------------------------------------
OMB APPROVAL
------------------------------------
OMB Number: 3235-0570
Expires: April 30, 2008
Estimated average burden
hours per response: 19.4
------------------------------------
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
The Spectra Funds
(Exact name of registrant as specified in charter)
111 Fifth Avenue New York, New York 10003
(Address of principal executive offices) (Zip code)
Mr. Hal Liebes
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, 2007
ITEM 1. REPORT(S) TO STOCKHOLDERS.
- --------------------------------------------------------------------------------
SPECTRA FUND | SPECTRA GREEN FUND | SPECTRA ALCHEMY FUND |
SPECTRA INTERNATIONAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
- --------------------------------------------------------------------------------
[GRAPHIC]
SEMI-ANNUAL
REPORT [LOGO]
April 30, 2007 SPECTRA
(Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS, JUNE 8, 2007
- --------------------------------------------------------------------------------
In our October 31, 2006 report, we likened the new global economy to a
"Brave New World." While we are usually loath to recycle a metaphor so quickly,
in this case, it seems fitting to continue to use it. Nothing that has happened
over the past six months alters our view that we are entering uncharted waters
for both the global economy and for the thousands of companies that are being
reshaped by it.
As with any sweeping change, there are those who embrace it and try to
anticipate the risks and rewards; there are those who deny that there is any
change; and finally those who simply wait to see what everyone else thinks. At
Spectra, we fall into the first camp, and, in fact, believe that we are still in
the early stages of a radical shift in how the global economy functions; one
that has already produced new winners and losers, not just in terms of nations,
but of companies that are seizing the opportunities and those that are unable
to. While the story of China and India is familiar, it is hardly limited to them
and now includes such disparate regions as Vietnam, Eastern Europe and
Australia, to name three, all of which are adding additional complexity and
additional fuel to the expanding global economy.
Here then is our six-month postcard from this Brave New World. The themes
include the greening of corporate America and the lessons gleaned from the swift
fall and startling sharp recovery of the equity markets on February 27. They
include the coming of age of private equity as a force that can move and shape
the markets, and the importance of free cash flow as a metric for measuring the
strength of corporate balance sheets. And of course, one other theme stands out
above all -- the surprising (at least to most on Wall Street) strength of
corporate earnings at the end of the first quarter.
THE CONVERGENCE OF BUSINESS AND GREEN
The beginning of 2007 saw one of the warmest Januaries on record, but
instead of snow, we were treated to a flurry of articles, announcements,
conferences, and high level public speeches that demanded action on the part of
countries, individuals and companies to address the issue of global warming.
Appearing simultaneously but independently, FORTUNE, THE ECONOMIST and
BUSINESSWEEK all ran lengthy cover stories describing the shift in corporate
America to embrace socially responsible business practices as a better -- and
potentially more profitable -- way of doing business. These articles were the
most noticeable in a few weeks' span, but they were hardly a comprehensive list
of the hundreds published about the greening of corporate America, not to
mention Europe, Asia, and the world. By late January, whether or not "greening"
was a mere zeitgeist was debatable. But on February 2, the Intergovernmental
Panel on Climate Change issued their Fourth Assessment Report indicating that
global warming was "unequivocal" -- a real and growing danger.
In response, many dynamic, innovative companies are stepping up and
looking for ways to solve the intractable issues of energy and the environment.
Case in point is private equity firms Kohlberg Kravis Roberts and Texas Pacific
Group, which
-1-
announced plans to acquire one of the largest public utility companies in the
United States, TXU. What made the TXU deal distinctive were the conditions
attached to its approval. Under the proposed terms, KKR and Texas Pacific agreed
to several substantial concessions to environmental groups including scaling
back plans to build new coal-fired power plants while aggressively working on
so-called "clean coal" technologies (i.e. coal gasification) that lower and
potentially eliminate emissions. They also agreed to increase R&D spending on
alternate energy by as much as half a billion dollars. Goldman Sachs, who
brokered the deal, pressured both sides to agree to the pro-environment change
in the initial plans. The result was a deal hailed by Wall Street and the green
lobby in equal measure.
The convergence of vast amounts of private equity cash and
environmentalism was a sign of the cultural, global shift taking place. Clearly,
a number of the major investment banks already saw the long-term value in their
companies "going green," and the rest of the financial world was swiftly joining
them.
THE RETURN OF VOLATILITY
On February 27 global stock markets saw their most dramatic sell-off in
years. Wall Street pundits were, as usual, divided. Some said it was a
long-awaited correction and a sign of a weakening economy, while others said it
was simply the return of volatility to what has been a fairly stable market.
That said, nothing actually happened to trigger the declines. No sudden
change in the economic forecasts. No critically bad economic or corporate news.
However, there were rumors in Shanghai and Beijing that a government squeeze on
credit and stock-speculation was imminent, and that alone was enough to send
investors fleeing. But even after the sell-off, the Shenzhen market --
Shanghai's smaller sibling -- was still up more than 30% year-to-date, and well
over 100% for the past 12 months. Hardly comforting if you bought on Monday
before the sell-off, but not bad for those who had been in those markets for
more than a couple of months.
What happened? In our view this was a market phenomenon, a brief reminder
of volatility after months of stability, and a bout of profit-taking and
stepping aside that had been long overdue. Within days, fears of a "global bear
market" dissipated as continued liquidity and private equity activity bolstered
markets both in the United States and around the world.
PRIVATE EQUITY AND FREE CASH FLOW
For the first half of the fiscal year, private equity activity was truly
impressive, with the purchase of troubled companies such as Chrysler that in
earlier years would have made unlikely buyout targets. While no major company
today -- public or private -- seems beyond private equity interests, there is
one theme that unites both private equity and mutual fund investors: free cash
flow.
At Spectra, as bottom-up, fundamental investors, one of the key metrics we
use is the ability of companies to generate free cash flow. Why? Because free
cash flow can fund further growth at a company, pay dividends, and allow for the
buy-back of stock in order to return value to shareholders - all of which,
properly done, can contribute to earnings growth and shareholder value. It is a
sign of both a strong
-2-
business model and disciplined financial management to be able to grow (at
impressive rates) and not require constant infusions of new capital. We think
that private equity firms buying public companies of all sizes and across many
industries is not irrational. It is seizing an opportunity to acquire solid
franchises that are generating strong cash flows at extraordinary valuations for
the long-term investor. And the amount of private equity activity is another
confirmation that globalization, broadly speaking, benefits U.S. corporate
profits.
THE EARNINGS SURPRISE
At the beginning of 2007, the overwhelming consensus was that after
several years of strong, double-digit earnings growth, the first quarter would
show the companies of the Standard & Poor's 500(i) slowing to an anemic 3-4%
growth rate. That assumption was based on several factors including the woes of
the U.S. housing market, the slowing of the U.S. industrial economy, and the
basic assumption that corporate earnings would have to "revert to the mean" of
their multi-decade average (about 7%) and hence dip significantly. All of these
assumptions proved to be wrong.
When all was said and done at the end of reporting seasons for the first
quarter of 2007, the S&P companies registered earnings growth of about 9%, and
nearly three-quarters of all companies have reported positive "surprises"
relative to expectations. Indeed, at the tail end of May, the S&P broke its own
record, reaching heights last seen seven years ago during the heady days of the
technology boom -- and this despite another minor overnight sell-off in China.
So what happened? It's a case of our friends back at the Old World struggling to
explain New World geography in terms they're familiar with -- even if those
terms don't quite fit anymore.
True, most top-down analysts were correct about their predictions of the
slowdown of the U.S. economy. In fact, first quarter GDP growth was even worse
than had been predicted, registering a paltry 0.6% growth on weak exports and
slower corporate capital expenditures. But the experts also continued to use the
United States and past economic patterns as a proxy for predicting earnings for
U.S.-listed companies. This made perfect sense for the last half of the 20th
century, when the United States was the dominant economic power globally and
U.S. corporations reflected that strength. But while the United States remains
far and away the largest economy, it is simply no longer the sole engine of
growth or the fastest. As such, the U.S. economy and economic data are no longer
a good proxy for how companies will do. Instead, they may well mislead investors
and analysts to underestimate the growth of U.S.-listed companies.
We have said for the past three years -- for most of this decade, in fact
- -- that the U.S. markets have been good markets for "stock pickers" in that they
have not been either notably frothy or notably flighty (occasional junctures
notwithstanding). What is now emerging, we believe, is a global "stock picker"
market, but many people are still playing markets rather than stocks. That
leaves some markets and many stocks, especially U.S.-listed ones and U.S.-listed
growth equities above all, undervalued and less loved than they should be. And
that, of course, represents an opportunity to pick and choose quality growth
companies while the rest of the investing community focuses their eyes
elsewhere.
-3-
PORTFOLIO MATTERS
THE SPECTRA FUND
The Spectra Fund gained 16.14% for the six months ended April 30, 2007,
compared with a return of 8.33% for the Russell 3000 Growth Index(ii).
In the Information Technology sector, the Fund, with an average weight of
32.44% was overweight the benchmark, but outperformed. Top performers included
Memc Electronic Materials, Inc., a global supplier of silicon wafers to the
semiconductor industry, ON Semiconductor Corp., a provider of semiconductor
components, and DealerTrack Holdings, Inc., a provider of on-demand software and
data solutions for the automotive retail industry.
At an average weight of 7.88%, the Fund was underweight, but exceeded the
benchmark performance in the Industrial sector. In this sector key contributors
included Armor Holdings, Inc., a manufacturer and provider of specialized
security products, and BE Aerospace, Inc., the world's premier manufacturer of
cabin interior products for commercial aircraft.
In the Energy sector, the Fund, at an average weight of 9.51% was
overweight but outperformed the benchmark. Top performers were Valero Energy
Corp. Inc., the largest refiner in North America, Petrobank Energy & Resources,
Ltd., a Calgary-based oil and natural gas exploration and production company,
and Cameron International Corp., a leading oil and gas services provider.
The Fund was slightly underweight the benchmark in the Consumer
Discretionary sector, but outperformed. Focus Media Holding, Ltd. ADR, the
largest outdoor TV advertising network in China was the top performer in this
sector followed by movie theater chain, Regal Entertainment Group, Inc., and
Iconix Brand Group, Inc., a designer, marketer, and distributor of leisure and
fashion footwear. Notable detractors in this sector included NutriSystem, Inc.,
a developer of commercial diet systems, and the chain retailers, Circuit City
Stores, Inc. and Best Buy Co., Inc.
THE SPECTRA GREEN FUND
The Spectra Green Fund gained 13.99% for the six months ended April 30,
2007, compared to the Russell 3000 Growth Index which returned 8.33%.
In the Information Technolgoy sector, the Fund, at an average weight of
26.99%, was overweight the benchmark but outperformed it. Top performers
included Synchronoss Technologies, Inc., a provider of on-demand transaction
management solutions, Tessera Technologies, Inc., the leading provider of
miniaturization technologies for the electronics industry, and Dealer Track
Holdings, Inc.
In the Industrials sector, the Fund, at a weighted average of 9.37%, was
underweight the benchmark, but outperformed. BE Aerospace, Inc., the world's
foremost manufacturer of cabin interior products for commercial aircraft was one
of the top performers in this sector.
At an average weight of 8.28%, the Fund was overweight the benchmark, in
the Energy sector but outperformed. Among the top performers were Cameco Corp.,
the world's largest publicly traded uranium company, Petrobank Energy &
Resources, Ltd., a Calgary-based oil and natural gas exploration and production
company, and Cameron International Corp., a leading oil and gas products and
services provider.
-4-
In Consumer Discretionary, the Fund, at an average weight of 15.20% was
marginally overweight the benchmark, and outperformed. Focus Media Holding, Ltd.
ADR, was the top performer in the sector, along with Crocs, Inc., a shoe
manufacturer, and the clothing retailer Polo Ralph Lauren Corp.
THE SPECTRA INTERNATIONAL OPPORTUNITIES FUND
The Spectra International Opportunities Fund had its inception on March 1,
2007. The Fund seeks investment opportunities in equity securities of foreign
companies of any market capitalization, and with fundamental strengths that
indicate the potential for sustainable growth. The Fund generally invests in at
least three foreign countries, including emerging market countries, and, at
times, may invest a substantial portion of its assets in a single foreign
country. The Manager focuses on individual stock selection, building the Fund's
portfolio from the bottom up through extensive fundamental research. In
addition, the Manager employs a "quantitative" investment approach to selecting
investments, relying on financial models and computer databases to assist in the
stock selection process.
THE SPECTRA ALCHEMY FUND
The Spectra Alchemy Fund had its inception on April 2, 2007. The Fund
seeks long-term capital appreciation by focusing on companies of all market
capitalization sizes that demonstrate promising growth potential. The fund will
invest in equity securities, such as common or preferred stocks, or securities
convertible or exchangeable for equity securities, including warrants and
rights, principally in companies whose securities are traded on domestic stock
exchanges or in the over-the-counter market.
IN SUMMARY
Six months ago, we surmised that braving the waters of the new global
economy would provide both challenges and opportunities. Indeed, the first half
of the year bore this out and often rewarded the innovative, dynamic companies
and investors that embraced those changes. Going forward, we expect more of the
same as the global, economic landscape continues to expand and evolve. As the
first six months of this fiscal year come to a close, we would like to thank you
for continuing to journey with us and entrusting us with your investing needs.
Respectfully submitted,
/s/ Daniel C. Chung /s/ Zachary Karabell
Daniel C. Chung Zachary Karabell
CHIEF INVESTMENT OFFICER CHIEF ECONOMIST
- ----------
(i) Standard & Poor's 500 Index is an index of the 500 largest and most
profitable companies in the United States.
(ii) The Russell 3000 Growth Index is an unmanaged index designed to measure
the performance of those Russell 3000 Index companies with higher
price-to-book ratios and higher forecasted growth values. The Russell 3000
Index measures the performance of the 3000 largest U.S. companies based on
the total market capitalization, which represents 98% of the U.S. Equity
Market.
Investors cannot invest directly in an index. Index performance does not
reflect the deduction for fees, expenses or taxes.
-5-
This report and the financial statements contained herein are submitted
for the general information of shareholders of the Funds. This report is not
authorized for distribution to prospective investors in the Funds unless
proceeded or accompanied by an effective prospectus for the Funds. The
performance data quoted represents past performance, which is not an indication
or guarantee of future results. The investment return and principal value of an
investment in a fund will fluctuate so that an investor's shares when redeemed,
may be worth more or less than their original cost. Current performance may be
lower or higher than the performance quoted. For performance data current to the
most recent month-end, visit us at WWW.SPECTRAFUND.COM, or call us at (800)
711-6141.
The views and opinions of the Funds' management in this report are as of
the date of the Shareholders letter and are subject to change at any time
subsequent to this date. There is no guarantee that any of the assumptions that
formed the basis for the opinions stated herein are accurate or that they will
materialize. Moreover, the information forming the basis for such assumptions is
from sources believed to be reliable, however, there is no guarantee that such
information is accurate. Any securities mentioned, whether owned in a fund or
otherwise, are considered in the context of the construction of an overall
portfolio of securities and therefore reference to them should not be construed
as a recommendation or offer to purchase or sell any such security. Inclusion of
such securities in a fund and transactions in such securities, if any, may be
for a variety of reasons, including without limitation, in response to cash
flows, inclusion in a benchmark and risk control. The reference to a specific
security should also be understood in such context and not viewed as a statement
that the security is a significant holding in a fund. Please refer to the
Schedule of Investments for each fund which is included in this report for a
complete list of fund holdings as of April 30, 2007.
A WORD ABOUT RISK
Growth stocks tend to be more volatile than other stocks as the price of
growth stocks tends to be higher in relation to their companies' earnings and
may be more sensitive to market, political and economic developments. Investing
in the stock market involves gains and losses and may not be suitable for all
investors. Stocks of small- and mid-sized companies are subject to greater risk
than stocks of larger, more established companies owing to such factors as
limited liquidity, inexperienced management, and limited financial resources.
Investing in foreign securities involves additional risk (including currency
risk, risks related to political, social or economic conditions, and risks
associated with foreign markets, such as increased volatility, limited
liquidity, less stringent regulatory and legal system, and lack of industry and
country diversification), and may not be suitable for all investors. Funds that
participate in leveraging are subject to the risk that borrowing money to
leverage will exceed the returns for securities purchased or that the securities
purchased may actually go down in value; thus, the Fund's net asset value can
decrease more quickly than if the Fund had not borrowed. The Spectra Green
Fund's environmental focus may limit the investment options available to the
Fund and may result in lower returns than returns of funds not subject to such
investment considerations.
-6-
For a more detailed discussion of the risks associated with a Fund, please
see the Funds' Prospectus.
MUTUAL FUNDS ARE NOT INSURED BY THE FDIC, ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY BANKS, AND ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
BEFORE INVESTING, CAREFULLY CONSIDER THE FUND'S INVESTMENT OBJECTIVE,
RISKS AND CHARGES AND EXPENSES. THE FUNDS' PROSPECTUS CONTAINS THIS AND OTHER
INFORMATION ABOUT THE FUNDS, AND MAY BE OBTAINED BY ASKING YOUR FINANCIAL
ADVISOR, CALLING US AT (800) 711-6141, OR VISITING OUR WEBSITE AT
WWW.SPECTRAFUND.COM, OR CONTACTING THE FUNDS' DISTRIBUTOR, FRED ALGER & COMPANY,
INCORPORATED, 111 FIFTH AVENUE, NEW YORK 10003. MEMBER NYSE, SIPC. READ THE
PROSPECTUS CAREFULLY BEFORE INVESTING.
-7-
- --------------------------------------------------------------------------------
SPECTRA FUND
FUND HIGHLIGHTS THROUGH APRIL 30, 2007 (UNAUDITED)
- --------------------------------------------------------------------------------
HYPOTHETICAL $10,000 INVESTMENT IN CLASS N SHARES
-- 10 YEARS ENDED 4/30/07
Ending Value Spectra Fund Class N: $24,202
Ending Value Russell 3000 Growth Index: $16,896
[LINE GRAPH]
Spectra Russell 3000
Fund Growth Index
5/1/1997 $10,000 $10,000
$12,035 $11,676
10/31/1998 $14,074 $14,057
$22,893 $18,823
10/31/2000 $24,314 $20,668
$15,513 $12,537
10/31/2002 $11,684 $10,061
$14,433 $12,410
10/31/2004 $14,335 $12,847
$17,035 $14,002
10/31/2006 $20,839 $15,596
4/30/2007 $24,202 $16,896
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
(an unmanaged index of common stocks) for the ten years ended April 30, 2007.
The figures for Spectra Fund and the Russell 3000 Growth Index include
reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
1 5 10 20
YEAR YEARS YEARS YEARS
- --------------------------------------------------------------------------------
AS OF APRIL 30, 2007
Spectra Fund 24.18% 9.51% 9.24% 13.90%
Russell 3000 Growth Index 11.52% 6.43% 5.38% 9.32%
- --------------------------------------------------------------------------------
AS OF MARCH 31, 2007
Spectra Fund 19.52% 7.40% 9.36% 13.59%
Russell 3000 Growth Index 6.53% 3.81% 5.53% 8.97%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NOT AN
INDICATION OR A GUARANTEE OF FUTURE RESULTS. 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. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.SPECTRAFUND.COM OR CALL US
AT (800) 992-3863.
-8-
- --------------------------------------------------------------------------------
GREEN FUND
FUND HIGHLIGHTS THROUGH APRIL 30, 2007 (UNAUDITED)
- --------------------------------------------------------------------------------
HYPOTHETICAL $10,000 INVESTMENT IN CLASS N SHARES
-- FROM 12/4/00 TO 4/30/07
Ending Value Green Fund Class N: $8,772
Ending Value Russell 3000 Growth Index: $9,846
[LINE GRAPH]
Green Russell 3000
Fund Growth Index
12/4/2000 $10,000 $10,000
10/30/2001 $ 6,370 $ 7,305
10/31/2002 $ 4,430 $ 5,863
10/31/2003 $ 5,380 $ 7,232
10/31/2004 $ 5,396 $ 7,487
10/31/2005 $ 6,463 $ 8,159
10/31/2006 $ 7,695 $ 9,089
4/30/2005 $ 8,772 $ 9,846
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in Green Fund Class N shares and the Russell 3000 Growth Index
(an unmanaged index of common stocks) on December 4, 2000 through April 30,
2007. The figures for Green Fund and the Russell 3000 Growth Index include
reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
1 5 SINCE
YEAR YEARS INCEPTION
- --------------------------------------------------------------------------------
AS OF APRIL 30, 2007
Green Fund (Inception 12/4/00*) 18.84% 7.29% -2.02%
Russell 3000 Growth Index 11.52% 6.43% -0.24%
- --------------------------------------------------------------------------------
AS OF MARCH 31, 2007
Green Fund (Inception 12/4/00*) 15.31% 4.93% -2.61%
Russell 3000 Growth Index 6.53% 3.81% -0.94%
* PERFORMANCE FIGURES PRIOR TO 1/12/2007 ARE THOSE OF ALGER GREEN
INSTITUTIONAL FUND AND PERFORMANCE PRIOR TO 10/19/2006 REPRESENTS THE
PERFORMANCE OF THE ALGER SOCIALLY RESPONSIBLE INSTITUTIONAL FUND CLASS I
SHARES, THE PREDECESSOR FUND TO THE ALGER GREEN INSTITUTIONAL FUND. THE
PREDECESSOR FUND FOLLOWED DIFFERENT INVESTMENT STRATEGIES AND HAD
DIFFERENT PORTFOLIO MANAGERS. AS OF 1/12/2007 THE ALGER GREEN
INSTITUTIONAL FUND BECAME THE SPECTRA GREEN FUND.
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NOT AN
INDICATION OR A GUARANTEE OF FUTURE RESULTS. 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. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.SPECTRAFUND.COM OR CALL US
AT (800) 992-3863.
-9-
- --------------------------------------------------------------------------------
ALCHEMY FUND
FUND HIGHLIGHTS THROUGH APRIL 30, 2007 (UNAUDITED)
- --------------------------------------------------------------------------------
HYPOTHETICAL $10,000 INVESTMENT IN CLASS N SHARES
-- FROM 3/30/07 TO 4/30/07
Ending Value Alchemy Fund Class N: $10,610
Ending Value Russell 3000 Growth Index: $10,453
[LINE GRAPH]
Alchemy Russell 3000
Fund Growth Index
3/30/2007 $10,000 $10,000
4/30/2007 $10,610 $10,453
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in Alchemy Fund Class N shares and the Russell 3000 Growth Index
(an unmanaged index of common stocks) on March 30, 2007, the inception date of
the Alchemy Fund, through April 30, 2007. The figures for Alchemy Fund and the
Russell 3000 Growth Index include reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
AS OF APRIL 30, 2007
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
INCEPTION
- --------------------------------------------------------------------------------
Alchemy Fund (Inception 3/30/07) 6.10%
Russell 3000 Growth Index 4.53%
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NOT AN
INDICATION OR A GUARANTEE OF FUTURE RESULTS. 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. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.SPECTRAFUND.COM OR CALL US
AT (800) 992-3863.
-10-
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
FUND HIGHLIGHTS THROUGH APRIL 30, 2007 (UNAUDITED)
- --------------------------------------------------------------------------------
HYPOTHETICAL $10,000 INVESTMENT IN CLASS N SHARES
-- FROM 2/28/07 TO 4/30/07
Ending Value International Opportunities Fund Class N: $10,610
Ending Value MSCI EAFE Index: $10,420
Ending Value MSCI All Country World Index ex U.S.: $10,408
[LINE GRAPH]
International MSCI EAFE MSCI All Country
Opportunities Fund Index World Index ex U.S.
2/28/2007 $10,000 $10,000 $10,000
4/30/2007 $10,610 $10,420 $10,408
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in International Opportunities Fund Class N shares and the MSCI
EAFE and the MSCI All Country World Index ex U.S. (each unmanaged index of
common stocks) on February 28, 2007, the inception date of the International
Opportunities Fund, through April 30, 2007. The figures for International
Opportunities Fund, MSCI EAFE and the MSCI All Country World Index ex U.S.
include reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
TOTAL RETURNS
- --------------------------------------------------------------------------------
SINCE
INCEPTION
- --------------------------------------------------------------------------------
AS OF APRIL 30, 2007
International Opportunities Fund (Inception 2/28/07) 6.10%
MSCI EAFE Index 4.20%
MSCI All Country World Index ex U.S. 4.08%
- --------------------------------------------------------------------------------
AS OF MARCH 30, 2007
International Opportunities Fund (Inception 2/28/07) 2.70%
MSCI EAFE Index 1.60%
MSCI All Country World Index ex U.S. 1.56%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NOT AN
INDICATION OR A GUARANTEE OF FUTURE RESULTS. 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. CURRENT
PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
CURRENT TO THE MOST RECENT MONTH END, VISIT US AT WWW.SPECTRAFUND.COM OR CALL US
AT (800) 992-3863.
-11-
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY+ (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
SECTOR SPECTRA FUND GREEN FUND ALCHEMY FUND
- --------------------------------------------------------------------------------
Consumer Discretionary 12.6% 14.8% 12.6%
Consumer Staples 8.4% 3.6% 3.1%
Energy 10.3% 7.4% 4.1%
Financials 9.0% 7.9% 10.5%
Health Care 12.6% 13.7% 19.8%
Industrials 2.4% 9.0% 12.2%
Information Technology 33.5% 27.3% 29.7%
Materials 4.3% 4.3% 1.5%
Telecommunication Services 4.2% 0.6% 1.6%
Utilities 0.0% 2.6% 0.0%
Cash and Net Other Assets 2.7% 8.8% 4.9%
- --------------------------------------------------------------------------------
100.0% 100.0% 100.0%
================================================================================
INTERNATIONAL OPPORTUNITIES FUND
- ------------------------------------------
COUNTRY VALUE (%)
- ------------------------------------------
United States 11.0%
Belgium .4
Brazil 8.0
China 4.4
Denmark .3
France 5.4
Germany 5.9
Great Britain 10.7
Hong Kong 5.4
Israel 1.4
Japan 14.5
- ------------------------------------------
COUNTRY VALUE (%)
- ------------------------------------------
Mexico 3.2
Netherlands 3.9
Norway 1.0
Portugal .5
Singapore 1.7
Spain 3.6
Sweden 1.0
Switzerland 6.4
Taiwan 1.3
Cash and Net Other Assets 10.0
- ------------------------------------------
100.0%
==========================================
+ BASED ON NET ASSETS FOR EACH FUND.
-12-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--97.3% SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.9%
Armor Holdings, Inc.* 25,500 $ 1,823,250
BE Aerospace, Inc.* 40,300 1,476,995
Boeing Company 9,300 864,900
- --------------------------------------------------------------------------------
4,165,145
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.8%
Amgen Inc. 27,200 1,744,608
Cephalon, Inc.* 14,700 1,170,267
InterMune Inc.* 37,000 1,069,670
Onyx Pharmaceuticals, Inc.* 79,000 2,114,040
- --------------------------------------------------------------------------------
6,098,585
- --------------------------------------------------------------------------------
BUSINESS SERVICES--.7%
Endeavor Acquisition Corp.* 133,600 1,401,464
- --------------------------------------------------------------------------------
CAPITAL MARKETS--1.9%
Bear Stearns Companies Inc. 15,100 2,351,070
National Financial Partners Corporation 36,900 1,699,983
- --------------------------------------------------------------------------------
4,051,053
- --------------------------------------------------------------------------------
CASINOS & RESORTS--.4%
Bally Technologies Inc.* 33,300 779,220
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--.7%
Bank of America Corporation 29,700 1,511,730
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.5%
Net 1 UEPS Technologies, Inc.* 125,000 3,147,500
- --------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT--4.1%
Cisco Systems, Inc.* 194,800 5,208,952
Corning Incorporated* 35,500 842,060
Sonus Networks, Inc.* 350,500 2,709,365
- --------------------------------------------------------------------------------
8,760,377
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--4.9%
Apple Computer, Inc.* 22,900 2,285,420
Autodesk, Inc. 44,700 1,844,769
Hewlett-Packard Company 53,800 2,267,132
Memc Electronic Materials, Inc.* 34,800 1,909,824
Network Appliance, Inc.* 29,900 1,112,579
Seagate Technology 47,200 1,045,480
- --------------------------------------------------------------------------------
10,465,204
- --------------------------------------------------------------------------------
COMPUTER SERVICES--1.7%
Digital River, Inc.* 61,900 3,623,007
- --------------------------------------------------------------------------------
COMPUTER TECHNOLOGY--.5%
Atheros Communications* 43,700 1,170,723
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--.5%
McDermott International, Inc.* 20,100 1,078,566
- --------------------------------------------------------------------------------
-13-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--.6%
Level 3 Communication Inc.* 242,770 $ 1,349,801
- --------------------------------------------------------------------------------
DRUGS & PHARMACEUTICALS--1.0%
United Therapeutics Corporation* 36,700 2,051,897
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.6%
Cameron International Corp.* 7,300 471,361
Diamond Offshore Drilling Inc. 35,300 3,021,680
- --------------------------------------------------------------------------------
3,493,041
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION SERVICES--1.4%
GFI Group Inc.* 41,900 2,901,575
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--3.1%
AllianceBernstein Holding LP 11,400 1,036,944
Chicago Mercantile Exchange Holdings Inc. 4,100 2,118,675
Dollar Financial Corporation* 59,900 1,745,486
Lazard Ltd. 33,800 1,830,270
- --------------------------------------------------------------------------------
6,731,375
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--4.2%
CVS Caremark Corporation 247,500 8,969,400
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.6%
Intuitive Surgical, Inc.* 13,600 1,763,376
Ventana Medical Systems, Inc.* 34,100 1,656,919
- --------------------------------------------------------------------------------
3,420,295
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--3.3%
Cardinal Health, Inc. 86,800 6,071,660
Express Scripts, Inc.* 9,700 926,835
- --------------------------------------------------------------------------------
6,998,495
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--3.1%
Hilton Hotels Corporation 58,300 1,982,200
International Game Technology 45,900 1,750,626
Penn National Gaming, Inc.* 23,700 1,145,658
Scientific Games Corporation* 50,200 1,671,158
- --------------------------------------------------------------------------------
6,549,642
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.3%
Procter & Gamble Company 43,702 2,810,476
- --------------------------------------------------------------------------------
INSURANCE--1.3%
American International Group, Inc. 38,900 2,719,499
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--2.9%
eBay Inc.* 148,700 5,046,878
Nutri/System, Inc. 18,808 1,166,096
- --------------------------------------------------------------------------------
6,212,974
- --------------------------------------------------------------------------------
-14-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--6.3%
DealerTrack Holdings Inc.* 88,700 $ 2,927,100
Google Inc. Cl. A* 16,300 7,683,494
SINA Corp.* 59,200 2,041,216
Yahoo! Inc.* 29,800 835,592
- --------------------------------------------------------------------------------
13,487,402
- --------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--.8%
Cinemark Holdings, Inc.* 56,100 1,060,290
Great Canadian Gaming Corporation* 63,500 756,285
- --------------------------------------------------------------------------------
1,816,575
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--.8%
Smith & Wesson Holding Corporation* 121,700 1,669,724
- --------------------------------------------------------------------------------
MEDIA--3.4%
DreamWorks Animation SKG, Inc. Cl. A* 66,700 1,952,976
Focus Media Holding Limited ADR*# 30,800 1,139,600
McGraw-Hill Companies, Inc. (The) 30,300 1,985,559
Regal Entertainment Group 104,300 2,268,525
- --------------------------------------------------------------------------------
7,346,660
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--.6%
Northstar Neuroscience, Inc.* 91,900 1,251,678
- --------------------------------------------------------------------------------
METAL FABRICATING--.4%
Haynes International, Inc.* 2,900 226,084
OM Group, Inc. 10,200 535,806
- --------------------------------------------------------------------------------
761,890
- --------------------------------------------------------------------------------
METALS--1.9%
Blue Pearl Mining Ltd.* 168,200 2,691,200
SXR Uranium One, Inc.* 87,200 1,306,256
- --------------------------------------------------------------------------------
3,997,456
- --------------------------------------------------------------------------------
METALS & MINING--4.0%
Breakwater Resources, Ltd.* 468,300 889,770
Cameco Corporation 62,200 2,899,764
Freeport-McMoRan Copper & Gold, Inc. Cl. B 35,100 2,357,316
Inmet Mining Corporation 8,300 504,557
Paladin Resources Limited* 264,300 2,074,755
- --------------------------------------------------------------------------------
8,726,162
- --------------------------------------------------------------------------------
OIL & GAS--5.0%
Marathon Oil Corporation 17,900 1,817,745
Range Resources Corporation 4,900 179,095
Valero Energy Corporation 98,700 6,931,701
Warren Resources Inc.* 135,000 1,783,350
- --------------------------------------------------------------------------------
10,711,891
- --------------------------------------------------------------------------------
OIL AND GAS EXPLORATION SERVICES--1.7%
Petrobank Energy and Resources Ltd.* 185,000 3,749,950
- --------------------------------------------------------------------------------
-15-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
PHARMACEUTICAL PREPARATIONS--1.0%
Adams Respiratory Therapeutics, Inc.* 57,400 $ 2,153,074
- --------------------------------------------------------------------------------
PHARMACEUTICALS--2.4%
Abbott Laboratories 31,500 1,783,530
Salix Pharmaceuticals, Ltd.* 79,800 1,038,996
Sepracor Inc.* 42,700 2,292,136
- --------------------------------------------------------------------------------
5,114,662
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--9.7%
Lam Research Corporation* 58,600 3,151,508
Microsemi Corporation* 37,300 862,003
ON Semiconductor Corporation* 516,800 5,534,928
Rambus Inc.* 93,500 1,852,235
SIPEX Corporation* 198,200 1,884,882
Tessera Technologies Inc.* 75,585 3,234,282
Trident Microsystems, Inc.* 125,000 2,653,750
Ultra Clean Holdings, Inc.* 112,200 1,642,608
- --------------------------------------------------------------------------------
20,816,196
- --------------------------------------------------------------------------------
SOFTWARE--2.2%
Microsoft Corporation 86,300 2,583,822
TomTom NV* 50,300 2,141,142
- --------------------------------------------------------------------------------
4,724,964
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--2.2%
Abercrombie & Fitch Co. Cl. A 14,800 1,208,568
Gamestop Corp. Cl. A* 35,800 1,187,486
Urban Outfitters, Inc.* 86,000 2,215,360
- --------------------------------------------------------------------------------
4,611,414
- --------------------------------------------------------------------------------
TELEPHONES
Orbcomm, Inc.* 6,900 79,833
- --------------------------------------------------------------------------------
TEXTILES & APPAREL--1.4%
Iconix Brand Group, Inc.* 154,100 3,102,033
- --------------------------------------------------------------------------------
TOBACCO--2.9%
Altria Group, Inc. 91,600 6,313,072
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--3.6%
America Movil S.A. de C.V. Series L ADR# 47,700 2,505,681
American Tower Corporation Cl. A* 46,500 1,767,000
NII Holdings Inc. Cl. B* 44,500 3,415,375
- --------------------------------------------------------------------------------
7,688,056
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $193,817,653) 208,583,736
- --------------------------------------------------------------------------------
-16-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | SPECTRA FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
PURCHASED OPTIONS--.1% CONTRACTS VALUE
- --------------------------------------------------------------------------------
CALL OPTIONS
Tessera Technologies/June/35
(Cost $99,101) 156 $ 124,800
- --------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM INVESTMENTS--2.4% AMOUNT
- --------------------------------------------------------------------------------
U.S. AGENCY OBLIGATIONS
Federal Home Loan Banks, 4.93%, 5/1/07
(Cost $5,052,000) $5,052,000 5,052,000
- --------------------------------------------------------------------------------
================================================================================
Total Investments
(Cost $198,968,754)(a) 99.7% 213,760,536
Other Assets in Excess of Liabilities 0.3 547,052
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $ 214,307,588
================================================================================
* NON-INCOME PRODUCING SECURITY.
# AMERICAN DEPOSITARY RECEIPTS.
(a) AT APRIL 30, 2007, THE NET UNREALIZED APPRECIATION OF INVESTMENTS, BASED
ON COST FOR FEDERAL INCOME TAX PURPOSES OF $199,989,420 AMOUNTED TO
$13,771,116 WHICH CONSISTED OF AGGREGATE GROSS UNREALIZED APPRECIATION OF
$16,810,298 AND AGGREGATE GROSS UNREALIZED DEPRECIATION OF $3,039,182.
SEE NOTES TO FINANCIAL STATEMENTS. -17-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | GREEN FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--91.1% SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.3%
BE Aerospace, Inc.* 2,540 $ 93,091
Boeing Company 700 65,100
L-3 Communications Holdings, Inc. 640 57,555
- --------------------------------------------------------------------------------
215,746
- --------------------------------------------------------------------------------
AUTOMOTIVE--.7%
Toyota Motor Corporation Sponsored ADR# 380 46,140
- --------------------------------------------------------------------------------
BEVERAGES--.9%
Coca-Cola Company 1,155 60,279
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.4%
Amgen Inc. 705 45,219
Gen-Probe Incorporated* 945 48,299
Gilead Sciences, Inc. 785 64,150
- --------------------------------------------------------------------------------
157,668
- --------------------------------------------------------------------------------
BUSINESS SERVICES--.9%
Endeavor Acquisition Corp.* 5,510 57,800
- --------------------------------------------------------------------------------
CAPITAL MARKETS--.6%
Goldman Sachs Group, Inc. 190 41,536
- --------------------------------------------------------------------------------
CASINOS & RESORTS--.8%
Ameristar Casinos, Inc. 1,685 51,157
- --------------------------------------------------------------------------------
CHEMICALS--.2%
Zoltek Companies, Inc.* 465 14,155
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--.7%
Bank of America Corporation 955 48,610
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--.5%
Net 1 UEPS Technologies, Inc.* 1,285 32,356
- --------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT--3.0%
Cisco Systems, Inc.* 3,210 85,835
Corning Incorporated* 2,550 60,486
Sonus Networks, Inc.* 6,630 51,250
- --------------------------------------------------------------------------------
197,571
- --------------------------------------------------------------------------------
COMPUTER SERVICES--1.5%
CNET Networks, Inc.* 5,610 47,292
Digital River, Inc.* 930 54,433
- --------------------------------------------------------------------------------
101,725
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--2.7%
Apple Computer, Inc.* 615 61,377
Hewlett-Packard Company 1,190 50,147
Memc Electronic Materials, Inc.* 1,230 67,502
- --------------------------------------------------------------------------------
179,026
- --------------------------------------------------------------------------------
COMPUTER TECHNOLOGY--1.1%
Atheros Communications* 2,755 73,806
- --------------------------------------------------------------------------------
-18-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | GREEN FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--.6%
McDermott International, Inc.* 770 $ 41,318
- --------------------------------------------------------------------------------
DRUGS & PHARMACEUTICALS--.7%
United Therapeutics Corporation* 865 48,362
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--.4%
AMETEK, Inc. 742 26,920
- --------------------------------------------------------------------------------
ELECTRONICS--.8%
SONY CORPORATION 1,035 55,124
- --------------------------------------------------------------------------------
ENERGY--2.4%
JA Solar Holdings Co. Ltd.* 4,245 103,536
Nova Biosource Fuels, Inc.* 18,000 52,560
- --------------------------------------------------------------------------------
156,096
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--3.8%
Calpine Corporation* 34,100 122,760
Cameron International Corp.* 630 40,679
North American Energy Partner* 2,000 42,800
Suntech Power Holdings Co., Ltd. ADR*# 1,195 43,355
- --------------------------------------------------------------------------------
249,594
- --------------------------------------------------------------------------------
FINANCE--.4%
Intercontinental Exchange Inc.* 235 29,845
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION SERVICES--.9%
GFI Group Inc.* 880 60,940
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--1.2%
AllianceBernstein Holding LP 548 49,846
Chicago Mercantile Exchange Holdings Inc. 55 28,421
- --------------------------------------------------------------------------------
78,267
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--.5%
Whole Foods Market, Inc. 755 35,326
- --------------------------------------------------------------------------------
FREIGHT & LOGISTICS--.7%
FedEx Corp. 440 46,394
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--2.1%
Hologic, Inc.* 1,005 57,838
Intuitive Surgical, Inc.* 255 33,063
Kyphon Inc.* 505 23,538
Ventana Medical Systems, Inc.* 535 25,996
- --------------------------------------------------------------------------------
140,435
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--3.4%
Cardinal Health, Inc. 565 39,522
HealthExtras, Inc.* 2,040 63,138
Health Net Inc.* 1,035 55,952
UnitedHealth Group Incorporated 1,190 63,141
- --------------------------------------------------------------------------------
221,753
- --------------------------------------------------------------------------------
-19-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | GREEN FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.5%
International Game Technology 1,085 $ 41,382
Starbucks Corporation* 3,915 121,443
- --------------------------------------------------------------------------------
162,825
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--.9%
Procter & Gamble Company 914 58,779
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.0%
General Electric Company 1,700 62,662
- --------------------------------------------------------------------------------
INSURANCE--1.9%
American International Group, Inc. 980 68,512
Covanta Holding Corporation* 1,145 28,098
Hartford Financial Services Group, Inc. (The) 300 30,360
- --------------------------------------------------------------------------------
126,970
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--2.6%
Coldwater Creek Inc.*+ 2,665 55,166
eBay Inc.* 3,405 115,566
- --------------------------------------------------------------------------------
170,732
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--5.3%
DealerTrack Holdings Inc.* 1,585 52,305
Google Inc. Cl. A* 285 134,343
SINA Corp.* 1,000 34,480
Vocus, Inc.* 3,000 67,470
Yahoo! Inc.* 2,213 62,053
- --------------------------------------------------------------------------------
350,651
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES--.8%
NexCen Brands, Inc.* 4,000 50,920
- --------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--.7%
Cinemark Holdings, Inc.* 2,500 47,250
- --------------------------------------------------------------------------------
MACHINERY--1.5%
Deere & Co. 350 38,290
Terex Corporation* 800 62,280
- --------------------------------------------------------------------------------
100,570
- --------------------------------------------------------------------------------
MEDIA--2.3%
Comcast Corporation Special Cl. A* 2,045 53,988
DreamWorks Animation SKG, Inc. Cl. A* 1,650 48,312
Focus Media Holding Limited ADR*# 1,350 49,950
- --------------------------------------------------------------------------------
152,250
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--.5%
Northstar Neuroscience, Inc.* 2,370 32,279
- --------------------------------------------------------------------------------
METALS--2.2%
Blue Pearl Mining Ltd.* 9,000 144,000
- --------------------------------------------------------------------------------
-20-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | GREEN FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
METALS & MINING--4.7%
Cameco Corporation 3,975 $ 185,315
Paladin Resources Limited* 15,975 125,404
- --------------------------------------------------------------------------------
310,719
- --------------------------------------------------------------------------------
OIL & GAS--1.8%
RAM Energy Resources Inc.* 8,000 38,400
Valero Energy Corporation 630 44,245
Warren Resources Inc.* 2,490 32,893
- --------------------------------------------------------------------------------
115,538
- --------------------------------------------------------------------------------
OIL AND GAS EXPLORATION SERVICES--.7%
Petrobank Energy and Resources Ltd.* 2,315 46,925
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--.9%
Bare Escentuals, Inc.* 1,415 57,208
- --------------------------------------------------------------------------------
PHARMACEUTICALS--4.6%
Abbott Laboratories 660 37,369
Barr Pharmaceuticals, Inc.* 905 43,766
Endo Pharmaceuticals Holdings Inc.* 845 26,144
Pfizer Inc. 2,420 64,033
Schering-Plough Corporation 1,760 55,845
Sepracor Inc.* 1,415 75,957
- --------------------------------------------------------------------------------
303,114
- --------------------------------------------------------------------------------
PHOTOGRAPHY--.7%
Shutterfly, Inc.* 2,795 45,391
- --------------------------------------------------------------------------------
PRINTING--.7%
VistaPrint Limited* 1,180 44,108
- --------------------------------------------------------------------------------
REAL ESTATE--.8%
Jones Lang LaSalle Incorporated 475 51,058
- --------------------------------------------------------------------------------
RESTAURANTS--1.1%
McCormick & Schmick's Seafood Restaurants, Inc.* 2,575 68,933
- --------------------------------------------------------------------------------
ROAD & RAIL--.5%
Burlington Northern Santa Fe Corporation 345 30,201
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--2.4%
Broadcom Corporation Cl. A* 1,520 49,476
ON Semiconductor Corporation* 6,675 71,489
Ultra Clean Holdings, Inc.* 2,405 35,209
- --------------------------------------------------------------------------------
156,174
- --------------------------------------------------------------------------------
SOFTWARE--5.9%
Activision, Inc.* 3,080 61,600
Adobe Systems Incorporated 2,115 87,899
Electronic Arts Inc.* 500 25,205
Microsoft Corporation 4,300 128,742
Synchronoss Technologies Inc.* 1,630 36,577
VeriFone Holdings Inc.* 1,265 44,642
- --------------------------------------------------------------------------------
384,665
- --------------------------------------------------------------------------------
-21-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | GREEN FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--2.9%
Crocs, Inc.* 1,180 $ 65,938
Home Depot, Inc. 955 36,166
Urban Outfitters, Inc.* 3,310 85,266
- --------------------------------------------------------------------------------
187,370
- --------------------------------------------------------------------------------
TELEPHONES--.7%
Orbcomm, Inc.* 4,015 46,454
- --------------------------------------------------------------------------------
TEXTILES & APPAREL--1.1%
Iconix Brand Group, Inc.* 3,590 72,267
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--.5%
Deckers Outdoor Corporation* 430 32,564
- --------------------------------------------------------------------------------
UTILITIES--.7%
Veolia Environnement 570 47,019
- --------------------------------------------------------------------------------
WASTE MANAGEMENT--.4%
Darling International Inc.* 3,400 26,078
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--.6%
SBA Communications Corporation Cl. A* 1,350 39,717
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $5,381,016) 5,993,340
- --------------------------------------------------------------------------------
PURCHASED OPTIONS--.1% CONTRACTS
- --------------------------------------------------------------------------------
PUT OPTIONS
Coldwater Creek Inc./July/22.5+
(Cost $5,538) 26 6,370
- --------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM INVESTMENTS--5.9% AMOUNT
- --------------------------------------------------------------------------------
U.S. AGENCY OBLIGATIONS
Federal Home Loan Banks, 4.93%, 5/1/07
(Cost $385,000) $ 385,000 385,000
- --------------------------------------------------------------------------------
================================================================================
Total Investments
(Cost $5,771,554)(a) 97.1% 6,384,710
Other Assets in Excess of Liabilities 2.9 192,792
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $ 6,577,502
================================================================================
* NON-INCOME PRODUCING SECURITY.
+ ALL OR PORTION OF THE SECURITIES ARE PLEDGED AS COLLATERAL FOR OPTIONS
WRITTEN.
# AMERICAN DEPOSITARY RECEIPTS.
(a) AT APRIL 30, 2007, THE NET UNREALIZED APPRECIATION OF INVESTMENTS, BASED
ON COST FOR FEDERAL INCOME TAX PURPOSES OF $5,783,144 AMOUNTED TO $601,566
WHICH CONSISTED OF AGGREGATE GROSS UNREALIZED APPRECIATION OF $682,606 AND
AGGREGATE GROSS UNREALIZED DEPRECIATION OF $81,040.
SEE NOTES TO FINANCIAL STATEMENTS. -22-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | GREEN FUND
SCHEDULE OF OPTIONS WRITTEN (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
SHARES
SUBJECT
CONTRACTS TO CALL/PUT VALUE
- --------------------------------------------------------------------------------
CALL OPTIONS WRITTEN
Coldwater Creek Inc./July/25
(Premiums Received $1,027) 13 1,300 $ 455
- --------------------------------------------------------------------------------
PUT OPTIONS WRITTEN
Coldwater Creek Inc./July/20
(Premiums Received $2,522) 26 2,600 2,860
- --------------------------------------------------------------------------------
TOTAL OPTIONS WRITTEN
(Premiums Received $3,549) $ 3,315
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS. -23-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | ALCHEMY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--95.1% SHARES VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.4%
Armor Holdings, Inc.* 700 $ 50,050
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--6.8%
Amgen Inc. 642 41,178
Celgene Corporation* 305 18,654
Cephalon, Inc.* 168 13,374
Gen-Probe Incorporated* 339 17,326
Gilead Sciences, Inc. 106 8,662
Onyx Pharmaceuticals, Inc.* 968 25,904
Regeneron Pharmaceuticals, Inc.* 740 20,128
- --------------------------------------------------------------------------------
145,226
- --------------------------------------------------------------------------------
BUSINESS SERVICES--2.5%
Endeavor Acquisition Corp.* 2,738 28,722
TeleTech Holdings Inc.* 218 8,225
Quanta Services Inc. 600 16,494
- --------------------------------------------------------------------------------
53,441
- --------------------------------------------------------------------------------
CAPITAL MARKETS--2.1%
Bear Stearns Companies Inc. 290 45,153
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--1.0%
Boston Private Financial Holdings, Inc. 780 21,692
- --------------------------------------------------------------------------------
COMMUNICATION EQUIPMENT--3.4%
Cisco Systems, Inc.* 1,555 41,581
Sonus Networks, Inc.* 3,911 30,232
- --------------------------------------------------------------------------------
71,813
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--4.0%
Apple Computer, Inc.* 86 8,583
Autodesk, Inc. 468 19,314
Hewlett-Packard Company 590 24,863
Memc Electronic Materials, Inc.* 266 14,598
SanDisk Corporation* 402 17,467
- --------------------------------------------------------------------------------
84,825
- --------------------------------------------------------------------------------
COMPUTER SERVICES--2.4%
ANSYS, Inc.* 477 24,422
Digital River, Inc.* 436 25,519
- --------------------------------------------------------------------------------
49,941
- --------------------------------------------------------------------------------
COMPUTER TECHNOLOGY--1.3%
Atheros Communications* 1,008 27,004
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--2.6%
Chicago Bridge & Iron Company N.V. 1,570 54,369
- --------------------------------------------------------------------------------
CORRECTIONAL FACILITIES--1.3%
The Geo Group Inc.* 524 26,829
- --------------------------------------------------------------------------------
DRUGS & PHARMACEUTICALS--.8%
United Therapeutics Corporation* 300 16,773
- --------------------------------------------------------------------------------
-24-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | ALCHEMY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--2.4%
National-Oilwell Varco Inc.* 611 $ 51,843
- --------------------------------------------------------------------------------
FINANCE--3.0%
Intercontinental Exchange Inc.* 440 55,880
WNS Holdings Limited* 280 7,442
- --------------------------------------------------------------------------------
63,322
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--1.7%
Lazard Ltd. 650 35,197
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--2.3%
Whole Foods Market, Inc. 1,050 49,129
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--3.8%
Royal Caribbean Cruises Ltd. 551 22,905
Starbucks Corporation* 1,895 58,783
- --------------------------------------------------------------------------------
81,688
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.5%
Procter & Gamble Company 495 31,833
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--2.3%
General Electric Company 1,340 49,392
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY SERVICES--.4%
Cognizant Technology Solutions Corporation Cl. A* 94 8,404
- --------------------------------------------------------------------------------
INSURANCE--3.2%
American International Group, Inc. 970 67,813
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--1.7%
eBay Inc.* 1,094 37,130
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--2.0%
DealerTrack Holdings Inc.* 385 12,705
Google Inc. Cl. A* 37 17,441
SINA Corp.* 350 12,068
- --------------------------------------------------------------------------------
42,214
- --------------------------------------------------------------------------------
INVESTMENT COMPANIES--2.7%
NexCen Brands, Inc.* 4,490 57,157
- --------------------------------------------------------------------------------
IT SERVICES--1.2%
Infosys Technologies Limited 485 25,390
- --------------------------------------------------------------------------------
MACHINERY--2.8%
Bucyrus International, Inc. Cl. A 940 58,976
- --------------------------------------------------------------------------------
MEDICAL DEVICES--1.5%
Dexcom Inc.* 4,114 32,789
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--1.5%
Accuray Inc.* 720 16,992
Northstar Neuroscience, Inc.* 1,121 15,268
- --------------------------------------------------------------------------------
32,260
- --------------------------------------------------------------------------------
-25-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | ALCHEMY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
METALS--2.4%
SXR Uranium One, Inc.* 3,461 $ 51,846
- --------------------------------------------------------------------------------
METALS & MINING--2.2%
Paladin Resources Limited* 6,000 47,100
- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.0%
Barr Pharmaceuticals, Inc.* 344 16,636
Merck & Co. Inc. 704 36,214
Sepracor Inc.* 344 18,466
Wyeth 621 34,466
- --------------------------------------------------------------------------------
105,782
- --------------------------------------------------------------------------------
PHOTOGRAPHY--.6%
Shutterfly, Inc.* 747 12,131
- --------------------------------------------------------------------------------
RETAIL--1.3%
Sothebys Holdings Inc., Cl. A 534 27,565
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.6%
Lam Research Corporation* 509 27,374
ON Semiconductor Corporation* 1,820 19,492
Tessera Technologies Inc.* 398 17,030
Ultra Clean Holdings, Inc.* 914 13,381
- --------------------------------------------------------------------------------
77,277
- --------------------------------------------------------------------------------
SOFTWARE--2.8%
Adobe Systems Incorporated 287 11,928
Concur Technologies, Inc.* 927 16,473
Synchronoss Technologies Inc.* 1,348 30,249
- --------------------------------------------------------------------------------
58,650
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--5.2%
Crocs, Inc.* 943 52,695
Urban Outfitters, Inc.* 2,241 57,728
- --------------------------------------------------------------------------------
110,423
- --------------------------------------------------------------------------------
TELEPHONE COMMUNICATION--.8%
NICE Systems Ltd.* 470 17,226
- --------------------------------------------------------------------------------
TEXTILES & APPAREL--2.8%
Iconix Brand Group, Inc.* 2,912 58,619
- --------------------------------------------------------------------------------
TOBACCO--1.9%
Altria Group, Inc. 593 40,870
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
American Tower Corporation Cl. A* 408 15,504
SBA Communications Corporation Cl. A* 811 23,860
- --------------------------------------------------------------------------------
39,364
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,904,507) 2,018,506
- --------------------------------------------------------------------------------
-26-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | ALCHEMY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM INVESTMENTS--5.6% AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. AGENCY OBLIGATIONS
Federal Home Loan Banks, 4.93%, 5/1/07
(Cost $120,000) $ 120,000 $ 120,000
- --------------------------------------------------------------------------------
================================================================================
Total Investments
(Cost $2,024,507)(a) 100.7% 2,138,506
Liabilities in Excess of Other Assets (0.7) (14,910)
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $ 2,123,596
================================================================================
* NON-INCOME PRODUCING SECURITY.
(a) AT APRIL 30, 2007, THE NET UNREALIZED APPRECIATION OF INVESTMENTS, BASED
ON COST FOR FEDERAL INCOME TAX PURPOSES OF $2,024,507 AMOUNTED TO $113,999
WHICH CONSISTED OF AGGREGATE GROSS UNREALIZED APPRECIATION OF $125,572 AND
AGGREGATE GROSS UNREALIZED DEPRECIATION OF $11,573.
SEE NOTES TO FINANCIAL STATEMENTS. -27-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--90.0% SHARES VALUE
- --------------------------------------------------------------------------------
UNITED STATES--11.0%
COMMERCIAL SERVICES & SUPPLIES--2.6%
Net 1 UEPS Technologies, Inc.* 2,315 $ 58,292
- --------------------------------------------------------------------------------
FINANCE--2.2%
WNS Holdings Limited* 1,845 49,040
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--2.8%
Lazard Ltd. 1,175 63,626
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--.6%
Home Inns & Hotels Management, Inc.* 370 12,680
- --------------------------------------------------------------------------------
TELEPHONE COMMUNICATION--2.8%
NICE Systems Ltd.* 1,760 64,504
- --------------------------------------------------------------------------------
TOTAL UNITED STATES
(Cost $254,581) 248,142
- --------------------------------------------------------------------------------
BELGIUM--.4%
TELEPHONES--.4%
Belgacom SA 215 9,501
- --------------------------------------------------------------------------------
TOTAL BELGIUM
(Cost $8,979) 9,501
- --------------------------------------------------------------------------------
BRAZIL--8.0%
METALS & MINING--5.0%
Companhia Vale do Rio Doce (CVRD) ADR# 1,820 73,910
Paladin Resources Limited* 5,104 40,066
- --------------------------------------------------------------------------------
113,976
- --------------------------------------------------------------------------------
OIL & GAS--3.0%
Petroleo Brasileiro S.A. ADR# 670 67,824
- --------------------------------------------------------------------------------
TOTAL BRAZIL
(Cost $161,278) 181,800
- --------------------------------------------------------------------------------
CHINA--4.4%
CONSTRUCTION & ENGINEERING--.5%
China National Building Material Company Ltd.* 11,540 12,422
- --------------------------------------------------------------------------------
CONSUMER PRODUCTS--.3%
Win Hanverky Holdings Ltd. 15,625 6,432
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.7%
Netease.com Inc. ADR*# 995 17,990
SINA Corp.* 585 20,171
- --------------------------------------------------------------------------------
38,161
- --------------------------------------------------------------------------------
MEDIA--.6%
Focus Media Holding Limited ADR*# 380 14,060
- --------------------------------------------------------------------------------
-28-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
CHINA--(CONT.)
OIL & GAS--.5%
China Petroleum & Chemical Corp. (Sinopec) 12,075 $ 10,621
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--.8%
China Mobile (Hong Kong) Limited 2,085 19,046
- --------------------------------------------------------------------------------
TOTAL CHINA
(Cost $102,157) 100,742
- --------------------------------------------------------------------------------
DENMARK--.3%
MEDICAL PRODUCTS--.3%
Novo Nordisk A/S 64 6,300
- --------------------------------------------------------------------------------
TOTAL DENMARK
(Cost $5,420) 6,300
- --------------------------------------------------------------------------------
FRANCE--5.4%
ELECTRONIC EQUIPMENT & INSTRUMENTS--.5%
STMicroelectronics N.V. 531 10,442
- --------------------------------------------------------------------------------
METALS--1.2%
Vallourec SA 100 27,586
- --------------------------------------------------------------------------------
TRANSPORTATION--3.6%
Veolia Environment 990 82,337
- --------------------------------------------------------------------------------
TOTAL FRANCE
(Cost $103,753) 120,365
- --------------------------------------------------------------------------------
GERMANY--5.9%
CHEMICALS--1.5%
Bayer AG 502 34,525
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--.7%
Suntech Power Holdings Co., Ltd. ADR*# 425 15,419
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--.7%
Merck KGaA 100 13,383
- --------------------------------------------------------------------------------
FINANCE--.7%
Deutsche Boerse AG 67 15,770
- --------------------------------------------------------------------------------
PERSONAL CARE--2.3%
Beiersdorf AG 717 51,847
- --------------------------------------------------------------------------------
TOTAL GERMANY
(Cost $118,640) 130,944
- --------------------------------------------------------------------------------
-29-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
GREAT BRITAIN--10.7%
AEROSPACE & DEFENSE--2.5%
Rolls-Royce Group Plc 5,748 $ 55,237
Rolls-Royce Group Plc B Shares 322,640 646
- --------------------------------------------------------------------------------
55,883
- --------------------------------------------------------------------------------
BEVERAGES--1.0%
Diageo Plc 1,113 23,598
- --------------------------------------------------------------------------------
BROADCASTING--.8%
British Sky Broadcasting Group plc 1,687 19,404
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--1.0%
HBOS Plc 205 4,445
Lloyds TSB Group Plc 1,298 15,111
Royal Bank of Scotland Group Plc 90 3,479
- --------------------------------------------------------------------------------
23,035
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.2%
National Grid Plc 1,671 26,312
- --------------------------------------------------------------------------------
MANUFACTURING--.9%
Reckitt Benckiser Plc 385 21,212
- --------------------------------------------------------------------------------
OIL & GAS--.9%
Centrica Plc 2,605 20,235
- --------------------------------------------------------------------------------
REAL ESTATE--.2%
British Land Company Plc 150 4,427
- --------------------------------------------------------------------------------
RETAIL--1.2%
Marks & Spencer Group Plc 1,913 28,456
- --------------------------------------------------------------------------------
TELEPHONES--.2%
BT Group Plc 615 3,897
- --------------------------------------------------------------------------------
TOBACCO--.8%
British American Tobacco Plc 555 17,245
- --------------------------------------------------------------------------------
TOTAL GREAT BRITAIN
(Cost $231,719) 243,704
- --------------------------------------------------------------------------------
HONG KONG--5.4%
BUILDING & CONSTRUCTION--.4%
China Communications Construction Company Ltd.* 7,875 10,330
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--.9%
The Bank of East Asia, Ltd. 3,345 20,698
- --------------------------------------------------------------------------------
FINANCIAL SERVICES--2.6%
Hong Kong Exchanges & Clearing Limited 6,100 58,763
- --------------------------------------------------------------------------------
-30-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
HONG KONG--(CONT.)
FOOD & BEVERAGES--.5%
FU JI Food & Catering Services 3,435 $ 10,518
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--.5%
Peace Mark (Holdings) Limited 10,000 11,251
- --------------------------------------------------------------------------------
MACHINERY--.5%
China Infrastructure Machinery Holdings Limited* 6,210 11,861
- --------------------------------------------------------------------------------
METALS--0.0%
China Molybdenum Co.* 55 88
- --------------------------------------------------------------------------------
TOTAL HONG KONG
(Cost $117,556) 123,509
- --------------------------------------------------------------------------------
ISRAEL--1.4%
PHARMACEUTICALS--1.4%
Teva Pharmaceutical Industries Ltd. ADR# 856 32,793
- --------------------------------------------------------------------------------
TOTAL ISRAEL
(Cost $31,467) 32,793
- --------------------------------------------------------------------------------
JAPAN--14.5%
AUTOMOTIVE--2.4%
Toyota Motor Corporation 890 54,535
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.8%
FANUC LTD. 405 39,937
- --------------------------------------------------------------------------------
ELECTRONICS--2.7%
SONY CORPORATION 1,155 62,072
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--.2%
NTT Data Corporation 1 4,931
- --------------------------------------------------------------------------------
MACHINERY--1.9%
NIPPON STEEL CORPORATION 6,487 42,139
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--.9%
Takeda Pharmaceutical Company Limited 329 21,427
- --------------------------------------------------------------------------------
REAL ESTATE--.5%
Sumitomo Realty & Development Co., Ltd. 278 10,356
- --------------------------------------------------------------------------------
TOBACCO--.6%
JAPAN TOBACCO INC. 3 14,716
- --------------------------------------------------------------------------------
TOYS--3.1%
Nintendo Co., Ltd. 225 70,913
- --------------------------------------------------------------------------------
TRANSPORTATION--.4%
East Japan Railway Company 1 8,145
- --------------------------------------------------------------------------------
-31-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
JAPAN--(CONT.)
TOTAL JAPAN
(Cost $322,542) $ 329,171
- --------------------------------------------------------------------------------
MEXICO--3.2%
WIRELESS TELECOMMUNICATION SERVICES--3.2%
America Movil S.A. de C.V. Series L ADR# 1,380 72,491
- --------------------------------------------------------------------------------
TOTAL MEXICO
(Cost $58,498) 72,491
- --------------------------------------------------------------------------------
NETHERLANDS--3.9%
BEVERAGES--.5%
Heineken NV 230 12,357
- --------------------------------------------------------------------------------
PUBLISHING--.2%
Reed Elsevier NV 205 3,866
- --------------------------------------------------------------------------------
SOFTWARE--2.6%
TomTom NV* 1,390 59,169
- --------------------------------------------------------------------------------
TELEPHONES--.6%
Koninklijke (Royal) KPN NV 795 13,571
- --------------------------------------------------------------------------------
TOTAL NETHERLANDS
(Cost $84,359) 88,963
- --------------------------------------------------------------------------------
NORWAY--1.0%
MEDIA--1.0%
Telenor ASA 1,260 23,521
- --------------------------------------------------------------------------------
TOTAL NORWAY
(Cost $22,260) 23,521
- --------------------------------------------------------------------------------
PORTUGAL--.5%
TELEPHONES--.5%
Portugal Telecom, SGPS, S.A. 762 10,895
- --------------------------------------------------------------------------------
TOTAL PORTUGAL
(Cost $10,203) 10,895
- --------------------------------------------------------------------------------
SINGAPORE--1.7%
APPAREL--.4%
Hongguo International Holdings Limited 12,633 10,323
- --------------------------------------------------------------------------------
MISCELLANEOUS--.5%
Sino-Environment Technology Group Ltd.* 4,680 10,670
- --------------------------------------------------------------------------------
REAL ESTATE--.8%
CapitaRetail China Trust* 9,840 18,350
- --------------------------------------------------------------------------------
-32-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
SINGAPORE--(CONT.)
TOTAL SINGAPORE
(Cost $38,685) $ 39,343
- --------------------------------------------------------------------------------
SPAIN--3.6%
BUILDING & CONSTRUCTION--.6%
ACS, Actividades de Construccion y Servicios, S.A. 230 14,370
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.2%
Iberdrola S.A. 561 27,832
- --------------------------------------------------------------------------------
TELEPHONES--.6%
Telefonica S.A. 620 13,979
- --------------------------------------------------------------------------------
RETAIL--1.2%
Industria de Diseno Textil, S.A. 400 24,789
- --------------------------------------------------------------------------------
TOTAL SPAIN
(Cost $75,001) 80,970
- --------------------------------------------------------------------------------
SWEDEN--1.0%
MACHINERY--.5%
Atlas Copco AB 314 12,104
- --------------------------------------------------------------------------------
RETAIL--.5%
Hennes & Mauritz AB (H&M) 183 12,209
- --------------------------------------------------------------------------------
TOTAL SWEDEN
(Cost $19,599) 24,313
- --------------------------------------------------------------------------------
SWITZERLAND--6.4%
FINANCE--3.0%
UBS AG 1,029 67,623
- --------------------------------------------------------------------------------
MEDICAL PRODUCTS--3.2%
Novartis AG 1,094 63,992
Roche Holding AG 49 9,284
- --------------------------------------------------------------------------------
73,276
- --------------------------------------------------------------------------------
RETAIL--.2%
Compagnie Financiere Richemont* 89 5,420
- --------------------------------------------------------------------------------
TOTAL SWITZERLAND
(Cost $134,042) 146,319
- --------------------------------------------------------------------------------
TAIWAN--1.3%
COMPUTERS & PERIPHERALS--.4%
Foxconn Technology Co. Ltd. 926 8,781
- --------------------------------------------------------------------------------
-33-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | INTERNATIONAL OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2007
- --------------------------------------------------------------------------------
COMMON STOCKS--(CONT.) SHARES VALUE
- --------------------------------------------------------------------------------
TAIWAN--(CONT.)
IT SERVICES--.9%
Hon Hai Precision Industry Co., Ltd. 3,130 $ 20,839
- --------------------------------------------------------------------------------
TOTAL TAIWAN
(Cost $30,871) 29,620
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $1,931,610) 2,043,406
- --------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM INVESTMENTS--8.1% AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. AGENCY OBLIGATIONS
Federal Home Loan Banks, 4.93%, 5/1/07
(Cost $184,000) $ 184,000 184,000
- --------------------------------------------------------------------------------
================================================================================
Total Investments
(Cost $2,115,610)(a) 98.1% 2,227,406
Other Assets in Excess of Liabilities 1.9 41,991
- --------------------------------------------------------------------------------
NET ASSETS 100.0% $ 2,269,397
================================================================================
* NON-INCOME PRODUCING SECURITIES.
# AMERICAN DEPOSITARY RECEIPTS.
(a) AT APRIL 30, 2007, THE NET UNREALIZED APPRECIATION ON INVESTMENTS, BASED
ON COST FOR FEDERAL INCOME TAX PURPOSES OF $2,115,610 AMOUNTED TO $111,796
WHICH CONSISTED OF AGGREGATE GROSS UNREALIZED APPRECIATION OF $151,714 AND
AGGREGATE GROSS UNREALIZED DEPRECIATION OF $39,918.
SEE NOTES TO FINANCIAL STATEMENTS. -34-
[This page intentionally left blank]
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2007
- --------------------------------------------------------------------------------
International
Spectra Green Alchemy Opportunities
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------
ASSETS:
Investments in securities, at value
(identified cost*)--see
accompanying schedules of
investments $ 213,760,536 $ 6,384,710 $ 2,138,506 $ 2,227,406
Cash 1,834,441 58,333 673 1,948
Receivable for investment
securities sold 8,885,245 31,931 21,527 27,310
Receivable for shares of beneficial
interest sold 811,653 161,453 -- 1,000
Dividends and interest receivable 49,944 858 243 12,153
Receivable from Investment
Manager--Note 2(a) 35,022 3,124 1,653 --
Prepaid Expenses 33,707 14,384 166 8,763
- ------------------------------------------------------------------------------------------------------
Total Assets 225,410,548 6,654,793 2,162,768 2,278,580
======================================================================================================
Liabilities:
Payable for investment securities
purchased 10,562,848 47,500 36,135 --
Written options outstanding -- 3,315 -- --
Payable for shares of beneficial
interest redeemed 168,680 896 -- --
Investment advisory fees payable 207,053 3,678 1,363 1,857
Accrued transfer agent fees 21,440 199 31 121
Accrued distribution fees 44,624 1,295 401 464
Accrued administrative fees 7,140 207 64 74
Trustees' fees payable 4,529 -- 795 905
Accrued expenses 86,646 20,201 383 5,762
- ------------------------------------------------------------------------------------------------------
Total Liabilities 11,102,960 77,291 39,172 9,183
- ------------------------------------------------------------------------------------------------------
NET ASSETS $ 214,307,588 $ 6,577,502 $ 2,123,596 $ 2,269,397
======================================================================================================
NET ASSETS CONSIST OF:
Paid in capital $ 385,979,578 $ 5,792,257 $ 2,001,333 $ 2,142,680
Undistributed net investment
income (accumulated loss) (625,500) (8,721) (181) 10,894
Undistributed net realized gain
(accumulated loss) (185,838,272) 180,576 8,445 4,027
Net unrealized appreciation
(depreciation) of investments 14,791,782 613,390 113,999 111,796
- ------------------------------------------------------------------------------------------------------
NET ASSETS $ 214,307,588 $ 6,577,502 $ 2,123,596 $ 2,269,397
======================================================================================================
Net Asset Value Per Share $ 9.86 $ 6.70 $ 10.61 $ 10.61
======================================================================================================
SHARES OF BENEFICIAL INTEREST
OUTSTANDING--NOTE 5 21,734,711 981,354 200,129 213,821
======================================================================================================
*Identified Cost $ 198,968,754 $ 5,771,554 $ 2,024,507 $ 2,115,610
======================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS. -36-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE PERIOD ENDED APRIL 30, 2007
- --------------------------------------------------------------------------------
International
Spectra Green Alchemy Opportunities
Fund Fund(**) Fund(***) Fund(****)
- ------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Income:
Dividends (net of foreign
withholding taxes*) $ 974,737 $ 11,932 $ 526 $ 13,921
Interest 123,949 8,674 1,283 2,729
- ------------------------------------------------------------------------------------------------------
Total Income 1,098,686 20,606 1,809 16,650
======================================================================================================
EXPENSES:
Investment advisory
fees--Note 2(a) 1,479,916 16,570 1,363 3,489
Shareholder servicing
fees--Note 2(e) 126,344 2,399 -- --
Distribution fees--Note 2(e) 125,353 4,425 401 872
Administrative fees--Note 2(a) 38,809 907 64 140
Custodian Fees 22,407 11,552 174 5,368
Transfer agent fees and
expenses--Note 2(b) 125,985 13,457 45 219
Professional Fees 39,862 8,100 139 303
Printing fees 75,200 310 99 101
Trustees fees 5,296 5,272 795 1,922
Interest expense 21,847 -- -- --
Registration Fees 19,268 23,415 7 3,127
Miscellaneous 38,292 1,531 556 933
- ------------------------------------------------------------------------------------------------------
Total Expenses 2,118,579 87,938 3,643 16,474
- ------------------------------------------------------------------------------------------------------
Less, expense reimbursement
--Note 2(a) (394,393) (58,611) (1,653) (10,718)
- ------------------------------------------------------------------------------------------------------
Net Expenses 1,724,186 29,327 1,990 5,756
- ------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (625,500) (8,721) (181) 10,894
======================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments $ 31,015,007 $ 266,901 $ 8,445 $ 6,658
Net realized loss on foreign
currency transactions (6,370) (108) -- (2,631)
Net realized gain on
options written -- 3,107 -- --
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations (284,930) 326,487 113,999 111,796
Net change in unrealized
appreciation (depreciation)
on options 25,699 1,066 -- --
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments and foreign currency 30,749,406 597,453 122,444 115,823
- ------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 30,123,906 $ 588,732 $ 122,263 $ 126,717
======================================================================================================
*Foreign withholding taxes $ 566 $ 27 $ -- $ --
======================================================================================================
** COMMENCED OPERATIONS JANUARY 12, 2007. RESULTS FROM OPERATIONS FROM
NOVEMBER 1, 2006 TO JANUARY 11, 2007 ARE THAT OF ITS PREDECESSOR FUND,
ALGER GREEN INSTITUTIONAL FUND. SEE NOTE 1 IN THE NOTES TO FINANCIAL
STATEMENTS.
*** COMMENCED OPERATIONS APRIL 2, 2007.
**** COMMENCED OPERATIONS MARCH 1, 2007.
SEE NOTES TO FINANCIAL STATEMENTS. -37-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Spectra Fund
- --------------------------------------------------------------------------------------------------------
For the For the
Six Months Year Ended
Ended October 31,
April 30, 2007 2006
(unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (625,500) $ (2,371,287)
Net realized gain on investments, options and foreign
currency transactions 31,008,637 39,111,186
Net change in unrealized appreciation (depreciation)
on investments, options and foreign currency translations (259,231) 2,566,143
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 30,123,906 39,306,042
Distributions to shareholders from:
Net realized gains
Class I -- --
Class R -- --
- --------------------------------------------------------------------------------------------------------
Total distributions to shareholders -- --
- --------------------------------------------------------------------------------------------------------
Increase (decrease) from shares of beneficial interest transactions:
Class A -- (5,081,306)
Class N (7,203,514) (34,459,012)
Class I -- --
Class R -- --
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in beneficial interest transactions--Note 5(a) (7,203,514) (39,540,318)
- --------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 22,920,392 (234,276)
Net Assets:
Beginning of period 191,387,196 191,621,472
- --------------------------------------------------------------------------------------------------------
END OF PERIOD $ 214,307,588 $191,387,196
========================================================================================================
Undistributed net investment income (accumulated loss) (625,500) --
========================================================================================================
* COMMENCED OPERATIONS JANUARY 12, 2007. TOTAL INCREASE IN NET ASSETS FROM
NOVEMBER 1, 2006 TO JANUARY 11, 2007 AND FOR THE YEAR ENDED OCTOBER 31,
2006 ARE THAT OF ITS PREDECESSOR FUND, ALGER GREEN INSTITUTIONAL FUND. SEE
NOTE 1 IN THE NOTES TO FINANCIAL STATEMENTS.
** COMMENCED OPERATIONS APRIL 2, 2007.
*** COMMENCED OPERATIONS MARCH 1, 2007.
SEE NOTES TO FINANCIAL STATEMENTS. -38-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
International
Opportunities
Green Fund(*) Alchemy Fund(**) Fund(***)
- -----------------------------------------------------------------------------------------------------------------------------------
For the For the For the
Period Ended For the Period Ended Period Ended
April 30, Year Ended April 30, April 30,
2007 October 31, 2007 2007
(unaudited) 2006 (unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (8,721) (15,394) $ (181) $ 10,894
Net realized gain on investments, options and foreign
currency transactions 269,900 361,198 8,445 4,027
Net change in unrealized appreciation (depreciation)
on investments, options and foreign currency translations 327,553 78,477 113,999 111,796
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 588,732 424,281 122,263 126,717
Distributions to shareholders from:
Net realized gains
Class I (299,356) (161,550) -- --
Class R (135,264) (41,659) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (434,620) (203,209) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) from shares of beneficial interest transactions:
Class A -- -- -- --
Class N 6,196,334 -- 2,001,333 2,142,680
Class I (2,297,645) 775,455 -- --
Class R (673,802) 342,318 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in beneficial interest transactions--Note 5(a) 3,224,887 1,117,773 2,001,333 2,142,680
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,378,999 1,338,845 2,123,596 2,269,397
Net Assets:
Beginning of period 3,198,503 1,859,658 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD $ 6,577,502 $ 3,198,503 $ 2,123,596 $ 2,269,397
===================================================================================================================================
Undistributed net investment income (accumulated loss) $ (8,721) -- $ (181) $ 10,894
===================================================================================================================================
-39-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
FINANCIAL HIGHLIGHTS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
INCOME FROM
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
NET
REALIZED
NET ASSET AND UNREALIZED TOTAL DISTRIBUTIONS
VALUE, NET GAIN (LOSS) FROM FROM
BEGINNING INVESTMENT ON INVESTMENT NET REALIZED
OF PERIOD LOSS(ii) INVESTMENTS OPERATIONS GAINS
- ---------------------------------------------------------------------------------------------------------------
SPECTRA FUND
- ---------------------------------------------------------------------------------------------------------------
Six months ended 4/30/07 (i) $ 8.49 $ (0.03) $ 1.40 $ 1.37 --
Year ended 10/31/06 6.94 (0.10) 1.65 1.55 --
Year ended 10/31/05 5.84 (0.05) 1.15 1.10 --
Year ended 10/31/04 5.88 (0.10) 0.06 (0.04) --
Year ended 10/31/03 4.76 (0.07) 1.19 1.12 --
Year ended 10/31/02 6.32 (0.09) (1.47) (1.56) --
- ---------------------------------------------------------------------------------------------------------------
GREEN FUND (vii)
- ---------------------------------------------------------------------------------------------------------------
Class N
Six months ended 4/30/07 (i) $ 6.61 $ (0.01) $ 0.87 $ 0.86 $ (0.77)
Year ended 10/31/06 6.17 (0.03) 1.13 1.10 (0.66)
Year ended 10/31/05 5.37 (0.01) 1.05 1.04 (0.24)
Year ended 10/31/04 5.38 (0.05) 0.07 0.02 (0.03)
Year ended 10/31/03 4.43 (0.09) 1.04 0.95 --
Year ended 10/31/02 6.37 (0.77) (1.17) (1.94) --
- ---------------------------------------------------------------------------------------------------------------
ALCHEMY FUND
- ---------------------------------------------------------------------------------------------------------------
From 4/2/07 (commencement
of operations) to 4/30/07 (i) $ 10.00 $ -- $ 0.61 $ 0.61 --
- ---------------------------------------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
- ---------------------------------------------------------------------------------------------------------------
From 3/1/07 (commencement
of operations) to 4/30/07 (i) $ 10.00 $ 0.05 $ 0.56 $ 0.61 --
- ---------------------------------------------------------------------------------------------------------------
(i) UNAUDITED. RATIOS HAVE BEEN ANNUALIZED; TOTAL RETURN HAS NOT BEEN
ANNUALIZED.
(ii) AMOUNT WAS COMPUTED BASED ON AVERAGE SHARES OUTSTANDING DURING THE PERIOD.
(iii) AMOUNT HAS BEEN REDUCED BY 0.38% DUE TO EXPENSE REIMBURSEMENT.
(iv) AMOUNT HAS BEEN REDUCED BY 2.51% DUE TO EXPENSE REIMBURSEMENT.
(v) AMOUNT HAS BEEN REDUCED BY 1.07% DUE TO EXPENSE REIMBURSEMENT.
(vi) AMOUNT HAS BEEN REDUCED BY 3.07% DUE TO EXPENSE REIMBURSEMENT.
(vii) COMMENCED OPERATIONS JANUARY 12, 2007. FINANCIAL HIGHLIGHTS PRIOR TO
JANUARY 12, 2007 ARE THAT OF ITS PREDECESSOR FUND, ALGER GREEN
INSTITUTIONAL FUND. SEE NOTE 1 IN THE NOTES TO FINANCIAL STATEMENTS.
SEE NOTES TO FINANCIAL STATEMENTS. -40-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, RATIO OF NET
NET ASSET END OF RATIO OF INVESTMENT
VALUE, PERIOD EXPENSES LOSS
END (000'S TO AVERAGE TO AVERAGE PORTFOLIO
OF PERIOD TOTAL RETURN OMITTED) NET ASSETS NET ASSETS TURNOVER RATE
- --------------------------------------------------------------------------------------------------------------------------------
SPECTRA FUND
- --------------------------------------------------------------------------------------------------------------------------------
Six months ended 4/30/07 (i) $ 9.86 16.1% $ 214,308 1.64%(iii) (0.60)% 150.35%
Year ended 10/31/06 8.49 22.3 191,387 2.01 (1.20) 232.20
Year ended 10/31/05 6.94 18.8 187,542 2.07 (0.81) 247.72
Year ended 10/31/04 5.84 (0.7) 210,439 1.98 (1.63) 159.35
Year ended 10/31/03 5.88 23.5 257,337 2.03 (1.39) 192.19
Year ended 10/31/02 4.76 (24.7) 252,620 1.98 (1.52) 172.25
- --------------------------------------------------------------------------------------------------------------------------------
GREEN FUND (vii)
- --------------------------------------------------------------------------------------------------------------------------------
Class N
Six months ended 4/30/07 (i) $ 6.70 14.0% $ 6,578 1.25%(iv) (0.37)% 80.02%
Year ended 10/31/06 6.61 19.1 2,446 1.25(viii) (0.53) 209.65
Year ended 10/31/05 6.17 19.8 1,505 1.25(ix) (0.25) 152.60
Year ended 10/31/04 5.37 0.3 1,277 1.34(x) (1.04) 166.03
Year ended 10/31/03 5.38 21.4 1,277 2.26 (1.69) 187.82
Year ended 10/31/02 4.43 (30.5) 46 13.48 (13.17) 205.83
- --------------------------------------------------------------------------------------------------------------------------------
ALCHEMY FUND
- --------------------------------------------------------------------------------------------------------------------------------
From 4/2/07 (commencement
of operations) to 4/30/07 (i) $ 10.61 6.10% $ 2,124 1.20%(v) (0.07)% 5.05%
- --------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND
- --------------------------------------------------------------------------------------------------------------------------------
From 3/1/07 (commencement
of operations) to 4/30/07 (i) $ 10.61 6.10% $ 2,269 1.65%(vi) 3.12% 7.93%
- --------------------------------------------------------------------------------------------------------------------------------
(viii) AMOUNT HAS BEEN REDUCED BY 5.79% DUE TO EXPENSE REIMBURSEMENT.
(ix) AMOUNT HAS BEEN REDUCED BY 0.75% DUE TO EXPENSE REIMBURSEMENT.
(x) AMOUNT HAS BEEN REDUCED BY 0.90% DUE TO EXPENSE REIMBURSEMENT.
-41-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
The Spectra Funds (the "Trust") is a diversified open-end registered investment
company organized as a business trust under the laws of the Commonwealth of
Massachusetts. The Trust operates as a series company currently issuing an
unlimited number of shares of beneficial interest in four funds--Spectra Fund,
Green Fund, Alchemy Fund and International Opportunities Fund (collectively, the
"Funds" or individually, each a "Fund"). The Funds normally invest primarily in
equity securities and each has an investment objective of long-term capital
appreciation.
The Green Fund commenced operations on January 12, 2007 after the reorganization
of the Class I and R Shares of the Alger Green Institutional Fund into the Class
N Shares of the Green Fund. Information of the Green Fund prior to January 12,
2007 is that of the Alger Green Institutional Fund.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their 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). Securities for which such information is readily
available are valued at the last reported sales price or official closing price
as reported by an independent pricing service on the primary market or exchange
on which they are traded. In the absence of reported sales, securities are
valued at a price within 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 for which market quotations are not readily available are valued at
fair value, as determined in good faith pursuant to procedures established by
the Board of Trustees.
Securities in which the Funds invest may be traded in markets that close before
the close of the NYSE. Developments that occur between the close of the foreign
markets and the close of the NYSE (normally 4:00 p.m. Eastern time) may result
in adjustments to the closing prices to reflect what the investment adviser,
pursuant to policies established by the Board of Trustees, believes to be the
fair value of these securities as of the close of the NYSE. The Funds may also
fair value securities in other situations, for example, when a particular
foreign market is closed but the Fund is open.
In September 2006, the Financial Accounting Standards Board (FASB) issued
STATEMENT ON FINANCIAL ACCOUNTING STANDARDS NO. 157, "FAIR VALUE MEASUREMENTS"
(FAS 157). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosures about the use of fair value measurements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years. As of April 30,
2007 the Funds do not believe the adoption of FAS 157 will impact the amounts
reported in the financial statements, however, additional disclosures will be
required about the inputs used to develop the measurements of fair value and the
effect of certain of the measurements reported in the statement of operations
for a fiscal period.
(b) Securities Transactions and Investment Income--Securities transactions are
recorded on a trade date basis. Realized gains and losses from securities
transactions
-42-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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) Foreign Currency Translations--The books and records of the Funds are
maintained in U.S. dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the prevailing rates of exchange
on the valuation date. Purchases and sales of investment securities and income
and expenses are translated into U.S. dollars at the prevailing exchange rates
on the respective dates of such transactions.
Net realized gains and losses on foreign currency transactions represent net
gains and losses from the disposition of foreign currencies, currency gains and
losses realized between the trade dates and settlement dates of security
transactions, and the difference between the amount of net investment income
accrued and the U.S. dollar amount actually received. The effects of changes in
foreign currency exchange rates on investments in securities are included in
realized and unrealized gain or loss on investments in the Statement of
Operations.
(d) Repurchase Agreements--The Funds may enter into repurchase agreements with
institutions approved by the Board of Trustees. The repurchase agreements are
collateralized by U.S. Government and agency 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.
(e) Option Contracts--When a Fund writes an option, an amount equal to the
premium received by the Fund is recorded as a liability and is subsequently
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.
The Funds may also purchase put and call options. Purchasing call and put
options tends to decrease the Fund's exposure to the underlying instrument. The
Fund pays a premium which is included in the Funds' Statement of Assets and
Liabilities as an investment and subsequently marked to market to reflect the
current value of the option. Premiums paid for purchasing options which expire
are treated as realized losses. The risk associated with purchasing put and call
options is limited to the premium paid. Premiums paid for purchasing options
which are exercised or closed are added to the amounts paid or offset against
the proceeds on the underlying security to determine the realized gain or loss.
(f) Lending of Portfolio Securities--The Funds may lend their 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 Funds earn fees on the securities loaned.
-43-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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 Funds and any required additional
collateral is delivered to the Fund on the next business day. There were no
securities on loan during the six months ended April 30, 2007.
(g) Dividends to Shareholders--Dividends and distributions payable to
shareholders are recorded by the Funds 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.
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 reclassifications have no impact on the net asset value of
the Funds and is designed to present the Funds' capital accounts on a tax basis.
(h) Federal Income Taxes--It is the Funds' 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 Funds maintain such compliance, no federal income tax
provision is required.
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Funds' tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. At this time, management is
evaluating the implications of FIN 48 and its impact in the financial statements
has not yet been determined.
(i) Indemnification--The Trust enters into contracts that contain a variety of
indemnification provisions. The Trust's maximum exposure under these
arrangements is unknown. The Trust 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.
-44-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2 -- INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
- --------------------------------------------------------------------------------
(a) Investment Advisory and Administration Fees: Fees incurred by each Fund,
pursuant to the provisions of its Investment Advisory Agreement and
Administration Agreement with Fred Alger Management, Inc. (Alger Management),
are payable monthly and computed based on the value of the average daily net
assets of each Fund, at the following rates:
Advisory Fee Administration Fee
- --------------------------------------------------------------------------------
Spectra Fund 1.46% .04%
- --------------------------------------------------------------------------------
Green Fund .71 .04
- --------------------------------------------------------------------------------
Alchemy Fund .85 .04
- --------------------------------------------------------------------------------
International Opportunities Fund 1.00 .04
- --------------------------------------------------------------------------------
Prior to September 12, 2006, Alger Management provided both advisory services
and administrative services to the Spectra Fund pursuant to an investment
management agreement with the Fund.
Effective February 28, 2007, Alger Management has established an expense cap for
each of the Funds, whereby it reimbursed the Funds if annualized operating
expenses (excluding interest, taxes, brokerage, and extraordinary expenses)
exceed the rates, based on average daily net assets, listed below:
Fees Waived/Reimbursed
for the Six Months Ended
Expense Cap April 30, 2007
- --------------------------------------------------------------------------------
Spectra Fund 1.50% $ 394,393
- --------------------------------------------------------------------------------
Green Fund 1.25 58,611
- --------------------------------------------------------------------------------
Alchemy Fund 1.20 1,653
- --------------------------------------------------------------------------------
International Opportunities Fund 1.65 10,718
- --------------------------------------------------------------------------------
As part of its settlement with the New York State Attorney General (see Note 7
- --Litigation) Alger Management has agreed to reduce the Spectra Fund's advisory
fee to 1.16% for the period from December 1, 2006 to November 30, 2011.
(b) Shareholder Administrative Fees--The Trust has entered into a shareholder
administrative services agreement with Alger Shareholder Services, Inc. ("Alger
Services") to compensate Alger Services on a per account basis for its liaison
and administrative oversight of the transfer agent and related services. During
the period ended April 30, 2007, the Spectra Fund, the Green Fund, the Alchemy
Fund and the International Opportunities Fund incurred fees of $18,550, $139, $1
and $3, respectively, for these services provided by Alger Services.
(c) Brokerage Commissions--During the period ended April 30, 2007, the Spectra
Fund, the Green Fund, the Alchemy Fund and the International Opportunities Fund
paid Fred Alger & Company, Incorporated ("Alger Inc."), an affiliate of Alger
Management, $308,999, $4,988, $51 and $153 in connection with securities
transactions.
(d) Trustees' Fees--Certain trustees and officers of the Trust are directors and
officers of Alger Management, Alger Inc. and Alger Services. The Fund pays each
trustee
-45-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
who is not affiliated with Alger Management or its affiliates an annual fee of
$2,000. The Chairman of the Board of Trustees receives an additional annual fee
of $10,000 which is paid, pro rata, by all funds managed by Alger Management.
Additionally, each member of the audit committee receives an additional annual
fee of $500 per Fund.
(e) Distribution/Shareholder Servicing Fees--The Trust entered into a
shareholder servicing agreement with Alger Inc. whereby Alger Inc. provides the
Fund with ongoing servicing of shareholder accounts. As compensation for such
services, the Fund pays Alger Inc. a monthly fee at an annual rate equal to .25%
of the value of the Fund's average daily net assets. The shareholder servicing
agreement was terminated on February 28, 2007. On March 1, 2007, the Funds
adopted a distribution plan pursuant to which Class N shares of each Fund pays
Alger Inc. a fee at the annual rate of .25% of the respective average daily net
assets of each Class N shares of the designated Funds to compensate Alger Inc.
for its activities and expenses incurred in distributing the Class N shares.
Fees charged may be more or less than the expenses incurred by Alger Inc.
NOTE 3 -- SECURITIES TRANSACTIONS:
The following summarizes the securities transaction by the Trust, other than
short-term securities, for the six months ended April 30, 2007:
PURCHASES SALES
- --------------------------------------------------------------------------------
SPECTRA FUND $301,545,080 $313,314,072
- --------------------------------------------------------------------------------
GREEN FUND 5,888,115 3,491,642
- --------------------------------------------------------------------------------
ALCHEMY FUND 1,997,970 101,909
- --------------------------------------------------------------------------------
OPPORTUNITIES FUND 2,084,240 159,283
- --------------------------------------------------------------------------------
As of April 30, 2007, the Green Fund had portfolio securities valued at $33,280
segregated as collateral for written options.
Written call and put option activity for the six months ended April 30, 2007 was
as follows:
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Spectra Fund
- --------------------------------------------------------------------------------
Options outstanding at October 31, 2006 -- --
- --------------------------------------------------------------------------------
Options written 1.315 $ 454,809
- --------------------------------------------------------------------------------
Options closed or expired -- --
- --------------------------------------------------------------------------------
Options exercised 1,315 454,809
- --------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT APRIL 30, 2007 -- --
- --------------------------------------------------------------------------------
Green Fund
- --------------------------------------------------------------------------------
Options outstanding at October 31, 2006 -- --
- --------------------------------------------------------------------------------
Options written 91 $ 9,698
- --------------------------------------------------------------------------------
Options closed or expired 52 6,149
- --------------------------------------------------------------------------------
Options exercised -- --
- --------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT APRIL 30, 2007 39 3,549
- --------------------------------------------------------------------------------
-46-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 4 -- LINES OF CREDIT:
- --------------------------------------------------------------------------------
The Trust participates in a committed line of credit with other mutual funds
managed by Alger Management. All borrowings have variable interest rates and are
payable on demand. To the extent the Funds borrow under these lines, the Funds
must pledge securities with a total value of at least twice the amount borrowed.
For the six months ended April 30, 2007, the Spectra Fund had borrowings which
averaged $748,663 at a weighted average interest rate of 5.88%.
NOTE 5 -- SHARE CAPITAL:
- --------------------------------------------------------------------------------
(a) The Trust has an unlimited number of authorized shares of beneficial
interest of $.001 par value which are presently divided into four series. The
transaction of shares of beneficial interest were as follows:
During the period ended April 30, 2007, transactions of beneficial interest were
as follows:
SHARES AMOUNT
- --------------------------------------------------------------------------------
SPECTRA FUND CLASS N
- --------------------------------------------------------------------------------
Shares sold 2,845,722 $ 26,626,006
Shares redeemed (3,646,863) (33,829,520)
- --------------------------------------------------------------------------------
Net decrease (801,141) $ (7,203,514)
================================================================================
GREEN FUND
- --------------------------------------------------------------------------------
CLASS N*
- --------------------------------------------------------------------------------
Shares sold 423,970 $ 2,734,886
Shares issued in reorganization 630,628 3,935,701
Shares redeemed (73,244) (474,253)
- --------------------------------------------------------------------------------
Net increase 981,354 $ 6,196,334
================================================================================
CLASS I
- --------------------------------------------------------------------------------
Shares sold 16,029 $ 109,079
Dividends reinvested 46,165 290,688
Shares redeemed in reorganization (430,838) (2,688,841)
Shares redeemed (1,346) (8,571)
- --------------------------------------------------------------------------------
Net decrease (369,990) $ (2,297,645)
================================================================================
CLASS R
- --------------------------------------------------------------------------------
Shares sold 111,099 $ 719,466
Dividends reinvested 11,561 71,285
Shares redeemed in reorganization (204,297) (1,246,860)
Shares redeemed (34,521) (217,693)
- --------------------------------------------------------------------------------
Net decrease (116,158) $ (673,802)
================================================================================
ALCHEMY FUND CLASS N**
- --------------------------------------------------------------------------------
Shares sold 200,129 $ 2,001,333
- --------------------------------------------------------------------------------
-47-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
SHARES AMOUNT
- --------------------------------------------------------------------------------
INTERNATIONAL OPPORTUNITIES FUND CLASS N***
- --------------------------------------------------------------------------------
Shares sold 213,821 $ 2,142,680
- --------------------------------------------------------------------------------
* INITIALLY OFFERED JANUARY 12, 2007.
** INITIALLY OFFERED APRIL 2, 2007.
*** INITIALLY OFFERED MARCH 1, 2007.
During the year ended October 31, 2006, transactions of the shares of beneficial
interest were as follows:
SHARES AMOUNT
- --------------------------------------------------------------------------------
SPECTRA FUND CLASS A
- --------------------------------------------------------------------------------
Shares sold 265,410 $ 2,092,222
Shares redeemed (851,221) (7,173,528)
- --------------------------------------------------------------------------------
Net decrease (585,811) $ (5,081,306)
================================================================================
SPECTRA FUND CLASS N
- --------------------------------------------------------------------------------
Shares sold* 1,782,867 $ 14,496,660
Shares redeemed (6,273,598) (48,955,672)
- --------------------------------------------------------------------------------
Net decrease (4,490,731) $ (34,459,012)
================================================================================
GREEN FUND CLASS I
- --------------------------------------------------------------------------------
Shares sold 105,469 $ 653,995
Dividends reinvested 25,842 153,241
Shares redeemed (5,334) (31,781)
- --------------------------------------------------------------------------------
Net increase 125,977 $ 775,455
================================================================================
GREEN FUND CLASS R
- --------------------------------------------------------------------------------
Shares sold 99,235 $ 597,158
Dividends reinvested 7,133 41,659
Shares redeemed (48,444) (296,499)
- --------------------------------------------------------------------------------
Net increase 57,924 $ 342,318
================================================================================
* INCLUDES 709,329 SHARES VALUED AT $6,063,772 ISSUED TO CLASS A
SHAREHOLDERS IN CONNECTION WITH THE CONVERSION OF CLASS A SHARES INTO
CLASS N SHARES ON OCTOBER 16, 2006.
(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 six months ended
April 30, 2007 and the year ended October 31, 2006, redemption fees were 4,028
and $93 respectively.
-48-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 6 -- TAX CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------------------------------------
The tax character of distributions paid during the six months ended April 30,
2007 and the year ended October 31, 2006 were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2007 OCTOBER 31, 2006
- --------------------------------------------------------------------------------
SPECTRA FUND
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income -- --
Long-term capital gain -- --
- --------------------------------------------------------------------------------
Total distributions paid -- --
================================================================================
GREEN FUND
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income -- $ 144,437
Long-term capital gain -- 58,772
- --------------------------------------------------------------------------------
Total distributions paid -- $ 203,209
================================================================================
As of October 31, 2006, the components of distributable earnings on a tax basis
were as follows:
SPECTRA FUND
- --------------------------------------------------------------------------------
Undistributed ordinary capital $ --
- --------------------------------------------------------------------------------
Undistributed long-term gain --
- --------------------------------------------------------------------------------
Unrealized appreciation $ 14,030,347
- --------------------------------------------------------------------------------
GREEN FUND
- --------------------------------------------------------------------------------
Undistributed ordinary capital $ 187,179
- --------------------------------------------------------------------------------
Undistributed long-term gain 169,707
- --------------------------------------------------------------------------------
Unrealized appreciation $ 274,247
- --------------------------------------------------------------------------------
The differences between book basis and tax basis unrealized appreciation is
determined annually and is attributable primarily to the tax deferral of losses
on wash sales.
At October 31, 2006, the Spectra 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 $ 108,758,942
2010 107,067,302
- --------------------------------------------------------------------------------
$ 215,826,244
================================================================================
-49-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 7 -- LITIGATION:
- --------------------------------------------------------------------------------
Alger Management has responded to inquiries, document requests and/or subpoenas
from various regulatory authorities, in connection with their investigations of
practices in the mutual fund industry identified as "market timing" and "late
trading." On October 11, 2006, Alger Management, Alger Inc. and Alger
Shareholder Services, Inc. executed an Assurance of Discontinuance with the
Office of the New York State Attorney General ("NYAG"). On January 18, 2007 the
Securities and Exchange Commission issued an order implementing settlements
reached with Alger Management and Alger Inc. As part of the settlements with the
Commission and the NYAG, without admitting or denying liability, the firms paid
$30 million to reimburse fund shareholders and a fine of $10 million; and agreed
to certain other remedial measures including a reduction in management fees of
$1 million per year for five years. The entire $40 million and fee reduction
will be available for the benefit of investors. Alger Management has advised the
Funds that the settlement has not adversely affected the operations of Alger
Management, Alger Inc. or their affiliates, or adversely affected their ability
to continue to provide services to the Funds.
On August 31, 2005, the West Virginia Securities Commissioner (the "WVSC") in an
ex parte Summary Order to Cease and Desist and Notice of Right to Hearing
concluded that Alger Management and Alger Inc. had violated the West Virginia
Uniform Securities Act (the "WVUSA"), and ordered Alger Management and Alger
Inc. to cease and desist from further violations of the WVUSA by engaging in the
market-timing related conduct described in the order. The ex parte order
provided notice of their right to a hearing with respect to the violations of
law asserted by the WVSC. Other firms unaffiliated with Alger Management were
served with similar orders. Alger Management and Alger Inc. intend to request a
hearing for the purpose of seeking to vacate or modify the order.
In addition, in 2003 and 2004 several purported class actions and shareholder
derivative suits were filed against various parties in the mutual fund industry,
including Alger Management, certain mutual funds managed by Alger Management
(the "Alger Mutual Funds"), and certain current and former Alger Mutual Fund
trustees and officers, alleging wrongful conduct related to market-timing and
late-trading by mutual fund shareholders. These cases were transferred to the
U.S. District Court of Maryland by the Judicial Panel on Multidistrict
Litigation for consolidated pre-trial proceedings. In September 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). In April 2005, a civil lawsuit involving
similar allegations was filed by the West Virginia Attorney General and also
transferred to the Maryland District Court, but such lawsuit has since been
withdrawn.
The Derivative Complaint alleged (i) violations, by Alger Management and,
depending on the specific offense alleged, by Alger Inc. and/or the fund trustee
defendants, of Sections 36(a), 36(b), 47, and 48 of the Investment Company Act
of 1940, as amended, (the "Investment Company Act") and of Sections 206 and 215
of the
-50-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS | NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Investment Advisers Act of 1940, as amended, breach of fiduciary duty, and
breach of contract, (ii) various offenses by other third-party defendants, and
(iii) unjust enrichment by all the named defendants. The Class Action Complaint
alleged, in addition to the offenses listed above, (i) violations, by Alger
Management, Alger Inc., their affiliates, the funds named as defendants,
including the Funds, and the current and former fund trustees and officers, of
Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended,
Sections 10(b) (and Rule 10b-5 thereunder) and 20(a) of the Securities Exchange
Act of 1934, as amended, (the "1934 Act"), and Section 34(b) of the Investment
Company Act, (ii) breach of contract by the funds named as defendants, and (iii)
unjust enrichment of the defendants.
Motions to dismiss the Class Action Complaint and the Derivative Complaint were
subsequently filed.
As a result of a series of court orders, all claims in the Class Action
Complaint and the Derivative Complaint have been dismissed, other than claims
under the 1934 Act against Alger Management, Alger Inc., Alger Associates, Inc.
and Alger Shareholder Services, Inc., and certain present and former members of
the senior management of Alger Management and/or Alger Inc., and claims under
Section 36(b) of the Investment Company Act against Alger Management, Alger
Inc., Alger Associates, Inc. and Alger Shareholder Services, Inc.
-51-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: transaction costs,
if applicable, including redemption fees; and ongoing costs, including advisory
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 November 1, 2006 and ending April 30, 2007.
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 $1,000 = 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.
-52-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
EXPENSES PAID
BEGINNING ENDING DURING THE PERIOD
ACCOUNT VALUE ACCOUNT VALUE NOVEMBER 1, 2006 TO
NOVEMBER 1, 2006 APRIL 30, 2007 APRIL 30, 2007(b)
- -----------------------------------------------------------------------------------------------
SPECTRA FUND: Actual $1,000.00 $1,161.40 $8.79
Hypothetical(a) 1,000.00 1,016.66 8.20
- -----------------------------------------------------------------------------------------------
GREEN FUND: Actual $1,000.00 $1,139.90 $6.63
Hypothetical(a) 1,000.00 1,018.60 6.26
- -----------------------------------------------------------------------------------------------
ALCHEMY FUND: Actual* $1,000.00 $1,061.00 $6.13
Hypothetical(a) 1,000.00 1,018.84 6.01
- -----------------------------------------------------------------------------------------------
INTERNATIONAL
OPPORTUNITIES FUND: Actual** $1,000.00 $1,061.00 $8.43
Hypothetical(a) 1,000.00 1,016.61 8.25
- -----------------------------------------------------------------------------------------------
(a) 5% ANNUAL RETURN BEFORE EXPENSES.
(b) EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIO OF THE RESPECTIVE FUND
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
181/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
* FROM 4/2/07 COMMENCEMENT OF OPERATIONS.
** FROM 3/1/07 COMMENCEMENT OF OPERATIONS.
PROXY VOTING RESULTS
Special meetings of the Funds' shareholders were held on January 17, 2007 and
February 14, 2007. The results of votes taken among shareholders on the
proposals before them are reported below. Each vote reported represents one
share held on the record date for the meeting.
PROPOSAL 1 - TO ELECT SIX TRUSTEES OF THE FUND.
HILARY M. ALGER # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 13,151,531 97.5%
- --------------------------------------------------------------------------------
Withheld 331,031 2.5%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
CHARLES F. BAIRD, JR. # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 13,165,153 97.6%
- --------------------------------------------------------------------------------
Withheld 317,409 2.4%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
ROGER P. CHEEVER # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 13,172,035 97.7%
- --------------------------------------------------------------------------------
Withheld 310,527 2.3%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
-53-
- --------------------------------------------------------------------------------
SPECTRA FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
LESTER L. COLBERT, JR. # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 13,165,258 97.6%
- --------------------------------------------------------------------------------
Withheld 317,304 2.4%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
STEPHEN E. O'NEIL # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 13,170,739 97.7%
- --------------------------------------------------------------------------------
Withheld 311,823 2.3%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
NATHAN E. SAINT-AMAND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 13,161,394 97.6%
- --------------------------------------------------------------------------------
Withheld 321,168 2.4%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
PROPOSAL 2 - TO APPROVE AN INVESTMENT ADVISORY AGREEMENT WITH FRED ALGER
MANAGEMENT, INC.
# OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 10,499,468 77.9%
- --------------------------------------------------------------------------------
Against 330,005 2.4%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,653,089 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
PROPOSAL 3 - TO APPROVE REVISIONS TO THE FUNDAMENTAL INVESTMENT POLICIES OF THE
FUND.
CONVERT THE FUND'S INVESTMENT OBJECTIVE
FROM FUNDAMENTAL TO NON-FUNDAMENTAL # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,900,819 73.4%
- --------------------------------------------------------------------------------
Against 940,809 7.0%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,640,934 19.6%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO BORROWING MONEY # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,891,776 73.3%
- --------------------------------------------------------------------------------
Against 940,323 7.0%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,650,463 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
-54-
- --------------------------------------------------------------------------------
SPECTRA FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
REVISE THE FUNDAMENTAL POLICY RELATING
TO UNDERWRITING # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,932,668 73.7%
- --------------------------------------------------------------------------------
Against 901,301 6.7%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,648,593 19.6%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO LENDING # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,960,112 73.9%
- --------------------------------------------------------------------------------
Against 878,473 6.5%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,643,977 19.6%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO ISSUING SENIOR SECURITIES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,929,057 73.6%
- --------------------------------------------------------------------------------
Against 899,890 6.7%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,653,615 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO REAL ESTATE # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,938,862 73.7%
- --------------------------------------------------------------------------------
Against 881,773 6.6%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,661,927 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO COMMODITIES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,922,434 73.6%
- --------------------------------------------------------------------------------
Against 901,154 6.7%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,658,974 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REVISE THE FUNDAMENTAL POLICY RELATING
TO CONCENTRATION # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,934,829 73.7%
- --------------------------------------------------------------------------------
Against 883,592 6.5%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,664,141 19.8%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
-55-
- --------------------------------------------------------------------------------
SPECTRA FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
REMOVE THE FUNDAMENTAL POLICY RELATING
TO PURCHASING SECURITIES ON MARGIN # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,839,469 73.0%
- --------------------------------------------------------------------------------
Against 979,264 7.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,663,829 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO SHORT SALES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,870,243 73.2%
- --------------------------------------------------------------------------------
Against 959,108 7.1%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,653,211 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO INVESTMENT IN OTHER INVESTMENT COMPANIES # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,912,955 73.5%
- --------------------------------------------------------------------------------
Against 914,754 6.8%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,654,853 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO PLEDGING ASSETS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,874,413 73.2%
- --------------------------------------------------------------------------------
Against 949,225 7.1%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,658,924 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO JOINT TRADING ACCOUNTS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,888,334 73.3%
- --------------------------------------------------------------------------------
Against 959,577 7.1%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,634,651 19.6%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO WARRANTS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,881,200 73.3%
- --------------------------------------------------------------------------------
Against 946,125 7.0%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,655,237 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
-56-
- --------------------------------------------------------------------------------
SPECTRA FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
REMOVE THE FUNDAMENTAL POLICY RELATING
TO RELATED PARTY INVESTMENTS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,893,582 73.4%
- --------------------------------------------------------------------------------
Against 932,210 6.9%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,656,770 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO INVESTMENT IN UNSEASONED ISSUERS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,848,252 73.0%
- --------------------------------------------------------------------------------
Against 982,690 7.3%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,651,620 19.7%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
REMOVE THE FUNDAMENTAL POLICY RELATING
TO PURCHASING AND SELLING PUT AND CALL OPTIONS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,892,537 73.4%
- --------------------------------------------------------------------------------
Against 957,534 7.1%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,632,491 19.5%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
PROPOSAL 4 - TO APPROVE A DISTRIBUTION PLAN UNDER RULE 12b-1.
# OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 9,895,785 73.3%
- --------------------------------------------------------------------------------
Against 941,597 6.9%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,645,180 19.8%
- --------------------------------------------------------------------------------
Total 13,482,562 100.0%
================================================================================
PROPOSAL 5 - TO APPROVE AMENDMENTS TO THE FUND'S AGREEMENT AND DECLARATION OF
TRUST.
ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS
APPROVE THE TERMINATION OF THE FUND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 11,337,621 76.8%
- --------------------------------------------------------------------------------
Against 1,460,673 9.9%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,973,497 13.3%
- --------------------------------------------------------------------------------
Total 14,771,791 100.0%
================================================================================
-57-
- --------------------------------------------------------------------------------
SPECTRA FUND
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
ELIMINATE THE REQUIREMENT THAT SHAREHOLDERS
APPROVE THE LIQUIDATION OF A SERIES OF THE
FUND OR A CLASS OF SHARES OF A
SERIES OF THE FUND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 11,350,255 76.8%
- --------------------------------------------------------------------------------
Against 1,430,897 9.7%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,990,639 13.5%
- --------------------------------------------------------------------------------
Total 14,771,791 100.0%
================================================================================
ELIMINATE (SUBJECT TO QUALIFICATION)
THE REQUIREMENT THAT SHAREHOLDERS
APPROVE THE REORGANIZATION OF THE FUND
OR A SERIES OF THE FUND # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 11,372,773 77.0%
- --------------------------------------------------------------------------------
Against 1,421,661 9.6%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 1,977,357 13.4%
- --------------------------------------------------------------------------------
Total 14,771,791 100.0%
================================================================================
ADD A DEMAND REQUIREMENT FOR SHAREHOLDER
DERIVATIVE SUITS # OF VOTES % OF VOTES
- --------------------------------------------------------------------------------
For 11,537,064 78.1%
- --------------------------------------------------------------------------------
Against 1,155,016 7.8%
- --------------------------------------------------------------------------------
Abstain/Broker No Votes 2,079,711 14.1%
- --------------------------------------------------------------------------------
Total 14,771,791 100.0%
================================================================================
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.spectrafund.com or on the SEC's website at
http://www.sec.gov.
QUARTERLY FUND HOLDINGS
- --------------------------------------------------------------------------------
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.spectrafund.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.
-58-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT AGREEMENT APPROVAL
- --------------------------------------------------------------------------------
BOARD CONSIDERATIONS
- --------------------------------------------------------------------------------
At an in-person meeting held on December 12, 2006, the Trustees of The
Spectra Funds (the "Trust"), including the Independent Trustees, unanimously
approved, subject to the required shareholder approval described herein, an
Investment Advisory Agreement with respect to each of Spectra Green Fund,
Spectra Alchemy Fund, and Spectra International Opportunities Fund (each a
"Fund," and collectively, the "Funds"). The Independent Trustees were assisted
in their review by independent legal counsel and met with counsel in executive
session separate from representatives of Fred Alger Management, Inc. ("Alger
Management").
In evaluating each Investment Advisory Agreement, the Trustees drew on
materials that they requested and which were provided to them in advance of the
meeting by Alger Management and by counsel to the Fund. The materials covered,
among other matters, with respect to each Fund, (i) the nature, extent and
quality of the services to be provided by Alger Management under the Investment
Advisory Agreement, (ii) the anticipated costs to Alger Management of its
services and the anticipated profits to be realized by Alger Management and Fred
Alger & Company, Incorporated ("Alger Inc.") from their relationship with the
Fund, and (iii) the extent to which economies of scale would be realized if and
as the Fund grows and whether the fee level in the Investment Advisory Agreement
reflects these economies of scale. These materials included a September 2006
review of Alger Management's services by Callan Associates Inc., an independent
consulting firm whose specialties include assistance to fund trustees and
directors in their review of advisory contracts pursuant to Section 15(c) of the
1940 Act.
In deciding whether to approve each Fund's Investment Advisory Agreement,
the Trustees considered various factors, including those enumerated above. They
also considered other direct and indirect benefits anticipated to accrue to
Alger Management and its affiliates from their relationship with the Funds.
NATURE, EXTENT AND QUALITY OF SERVICES. In considering the nature, extent
and quality of the services proposed to be provided by Alger Management pursuant
to each Investment Advisory Agreement, the Trustees relied on their prior
experience as Trustees of other Alger funds, their familiarity with the
personnel and resources of Alger Management and its affiliates and the materials
provided at the meeting, and considered the nature, extent and quality of the
services to be provided by Alger Management pursuant to the Investment Advisory
Agreement. They noted that under each Advisory Agreement, Alger Management is to
be responsible for managing the investment operations of each Fund. They also
noted that administrative, compliance, reporting and accounting services
necessary for the conduct of each Fund's affairs are to be provided under the
separate Administration Agreement. The Trustees reviewed the background and
experience of Alger Management's senior investment management personnel,
including the individuals who would be responsible for the investment operations
of each Fund. They also considered the resources, operational structures and
practices Alger Management would utilize in managing each Fund's
-59-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
portfolio and administering each Fund's affairs, as well as Alger Management's
overall investment management business. They noted especially Alger Management's
established expertise in managing portfolios of "growth" stocks. The Trustees
concluded that Alger Management's experience, resources and strength in those
areas of importance to each Fund are considerable. The Trustees considered the
level and depth of Alger Management's ability to execute portfolio transactions
to effect investment decisions, including those through Alger Inc. The Trustees
also considered the ongoing enhancements to the control and compliance
environment at Alger Management.
TRANSFER OF OWNERSHIP OF ALGER ASSOCIATES. The Trustees assessed the
implications for Alger Management of the pending transfer of ownership control
of Alger Associates, Inc. and Alger Management's ability to provide services to
the Funds. In particular, the Board inquired as to the impact of the pending
transfer on Alger Management's personnel, management, facilities and financial
capabilities, and received assurances in this regard from senior management of
Alger Management that the pending transfer would not adversely affect Alger
Management's ability to fulfill its obligations under the Investment Advisory
Agreements, and to operate its business in a manner consistent with past
practices. The Board also considered each Investment Advisory Agreement, and the
fees paid thereunder.
FUND FEES AND EXPENSE RATIO; PROFITABILITY TO ALGER MANAGEMENT AND ITS
AFFILIATES. The Trustees considered the anticipated profitability of each
Investment Advisory Agreement to Alger Management and its affiliates, and the
methodology to be used by Alger Management in determining such profitability.
The Trustees reviewed previously-provided data on other Alger funds'
profitability to Alger Management and its affiliates for the 12-month period
ended June 30, 2006. In addition, the Trustees reviewed each Fund's management
fees and anticipated expense ratios and compared them with a group of comparable
funds. That information indicated that each Fund's total expense ratios were
projected to be at or near the median for the Fund's Lipper peer group.
ECONOMIES OF SCALE. On the basis of their discussions with management and
their analysis of information provided at the meeting, the Trustees determined
that the nature of each Fund and its operations is such that Alger Management is
likely to realize economies of scale in the management of the Fund at some point
as it grows in size, but that in view of the fact that the Fund is new and
therefore without meaningful assets, and that the anticipated level of
profitability of the Fund to Alger Management and its affiliates is purely
speculative, adoption of breakpoints in the advisory fee, while possibly
appropriate at a later date, could await further analysis of the sources and
potential scale of the economies and the fee structure that would best reflect
them. Accordingly, the Trustees determined to address this topic at future
meetings.
OTHER BENEFITS TO ALGER MANAGEMENT. The Trustees considered whether Alger
Management would benefit in other ways from its relationship with each Fund.
They noted that Alger Management intended to maintain soft-dollar arrangements
in connection with each Fund's brokerage transactions, data on which would be
regularly supplied to the Trustees at their quarterly meetings. The Trustees
also noted that it
-60-
- --------------------------------------------------------------------------------
THE SPECTRA FUNDS
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
was anticipated that Alger, Inc. would provide a substantial portion of each
Fund's equity brokerage and would receive shareholder servicing fees from each
Fund as well, and that Alger Shareholder Services, Inc. would receive fees from
each Fund under a shareholder services agreement. The Trustees had been provided
with information regarding, and had considered, the brokerage and shareholder
servicing fee benefits in connection with their review of the profitability to
Alger Management and its affiliates of their relationships with other Alger
funds. As to other benefits anticipated to be received, the Trustees decided
that none were so significant as to render Alger Management's fees excessive.
At the conclusion of these discussions, each of the Independent Trustees
expressed the opinion that he had been furnished with sufficient information to
make an informed business decision with respect to approval of each Fund's
Investment Advisory Agreement. Based on its discussions and considerations as
described above, the Board made the following conclusions and determinations:
o The Board concluded that the nature, extent and quality of the
services provided by Alger Management are adequate and appropriate.
o The Board determined that the pending transfer of ownership control
of Alger Associates, Inc. would not be a detriment to Alger
Management's ability to provide services to each Fund and that the
pending transfer would not adversely affect Alger Management's
ability to fulfill its obligations under each Investment Advisory
Agreement, and to operate its business in a manner consistent with
past practices.
o The Board concluded that each Fund's fee to be paid to Alger
Management was reasonable in light of comparative expense and
advisory fee information, costs of the services provided and profits
expected to be realized and benefits expected to be derived by Alger
Management and its affiliates from the relationship with each Fund.
o The Board determined that there were not at this time significant
economies of scale to be realized by Alger Management in managing
each Fund's assets and that, to the extent that material economies
of scale should be realized in the future, the Board would seek to
ensure that they were shared with each Fund.
The Board considered these conclusions and determinations and, without any
one factor being dispositive, determined that approval of each Fund's Investment
Advisory Agreement was in the best interests of the Fund and its shareholders.
-61-
THE SPECTRA FUNDS
- --------------------------------------------------------------------------------
111 Fifth Avenue
New York, NY 10003
(800) 711-6141
www.spectrafund.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 The
Spectra Funds. It is not authorized for distribution to prospective investors
unless accompanied by an effective Prospectus for the Funds, which contains
information concerning the Funds' investment policies, fees and expenses as well
as other pertinent information.
GO PAPERLESS WITH ALGER ELECTRONIC DELIVERY SERVICE
Alger is pleased to provide you with the ability to access regulatory materials
online. When documents such as prospectuses and annual and semi-annual reports
are available, we'll send you an e-mail notification with a convenient link that
will take you directly to the fund information on our website. To sign up for
this free service, simply enroll at www.icsdelivery.com/alger.
[LOGO]
SPECTRA
SSAR 043007
[GRAPHIC] Printed on recycled paper [SOY INK(TM) LOGO]
[LOGO]
SPECTRA
[GRAPHIC] Printed on recycled paper SSAR 043007
[SOY INK(TM) LOGO]
ITEM 2. CODE OF ETHICS.
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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. 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 second fiscal quarter of the period covered by
this report that materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. 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
(a) (3) Not applicable
(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.
The Spectra Funds
By: /s/Dan C. Chung
Dan C. Chung
President
Date: June 18, 2007
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 18, 2007
By: /s/Michael D. Martins
Michael D. Martins
Treasurer
Date: June 18, 2007