[Federal Register Volume 60, Number 249 (Thursday, December 28, 1995)]
[Notices]
[Pages 67154-67155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31380]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 21617; 812-9750]
Spectra Fund, Inc., et al.; Notice of Application
December 21, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Spectra Fund, Inc. (``Fund''), Spectra Fund (``Trust''),
Fred Alger Management, Inc. (``Adviser''), and Alger Associates, Inc.
(``Associates'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) for an
exemption from sections 17(a)(1) and 17(a)(2).
SUMMARY OF APPLICATION: Applicants seek an order permitting the Fund to
convert from a closed-end management investment company organized as a
Massachusetts corporation to an open-end management investment company
organized as a Massachusetts business trust by transferring all of its
assets and liabilities to the Trust in exchange for shares of the
Trust.
FILING DATES: The application was filed on September 7, 1995, and
amended on December 1, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicant with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on January 16,
1996, and should be accompanied by proof of service on applicants, in
the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons may request
notification or a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
Applicants, 75 Maiden Lane, New York, New York 10038.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel, at (202) 942-0583, or C. David
Messman, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Fund was organized in 1968 as a Massachusetts corporation,
and operated as an open-end management investment company until 1978,
when it converted to a closed-end management investment company. The
Trust, which has been organized as a Massachusetts business trust, will
register as an open-end management investment company and will have
substantially the same investment objectives and policies as the Fund.
The Adviser serves as investment adviser to the Fund, and will serve as
the investment adviser to the Trust.
2. Associates, the indirect parent of the Adviser, owns 34.4% of
the outstanding shares of the Fund. Fred M. Alger, III, chairman of the
board of the Fund and the Trust, owns 53.1% of the outstanding voting
securities of Associates. His brother, David D. Alger, president and a
director of the Fund and president and a trustee of the Trust, owns
17.2% of the outstanding voting securities of Associates.\1\
\1\ Fred Alger is also chairman of the board of Associates and
the Adviser. David Alger is president and a director of Associates
and the Adviser, and, in addition to his indirect ownership of Fund
shares through Alger Associates, directly owns .5% of the shares of
the Fund.
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3. Since the Fund's conversion to a closed-end management
investment company, its shares generally have traded at a discount of
greater than 10% to their net asset value. On May 24, 1995, after
considering various means of reducing the discount to net asset value
at which Fund shares typically trade, the board of directors of the
Fund (the ``Board'') decided to recommend conversion from closed-end to
open-end status, which would give shareholders the right to dispose of
Fund shares at such time as they choose at prices based on the net
asset value of their shares. The Board also recommended that the Fund
convert from a Massachusetts corporation to a Massachusetts business
trust in order to reduce its operating expenses by eliminating the need
for annual shareholder meetings, with their associated costs.
4. To effect the conversion of the Fund from a closed-end
management investment company organized as a Massachusetts corporation
to an open-end management investment company organized as a
Massachusetts business trust (the ``Reorganization''), a majority of
the Board (including a majority of directors who are not interested
persons of the Fund) approved an agreement and plan of reorganization
and liquidation (the ``Agreement''). In accordance with the Agreement,
the Fund will transfer all of its assets and liabilities to the Trust
in a tax-free exchange for shares of beneficial interest of the Trust
equal in number and value to the shares of common stock of the Fund
then outstanding. Immediately thereafter, the Fund will distribute
these shares of the Trust pro rata to its shareholders in
[[Page 67155]]
complete liquidation of the Fund.\2\ Upon completion of the
Reorganization, each former shareholder of the fund will be the owner
of full and fractional shares of the Trust equal in number and
aggregate net asset value to the shares he or she held in the Fund.
\2\ The Fund is currently the sole shareholder of the Trust, but
will redeem its Trust shares prior to the Reorganization.
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5. In assessing the proposed Reorganization, the Board considered
the following factors: (a) The terms and conditions of the Agreement,
including the fact that shareholders of the Fund, in effect, will
receive shares of a substantially identical Trust in an exchange based
on the relative net asset values of such shares; (b) no transaction
costs or other charges will be incurred by shareholders of the Fund in
connection with their acquisition of Trust shares; and (c) the tax-free
nature of the Reorganization.
6. In connection with the proposed Reorganization, shareholders of
the Fund were provided with a proxy statement dated August 4, 1995. At
a special meeting held on September 28, 1995, shareholders of the Fund
voted to amend the Fund's investment management agreement and certain
of its fundamental investment policies, and approved the
Reorganization.
7. All expenses relating to the Reorganization will be borne by the
Fund and, if the Reorganization is consummated, will be assumed by the
Trust.
Applicants' Legal Analysis
1. Sections 17(a)(1) and 17(a)(2) of the Act, in relevant part,
prohibit an affiliated person of a registered investment company, or
any affiliated person of such a person, acting as principal, from
selling to or purchasing from such registered company, any security or
other property. Section 17(b) provides that the SEC may exempt a
transaction from section 17(a) if evidence establishes that the terms
of the transaction, including the consideration to be paid or received,
are reasonable and fair and do not involve overreaching on the part of
any person concerned, that the proposed transaction is consistent with
the policies of the investment company concerned and with the general
purposes of the Act.
2. Rule 17a-8 generally exempts from the prohibitions of section
17(a) mergers, consolidations, or purchases or sales of substantially
all of the assets of registered investment companies that are
affiliated persons, or affiliated persons of an affiliated person,
solely by reasons of having a common investment adviser, common
directors, and/or common officers, provided that certain conditions are
satisfied. Applicants may not rely on rule 17a-8 because, under section
2(a)(3)(D), Fred Alger and David Alger are affiliated persons of the
Trust by virtue of their offices. Under section 2(a)(3)(B), the Fund
may be an affiliated person of each of Fred Alger and David Alger by
virtue of the fact that each may be said indirectly (through
Associates) to own at least 5% of the Fund's outstanding shares. In
addition, Fred Alger also owns or controls, directly and through trusts
of which he is the trustee, 6.7% of the shares of the Fund, so that the
Fund may be said to be an affiliated person of him on this basis as
well. Accordingly, the Fund may be considered an affiliate person of an
affiliated person of the Trust. The Board nonetheless reached the
determinations required by rule 17a-8. Specifically, the Board
determined that changing from a corporation to a business trust was in
the best interest of the Fund, and that the interests of existing
shareholders of the Fund would not be diluted as a result of the
transaction.
3. Applicants believe that the proposed Reorganization is properly
viewed as a mere change in the form of organization rather than as a
disposition of property giving rise to section 17(a) concerns.
Applicants also submit that the Reorganization satisfies the
requirements of section 17(b). The Trust was created specifically for
the purpose of effecting the Reorganization, and, prior to the
Reorganization, will be simply a shell with nominal assets, no
liabilities, and no business operations. The transfer of Fund shares
for Trust shares of identical value will leave Fund shareholders with
identical ownership positions, and no additional consideration will be
paid by the Fund or its shareholders for the Trust shares. Because Fund
shareholders will receive interests in the Trust identical to their
previous interests in the Fund pursuant to a tax-free transaction, with
no transaction costs or other charges imposed on shareholders, no party
to the transaction will have the opportunity to influence the actions
of the Fund or the Trust to the detriment of shareholders. Accordingly,
applicants believe that the terms of the Reorganization, including the
consideration to be paid and received, are reasonable and fair and do
not involve overreaching on the part of any persons concerned.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-31380 Filed 12-27-95; 8:45 am]
BILLING CODE 8010-01-M
