SPECTRA |
FUND, | Meeting the challenge
INC. | of investing
Annual Report
October 31, 1995
Dear Shareholder:
After a promising pickup in activity in the third quarter, the U.S.
economy has slowed again. Long-term interest rates have fallen as signs of
weakness multiply and the outlook for inflation remains favorable. The 30-
year Treasury bond, as we write, yields 6.08%, nearly 180 basis points lower
than the yields prevailing a year ago. The yield on the 10-year bond during
the same period has fallen almost 200 basis points to around 5.75%. On the
other hand, short-term rates which are more influenced by Federal Reserve
policy, have barely budged. The yield on 3-month Treasury bills, for
example, has slipped a mere 25 basis points to 5.25%. As a result, the yield
curve, which traces the relationship between interest rates and lengths of
time to maturity, has flattened dramatically. In fact, the 10-year Treasury
bond is actually yielding less than the Fed Fund rate, a highly unusual
development. The implication is clear. Investors believe that monetary
policy is too restrictive given current economic conditions. When the
Federal Reserve will next cut rates may be debatable, but we share the
market's expectation that the Federal Reserve will ease policy in the months
ahead.
The stock market, in our opinion, is still undervalued given the low
level of interest rates. We believe the economy will keep expanding at a
slow rate. The interest-sensitive sectors of the economy should begin to
accelerate in response to the drop in interest rates which has already
occurred. Surveys continue to show consumer confidence is high. The economy
continues to create new jobs, and the unemployment rate remains low. A great
deal of wealth has been created in the financial markets. All of these
indicators point to slow, steady growth. If corporate profits hold up, and
on balance we expect they will, the stock market should continue to advance,
even after the strong performance so far in 1995.
The conversion of Spectra to an open-end fund is progressing and is
expected to become effective in January.
Dividends paid in December 1995 were $4.87 of short-term capital gains
and $3.44 of long-term capital gains.
Respectfully submitted,
/s/ DAVID D. ALGER
David D. Alger
President
December 15, 1995
SPECTRA FUND, INC.
SCHEDULE OF INVESTMENTS
October 31, 1995
<TABLE>
<CAPTION>
Shares Common Stocks--94.4% Value
- -------------------------------------------------------------
<C> <S> <C>
COMMUNICATIONS--2.1%
500 DSC Communications Corporation* $ 18,500
1,000 U.S. Robotics Corp. 92,500
-----------
111,000
-----------
COMPUTER RELATED & BUSINESS
EQUIPMENT--21.0%
3,100 Altera Corporation 187,550
800 Ascend Communications, Inc.* 52,000
2,700 Bay Networks Inc.* 178,875
4,000 Dell Computer Corporation* 186,500
3,000 Digital Equipment Corporation* 162,375
2,000 ESS Technology, Inc.* 60,000
1,400 Hewlett-Packard Company 129,675
1,300 Summit Technology Inc.* 57,850
2,400 Xilinx, Inc.* 110,400
-----------
1,125,225
-----------
COMPUTER SOFTWARE--4.1%
1,500 Activision Inc. 25,125
1,300 Microsoft Corporation* 130,000
2,000 Softkey International Inc.* 63,000
-----------
218,125
-----------
COMPUTER TECHNOLOGY--3.8%
4,000 Microchip Technology Incorporated* 158,750
1,500 Pinnacle Systems, Inc.* 47,062
-----------
205,812
-----------
CONSUMER PRODUCTS--1.3%
2,000 Oakley, Inc.* 69,000
-----------
DEFENSE--3.6%
5,200 Loral Corporation 154,050
500 McDonnell Douglas Corporation 40,875
-----------
194,925
-----------
FINANCIAL SERVICES--6.0%
952 First Data Corporation 62,920
2,000 Merrill Lynch & Co., Inc. 111,000
500 Morgan Stanley Group, Inc. 43,500
4,500 Schwab (Charles) Corporation (The) 102,937
-----------
320,357
-----------
HEALTH CARE--18.3%
3,000 Biochem Pharma Inc.* 114,750
3,500 CellPro Incorporated* 40,687
1,000 Genzyme Corp.--General Division* 58,250
5,000 IMNET Systems, Inc.* 126,875
1,200 Lilly (Eli) Co. 115,950
4,000 Liposome Company Inc.* 61,500
1,800 Merck & Co., Inc. 103,500
1,600 Metra Biosystems, Inc.* 29,600
1,000 Nellcor Puritan Bennett Inc.* 57,500
2,000 Oxford Health Plans, Inc.* 156,500
1,000 Sybron International Corp.* 42,500
1,000 Target Therapeutics, Inc.* 77,500
-----------
985,112
-----------
POLLUTION CONTROL--1.1%
2,700 USA Waste Services, Inc.* 56,700
-----------
RESTAURANTS & LODGING--2.5%
3,500 Lone Star Steakhouse & Saloon, Inc.* 135,187
-----------
RETAILING--3.7%
1,000 CompUSA Inc.* 38,250
3,000 OfficeMax Inc.* 74,250
2,000 Viking Office Products, Inc.* 89,000
-----------
201,500
-----------
SEMI-CONDUCTORS--21.0%
1,500 Alliance Semiconductor Corp.* 46,124
2,500 Cirrus Logic, Inc.* 105,312
6,000 C.P. Clare Corporation* 155,250
4,000 Integrated Device Technology, Inc.* 76,000
2,000 Intel Corporation 139,750
3,800 LSI Logic Corporation* 179,074
5,000 Linear Technology Corporation 218,750
2,800 Maxim Integrated Products, Inc* 209,300
-----------
1,129,560
-----------
SEMI-CONDUCTORS
CAPITAL EQUIPMENT--4.8%
3,400 Applied Materials, Inc.* 170,425
1,000 PRI Automation, Inc.* 37,000
1,200 Tencor Instruments* 51,150
-----------
258,575
-----------
MISCELLANEOUS--1.1%
1,500 Loewen Group Inc. 60,070
-----------
Total Common Stocks
(Cost $4,985,316) 5,071,148
-----------
Warrants--1.4%
2,000 Intel Corp. Warrants,
expire 3/14/98 74,000
72 Windmere Corp. Warrants,
expire 1/19/98 0
-----------
Total Warrants (Cost $68,750) 74,000
-----------
<CAPTION>
Principal Short-Term Corporate
Amount Notes--7.3% Value
- -------------------------------------------------------------
<C> <S> <C>
$ 241,000 Associates Corporation of North
America, 5.76%, 11/7/95 $ 241,000
152,000 Ford Motor Credit Company,
5.73%, 11/2/95 152,000
-----------
Total Short-Term Corporate Notes
(Cost $393,000) 393,000
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments (Cost $5,447,066)(a) 103.1% 5,538,148
Liabilities in Excess Of Other Assets (3.1) (164,073)
----- -----------
Net Assets 100.0% $ 5,374,075
<FN>
<F1> * Non-income producing security.
<F2> (a) At October 31, 1995, the net unrealized appreciation on investments,
based on cost for federal income tax purposes of $5,447,066, amounted
to $91,082 which consisted of aggregate gross unrealized appreciation
of $199,731 and aggregate gross unrealized depreciation of $108,649.
</TABLE>
-------------------
SPECTRA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $5,447,066), see
accompanying schedule of investments $5,538,148
Cash 255,938
Receivable for investment securities sold 97,165
Dividends and interest receivable 539
Prepaid expenses 1,315
----------
Total Assets 5,893,105
LIABILITIES:
Payable for investment securities purchased $397,876
Investment advisory fee payable 78,214
Directors' fees payable 845
Accrued expenses 42,095
--------
Total Liabilities 519,030
----------
NET ASSETS applicable to 256,720 outstanding shares of
$1.00 par value (2,000,000 shares authorized) $5,374,075
==========
NET ASSET VALUE PER SHARE $ 20.93
==========
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND, INC.
STATEMENT OF OPERATIONS
for the year ended October 31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 21,137
Interest 8,101
----------
Total Income 29,238
Expenses:
Investment advisory fees--Note 2(a) $ 78,214
Professional fees 47,264
Shareholder reports 27,193
Custodian and transfer agent fees 12,845
Directors' fees 1,000
Miscellaneous 2,958
----------
169,474
Less, earnings credits--Note 1(e) (2,962)
----------
Total Net Expenses 166,512
---------
NET INVESTMENT LOSS (137,274)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,271,024
Net decrease in unrealized appreciation of investments (410,332)
----------
Net realized and unrealized gain on investments 1,860,692
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,723,418
==========
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Four Months
Ended Ended Year Ended
October 31, October 31, June 30,
1995 1994 1994
------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Net investment loss $ (137,274) $ (26,632) $ (73,090)
Net realized gain on investments 2,271,024 186,474 1,369,880
Net change in unrealized appreciation (depreciation)
of investments (410,332) 277,536 (687,387)
-----------------------------------------
Net increase in net assets resulting from operations 1,723,418 437,378 609,403
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized gains (1,180,910) -- (1,098,761)
-----------------------------------------
Total increase (decrease) in net assets 542,508 437,378 (489,358)
NET ASSETS:
Beginning of period 4,831,567 4,394,189 4,883,547
-----------------------------------------
End of period (including accumulated net investment
loss of $740,141, $602,867 and $576,235, respectively) $5,374,075 $4,831,567 $4,394,189
=========================================
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND, INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
Year Four Months
Ended Ended Year Ended June 30,
October 31, October 31, ----------------------------------------
1995 1994* 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.82 $17.12 $19.02 $17.93 $19.50 $18.72
---------------------------------------------------------------------
Net investment loss (0.53) (0.10) (0.28) (0.29) (0.22) (0.15)
Net realized and unrealized gain
on investments 7.24 1.80 2.66 3.70 1.65 2.25
---------------------------------------------------------------------
Total from investment operations 6.71 1.70 2.38 3.41 1.43 2.10
Dividends from net realized gains (4.60) -- (4.28) (2.32) (3.00) (1.32)
---------------------------------------------------------------------
Net asset value, end of period $20.93 $18.82 $17.12 $19.02 $17.93 $19.50
=====================================================================
Market value, end of period $20.93 $14.00 $14.00 $16.00 $13.50 $14.00
=====================================================================
Total investment return based on market
value per share 112.02% 0.00% 14.25% 38.16% 17.09% 11.00%
=====================================================================
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) $5,374 $4,832 $4,394 $4,884 $4,603 $5,006
=====================================================================
Ratio of expenses to average net
assets 3.76%** 2.75% 2.59% 2.57% 2.14% 2.74%
=====================================================================
Ratio of net investment loss to
average net assets (3.05)% (1.72)% (1.47)% (1.55)% (1.07)% (.85)%
=====================================================================
Portfolio turnover rate 207.25% 56.24% 116.61% 100.17% 63.54% 78.00%
=====================================================================
<FN>
<F1> * Ratios have been annualized; total return has not been annualized.
<F2> ** Reflects total expenses, including fees offset by earnings credits. The
expense ratio net of earnings credits would have been 3.69%.
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Summary of Significant Accounting
Policies:
Spectra Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as a non-diversified, closed-end management investment
company (see note 5). The Fund's investment adviser is Fred Alger
Management, Inc. (the "Adviser").
Effective October 31, 1994, the Fund changed its fiscal year end from
June 30 to October 31.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
(a) Investment Valuation--Investments in securities are valued at 4:00 p.m.
Eastern time. Listed and unlisted securities for which such information is
regularly reported are valued at the last reported sales price or, in the
absence of reported sales, at the mean between the bid and asked price, or
in the absence of a recent bid or asked price, the equivalent as obtained
from one or more of the major market makers for the securities to be valued.
Short-term corporate notes are valued at amortized cost which approximates
market value.
(b) Securities Transactions and Investment Income--Securities transactions
are recorded on a trade date basis. Realized gains and losses from
securities transactions are recorded on the basis of the first-in, first-out
method. Dividend income is recognized on the ex-dividend date and interest
income is recognized on the accrual basis.
(c) Dividends to Shareholders--Dividends payable to shareholders are
recorded by the Fund on the ex-dividend date. Dividends from net investment
income and dividends from net realized gains are declared and paid annually
after the end of the fiscal year in which earned.
(d) Federal Income Taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including net
realized capital gains, to its shareholders. Therefore, no Federal income
tax provision is required.
(e) Earnings Credits--The Fund's custodian fees have been reduced as a
result of earnings credits received on overnight cash balances. Balances
left on deposit with the custodian preclude their use elsewhere.
NOTE 2--Investment Advisory Fees and Other
Transactions with Affiliates:
(a) Investment Advisory Fees--The management agreement with the Adviser
provides that the Fund pay the Adviser its costs for providing services to
the Fund (see note 5).
For the year ended October 31, 1995, the total advisory fee charged
amounted to $78,214.
(b) Transfer Agent Fees--Alger Shareholder Services, Inc. ("Alger
Services"), an affiliate of the Adviser, serves as transfer agent for the
Fund. During the year ended October 31, 1995, the Fund incurred fees of
approximately $5,200 for services provided by Alger Services and reimbursed
Alger Services approximately $1,600 for transfer agent related expenses paid
by Alger Services on behalf of the Fund.
(c) Brokerage Commissions--During the year ended October 31, 1995, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of the
Adviser, $11,681 in connection with securities transactions.
(d) Directors' Fees--Certain directors and officers of the Fund are
directors and officers of the Adviser, Alger Inc. and Alger Services. The
Fund pays each director who is not affiliated with the Adviser or its
affiliates an annual fee of $250.
(e) Other Transactions With Affiliates--At October 31, 1995, the Adviser
and its affiliates owned 111,119 shares of the Fund.
NOTE 3--Securities Transactions:
During the year ended October 31, 1995, purchases and sales of
investment securities, excluding short-term securities, aggregated
$9,063,270 and $10,347,734, respectively.
NOTE 4--Components of Net Assets:
At October 31, 1995, the Fund's net assets consisted of:
<TABLE>
<S> <C>
Paid-in capital $ 3,727,393
Accumulated net investment loss (740,141)
Undistributed net realized gain 2,295,741
Net unrealized appreciation 91,082
-----------
NET ASSETS $ 5,374,075
===========
</TABLE>
NOTE 5--Fund Reorganization:
On September 28, 1995, the Fund's shareholders voted (i) to convert
the Fund from a closed-end investment company to an open-end investment
company, (ii) to provide for payment of an investment management fee at an
annual rate of 1.5% of the Fund's average daily net assets, and (iii) to
convert the Fund from a Massachusetts corporation to a Massachusetts
business trust. Such changes are expected to be effective in January 1996.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Spectra Fund, Inc.:
We have audited the accompanying statement of assets and liabilities
of Spectra Fund, Inc. (a Massachusetts Corporation), including the schedule
of investments, as of October 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets
for the year then ended, for the four months in the period ended October 31,
1994, and for the year ended June 30, 1994, and the financial highlights for
the year ended October 31, 1995, for the four months in the period ended
October 31, 1994, and for each of the four years in the period ended June
30, 1994. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1995, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Spectra Fund, Inc. as of October 31, 1995, the results of its
operations for the year then ended, the changes in its net assets for the
year then ended, for the four months in the period ended October 31, 1994,
and for the year ended June 30, 1994, and the financial highlights for the
year ended October 31, 1995, for the four months in the period ended October
31, 1994, and for each of the four years in the period ended June 30, 1994,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
December 14, 1995
SPECTRA | Meeting the challenge
FUND, | of investing
INC. |
Board of Directors
Fred M. Alger, Chairman
David D. Alger
Arthur M. Dubow
Stephen E. O'Neil
Nathan Saint-Amand
John T. Sargent
- ----------------------------------------------
Investment Adviser
Fred Alger Management, Inc.
75 Maiden Lane
New York, N.Y. 10038
- ----------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Alger Shareholder Services, Inc.
30 Montgomery Street, Box 2001
Jersey City, N.J. 07302-9811
- ----------------------------------------------
Custodian
NatWest Bank National Association
10 Exchange Place
Jersey City, N.J. 07302
- ----------------------------------------------
Independent Public Accountants
Arthur Andersen LLP
1345 Avenue of the Americas
New York, N.Y. 10105
- ----------------------------------------------
This report was prepared for distribution to
shareholders and to others who may be interested
in current information concerning the Fund. It
was not prepared for use, nor is it circulated
in connection with any offer to sell, or
solicitation of any offer to buy, any securities.
