specific issuers whose
securities will be purchased or sold by such Portfolio; and (d) supply
statistical and research data; and general assistance in all aspects of the
Fund's operations with respect to each Portfolio. In providing those services,
Alger Management will supervise each Portfolio's investments generally and
conduct a continual program of evaluation of such Portfolio's assets.
E-1
In connection with the performance of its duties under this Agreement, it
is understood that Alger Management may from time to time employ or associate
with itself such person or persons as Alger Management may believe to be
particularly fitted to assist it in the performance of this Agreement, it being
understood that the compensation of such person or persons shall be paid by
Alger Management and that no obligation may be incurred on the Fund's behalf in
any such respect.
3. BROKERAGE
In executing transactions for each Portfolio and selecting brokers or
dealers, Alger Management will use its best efforts to seek the best overall
terms available. In assessing the best overall terms available for any Portfolio
transaction, Alger Management, will consider all factors it deems relevant
including, but not limited to, the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer and the reasonableness of any commission for the specific
transaction and on a continuing basis. In selecting brokers or dealers to
execute a particular transaction and in evaluating the best overall terms
available, Alger Management may consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of 1934,
as amended (the "1934 Act")) provided to each Portfolio and/or other accounts
over which Alger Management or an affiliate exercises investment discretion.
Pursuant to the provisions of Section 11(a) of the 1934 Act, the Fund authorizes
Alger Management to select a broker which is affiliated with Alger Management.
In such case, the Fund consents that the broker may retain any compensation in
connection with effecting transactions. The Fund may revoke such consent at any
time upon written notice given to Alger Management.
4. INFORMATION PROVIDED TO THE FUND
Alger Management will keep the Fund informed of developments materially
affecting each Portfolio, and will, on its own initiative, furnish the Fund from
time to time with whatever information Alger Management believes is appropriate
for this purpose.
In compliance with the requirements of Rule 31a-3 under the 1940 Act,
Alger Management hereby agrees that all records that it maintains for the Fund
in respect of each Portfolio are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
5. STANDARD OF CARE
Alger Management shall exercise its best judgment in rendering the
services listed in paragraph 2 above. Alger Management shall not be liable for
any error of judgment or mistake of law or for any loss suffered by any
Portfolio in connection with the matters to which this Agreement relates,
provided that
E-2
nothing herein shall be deemed to protect or purport to protect Alger Management
against any liability to such Portfolio or to its shareholders to which Alger
Management would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or by
reason of Alger Management's reckless disregard of its obligations and duties
under this Agreement.
6. COMPENSATION
In consideration of the services rendered pursuant to this Agreement, each
Portfolio will pay Alger Management on the first business day of each month a
fee for the previous month at the annual rate set forth opposite such
Portfolio's name on Schedule I hereto. The fee for the period from the effective
date of this Agreement to the end of the month in which such date occurs shall
be prorated according to the proportion that such period bears to the full
monthly period. Upon any termination of this Agreement before the end of a
month, the fee for such part of that month shall be prorated according to the
proportion that such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to Alger Management, the value of each Portfolio's net
assets shall be computed at the times and in the manner specified in the Fund's
Prospectus and Statement of Additional Information as from time to time in
effect.
7. EXPENSES
Alger Management will bear all expenses in connection with the performance
of its services under this Agreement. The Fund or the relevant Portfolio will
bear certain other expenses to be incurred in its operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the Fund
who are not officers, directors or employees of Alger Management or any of its
affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; charges of any
independent pricing service retained to assist in valuing the assets of such
Portfolio; the Fund's proportionate share of insurance premiums; outside
auditing and legal expenses; costs of maintenance of the Fund's existence; costs
attributable to shareholder services, including, without limitation, telephone
and personnel expenses; costs of preparing and printing prospectuses and
statements of additional information for regulatory purposes and for
distribution to existing shareholders; costs of shareholders' reports and
meetings of the shareholders of the Fund and of the officers or Board of
Trustees of the Fund; and any extraordinary expenses. Fund-wide expenses not
specifically identifiable to a Portfolio will be allocated among all Portfolios
in such manner as Alger Manager shall, in its reasonable judgment, determine to
be fair and equitable to all Portfolios.
E-3
8. REIMBURSEMENT TO A PORTFOLIO
If in any fiscal year the aggregate operating expenses of a Portfolio
(including fees pursuant to this Agreement, but excluding interest, taxes,
brokerage expenses and distribution expenses, and, if permitted by state
securities commissions, extraordinary expenses) exceed the expense limitation
imposed by any state having jurisdiction over the Portfolio, Alger Management
will reimburse the Portfolio for such excess expense. Such expense
reimbursement, if any, will be estimated, reconciled and paid on a monthly
basis.
9. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Fund understands that Alger Management now acts, will continue to act
and may act in the future as investment adviser to fiduciary and other managed
accounts and as investment manager to one or more other investment companies
(including other portfolios of the Fund), and the Fund has no objection to Alger
Management so acting, provided that whenever the Portfolio and one or more other
accounts or investment companies advised by Alger Management have available
funds for investment, investments suitable and appropriate for each will be
allocated in accordance with a formula believed to be equitable to each entity.
The Fund recognizes that in some cases this procedure may adversely affect the
size of the position obtainable for the Portfolio. In addition, the Fund
understands that the persons employed by Alger Management to assist in the
performance of Alger Management's duties under this Agreement will not devote
their full time to such service and nothing contained herein shall be deemed to
limit or restrict the right of Alger Management or any affiliate of Alger
Management to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
10. TERM OF AGREEMENT
This Agreement shall become effective as of the date first set forth above
and, as to each Portfolio, shall continue until the date set forth opposite such
Portfolio's name on Schedule I hereto (the "Reapproval Date"), and thereafter
shall continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually by (i) the Board of
Trustees of the Fund or (ii) a vote of a "majority" (as defined in the 1940 Act)
of such Portfolio's outstanding voting securities, provided that in either event
the continuance is also approved by a majority of the Board of Trustees who are
not "interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. As to each Portfolio, this Agreement is terminable, without
penalty by the Portfolio, on 60 days' written notice, by the Board of Trustees
of the Fund or by vote of a majority of the Portfolio's outstanding voting
securities, or upon 60 days' written notice, by Alger Management. This Agreement
will also terminate automatically in the event of its assignment (as defined in
the 1940 Act and the rules thereunder).
E-4
11. REPRESENTATION BY THE FUND
The Fund represents that a copy of its Agreement and Declaration of Trust,
dated July 14, 1993, together with all amendments thereto, is on file in the
office of the Secretary of the Commonwealth of Massachusetts.
12. LIMITATION OF LIABILITY
This Agreement has been executed on behalf of the Fund in respect of each
Portfolio by the undersigned officer of the Fund in his capacity as an officer
of the Fund. The obligations of this Agreement shall be binding on the assets
and property of the relevant Portfolio only and shall not be binding on any
other Portfolio or any Trustee, officer or shareholder of the Fund individually.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws (except the conflict of law rules) of the State of New York.
If the foregoing is in accordance with your understanding, kindly indicate
your acceptance of this Agreement by signing and returning the enclosed copy of
this Agreement.
Very truly yours,
THE ALGER INSTITUTIONAL FUNDS
By: ________________________
Authorized Officer
Accepted and Agreed:
FRED ALGER MANAGEMENT, INC.
By: ____________________________
Authorized Officer
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SCHEDULE I
ANNUAL FEE
AS A PERCENTAGE
OF AVERAGE
NAME OF PORTFOLIO DAILY NET ASSETS REAPPROVAL DATE
- ----------------- ---------------- ---------------
Alger SmallCap Growth
Institutional Fund .81% September 30, 2008
Alger MidCap Growth
Institutional Fund .76% September 30, 2008
Alger LargeCap Growth
Institutional Fund .71% September 30, 2008
Alger Capital Appreciation
Institutional Fund .81% September 30, 2008
Alger Green Institutional Fund .71% September 30, 2008
E-6
APPENDIX F: FUNDAMENTAL INVESTMENT RESTRICTIONS
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTION
- ---------------------------------------------------------------------------------------
Borrowing Cannot borrow money, except Except as otherwise permitted
Money that (a) all Funds may borrow by the 1940 Act, or
for temporary or emergency interpretations or modifications
purposes including the meeting by, or exemptive or other
of redemption requests that relief from, the SEC or other
might otherwise require the authority with appropriate
untimely disposition of jurisdiction, and disclosed to
securities, in an amount not investors, the Fund may not
exceeding 10% of the value borrow money, except to the
of the Fund's total assets extent permitted under the
(including the amount borrowed) 1940 Act (which currently
valued at the lesser of cost or limits borrowing to no more
market, less liabilities (not than 33-1/3% of the value of
including the amount borrowed) the Fund's total assets).
at the time the borrowing is
made; and (b) Alger Capital
Appreciation Institutional Fund
may also borrow from banks for
investment (leveraging)
purposes. Whenever borrowings
described in (a) exceed 5% of
the value of a Fund's total
assets, the Fund, other than
Alger Capital Appreciation
Institutional Fund, will not
make any additional investments.
Immediately after any borrowing,
the Fund will maintain asset
coverage of not less than 300%
with respect to all borrowings.
F-1
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTION
- ---------------------------------------------------------------------------------------
Underwriting Cannot underwrite the securities Except as otherwise permitted
of other issuers, except insofar by the 1940 Act, or
as the Fund may be deemed to interpretations or modifications
be an underwriter under the by, or exemptive or other
Securities Act of 1933, as relief from, the SEC or other
amended, by virtue of disposing authority with appropriate
of portfolio securities. jurisdiction, and disclosed to
investors, the Fund may not act
as an underwriter of securities
of other issuers, except to the
extent the Fund may be deemed an
underwriter under the Securities
Act of 1933, as amended, by
virtue of disposing of portfolio
securities.
Lending Cannot make loans to others, Except as otherwise permitted
except through purchasing by the 1940 Act, or
qualified debt obligations, interpretations or modifications
lending portfolio securities or by, or exemptive or other
entering into repurchase relief from, the SEC or other
agreements. authority with appropriate
jurisdiction, and disclosed to
investors, the Fund may not lend
any securities or make loans to
others, except to the extent
permitted under the 1940 Act
(which currently limits such
loans to no more than 33-1/3% of
the value of the Fund's total
assets) or as otherwise permitted
by the SEC. For purposes of this
investment restriction, the
purchase of debt obligations
(including acquisitions of loans,
loan participations or other
forms of debt instruments) and
the entry into repurchase
agreements shall not constitute
loans by the Fund. Any loans of
portfolio securities will be made
according to guidelines
established by the SEC and the
Fund's Board.
F-2
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTION
- ---------------------------------------------------------------------------------------
Senior Cannot issue senior securities, Except as otherwise permitted
Securities except that Alger Capital by the 1940 Act, or
Appreciation Institutional Fund interpretations or modifications
may borrow from banks for by, or exemptive or other
investment purposes so long as relief from, the SEC or other
the Fund maintains the required authority with appropriate
asset coverage. jurisdiction, and disclosed to
investors, the Fund may not issue
any senior security (as such term
is defined in Section 18(f) of
the 1940 Act), except insofar as
the Fund may be deemed to have
issued a senior security by
reason of borrowing money in
accordance with the Fund's
borrowing policies. For purposes
of this investment restriction,
collateral, escrow, or margin or
other deposits with respect to
the making of short sales, the
purchase or sale of futures
contracts or options, purchase or
sale of forward foreign currency
contracts, and the writing of
options on securities are not
deemed to be an issuance of
senior security.
F-3
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTION
- ---------------------------------------------------------------------------------------
Real Estate Cannot purchase or sell real Except as otherwise permitted
estate or real estate limited by the 1940 Act, or
partnerships, except that the interpretations or modifications
Fund may purchase and sell by, or exemptive or other
securities secured by real estate, relief from, the SEC or other
mortgages or interests therein authority with appropriate
and securities that are issued jurisdiction, and disclosed to
by companies that invest or investors, the Fund may not
deal in real estate. purchase, hold or deal in real
estate, but the Fund may purchase
and sell securities that are
secured by real estate or issued
by companies that invest or deal
in real estate or real estate
investment trusts and may acquire
and hold real estate or interests
therein through exercising rights
or remedies with regard to such
securities.
Commodities Cannot invest in commodities Except as otherwise permitted
except that Alger Capital by the 1940 Act, or
Appreciation Institutional Fund interpretations or modifications
may purchase or sell stock by, or exemptive or other
index futures contracts and relief from, the SEC or other
related options thereon if authority with appropriate
thereafter no more than 5% jurisdiction, and disclosed to
of its total assets are investors, the Fund may not
invested in margin and invest in physical commodities
premiums. or physical commodities
contracts, except that the Fund
may purchase and sell options,
forward contracts, futures
contracts, including those
related to indices, and options
on futures contracts or indices
and enter into swap agreements
and other derivative instruments.
F-4
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTION
- ---------------------------------------------------------------------------------------
Concentration Cannot purchase any securities Except as otherwise permitted
that would cause more than by the 1940 Act, or
25% of the value of the Fund's interpretations or modifications
total assets to be invested in the by, or exemptive or other
securities of issuers conducting relief from, the SEC or other
their principal business authority with appropriate
activities in the same industry; jurisdiction, and disclosed to
provided that there shall be no investors, the Fund may not
limit on the purchase of U.S. invest more than 25% of the
Government securities. value of its total assets in the
securities of issuers in any
single industry, provided that
there shall be no limitation on
the purchase of obligations
issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities or as otherwise
permitted by the SEC.
Diversification Cannot purchase the securities Except as otherwise permitted
of any issuer, other than U.S. by the 1940 Act, or
Government securities, if as a interpretations or modifications
result more than 5% of the by, or exemptive or other
value of a Fund's total assets relief from, the SEC or other
would be invested in the authority with appropriate
securities of the issuer, except jurisdiction, and disclosed to
that up to 25% of the value of investors, the Fund may not
the Fund's total assets may be (a) invest more than 5% of its
invested without regard to this assets in the obligations of any
limitation. single issuer, except that up to
25% of the value of the Fund's
Cannot purchase more than total assets may be invested,
10% of the voting securities of and securities issued or
any one issuer or more than guaranteed by the U.S.
10% of the securities of any Government, or its agencies or
class of any one issuer. This instrumentalities and securities
limitation shall not apply to of other investment companies
investments in U.S. Government may be purchased, without
securities. regard to any such limitation or
(b) hold more than 10% of the
outstanding voting securities of
any single issuer. This
Investment Restriction applies
only with respect to 75% of the
Fund's total assets.
F-5
SUBJECT CURRENT RESTRICTION PROPOSED RESTRICTION
- ---------------------------------------------------------------------------------------
Shorts Sales / Cannot sell securities short or To be Removed
Purchases purchase securities on margin,
on Margin except that the Fund may obtain
any short-term credit necessary
for the clearance of purchases
and sales of securities. These
restrictions shall not apply to
transactions involving selling
securities "short against the box."
Investing Cannot invest in securities of To be Removed
in Other other investment companies,
Investment except as they may be acquired
Companies as part of a merger, consolidation,
reorganization, acquisition of
assets or offer of exchange.
Pledging Cannot pledge, hypothecate, To be Removed
Assets mortgage or otherwise encumber
more than 10% of the value of
the Fund's total assets, except in
connection with borrowings as
noted in the restriction on
borrowing.
F-6
APPENDIX G: NEW DISTRIBUTION PLAN
CLASS I DISTRIBUTION PLAN OF
THE ALGER INSTITUTIONAL FUNDS
Pursuant to the provisions of Rule 12b-1 under the Investment Company Act
of 1940 (the "Act"), this Rule 12b-1 Plan (the "Plan") has been adopted for The
Alger Institutional Funds (the "Trust") with respect to the Class I Shares of
each of its portfolios listed on Schedule A hereto, as such Schedule may be
amended in writing from time to time (each a "Portfolio"), by a majority of the
members of the Trust's Board of Trustees, including a majority of the trustees
who are not "interested persons" of the Trust and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related to
the Plan (the "Qualified Trustees"), at a meeting called for the purpose of
voting on this Plan. It has been approved by a majority of the outstanding Class
I Shares of each Portfolio with respect to which Rule 12b-1 requires such
approval.
1. ADMINISTRATIVE AND RECORDKEEPING SERVICES. This Plan authorizes the
Trust to make payments, on behalf of each Portfolio, to entities providing
recordkeeping and/or administrative services to institutional holders of Class I
Shares of the Portfolio as compensation for such services. Such payments shall
be made through Fred Alger & Company, Incorporated ("Alger Inc.") as disbursing
agent, may not exceed an annual rate of 0.25 of 1% of the average daily net
assets allocable to the Class I Shares of the Portfolio, and shall be charged
only to that Class. Payments to a recordkeeper and/or administrator with respect
to an institutional account shall not exceed an annual rate of 0.25% of the
average daily net asset value of the Class I Shares held by that account.
2. PERIODIC REPORTING. Alger Inc. shall prepare reports for the Board of
Trustees of the Trust on a quarterly basis showing amounts paid pursuant to this
Plan and any related agreement, the purpose for such expenditure, and such other
information as from time to time shall be reasonably requested by the Board of
Trustees.
3. CONTINUANCE. This Plan shall continue in effect with respect to each
Portfolio indefinitely, provided that such continuance is approved at least
annually by a vote of a majority of the trustees, and of the Qualified Trustees,
cast in person at a meeting called for such purpose.
4. TERMINATION. This Plan may be terminated with respect to a Portfolio at
any time without penalty by vote of a majority of the Qualified Trustees or by
vote of the majority of the outstanding Class I Shares of the Portfolio.
5. AMENDMENT. This Plan may not be amended to materially increase the
amounts payable hereunder without the vote of a majority of the outstanding
Class I Shares of each affected Portfolio. All material amendments to this Plan
must in any event be approved by a vote of a majority of the Board, and of the
Qualified Trustees, cast in person at a meeting called for such purpose.
G-1
6. RELATED AGREEMENTS. Any agreement related to this Plan shall be in
writing and shall provide:
(a) that such agreement may be terminated with respect to a Portfolio at
any time, without payment of any penalty, by vote of a majority of
the Qualified Trustees or by vote of a majority of the outstanding
Class I Shares of the Portfolio, on not more than sixty (60) days'
written notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of
its assignment.
7. FUND GOVERNANCE STANDARDS. So long as this Plan is in effect, the Trust
will comply with the provisions of Rule 12b-1(c).
8. RECORDKEEPING. The Trust will preserve copies of this Plan, any
agreements related to this Plan and all reports made pursuant to Paragraph 2
above for a period of not less than six (6) years from the date of this Plan,
the related agreement or any such report, as the case may be, the first two (2)
years in an easily accessible place.
9. LIMITATION OF LIABILITY. Any obligation of the Trust hereunder shall be
binding only upon the assets of the Trust and shall not be binding on any
trustee, officer, employee, agent, or shareholder of the Trust. Neither the
authorization of any action by the trustees or shareholders of the Trust nor the
adoption of the Plan on behalf of the Trust shall impose any liability upon any
trustees or upon any shareholder.
10. DEFINITIONS. The terms "interested person," "vote of a majority of the
outstanding voting securities" and "assignment" shall have the meanings set
forth in the Act and the rules and regulations thereunder.
Dated ___________________, 2007
SCHEDULE A
Alger SmallCap Growth Institutional Fund
Alger MidCap Growth Institutional Fund
Alger LargeCap Growth Institutional Fund
Alger Capital Appreciation Institutional Fund
Alger Green Institutional Fund
G-2
APPENDIX H: REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Trustees of the Trust oversees the
Trust's accounting and financial reporting processes and the audits of the
Trust's financial statements. The Committee operates pursuant to an Audit
Committee Charter which was last revised and approved by the Board of Trustees
on September 12, 2006, a copy of which is attached to this Proxy Statement as
Appendix B. As set forth in the Charter, the primary purposes of the Board's
Audit Committee are to assist the Board in the oversight of the integrity of the
Trust's financial statements, the independent auditor's qualifications and
independence, the performance of the Trust's independent auditors, and the
Trust's compliance with legal and regulatory requirements pertaining to its
accounting and financial reporting.
In the performance of its oversight function, the Committee has considered
and discussed the October 31, 2005 audited financial statements of the Trust
with management and with Ernst & Young LLP ("E&Y"), the Trust's independent
registered public accounting firm. The Committee has also discussed with E&Y the
matters required to be discussed by the STATEMENT ON AUDITING STANDARDS NO. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as currently in effect. The Committee
reviewed with E&Y, who is responsible for expressing an opinion on the
conformity of those audited financial statements with generally accepted
accounting principles, their judgment as to the quality, not just the
acceptability, of the Trust's accounting principles and such other matters as
are required to be discussed with the Committee under generally accepted
auditing standards. Finally, the Committee has reviewed the written disclosures
and the letter from E&Y required by INDEPENDENCE STANDARDS BOARD STANDARD NO. 1,
INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as currently in effect and has
discussed with E&Y the independence of the independent registered public
accounting firm.
The Committee discussed with E&Y the overall scope and plans for the
audit. The Committee met with E&Y, with and without management present, to
discuss the results of its examination, its evaluations of the Trust's internal
controls, and the overall quality of the Trust's financial reporting.
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Committee
referred to below and in the Charter, the Committee recommended to the Board of
Trustees (and the Board has approved) that the audited financial statements be
included in the Trust's Annual Report to Shareholders for the fiscal year ended
October 31, 2005 and filed with the Securities and Exchange Commission.
Shareholders are reminded, however, that the Members of the Committee are
not professionally engaged in the practice of auditing or accounting. Members of
the Committee rely without independent verification on the information provided
to them and on the representations made by management and E&Y.
H-1
Accordingly, the Committee's oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal control and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Committee's considerations and discussions referred to above do
not assure that the audit of the Trust's financial statements has been carried
out in accordance with generally accepted auditing standards, that the financial
statements are presented in accordance with generally accepted accounting
principles or that E&Y is, in fact, "independent."
Lester L. Colbert, Jr., Audit Committee Member
Stephen E. O'Neil, Audit Committee Member
Nathan E. Saint-Amand, Audit Committee Member
September 12, 2006
H-2
PROXY CARD THE ALGER INSTITUTIONAL FUNDS PROXY CARD
SPECIAL MEETING OF SHAREHOLDERS - JANUARY 17, 2007
PROXY SOLICITED ON BEHALF OF BOARD OF TRUSTEES
The undersigned shareholder of The Alger Institutional Funds, a Massachusetts
business trust (the "Trust"), hereby appoints Daniel C. Chung and Stephen E.
O'Neil, and each of them, the attorneys and proxies of the undersigned, with
power of substitution, to vote, as indicated herein, all of the shares of the
Fund which the undersigned would be entitled to vote, standing in the name of
the undersigned at the close of business on October 27, 2006, at the Special
Meeting of Shareholders of the Fund to be held at the offices of Fred Alger
Management, Inc., 111 Fifth Avenue, 3rd Floor, New York, New York 10003 at 1:00
p.m. (Eastern time) on January 17, 2007, and at all adjournments thereof, with
all of the powers the undersigned would possess if then and there personally
present and especially (but without limiting the general authorization and power
hereby given) to vote as indicated on the proposals, as more fully described in
the Proxy Statement of the meeting, and to vote and act on any other matter
which may properly come before the meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES AND WILL BE VOTED IN ACCORDANCE
WITH INSTRUCTIONS GIVEN BY THE SHAREHOLDERS, BUT IF NO INSTRUCTIONS ARE GIVEN IT
WILL BE VOTED FOR THE PROPOSALS LISTED. BY SIGNING THIS PROXY CARD, RECEIPT OF
THE ACCOMPANYING NOTICE OF SPECIAL MEETING AND PROXY STATEMENT IS ACKNOWLEDGED.
VOTE VIA THE INTERNET: HTTPS://VOTE.PROXY-DIRECT.COM
VOTE VIA THE TELEPHONE: 1-866-241-6192
----------------------------- ------------------
----------------------------- ------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY. Signature(s) should be exactly as name or
names appear on this proxy. If shares are held
jointly, each holder should sign. If signing is by
attorney, executor, administrator, trustee or
guardian, please give full title.
____________________________________________________
Signature(s)
____________________________________________________
Signature(s)
____________________________________________________
Date Social Security or Tax ID Number
AIF_17009
FUNDS
- -----
Fundname Drop In 1 - class
Fundname Drop In 2 - class
Fundname Drop In 3 - class
Fundname Drop In 4 - class
Fundname Drop In 5 - class
PLEASE MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. EXAMPLE:
[GRAPHIC OMITTED
- --------------------------------------------------------------------------------
|_| To vote FOR ALL Proposals mark this box. No other vote is necessary.
- --------------------------------------------------------------------------------
1. ELECTION OF TRUSTEES. FOR WITHHOLD FOR ALL
ALL ALL EXCEPT
01. Hilary M. Alger
02. Charles F. Baird, Jr. |_| |_| |_|
03. Roger P. Cheever
04. Lester L. Colbert, Jr.
05. Stephen E. O'Neil
06. Nathan E. Saint-Amand
INSTRUCTIONS: To withhold authority to vote for any individual, mark
the box "FOR ALL EXCEPT" and write the nominee's number on the line
provided below.
____________________________________________________________________
2. TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3. TO APPROVE REVISIONS TO FUNDAMENTAL INVESTMENT POLICIES:
3.a. CONVERT THE FUND'S INVESTMENT OBJECTIVE FROM FUNDAMENTAL TO
NON-FUNDAMENTAL.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.b. REVISE THE FUNDAMENTAL POLICY RELATING TO BORROWING MONEY.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.c. REVISE THE FUNDAMENTAL POLICY RELATING TO UNDERWRITING.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.d. REVISE THE FUNDAMENTAL POLICY RELATING TO LENDING.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.e. REVISE THE FUNDAMENTAL POLICY RELATING TO ISSUING SENIOR SECURITIES.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.f. REVISE THE FUNDAMENTAL POLICY RELATING TO REAL ESTATE.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.g. REVISE THE FUNDAMENTAL POLICY RELATING TO COMMODITIES.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.h. REVISE THE FUNDAMENTAL POLICY RELATING TO CONCENTRATION.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.i. REVISE THE FUNDAMENTAL POLICY RELATING TO DIVERSIFICATION.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.j. REMOVE THE FUNDAMENTAL POLICY RELATING TO BOTH PURCHASING SECURITIES ON
MARGIN AND ENGAGING IN SHORT SALES.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.k. REMOVE THE FUNDAMENTAL POLICY RELATING TO INVESTMENTS IN OTHER INVESTMENT
COMPANIES.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
3.l. REMOVE THE FUNDAMENTAL POLICY RELATING TO PLEDGING ASSETS.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
4. TO APPROVE THE DISTRIBUTION PLAN UNDER RULE 12B-1.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
5. TO APPROVE AMENDMENTS TO THE TRUST'S AGREEMENT AND DECLARATION OF TRUST.
5.a. ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS APPROVE THE LIQUIDATION OF A
FUND OR A CLASS OF SHARES OF A FUND.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
5.b. ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS APPROVE THE TERMINATION OF THE
TRUST.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
Fundname Drop In 6 - class |_| |_| |_|
5.c. ELIMINATE (SUBJECT TO A QUALIFICATION) THE REQUIREMENT THAT SHAREHOLDERS
APPROVE THE REORGANIZATION OF THE TRUST OR A FUND.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
5.d. ADD A DEMAND REQUIREMENT FOR SHAREHOLDER DERIVATIVE SUITS.
FOR AGAINST ABSTAIN
Fundname Drop In 1 - class |_| |_| |_|
Fundname Drop In 2 - class |_| |_| |_|
Fundname Drop In 3 - class |_| |_| |_|
Fundname Drop In 4 - class |_| |_| |_|
Fundname Drop In 5 - class |_| |_| |_|
6. PROPOSAL TO CONSIDER AND ACT UPON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
AIF_17009