SPECTRA FUND
1 World Trade Center
Suite 9333
New York, NY 10048
(800) 711-6141
www.spectrafund.com
BOARD OF TRUSTEES
Fred M. Alger, CHAIRMAN
David D. Alger
Charles F. Baird, Jr.
Roger P. Cheever
Lester L. Colbert, Jr.
James P. Connelly, Jr.
Stephen E. O'Neil
Nathan E. Saint-Amand
B. Joseph White
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
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.
SREP100
SPECTRA FUND
ANNUAL REPORT
OCTOBER 31, 2000
[GRAPHIC OMITTED]
<PAGE>
FELLOW SHAREHOLDERS: November 20, 2000
THE YEAR IN REVIEW
In each of the last five years the U.S. stock market has posted yearly
gains of more than 20%, an unprecedented record of consecutive double-digit
returns. This year has seen a break in the market's momentum. For the year
ended October 31, 2000, the S&P 500 Index was up 6.1%. However, from January
through October the broad based index was down 1.8%, and the Dow Jones
Industrial Average, which ended 1999 very near the 11,500 we had predicted, was
down more than 4%.
PRICE SHOCKS SQUEEZE CORPORATE EARNINGS
Much of the stock market's volatility since March, when stock market
indices hovered near their highs, has been the result of investor uncertainty
over the effects of higher interest rates on the economy. During the summer
months, concerns about higher energy prices and the falling euro also came into
play, and the impacts of these shocks were seen in the third quarter as many
companies reported lower than expected earnings. Technology stocks in
particular came under pressure during the second half of the year following
last year's euphoric 86% gain in the Nasdaq.
After six Federal Reserve interest rate hikes since the summer of 1999
that culminated in a 50-basis-point increase in May 2000, the economy finally
began to show signs of slowing in the second half of the year. In July and
August, stocks traded in a narrow range as investors watched oil prices and
waited for further signals on the direction of interest rates.
At its meeting on August 22, the Federal Open Market Committee (FOMC)
held rates steady but maintained an inflationary bias, in part due to higher
energy prices. Crude oil prices rose dramatically in August and in September
reached above $37 a barrel. Increased production by OPEC nations and the
release of emergency U.S. reserves helped stabilize prices but by the end of
October prices were still above $30 a barrel.
At the same time, the euro currency came under pressure in international
markets, falling to a low of $0.85 in September. Intervention by central banks
to support the currency temporarily halted the currency's slide, but on October
26, the currency reached a new low of $0.82, nearly 30% below its initial value
in January 1999.
Stock prices were negatively affected as companies began issuing
preannouncements in September warning that third quarter earnings would not
meet market expectations due to higher energy costs and the euro's decline.
Earnings of computer manufacturers were also affected by lower demand compared
to last year. The S&P 500 fell 0.97% during the third quarter while the
technology-laden Nasdaq Composite fell 7.39%. Small- and mid-capitalization
stocks fared better, with the S&P MidCap 400 rising 12.15% during the third
quarter.
Corporate earnings reports continued to dominate the markets in October.
The Dow Jones Industrial Average gained 3% during the month to close at 10,971,
while the broader based S&P 500 fell 0.5%. The Nasdaq Composite fell 8.3%
during the month to close at 3,369.
Fixed income markets were mostly negatively affected during the year by
rising interest rates. Prices of long-term government bonds however were
supported by the Treasury department's buy-back program of $30 billion worth of
debt with maturities of 10 to 30 years. At the end of October, 30-year bond
yields stood at 5.8%.
FURTHER SIGNS OF A SLOWER ECONOMY
Economic data released in early November showed further signs of a
slower economy, leading the FOMC to again hold interest rates steady at its
last meeting on November 15. The rate of growth in Gross Domestic Product
slowed from 5.6% in the first quarter to 2.7% in the third quarter, within the
targeted 2% to 3% for a "soft landing." However, the Federal Reserve continues
to maintain a tightening bias in the face of higher core inflation and a tight
labor market. September's Consumer Price Index showed inflation at 3.4% year
over year, with core inflation (excluding food and energy) at 2.5% on an annual
basis. Unemployment
<PAGE>
remains near its 30-year low at 3.9%, and average hourly wages showed an upward
tick in October, rising 0.4% compared to analysts' expectations of a 0.3%
increase.
Consumer spending, responsible for two-thirds of the nation's GDP, may
also be slowing. The Consumer Board's measure of consumer confidence fell
sharply in October, reaching its lowest level since October 1999. Major
retailers have reported sluggish sales compared to year-ago levels and
preliminary data from the National Association of Purchasing Management show
that manufacturing activity is also beginning to slow.
MARKING TIME WHILE THE VOTE COUNT CONTINUES
As this is an election year, the potential for a change in party
leadership affected individual stock sectors as investors took speculative
positions in anticipation of election results. As of November 20, however,
there is not yet a clear winner in the Presidential race, and the financial
markets have largely been marking time since November 7.
In the short-term, a prolonged court battle will likely have a negative
impact on the financial markets as investors in general are uncomfortable with
uncertainty. In the longer term, however, the election results may not have a
significant effect on stock prices. The Republicans have control of both the
Senate and the House, albeit by a narrow margin, limiting the likelihood that
any new social spending legislation will be enacted if Gore were to become
President. In the event of a Republican victory, proposed tax cuts may
eventually be enacted but the current proposals will likely have to be scaled
back in order to pass Congress.
PORTFOLIO MATTERS
For the year ended October 31, 2000, Spectra Fund returned 6.21%
compared to 6.10% for the S&P 500. The Fund employs an all-capitalization
approach to selecting securities and seeks companies that offer the potential
for strong growth in earnings as a result of higher sales volumes or life cycle
changes such as new products, new management, or innovative technologies. In
recent years the stock market has favored large-cap growth companies, but
during the last twelve months, small- and mid-cap stocks have outperformed
larger issues. The Fund's holdings in semiconductor, software, and
pharmaceutical stocks contributed gains during the year.
LOOKING AHEAD
Looking ahead, we believe that sustained economic growth in the 2% to 3%
range combined with moderate inflation will offer opportunities for a decline
in interest rates in 2001, a move that would lend support to stocks. We expect
the outcome of the Presidential election to have a modest impact on the economy
and the markets over the long term, and the resolution of the current
uncertainty will likely result in a rebound in stock prices. In our view, a
Bush administration would undoubtedly be more pro-business than a Gore
administration; however, if Gore is President the Republican control of
Congress will likely result in gridlock, and that too can be good for the
markets.
More important than the election results, we believe, is the prospect of
declining interest rates in 2001. Lower interest rates will set the stage for
quality companies to sustain corporate earnings growth, and support a rally in
bond prices and a resurgence in stock prices. In this environment, Spectra Fund
will continue to seek investments in quality companies that offer superior
growth potential, consistent with our fundamental approach to security
selection.
Respectfully submitted,
/s/ David D. Alger
------------------
David D. Alger
President
2
<PAGE>
SPECTRA FUND PORTFOLIO HIGHLIGHTS THROUGH OCTOBER 31, 2000 (UNAUDITED)
$10,000 HYPOTHETICAL INVESTMENT IN CLASS N SHARES FROM JULY 1, 1990
TO OCTOBER 31, 2000
The following table represents a the Spectra Fund graph
Spectra Fund S&P 500 Index
7/1/90 10,000 10,000
6/30/91 11,563 10,740
6/30/92 12,910 12,182
6/30/93 15,964 13,813
6/30/94 18,762 14,038
10/31/94 20,625 15,054
10/31/95 32,530 19,036
10/31/96 36,654 23,622
10/31/97 43,602 31,209
10/31/98 54,201 38,070
10/31/99 88,165 47,842
10/31/2000 93,638 50,759
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in Spectra Fund Class N shares and the S&P 500 Index on July 1,
1990. During the period from July 1, 1990 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 Fund changed its fiscal year
end from June 30 to October 31.
PERFORMANCE COMPARISON PERFORMANCE COMPARISON
AS OF OCTOBER 31, 2000 AS OF OCTOBER 31, 2000
AVERAGE ANNUAL RETURNS
1 5 10 SINCE INCEPTION
YEAR YEARS YEARS (JULY 1, 2000)
----------------------- ---------------------------
Class N 6.21% 23.55% 27.57% Class A+ (18.41%)
S & P 500 Index 6.10% 21.67% 19.44% S & P 500 Index (1.39%)
THE FUND'S AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICES 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.
+ RETURNS REFLECT MAXIMUM INITIAL SALES CHARGES ON CLASS A SHARES.
<PAGE>
SPECTRA FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000
<TABLE>
<CAPTION>
SHARES VALUE
--------- COMMON STOCKS-85.0% -------------
<S> <C> <C>
BIO-TECHNOLOGY
RESEARCH &
PRODUCTION-5.4%
55,000 Affymetrix Inc. * ....................... $ 3,045,625
483,700 Amgen Inc.* ............................. 28,024,368
141,000 Celgene Corporation* .................... 9,076,875
161,300 QLT Inc.*+ .............................. 8,022,155
----------
48,169,023
----------
CABLE- 1.2%
256,300 Comcast Corp., Cl. A Special* ........... 10,444,225
----------
COMMUNICATION
EQUIPMENT-7.5%
544,800 Cisco Systems, Inc.* .................... 29,351,100
496,950 Nortel Networks Corporation ............. 22,611,225
157,000 QUALCOMM Inc.* .......................... 10,222,172
44,100 Redback Networks Inc.*+ ................. 4,693,894
----------
66,878,391
----------
COMMUNICATIONS
TECHNOLOGY-5.9%
412,100 America Online, Inc.* ................... 20,782,203
714,000 AT&T Corp. Liberty Media Group,
Series A* ............................... 12,852,000
130,600 Exodus Communications, Inc.* ............ 4,383,263
184,500 McLeodUSA Incorporated Cl. A*+ .......... 3,551,626
112,000 Research in Motion Limited* ............. 11,200,000
----------
52,769,092
----------
COMPUTER RELATED &
BUSINESS EQUIPMENT-6.9%
160,700 EMC Corporation* ........................ 14,312,344
132,700 Hewlett-Packard Company ................. 6,162,256
376,000 Sun Microsystems, Inc.* ................. 41,689,000
----------
62,163,600
----------
COMPUTER SERVICES-4.1%
162,500 Amdocs Limited* ......................... 10,532,031
464,600 eBay Inc.* .............................. 23,926,900
31,800 Yahoo Inc. * ............................ 1,864,275
----------
36,323,206
----------
COMPUTER SOFTWARE-13.0%
228,800 Ariba, Inc.* ............................ 28,914,600
89,000 BEA Systems, Inc.* ...................... 6,385,750
157,100 Commerce One, Inc.*+ .................... 10,083,856
153,445 i2 Technologies, Inc.* .................. 26,085,650
575,800 Oracle Corporation* ..................... 19,001,400
273,600 Phone.com, Inc.*+ ....................... 25,325,100
-----------
115,796,356
-----------
CONGLOMERATE- 2.6%
314,300 General Electric Company ................ 17,227,569
100,300 Tyco International Limited .............. 5,685,756
-----------
22,913,325
-----------
ENERGY & ENERGY
SERVICES -2.8%
97,100 BJ Services Company * ................... 5,091,681
82,200 Calpine Corporation * ................... 6,488,663
55,900 Duke Energy Corporation ................. 4,831,856
161,000 Nabors Industries, Inc.* ................ 8,194,900
-----------
24,607,100
-----------
FINANCIAL SERVICES-8.9%
81,300 American Express Company ................ 4,878,000
65,000 Bank of New York Inc. ................... 3,741,563
634,616 Citigroup Inc. .......................... 33,396,667
129,650 Marsh & McLennan Companies, Inc. ........ 16,951,737
405,550 Schwab (Charles) Corporation (The) ...... 14,244,943
19,800 State Street Corp. ...................... 2,469,852
75,250 Stilwell Financial Inc. ................. 3,372,141
-----------
79,054,903
-----------
FOOD CHAINS-2.0%
323,200 Safeway Inc.* ........................... 17,675,000
-----------
INSURANCE-2.5%
229,000 American International Group, Inc. ...... 22,442,000
-----------
MANUFACTURING-1.4%
278,200 Solectron Corporation* .................. 12,240,800
-----------
MEDICAL DEVICES-1.3%
88,350 Guidant Corporation* .................... 4,677,028
139,400 Medtronic, Inc. ......................... 7,571,163
-----------
12,248,191
-----------
</TABLE>
4
<PAGE>
SPECTRA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 2000
<TABLE>
<CAPTION>
SHARES VALUE
---------- COMMON STOCKS-(CONTINUED) --------------
<S> <C> <C>
PHARMACEUTICALS-8.0%
168,300 American Home Products Corporation...... $ 10,687,050
180,500 Baxter International Inc. .............. 14,834,844
195,050 Eli Lilly and Company .................. 17,432,594
651,300 Pfizer Inc. ............................ 28,128,018
------------
71,082,506
------------
RETAIL-5.4%
538,150 Home Depot, Inc. ....................... 23,140,450
545,150 Wal-Mart Stores, Inc. .................. 24,736,181
------------
47,876,631
------------
SEMICONDUCTORS-6.1%
426,000 Altera Corporation * ................... 17,439,375
107,200 Broadcom Corporation Cl. A * ........... 23,838,600
119,400 Texas Instruments, Incorporated ........ 5,858,063
101,800 Vitesse Semiconductor Corporation* ..... 7,119,637
------------
54,255,675
------------
Total Common Stocks
(Cost $707,883,692)..................... 756,940,024
------------
PREFERRED STOCK-2.1%
COMMUNICATION
EQUIPMENT
430,500 Nokia Corporation, ADR
(Cost $16,309,185)...................... $ 18,403,875
------------
PRINCIPAL
AMOUNT VALUE
-------------- SHORT-TERM INVESTMENTS-22.6% --------------
SHORT-TERM CORPORATE
NOTES-15.7%
$25,000,000 Bayshore Fuel Company,
6.52%, 11/30/00 .................... $ 24,868,695
30,000,000 FPL Fuels, Inc.,
6.51%, 11/06/00 .................... 29,972,875
30,000,000 National Australia Funding (Del),
6.43%, 11/30/00 .................... 29,844,608
25,000,000 Schering Corporation,
6.42%, 11/20/00 .................... 24,915,292
30,000,000 Transamerica Finance Corporation,
6.47%, 12/20/00 .................... 29,735,808
Total Short-Term Corporate Notes
(Cost $139,337,278)................. 139,337,278
------------
SECURITIES HELD UNDER
REPURCHASE
AGREEMENTS-2.4%
Securities Held Under Repurchase
Agreements, 6.47%, 11/1/00, with
State Street Bank and Trust
Company, dtd 10/31/00, repurchase
price $21,803,918; collateralized by
Federal Home Loan Bank Discount
Notes (par value $21,800,000
due 2/22/05) ....................... 21,800,000
------------
</TABLE>
<TABLE>
SHARES OTHER SHORT-TERM INVESTMENTS-4.5% VALUE
---------- -------------
<S> <C> <C>
40,480,994 Securities Lending Quality Trust
(Cost $40,480,994) (b)............................................... 40,480,994
-------------
Total Short-Term Investments
(Cost $201,618,272)................................................................. 201,618,272
-------------
Total Investments
(Cost $925,811,149) (a)............................................. 109.7% 976,962,171
Liabilities in excess of other assets ............................... (9.7) (86,119,186)
----- -------------
Net Assets .......................................................... 100.0% $ 890,842,985
===== =============
</TABLE>
--------
* Non-income producing security.
+ Securities partially or fully on loan.
(a) At October 31, 2000, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $925,811,149, amounted to
$51,151,022 which consisted of aggregate gross unrealized appreciation of
$113,863,685 and aggregate gross unrealized depreciation of $62,712,663.
(b) Represents investment of cash collateral received for securities on loan.
See Notes to Financial Statements.
5
<PAGE>
SPECTRA FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $925,811,149), see accompanying
schedule of investments ................................................ $ 976,962,171
Cash .................................................................... 277,441
Receivable for investment securities sold ............................... 19,521,965
Receivable for shares of beneficial interest sold ....................... 10,049,839
Dividends and interest receivable ....................................... 76,764
Prepaid expenses ........................................................ 52,017
--------------
Total Assets .......................................................... 1,006,940,197
LIABILITIES:
Payable for securities loaned ........................................... $40,480,994
Payable for investment securities purchased ............................. 73,093,551
Investment advisory fees payable ........................................ 1,202,898
Payable for shares of beneficial interest redeemed ...................... 940,825
Shareholder servicing fees payable ...................................... 200,483
Trustees' fees payable .................................................. 4,175
Accrued expenses ........................................................ 174,286
-----------
Total Liabilities ..................................................... 116,097,212
--------------
NET ASSETS ............................................................... 890,842,985
==============
NET ASSETS CONSIST OF:
Paid-in capital ......................................................... 816,500,991
Undistributed net investment income (accumulated loss) .................. (20,915,249)
Undistributed net realized gain ......................................... 44,106,221
Net unrealized appreciation ............................................. 51,151,022
--------------
NET ASSETS ............................................................... $ 890,842,985
==============
Class A
Net Asset Value Per Share ............................................... $ 10.63
==============
Offering Price Per Share ................................................ $ 11.28
==============
Class N
Net Asset Value and Offering Price Per Share ............................ $ 10.63
==============
Shares of beneficial interest outstanding-Note 5
Class A ................................................................. 1,384,394
==============
Class N ................................................................. 82,437,271
==============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
SPECTRA FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest ............................................................... $ 3,713,859
Dividends .............................................................. 1,239,430
-------------
Total Income .......................................................... 4,953,289
Expenses:
Investment advisory fees-Note 2(a) ..................................... $ 13,986,854
Shareholder servicing fees-Note 2(f) ................................... 2,331,139
Shareholder reports .................................................... 195,605
Custodian and transfer agent fees ...................................... 194,397
Registration fees ...................................................... 163,854
Professional fees ...................................................... 38,354
Trustees' fees ......................................................... 36,247
Interest on line of credit utilized-Note 4 ............................. 4,104
Miscellaneous .......................................................... 59,863
-------------
Total Expenses ........................................................ 17,010,417
-------------
NET INVESTMENT LOSS ...................................................... (12,057,128)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments ........................................ 40,829,147
Net change in unrealized appreciation (depreciation) of investments ..... (78,674,225)
-------------
Net realized and unrealized gain (loss) on investments ................ (37,845,078)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS .............................................................. $ (49,902,206)
=============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
SPECTRA FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED OCTOBER 31,
------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Net investment loss ...................................................... $ (12,057,128) $ (5,802,741)
Net realized gain on investments ......................................... 40,829,147 54,227,221
Net change in unrealized appreciation (depreciation) of investments ...... (78,674,225) 101,424,060
------------- ------------
Net increase (decrease) in net assets resulting from operations ....... (49,902,206) 149,848,540
Distributions to shareholders:
Net realized gains
Class A ................................................................ - -
Class N ................................................................ (49,922,049) (1,341,765)
------------- ------------
Total distributions to shareholders ................................... (49,922,049) (1,341,765)
------------- ------------
Increase from shares of beneficial interest transactions:
Class A ................................................................. 16,980,068 -
Class N ................................................................. 425,031,614 207,110,227
------------- ------------
Net increase from shares of beneficial interest transactions-Note 5 ...... 442,011,682 207,110,227
------------- ------------
Total increase in net assets .......................................... 342,187,427 355,617,002
Net assets:
Beginning of year ....................................................... 548,655,558 193,038,556
------------- ------------
End of year (including accumulated net investment losses of
$20,915,249 and $8,858,121, respectively) ............................. $ 890,842,985 $548,655,558
============= ============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
SPECTRA FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING
<TABLE>
<CAPTION>
THROUGHOUT THE PERIOD
CLASS A
----------------
FOUR MONTHS
ENDED
OCTOBER 31,
2000(II)
----------------
<S> <C>
Net asset value, beginning of period .......... $ 12.28
------------
Net investment loss ........................... (0.02)
Net realized and unrealized gain (loss)
on investments ............................... (1.63)
------------
Total from investment operations .............. (1.65)
Distributions from net realized gains ......... -
------------
Net asset value, end of period ................ $ 10.63
============
Total Return (iv) ............................. (13.44%)
============
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) ............................. $ 14,711
============
Ratio of expenses excluding interest
to average net assets ...................... 1.82%
============
Ratio of expenses including interest
to average net assets ...................... 1.82%
============
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 ......................... (1.05%)
============
Portfolio Turnover Rate ..................... 118.82%
============
Amount of debt outstanding at end
of period .................................. $ -
============
Average amount of debt outstanding
during the period .......................... $ 63,866
============
Average daily number of shares
outstanding during the period .............. 73,398,632
============
Average amount of debt per share
during the period .......................... $ -
============
<CAPTION>
THROUGHOUT THE PERIOD
CLASS N(I)
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2000 1999 1998 1997
--------------- ---------------- --------------- --------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .......... $ 10.76 $ 6.65 $ 5.74 $ 4.54
----------- ------------ ------------ ----------
Net investment loss ........................... (0.08) (0.07) (0.02) (0.06)(iii)
Net realized and unrealized gain (loss)
on investments ............................... 0.88 4.22 0.98 1.26
----------- ------------ ------------ ----------
Total from investment operations .............. 0.80 4.15 0.96 1.20
Distributions from net realized gains ......... (0.93) (0.04) (0.05) -
----------- ------------ ------------ ----------
Net asset value, end of period ................ $ 10.63 $ 10.76 $ 6.65 $ 5.74
=========== ============ ============ ==========
Total Return (iv) ............................. 6.21% 62.66% 16.94% 26.45%
=========== ============ ============ ==========
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) ............................ $ 876,132 $ 548,656 $ 193,039 $ 84,988
=========== ============ ============ ==========
Ratio of expenses excluding interest
to average net assets ...................... 1.82% 1.83% 1.90%
=========== ============ ============
Ratio of expenses including interest
to average net assets ...................... 1.82% 1.85% 1.96% 2.12%
=========== ============ ============ ==========
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 ......................... (1.29%) (1.52%) (1.24%) (1.06%)
=========== ============ ============ ==========
Portfolio Turnover Rate ..................... 118.82% 102.54% 190.74% 133.98%
=========== ============ ============ ==========
Amount of debt outstanding at end
of period .................................. - - $ 705,000
=========== ============ ============
Average amount of debt outstanding
during the period .......................... $ 63,866 $ 986,981 $1,044,096
=========== ============ ============
Average daily number of shares
outstanding during the period .............. 73,398,632 40,946,839 22,865,292
=========== ============ ============
Average amount of debt per share
during the period .......................... - $ 0.02 $ 0.05
=========== ============ ============
<CAPTION>
THROUGHOUT THE PERIOD
CLASS N(I)
--------------------
YEAR ENDED OCTOBER
31,
--------------------
1996
--------------------
<S> <C>
Net asset value, beginning of period .......... $ 6.98
----------
Net investment loss ........................... (0.08)(iii)
Net realized and unrealized gain (loss)
on investments ............................... 0.41
----------
Total from investment operations .............. 0.33
Distributions from net realized gains ......... (2.77)
----------
Net asset value, end of period ................ $ 4.54
==========
Total Return (iv) ............................. 12.68%
==========
Ratios and Supplemental Data:
Net assets, end of period
(000's omitted) ............................ $ 11,485
==========
Ratio of expenses excluding interest
to average net assets ......................
Ratio of expenses including interest
to average net assets ...................... 2.55%
==========
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 ......................... (1.69%)
==========
Portfolio Turnover Rate ..................... 197.04%
==========
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) Per share data has been adjusted to reflect the effect of a 3 for 1 stock
split which occurred April 23, 1999.
(ii) Initially offered July 1, 2000. Ratios have been annualized; total return
has not been annualized.
(iii) Amount was computed based on average shares outstanding during the
period.
(iv) 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. Returns do not reflect the effect of initial
sales charges applicable to Class A shares.
See Notes to Financial Statements.
9
<PAGE>
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Spectra Fund (the "Fund") is a 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 by investing primarily in
equity securities.
Prior to February 12, 1996, the Fund operated as a closed-end
investment company and a Massachusetts corporation.
The Fund offers Class A and Class N shares. Class A shares were
first offered on July 1, 2000 and are generally subject to an initial sales
charge. Each class has identical rights to assets and earnings.
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. Shares of mutual funds are valued at the net asset
value of the underlying mutual fund.
(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) REPURCHASE AGREEMENTS--The Fund enters into repurchase agreements with
approved institutions. The repurchase agreements are collateralized by U.S.
Government securities, which are either received and held in physical
possession by the custodian or received by such custodian in book-entry form
through the Federal Reserve book-entry system. The collateral is valued on a
daily basis during the term of the agreement to ensure that its value equals or
exceeds the agreed-upon repurchase price to be repaid to the Fund. Additional
collateral is obtained when necessary.
(d) LENDING OF PORTFOLIO SECURITIES--The Fund lends its securities to financial
institutions, provided that the market value of the securities loaned will not
at any time exceed one third of the Fund's total assets, as defined. The Fund
earns fees on the securities loaned, which are included in interest income in
the accompanying Statement of Operations. In order to protect against the risk
of failure by the borrower to return the securities loaned or any delay in the
delivery of such securities, the loan is collateralized by cash, letters of
credit or U.S. Government securities that are maintained in an amount equal to
at least 100 percent of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Fund and any required additional collateral is delivered to the Fund on the
next business day. At October 31, 2000, the value of securities loaned and
collateral received thereon were $42,773,336 and $40,480,994, respectively.
(e) DIVIDENDS TO SHAREHOLDERS--Dividends and distributions 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.
Each class is treated separately in determining the amounts of dividends of net
investment income and distributions of capital gains payable to holders of its
shares.
10
<PAGE>
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(f) 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 investment company taxable income to its
shareholders. Provided the Fund maintains such compliance, no federal income
tax provision is required.
(g) ALLOCATION METHOD--Income, realized and unrealized gains and losses, and
expenses are allocated among the Fund's classes based on relative net assets.
(h) 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.
(c) 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, 2000, the Fund incurred fees of approximately
$97,000 for services provided by Alger Services and reimbursed Alger Services
approximately $18,000 for transfer agent related expenses paid by Alger
Services on behalf of the Fund.
(d) BROKERAGE COMMISSIONS--During the year ended October 31, 2000, the Fund paid
Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $1,030,186 in connection with securities transactions.
(e) 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 $8,000.
(f) 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 the Fund's average daily net assets.
NOTE 3--SECURITIES TRANSACTIONS:
During the year ended October 31, 2000, purchases and sales of
investment securities, excluding short-term securities, aggregated
$1,290,106,329 and $1,014,576,249, respectively.
NOTE 4--LINES OF CREDIT:
The Fund has both committed and uncommitted lines of credit with
banks. All borrowings have variable interest rates and are payable on demand.
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. For the
year ended October 31, 2000, the Fund had borrowings which averaged $63,866 at
a weighted average interest rate of 6.32%.
NOTE 5--SHARE CAPITAL:
The Fund has an unlimited number of authorized shares of beneficial
interest of $.001 par value which are presently divided into two separate
classes. The transactions of shares of beneficial interest have been adjusted
for the effect of a 3 for 1 stock split which occurred on April 23, 1999.
During the year ended October 31, 2000, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNTS
Class A: ------------- --------------
<S> <C> <C>
Shares sold ............. 1,409,455 $17,276,934
Shares redeemed ......... (25,061) (296,866)
--------- -----------
Net increase ............ 1,384,394 $16,980,068
========= ===========
</TABLE>
11
<PAGE>
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Class N:
<S> <C> <C>
Shares sold .................. 70,434,783 $931,091,181
Dividends reinvested ......... 3,808,211 47,336,055
Shares redeemed .............. (42,814,895) (553,395,622)
----------- ------------
Net increase ................. 31,428,099 $425,031,614
=========== ============
</TABLE>
During the year ended October 31, 1999, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNTS
Class N: ---------------- -----------------
<S> <C> <C>
Shares sold .................. 67,279,182 $629,131,687
Dividends reinvested ......... 146,798 1,112,731
Shares redeemed .............. (45,430,801) (423,134,191)
----------- ------------
Net increase ................. 21,995,179 $207,110,227
=========== ============
</TABLE>
12
<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, 2000, and the related statement of operations
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 five years in the period then ended. 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 auditing standards generally
accepted in the United States. 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 and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2000, 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, 2000, the results of its operations 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 five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
December 8, 2000
13
