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.
CASTLE CONVERTIBLE FUND, INC.
(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:
CASTLE CONVERTIBLE FUND, INC.
111 FIFTH AVENUE
NEW YORK, NEW YORK 10003
November 15, 2006
Dear Shareholder:
The 2006 Annual Meeting of Shareholders of Castle Convertible Fund, Inc.
(the "Fund") will be held at the offices of Fred Alger Management, Inc., 111
Fifth Avenue, 3rd Floor, New York, New York 10003 on December 21, 2006, at 1:00
p.m. (Eastern time), to vote on the following proposals:
1. To elect six Directors for the ensuing year;
2. To approve an Investment Advisory Agreement between the Fund and
Fred Alger Management, Inc.; and
3. To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS 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 the Fund's proxy solicitor, at 1-866-904-8740.
Sincerely,
Daniel C. Chung
President
TABLE OF CONTENTS
PAGE
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS ................................. 1
PROXY STATEMENT .......................................................... 2
Vote Required and Manner of Voting Proxies ......................... 3
PROPOSAL 1: TO ELECT SIX DIRECTORS ....................................... 4
Nominees and Executive Officers .................................... 4
Compensation ....................................................... 8
Equity Securities Owned by the Nominees ............................ 8
Attendance of Directors at Annual Meeting; Board Meetings .......... 9
Section 16(a) Beneficial Ownership Reporting Compliance ............ 9
Standing Committees of the Board ................................... 9
Certain Legal Proceedings .......................................... 11
Shareholder Approval ............................................... 11
PROPOSAL 2: TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT ............... 11
Background Information ............................................. 12
The New Investment Advisory Agreement .............................. 13
Board Considerations ............................................... 15
Additional Information About Alger Management ...................... 19
Shareholder Approval ............................................... 19
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ............... 19
ADDITIONAL INFORMATION ................................................... 21
5% Share Ownership ................................................. 21
Submission of Shareholder Proposals ................................ 21
Annual Reports ..................................................... 21
Shareholder Communications ......................................... 22
Expense of Proxy Solicitation ...................................... 22
Voting Results ..................................................... 23
Fiscal Year ........................................................ 23
General ............................................................ 23
APPENDIX A: AUDIT COMMITTEE CHARTER ...................................... A-1
APPENDIX B: NOMINATING COMMITTEE CHARTER ................................. B-1
APPENDIX C: LEGAL PROCEEDINGS ............................................ C-1
APPENDIX D: NEW INVESTMENT ADVISORY AGREEMENT ............................ D-1
APPENDIX E: REPORT OF THE AUDIT COMMITTEE ................................ E-1
(This page intentionally left blank.)
CASTLE CONVERTIBLE FUND, INC.
111 FIFTH AVENUE
NEW YORK, NEW YORK 10003
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 21, 2006
The 2006 Annual Meeting of Shareholders (the "Meeting") of Castle
Convertible Fund, Inc. (the "Fund"), a Delaware corporation, 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 December 21, 2006, for the
following purposes:
1. To elect six Directors for the ensuing year;
2. To approve an Investment Advisory Agreement between the Fund and
Fred Alger Management, Inc.; and
3. To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" EACH
PROPOSAL.
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 Directors,
Hal Liebes
Secretary
November 15, 2006
New York, New York
1
CASTLE CONVERTIBLE FUND, INC.
111 FIFTH AVENUE
NEW YORK, NEW YORK 10003
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 21, 2006
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Castle Convertible Fund, Inc. (the
"Fund"), a Delaware corporation, of proxies to be voted at the annual meeting of
shareholders of the Fund (the "Meeting"), to be held at 1:00 p.m. (Eastern time)
on December 21, 2006, 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 Fund is a closed-end investment management company
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
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. As of the Record Date, the Fund had
2,236,000 shares of common stock outstanding and has net assets of $63,623,091.
Shareholders are entitled to one vote for each Fund share held and fractional
votes for each fractional Fund share held.
Please complete, sign, date and return the proxy card you receive, or
please vote by telephone or over the Internet. 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. This code is designed to confirm your
identify, provide access into the voting sites and confirm that your
instructions are properly recorded.
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 a proposal, 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.
2
VOTE REQUIRED AND MANNER OF VOTING PROXIES
A quorum of shareholders, consisting of a majority of the outstanding
shares entitled to vote, is required to take action with respect to each
proposal at the Meeting. 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 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) 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" Proposal 2.
Broker-dealer firms holding shares of the 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 request for voting instructions may not vote such customer
or client's shares with respect to Proposal 2. 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 beneficially own shares that are held in "street name" through a
broker-dealer, 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 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 Fund voted at the Meeting. Approval of
Proposal 2 requires the affirmative vote of a "1940 Act Majority Vote" of the
outstanding voting securities of the Fund, which means the affirmative vote of
the lesser of (a) 67% or more of the outstanding 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 outstanding voting securities of the Fund are
present or represented by proxy) or (b) more than 50% of the outstanding voting
securities of the Fund.
3
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" Proposal 2. Abstentions and broker non-votes will have no effect on
the results of the voting on Proposal 1.
PROPOSAL 1: TO ELECT SIX DIRECTORS
The purpose of this proposal is to elect six Directors of the Fund to
assume office upon their acceptance of their elections and commencement of
service as Directors. 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 Fund's
Board is composed of a single class of Directors. All shareholders will vote for
all the Nominees. The Board has determined that the number of Directors shall be
fixed at the number of Directors elected in accordance with this Proxy
Statement.
Shareholders 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 Directors. If elected, each will serve until
the next annual meeting of shareholders and until their successors are elected
and qualified.
Each of the Nominees is currently a Director of the Fund; 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 Directors who
are not "interested persons" (as defined in the 1940 Act) of the Fund (the
"Independent Directors").
The Board, including all of the Independent Directors, 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 Fund and the other
five registered investment companies advised by the Fund's investment adviser,
Fred Alger Management, Inc. ("Alger Management").
4
NUMBER OF
PORTFOLIOS IN
THE FUND
COMPLEX
NAME (AGE) WHICH ARE
POSITION WITH THE PRINCIPAL OCCUPATIONS AND OVERSEEN BY
FUND (SINCE) OTHER BOARD MEMBERSHIPS DIRECTOR**
- -----------------------------------------------------------------------------------------
INTERESTED DIRECTOR*
Hilary M. Alger, Director of Development, Pennsylvania 27
CFA (44) Ballet since 2004; Associate Director
Director (2003) of Development, College of Arts and
Sciences and Graduate School,
University of Virginia 1999-2003.
INDEPENDENT DIRECTORS
Stephen E. O'Neil (73) Attorney; Private investor since 1981; 27
Director (1973) Director of Brown-Forman Corporation
since 1978. Formerly of Counsel to
the law firm of Kohler & Barnes.
Charles F. Baird, Jr. (52) Managing Partner of North Castle 27
Director (2000) Partners, 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 (60) Senior Associate Dean of Development, 27
Director (2000) Harvard University. Formerly Deputy
Director of the Harvard College Fund.
Lester L. Colbert, Private investor since 1988; Chairman 27
Jr. (72) of the Board, President and Chief
Director (1974) Executive Officer of Xidex
Corporation 1972-87.
Nathan E. Saint-Amand, Medical doctor in private practice; 27
M.D. (68) Member of the Board of the Manhattan
Director (1986) Institute since 1988. Formerly
Co-Chairman, Special Projects
Committee, Memorial Sloan Kettering.
- -----------------------------------------------------------------------------------------
5
* Ms. Alger is an "interested person" (as defined in the 1940 Act) of the
Fund 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
of the other five registered investment companies advised by Alger
Management. If the Nominees are elected to serve on the boards of 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 Fund'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 Fund.
NAME, (AGE),
POSITION WITH THE OFFICER
FUND AND ADDRESS(1) PRINCIPAL OCCUPATIONS SINCE(2)
- -----------------------------------------------------------------------------------------
Daniel C. Chung (44) President since September 2003 and Chief 2001
President* 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 of 1997
Treasurer 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.
6
NAME, (AGE),
POSITION WITH THE OFFICER
FUND AND ADDRESS(1) PRINCIPAL OCCUPATIONS 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 of 2006
Chief Compliance Compliance of Alger Management since
Officer 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 Director of the Fund since 2001, 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 are
scheduled to be held in January 2007.
7
COMPENSATION
No director, officer or employee of Alger Management or its affiliates
receives any compensation from the Fund for serving as an officer or Director of
the Fund. The 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 Fund did not offer Directors 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
Directors of the Fund for the fiscal year ended October 31, 2005. Through
September 2006, the Fund paid each Independent Director $2,000 for each meeting
attended, to a maximum of $8,000 per annum, plus travel expenses incurred for
attending the meeting.
TOTAL COMPENSATION FROM
AGGREGATE THE FUND COMPLEX
COMPENSATION (NUMBER OF REGISTERED
DIRECTOR FROM THE FUND INVESTMENT COMPANIES)
- --------------------- ------------- -----------------------
Charles F. Baird, Jr. $ 6,000 $22,500(4)
Roger P. Cheever $ 8,000 $30,000(4)
Lester L. Colbert, Jr. $ 8,000 $38,000(5)
Stephen E. O'Neil $14,000 $65,000(6)
Nathan E. Saint-Amand $ 8,000 $44,000(6)
None of the Independent Directors and none of their immediate family
members owns any securities issued by 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 Director in the Fund and in the portfolios in the Fund Complex overseen by
that Director, 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.
8
AGGREGATE EQUITY
SECURITIES OF
EQUITY SECURITIES FUNDS IN
DIRECTOR OF THE FUND THE FUND COMPLEX
- --------------------- ----------------- ----------------
INTERESTED DIRECTOR
Hilary M. Alger A E
INDEPENDENT DIRECTORS
Charles F. Baird, Jr. A A
Roger P. Cheever A D
Lester L. Colbert, Jr. C D
Stephen E. O'Neil A A
Nathan E. Saint-Amand A E
ATTENDANCE OF DIRECTORS AT ANNUAL MEETING; BOARD MEETINGS
The Fund does not have a policy regarding attendance by Directors at
annual shareholder meetings. No Directors attended the 2005 Annual Meeting.
During the Fund's 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.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") and
Section 30(h) of the 1940 Act require the Fund's officers and Directors, certain
officers and Directors of Alger Management, affiliated persons of Alger
Management, and persons who beneficially own more than 10% of the Fund's shares
to file reports of ownership with the Securities and Exchange Commission (the
"SEC") and the Fund.
Based solely upon its review of the copies of such forms received by it,
the Fund believes that, for the fiscal year ended October 31, 2005, all filing
requirements applicable to such persons were complied with.
STANDING COMMITTEES OF THE BOARD
AUDIT COMMITTEE. The Board has a standing Audit Committee comprised of
Messrs. Lester L. Colbert, Jr., Stephen E. O'Neil and Nathan E. Saint-Amand,
each of whom is not an "interested person," within the meaning of the 1940 Act,
and also is "independent" as defined in Section 121A of the Listing Requirements
of the American Stock Exchange. The primary purposes of the Board's Audit
Committee are to assist the Board in the oversight of the integrity of the
Fund's financial statements, the independent auditor's qualifications and
independence, the performance of the Fund's independent auditors, and the Fund's
compliance with legal and regulatory requirements pertaining to its accounting
and financial
9
reporting. The Audit Committee prepares an audit committee report, if required
by the SEC, to be included in the Fund's annual proxy statement, if any. The
Audit Committee oversees 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. The Audit Committee
determines, and recommends to the Board, including the Independent Directors,
for its ratification, the selection, appointment, retention or 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. The Audit Committee also pre-approves all audit and certain
permissible non-audit services provided to the Fund and certain other persons by
such independent auditors. Finally, the Audit Committee acts as a liaison
between the Fund's independent auditors and the Board. During the Fund's fiscal
year ended October 31, 2005, the Audit Committee met three times. A copy of the
Audit Committee Charter is included in Appendix A.
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 Directors. 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 Fund so that the interests of
the shareholders are well-served. The Nominating Committee's responsibilities
include the nomination of new Directors 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 Fund's Secretary
that include all information relating to such person that is required to be
disclosed in solicitations of proxies for the election of Directors. 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 Director (if
elected). A copy of the Nominating Committee Charter is included in Appendix B.
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 fund shareholders. The Nominating Committee shall
review and make recommendations with regard to the tenure of Directors,
including any term limits, limits on the number of boards on which a Director
may sit and normal retirement age. The Nominating Committee may retain and
terminate a search firm to identify Director nominees, subject to the Board's
sole authority to approve the search firm's fees and other retention terms. The
10
Nominating Committee may, in its discretion, establish specific, minimum
qualifications (including skills) that 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 Directors.
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 C. 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 Fund. 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 Fund, 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 Fund. Alger Management cannot predict the potential
effect of such actions upon Alger Management or the Fund. 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 Directors,
must be approved by a plurality of the votes cast in person or by proxy at the
Meeting at which a quorum exists.
THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES.
PROPOSAL 2: TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT
Shareholders are being asked to vote on a new investment advisory
agreement between 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 the Fund's existing investment advisory agreement with Alger
Management. As a result, the Board of Directors has determined to seek
shareholder approval of a new investment advisory agreement with Alger
Management.
11
BACKGROUND INFORMATION
Alger Management has provided investment advisory services to the Fund
since February 1974 under the supervision of the Fund's Board of Directors and
has been responsible for the overall administration of the 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. The Fund has historically operated under separate investment
advisory and administrative agreements.
The Fund's advisory agreement with Alger Management was last approved on
December 5, 1975 by the shareholders of the Fund pursuant to which the Fund paid
Alger Management an advisory fee of 0.75% of the Fund's average daily net
assets. During the Fund's fiscal year ended October 31, 2005, the Fund paid
Alger Management $451,521 for providing advisory services to the Fund.
Alger Management also had provided certain administrative services to the
Fund pursuant to a bookkeeping services agreement (the "Bookkeeping Agreement"),
pursuant to which the Fund paid Alger Management an annual fee of $18,000 for
such services. Under the Bookkeeping Agreement, Alger Management provided the
Fund with various services, including, but not limited to the following:
computation of Fund net asset value and pricing of certain portfolio securities;
furnishing of clerical, accounting and bookkeeping services; and maintenance of
Fund financial accounts and records. The Fund's advisory agreement also states
that Alger Management would provide certain limited administrative services, in
addition to investment advisory services; however, these services have
historically been provided under the Bookkeeping Agreement.
Pursuant to the approval of the Fund's Board of Directors, at a meeting
held on September 12, 2006, the administrative services provided by Alger
Management to the Fund were consolidated into a single new administration
agreement (the "Administration Agreement"), which replaced the Bookkeeping
Agreement. Under the Administration Agreement, Alger Management provides the
Fund with various administrative services, including, but not limited to, 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 fee payable by the Fund under the Administration
Agreement is identical to the fee that the Fund was paying under the Bookkeeping
Agreement; however, Alger Management is providing additional services to the
Fund under the Administration Agreement.
Additionally, the Fund's Board of Directors approved amended and restated
an investment advisory agreement (the "Current Investment Advisory
12
Agreement"), which reflected the consolidation of all the administrative
services and removed reference to the limited administrative services. The
advisory fee payable by the Fund under the Current Investment Advisory Agreement
is identical to that payable under the advisory agreement last approved by the
Fund's shareholders and did not change as a result of the termination of the
Bookkeeping Agreement and adoption of the Administration Agreement.
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 Fund's Board. As of October
2, 2006, Mr. Alger has retired as Chairman of the Board of Alger Management and
of the Fund'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
Associates. 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 the 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 Directors of the Fund 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 described below, is
substantially identical to the Current Investment Advisory Agreement. As
discussed below, the Board, including the Independent Directors, has unanimously
approved, and has recommended that the Fund's shareholders approve, its New
Investment Advisory Agreement.
THE NEW INVESTMENT ADVISORY AGREEMENT
On September 12, 2006, the Board approved the New Investment Advisory
Agreement, under which, subject to approval by the Fund's shareholders, Alger
Management will continue to serve as the investment adviser to the Fund. The New
Investment Advisory Agreement, if approved by Fund shareholders, will replace
the 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 AGREEMENT, EXCEPT THAT THE NEW
13
INVESTMENT ADVISORY AGREEMENT HAS A DIFFERENT EFFECTIVE DATE AND TERMINATION
DATE, AND PERMITS THE FUND TO AUTHORIZE ALGER MANAGEMENT TO SELECT AFFILIATED
BROKERS TO EFFECT PORTFOLIO TRANSACTIONS ON BEHALF OF THE FUND.
Under the Current Investment Advisory Agreement, the Fund is prohibited
from selecting Alger Inc. or any other affiliated broker/dealer to execute
portfolio transactions without the prior approval of the Fund's shareholders.
Under the New Investment Advisory Agreement, 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, including Alger Inc. 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.
None of the personnel providing portfolio management services, and none of
the other service providers to the Fund, have changed or are expected to change.
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 the 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, and the Fund's investment
objective, policies and restrictions. The services of Alger Management to the
Fund are not exclusive, and Alger Management is free to render investment
advisory services to others.
Fees paid by the Fund to Alger Management under the New Investment
Advisory Agreement will be calculated at the same rate as the fees previously
charged under the Current Investment Advisory Agreement.
Alger Management is not liable for any error or judgment or mistake of law
or for any loss suffered by the 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 each Advisory
Agreement.
Pursuant to the New Investment Advisory Agreement, Alger Management will
pay or reimburse the Fund for all expenses incurred by Alger Management or by
the Fund in managing the investment and reinvestment of the assets of the Fund.
Pursuant to the New Investment Advisory Agreement, the Fund will pay the other
expenses of the Fund, including but not limited to the following: compensation
of Independent Directors and expenses incurred in connection with attendance at
Board meetings; charges and expenses of any custodian or depository appointed by
the Fund for the safekeeping of its cash, securities and other property; charges
and expenses of bookkeeping and of auditors, transfer agents, dividend
disbursing agents, and/or registrars appointed by the Fund; brokerage
14
expenses (I.E., brokerage commissions and fees, dealer mark-ups and mark-downs,
and other such expenses incurred in the acquisition or disposition of portfolio
securities); all taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies; the cost of stock certificates representing
shares of the Fund; fees and expenses involved in registering the Fund's shares
with the SEC and qualifying its shares under the state or other securities laws,
including the preparation and printing of prospectuses for filing with the SEC
and other authorities; fees and expenses of any filings required to be made with
the National Association of Securities Dealers, Inc.; all expenses of
shareholders' and Directors' meetings and of preparing and printing reports to
shareholders; all printing and interest expenses; and charges and expenses of
legal counsel for the Fund in connection with legal matters relating to the
Fund, including, without limitation, legal services rendered in connection with
the Fund's corporate existence, corporate and financial structure and relations
with its shareholders, and registrations and qualifications of securities under
federal, state and other laws.
The Fund's New Investment Advisory Agreement, if approved by shareholders,
will continue in effect 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 Fund's Board or (2) by a vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund.
The Fund's New Investment Advisory Agreement may be terminated at any
time, without payment of any penalty, by vote of the Board or by vote of the
holders of a majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act), 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 Fund's 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 D.
BOARD CONSIDERATIONS
At an in-person meeting held on September 12, 2006, the Directors,
including the Independent Directors, unanimously approved, subject to the
required shareholder approval described herein, the New Investment Advisory
Agreement. The Independent Directors were assisted in their review by
independent legal counsel and met with counsel in executive session separate
from representatives of Alger Management.
In evaluating the New Investment Advisory Agreement, the Directors drew on
materials that they requested and which were provided to them in advance of
15
the meeting by Alger Management and by counsel to the Fund. 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 certain of its
affiliates 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 Directors based
on the Callan materials.
In deciding whether to approve the New Investment Advisory Agreement, the
Directors 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 Fund.
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 Directors relied on their prior
experience as Directors of the Fund, 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
Agreement. They noted that under each Advisory Agreement, 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 Fund's affairs are provided under the separate Administration
Agreement. The Directors reviewed the background and experience of Alger
Management's senior investment management personnel, including the individuals
currently responsible for the investment operations of the Fund. They also
considered the resources, operational structures and practices of Alger
Management in managing the Fund's portfolio and administering the Fund's
affairs, as well as Alger Management's overall investment management business.
The Directors concluded that Alger Management's experience, resources and
strength in those areas of importance to the Fund are considerable. The
Directors considered the level and depth of Alger Management's ability to
execute portfolio transactions to effect investment decisions, including those
through Alger Inc. The Directors noted the ongoing enhancements to the control
and compliance environment at Alger Management and within the Fund. The
Directors also considered data provided by Callan comparing the Fund's advisory
fee and expense ratio with those of other convertible securities funds and noted
that at June 30, 2006 the advisory fee was three basis points greater than the
median fee, while the expense ratio fell well below the median.
16
TRANSFER OF OWNERSHIP OF ALGER ASSOCIATES. The Directors 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 Fund 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 the Current Investment Advisory
Agreement, except for the time periods covered by the agreements and that the
Fund would be permitted to authorize Alger Management to select affiliated
brokers to effect portfolio transactions on behalf of the Fund.
INVESTMENT PERFORMANCE OF THE FUND. Drawing upon information provided at
the meeting by Alger Management as well as Callan and upon reports provided to
the Directors by Alger Management throughout the preceding year, the Directors
noted that the Fund's performance had improved substantially since the
assumption of responsibility for the Fund by its current portfolio manager. The
Fund's performance for 2005 had been excellent. As to the Fund's recent
performance, they noted that for the 6-month period ended June 30, 2006, the
Fund lagged its benchmark and placed slightly below the median for its peers,
but placed extremely high among its peers and beat its benchmark index by a
significant margin for the quarter ended June 30, 2006. The Directors
acknowledged the ongoing efforts by Alger Management to improve the Fund's
performance.
PROFITABILITY TO ALGER MANAGEMENT AND ITS AFFILIATES. The Directors
considered the profitability of the Current Investment Advisory Agreement to
Alger Management and its affiliates, and the methodology used by Alger
Management in determining such profitability. The Directors reviewed
previously-provided data on the Fund's profitability to Alger Management and its
affiliates for the 12-month period ended June 30, 2006. The Directors discussed
the methodologies used in computing the costs that formed the bases of the
profitability calculations with representatives of Alger Management and Callan
and then turned to the data provided. They concluded that, while both Alger
Management and its affiliate, Alger Shareholder Services, Inc., had profited
from their relationships with the Fund, the profit margins in both cases were
not unacceptably high.
ECONOMIES OF SCALE. On the basis of their discussions with management and
their analysis of information provided at the meeting, the Directors determined
that the nature of the Fund and its operations is such that Alger Management may
realize economies of scale in the management of the Fund at some point if it
grows in size, but that in light of the comparatively small size of the Fund and
the
17
likelihood that the Fund's size will not increase dramatically in the near term,
adoption of breakpoints in the advisory fee, 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 Directors requested that Alger Management address this topic with the Board
at future meetings.
OTHER BENEFITS TO ALGER MANAGEMENT. The Directors next considered whether
Alger Management benefits in other ways from its relationship with the Fund.
They noted that Alger Shareholder Services, Inc. receives a small amount of fees
from the Fund under a shareholder services agreement, which they had already
considered in connection with their review of the profitability to Alger
Management and its affiliates of their relationship with the Fund. As to other
benefits received, the Directors decided that none were so significant as to
render Alger Management's fees excessive.
At the conclusion of these discussions, each of the Independent Directors
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.
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 Fund's overall performance.
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.
18
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 the 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 Fund who also serve
as officers of Alger Management, please refer to Proposal 1 above.
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.
SHAREHOLDER APPROVAL
To become effective, the Fund's 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
outstanding 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
outstanding voting securities of the Fund are present or represented by proxy)
or (b) more than 50% of the outstanding voting securities of the Fund.
THE BOARD OF DIRECTORS, INCLUDING THE INDEPENDENT DIRECTORS, UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE NEW INVESTMENT ADVISORY
AGREEMENT.
SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The 1940 Act requires that the Fund's independent registered public
accounting firm be selected by a majority of the Independent Directors of the
Fund. One of the purposes of the Audit Committee is to recommend to the Fund's
Board the selection, retention or termination of the independent registered
public accounting firm for the Fund. At a meeting held on September 12, 2006,
the Fund's
19
Audit Committee selected and recommended and the Fund's Board, including a
majority of the Independent Directors, approved the selection of Ernst & Young
LLP ("E&Y") as the Fund's independent registered public accounting firm for the
fiscal year ending October 31, 2007. E&Y has served as the Fund's independent
registered public accounting firm since December 2, 2002. A representative of
E&Y will be present at the Meeting and will be available to respond to
appropriate questions.
After reviewing the Fund's audited financial statements for the fiscal
year ended October 31, 2005, the Fund's Audit Committee recommended to the
Fund's Board that such statements be included in the Fund's Annual Report to
shareholders. A copy of the Audit Committee's report for the Fund is attached as
Appendix E to this Proxy Statement.
The following table sets forth the fees paid to E&Y for the fiscal years
ended October 31, 2004 and 2005 for professional services rendered for the audit
of the Fund's financial statements for those fiscal years and other services.
YEAR ENDED YEAR ENDED
OCTOBER 31, 2004 OCTOBER 31, 2005
---------------- ----------------
Audit Fees $23,200 $23,600
Audit-Related Fees $ 0 $ 0
Tax Fees* $ 3,300 $ 3,470
All Other Fees** $15,700 $17,750
- ----------
* Tax fees for fiscal years 2004 and 2005 included the review of Fund's
federal, state and local tax returns.
** Other fees include a debt analysis review and a review of the semi-annual
financial statements.
All services to be performed by the Fund's independent registered public
accounting firm must be pre-approved by the Fund's Audit Committee. Accordingly,
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 Fund 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.
20
ADDITIONAL INFORMATION
5% SHARE OWNERSHIP
The following table sets forth those persons known to the Fund to be
beneficial owners of more than 5% of the outstanding voting shares of the Fund
as of the Record Date.
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS SHARES OWNED SHARES OUTSTANDING
- ---------------- ------------ ------------------
Alger Associates 373,382* 16.70%
111 Fifth Avenue
New York, New York 10003
- ----------
* These shares may be deemed to be beneficially owned by Mr. Frederick M.
Alger, III by virtue of his control of Alger Associates, pending the
transfer of the ownership control of Alger Associates to his daughters in
February 2007.
SUBMISSION OF SHAREHOLDER PROPOSALS
A shareholder proposal intended to be presented at the Fund's 2007 Annual
Meeting of Shareholders in accordance with Rule 14a-8 must be received by the
Fund at its principal executive offices no later than July 4, 2007, and must
comply with all other legal requirements in order to be included in the Fund's
Proxy Statement and form of proxy for that meeting. Timely submission of a
proposal does not guarantee its inclusion in the proxy statement and form of
proxy. A shareholder wishing to provide notice of a proposal in the manner
prescribed by Rule 14a-4(c)(1) under the 1934 Act must submit written notice of
the proposal to the Fund by September 17, 2007. For these purposes the address
of the Fund is: Castle Convertible Fund, Inc., 111 Fifth Avenue, New York, New
York 10003, Attn: Secretary.
ANNUAL REPORTS
A COPY OF THE FUND'S MOST RECENT SEMI-ANNUAL AND ANNUAL REPORTS WILL BE
SENT TO YOU WITHOUT CHARGE UPON WRITTEN REQUEST TO THE FUND C/O FRED ALGER
MANAGEMENT, INC., 111 FIFTH AVENUE, NEW YORK, NEW YORK 10003 OR BY CALLING
800-992-3863. COPIES OF THE FUND'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 the Fund who share an address, unless
the Fund has received instructions to the contrary. To request a separate copy
of an 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 Fund at the address and phone number set forth above.
21
SHAREHOLDER COMMUNICATIONS
Shareholders who want to communicate with the Board or any individual
Director should write the 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 Director and so
indicates, it will be sent only to that Director. If a communication does not
indicate a specific Director it will be sent to the chair of the Nominating
Committee and the outside counsel to the Independent Directors for further
distribution as deemed appropriate by such persons.
Additionally, shareholders with complaints or concerns regarding
accounting matters may address letters to the Fund'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 $27,800. 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 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
22
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 Fund will advise shareholders of the voting results of the matters
voted upon at the Annual Meeting in the 2007 Semi-Annual Report to Shareholders.
The Fund 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 the 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 Fund.
A list of shareholders entitled to be present and to vote at the Meeting
will be available at the offices of the Fund, 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 Fund's By-Laws, an adjournment of the Meeting requires the affirmative vote
of a majority 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 PRE-PAID RETURN ENVELOPE OR BY
FOLLOWING THE ENCLOSED INSTRUCTIONS TO VOTE BY TELEPHONE OR OVER THE INTERNET.
Hal Liebes
Secretary
November 15, 2006
23
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APPENDIX A: 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
(iii)
A-1
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
A-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;
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(c) to pre-approve (i) all audit and permissible non-audit services1 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);
(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
- ----------
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.
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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;
(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;
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(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
(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.
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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.
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:
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 B: 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
B-1
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.
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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 C: 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
C-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, Inc. and
Alger Shareholder Services, Inc.
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APPENDIX D: NEW INVESTMENT ADVISORY AGREEMENT
CASTLE CONVERTIBLE FUND, INC.
AGREEMENT made this day of , 2006 by and between CASTLE
CONVERTIBLE FUND, INC., a Delaware corporation (hereinafter sometimes called the
"Fund") and FRED ALGER MANAGEMENT, INC., a Delaware corporation (hereinafter
sometimes called "Alger Management").
WITNESSETH:
WHEREAS, the Fund and Alger Management wish to enter into an agreement
setting forth the terms of which Alger Management will perform certain services
for the Fund;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and Alger Management agree as follows:
(a) The Fund hereby employs Alger Management to manage the investment and
reinvestment of the assets of the Fund, subject to the supervision of the Board
of Directors of the Fund, for the period and on the terms in this Agreement set
forth. Alger Management hereby accepts such employment and agrees during such
period, at its own expense, to render the services and to assume the obligations
herein set forth, for the compensation herein provided. Alger Management shall
for all purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to act for
or represent the Fund in any way or otherwise be deemed an agent of the Fund.
(b) Alger Management assumes and shall pay or reimburse the Fund for all
expenses incurred by Alger Management or by the Fund in managing the investment
and reinvestment of the assets of the Fund. The Fund assumes and shall pay other
expenses of the Fund, including without limitation: (1) compensation of
unaffiliated directors; (2) expenses incurred in connection with attendance at
Board meetings; (3) the charges and expenses of any custodian or depository
appointed by the Fund for the safekeeping of its cash, securities and other
property; (4) the charges and expenses of bookkeeping and of auditors; (5) the
charges and expenses of any transfer agents, dividend disbursing agents, and/or
registrars appointed by the Fund; (6) brokerage expenses, i.e., brokerage
commissions and fees, dealer mark-ups and mark-downs, and other such expenses
incurred in the acquisition or disposition of portfolio securities; (7) all
taxes and corporate fees payable by the Fund to federal, state or other
governmental agencies (8) the cost of stock certificates representing shares of
the Fund; (9) fees and expenses involved in registering the Fund's shares with
the Securities and Exchange Commission and qualifying its shares under the state
or other securities laws, including the preparation and printing of prospectuses
for filing with said Commission and other authorities; (10) fees and expenses of
any filings required
D-1
to be made with the National Association of Securities Dealers, Inc., (11) all
expenses of shareholders' and directors' meetings and of preparing and printing
reports to shareholders; (12) all printing expenses; (13) all interest expenses;
and (14) charges and expenses of legal counsel for the Fund in connection with
legal matters relating to the Fund, including, without limitation, legal
services rendered in connection with the Fund's corporate existence, corporate
and financial structure and relations with its shareholders, registrations and
qualifications of securities under federal, state other laws, issues of
securities and expenses which the Fund has herein assumed.
The services of Alger Management to the Fund hereunder are not to be
deemed exclusive, and Alger Management shall be free to render similar services
to others so long as its services hereunder be not impaired thereby.
Alger Management agrees that it will reimburse the Fund for any expenses
of the Fund (exclusive of interest, taxes, brokerage expenses and extraordinary
expenses) which during any fiscal year are in excess of the sum of (i) 1-1/2% of
the first $30 million of the average of the weekly aggregate net assets of the
Fund, and (ii) 1% of the average of the weekly aggregate net assets of the Fund
in excess of $30 million, during the fiscal year. If during the course of a
fiscal year the annualized rate of expenses of the Fund exceeds the limits
stated above, an appropriate charge shall be made to Alger Management, subject
to final adjustment at year end. In the event this Agreement is terminated at
other than the end of a fiscal year, Alger Management shall pay the Fund the
amount by which the expenses incurred by the Fund prior to the termination date
exceeds the sum of (x) 3/24 of 1% of the first $30 million of the average of the
weekly aggregate net assets (taken from the beginning of the fiscal year in
which the termination occurs and ending as of the last calendar week prior to
such termination) multiplied by the number of full months and fractions thereof
of the fiscal year during which the Agreement remained in effect, and (y) 1/12
of 1% of such average of the weekly aggregate net assts in excess of $30 million
multiplied by the number of full months and fractions thereof of the fiscal year
during which the Agreement remained in effect, subject to adjustment at the end
of the fiscal year in which termination occurs so that Alger Management is
required to reimburse the Fund for no more than the total reimbursement which
would have been made had the Agreement remained in effect for the full fiscal
year multiplied by a fraction equal to the number of full months and fractions
thereof during which the Agreement remained in effect divided by twelve.
(c) As compensation for its services, Alger Management will be paid by the
Fund a fee, payable monthly from the date hereof, computed at the rate of 3/4 of
1% per annum of the average of the weekly aggregate net assets of the Fund as of
the close of business of the New York Stock Exchange on the last business day of
each business week ending within the applicable period. The weekly aggregate net
assets for each week shall be computed by subtracting the
D-2
value of the Fund's liabilities from the value of its assets, such value to be
computed as of the close of business on the last business day in such week.
(d) Subject to and in accordance with the Certificate of Incorporation and
By-Laws of the Fund and of Alger Management, it is understood that directors,
officers, agents and stockholder of Alger Management are or may be interested in
the Fund as directors, officers, stockholders or otherwise, that Alger
Management (or any such successor) is or may be interested in the Fund as
stockholder or otherwise, and that the effect of any such interests shall be
governed by law and by the provisions, if any, of said Certificate of
Incorporation, or By-Laws.
(e) Alger Management shall notify, or shall cause each of its directors
and officers to notify, the Treasurer of the Fund of the names of all issuers in
which any such officer or director owns as much as one-half of one percent (1/2
of 1%) of the outstanding shares or securities.
(f) This Agreement shall become effective as of the date first set forth
above. The initial term of this Agreement shall end on September 30, 2008.
Thereafter, this Agreement shall continue for successive twelve (12) month
periods, provided such continuance is specifically approved at least annually
(i) by a vote of the majority of the Board of Directors of the Fund who are not
parties to his Agreement or interested persons of the Fund or Alger Management
Adviser, cast in person at a meeting called for the purpose of voting on such
approval and (ii) by a vote of the Board of Directors or a majority of the
outstanding voting securities of the Fund.
This Agreement, may without the payment of any penalty, be terminated at
any time either by vote of the Board of Directors of the Fund or by vote of a
majority of the outstanding voting securities of the Fund, on sixty days'
written notice to the Adviser. This Agreement may be terminated by the Adviser
only sixty days' written notice to the Fund and shall immediately terminate in
the event its assignment.
(g) In consideration of Alger Management's entering into this Agreement,
the Fund agrees that Alger Management, subject to the overall control and
supervision of the Board of Directors of the Fund, and subject to the primary
obligation of the Fund and Alger Management to obtain the best price and the
best execution of all orders, may select in its discretion the brokers or
dealers, if any, that shall execute portfolio transactions for the Fund and the
brokers or dealers that shall receive or share directly or indirectly in any
commission or similar fees. Pursuant to the provisions of Section 11(a) of the
Securities Exchange Act of 1934, 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.
D-3
The Fund may revoke such consent at any time upon written notice given to Alger
Management.
(h) Alger Management shall not be liable for any error or judgment or
mistake of law or for any loss suffered by the Fund in connection with any
investment policy or the purchase, sale or retention of any security on the
recommendation of Alger Management; but nothing herein contained shall be
construed to protect Alger Management against any liability to the Fund by
reason of willful malfeasance, bad faith, or gross negligence in the performance
of Alger Management's duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
(i) As used in this Agreement, the terms "majority of the outstanding
voting securities of the Fund", "interested persons" and "assignment" shall have
the meaning provided therefor in the Investment Company Act of 1940, as from
time to time amended.
(j) IN WITNESS WHREEOF, the parties hereto have executed this Agreement on
the day and year first above written.
CASTLE CONVERTIBLE FUND, INC.
By:_______________________________
FRED ALGER MANAGEMENT, INC.
By:_______________________________
D-4
APPENDIX E: REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Fund oversees the
Fund's accounting and financial reporting processes and the audits of the Fund's
financial statements. The Committee operates pursuant to an Audit Committee
Charter which was last revised and approved by the Board of Directors on
September 12, 2006, a copy of which is attached to this Proxy Statement as
Appendix A. 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
Fund's financial statements, the independent auditor's qualifications and
independence, the performance of the Fund's independent auditors, and the Fund's
compliance with legal and regulatory requirements pertaining to its accounting
and fiancial reporting.
In the performance of its oversight function, the Committee has considered
and discussed the October 31, 2005 audited financial statements of the Fund with
management and with Ernst & Young LLP ("E&Y"), the Fund'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 Fund'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 Fund's internal
controls, and the overall quality of the Fund'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
Directors (and the Board has approved) that the audited financial statements be
included in the Fund'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.
E-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 Fund'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
E-2
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EVERY SHAREHOLDER'S VOTE IS IMPORTANT
YOUR PROXY VOTE IS IMPORTANT!
AND NOW YOU CAN VOTE YOUR PROXY ON
THE PHONE OR THE INTERNET.
IT SAVES MONEY! TELEPHONE AND
INTERNET VOTING SAVES POSTAGE COSTS.
SAVINGS WHICH CAN HELP MINIMIZE
EXPENSES.
IT SAVES TIME! TELEPHONE AND
INTERNET VOTING IS INSTANTANEOUS -
24 HOURS A DAY.
IT'S EASY! JUST FOLLOW THESE SIMPLE
STEPS:
1. READ YOUR PROXY STATEMENT AND
HAVE IT AT HAND.
2. CALL TOLL-FREE 1-866-241-6192 OR
GO TO WEBSITE:
HTTPS://VOTE.PROXY-DIRECT.COM
3. FOLLOW THE RECORDED OR ON-SCREEN
DIRECTIONS.
4. DO NOT MAIL YOUR PROXY CARD WHEN
YOU VOTE BY PHONE OR INTERNET.
Please detach at perforation before mailing.
PROXY CARD CASTLE CONVERTIBLE FUND, INC. PROXY CARD
ANNUAL MEETING OF SHAREHOLDERS - DECEMBER 21, 2006
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned shareholder of Castle Convertible Fund, Inc. 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 common stock of Castle Convertible Fund, Inc.
standing in the name of the undersigned at the close of business on October 27,
2006, at the Annual 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), December 21, 2006, 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 DIRECTORS 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 ANNUAL 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
CCF_17011
EVERY SHAREHOLDER'S VOTE IS IMPORTANT
Please detach at perforation before mailing.
PLEASE MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. EXAMPLE: |_|
- --------------------------------------------------------------------------
|_| To vote FOR ALL Proposals mark this box. No other vote is necessary.
- --------------------------------------------------------------------------
1. ELECTION OF DIRECTORS. 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.
___________________________________________ FOR AGAINST ABSTAIN
2. TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT. |_| |_| |_|
3. 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.
CCF_17011