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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-1743
Spectra Fund
(Exact name of registrant as specified in charter)
111 Fifth Avenue New York, New York 10003
(Address of principal executive offices) (Zip code)
Mr. Frederick A. Blum
Fred Alger Management, Inc.
111 Fifth Avenue
New York, New York 10003
(Name and address of agent for service)
Registrant's telephone number, including area code:212-806-8800
Date of fiscal year end: October 31
Date of reporting period: April 30, 2004
Item 1. Report(s) to Stockholders.
SPECTRA FUND
SEMI-ANNUAL REPORT
APRIL 30, 2004
(UNAUDITED)
[ALGER LOGO OMITTED]
Dear Shareholders, June 10, 2004
Early in 2004, the economy shifted into high gear. In addition to some of
the strongest economic data in four years, benchmark corporate earnings
consistently beat Wall Street's expectations. Consumer spending continued to
fuel various aspects of the economy; industrial production soared; and after a
multi-year drought, companies began to ramp up their spending.
The housing market also remained strong, as people took advantage of low
interest rates. Even the employment situation improved, although job growth
lagged the economic recovery and did not begin to show signs of real strength
until March.
The equity markets, however, had an ambivalent reaction to the positive
economic data. Initially, there was some exuberance, and the markets rose
steadily through February. Then, the difficult situation in Iraq, oil price
increases, and a fear of rising interest rates led to a cooling of investor
sentiment. Even with the pullback in early spring, for the six months ended
April 30, 2004, the Dow rose 5.43%, the S&P 500 was up 6.27%, and the NASDAQ was
down .42%.
Looking ahead, as we enter the heart of the 2004 presidential election,
politics and international security will dominate the headlines, along with
high-profile events such as the Democratic and Republican Party conventions, the
2004 Olympic Games in Athens, and the transition of power in Iraq. It is likely
that these events will continue to distract investors.
Nevertheless, we believe that the economy and the markets remain strong.
Rising interest rates may have a short-term dampening effect, but we expect
growth over the next six months to be very strong. In fact, we believe that many
of the growth companies we follow will experience as much as 15% to 25% annual
earnings growth between 2004 and 2006. Over time, shareholders of those
companies should reap the benefits of that growth.
Finally, we want to thank you for the confidence you have placed in Alger.
It is our goal not only to find the best investments for you, but also to
continue to earn your trust in every aspect of our business.
Respectfully submitted,
/s/ Dan C. Chung
Dan C. Chung
Chief Investment Officer
SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
April 30, 2004
SHARES COMMON STOCKS--97.9% VALUE
--------- --------
BIOTECHNOLOGY--12.3%
98,000 Biogen Idec Inc.* ................................ $ 5,782,000
99,200 Genentech, Inc.* ................................. 12,181,760
49,100 Invitrogen Corporation* .......................... 3,546,493
234,900 Millennium Pharmaceuticals, Inc.* ................ 3,521,151
28,800 OSI Pharmaceuticals, Inc.* ....................... 2,125,152
49,600 Protein Design Labs, Inc.* ....................... 1,214,208
70,450 QLT Inc.*+ ....................................... 1,900,036
-----------
30,270,800
-----------
COMMERCIAL SERVICES & SUPPLIES--2.5%
32,700 Apollo Group, Inc. Cl. A* ........................ 2,971,776
31,700 First Data Corporation ........................... 1,438,863
70,100 Monster Worldwide Inc.* .......................... 1,795,261
-----------
6,205,900
-----------
COMMUNICATION EQUIPMENT--7.4%
164,900 Advanced Fibre Communications, Inc.* ............. 2,753,830
491,700 Brocade Communications Systems, Inc.* ............ 1,789,575
322,000 CIENA Corporation* ............................... 1,333,080
304,700 Cisco Systems, Inc.* ............................. 6,359,089
443,200 Corning Incorporated* ............................ 4,888,496
52,300 Sierra Wireless Inc.* ............................ 1,168,905
-----------
18,292,975
-----------
COMPUTER SOFTWARE--.7%
78,000 Check Point Software Technologies Ltd.* .......... 1,827,540
-----------
COMPUTER TECHNOLOGY--1.9%
45,400 Gentex Corp. ..................................... 1,785,582
32,100 Research in Motion Limited* ...................... 2,784,996
-----------
4,570,578
-----------
CONSUMER FINANCE--1.4%
53,100 Capital One Financial Corporation ................ 3,479,643
-----------
DIVERSIFIED FINANCIAL SERVICES--1.6%
83,000 Citigroup Inc. ................................... 3,991,470
-----------
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.3%
192,900 Celestica Inc.* .................................. 3,391,182
187,200 Symbol Technologies, Inc. ........................ 2,246,400
-----------
5,637,582
-----------
FINANCIAL SERVICES--.7%
35,900 Piper Jaffray Companies, Inc.* ................... 1,738,278
-----------
HEALTH CARE EQUIPMENT & SUPPLIES--6.2%
135,200 Boston Scientific Corporation* ................... 5,568,888
69,200 Guidant Corporation .............................. 4,360,292
22,200 Varian Medical Systems, Inc.* .................... 1,905,648
42,600 Zimmer Holdings, Inc.* ........................... 3,401,610
-----------
15,236,438
-----------
2
SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2004
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
HEALTH CARE PROVIDERS & SERVICES--6.7%
37,800 Aetna Inc. ....................................... $ 3,127,950
42,100 Anthem, Inc.* .................................... 3,729,218
47,600 Oxford Health Plans, Inc. ........................ 2,591,344
67,400 PacifiCare Health Systems, Inc.*+ ................ 2,410,224
55,400 Quest Diagnostics Incorporated ................... 4,672,990
-----------
16,531,726
-----------
HOTELS, RESTAURANTS & LEISURE--3.1%
49,000 Alliance Gaming Corporation* ..................... 1,223,530
102,950 International Game Technology .................... 3,885,333
61,100 Royal Caribbean Cruises Ltd.+ .................... 2,476,383
-----------
7,585,246
-----------
INFORMATION TECHNOLOGY SERVICES--.9%
50,100 Cognizant Technology Solutions Corporation
Cl. A* ......................................... 2,167,326
-----------
INSURANCE--1.4%
49,500 AFLAC INCORPORATED ............................... 2,090,385
17,500 MGIC Investment Corporation ...................... 1,288,350
-----------
3,378,735
-----------
INTERNET & CATALOG RETAIL--6.8%
139,600 eBay Inc.* ....................................... 11,142,872
112,800 NetFlix Inc.*+ ................................... 2,852,712
117,600 Priceline.com*+ .................................. 2,849,448
-----------
16,845,032
-----------
INTERNET SOFTWARE & SERVICES--4.5%
220,300 Yahoo! Inc. * .................................... 11,116,338
-----------
MACHINERY--1.0%
64,800 Dover Corporation ................................ 2,593,944
-----------
MEDIA--6.4%
116,900 Disney (Walt) Company ............................ 2,692,207
42,100 Pixar, Inc.*+ .................................... 2,875,430
298,100 Time Warner Inc.* ................................ 5,014,042
218,900 XM Satellite Radio Holdings Inc. Cl. A* .......... 5,244,844
-----------
15,826,523
-----------
PHARMACEUTICALS--8.0%
47,800 Allergan, Inc. ................................... 4,208,790
160,600 King Pharmaceuticals, Inc.* ...................... 2,770,350
254,080 Pfizer Inc. ...................................... 9,085,901
60,500 Teva Pharmaceutical Industries Ltd. ADR+# ........ 3,724,380
-----------
19,789,421
-----------
3
SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
April 30, 2004
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--9.0%
137,200 Applied Materials, Inc.* ......................... $ 2,501,156
200,900 Broadcom Corporation Cl. A * ..................... 7,585,984
303,600 Kulicke & Soffa Industries Inc.*+ ................ 3,014,748
138,900 Micron Technology, Inc.* ......................... 1,891,818
113,500 National Semiconductor Corporation* .............. 4,629,665
86,500 Novellus Systems, Inc. * ......................... 2,505,040
------------
22,128,411
------------
SOFTWARE--6.9%
194,400 Microsoft Corporation ............................ 5,048,568
372,400 Oracle Corporation* .............................. 4,178,328
345,200 Red Hat, Inc.*+ .................................. 7,839,492
------------
17,066,388
------------
SPECIALTY RETAIL--4.2%
90,600 Aeropostale, Inc.* ............................... 1,992,294
69,300 Bed Bath & Beyond Inc.* .......................... 2,572,416
111,000 Home Depot, Inc. ................................. 3,906,090
20,400 Sharper Image Corporation*+ ...................... 623,424
32,100 Tiffany & Co. .................................... 1,251,900
------------
10,346,124
------------
TEXTILES, APPAREL & LUXURY GOODS--1.4%
78,600 Coach, Inc.* ..................................... 3,348,360
------------
WIRELESS TELECOMMUNICATION SERVICES--.6%
38,100 SpectraSite, Inc.* ............................... 1,423,797
------------
Total Common Stocks
(Cost $215,186,349) ............................ 241,398,575
------------
SHORT-TERM INVESTMENTS--11.0%
27,135,634 Security Lending Quality Trust
(Cost $27,135,634)(b) .......................... 27,135,634
------------
Total Investments
(Cost $242,321,983)(a) .............................. 108.9% 268,534,209
Liabilities in Excess of Other Assets ................. (8.9) (21,864,571)
------ ------------
Net Assets ............................................ 100.00% $246,669,638
====== ============
- ------------------
* Non-income producing security.
+ Securities partially or fully on loan.
# American Depositary Receipts.
(a) At April 30, 2004, the net unrealized appreciation on investments, based on
cost for federal income tax purposes of $242,419,847, amounted to
$26,114,362 which consisted of aggregate gross unrealized appreciation of
$37,609,520 and aggregate gross unrealized depreciation of $11,495,158.
(b) Represents investment of cash collateral received for securities on loan.
See Notes to Financial Statements.
4
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SPECTRA FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD
INCOME FROM
INVESTMENT OPERATIONS
-------------------------------
NET
REALIZED DISTRIBUTIONS
NET ASSET NET AND UNREALIZED TOTAL FROM
VALUE, INVESTMENT GAIN (LOSS) FROM NET
BEGINNING INCOME ON INVESTMENT REALIZED
OF PERIOD (LOSS) INVESTMENTS OPERATIONS GAINS
--------- ------ ----------- ---------- -----
SPECTRA FUND
CLASS A (i)
Six Months Ended
4/30/04(ii)(vi).. $ 5.90 $ (0.05)(iv) $ 0.09 $ 0.04 $ --
Year ended 10/31/03 4.76 (0.08)(iv) 1.22 1.14 --
Year ended 10/31/02 6.32 (0.09)(iv) (1.47) (1.56) --
Year ended 10/31/01 10.63 (0.08)(iv) (3.60) (3.68) (0.63)
Four months ended
10/31/00(ii) 12.28 (0.02) (1.63) (1.65) --
CLASS N (iii)
Six Months Ended
4/30/04(ii)(vi).. $ 5.88 $ (0.05)(iv) $ 0.09 $ 0.04 $ --
Year ended 10/31/03 4.76 (0.07)(iv) 1.19 1.12 --
Year ended 10/31/02 6.32 (0.09)(iv) (1.47) (1.56) --
Year ended 10/31/01 10.63 (0.08)(iv) (3.60) (3.68) (0.63)
Year ended 10/31/00 10.76 (0.08) 0.88 0.80 (0.93)
Year ended 10/31/99 6.65 (0.07) 4.22 4.15 (0.04)
- -------------------
(i) Initially offered July 1, 2000.
(ii) Ratios have been annualized; total return has not been annualized.
(iii) Per share data has been adjusted to reflect the effect of a 3 for 1 stock
split which occurred April 23, 1999.
(iv) Amount was computed based on average shares outstanding during the period.
(v) Does not reflect the effect of any sales charge.
(vi) Unaudited.
See Notes to Financial Statements.
6
RATIOS/SUPPLEMENTAL DATA
-----------------------------------------------------------
NET ASSETS, RATIO OF NET
END OF RATIO OF INVESTMENT
NET ASSET PERIOD EXPENSES INCOME (LOSS)
VALUE, END (000'S TO AVERAGE TO AVERAGE PORTFOLIO
OF PERIOD TOTAL RETURN OMITTED) NET ASSETS NET ASSETS TURNOVER RATE
--------- ------------ -------- ---------- ---------- -------------
$ 5.94 0.68%(v) $ 5,807 1.97% (1.56)% 69.91%
5.90 23.95(v) 6,346 2.01 (1.35) 192.19
4.76 (24.68)(v) 6,722 1.98 (1.52) 172.25
6.32 (36.20)(v) 12,951 1.88 (1.03) 114.75
10.63 (13.44)(v) 14,711 1.82 (1.05) 118.82
$ 5.92 0.68% $240,863 1.97% (1.56)% 69.91%
5.88 23.53 257,337 2.03 (1.39) 192.19
4.76 (24.68) 252,620 1.98 (1.52) 172.25
6.32 (36.20) 423,860 1.88 (0.99) 114.75
10.63 6.21 876,132 1.82 (1.29) 118.82
10.76 62.66 548,656 1.85 (1.52) 102.54
7
SPECTRA FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2004
ASSETS:
Investments in securities, at value (cost $242,321,983)--
see accompanying schedule of investments (value of
securities loaned*) ........................................ $268,534,209
Cash ......................................................... 36,967
Receivable for investment securities sold .................... 16,532,755
Receivable for shares of beneficial interest sold ............ 194,488
Dividends receivable ......................................... 34,726
Prepaid expenses ............................................. 13,803
------------
Total Assets ............................................. 285,346,948
LIABILITIES:
Payable for securities loaned ................................ $ 27,135,634
Payable for investment securities purchased .................. 6,833,229
Bank loan .................................................... 3,400,000
Payable for shares of beneficial interest redeemed ........... 808,128
Investment advisory fees payable ............................. 328,024
Shareholder servicing fees payable ........................... 54,671
Transfer agent fees payable .................................. 18,464
Interest payable ............................................. 4,175
Trustees' fees payable ....................................... 4,488
Accrued expenses ............................................. 90,497
------------
Total Liabilities ........................................ 38,677,310
------------
NET ASSETS ...................................................... $246,669,638
============
NET ASSETS CONSIST OF:
Paid-in capital .............................................. $527,446,378
Undistributed net investment income (accumulated loss) ....... (2,090,639)
Undistributed net realized gain (accumulated loss) ........... (304,898,327)
Net unrealized appreciation (depreciation) of investments .... 26,212,226
------------
NET ASSETS ...................................................... $246,669,638
============
Class A
Net Asset Value Per Share .................................... $ 5.94
============
Offering Price Per Share ..................................... $ 6.30
============
Class N
Net Asset Value and Offering Price Per Share ................. $ 5.92
============
Shares of beneficial interest outstanding--Note 5
Class A ...................................................... 977,117
============
Class N ...................................................... 40,664,414
============
*Value of securities loaned ..................................... $ 25,674,787
============
See Notes to Financial Statements.
8
SPECTRA FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 2004
INVESTMENT INCOME:
Income:
Dividends .................................................. $ 515,010
Stock loan income .......................................... 17,958
Interest ................................................... 5,946
------------
Total Income ............................................. 538,914
Expenses:
Investment advisory fees--Note 2(a) ........................ $ 2,004,395
Shareholder servicing fees--Note 2(e) ...................... 334,066
Transfer agent fees ........................................ 110,253
Interest expense ........................................... 32,739
Custodian fees ............................................. 19,517
Registration fees .......................................... 20,979
Trustees' fees ............................................. 21,081
Professional fees .......................................... 24,872
Miscellaneous .............................................. 61,651
------------
Total Expenses ........................................... 2,629,553
------------
NET INVESTMENT LOSS ............................................. (2,090,639)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments ................................ 14,299,823
Net change in unrealized appreciation (depreciation)
on investments ............................................... (9,657,506)
------------
Net realized and unrealized gain on investments .......... 4,642,317
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................................... $ 2,551,678
============
See Notes to Financial Statements.
9
SPECTRA FUND
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31,
(UNAUDITED) 2003
------------- -------------
Net investment loss ............................................... $ (2,090,639) $ (3,476,757)
Net realized gain on investments and written options .............. 14,299,823 13,487,096
Net change in unrealized appreciation (depreciation)
on investments and written options ............................. (9,657,506) 43,757,463
------------- -------------
Net increase in net assets resulting
from operations ............................................ 2,551,678 53,767,802
Decrease from shares of beneficial interest transactions:
Class A ......................................................... (601,327) (3,263,446)
Class N ......................................................... (18,962,801) (46,164,533)
------------- -------------
Net decrease from shares of beneficial
interest transactions--Note 5 .................................. (19,564,128)
------------- -------------
Total increase (decrease) in net assets ..................... (17,012,450) 4,339,823
Net assets:
Beginning of period ............................................. 263,682,088 259,342,265
------------- -------------
End of period (including accumulated net investment losses
of $2,090,639 and $0, respectively) .......................... $ 246,669,638 $ 263,682,088
============= =============
See Notes to Financial Statements.
10
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
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 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
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.
Securities included within the Nasdaq market shall be valued at the Nasdaq
official closing price ("NOCP") on the day of valuation, or if there is no NOCP
issued, at the last sale price on such day. Securities included within the
Nasdaq market for which there is no NOCP and no last sale price on the day of
valuation shall be valued at the mean between the last bid and asked prices on
such day.
(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) OPTION WRITING: When the Fund writes an option, an amount equal to the
premium received by the Fund is recorded as a liability and is subsequently
11
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
adjusted to the current fair value of the option written. Premiums received from
writing options that expire unexercised are treated by the Fund on the
expiration date as realized gains from investments. The difference between the
premium and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or, if the
premium is less than the amount paid for the closing purchase transaction, as a
realized loss. If a call option is exercised, the premium is added to the
proceeds from the sale of the underlying security in determining whether the
Fund has realized a gain or loss. If a put option is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The Fund, as
writer of an option, bears the market risk of an unfavorable change in the price
of the security underlying the written option.
(E) 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 April 30, 2004, the value of securities loaned and
collateral received thereon were $25,674,787 and $27,135,634, respectively.
(F) 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 from
net investment income and distributions from capital gains payable to holders of
its shares.
The characterization of distributions to shareholders for financial reporting
purposes is determined in accordance with federal income tax rules. Therefore,
the source of the Fund's distributions may be shown in the accompanying
financial statements as either from, or in excess of net investment income, net
realized gain on investment transactions or paid-in capital, depending on the
type of book/tax differences that may exist.
At October 31, 2003, the Fund reclassified $3,476,757 from undistributed net
investment income (accumulated loss) to paid-in capital. Reclassifications
result primarily from the difference in tax treatment of net operating losses.
The
12
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
reclassification had no impact on the net asset value of the Fund and is
designed to present the Fund's capital accounts on a tax basis.
(G) 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. At October 31, 2003, the net capital loss carryforward of
the Fund which may be used to offset future net realized gains was approximately
$319,100,286 and expires 2009 through 2010.
(H) ALLOCATION METHOD--Income, realized and unrealized gains and losses, and
expenses are allocated among the Fund's classes based on relative net assets.
(I) INDEMNIFICATION--The Fund enters into contracts that contain a variety of
indem- nification provisions. The Fund's maximum exposure under these
arrangements is unknown. The Fund does not anticipate recognizing any loss
related to these arrangements.
(J) OTHER--These financial statements have been prepared using estimates and
assumptions that affect the reported amounts therein. Actual results may differ
from those estimates.
NOTE 2--INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
(A) INVESTMENT ADVISORY FEES--The Fund pays its investment adviser, Fred Alger
Management, Inc. ("Alger Management"), a monthly fee at an annual rate of 1.50%
based on the value of the Fund's average daily net assets.
(B) TRANSFER AGENT FEES--Alger Shareholder Services, Inc. ("Alger Services"), an
affiliate of Alger Management, serves as transfer agent for the Fund. During the
six months ended April 30, 2004, the Fund incurred fees of approximately $97,000
for services provided by Alger Services and reimbursed Alger Services
approximately $13,000 for transfer agent related expenses paid by Alger Services
on behalf of the Fund.
(C) BROKERAGE COMMISSIONS--During the six months ended April 30, 2004, the Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $352,546 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,
13
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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:
(a) During the six months ended April 30, 2004, purchases and sales of
investment securities, excluding short-term securities, aggregated $187,258,860
and $218,249,954, 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 six months ended
April 30, 2004, the Fund had borrowings which averaged $4,221,456 at a weighted
average interest rate of 1.53%.
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.
During the six months ended April 30, 2004, transactions of shares of
beneficial interest were as follows:
CLASS A: SHARES AMOUNT
-------- --------
Shares sold .................................... 47,302 $ 286,740
Shares redeemed ................................ (145,474) (888,067)
---------- --------------
Net decrease ................................... (98,172) $ (601,327)
========== ==============
CLASS N: SHARES AMOUNT
-------- --------
Shares sold .................................... 3,067,502 $ 18,728,477
Shares redeemed ................................ (6,152,947) (37,691,278)
---------- --------------
Net decrease ................................... (3,085,445) $ (18,962,801)
========== ==============
During the year ended October 31, 2003, transactions of shares of
beneficial interest were as follows:
CLASS A: SHARES AMOUNT
-------- --------
Shares sold .................................... 32,316,416 $ 161,738,352
Shares redeemed ................................ (32,653,783) (165,001,798)
---------- --------------
Net decrease ................................... (337,367) $ (3,263,446)
========== ==============
CLASS N: SHARES AMOUNT
-------- --------
Shares sold .................................... 5,995,836 $ 29,925,164
Shares redeemed ................................ (15,289,943) (76,089,697)
---------- --------------
Net decrease ................................... (9,294,107) $ (46,164,533)
========== ==============
14
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS:
During the six months ended April 30, 2004 and the year ended October 31,
2003, there were no distributions paid.
As of October 31, 2003, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income .................................. $ --
Undistributed long-term gain ................................... $ --
Capital loss carryforward ...................................... $ 319,100,286
Unrealized appreciation
(depreciation) ............................................... $ 35,771,868
The difference between book basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
NOTE 7--REGULATORY MATTERS:
The Office of the New York State Attorney General, the Attorney General of
West Virginia, the Massachusetts Securities Division of the Office of the
Secretary of the Commonwealth, and the United States Securities and Exchange
Commission ("SEC") have contacted Alger Management in connection with their
investigation of practices in the mutual fund industry identified as "market
timing" and "late trading" of mutual fund shares. In response to these
inquiries, Alger Management and its counsel have been investigating certain
shareholder trading practices, both in the Fund and in other mutual funds that
it manages (the "Funds"). Alger Management has assured the board that if it be
determined that improper trading practices in the Fund detrimentally affected
its performance, Alger Management will make appropriate restitution. At the
present time, Alger Management is unable to estimate the impact, if any, that
the outcome of these investigations may have on the Fund's results of operations
or financial condition.
On October 16, 2003, the SEC commenced and settled a civil proceeding
against a former vice chairman of Alger Management's immediate parent, in
connection with alleged market timing arrangements with certain investors in the
Fund. That settlement specifically provided: "The findings herein are made
pursuant to [the former vice chairman's settlement] Offer and are not binding on
any other person or entity in this or any other proceeding." Neither Alger
Management nor any of the Funds was a party to this proceeding.
On October 31, 2003, Peter D. DeMayo, as Custodian for James Liam DeMayo,
identifying himself as a shareholder of the Fund, filed a purported class action
lawsuit against the Fund, The Alger Funds, various portfolios of The Alger
Funds, Alger Management, the former vice chairman, Veras Management Partners,
LLP et al., in the United States District Court for the Southern District of New
York, and served the complaint in the lawsuit on Alger Management
15
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
and the fund defendants on November 10, 2003. The suit, based primarily upon the
SEC settlement with a former vice chairman, alleges, among other things, that
the fund defendants made false and misleading statements in their prospectuses
in violation of Section 11 of the Securities Act of 1933, that other defendants
violated the "control person" provisions of Section 15 of the Securities Act and
Section 20(a) of the Securities Exchange Act of 1934, that all defendants
committed fraud in violation of Section 10(b) of the Securities Exchange Act and
Rule 10b-5 thereunder, and that Alger Management breached a fiduciary duty to
plaintiffs. The suit seeks, among other things, compensatory damages, recovery
of advisory fees paid to Alger Management, and payment of the plaintiff's
counsel and expert fees.
The Judicial Panel on Multi District Litigation has referred the DEMAYO
case to the District of Maryland for consolidation with other federal cases
involving the mutual fund industry. Other securities class actions have been
commenced after DEMAYO that make substantially similar allegations for the same
class period. These cases have also been transferred to the District of Maryland
and they include: BILLMAN V. FRED ALGER MANAGEMENT, INC., 03 CV 9167; BUHS V.
FRED ALGER MANAGEMENT, INC., 03 CV 8959; GARFIELD V. FRED ALGER MANAGEMENT,
INC., ET AL., 03 CV 9239; HENZEL V. ALGER SMALL PORTFOLIO, ET AL., 03 CV 8747;
CROCKET V. ALGER SMALL PORTFOLIO, 03 CV 9915, FRIEDMAN V. ALGER SMALL PORTFOLIO,
03 CV 9426, JOHNSON V. ALGER SMALL PORTFOLIO, ET AL., 03 CV 9858, and NEEYAF
DISTRIBUTING V. ALGER SMALL PORTFOLIO, 03 CV 9501.
In addition, on November 25, 2003 a derivative action was filed in the
U.S. District Court for the Eastern District of New York against Fred Alger
Management, Inc. See BERNSTEIN V. FRED ALGER MANAGEMENT, INC., 03 CV 5958. This
matter has also been transferred to the District of Maryland.
Finally, three derivative actions have been filed in The Superior Court of
the Commonwealth of Massachusetts, County of Suffolk, against certain officers
and trustees of Alger - related funds. These matters include, JONATHAN CLAIN V.
FRED M. ALGER, III, ET AL., JAMES LAUFER V. FRED M. ALGER, III, ET AL. and DAVID
GRANT V. FRED M. ALGER, III, ET AL.
Alger Management does not believe that the foregoing lawsuits will
materially affect its ability to perform its management contracts with any of
the funds that it manages, and the management of the Fund believes that it will
not be materially adversely affected by the pending lawsuits.
16
SPECTRA FUND
111 Fifth Avenue
New York, NY 10003
(800) 711-6141
www.alger.com
INVESTMENT MANAGER
Fred Alger Management, Inc.
111 Fifth Avenue
New York, NY 10003
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Alger Shareholder Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302
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.
PROXY VOTING POLICIES
A description of the policies and procedures the Fund uses to determine how to
vote proxies relating to fund securities is available, without charge, by
calling (800) 711-6141.
[ALGER LOGO OMITTED]
Alger Shareholder Services, Inc.
30 Montgomery Street
Jersey City, NJ 07302
SAS 61504 L2
ITEM 2. CODE OF ETHICS.
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
(e) Not applicable
(f) Not applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a meeting of the Board of Trustees held May 11, 2004, the Board adopted a
policy that it shall decline to consider candidates recommended by shareholders
to fill a vacancy or a likely vacancy on the Board. The Board believes that the
independent Trustees are in the best position to screen and select qualified
candidates for Board membership who will provide the experience, perspective,
skills and other attributes necessary to effectively advance the interests of
registrant's shareholders. Prior to May 11, 2004, the Board did not have a
formal policy with respect to consideration of shareholder nominees for the
Board. In screening and selecting qualified candidates for Board membership, the
independent Trustees may consider candidates recommended by Fred Alger
Management, Inc., and may retain an executive search firm and/or outside legal,
financial or other external counsel that they deem necessary or desirable to
assist in the nominating and/or screening process.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
have concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended)
are effective based on their evaluation of the disclosure controls and
procedures as of a date within 90 days of the filing date of this document.
(b) No changes in the registrant's internal control over financial reporting
occurred during the registrant's last fiscal half-year that materially affected,
or are reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 11. EXHIBITS.
(a) (1) Not applicable
(a) (2) Certifications of principal executive officer and principal financial
officer as required by rule 30a-2(a) under the Investment Company Act of
1940 are attached as Exhibit 99.CERT
(b) Certifications of principal executive officer and principal financial
officer as required by rule 30a-2(b) under the Investment Company Act of
1940 are attached as Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Spectra Fund
By: /s/Dan C. Chung
Dan C. Chung
President
Date: June 30, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Dan C. Chung
Dan C. Chung
President
Date: June 30, 2004
By: /s/Frederick A. Blum
Frederick A. Blum
Treasurer
Date: June 30, 2004