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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: October 31, 2004
ITEM 1. REPORT(S) TO STOCKHOLDERS.
SPECTRA FUND
ANNUAL REPORT
OCTOBER 31, 2004
[LOGO]
Dear Shareholders, December 6, 2004
THE YEAR IN REVIEW
It was an unusual year for investing. Corporate profit growth has rarely
been better, and both the U.S. and global economies expanded at a steady, stable
clip with very low inflation for most of the year. But a tight presidential
race, war in Iraq, rising energy and commodity prices, and continued investor
skepticism kept the markets muted until November.
The fiscal year began on a positive note, and through March, the markets
responded positively to strong manufacturing activity and growing consumer
confidence. In April the mood started to shift. Energy prices were on the rise,
economic growth led to speculation (correct as it turned out) that the Fed would
soon raise interest rates, and the situation in Iraq was not improving. Perhaps
just as unsettling to the markets, job growth lagged the broader economic
recovery. As a result, the markets retreated from their March peak and
progressively moved lower until August.
By autumn, manufacturing activity and consumer spending had slowed. The
price of oil continued to rise and the Fed increased the short-term rate from
1.00% to 1.75% by fiscal year end (October 31, 2004). The close presidential
race generated passion but also created uncertainty, and the markets remained
range-bound until election day. It may be a cliche, but investors truly dislike
uncertainty, and the markets only moved up significantly after the election was
over.
As a result, for the 12 months ended October 31, 2004, the equity markets
experienced modest gains with the Dow gaining 4.46%, the Nasdaq up 2.68% and the
S&P 500 up 9.42%. The yield on the U.S. Treasury 10-year note was 4.05% on
October 31, compared to 4.30% a year earlier.
For the fiscal year ended October 31, 2004, the Spectra Fund lost .68%
compared with a gain of 3.53% for the Russell 3000 Growth Index. Much of the
underperformance was the result of our being heavily overweighted in information
technology. While we fared better than the benchmark in the information
technology sector, our holdings were still down for the year. Semiconductor
stocks were hit hardest, notably Kulicke & Soffa Industries, Novellus Systems,
and Applied Materials. In software, Red Hat and Veritas also took big hits.
Research in Motion Ltd., the creator of the widely-used handheld Blackberry
communication product, was an exception.
Our holdings in consumer discretionary did better, and we were above
market weight. Satellite radio companies XM Satellite and Sirius both had an
impressive year, and online retailer eBay was among the top performers in the
Fund. The exception here was online DVD rental service Netflix, which detracted
from overall performance.
1
LOOKING AHEAD
For the first time in many years, we believe that the market is no longer
gripped by the irrational exuberance of the late 1990s or the irrational
pessimism of the first years of the new millennium. Instead, we think that this
market will reward or penalize companies based on how well those companies
perform. As a result, heading into 2005, we expect to see steady and rational
gains with less volatility than in past years. In light of impressive corporate
earnings growth and low interest rates, we believe that much of the market is
undervalued, and that companies achieving solid, double-digit earnings should
command better prices in the year ahead.
At the same time, employment and wage gains are likely to be less
impressive than corporate profit growth. Productivity remains high by historic
averages, and companies have not needed to initiate substantial new hiring. In
addition, higher energy prices look to be a mild check on what is otherwise a
very robust economy. While the pace of growth should slow from its pace a year
ago, corporate profits overall should grow in the high single-digits, with many
companies significantly exceeding that. GDP growth should be at least 3%.
Alger is celebrating its 40th anniversary of managing money, and our
investment philosophy and process remain the same. This year, however, was a bit
disappointing to us. Uncertainty trumped fundamentals, and our stocks didn't do
as well as we had expected. Looking back, perhaps this was simply the "pause
that refreshes." In the rally following the election, both the markets and our
performance have picked up considerably. We think this is a positive harbinger
for 2005.
As always, we will continue to use our time-tested, disciplined approach
in order to identify dynamic companies and invest in them. We value the trust
you have placed in us, and we thank you. We look forward to the year ahead.
Respectfully submitted,
/s/ Dan C. Chung
------------------------
Dan C. Chung
Chief Investment Officer
2
- --------------------------------------------------------------------------------
SPECTRA FUND Fund Highlights Through October 31, 2004 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Hypothetical $10,000 Investment in Class N Shares -- 10 years ended
October 31, 2004.
- --------------------------------------------------------------------------------
[The following table represents a chart in the printed piece.]
SPECTRA RUSSELL 3000
11/94 10,000 10,000
10/31/95 15,772 12,835
10/31/96 17,771 15,549
10/31/97 22,472 20,157
10/31/98 26,279 24,268
10/31/99 42,746 32,494
10/31/2000 45,400 35,680
10/31/2001 28,966 21,642
10/31/2002 21,816 17,369
10/31/2003 26,949 21,423
10/31/2004 26,766 22,178
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in Spectra Fund Class N shares and the Russell 3000 Growth Index
for the ten years ended October 31, 2004. The figures for Spectra Fund and the
Russell 3000 Growth Index (an unmanaged index of common stocks) include
reinvestment of dividends. Performance for Spectra Fund Class A shares will vary
from the results shown above due to the sales charge on Class A shares.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON PERFORMANCE COMPARISON
as of October 31, 2004 as of October 31, 2004
AVERAGE ANNUAL RETURNS AVERAGE ANNUAL RETURNS
SINCE
INCEPTION
1 5 10 1 (JULY 1,
YEAR YEARS YEARS YEAR 2000)
------------------------- -----------------------------------
Class N (0.68%) (8.94%) 10.35% Class A+ (6.39%) (15.45%)
Russell 3000 Russell 3000
Growth Index 3.53% (7.35%) 8.29% Growth Index 3.53% (10.10%)
- --------------------------------------------------------------------------------
THE FUND'S AVERAGE ANNUAL TOTAL RETURNS INCLUDE CHANGES IN SHARE PRICE AND
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS. THE GRAPH AND TABLE ABOVE DO NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD HAVE PAID ON FUND
DISTRIBUTIONS OR ON THE REDEMPTION OF FUND SHARES. INVESTMENT RETURN AND
PRINCIPAL WILL FLUCTUATE AND THE FUND'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE
OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE
RESULTS.
+ Returns reflect maximum initial sales charges on Class A shares.
3
SPECTRA FUND
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED)
As a shareholder of the Fund, you incur two types of costs: transaction
costs, if applicable, including sales charges (loads) and redemption fees; and
ongoing costs, including management fees, distribution (12b-1) fees, if
applicable, and other fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example below is based on an investment of $1,000 invested at the
beginning of the six-month period starting May 1, 2004 and ending October 31,
2004.
ACTUAL EXPENSES
The first line for each class of shares in the table below provides
information about actual account values and actual expenses. You may use the
information in this line, together with the amount you invested, to estimate the
expenses that you would have paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1000 = 8.6),
then multiply the result by the number in the first line under the heading
entitled "Expenses Paid During the Period" to estimate the expenses you paid on
your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line for each class of shares in the table below provides
information about hypothetical account values and hypothetical expenses based on
the Fund's actual expense ratios for each class of shares and an assumed rate of
return of 5% per year before expenses, which is not the Fund's actual return.
The hypothetical account values and expenses may not be used to estimate the
actual ending account balance or expenses you paid for the period. You may use
this information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transaction costs, such as sales
charges (loads) and redemption fees. Therefore, the second line under each class
of shares in the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds. In
addition, if these transactional costs were included, your costs would have been
higher.
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD
ACCOUNT VALUE ACCOUNT VALUE MAY 1, 2004 TO
CLASS A: MAY 1, 2004 OCTOBER 31, 2004 OCTOBER 31, 2004(B)
------------- ---------------- -------------------
Actual ............... $1,000.00 $ 986.50 $ 9.89
Hypothetical(a) ...... 1,000.00 1,015.18 10.03
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD
ACCOUNT VALUE ACCOUNT VALUE MAY 1, 2004 TO
CLASS N: MAY 1, 2004 OCTOBER 31, 2004 OCTOBER 31, 2004(B)
------------- ---------------- -------------------
Actual ............... $1,000.00 $ 986.50 $ 9.89
Hypothetical(a) ...... 1,000.00 1,015.18 10.03
- ----------
(a) 5% annual return before expenses.
(b) Expenses are equal to the Fund's annualized expense ratio of 1.98% for both
Class A and Class N shares, multiplied by the average account value over the
period, multiplied by 184/366 (to reflect the one-half year period).
4
SPECTRA FUND
SCHEDULE OF INVESTMENTS
October 31, 2004
SHARES COMMON STOCKS--94.8% VALUE
-------- --------
AEROSPACE & DEFENSE--3.3%
69,000 Lockheed Martin Corporation ..................... $ 3,801,210
36,900 United Technologies Corporation ................. 3,425,058
-----------
7,226,268
-----------
BIOTECHNOLOGY--7.6%
82,250 Biogen Idec Inc.* ............................... 4,783,660
49,400 Genentech, Inc.* ................................ 2,249,182
45,100 Genzyme Corporation General Division* ........... 2,366,397
137,300 Gilead Sciences, Inc.* .......................... 4,754,699
10,600 ImClone Systems Incorporated* ................... 464,280
27,100 OSI Pharmaceuticals, Inc.* ...................... 1,760,958
-----------
16,379,176
-----------
BUSINESS SERVICES--.8%
27,100 MicroStrategy Incorporated* ..................... 1,625,458
-----------
CAPITAL MARKETS--.8%
16,700 Bank of New York Company, Inc. (The) ............ 542,082
20,700 Merrill Lynch & Co., Inc. ....................... 1,116,558
-----------
1,658,640
-----------
CHEMICALS--1.5%
94,300 Lubrizol Corporation ............................ 3,275,039
-----------
COMMERCIAL BANKS--.5%
18,550 Wells Fargo & Company ........................... 1,107,806
-----------
COMMERCIAL SERVICES & SUPPLIES--1.4%
57,900 First Marblehead Corporation (The)* ............. 3,103,440
-----------
COMMUNICATION EQUIPMENT--5.9%
86,000 Motorola, Inc. .................................. 1,484,360
245,500 Nokia Oyj ADR# .................................. 3,785,610
69,700 QUALCOMM Inc. ................................... 2,914,157
51,450 Research In Motion Limited* ..................... 4,537,890
-----------
12,722,017
-----------
COMPUTER SOFTWARE--1.0%
99,700 Check Point Software Technologies Ltd.* ......... 2,255,314
-----------
COMPUTER TECHNOLOGY--1.4%
74,500 NAVTEQ* ......................................... 3,003,095
-----------
COMPUTERS & PERIPHERALS--4.3%
78,450 Apple Computer, Inc.* ........................... 4,120,979
176,700 PalmOne, Inc.* .................................. 5,118,999
-----------
9,239,978
-----------
DIVERSIFIED FINANCIAL SERVICES--.8%
20,200 Lehman Brothers Holdings Inc. ................... 1,659,430
-----------
ENERGY EQUIPMENT & SERVICES--2.2%
141,200 National-Oilwell, Inc.* ......................... 4,759,852
-----------
FOOD & STAPLES RETAILING--1.7%
82,000 CVS Corporation ................................. 3,563,720
-----------
5
SPECTRA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 2004
SHARES COMMON STOCKS (CONTINUED) VALUE
-------- --------
FREIGHT & LOGISTICS--1.1%
25,450 FedEx Corp. ..................................... $ 2,319,004
-----------
HEALTH CARE EQUIPMENT & SUPPLIES--3.7%
55,500 Fisher Scientific International Inc.* ........... 3,183,480
33,600 Guidant Corporation ............................. 2,238,432
53,200 Kinetic Concepts, Inc.* ......................... 2,650,956
-----------
8,072,868
-----------
HEALTH CARE PROVIDERS & SERVICES--3.3%
49,900 AMERIGROUP Corporation* ......................... 2,994,000
77,950 Caremark Rx, Inc.* .............................. 2,336,162
20,100 Quest Diagnostics Incorporated .................. 1,759,554
-----------
7,089,716
-----------
HOTELS, RESTAURANTS & LEISURE--.7%
33,100 Royal Caribbean Cruises Ltd. .................... 1,542,460
-----------
HOUSEHOLD DURABLES--.4%
16,600 Garmin Ltd. ..................................... 830,000
-----------
INDUSTRIAL CONGLOMERATES--2.9%
83,100 General Electric Company ........................ 2,835,372
106,400 Tyco International Ltd. ......................... 3,314,360
-----------
6,149,732
-----------
INFORMATION TECHNOLOGY SERVICES--1.3%
44,200 Accenture Ltd. Cl. A* ........................... 1,070,082
48,950 Cognizant Technology Solutions
Corporation Cl. A* ............................ 1,664,300
-----------
2,734,382
-----------
INTERNET & CATALOG RETAIL--4.0%
71,200 eBay Inc.* ...................................... 6,949,832
79,400 IAC/InterActiveCorp.* ........................... 1,716,628
-----------
8,666,460
-----------
INTERNET SOFTWARE & SERVICES--3.9%
18,300 Netease.com Inc. ADR*# .......................... 851,133
206,100 Yahoo! Inc.* .................................... 7,458,759
-----------
8,309,892
-----------
LEISURE & ENTERTAINMENT--.8%
55,400 Shanda Interactive Entertainment Ltd.* .......... 1,683,551
-----------
MACHINERY-OIL WELL EQUIPMENT & SERVICES--1.0%
114,000 Patterson-UTI Energy, Inc. ...................... 2,192,220
-----------
MEDIA--4.9%
4,900 DreamWorks Animation SKG, Inc.* ................. 191,345
509,300 Sirius Satellite Radio Inc.* .................... 1,986,270
331,700 Time Warner Inc.* ............................... 5,519,488
78,800 Viacom Inc. Cl. B ............................... 2,875,412
-----------
10,572,515
-----------
MEDICAL DEVICES--1.0%
56,300 Advanced Medical Optics, Inc.* .................. 2,201,330
-----------
6
SPECTRA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 2004
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
METALS & MINING--1.6%
53,000 Peabody Energy Corporation ...................... $ 3,380,340
-----------
MULTILINE RETAIL--.8%
33,800 Kohl's Corporation* ............................. 1,715,688
-----------
OFFICE EQUIPMENT--1.1%
45,500 Zebra Technologies Corporation* ................. 2,411,045
-----------
OIL & GAS--3.8%
41,900 BP PLC Sponsored ADR# ........................... 2,440,675
36,700 EOG Resources, Inc. ............................. 2,442,752
68,600 Talisman Energy Inc. ............................ 1,843,282
33,700 Teekay Shipping Corporation ..................... 1,556,940
-----------
8,283,649
-----------
PHARMACEUTICALS--6.9%
37,900 Allergan, Inc. .................................. 2,712,124
168,225 IVAX Corporation* ............................... 3,044,873
11,400 Novartis AG ADR# ................................ 547,314
71,080 Pfizer Inc. ..................................... 2,057,766
118,500 Schering-Plough Corporation ..................... 2,146,035
24,000 Sepracor Inc.* .................................. 1,102,320
62,000 Teva Pharmaceutical Industries Ltd. ADR# ........ 1,612,000
43,300 Wyeth ........................................... 1,716,845
-----------
14,939,277
-----------
ROAD & RAIL--1.3%
64,800 Burlington Northern Santa Fe Corporation ........ 2,709,288
-----------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT--3.3%
101,400 Broadcom Corporation Cl. A* ..................... 2,742,870
53,700 Intel Corporation ............................... 1,195,362
20,600 Novellus Systems, Inc.* ......................... 533,746
297,800 Skyworks Solutions, Inc.* ....................... 2,647,442
-----------
7,119,420
-----------
SOFTWARE--8.1%
46,800 Cognos, Inc.* ................................... 1,849,068
126,300 Fair Isaac Corporation .......................... 3,814,260
57,900 Mercury Interactive Corporation* ................ 2,514,597
308,200 Microsoft Corporation ........................... 8,626,518
47,600 Red Hat, Inc.* .................................. 611,184
-----------
17,415,627
-----------
SPECIALTY RETAIL--3.3%
69,800 Bed Bath & Beyond Inc.* ......................... 2,847,142
39,800 Lowe's Companies, Inc. .......................... 2,239,946
55,200 Tractor Supply Company* ......................... 2,002,652
-----------
7,089,740
-----------
7
SPECTRA FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
October 31, 2004
SHARES COMMON STOCKS (CONTINUED) VALUE
--------- --------
TEXTILES, APPAREL & LUXURY GOODS--1.4%
44,200 Coach, Inc.* .................................... $ 2,061,046
28,300 Polo Ralph Lauren Corporation Cl. A ............. 1,045,119
------------
3,106,165
------------
WIRELESS TELECOMMUNICATION SERVICES--1.0%
40,100 SpectraSite, Inc.* .............................. 2,057,130
------------
Total Common Stocks
(Cost $184,157,220 ) .......................... 204,170,732
PRINCIPAL
AMOUNT
---------
SHORT-TERM INVESTMENTS--5.4%
$11,680,000 U.S. Agency Obligations
Federal Home Loan Banks,
1.65%, 11/1/04
(Cost $11,680,000) ............................ 11,680,000
------------
Total Investments
(Cost $ 195,837,220)(a) ......................... 100.2% 215,850,732
Liabilities In Excess of Other Assets ............. (0.2) (529,822)
------ ------------
Net Assets ........................................ 100.0% $215,320,910
====== ============
- ----------
* Non-income producing security.
# American Depositary Receipts.
(a) At October 31, 2004, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $196,090,826 amounted to
$19,759,906 which consisted of aggregate gross unrealized appreciation of
$23,557,850 and aggregate gross unrealized depreciation of $3,797,944.
PORTFOLIO SUMMARY+ (UNAUDITED)
- --------------------------------------------------------------------------------
Value (%) Value (%)
- --------------------------------------- -------------------------------------
Information Technology 32.0% Financials 3.5%
Health Care 22.4% Materials 3.1%
Consumer Discretionary 15.5% Consumer Staples 1.7%
Industrials 8.6% Telecommunication Services 1.0%
Energy 7.0% Cash and Net Other Assets 5.2%
100.0%
- ----------
+ Based on net assets.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
8
[This page intentionally left blank]
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)
Year ended 10/31/04 ...... $5.90 $(0.10)(iii) $ 0.06 $(0.04) $ --
Year ended 10/31/03 ...... 4.76 (0.08)(iii) 1.22 1.14 --
Year ended 10/31/02 ...... 6.32 (0.09)(iii) (1.47) (1.56) --
Year ended 10/31/01 ...... 10.63 (0.08)(iii) (3.60) (3.68) (0.63)
Four months ended
10/31/00(ii) ........... 12.28 (0.02) (1.63) (1.65) --
CLASS N
Year ended 10/31/04 ...... $ 5.88 $(0.10)(iii) $ 0.06 $(0.04) $ --
Year ended 10/31/03 ...... 4.76 (0.07)(iii) 1.19 1.12 --
Year ended 10/31/02 ...... 6.32 (0.09)(iii) (1.47) (1.56) --
Year ended 10/31/01 ...... 10.63 (0.08)(iii) (3.60) (3.68) (0.63)
Year ended 10/31/00 ...... 10.76 (0.08) 0.88 0.80 (0.93)
- ----------
(i) Initially offered July 1, 2000.
(ii) Ratios have been annualized; total return has not been annualized. (iii)
Amount was computed based on average shares outstanding during the period. (iv)
Does not reflect the effect of any sales charge.
See Notes to Financial Statements.
10
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
- -------------------------------------------------------------------------------------------------------------------
SPECTRA FUND
CLASS A (i)
Year ended 10/31/04 ...... $ 5.86 (0.68)%(iv) $ 4,882 1.98% (1.63)% 159.35%
Year ended 10/31/03 ...... 5.90 23.95(iv) 6,346 2.01 (1.35) 192.19
Year ended 10/31/02 ...... 4.76 (24.68)(iv) 6,722 1.98 (1.52) 172.25
Year ended 10/31/01 ...... 6.32 (36.20)(iv) 12,951 1.88 (1.03) 114.75
Four months ended
10/31/00(ii) ........... 10.63 (13.44)(iv) 14,711 1.82 (1.05) 118.82
CLASS N
Year ended 10/31/04 ...... $ 5.84 (0.68)% $ 210,439 1.98% (1.63)% 159.35%
Year ended 10/31/03 ...... 5.88 23.53 257,337 2.03 (1.39) 192.19
Year ended 10/31/02 ...... 4.76 (24.68) 252,620 1.98 (1.52) 172.25
Year ended 10/31/01 ...... 6.32 (36.20) 423,860 1.88 (0.99) 114.75
Year ended 10/31/00 ...... 10.63 6.21 876,132 1.82 (1.29) 118.82
11
SPECTRA FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
ASSETS:
Investments in securities, at value (cost $195,837,220)--
see accompanying schedule of investments ................ $ 215,850,732
Cash ...................................................... 60,566
Receivable for investment securities sold ................. 5,809,102
Receivable for shares of beneficial interest sold ......... 76,072
Dividends receivable ...................................... 6,763
Prepaid expenses .......................................... 7,294
--------------
Total Assets 221,810,529
LIABILITIES:
Payable for investment securities purchased ............... $5,677,609
Payable for shares of beneficial interest redeemed ........ 363,291
Investment advisory fees payable .......................... 272,986
Shareholder servicing fees payable ........................ 45,498
Transfer agent fees payable ............................... 33,015
Trustees' fees payable .................................... 6,685
Accrued expenses .......................................... 90,535
----------
Total Liabilities ..................................... 6,489,619
--------------
NET ASSETS ................................................... $ 215,320,910
==============
NET ASSETS CONSIST OF:
Paid-in capital ........................................... $ 496,118,693
Undistributed net investment income (accumulated loss) .... --
Undistributed net realized gain (accumulated loss) ........ (300,811,295)
Net unrealized appreciation (depreciation) of investments . 20,013,512
--------------
NET ASSETS ................................................... $ 215,320,910
==============
Class A
Net Asset Value Per Share ................................. $ 5.86
==============
Offering Price Per Share .................................. $ 6.18
==============
Class N
Net Asset Value and Offering Price Per Share .............. $ 5.84
==============
Shares of beneficial interest outstanding--Note 5
Class A ................................................... 833,734
==============
Class N ................................................... 36,060,474
==============
See Notes to Financial Statements.
12
SPECTRA FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2004
INVESTMENT INCOME:
Income:
Dividends (net of foreign withholding taxes of $9,556) .. $ 813,876
Security lending ........................................ 25,985
Interest ................................................ 42,631
-----------
Total Income .......................................... 882,492
Expenses:
Investment advisory fees--Note 2(a) ..................... $ 3,735,425
Shareholder servicing fees--Note 2(e) ................... 622,571
Transfer agent fees ..................................... 208,253
Interest expense ........................................ 35,704
Custodian fees .......................................... 37,323
Registration fees ....................................... 42,189
Trustees' fees .......................................... 43,279
Professional fees ....................................... 49,536
Miscellaneous ........................................... 166,659
------------
Total Expenses ........................................ 4,940,939
-----------
NET INVESTMENT LOSS .......................................... (4,058,447)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments ............................. 18,386,855
Net change in unrealized appreciation (depreciation)
on investments ............................................ (15,856,220)
------------
Net realized and unrealized gain on investments ....... 2,530,635
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS ................................................ $(1,527,812)
===========
See Notes to Financial Statements.
13
SPECTRA FUND
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
2004 2003
Net investment loss ........................................ $ (4,058,447) $ (3,476,757)
Net realized gain on investments and written options ....... 18,386,855 13,487,096
Net change in unrealized appreciation (depreciation)
on investments and written options ...................... (15,856,220) 43,757,463
------------- ------------
Net increase (decrease) in net assets resulting
from operations ..................................... (1,527,812) 53,767,802
Decrease from shares of beneficial interest transactions:
Class A .................................................. (1,438,077) (3,263,446)
Class N .................................................. (45,395,289) (46,164,533)
------------- ------------
Net decrease from shares of beneficial
interest transactions--Note 5a .......................... (46,833,366) (49,427,979)
Total increase (decrease) in net assets .............. (48,361,178) 4,339,823
Net assets:
Beginning of year ........................................ 263,682,088 259,342,265
------------- ------------
End of year .............................................. $215,320,910 $263,682,088
============= ============
See Notes to Financial Statements.
14
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.
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
15
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (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. 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. As of October 31, 2004, there were no securities on loan.
(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 return of capital, depending on the
type of book/tax differences that may exist. Capital accounts within the
financial statements are adjusted for permanent book/tax differences.
Reclassifications result primarily from the difference in tax treatment of net
operating losses. The 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.
16
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
(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 arrange ments.
(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, served as transfer agent for the Fund. During the
year ended October 31, 2004, the Fund incurred fees of approximately $188,000
for services provided by Alger Services and reimbursed Alger Services
approximately $20,000 for transfer agent related expenses paid by Alger Services
on behalf of the Fund. Effective November 22, 2004, State Street Bank and Trust
Company replaced Alger Services as the Fund's transfer agent. Transfer agent
services are provided by State Street Bank and Trust Company's affiliate, Boston
Financial Data Services, Inc.
(C) BROKERAGE COMMISSIONS--During the year ended October 31, 2004, the Fund paid
Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $651,251 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,
17
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (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:
During the year ended October 31, 2004, purchases and sales of investment
securities, excluding short-term securities, aggregated $393,344,224 and
$459,326,889, 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, 2004, the Fund had borrowings which averaged $2,250,232 at a weighted
average interest rate of 1.59%.
NOTE 5--SHARE CAPITAL:
(A) 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 year ended October 31, 2004, transactions of shares of
beneficial interest were as follows:
CLASS A: SHARES AMOUNT
------ ------
Shares sold ............................... 57,059 $ 343,940
Shares redeemed ........................... (298,614) (1,782,017)
-------------- --------------
Net decrease .............................. (241,555) $ (1,438,077)
============== ==============
CLASS N: SHARES AMOUNT
------ ------
Shares sold ............................... 3,864,237 $ 23,379,536
Shares redeemed ........................... (11,553,622) (68,774,825)
-------------- --------------
Net decrease .............................. (7,689,385) $ (45,395,289)
============== ==============
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)
============== ==============
18
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(B) REDEMPTION FEE--The Fund may impose a 2.00% redemption fee on Fund shares
redeemed (including shares redeemed by exchange) within 30 days after such
shares were acquired. The fees retained by the Fund are included as paid-in
capital on the Statement of Assets and Liabilities. During the year ended
October 31, 2004, redemption fees were $431.
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS:
During the year ended October 31, 2004 and the year ended October 31,
2003, there were no distributions paid. As of October 31, 2004, the components
of distributable earnings on a tax basis were as follows:
Undistributed ordinary income .................................. --
Undistributed long-term gain ................................... --
Undistributed appreciation ..................................... $19,759,906
The differences between book basis and tax basis unrealized appreciation
is attributable primarily to the tax deferral of losses on wash sales.
At October 31, 2004, the Fund, for federal income tax purposes, had
capital loss carryforwards which expire as set forth in the table below. These
amounts may be applied against future net realized gains until the earlier of
their utilization or expiration.
EXPIRATION DATE AMOUNT
- --------------- ------------
2009 .................................................... $193,490,387
2010 .................................................... 107,067,302
------------
$300,557,689
============
NOTE 7--REGULATORY MATTERS AND LEGAL PROCEEDINGS:
Alger Management has been responding to inquiries, document requests and/or
subpoenas from regulatory authorities, including the United States Securities
and Exchange Commission ("SEC"), the Office of the New York State Attorney
General, and the Attorney General of New Jersey, in connection with their
investigation of practices in the mutual fund industry identified as "market
timing" and "late trading." Alger Management has assured the board of the Fund
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.
Certain civil actions have developed out of the regulatory investigations.
Several purported class actions and shareholder derivative suits have been filed
against various parties, including, depending on the lawsuit, Alger Management,
certain of the mutual funds managed by Alger Management (the "Alger Mutual
19
SPECTRA FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Funds"), and certain current and former Alger Mutual Fund trustees and officers,
alleging wrongful market-timing and late-trading activities. These cases have
been transferred to the U.S. District Court of Maryland by the Judicial Panel on
Multidistrict Litigation for consolidated pre-trial proceedings. On September
29, 2004, consolidated amended complaints involving these cases -- a
Consolidated Amended Fund Derivative Complaint (the "Derivative Complaint") and
two substantially identical Consolidated Amended Class Action Complaints
(together, the "Class Action Complaint") -- were filed in the Maryland federal
district court under the caption number 1:04-MD-15863 (JFM).
The Derivative Complaint, brought on behalf of the Alger Mutual Funds and Castle
Convertible Fund, Inc., a registered closed-end fund managed by Alger
Management, alleges (i) violations, by Alger Management and, depending on the
specific offense alleged, by its immediate parent the Distributor (Fred Alger &
Company, Incorporated) and/or the fund trustee defendants, of Sections 36(a),
36(b), 47, and 48 of the Investment Company Act of 1940 and of Sections 206 and
215 of the Investment Advisers Act of 1940, breach of fiduciary duty, and breach
of contract, (ii) various offenses by other, unrelated, third-party defendants,
and (iii) unjust enrichment by all the named defendants, all by virtue of the
alleged wrongful market-timing and late-trading activities. The complaint seeks,
among other things, removal of the trustee defendants and of Alger Management,
certain rescissory relief, disgorgement of management fees and allegedly
unlawful profits, compensatory and punitive monetary damages, and plaintiffs'
fees and expenses (including attorney and expert fees). The Class Action
Complaint names the Alger-related defendants named in the Derivative Complaint
as well as certain defendants not named in the Derivative Complaint, including
certain entities affiliated with Alger Management, certain Alger Mutual Funds,
including the Fund, and certain additional former trustees and a former officer
of the defendant Alger Mutual Funds. It alleges, on the basis of factual
allegations similar to those of the Derivative Complaint with respect to the
Alger defendants, (i) offenses by Alger defendants similar to those alleged in
the Derivative Complaint, (ii) violations, by Alger Management, the Distributor,
their affiliates, the funds named as defendants, and the current and former fund
trustees and officers, of Sections 11, 12(a)(2), and 15 of the Securities Act of
1933, Sections 10(b) (and Rule 10b-5 thereunder) and 20(a) of the Securities
Exchange Act of 1934, and Section 34(b) of the Investment Company Act of 1940,
(iii) breach of contract by the funds named as defendants, and (iv) unjust
enrichment by all of the named defendants. It seeks relief similar to that
sought in the Derivative Complaint.
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.
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Spectra Fund:
We have audited the accompanying statement of assets and liabilities of Spectra
Fund, including the schedule of investments, as of October 31, 2004, 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 three 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. The financial
highlights for the two years ended October 31, 2001 were audited by other
auditors, whose report, dated November 30, 2001, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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 investments owned as of October 31, 2004, 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, and audited by us, present fairly, in all material respects, the
financial position of Spectra Fund at October 31, 2004, 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 three years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
December 15, 2004
21
TRUSTEES AND OFFICERS OF THE FUND (UNAUDITED)
Information about the Trustees and officers of the Fund is set forth below. In
the table the term "Alger Fund Complex" refers to the Fund, The Alger Funds, The
Alger American Fund, The Alger Institutional Funds, The China-U.S. Growth Fund
and Castle Convertible Fund, Inc., each of which is a registered investment
company managed by Fred Alger Management, Inc. ("Alger Management"). Each
Trustee serves until an event of termination, such as death or resignation, or
until his successor is duly elected; each officer's term of office is one year.
Unless otherwise noted, the address of each person named below is 111 Fifth
Avenue, New York, NY 10003.
NUMBER OF
PORTFOLIOS
IN THE ALGER FUND
TRUSTEE COMPLEX WHICH
NAME, AGE, POSITION WITH AND/OR ARE OVERSEEN
THE FUND AND ADDRESS PRINCIPAL OCCUPATIONS OFFICER SINCE BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
Fred M. Alger III (69) Chairman of the Board of Alger Associates, Inc. 1974 22
Chairman of the Board ("Associates"), Fred Alger & Company, Incorporated
("Alger Inc."), Alger Management, Alger Properties,
Inc. ("Properties"), Alger Shareholder Services, Inc.
("Services"), Alger Life Insurance Agency, Inc.
("Agency"), Fred Alger International Advisory S.A.
("International"), and five of the six funds in the Alger
Fund Complex; Chairman of the Boards of Alger
SICAV ("SICAV") and Analysts Resources,
Inc. ("ARI").
Dan C. Chung (42) President, Director and Chief Investment Officer 2001 16
President and Trustee of Alger Management; President and Director
of Associates, Alger Inc., Properties, Services,
Agency, International, ARI and Trust; Trustee/Director
of four of the six funds in the Alger Fund Complex.
Hilary M. Alger (43) Trustee/Director of five of the six funds in the Alger 2003 17
Trustee Fund Complex; Director of Development, Pennsylvania
Ballet; formerly Associate Director of Development,
College of Arts and Sciences, University of Virginia,
formerly Director of Development and Communications, Lenox
Hill Neighborhood House.
22
NUMBER OF
PORTFOLIOS
IN THE ALGER FUND
TRUSTEE COMPLEX WHICH
NAME, AGE, POSITION WITH AND/OR ARE OVERSEEN
THE FUND AND ADDRESS PRINCIPAL OCCUPATIONS OFFICER SINCE BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
Stephen E. O'Neil (72) Attorney; Private investor since 1981; Director of 1972 23
Trustee Brown-Forman Corporation; Trustee/Director of the
six funds in the Alger Fund Complex; formerly of
Counsel to the law firm of Kohler & Barnes.
Charles F. Baird, Jr. (51) Managing Partner of North Castle Partners, a private 2000 16
Trustee equity securities group; Chairman of Equinox, Leiner
Health Products, Elizabeth Arden Day Spas, Grand
Expeditions and EAS; Trustee/Director of four of the six
funds in the Alger Fund Complex. Formerly Managing
Director of AEA Investors, Inc.
Roger P. Cheever (59) Associate Dean of Development, Harvard University; 2000 16
Trustee Trustee/Director of four of the six funds in the Alger
Fund Complex. Formerly Deputy Director of the
Harvard College Fund.
Lester L. Colbert, Jr. (70) Private investor; Trustee/Director of five of the six 2000 17
Trustee funds in the Alger Fund Complex. Formerly Chairman
of the Board and Chief Executive Officer of Xidex
Corporation.
Nathan E. Saint-Amand, Medical doctor in private practice; Co-Partner Fishers 1986 23
M.D. (66) Island Partners; Member of the Board of the Trustee
Manhattan Institute; Trustee/Director
of the six funds in the Alger Fund Complex. Formerly
Co-Chairman Special Projects Committee of
Memorial Sloan Kettering.
Joseph S. Nye, Jr. (66) Trustee/Director of the six funds 2003 23
Trustee in the Alger Fund Complex; Dean, John F.
Kennedy School of Government, Harvard
University, since 1995; Assistant Secretary
of Defense for International Security Affairs
1994-1995; Chairman, National Intelligence
Council, 1993-1994.
23
NUMBER OF
PORTFOLIOS
IN THE ALGER FUND
TRUSTEE COMPLEX WHICH
NAME, AGE, POSITION WITH AND/OR ARE OVERSEEN
THE FUND AND ADDRESS PRINCIPAL OCCUPATIONS OFFICER SINCE BY TRUSTEE
- ----------------------------------------------------------------------------------------------------------------------------
OFFICERS
Frederick A. Blum (51) Executive Vice President and Treasurer of Alger, Inc., 1996 N/A
Treasurer and Alger Management, Properties, Associates, ARI,
Assistant Secretary Services and Agency since September 2003 and
Senior Vice President prior thereto; Treasurer or
Assistant Treasurer, and Assistant Secretary, of each of
the other five investment companies in the Alger Fund
Complex since the later of 1996 or its inception. Director
of SICAV and International and Chairman of the Board (and
prior thereto, Senior Vice President) and Treasurer of
Alger National Trust Company since 2003.
Dorothy G. Sanders (49) Senior Vice President, General Counsel and 2000 N/A
Secretary Secretary of Alger, Inc., General Counsel and
Secretary of Associates, Agency, Properties,
Services, ARI and Alger Management; Secretary of
International and the six funds in the Alger Fund
Complex. Formerly Senior Vice President, Fleet
Financial Group.
Messrs. Alger and Chung are "interested persons"(as defined in the Investment
Company Act) of the Fund because of their affiliations with Alger Management.
Mr. Chung is Mr. Alger's son-in-law. Ms. Alger is a daughter of Fred M.
AlgerIII. Ms. Alger is an "interested person" because she is an immediate family
member of Mr. Alger. No Trustee is a director of any public company except as
may be indicated under "Principal Occupations." Mr. Nye has given notice of his
intention to resign as Trustee of the Fund. Ms. Sanders resigned as Secretary
effective November 19, 2004.
The Statement of Additional Information contains additional information about
the Fund's Trustees and is available without charge upon request by calling
(800) 992-3863.
24
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
Boston Financial Data Services, Inc.
P.O. Box 8480
Boston, MA 02266
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 portfolio securities and the proxy voting record is
available, without charge, by calling (800) 711-6141 or online on the Fund's
website at http://www.alger.com or on the SEC's website at http://www.sec.gov.
QUARTERLY FUND HOLDINGS
Commencing with the fiscal quarter ending July 31, 2004, the Fund files its
complete schedule of portfolio holdings with the SEC for the first and third
quarter of each fiscal year on Form N-Q. Forms N-Q are available online on the
Fund's website at http://www.alger.com or on the SEC's website at
HTTP://WWW.SEC.GOV. The Fund's Forms N-Q may be reviewed and copied at the SEC's
Public Reference Room in Washington, D.C. Information regarding the operation of
the SEC's Public Reference Room may be obtained by calling 1-800-SEC-0330. A
copy of the most recent quarterly holdings may also be obtained from the Fund by
calling (800) 711-6141.
[LOGO]
SAS 61504 L1
[LOGO]
Spectra Fund
Boston Financial Data Services, Inc.
P.O. Box 8480
Boston, MA 02266
SAS 61504 L2
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics (the "Code of Ethics")
that applies to its principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions.
(b) Not applicable.
(c) The Registrant has not amended its Code of Ethics during the period
covered by the shareholder report presented in Item 1 hereto.
(d) The Registrant has not granted a waiver or an implicit waiver from a
provision of its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto.
(e) Not applicable.
(f) The Registrant's Code of Ethics is attached as an Exhibit hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the Registrant determined that Stephen E. O'Neil
is an audit committee financial expert (within the meaning of that phrase
specified in the instructions to Form N-CSR) on the Registrant's audit
committee. Mr. O'Neil is an "independent" trustee - i.e., he is not an
interested person of the Registrant as defined in the Investment Company
Act of 1940, nor has he accepted directly or indirectly any consulting,
advisory or other compensatory fee from the Registrant, other than in his
capacity as Trustee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
a) Audit Fees:
October 31, 2004 $32,000
October 31, 2003 $29,000
b) Audit-Related Fees: NONE
c) Tax Fees for tax advice, tax compliance and tax planning:
October 31, 2004 $ 3,300
October 31, 2003 $ 2,650
d) ALL Other Fees:
October 31, 2004 $ 5,000
October 31, 2003 $ 0
Other fees include a review and consent for Registrants registration
statement filing and a review of the semi-annual financial
statements.
e) 1) Audit Committee Pre-Approval Policies And Procedures:
Audit and non-audit services provided by the Registrant's
independent registered public accounting firm (the "Auditors") on
behalf the Registrant must be pre-approved by the Audit Committee.
Non-audit services provided by the Auditors on behalf of the
Registrant's Investment Adviser or any entity controlling,
controlled by, or under common control with the Investment Adviser
must be pre-approved by the Audit Committee if such non-audit
services directly relate to the operations or financial reporting of
the Registrant.
2) All fees in item 4(b) through 4(d) above were approved by the
Registrants' Audit Committee.
f) Not Applicable
g) Non-Audit Fees:
October 31, 2004 $157,449 and 82,300 Euros
October 31, 2003 $61,400 and 113,827 Euros
h) The audit committee of the board of trustees has considered whether
the provision of the non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control, with the adviser that
provides ongoing services to the registrant that were not approved
pursuant to (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principle accountant's independence.
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.
None
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) Code of Ethics as Exhibit 99.CODE ETH
(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: January 5, 2005
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: January 5, 2005
By: /s/ Frederick A. Blum
Frederick A. Blum
Treasurer
Date: January 5, 2005