FELLOW SHAREHOLDERS:
November 24, 1999
THE YEAR IN REVIEW
As 1999 draws to a close, investors may look back on this decade as one
of remarkable opportunity. From January 1, 1990 through October 31, 1999, the
value of the U.S. stock market rose nearly 393%, as measured by the S&P 500. The
current economic boom has lasted 101 months, one month short of the record for
this century. And the lengthy economic expansion, combined with relatively low
interest rates and low inflation, has contributed to an unprecedented four
consecutive years of 20%-plus returns for stock investors, with few significant
corrections along the way.
The last two years have seen an increase in day-to-day volatility, more
in line with longer term norms. This trend continued in 1999, driven by concerns
over the stability of global financial systems and the shorter term outlook for
U.S. interest rates.
Year to date, 1999 has again generated double-digit returns for stock
investors, with the S&P 500 up 12.03% from January through the end of October.
Strong economic growth - a 3.7% rise in GDP in the first quarter - contributed
to the Dow Jones Industrial Average's push above all records to close above
10,000 in March. From May to July, the Dow traded in the 11,000 range before
falling back on fears of higher interest rates and concerns that stocks had
become overvalued. During the second quarter, concerns about potential inflation
increased as unemployment remained at its lowest levels since 1970. While core
inflation remained in the 2% range, oil prices began rising early in the year
and had nearly doubled by July. This was largely a political rather than a true
supply/demand effect and has not had a broad effect on market prices, yet it
bears watching in coming months.
Concerns about potential increases in core inflation led the Federal
Reserve to adopt a tightening bias during the second quarter. In the following
months, the Federal Open-Market Committee twice raised short-term interest rates
to forestall potential increases in inflation. In the bond markets higher
interest rates pushed prices lower, particularly at the short and long ends of
the maturity spectrum.
In this environment, market gains in the first quarter of 1999 were led
by the large-cap, blue-chip growth companies, as investors sought a sense of
security in the wake of 1998's Asian currency crisis and Russian debt default.
As recovery in Asia became more certain, the second quarter saw a resurgence of
interest in smaller-cap issues. Small-cap value stocks turned in the best
results and large-cap growth stocks turned in the worst.
The third quarter of 1999 saw an overall decline in domestic stocks. The
S&P 500 fell 6.25%, while the S&P MidCap 400 Index dropped 8.40%.
Small-capitalization stocks, as measured by the Russell 2000 Growth Index, fared
slightly better, falling 4.91% during the same quarter. Overall, growth stocks
again outperformed value stocks. Factors affecting the market's performance in
the third quarter included the potential impact on earnings of technology
companies from the earthquake in Taiwan and continued uncertainty about interest
rates. Entering the fourth quarter, there were gains in October with the S&P 500
returning 6.33%, led by a recovery in technology stocks. The technology-laden
Nasdaq 100 rose 9.54% for the month.
PORTFOLIO MATTERS
By maintaining a focus on bottom-up stock selection in a market
environment that evidenced clear biases toward certain segments of the market,
the Fund outperformed its benchmark. During the 12 months ended October 31,
1999, Spectra Fund gained 62.66% compared to the S&P 500's rise of 25.67%. The
Fund's all-cap approach (investing in
<PAGE>
small-, mid- and large-capitalization stocks) contributed to its strong
performance as investors focused first on large-cap stocks early in the year and
then favored smaller issues after the first quarter of 1999. The Fund's
substantial holdings in carefully selected Internet, technology, communications,
and retail stocks helped it to post significantly stronger results than its
benchmark index. Technology stocks benefited from increased capital spending on
new technology by corporations. The consumer and retail sectors were positively
affected by continued low employment and strong economic growth.
LOOKING AHEAD
The Spectra Fund is managed to pursue its investment objective by
applying an investment philosophy which we at Fred Alger Management believe will
serve investors well as we enter the next millennium. Changing demographics, new
technologies, and ever-increasing sophistication in the financial markets will
create new opportunities in the decades to come. Through rigorous fundamental
research, coupled with advanced analytic capabilities, we will continue to seek
out companies that offer investors the potential for superior returns.
Respectfully submitted,
/s/ DAVID D. ALGER
-----------------------
David D. Alger
President
2
<PAGE>
- --------------------------------------------------------------------------------
SPECTRA FUND PORTFOLIO HIGHLIGHTS THROUGH OCTOBER 31, 1999 (UNAUDITED)
$10,000 HYPOTHETICAL INVESTMENT FROM JULY 1, 1989 TO OCTOBER 31, 1999
- --------------------------------------------------------------------------------
[The following table represents a chart in the printed piece]
Spectra Fund S&P 500 Index
7/1/89 10000 10000
6/30/90 12476 11649
6/30/91 14426 12511
6/30/92 16106 14191
6/30/93 19917 16125
6/30/94 23408 16352
10/31/94 25732 17536
10/31/95 40585 22174
10/31/96 45730 27516
10/31/97 57826 36354
10/31/98 67623 44346
10/31/99 109997 55729
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, 1989. During
the period from July 1, 1989 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.
Performance Comparison AS OF OCTOBER 31, 1999
Average Annual Returns
1 5 10
Year Years Years
-----------------------------------------
Spectra Fund 62.66% 33.71% 25.93%
S & P 500 Index 25.67% 26.02% 17.82%
-----------------------------------------------------------------------------
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.
3
<PAGE>
SPECTRA FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- COMMON STOCKS-97.4% --------------
<S> <C> <C>
ADVERTISING-1.0%
61,700 Omnicom Group Inc. ...................... $ 5,429,600
-----------
AEROSPACE-1.7%
163,150 Allied Signal Inc. ...................... 9,289,353
-----------
BIO-TECHNOLOGY-1.8%
122,400 Amgen Inc.* ............................. 9,761,400
-----------
BROADCASTING-3.9%
95,000 Cablevision Systems Corp. Cl. A. ........ 6,418,439
187,428 Clear Channel Communications Inc.*....... 15,064,526
-----------
21,482,965
-----------
BUSINESS SERVICES-2.2%
34,200 Ariba Inc.* ............................. 5,301,000
239,200 IMS Health Inc. ......................... 6,936,800
-----------
12,237,800
-----------
COMMUNICATION
EQUIPMENT-8.1%
251,700 Cisco Systems, Inc.* .................... 18,625,800
26,900 JDS Uniphase Corp.* ..................... 4,488,937
165,900 Motorola, Inc. .......................... 16,164,881
40,800 SDL Inc.* ............................... 5,031,150
1,100 Sycamore Networks Inc.* ................. 236,500
-----------
44,547,268
-----------
COMMUNICATIONS-18.7%
217,300 America Online Inc.* .................... 28,181,094
59,798 At Home Corp. Series A.* ................ 2,234,950
335,900 Comcast Corp. Cl. A. Special ............ 14,149,788
129,900 COX Communications Inc. Cl. A.* ......... 5,902,331
170,400 Global Telesystems Group Inc.* .......... 4,078,950
163,000 MCI Worldcom Inc.* ...................... 13,987,438
104,000 McLeodUSA Inc. Cl. A.* .................. 4,641,000
118,900 Nextel Communications Inc. Cl. A.* ...... 10,247,695
28,300 Qualcomm Inc.* .......................... 6,303,825
43,200 RealNetworks Inc.* ...................... 4,738,500
39,700 Rhythms NetConnections Inc.* ............ 1,158,744
48,700 Sprint Corp. ............................ 3,619,019
37,200 Sprint Corp. PCS Series 1* .............. 3,085,275
-----------
102,328,609
-----------
COMPUTER RELATED &
BUSINESS EQUIPMENT-5.4%
267,300 Dell Computer Corp.* .................... 10,725,413
178,100 Sun Microsystems Inc.* .................. 18,845,207
-----------
29,570,620
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- COMMON STOCKS-(CONTINUED) -------------
<S> <C> <C>
COMPUTER SERVICES-11.6%
110,300 CNET Inc.* ................................ $5,204,781
150,100 eBay Inc.* ................................ 20,282,263
197,100 Exodus Communications, Inc.* .............. 16,950,600
119,921 Yahoo Inc.* ............................... 21,473,354
----------
63,910,998
----------
COMPUTER SOFTWARE-5.2%
36,500 BMC Software Inc.* ........................ 2,342,844
271,400 Microsoft Corporation* .................... 25,121,464
42,000 NetScout Systems Inc.* .................... 861,000
----------
28,325,308
----------
CONGLOMERATE-2.6%
355,764 Tyco International Ltd. ................... 14,208,324
----------
ENERGY & ENERGY
SERVICES-3.3%
49,000 Calpine Corp.* ............................ 2,823,625
120,800 EOG Resources Inc. ........................ 2,514,150
242,300 Halliburton Co. ........................... 9,131,682
161,000 Nabors Industries Inc.* ................... 3,652,686
----------
18,122,143
----------
FINANCIAL SERVICES-3.3%
223,000 Citigroup Inc. ............................ 12,069,875
55,100 Morgan Stanley Dean Witter & Co. .......... 6,078,219
----------
18,148,094
----------
OIL & GAS-.4%
63,700 B.J. Services Company* .................... 2,185,705
----------
PHARMACEUTICALS-.4%
29,350 Bristol Myers Squibb Co. .................. 2,254,447
----------
RETAILING-8.4%
149,400 Amazon.com Inc.* .......................... 10,551,375
84,500 Best Buy Company Inc.* .................... 4,695,031
59,400 Costco Wholesale Corp.* ................... 4,770,563
211,900 Home Depot, Inc. .......................... 15,998,450
180,700 Wal-Mart Stores Inc. ...................... 10,243,431
----------
46,258,850
----------
SEMICONDUCTORS-14.2%
181,700 Altera Corporation* ....................... 8,835,164
36,400 Broadcom Corp Cl. A.* ..................... 4,652,375
69,000 Conexant Systems Inc.* .................... 6,442,875
132,400 Intel Corp. ............................... 10,252,725
109,400 Linear Technology Corporation ............. 7,651,163
187,800 Micron Technology Inc.* ................... 13,392,487
116,600 Texas Instruments, Incorporated ........... 10,464,850
208,200 Xilinx, Inc.* ............................. 16,369,725
----------
78,061,364
----------
</TABLE>
4
<PAGE>
SPECTRA FUND
SCHEDULE OF INVESTMENTS (CON'T)
OCTOBER 31, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- COMMON STOCKS-(CONTINUED) --------------
<S> <C> <C>
SEMICONDUCTOR
CAPITAL EQUIPMENT-5.2%
163,100 Applied Materials Inc.* ......... $ 14,648,419
80,800 ASM Lithography Holding NV* ..... 5,868,100
203,200 Teradyne, Inc.* ................. 7,823,200
------------
28,339,719
------------
Total Common Stocks
(Cost $405,883,422) ............ 534,462,567
------------
SHARES VALUE
- ---------- PREFERRED STOCK-.6% ---------------
COMMUNICATION
EQUIPMENT
28,300 Nokia Corporation, ADR
(Cost $2,024,317) ............. $ 3,270,419
------------
PRINCIPAL
AMOUNT
- ------------- SHORT-TERM CORPORATE NOTES-.2%
$1,200,000 Holland Limited Securitization Inc.,
5.38%, 11/19/99 (a)
(Cost $1,196,771)............. 1,196,771
------------
Total Investments
(Cost $409,104,510)(b).............. 98.2% 538,929,757
Other Assets in Excess
of Liabilities ........ ............ 1.8 9,725,801
----- ------------
Net Assets ....................... 100.0% $ 548,655,558
===== =============
</TABLE>
- --------
* Non-income producing security.
(a) Pursuant to Securities and Exchange Commission Rule 144A, these securities
may be sold prior to their maturity only to qualified institutional buyers.
(b) At October 31, 1999, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $409,104,510, amounted to
$129,825,247 which consisted of aggregate gross unrealized appreciation of
$136,646,648 and aggregate gross unrealized depreciation of $6,821,401.
See Notes to Financial Statements.
5
<PAGE>
SPECTRA FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $409,104,510), see accompanying
schedule of investments ................................................ $538,929,757
Cash .................................................................... 1,322,868
Receivable for investment securities sold ............................... 8,807,106
Receivable for shares of beneficial interest sold ....................... 12,413,414
Dividends receivable .................................................... 49,783
Prepaid expenses ........................................................ 37,438
-------------
Total Assets .......................................................... 561,560,366
LIABILITIES:
Payable for investment securities purchased ............................. $10,672,949
Payable for shares of beneficial interest redeemed ...................... 1,327,004
Investment advisory fees payable ........................................ 645,095
Shareholder servicing fees payable ...................................... 107,514
Trustees' fees payable .................................................. 2,695
Accrued expenses ........................................................ 149,551
-----------
Total Liabilities ..................................................... 12,904,808
-------------
NET ASSETS ............................................................... $548,655,558
=============
NET ASSETS CONSIST OF:
Paid-in capital ......................................................... $374,489,309
Undistributed net investment income (accumulated loss) .................. (8,858,121)
Undistributed net realized gain ......................................... 53,199,123
Net unrealized appreciation ............................................. 129,825,247
-------------
NET ASSETS ............................................................... $548,655,558
=============
Shares of beneficial interest outstanding-Note 5 ......................... 51,009,172
=============
NET ASSET VALUE PER SHARE ................................................ $ 10.76
=============
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
SPECTRA FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Income:
Dividends ....................................................... $ 854,111
Interest ........................................................ 387,362
------------
Total Income ................................................... 1,241,473
Expenses:
Investment advisory fees-Note 2(a) .............................. $ 5,716,197
Shareholder servicing fees-Note 2(e) ............................ 952,698
Interest on line of credit utilized-Note 4 ...................... 55,622
Registration fees ............................................... 88,527
Custodian and transfer agent fees ............................... 86,955
Shareholder reports ............................................. 68,325
Professional fees ............................................... 36,385
Trustees' fees .................................................. 28,069
Miscellaneous ................................................... 11,436
-----------
Total Expenses ................................................. 7,044,214
------------
NET INVESTMENT LOSS ............................................... (5,802,741)
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments .......................... 54,227,221
Net increase in unrealized appreciation of investments ........... 101,424,060
-----------
Net realized and unrealized gain (loss) on investments ......... 155,651,281
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ....................................................... $149,848,540
============
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
SPECTRA FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C>
Increase (decrease) in cash: Cash flows from operating activities:
Dividends received .................................................................. $ 865,322
Interest received ................................................................... 387,362
Interest paid ....................................................................... (54,695)
Operating expenses paid ............................................................. (6,434,714)
Purchase of investment securities ................................................... (573,281,566)
Disposition of short-term securities, net ........................................... 1,250,352
Proceeds from disposition of investment securities .................................. 384,224,831
Other ............................................................................... (29,552)
--------------
Net cash used in operating activities ............................................. (193,072,660)
--------------
Cash flows from financing activities:
Distributions paid .................................................................. (1,341,765)
Proceeds from shares sold and dividends reinvested .................................. 618,359,203
Payments on shares redeemed ......................................................... (421,919,279)
Decrease in bank loan payable ....................................................... (705,000)
--------------
Net cash provided by financing activities ......................................... 194,393,159
--------------
Net increase in cash ................................................................. 1,320,499
Cash-beginning of year ............................................................... 2,369
--------------
Cash-end of year ..................................................................... $ 1,322,868
==============
Reconciliation of net increase in net assets to net cash used in operating activities:
Net increase in net assets resulting from operations ................................ $ 149,848,540
Increase in investments ............................................................. (198,869,238)
Decrease in dividends receivable .................................................... 11,211
Decrease in receivable for investment securities sold ............................... 2,929,698
Increase in payable for investment securities purchased ............................. 8,133,157
Net realized gain ................................................................... (54,227,221)
Net increase in unrealized appreciation ............................................. (101,424,060)
Increase in accrued expenses and other liabilities .................................. 554,805
Net increase in other assets ........................................................ (29,552)
--------------
Net cash used in operating activities ............................................. $ (193,072,660)
==============
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
SPECTRA FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED OCTOBER 31,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Net investment loss ....................................................... $ (5,802,741) $ (1,800,513)
Net realized gain (loss) on investments ................................... 54,227,221 (200,328)
Net increase in unrealized appreciation of investments .................... 101,424,060 22,382,056
------------ ------------
Net increase in net assets resulting from operations ................... 149,848,540 20,381,215
Distribution to shareholders:
Net realized gains ....................................................... (1,341,765) (742,430)
Net increase from shares of beneficial interest transactions-Note 5 ....... 207,110,227 88,411,591
------------ ------------
Total increase in net assets ........................................... 355,617,002 108,050,376
Net assets:
Beginning of year ........................................................ 193,038,556 84,988,180
------------ ------------
End of year (including accumulated net investment losses of $8,858,121
and $3,055,380, respectively) ........................................... $548,655,558 $193,038,556
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
SPECTRA FUND
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the year(i)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Net asset value, beginning of year ............ $ 6.65 $ 5.74
----------- -----------
Net investment loss ........................... ( 0.07) ( 0.02)
Net realized and unrealized gain on
investments .................................. 4.22 0.98
----------- -----------
Total from investment operations .............. 4.15 0.96
Distributions from net realized gains ......... ( 0.04) ( 0.05)
----------- -----------
Net asset value, end of year .................. $ 10.76 $ 6.65
=========== ===========
Total Return (iii) ............................ 62.66% 16.94%
=========== ===========
Ratios and Supplemental Data:
Net assets, end of year
(000's omitted) ............................. $ 548,656 $ 193,039
=========== ===========
Ratio of expenses excluding interest
to average net assets ...................... 1.83% 1.90%
=========== ===========
Ratio of expenses including interest
to average net assets ...................... 1.85% 1.96%
=========== ===========
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 ......................... ( 1.52%) ( 1.24%)
=========== ===========
Portfolio Turnover Rate ..................... 102.54% 190.74%
=========== ===========
Amount of debt outstanding at end
of year .................................... - $ 705,000
=========== ===========
Average amount of debt outstanding
during the year ............................ $ 986,981 $1,044,096
=========== ===========
Average daily number of shares
outstanding during the year ................ 40,946,839 22,865,292
=========== ===========
Average amount of debt per share
during the year ............................ $ 0.02 $ 0.05
=========== ===========
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of year ............ $ 4.54 $ 6.98 $ 6.27
---------- ---------- --------
Net investment loss ........................... ( 0.06)(ii) ( 0.08)(ii) ( 0.17)
Net realized and unrealized gain on
investments .................................. 1.26 0.41 2.41
---------- ---------- --------
Total from investment operations .............. 1.20 0.33 2.24
Distributions from net realized gains ......... - ( 2.77) ( 1.53)
---------- ---------- --------
Net asset value, end of year .................. $ 5.74 $ 4.54 $ 6.98
========== ========== ========
Total Return (iii) ............................ 26.45% 12.68% 57.72%
========== ========== ========
Ratios and Supplemental Data:
Net assets, end of year
(000's omitted) ............................. $ 84,988 $ 11,485 $ 5,374
========== ========== ========
Ratio of expenses excluding interest
to average net assets ......................
Ratio of expenses including interest
to average net assets ...................... 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 ......................... ( 1.06%) ( 1.69%) ( 3.05%)
========== ========== ========
Portfolio Turnover Rate ..................... 133.98% 197.04% 207.25%
========== ========== ========
Amount of debt outstanding at end
of year ....................................
Average amount of debt outstanding
during the year ............................
Average daily number of shares
outstanding during the year ................
Average amount of debt per share
during the year ............................
</TABLE>
(i) Per share data has been adjusted to reflect the effect of a 3 for 1 stock
split which occured April 23, 1999.
(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.
10
<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 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 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.
(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, 1999, the Fund incurred fees of approximately $28,300 for
services provided by Alger Services and reimbursed approximately $9,100 for
transfer agent related expenses paid by Alger Services on behalf of the Fund.
(c) BROKERAGE COMMISSIONS--During the year ended October 31, 1999, the Fund paid
Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $504,630 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 $8,000.
(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
11
<PAGE>
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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, 1999, purchases and sales of
investment securities, excluding short-term securities, aggregated $581,414,723
and $381,301,847, 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, 1999, the Fund had borrowings which
averaged $986,981 at a weighted average interest rate of 5.56%.
NOTE 5--SHARE CAPITAL:
The Fund has an unlimited number of authorized shares of beneficial
interest of $.001 par value. 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, 1999, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
---------------- -----------------
<S> <C> <C>
Shares sold ................. 67,279,182 $629,131,687
Dividend reinvested ......... 146,798 1,112,731
Shares redeemed ............. (45,430,801) (423,134,191)
----------- ------------
Net increase ................ 21,995,179 $207,110,227
=========== ============
</TABLE>
During the year ended October 31, 1998, transactions of shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
---------------- ---------------
<S> <C> <C>
Shares sold .................. 28,482,297 $181,391,591
Dividends reinvested ......... 107,703 583,746
Shares redeemed .............. (14,394,474) (93,563,746)
----------- ------------
Net increase ................. 14,195,526 $88,411,591
=========== ============
</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, 1999, 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 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 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 and financial highlights. Our procedures included confirmation of
securities owned as of October 31, 1999, 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, 1999, 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
five years in the period then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
December 7, 1999
13
<PAGE>
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<PAGE>
[GRAPHIC OMITTED]
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
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, 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.
SREP109
[GRAPHIC OMITTED]
ANNUAL REPORT
OCTOBER 31, 1999
