Q:  What is the history of the Fund and the asset management company? A : Fred Alger Management, Inc. is an independent, privately owned firm, which was established in 1964. The company has been widely recognized as a pioneer of growth-style investment management over the past 45 years. The Spectra Fund, the flagship fund of Fred Alger Management, Inc., now renamed Alger Spectra Fund, has been managed by Alger since 1974. The Alger Spectra fund maintains an anchor to large cap growth investing, yet has the flexibility to linvest in the best ideas generated by Alger’s Analysts regardless of market cap. Q:  How is your fund unique from other large cap funds? A : We believe that our success comes down to People, Process, Philosophy and a lot of hard work. We have a very deep and talented research team. We truly believe in our philosophy of investing in Positive Dynamic Change and keeping the portfolio optimized at all times. These are the attributes which really separate us from the pack. The Alger Spectra Fund can also short stocks, typically not more than 10& of the portfolio. Q:  What is your investment philosophy? A : Our core philosophy is to find innovative and dynamic companies that are benefitting from, or creating change. We believe that such companies are most likely to outperform their peers and the market over the long term. These companies, which are undergoing Positive Dynamic Change, offer investors the best long-term growth potential. Q:  How does your investment philosophy translate into the investment strategy? A : The fund maintains investments in equity securities of companies of all market capitalization which demonstrate promising growth potential. Alger Spectra Fund does this while maintaining a large cap growth bias. We seek to invest in companies that are taking market share and have strong free cash flow, balance sheet strength and preferably in industries that have high barriers to entry. Q:  Could you explain your research process with some examples? A : The research process is based on identifying companies undergoing Positive Dynamic Change. We define Positive Dynamic Change as companies experiencing high unit volume growth or undergoing positive lifecycle change. An example of high unit volume growth is a market dominant company that’s taking market share in a growing market segment. Positive life cycle change stories are companies experiencing a major change that is expected to produce advantageous results such as a new product innovation, a new regulation that will favor the company, a new management team, or a strategic acquisition. Alger Spectra Fund employs a bottom-up approach in its attempt to identify the fastest growing companies in their respective sectors. It is driven by the convictions of a research group of more than twenty five investment professionals. We rely not on Wall Street data, but instead, on our own independent research. Our analysts conduct rigorous research of every company they recommend for purchase or sale. They interview a firm’s management, suppliers, customers, and competitors, and construct financial models to assess the company’s future growth prospects. The investment process has always been analyst-driven since the firm was founded 45 years ago. Investment ideas are the responsibility of the Analysts, who bring them to Portfolio Managers and make a recommendation to buy or sell the company’s stock. Before an Analyst approaches a Portfolio Manager, he or she puts together a report detailing key points, risk factors, our investment thesis, and a detailed model of the company’s financials. The analyst models are required to contain a bull, base or bear case with corresponding price targets. We tend to favor companies that generate strong free cash flow and trade at attractive free cash flow multiples relative to their growth rate. The Analyst models contain a five-year discounted cash flow analysis for each of their companies. They set one year price targets on all of our companies. International companies, in the form of ADRs are also considered for the fund. We look at what a company can do in the future, not what they have done in the past. We may look more favorably on a company that has a history of good performance or has a very good management team and continues to execute on their initiatives, but we make our buy and sell decisions based upon a company’s future prospects. We believe that the way to uncover and evaluate companies undergoing Positive Dynamic Change is intensive, fundamental and proprietary research. We don’t rely on sell-side models. We utilize our own detailed financial models built from doing original fundamental research to come up with our best ideas and conviction in our thesis. For instance, Apple Inc. is a classic example of a Positive Dynamic Change story. They design and manufacture consumer electronics and computer software products. At the time Apple introduced the iPod, they were not performing well, and had been losing PC market share. Yet, the introduction of the IPod was one of the hottest consumer products ever, and began the turnaround story for the company. From there, they began taking share in the personal computer market. Apple has continued to innovate with products such as the iPhone. What started as a positive lifecycle change story has now migrated to a high unit volume growth story, with positive future prospects as they are poised to take additional market share in both personal computers and cell phones. Apple has been an extremely powerful stock over this time period. Another example is Hertz, the largest general-use car rental brand in the world. We believe for the following reasons, Hertz was an attractive opportunity: The rental industry has gone from 8 brands to 4. Industry rationalization enhances pricing power. The industry aggressively took out capacity in the downturn—taking out roughly 20% of capacity with down being down low to mid teens in the first half of this yr. We expect demand to return, which will lead to a tight rental car market and higher pricing. The business models are highly levered to improved pricing. The environment has forced the industry to become much more rational. All of the competitors are highly levered and have been forced to run their businesses for cash and earnings vs previous behavior of running the businesses for market share and revenue growth. Htz and the industry have aggressively taken costs out of the system. Htz has already implemented $500 MM in costs savings since 2007 and has identified $500 MM in cost savings for 2009. They have also identified another $100 MM in cost savings for 2010. Hertz will also benefit from improved used car pricing because they have to record a depreciation expense based on the residual values of the cars they purchase. Htz and the industry took a big hit as used car prices dropped significantly late last yr. However, recent data shows used car pricing up 5%. higher used car pricing leads to lower depreciation expense. Q:  Could you explain your portfolio construction process? A : We build our portfolios from the bottom-up, stock by stock, uncovering dynamic growth companies and often investing in them before they are recognized by the rest of the market. We like to invest in dynamic change stories where we can find a differentiated view from the consensus. This combination often leads to very good stocks. We typically hold approximately 100 stocks in our portfolio. The fund’s benchmark is the russell 3000 growth Index. We keep the portfolio optimized at all times by evaluating the risk reward of each of the portfolio holdings. This can lead us to adding to or trimming positions as a company migrates to, and away, from our price targets. keeping the portfolio optimized is a contributor to our ability to outperform. We have a team of Analysts who are industry and sector experts. They are responsible for following their sector or subsector, regardless of market cap. We believe the ability for an Analyst to follow all stocks within a sector allows them to develop more thorough models and aids in their ability to develop a differentiated view. The Analyst’s role is to find the best ideas in their respective sectors and present those ideas to the Portfolio Manager. The Portfolio Manager tests and challenges the Analyst on their ideas and recommendations and makes the final decision as to whether the security is added to the portfolio and the size of the position. We have a maximum weighting in an individual security of no more than 5% at the time of purchase. We have price targets on every stock the Analyst actively follows. We are disciplined on valuation and will rotate money and change weightings in the portfolio according to the upside and risk/reward to our target price. each security is compared with other securities in the portfolio based on expected return, the relative quality of the company, our conviction level on the investment thesis. We want to have ‘buys’ in the portfolio not ‘holds’. We want to have strong conviction in the ideas in the portfolio that have good upside to the target prices and have good risk/rewards. If a stock in the fund has a 5% upside to our target price, it would likely be considered for replacement allowing us rotate into another name that has greater potential appreciation and a better risk/reward. Once a stock is in our portfolio, we continue to monitor its growth until a sell decision is reached, either because it has reached the established target price, or we’ve uncovered a newer idea with greater potential, or the company’s fundamentals no longer meet the fund’s target. Q:  What is your buy-and-sell discipline? A : We are constantly evaluating all the ideas in the portfolio and their relative risk/reward. We will sell a stock if our investment thesis breaks down or the company fundamentals fail to meet our targets. It can be a lot of different factors like revenue, earnings, or market share loss and pricing issues. If a stock has gone down in price we reexamine the thesis as we have modeled it, determine if the risk/reward is still attractive, and then determine whether to hold the stock, look to add to the position or sell it. Q:  What are the risks perceived in the portfolio and how do you mitigate it? A : We have multi-layered risk control measures. At the base level, we manage the fund’s risk by diversifying across sectors and industries. In addition, no more than 5% of the Alger Spectra Fund can be invested in an individual company. We also use analytical software to assess real-time performance and manage risk. We use third-party software to track our portfolio versus a benchmark, and we look at the beta of the portfolio relative to the benchmark. However, our best risk control measure is through our Analysts’ thorough knowledge of their companies and sectors.