FELLOW SHAREHOLDERS: November 20, 1998
THE YEAR IN REVIEW
Following three years of euphoric gains, the U.S. stock market
maintained its torrid pace during the first half of 1998, fueled by strong
domestic demand, low inflation, stable interest rates, and a neutral monetary
policy. The Dow Jones Industrial Average, which broke through the 9000 level
for the first time in history during the month of April, continued its upward
trend into the summer months, rising to an intra-day high of 9412 on July 17th.
The third quarter, however, marked an abrupt reversal in the direction of the
equity markets, with all major stock market indices posting double-digit losses
for the quarter. During this period, the DJIA plunged to an intra-day low of
7379 on September 1st, representing a 22% drop from the high - technically a
bear market. Subsequently, it fluctuated wildly between 7400 and 8200, testing
the lower part of the band six times. Recently, however, the market has come
roaring back and is currently trading at levels close to the highs set back in
July.
What forces conspired to create this extreme volatility? We believe that
the market is normally confronted by one overriding problem at a time - the
"primary worry". For example, over the last several years the "primary worry"
has been the Federal Reserve raising interest rates. This year, however, the
market was confronted by several "primary worries", causing it to fluctuate
wildly as deepening gloom about the global economy as well as political
upheavals intensified the turbulence in the financial markets:
1. Japan - The Japanese economy was clearly in a severe recession and
the banking system was very weak. Many banks had been allowed to continue in
business despite being effectively insolvent. The new government was thought to
be inept and slow to react. The fear was that if Japan sank further into the
abyss, it would drag down the rest of Asia, possibly even forcing a devaluation
in China and thus leading to a round of competitive devaluations.
2. "Contagion" - The financial crisis that began in Thailand in the
summer of 1997 had infected other countries in Asia by the end of 1997. By the
summer of 1998, it had spread to other parts of the world. For a while, it
looked like Russia was going to devolve into political and economic chaos.
Russia's stock market collapsed, its currency was devalued and the country
defaulted on billions of dollars of debt. Furthermore, the Duma rejected Boris
Yeltsin's choice for Prime Minister. The prospect of chaos in Russia had
implications far beyond the economy as the wholesale selling of nuclear weapons
was also a fear.
Events in Russia caused the risk premium for all investments in emerging
markets to rise dramatically and, as a result, there was a massive flight of
capital from these markets. Investors targeted Brazil in particular, whose
economy represents approximately 40% of the GDP of South America and is an
important partner of the U.S. Moreover, Brazil was in the middle of an
election. The fear developed that a collapse of Brazil would take down all of
South America.
3. Financial Market Instability - The collapse of Long-Term Capital
Management and other smaller hedge funds hit the banking system hard, causing
substantial fear that the whole financial system was unstable.
4. The Clinton/Lewinsky Matter - This had an important negative effect
on the market because it was perceived by foreigners as some form of coup
d'etat. You may recall that on the day the Starr report was released, the
market dropped 249 points.
Against this background, the economy was clearly slowing, bringing into
question the issue of third quarter earnings and raising the possibility of a
recession in 1999. Investors, growing increasingly cautious, began to avoid
risk and every type of security began to look risky, except for the ultimate
safe
<PAGE>
haven - U.S. Treasuries. The ensuing flight to quality drove the yield on the
30-year Treasury bond down to 4.70% by the start of October, and the spread
between U.S. Treasuries and corporate bonds widened dramatically.
Recently, however, the market has come back dramatically and we are
optimistic that this upward trend will continue. The primary catalyst for the
turnaround was the surprise move by the Federal Reserve on October 15th to
lower the Fed funds rate to 5% and the discount rate to 4.75%. This followed a
25 basis point cut of the Fed funds rate on September 29th, which the market
had viewed as inadequate. This move on October 15th, coming between Federal
Open-Market Committee meetings, was a very strong statement that the Fed would
act to alleviate the credit crunch and fend off a possible recession. The
decision by the Fed on November 17th to lower both the Fed funds rate and the
discount rate by an additional 25 basis points should continue to drive the
market.
At the same time, the "primary worries" are abating:
1. Japan - The Obuchi government succeeded in passing banking reform
legislation involving $500 billion of public money to shore up the "zombie"
banks. This is a substantial positive and should, in time, help Japan's
business and consumer confidence, perhaps leading to improved domestic spending
and a healthier economy. More importantly, the prospect of a more stable Japan
has taken some of the fear out of other Asian markets.
2. "Contagion" - Fears began to subside that the economic and financial
turmoil was spreading around the world. The U.S. Congress approved additional
funding for the IMF. President Cardoso won reelection in Brazil. In the wake of
the elections, the Brazilian government proposed an austerity package,
considered essential both for its long-term fiscal and economic stability and
for receiving funding from the IMF. There will undoubtedly be some more nervous
moments from now until the end of the year. The only good news from Russia has
been that it has a government. The IMF has been unwilling to disburse any more
funds due to the lack of a satisfactory economic plan, and Russia is still in
talks with its creditors.
3. Financial Market Instability - The Long-Term Capital Management/hedge
funds situation seems to have stabilized with no further rumors of major hedge
fund problems. The Fed's willingness to safeguard the financial system has
brought a great sense of relief to the market.
4. The Clinton/Lewinsky Matter - The election is now over and voters
stated en masse that they were utterly unconcerned with the Monica Lewinsky
matter. It seems therefore increasingly improbable that Clinton will be removed
from office unless there is some new series of revelations. Consequently, we
think it is unlikely that this matter will continue to affect the stock market
in any profoundly negative way.
PORTFOLIO MATTERS
For the year ended October 31, 1998, the Fund's total return was 16.94%
as compared to 21.99% for the S&P 500. During this volatile period, investors
once again favored larger, more predictable stocks. The Fund employs an
"allcap" (small, medium and large capitalizations) portfolio management
strategy, and was thereby aided by its exposure to larger cap stocks.
Additionally, many of the market factors discussed previously contributed to an
environment wherein stocks in certain sectors performed exceptionally well. In
particular, the Fund's heavy exposure to health care, retailing and technology
stocks enabled it to post strong double-digit returns. The strength in
retailing was primarily attributable to high employment, high consumer
confidence and falling interest rates, while the healthcare sector, including
pharmaceuticals and medical devices, fared well in the face of a slowing
economy.
2
<PAGE>
Of note, holdings in the technology sector performed particularly well, driven
by continued strong capital investment by businesses hoping to improve their
productivity, time to market and competitive edge. The technology sector was
helped further by internet companies, which emerged as a major force in 1998.
The Portfolio's underperformance relative to the benchmark is due in part to
its exposure to the poor performing oil service industry at the beginning of
the fiscal year. Thus far in fiscal 1999, however, the Portfolio has
outperformed the benchmark, a trend we expect to continue as stocks with strong
earnings growth potential continue to be rewarded by investors.
LOOKING AHEAD
While recent events will likely result in slower economic growth in
coming quarters, we believe that the outlook for the U.S. economy remains
constructive. The positives - low inflation, low interest rates, high levels of
employment, reasonably high levels of consumer confidence, a well-capitalized
banking system, and prudent monetary and fiscal policies - should offset the
negative impact of a weakening import/export sector. Growth in the U.S. will
slow, but we do not foresee a recession on the horizon.
Since economic growth will likely slow both here and abroad, the rate of
gain in corporate earnings will not be as robust as in recent years. High-
quality growth companies, however, have the ability to generate high levels of
earnings even in a weak economic environment. Today, growth stocks, which
typically sell at a premium to the market, are trading at only slightly more
than the market multiple. As stability returns to the market, we believe growth
stocks will regain their normal premium to the market. As a result, we believe
that The Alger Fund portfolios, which consist of quality growth stocks, should
produce superior performance in the months ahead.
Respectfully submitted,
/s/DAVID D. ALGER
- -----------------
David D. Alger
PRESIDENT
3
<PAGE>
SPECTRA FUND PORTFOLIO HIGHLIGHTS THROUGH OCTOBER 31, 1998 (UNAUDITED)
$10,000 HYPOTHETICAL INVESTMENT FROM JULY 1, 1988 TO OCTOBER 31, 1998
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED PIECE]
Spectra Fund S&P 500 Index
7/1/88 10,000 10,000
6/30/89 11,086 12,054
6/30/90 13,844 14,042
6/30/91 16,007 15,081
6/30/92 17,872 17,106
6/30/93 22,100 19,437
6/30/94 25,974 19,711
10/31/94 28,553 21,138
10/31/95 45,034 26,729
10/31/96 50,743 33,169
10/31/97 64,165 43,862
10/31/98 75,036 53,456
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in Spectra Fund and the S & P 500 Index on July 1, 1988. During
the period from July 1, 1988 through February 11, 1996, the Fund operated as a
closed-end investment company. The figures for both Spectra Fund and the S & P
500 Index, an unmanaged index of common stocks, include reinvestment of
dividends. Effective October 31, 1994, Spectra changed its fiscal year end from
June 30 to October 31.
<TABLE>
<CAPTION>
Performance Comparison AS OF OCTOBER 31, 1998
Average Annual Returns
<S> <C> <C> <C>
1 5 10
Year Years Years
-----------------------------------------
Spectra Fund 16.94% 24.13% 22.84%
S & P 500 Index 21.99% 21.31% 17.88%
</TABLE>
-----------------------------------------------------------------------------
THE FUND'S AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AND
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS AT MARKET VALUE. PAST
PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL
WILL FLUCTUATE AND THE FUND'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST.
4
<PAGE>
SPECTRA FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- COMMON STOCKS-93.8% ----------
<S> <C> <C>
ADVERTISING-.7%
62,900 Outdoor Systems, Inc.* ................... $1,387,763
----------
AIRLINES-.5%
41,000 SkyWest Inc. ............................. 1,045,500
----------
BIO-TECHNOLOGY-.8%
33,000 Centocor, Inc.* .......................... 1,468,500
----------
BROADCASTING-4.5%
74,700 Capstar Broadcasting Corporation
Cl. A.* .................................. 1,297,913
46,000 Clear Channel Communications Inc. ....... 2,095,898
49,600 Comcast Corp. Cl. A. Special ............. 2,449,000
50,400 Jacor Communications Inc.* ............... 2,772,000
----------
8,614,811
----------
BUSINESS SERVICES-1.3%
37,800 IMS Health Inc. ......................... 2,513,700
----------
COMMUNICATIONS-7.1%
54,100 America Online Inc. ...................... 6,874,108
41,800 America Tower Systems Corp. Cl. A.* ...... 914,375
105,800 MCI Worldcom Inc.* ....................... 5,845,450
----------
13,633,933
----------
COMMUNICATION
EQUIPMENT-6.0%
109,000 Ascend Communications, Inc.* ............. 5,259,250
88,300 Cisco Systems, Inc.* ..................... 5,562,900
26,600 Global Crossing Ltd.* .................... 764,750
----------
11,586,900
----------
COMPUTER RELATED &
BUSINESS EQUIPMENT-8.9%
60,500 Compaq Computer Corp. .................... 1,913,313
79,300 Dell Computer Corp.* ..................... 5,194,150
33,600 EMC Corp.* ............................... 2,163,000
19,300 International Business Machines
Corp. ................................... 2,864,853
35,000 Lexmark International Group Inc.
Cl. A.* .................................. 2,447,830
56,600 Quantum Corp.* ........................... 994,038
40,000 Sanmina Corporation* ..................... 1,640,000
----------
17,217,184
----------
COMPUTER SOFTWARE-8.3%
34,100 Citrix Systems, Inc.* .................... 2,416,838
99,500 Compuware Corp.* ......................... 5,391,706
102,400 HBO & Company ............................ 2,688,000
52,400 Microsoft Corporation* ................... 5,547,850
----------
16,044,394
----------
CONGLOMERATE-3.7%
115,782 Tyco International Ltd. ................. $7,171,306
----------
DRUG DISTRIBUTION-5.1%
55,600 Cardinal Health, Inc. ................... 5,257,703
60,000 McKesson Corp. ........................... 4,620,000
----------
9,877,703
----------
FINANCIAL SERVICES-9.4%
47,100 BankAmerica Corp. ........................ 2,705,330
85,400 Bank of New York Inc. ................... 2,695,480
103,000 Citigroup Inc. .......................... 4,847,489
12,200 Federal Home Loan Mortgage
Corporation .............................. 701,500
30,500 First Union Corp. ........................ 1,769,000
27,500 Household International Inc. ............. 1,005,483
17,000 Kansas City Southern Industries Inc. .... 656,625
15,000 Morgan Stanley Dean Witter & Co. ......... 971,250
30,000 Paine Webber Group Inc. ................. 1,003,140
50,000 U.S. Bancorp Inc. ....................... 1,825,000
----------
18,180,297
----------
FOOD CHAINS--2.6%
33,200 Kroger Co.* .............................. 1,842,600
41,000 Fred Meyer, Inc.* ........................ 2,185,833
19,600 Safeway Inc.* ............................ 937,135
----------
4,965,568
----------
FOODS & BEVERAGES-.5%
23,200 Starbucks Corp.* ......................... 1,006,300
----------
INSURANCE-2.2%
48,700 American International Group, Inc. ...... 4,151,675
----------
LEISURE &
ENTERTAINMENT-.4%
24,300 Carnival Corp. ........................... 786,712
----------
MEDICAL DEVICES-.5%
23,800 Allegiance Corp. ......................... 885,074
----------
PHARMACEUTICALS-12.6%
34,000 Bristol Myers Squibb Co. ................ 3,759,142
36,100 Elan Corp PLC-ADR* ....................... 2,529,273
49,200 Pfizer Inc. ............................. 5,279,800
59,000 Schering-Plough Corporation .............. 6,069,625
84,900 Warner-Lambert Co. ...................... 6,654,038
----------
24,291,878
----------
POLLUTION CONTROL-2.4%
104,800 Waste Management, Inc. ................... 4,729,100
----------
</TABLE>
5
<PAGE>
SPECTRA FUND
SCHEDULE OF INVESTMENTS (CON'T)
OCTOBER 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- COMMON STOCKS (CONTINUED) --------------
<S> <C> <C>
RETAILING-9.0%
30,000 Amazon.com Inc.* .................... $ 3,793,140
10,000 Bed Bath & Beyond Inc.* ............. 275,630
19,600 CVS Corp. ........................... 895,485
128,000 Home Depot, Inc. .................... 5,568,000
10,000 Office Depot Inc.* .................. 250,000
30,000 Rite Aid Corp. ..................... 1,190,640
75,000 Staples Inc.* ....................... 2,446,875
43,100 Wal-Mart Stores Inc. ................ 2,973,900
------------
17,393,670
------------
SEMICONDUCTORS-7.3%
5,000 Altera Corporation* ................. 208,125
55,100 Intel Corp. ......................... 4,914,259
56,900 Linear Technology Corporation ....... 3,392,663
35,000 Micron Technology Inc.* ............. 1,330,000
65,500 Texas Instruments, Incorporated ..... 4,187,938
------------
14,032,985
------------
Total Common Stocks
(Cost $152,810,391) ................. 180,984,953
------------
PREFERRED STOCK-.5%
COMMUNICATION EQUIPMENT
10,500 Nokia Corporation ADR
(Cost $750,537) ..................... 977,162
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ SHORT-TERM CORPORATE NOTES-1.2% --------------
<S> <C> <C>
$ 700,000 General Electric Capital Corp.,
5.13%, 11/5/98 ................... $ 699,601
250,000 Progress Capital Holdings, Inc.,
5.15%, 11/3/98 ................... 249,928
1,500,000 Republic Industries Funding Corp.,
5.25%, 11/12/98 .................. 1,497,594
-----------
Total Short-Term Corporate Notes
(Cost $2,447,123) ................ 2,447,123
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Total Investments (Cost $156,008,051)(a)..... 95.5% 184,409,238
Other Assets in Excess of Liabilities ....... 4.5 8,629,318
------ -----------
Net Assets .................................. 100.0% $193,038,556
====== ============
</TABLE>
- --------
* Non-income producing security.
(a) At October 31, 1998, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $156,008,051, amounted to
$28,401,187 which consisted of aggregate gross unrealized appreciation of
$29,142,973 and aggregate gross unrealized depreciation of $741,786.
See Notes to Financial Statements.
6
<PAGE>
SPECTRA FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $156,008,051), see accompanying
schedule of investments ................................................ $184,409,238
Cash .................................................................... 2,369
Receivable for investment securities sold ............................... 11,736,804
Receivable for shares of beneficial interest sold ....................... 528,199
Dividends receivable .................................................... 60,994
Prepaid expenses ........................................................ 7,886
------------
Total Assets .......................................................... 196,745,490
LIABILITIES:
Payable for investment securities purchased ............................. $2,539,792
Bank loan payable ....................................................... 705,000
Investment advisory fees payable ........................................ 220,404
Payable for shares of beneficial interest redeemed ...................... 112,092
Shareholder servicing fee payable ....................................... 36,734
Interest payable ........................................................ 257
Trustees' fees payable .................................................. 855
Accrued expenses ........................................................ 91,800
----------
Total Liabilities ..................................................... 3,706,934
------------
NET ASSETS ............................................................... $193,038,556
============
NET ASSETS CONSIST OF:
Paid-in capital ......................................................... $167,379,082
Undistributed net investment income (accumulated loss) .................. (3,055,380)
Undistributed net realized gain ......................................... 313,667
Net unrealized appreciation ............................................. 28,401,187
------------
NET ASSETS ............................................................... $193,038,556
============
Shares of beneficial interest outstanding-Note 5 ......................... 9,671,331
============
NET ASSET VALUE PER SHARE ................................................ $ 19.96
============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
SPECTRA FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends ....................................................... $ 639,691
Interest ........................................................ 394,163
------------
Total Income ................................................... 1,033,854
Expenses:
Investment advisory fees-Note 2(a) .............................. $2,172,536
Shareholder servicing fees-Note 2(e) ............................ 362,089
Interest on line of credit utilized-Note 4 ...................... 84,791
Custodian and transfer agent fees ............................... 69,004
Registration fees ............................................... 59,050
Shareholder reports ............................................. 49,815
Professional fees ............................................... 33,655
Trustees' fees .................................................. 1,000
Miscellaneous ................................................... 2,427
----------
Total Expenses ................................................. 2,834,367
------------
NET INVESTMENT LOSS ............................................... (1,800,513)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments ................................. (200,328)
Net increase in unrealized appreciation of investments ........... 22,382,056
----------
Net realized and unrealized gain (loss) on investments ......... 22,181,728
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $ 20,381,215
============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
SPECTRA FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities:
Dividends received .................................................................. $ 594,957
Interest received ................................................................... 394,163
Interest paid ....................................................................... (84,534)
Operating expenses paid ............................................................. (2,580,900)
Purchase of investment securities ................................................... (351,200,809)
Disposition of short-term securities, net ........................................... 9,504,470
Proceeds from disposition of investment securities .................................. 254,632,463
Other ............................................................................... 1,592
--------------
Net cash used in operating activities ............................................. (88,738,598)
--------------
Cash flows from financing activities:
Dividends paid ...................................................................... (742,430)
Proceeds from shares sold and dividends reinvested .................................. 182,160,126
Payments on shares redeemed ......................................................... (93,576,574)
Increase in bank loan payable ....................................................... 705,000
--------------
Net cash provided by financing activities ......................................... 88,546,122
--------------
Net decrease in cash ................................................................. (192,476)
Cash-beginning of year ............................................................... 194,845
--------------
Cash-end of year ..................................................................... $ 2,369
==============
Reconciliation of net increase in net assets to net cash used in operating activities:
Net increase in net assets resulting from operations ................................ $ 20,381,215
Increase in investments ............................................................. (74,575,667)
Increase in dividends receivable .................................................... (44,734)
Increase in receivable for investment securities sold ............................... (8,768,803)
Decrease in payable for investment securities purchased ............................. (3,719,406)
Net realized loss ................................................................... 200,328
Net increase in unrealized appreciation ............................................. (22,382,056)
Increase in accrued expenses and other liabilities .................................. 168,933
Net decrease in other assets ........................................................ 1,592
--------------
Net cash used in operating activities ............................................. $ (88,738,598)
==============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
SPECTRA FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
Net investment loss ....................................................... $ (1,800,513) $ (406,143)
Net realized gain (loss) on investments ................................... (200,328) 1,173,958
Net increase in unrealized appreciation of investments .................... 22,382,056 5,079,222
------------ -----------
Net increase in net assets resulting from operations ................... 20,381,215 5,847,037
Distribution to shareholders:
Net realized gains ....................................................... (742,430) -
Net increase from shares of beneficial interest transactions-Note 5 ....... 88,411,591 67,656,492
------------ -----------
Total increase in net assets ........................................... 108,050,376 73,503,529
Net assets:
Beginning of year ........................................................ 84,988,180 11,484,651
------------ -----------
End of year (including accumulated net investment losses of $3,055,380
and $1,254,867, respectively) ........................................... $193,038,556 $84,988,180
============ ===========
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
SPECTRA FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995
--------------- ------------------ ------------------ -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 17.21 $ 13.61 $ 20.93 $ 18.82
---------- ---------- ---------- --------
Net investment loss ........................... (.06) (.17)(ii) (0.23)(ii) (0.53)
Net realized and unrealized gain on
investments .................................. 2.95 3.77 1.22 7.24
---------- ---------- ---------- --------
Total from investment operations .............. 2.89 3.60 0.99 6.71
Distributions from net realized gains ......... (.14) - (8.31) (4.60)
---------- ---------- ---------- --------
Net asset value, end of period ................ $ 19.96 $ 17.21 $ 13.61 $ 20.93
========== ========== ========== ========
Total Return (iii) ............................ 16.94% 26.45% 12.68% 57.72%
========== ========== ========== ========
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) ............................. $ 193,039 $ 84,988 $ 11,485 $ 5,374
========== ========== ========== ========
Ratio of expenses excluding interest
to average net assets ...................... 1.90%
==========
Ratio of expenses including interest
to average net assets ...................... 1.96% 2.12% 2.55% 3.76%
========== ========== ========== ========
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 ......................... (1.24%) (1.06%) (1.69%) (3.05%)
========== ========== ========== ========
Portfolio Turnover Rate ..................... 190.74% 133.98% 197.04% 207.25%
========== ========== ========== ========
Amount of debt outstanding at end
of period .................................. $ 705,000
==========
Average amount of debt outstanding
during the period .......................... $1,044,096
==========
Average daily number of shares
outstanding during the period .............. 7,621,764
==========
Average amount of debt per share
during the period .......................... $ 0.14
==========
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
OCTOBER 31, JUNE 30,
------------- -----------
1994(i) 1994
------------- -----------
<S> <C> <C>
Net asset value, beginning of period .......... $ 17.12 $ 19.02
-------- --------
Net investment loss ........................... (0.10) (0.28)
Net realized and unrealized gain on
investments .................................. 1.80 2.66
-------- --------
Total from investment operations .............. 1.70 2.38
Distributions from net realized gains ......... - (4.28)
-------- --------
Net asset value, end of period ................ $ 18.82 $ 17.12
======== ========
Total Return (iii) ............................ 9.93% 17.53%
======== ========
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) ............................. $ 4,832 $ 4,394
======== ========
Ratio of expenses excluding interest
to average net assets ......................
Ratio of expenses including interest
to average net assets ...................... 2.75% 2.59%
======== ========
Decrease reflected in above
expense ratio due to expense
reimbursements made pursuant to
applicable state expense limits ............. - -
======== ========
Ratio of net investment loss to
average net assets ......................... (1.72%) (1.47%)
======== ========
Portfolio Turnover Rate ..................... 56.25% 116.61%
======== ========
Amount of debt outstanding at end
of period ..................................
Average amount of debt outstanding
during the period ..........................
Average daily number of shares
outstanding during the period ..............
Average amount of debt per share
during the period ..........................
</TABLE>
(i) Ratios have been annualized; total return has not been annualized.
(ii) Amount was computed based on average shares outstanding during the
period.
(iii) 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.
See Notes to Financial Statements.
11
<PAGE>
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Spectra Fund (the "Fund") is a non-diversified open-end registered
investment company organized as a 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
distributions 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 year ended October 31, 1998, the Fund incurred fees of approximately
$29,700 for services provided by Alger Services and reimbursed approximately
$5,600 for transfer agent related expenses paid by Alger Services on behalf of
the Fund.
(c) BROKERAGE COMMISSIONS-During the year ended October 31, 1998, the Fund paid
Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $562,849 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.
12
<PAGE>
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
whereby Alger Inc. provides the Fund with ongoingservicing 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 year ended October 31, 1998, purchases and sales of
investment securities, excluding short-term securities, aggregated $347,481,403
and $263,397,690, respectively.
NOTE 4-LINES OF CREDIT:
The Fund has both committed and uncommitted lines of credit with
banks where it may borrow up to 1/3 of the value of its assets, as defined, up
to a maximum of $55,000,000. To the extent the Fund borrows under these lines,
the Fund must pledge securities with a total value of at least twice the amount
borrowed. Such borrowings have variable interest rates and are payable on
demand. For the year ended October 31, 1998, the Fund had borrowings which
averaged $1,044,096 at a weighted average interest rate of 8.01%.
NOTE 5-SHARE CAPITAL:
The Fund has an unlimited number of authorized shares of beneficial
interest of $.001 par value.
During the year ended October 31, 1998, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNTS
---------- ------------
<S> <C> <C>
Shares sold .................. 9,494,099 $181,391,591
Dividends reinvested ......... 35,901 583,746
Shares redeemed .............. (4,798,158) (93,563,746)
---------- ------------
Net Increase ................. 4,731,842 $ 88,411,591
========== ============
</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>
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of Spectra Fund:
We have audited the accompanying statement of assets and liabilities of
Spectra Fund (a Massachusetts business trust), including the schedule of
investments, as of October 31, 1998, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended, for the four
months in the period ended October 31, 1994, and for the year ended June 30,
1994. These financial statements and financial highlights are the
responsibility of the Fund'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, 1998, 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 as of October 31, 1998, the results of its operations and cash
flows for the year then ended, the changes in its net assets for each of the
two years in the period then ended, and the financial highlights for each of
the four years in the period then ended, for the four months in the period
ended October 31, 1994, and for the year ended June 30, 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
December 11, 1998
14
<PAGE>
|
SPECTRA | MEETING THE CHALLENGE
FUND | OF INVESTING
|
1 World Trade Center
Suite 9333
New York, NY 10048
www.spectrafund.com
- --------------------------------------------------------------------------------
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.
1 World Trade Center
Suite 9333
New York, NY 10048
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Alger Shareholder Services, Inc.
30 Montgomery Street, Box 2001
Jersey City, NJ 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.
SREP108
|
SPECTRA | MEETING THE CHALLENGE
FUND | OF INVESTING
|
ANNUAL REPORT
OCTOBER 31, 1998
