SPECTRA | Meeting the challange
FUND | of investing
Semi-Annual Report
April 30, 1998
May 29, 1998
Fellow Shareholders:
A YEAR-TO-DATE REVIEW
At the start of 1998, expectations that the turmoil in Asia would dampen
economic growth in the U.S. led investors to conclude that inflationary
pressures in the near term would remain muted and, therefore, the Federal
Reserve would leave monetary policy unchanged. As a result, the fixed-income
markets remained tranquil. Long-term interest rates during the first three
months of the year remained in a narrow 5.75% to 6.00% trading range, following
the gradual decline in long-term interest rates since April 1997. In addition
to the positive backdrop of low inflation, stable interest rates, and a neutral
monetary policy, signs of a resilient domestic economy and greater stability in
overseas financial markets formed the foundation for continued gains in the
stock market.
Ironically, the financial crisis in Asia, which was supposed to slow the
U.S. economy, contributed to the unexpected strength in the economy. The
economic downturn in Asia was supposed to slow the American economy through
reduced export demand and to curtail inflation through lower import prices.
U.S. exports to Asian markets have been dropping and import prices have been
falling, but the weakness in Asia also helped to keep American long-term
interest rates at comparatively low levels. Low long-term interest rates, plus
very good weather (there was a mild winter in the East due to El Nino), led to
a boom in consumer spending in January and February. Housing sales remained
brisk and massive mortgage refinancing occurred. The result was a 4.2% increase
in GDP in the first quarter, twice the desired rate and even higher than the
very high 3.7% in the fourth quarter of 1997.
By the end of March, the monthly economic indicators were already
signaling that the economy was growing too fast--above the 2.5% target the Fed
outlined several years ago as the ideal non-inflationary growth rate. Worse
yet, there were few signs of the impending slowdown that most forecasters had
predicted. The economy continued to create new jobs, so an already tight labor
market got even tighter. The rate of unemployment fell to 4.3% which is
considered by many economists to be an unsustainable and inflationary level.
These numbers led many to speculate that the Federal Reserve would raise rates
at the May Federal Open- Market Committee meeting or this summer (probably
July) to offset future inflation. This would be an obvious case for higher
rates if there were any inflation. However, inflation continued to drop. At the
same time, political uncertainty and social unrest in Indonesia renewed
instability in the Asian financial markets. As a result, investors sought
shelter in the relative safety of the U.S. Treasury market, and long-term
interest rates, despite concerns of a Fed tightening, remained steady. The
stock market entered a narrow trading range, roughly equivalent to 9,000 to
9,200 for the Dow Jones Industrial Average. The cessation of the strong upward
movement also reflects the natural tendency of the market to consolidate its
gains.
As upcoming reports document slower growth and continued low inflation,
fears of a Fed tightening should begin to recede. Continued reports of low
inflation should also alleviate underlying worries about a possible
acceleration in inflation and interest rates on bonds should decline as the
economy slows. We expect the rate on the thirty-year bond to be below 5.50% by
year-end, possibly as low as 5.25%. Under those circumstances, the stock market
should continue to add to the gains of the first four months of 1998.
Our models also show that growth stocks are selling with very little
premium to the market. This should change as the market advances and the
economy slows, which should make this year exceptionally good for growth
stocks. Small and mid cap stocks should also benefit. Given this, we remain
extremely optimistic about the prospects for the Fund.
Respectfully submitted,
/s/ DAVID D. ALGER
David D. Alger
President
SPECTRA FUND
SCHEDULE OF INVESTMENTS
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Common Stocks--94.5% Value
- --------------------------------------------------------------
<C> <C> <C>
AEROSPACE--.6%
17,800 Thiokol Corporation.................... $ 958,975
------------
APPAREL--1.4%
37,500 Brylane Inc.*.......................... 2,203,125
------------
BIO-TECHNOLOGY--1.0%
35,000 INCYTE Pharmaceuticals, Inc.*.......... 1,575,000
------------
BROADCASTING--1.4%
58,600 CBS Corp............................... 2,087,625
------------
BUILDING & CONSTRUCTION--2.1%
55,000 Masco Corp............................. 3,190,000
------------
BUSINESS SERVICES--2.3%
47,100 Cognizant Corp......................... 2,422,730
40,500 Ritchie Bros Auctioneers Inc.*......... 1,090,988
------------
3,513,718
------------
COMMUNICATIONS--6.7%
23,700 AT&T Corp.............................. 1,423,493
53,000 America Online Inc.*................... 4,240,000
26,400 Jacor Communications Inc.*............. 1,501,500
69,200 WorldCom Inc.*......................... 2,960,445
------------
10,125,438
------------
COMMUNICATION EQUIPMENT--5.5%
45,400 Ascend Communications, Inc.*........... 1,977,760
55,000 Cisco Systems, Inc.*................... 4,028,750
34,200 Tellabs, Inc.*......................... 2,423,925
------------
8,430,435
------------
COMPUTER RELATED & BUSINESS
EQUIPMENT--1.0%
13,300 International Business Machines Corp... 1,541,138
------------
COMPUTER SERVICES--1.0%
22,600 Network Associates Inc.*............... 1,548,100
------------
COMPUTER SOFTWARE--7.6%
30,000 CBT Group PLC ADS*..................... 1,526,250
51,000 Compuware Corp.*....................... 2,492,625
25,200 HBO & Company.......................... 1,507,288
51,000 Microsoft Corporation*................. 4,596,375
30,000 Saville Systems PLC ADR*............... 1,496,250
------------
11,618,788
------------
CONGLOMERATE--2.0%
55,382 Tyco International Ltd................. 3,018,318
------------
DRUG DISTRIBUTION--3.5%
21,000 AmeriSource Health Corp Cl. A*......... 1,144,500
18,600 Bergen Brunswig Corp. Cl. A............ 843,975
47,400 McKesson Corp.......................... 3,350,611
------------
5,339,086
------------
ENERGY & ENERGY SERVICES--.7%
20,000 AES Corp.*............................. $ 1,103,760
------------
FINANCIAL SERVICES--9.6%
25,800 BankAmerica Corp....................... 2,193,000
39,600 Bank of New York Inc................... 2,338,895
2,700 CMAC Investment Corp................... 174,320
21,600 Federal Home Loan Mortgage Corporation. 1,000,361
9,800 Household International Inc............ 1,288,092
51,500 Kansas City Southern Industries Inc.... 2,327,182
14,850 Morgan Stanley Dean Witter & Co........ 1,171,294
26,900 NationsBank Corp....................... 2,037,675
30,000 State Street Corp...................... 2,145,000
------------
14,675,819
------------
FOOD CHAINS--3.2%
20,000 Fred Meyer, Inc.*...................... 897,500
60,000 Kroger Co.*............................ 2,512,500
37,000 Safeway Inc.*.......................... 1,415,250
------------
4,825,250
------------
FOODS & BEVERAGES--.8%
35,000 CKE Restaurants Inc.................... 1,211,875
------------
INSURANCE--5.3%
5,900 American International Group, Inc...... 776,222
18,700 Enhance Financial Services Group Inc... 1,283,288
11,800 Executive Risk Inc..................... 786,918
21,100 MGIC Investment Corp................... 1,329,300
50,000 Travelers Group Inc.................... 3,059,400
14,000 Vesta Insurance Group Inc.............. 792,750
------------
8,027,878
------------
LEISURE & ENTERTAINMENT--2.9%
22,000 Carnival Corporation Cl. A............. 1,530,386
30,000 Family Golf Centers Inc.*.............. 1,263,750
28,100 Premier Parks Inc.*.................... 1,563,062
------------
4,357,198
------------
MANUFACTURING--.6%
25,000 Knoll Inc.*............................ 870,325
------------
MEDICAL DEVICES--.7%
35,000 Biomet Inc............................. 1,050,000
------------
MEDICAL SERVICES--.5%
25,000 Quorum Health Group Inc.*.............. 803,125
------------
PHARMACEUTICALS--13.0%
40,000 Alza Corp.*............................ $ 1,917,520
29,100 Bristol Myers Squibb Co................ 3,080,963
36,100 Elan Corp PLC-ADR*..................... 2,242,712
65,500 Forest Laboratories, Inc.*............. 2,370,314
39,700 Pfizer Inc............................. 4,518,376
38,600 Schering-Plough Corporation............ 3,092,825
13,200 Warner-Lambert Co...................... 2,497,282
------------
19,719,992
------------
POLLUTION CONTROL--3.1%
96,900 USA Waste Services, Inc.*.............. 4,754,205
------------
RETAILING--11.7%
15,000 Bed Bath & Beyond Inc.*................ 738,750
32,500 CVS Corp............................... 2,396,875
56,000 Home Depot, Inc........................ 3,899,000
98,000 Kmart Corp.*........................... 1,708,924
15,000 Michaels Stores Inc.*.................. 453,750
99,400 Rite Aid Corp.......................... 3,193,225
88,500 Staples Inc.*.......................... 2,184,888
63,100 Wal-Mart Stores Inc.................... 3,190,525
------------
17,765,937
------------
SEMICONDUCTORS--2.7%
36,600 Intel Corp............................. 2,957,756
39,300 Micron Technology Inc.*................ 1,220,776
------------
4,178,532
------------
TRANSPORTATION--3.6%
15,700 AMR Corp.*............................. 2,392,288
26,700 Coach USA Inc.*........................ 1,266,595
30,000 Continental Airlines Inc. Cl. B*....... 1,766,250
------------
5,425,133
------------
Total Common Stocks
(Cost $120,281,219)................... 143,918,775
------------
Shares Preferred Stock--.7% Value
- ------------------------------------------------------
COMMUNICATION EQUIPMENT--.7%
17,000 Nokia Corporation, ADR
(Cost $815,542)....................... $ 1,136,875
------------
Principal Short-Term Corporate
Amount Notes--7.6%
- ------------
$ 1,830,000 Countrywide Home Loans, Inc.,
5.57%, 5/7/98 ...................... 1,828,301
200,000 Merrill Lynch & Co., Inc.,
5.51%, 5/7/98....................... 199,816
4,500,000 Merrill Lynch & Co., Inc.,
5.53%, 5/12/98...................... 4,492,396
5,000,000 Trident Capital Finance Inc.,
5.54%, 5/15/98(a)................... 4,989,228
------------
Total Short-Term Corporate Notes
(Cost $11,509,741).................. 11,509,741
------------
Total Investments
(Cost $132,606,502)(b)................. 102.8% 156,565,391
Liabilities in Excess of Other Assets... (2.8) (4,343,621)
--------------------
Net Assets.............................. 100.0% $152,221,770
====================
<FN>
- -------------------
<F*> Non-income producing security.
<Fa> Pursuant to Securities and Exchange Commission Rule 144A, these
securities may be sold prior to their maturity only to qualified
institutional buyers.
<Fb> At April 30, 1998, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $132,606,502, amounted to
$23,958,889 which consisted of aggregate gross unrealized appreciation of
$24,978,772 and aggregate gross unrealized depreciation of $1,019,883.
</FN>
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $132,606,502),
see accompanying schedule of investments $ 156,565,391
Cash 23,448
Receivable for investment securities sold 942,377
Receivable for shares of beneficial interest sold 547,602
Dividends receivable 63,578
Prepaid expenses 21,154
-------------
Total Assets 158,163,550
-------------
LIABILITIES:
Payable for investment securities purchased $ 5,384,567
Investment advisory fee payable 185,673
Payable for shares of beneficial interest redeemed 265,458
Shareholder servicing fee payable 30,946
Interest payable 13,975
Trustees' fees payable 500
Accrued expenses 60,661
-----------
Total Liabilities 5,941,780
-------------
NET ASSETS $ 152,221,770
=============
NET ASSETS CONSIST OF:
Paid-in capital $ 127,969,374
Undistributed net investment income (accumulated loss) (1,907,195)
Undistributed net realized gain 2,200,702
Net unrealized appreciation 23,958,889
-------------
NET ASSETS $ 152,221,770
=============
Shares of beneficial interest outstanding--Note 5 7,706,931
=============
NET ASSET VALUE PER SHARE $ 19.75
=============
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND
STATEMENT OF OPERATIONS
For the six months ended April 30, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends $ 319,462
Interest 170,119
------------
Total Income 489,581
Expenses:
Investment advisory fees--Note 2(a) $ 875,723
Shareholder servicing fees--Note 2(e) 145,954
Custodian and transfer agent fees 33,447
Registration fees 32,437
Shareholder reports 20,270
Professional fees 18,759
Interest expense--Note 4 13,975
Trustees' fees 500
Miscellaneous 844
------------
Total Expenses 1,141,909
------------
NET INVESTMENT LOSS (652,328)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,686,707
Net increase in unrealized appreciation of investments 17,939,758
------------
Net realized and unrealized gain on investments 19,626,465
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18,974,137
============
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended
April 30, Year Ended
1998 October 31,
(Unaudited) 1997
------------------------------
<S> <C> <C>
Net investment loss $ (652,328) $ (406,143)
Net realized gain on investments 1,686,707 1,173,958
Net increase in unrealized appreciation of investments 17,939,758 5,079,222
------------------------------
Net increase in net assets resulting from operations 18,974,137 5,847,037
Distributions to shareholders:
Net realized gains (742,430) --
Net increase from shares of beneficial interest transactions--Note 5 49,001,883 67,656,492
------------- ------------
Total increase in net assets 67,233,590 73,503,529
Net assets:
Beginning of period 84,988,180 11,484,651
------------- ------------
End of period (including accumulated net investment losses of
$1,907,195 and $1,254,867, respectively) $ 152,221,770 $ 84,988,180
============= ============
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND
STATEMENT OF CASH FLOWS (Unaudited)
For the six months ended April 30, 1998
<TABLE>
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Dividends received $ 272,144
Interest received 170,119
Operating expenses paid (1,031,271)
Purchase of investment securities (139,490,226)
Disposition of short-term securities, net 441,852
Proceeds from disposition of investment securities 90,912,283
Other (11,675)
-------------
Net cash used in operating activities (48,736,774)
-------------
Cash flows from financing activities:
Dividends paid (742,430)
Proceeds from shares sold and dividends reinvested 66,907,279
Payments on shares redeemed (17,599,472)
-------------
Net cash provided by financing activities 48,565,377
-------------
Net decrease in cash (171,397)
Cash--beginning of period 194,845
-------------
Cash--end of period $ 23,448
=============
Reconciliation of net increase in net assets to net cash
used in operating activities:
Net increase in net assets resulting from operations $ 18,974,137
Increase in investments (49,287,084)
Increase in dividends receivable (47,318)
Decrease in receivable for investment securities sold 2,025,624
Decrease in payable for investment securities purchased (874,631)
Net realized gain (1,686,707)
Net increase in unrealized appreciation (17,939,758)
Increase in accrued expenses and other liabilities 110,638
Net increase in other assets (11,675)
-------------
Net cash used in operating activities $ 48,736,774
=============
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
Four Months
Six Months Ended
Ended Year Ended October 31, October 31, Year Ended June 30,
April 30, -------------------------------------- ----------- --------------------
1998(i)(ii) 1997 1996 1995 1994(ii) 1994 1993
-------------- ------------ ------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 17.21 $ 13.61 $ 20.93 $ 18.82 $ 17.12 $ 19.02 $ 17.93
-----------------------------------------------------------------------------------------
Net investment loss (.10)(iii) (.17)(iii) (0.23)(iii) (0.53) (0.10) (0.28) (0.29)
Net realized and unrealized gain
on investments 2.78 3.77 1.22 7.24 1.80 2.66 3.70
-----------------------------------------------------------------------------------------
Total from investment operations 2.68 3.60 0.99 6.71 1.70 2.38 3.41
Distributions from net realized gains (.14) -- (8.31) (4.60) -- (4.28) (2.32)
-----------------------------------------------------------------------------------------
Net asset value, end of period $ 19.75 $ 17.21 $ 13.61 $ 20.93 $ 18.82 $ 17.12 $ 19.02
=========================================================================================
Total Return(iv) 15.71% 26.45% 12.68% 57.72% 9.93% 17.53% 23.66%
=========================================================================================
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) $152,222 $84,988 $11,485 $ 5,374 $ 4,832 $ 4,394 $ 4,884
=========================================================================================
Ratio of expenses to average net
assets 1.96% 2.12% 2.55% 3.76% 2.75% 2.59% 2.57%
=========================================================================================
Decrease reflected in above
expense ratio due to expense
reimbursements made pursuant to
applicable state expense limits -- -- .69% -- -- -- --
=========================================================================================
Ratio of net investment loss to
average net assets (1.12)% (1.06)% (1.69)% (3.05)% (1.72)% (1.47)% (1.55)%
=========================================================================================
Portfolio Turnover Rate 79.72% 133.98% 197.04% 207.25% 56.24% 116.61% 100.17%
=========================================================================================
Average Commission Rate Paid $ .0708 $ .0711 $ .0661
=====================================
Amount of debt outstanding at end
of period --
=========
Average amount of debt outstanding
during the period $ 327,017
=========
Average daily number of shares
outstanding during the period 6,526,582
=========
Average amount of debt per share
during the period $ .05
=========
<FN>
- -------------------
<Fi> Unaudited.
<Fii> Ratios have been annualized; total return has not been annualized.
<Fiii> Amount was computed based on average shares outstanding during the
period.
<Fiv> Dividends and distributions paid when the Fund operated as a closed-end
fund (i.e. prior to February 12, 1996) have been reflected as being
reinvested at market value.
</FN>
</TABLE>
See Notes to Financial Statements.
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1--Summary of Significant Accounting Policies:
Spectra Fund (the "Fund") is a non-diversified open-end registered
investment company organized as an unincorporated business trust under the laws
of the Commonwealth of Massachusetts. The Fund's investment objective is
capital appreciation. It seeks to achieve its objective primarily by investing
in equity securities.
Prior to February 12, 1996, the Fund operated as a closed-end investment
company and a Massachusetts corporation.
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 each day the New
York Stock Exchange (the "NYSE") is open as of the close of the NYSE (normally
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) Other--These financial statements have been prepared using estimates and
assumptions that affect the reported amounts therein. Actual results may differ
from those estimates.
NOTE 2--Investment Advisory Fees and Other Transactions with Affiliates:
(a) Investment Advisory Fees--The Fund pays its investment adviser, Fred Alger
Management, Inc. ("Alger Management"), a monthly fee at an annual rate of 1.50%
based on the value of the Fund's average daily net assets.
(b) Transfer Agent Fees--Alger Shareholder Services, Inc. ("Alger Services"),
an affiliate of Alger Management, serves as transfer agent for the Fund. During
the six months ended April 30, 1998, the Fund incurred fees of approximately
$14,400 for services provided by Alger Services and reimbursed approximately
$3,700 for transfer agent related expenses paid by Alger Services on behalf of
the Fund.
(c) Brokerage Commissions--During the six months ended April 30, 1998, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $219,297 in connection with securities transactions.
(d) Trustees' Fees--Certain trustees and officers of the Fund are directors and
officers of Alger Management, Alger Inc. and Alger Services. The Fund pays each
trustee who is not affiliated with Alger Management or its affiliates an annual
fee of $250.
(e) Shareholder Servicing Fees--The Fund has entered into a shareholder
servicing agreement with Alger Inc. whereby Alger Inc. provides the Fund with
ongoing servicing of shareholder accounts. As compensation for such services,
the Fund pays Alger Inc. a monthly fee at an annual rate equal to .25% of the
value of Fund's average daily net assets.
NOTE 3--Securities Transactions:
During the six months ended April 30, 1998, purchases and sales of
investment securities, excluding short-term securities, aggregated $138,614,571
and $88,886,659, respectively.
NOTE 4--Line of Credit:
The Fund has a line of credit with a bank whereby it may borrow up to 1/3
of the value of its assets, as defined, up to a maximum of $25,000,000. Such
borrowings have a variable interest rate and are payable on demand. For the six
months ended April 30, 1998, the Fund had borrowings which averaged $327,017 at
a weighted average interest rate of 8.50%.
NOTE 5--Share Capital:
The Fund has an unlimited number of authorized shares of beneficial
interest of $.001 par value.
During the six months ended April 30, 1998, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
Shares Amount
---------- ------------
<S> <C> <C>
Shares sold 3,702,122 $ 66,158,147
Dividends reinvested 35,901 583,746
Shares redeemed (970,581) (17,740,010)
--------------------------
Net increase 2,767,442 $ 49,001,883
==========================
</TABLE>
During the year ended October 31, 1997, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
Shares Amount
---------- ------------
<S> <C> <C>
Shares sold 4,597,737 $ 75,601,379
Shares redeemed (501,797) (7,944,887)
--------------------------
Net increase 4,095,940 $ 67,656,492
==========================
</TABLE>
SPECTRA | Meeting the challange
FUND | of investing
Board of Trustees
Fred M. Alger, Chairman
David D. Alger
Arthur M. Dubow
Stephen E. O'Neil
Nathan E. 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
- ----------------------------------------------
This report is submitted for the general
information of the shareholders of Spectra
Fund. It is not authorized for distribution to
prospective investors unless accompanied by an
effective Prospectus for the Fund, which
contains information concerning the Fund's
investment policies, fees and expenses as well
as other pertinent information.
SREP48
