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THE |
ALGER | MEETING THE CHALLENGE
AMERICAN | OF INVESTING
FUND |
ALGER AMERICAN
GROWTH PORTFOLIO
ALGER AMERICAN
SMALL CAPITALIZATION PORTFOLIO
ALGER AMERICAN
INCOME AND GROWTH PORTFOLIO
ALGER AMERICAN
BALANCED PORTFOLIO
ALGER AMERICAN
MIDCAP GROWTH PORTFOLIO
ALGER AMERICAN
LEVERAGED ALLCAP PORTFOLIO
|
ANNUAL | DECEMBER 31, 1997
REPORT |
|
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<PAGE>
FELLOW SHAREHOLDERS: JANUARY 23, 1998
THE YEAR IN REVIEW
While 1997 resulted in strong performance for the U.S. stock market in general,
the road was not a smooth one, particularly for growth stock managers. During
the first quarter, investors shunned traditional growth stocks amid speculation
that the Federal Reserve would find it necessary to raise interest rates. The
favorable relative multiples for growth stocks attracted investors during the
second quarter as fears subsided and investor confidence increased. This trend
continued, becoming even more pronounced during the third quarter as a
non-inflationary, low interest rate environment further boosted investor
confidence and increased the amount of risk they were willing to assume. During
the fourth quarter, incidents of international economic turmoil led to a
heightened sense of domestic uncertainty, which in turn triggered an abrupt
return to defensive equity investing. These events caused the Alger American
Fund Portfolios to trail the larger indices for the quarter, and the broad
market as measured by the S&P 500 for the year.
1ST QUARTER - Despite a strong January, the first quarter was extremely
challenging for growth managers as investors were drawn toward blue-chip type
stocks with predictable earnings, and away from speculative growth stocks with
more explosive earnings growth potential. This trend was further exacerbated in
February as there were a number of statistics to support the notion that the
economy was growing very rapidly, thereby causing a heightened concern about
interest rates. These concerns caused the market to behave erratically,
particularly in the growth stock discipline. The volatility was even more
pronounced in the small cap sector as evidenced by the Russell 2000 Growth Index
which was down 10.5% in the first quarter versus gains in excess of 2.5% on both
the Dow Jones Industrial Average and the S&P 500 Index. Additionally, February
was a particularly difficult month, as unseasonably warm weather caused oil
stock holdings to decline, and several technology holdings were negatively
impacted by the poorly performing networking sector.
2ND QUARTER - As we entered the second quarter, the multiples of quality growth
stocks had compressed to the point where they were selling at a discount to the
broader market. In reviewing the outlook for the growth stocks in our universe
of followed companies, we concluded that the drop in growth stock multiples did
not reflect deteriorating company fundamentals, but instead suggested negative
investor psychology. Throughout the quarter, economic data were released which
showed that the economy was in fact slowing and that inflation was not an
imminent problem, causing market psychology to improve. As investor confidence
started to rebuild, premiums for quality growth stocks started to expand. This
multiple expansion, coupled with strong earnings, helped the Portfolios to
rebound significantly from an unimpressive first quarter and post second quarter
returns that were in line with or ahead of most market indices.
3RD QUARTER - The third quarter marked a significant and long anticipated change
in investor psychology. Despite the unemployment rate reaching a twenty-four
year low of 4.7%, inflation dropped throughout the year. This phenomenon led to
the theory that there was a new economic paradigm, which allowed for rapid
economic expansion without inflation due to improved productivity. Although
promptly rebutted by Federal Reserve Chairman Alan Greenspan, this highly
publicized viewpoint helped foster the optimistic investor psychology that
fueled the rise in growth stocks. Additionally, the multinational, blue-chip
stocks that investors had flocked to since July of 1996 showed signs of
vulnerability, most notably Coca-Cola and Gillette. Many investors turned to
more aggressive stocks with greater earnings potential and, as a result, growth
stocks performed exceptionally well on both a relative and absolute basis.
Coupled with strong bottom-up stock picking, these favorable conditions enabled
the Portfolios to once again post quarterly returns in line with or ahead of
most market indices.
4TH QUARTER - The fourth quarter saw a return to extreme defensive positioning
by investors in response to uncertainties over the impact of the Asian monetary
crisis. A dramatic sell-off in Hong Kong preceded a historic 554 point drop in
the Dow on October 27th. Currency collapses and subsequent banking failures
throughout the Pacific Rim caused investors to question the ability of U.S.
companies dependent on this region for revenue to meet future earnings
expectations. Technology companies with considerable business in Asia,
particularly semiconductors, were among the hardest hit. We reduced our
weighting in this sector from approximately 35% to less than 20%, our lowest
weighting in recent years. Despite this reduction, the drop in technology stocks
was so profound that it adversely affected our performance. Although the broad
market recovered from the late October sell-off, the rebound was dominated by
very large blue-chip stocks with consistent earning patterns. These included
utilities, regional bell operating companies and huge consumer franchise
companies. The S&P 500 was able to outdistance other market indices, and growth
stocks in general, as a result of its relative overweighting in these sectors.
PORTFOLIO MATTERS
ALGER AMERICAN GROWTH PORTFOLIO
For the year ended December 31, 1997, the Alger American Growth Portfolio's
total return was 25.75% compared to 33.36% for the S&P 500. While the level of
economic activity in 1997 was stronger than we anticipated, inflation continued
to be moderate to non-existent. However, the economic uncertainty which
prevailed throughout most of the year, particularly in the first and fourth
quarters, resulted in
1
<PAGE>
defensive positioning of investors. As a result, there was a "flight to quality"
with investors favoring blue-chip type stocks with predictable earnings. Stocks
of companies which are expected to increase their earnings at a faster rate,
which are the types of stocks in which this Portfolio typically invests, did not
fare as well.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Portfolio's total return for the year was 11.39% versus a return of 12.95%
for the Russell 2000 Growth Index. When investors are apprehensive about the
economic future, as in 1997, they are generally attracted to more liquid,
defensive stocks. As a consequence, small cap growth stocks significantly
underperformed the larger averages. While our comparative index includes growth
stocks, the growth stocks which we typically hold in the Portfolio tend to be
faster growing and more volatile during periods of economic uncertainty.
Therefore, while the Portfolio's return slightly lagged that of the comparative
index, it can be attributed in large part to its relative underweighting in more
defensive sectors, notably utilities. This is an area where we, as a growth
manager, had no exposure. In comparison, the index had a 4% weighting and, given
the defensive properties of utility stocks, this sector proved to be the second
best performer of the year, contributing a full 1.29% to the index's overall
return. As investor confidence starts to rebuild, as we are anticipating, we
should see a reversal of this defensive positioning by investors.
ALGER AMERICAN INCOME & GROWTH PORTFOLIO
The Alger American Income & Growth Portfolio had a total return for 1997 of
36.29% compared to 33.36% for the S&P 500. The strategy we employ with this
Portfolio is to buy growth stocks of different market capitalization sizes that
provide current dividends. This is a more conservative and less volatile
strategy than is found in our other growth Portfolios and, consequently,
performance can be expected to be superior during periods characterized by
defensive investing. Additionally, to maximize the dividend income stream, the
Portfolio had a relatively large percentage of financial services stocks and a
very small exposure to technology stocks, thereby contributing to the
Portfolio's impressive return.
ALGER AMERICAN BALANCED PORTFOLIO
The Alger American Balanced Portfolio's total return for the year ended December
31, 1997 was 19.82%, compared to 33.36% for the S&P 500 and 9.75% for the Lehman
Brothers Government/Corporate Bond Index. The Portfolio maintained a ratio of
approximately 60% common stocks and 40% bonds, and was therefore negatively
impacted by the general underperformance of growth stocks relative to the broad
market, as noted above.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
For the year ended December 31, 1997, the Alger American MidCap Growth
Portfolio's total return was 15.01% compared to 32.25% for the S&P MidCap 400
Index. Many of the same factors that impacted the Small Capitalization and
Growth Portfolios were in evidence for the MidCap Growth Portfolio. In addition
to the general underperformance of the growth style relative to the major
averages, the Portfolio was underweighted in the financial services and
utilities sectors, two of the comparative index's strongest performers in 1997.
The Portfolio is currently well diversified and boasts very attractive
valuations relative to the market based on 1998 estimates.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
For the year ended December 31, 1997, the Alger American Leveraged AllCap
Portfolio's total return was 19.68%, compared to 33.36% for the S&P 500. The
shortfall relative to the S&P 500 is largely stylistic in nature. This Portfolio
employs an "allcap" (small, medium and large capitalizations) portfolio
management strategy. While the past year proved difficult for traditional growth
stocks in general, exposure to small cap growth stocks in the first and fourth
quarters of the year had a particularly negative impact on the Portfolio's
return relative to the larger averages, specifically the S&P 500. Given the
possibility of a slowing economy and low inflation in the coming year, we expect
this trend to reverse. Growth stocks, which are currently selling at low
multiples, should therefore do very well.
LOOKING AHEAD
Once the conditions in Asia stabilize, which we believe will happen over the
next month or two (already Asian currencies and markets are bouncing back),
investors will realize that we have the best of all possible worlds: low
inflation, full employment, positive economic growth, declining interest rates
and no hassles from the Fed. As a result, the market will surge ahead and, we
believe, top 9000 by year-end. The very slowness of the economy will make growth
stocks stand out in contrast. Also, growth stocks respond vigorously to
declining interest rates. Moreover, small and mid cap stocks are very
attractively valued compared to the larger indices.
Secondly, while technology stocks will feel some impact from Asia, they should
benefit from a number of other trends including Year 2000 spending, improving
European economies, and the need for countries around the world to upgrade and
modernize their systems.
Thirdly, a great deal of speculative money has been vectored toward the
international market by American pension funds. We believe that much of this
will be cut back in 1998, for obvious reasons, and will be oriented toward
American growth stocks as investors have found that high levels of growth cannot
necessarily be obtained by buying in the stock markets of emerging nations.
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Lastly, as happened in 1989, we believe cash flow will be shifted away from
index funds and back into aggressive growth funds when aggressive growth stocks
begin to outperform the broad market. Given this, we remain extremely optimistic
about domestic growth stocks in 1998 and the prospects for all of the Alger
American Fund Portfolios.
Respectfully submitted,
/s/ David D. Alger
---------------------------
David D. Alger
President
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TABLE OF CONTENTS
Alger American Growth Portfolio:
Portfolio Highlights........................................... 5
Schedule of Investments........................................ 6-7
Financial Highlights........................................... 8
Alger American Small Capitalization Portfolio:
Portfolio Highlights........................................... 9
Schedule of Investments........................................ 10-12
Financial Highlights........................................... 13
Alger American Income and Growth Portfolio:
Portfolio Highlights........................................... 14
Schedule of Investments........................................ 15-16
Financial Highlights........................................... 17
Alger American Balanced Portfolio:
Portfolio Highlights........................................... 18
Schedule of Investments........................................ 19-20
Financial Highlights........................................... 21
Alger American MidCap Growth Portfolio:
Portfolio Highlights........................................... 22
Schedule of Investments........................................ 23-24
Financial Highlights........................................... 25
Alger American Leveraged AllCap Portfolio:
Portfolio Highlights........................................... 26
Schedule of Investments........................................ 27-28
Financial Highlights........................................... 29
Statements of Assets and Liabilities................................. 30
Statements of Operations............................................. 31
Statement of Cash Flows (Alger American Leveraged AllCap Portfolio).. 32
Statements of Changes in Net Assets.................................. 33
Notes to Financial Statements........................................ 34-36
Report of Independent Public Accountants............................. 37
4
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ALGER AMERICAN GROWTH PORTFOLIO
PORTFOLIO HIGHLIGHTS THROUGH DECEMBER 31, 1997 (UNAUDITED)
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$10,000 HYPOTHETICAL INVESTMENT SINCE INCEPTION January 9, 1989
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[THE FOLLOWING CHART REPRESENTS A GRAPH]
Date Alger American Growth S&P 500
- -------- --------------------- -------
11/15/88 $10,000 $10,000
12/31/88 10,095 10,422
12/31/89 10,842 13,715
12/31/90 10,872 13,279
12/31/91 13,428 17,325
12/31/92 14,589 18,640
12/31/93 16,097 20,512
12/31/94 14,765 20,783
12/31/95 19,952 28,593
12/31/96 23,878 34,139
12/31/97 32,543 45,531
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in the Alger American Growth Portfolio and the S&P 500 Index
on January 9, 1989, the inception date of the Alger American Growth
Portfolio. The figures for both the Alger American Growth Portfolio and the
S&P 500 Index, an unmanaged index of common stocks, include reinvestment of
dividends.
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PERFORMANCE COMPARISON THROUGH December 31, 1997
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<TABLE>
<CAPTION>
Average Annual Total Returns
1 Year 5 Years Since Inception
-----------------------------------------------
<S> <C> <C> <C>
Alger American Growth Portfolio 25.75% 19.28% 19.43%
S&P 500 Index 33.36% 20.27% 18.02%
-----------------------------------------------
</TABLE>
PERFORMANCE FIGURES DO NOT REFLECT DEDUCTION OF INSURANCE CHARGES AGAINST
ASSETS OR ANNUITIES. IF THESE CHARGES WERE DEDUCTED, THE TOTAL RETURN
FIGURES WOULD BE LOWER. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
5
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
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SHARES COMMON STOCKS--90.1% VALUE
------ -----
APPLIANCES & TOOLS--3.4%
853,500 Sunbeam Corp. ............................. $ 35,953,687
-------------
BROADCASTING--2.6%
942,500 CBS Corp. ................................. 27,745,315
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BUILDING & CONSTRUCTION--.5%
101,000 Masco Corp. ............................... 5,138,375
-------------
BUSINESS SERVICES--1.0%
240,500 Cognizant Corp. ........................... 10,717,402
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COMMUNICATIONS--5.1%
308,900 America Online Inc.* ...................... 27,550,172
178,300 AT&T Corp. ................................ 10,920,875
541,600 WorldCom lnc.* ............................ 16,383,400
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54,854,447
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COMMUNICATION EQUIPMENT--5.8%
591,200 Bay Networks Inc.* ........................ 15,112,846
246,800 CIENA Corporation* ........................ 15,085,650
363,300 Cisco Systems, Inc.* ...................... 20,253,975
230,400 Tellabs, Inc.* ............................ 12,182,400
-------------
62,634,871
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COMPUTER SOFTWARE--4.3%
406,000 HBO & Company ............................. 19,488,000
207,500 Microsoft Corporation* .................... 26,819,375
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46,307,375
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CONGLOMERATE--3.4%
814,780 Tyco International Ltd. ................... 36,716,431
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CONSUMER PRODUCTS--2.9%
902,200 Cendant Corp.* ............................ 31,013,125
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DRUG DISTRIBUTION--2.9%
242,700 Cardinal Health, Inc. ..................... 18,232,838
114,400 McKesson Corp. ............................ 12,376,707
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30,609,545
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ENERGY & ENERGY SERVICES--1.2%
168,700 Diamond Offshore Drilling Inc.+ ........... 8,118,688
80,800 Halliburton Co. ........................... 4,196,590
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12,315,278
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FINANCIAL SERVICES--13.6%
128,249 Banc One Corp. ............................ 6,965,588
108,700 BankAmerica Corp. ......................... 7,935,100
572,500 Bank of New York Inc. ..................... 33,097,943
399,800 Federal Home Loan Mortgage Corporation .... 16,766,812
202,400 First Union Corp. ......................... 10,373,000
48,500 Household International Inc. .............. 6,186,806
340,300 Money Store Inc. (The)+ ................... 7,146,300
569,905 Morgan Stanley, Dean Witter, Discover & Co. 33,695,633
381,850 Paine Webber Group Inc. ................... 13,197,882
263,200 Schwab (Charles) Corporation (The) ........ 11,038,082
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146,403,146
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SHARES VALUE
------ -----
FOOD CHAINS--1.2%
210,000 Safeway Inc.* ............................. $ 13,282,500
-------------
FOODS & BEVERAGES--.6%
192,800 PepsiCo, Inc. ............................. 7,025,246
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INSURANCE--5.0%
199,850 American International Group, Inc. ........ 21,733,688
148,400 MGIC Investment Corp. ..................... 9,868,600
413,900 Travelers Group Inc. ...................... 22,298,862
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53,901,150
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LEISURE & ENTERTAINMENT--4.1%
443,300 Carnival Corporation Cl. A ................ 24,547,738
657,700 International Game Technology ............. 16,606,925
119,300 Mirage Resorts, Incorporated* ............. 2,714,075
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43,868,738
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MEDICAL DEVICES--2.4%
413,500 Guidant Corp. ............................. 25,740,375
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PHARMACEUTICALS--11.0%
355,000 Bristol Myers Squibb Co. .................. 33,591,875
159,500 Eli Lilly & Company ....................... 11,105,188
149,800 Pfizer Inc. ............................... 11,169,537
579,100 Schering-Plough Corporation ............... 35,976,588
206,600 Warner-Lambert Co. ........................ 25,618,400
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117,461,588
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POLLUTION CONTROL--1.5%
400,100 USA Waste Services, Inc.* ................. 15,703,925
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REAL ESTATE INVESTMENT TRUST--.9%
225,429 Equity Office Properties Trust ............ 7,115,215
39,200 Starwood Lodging Trust .................... 2,268,700
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9,383,915
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RETAILING--8.3%
80,300 CVS Corp. ................................. 5,144,259
684,150 Home Depot, Inc. .......................... 40,279,331
40,000 Nordstrom, Inc. ........................... 2,415,000
100,000 Rite Aid Corp. ............................ 5,868,800
1,900 Staples Inc.* ............................. 52,725
889,600 Wal-Mart Stores Inc. ...................... 35,084,045
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88,844,160
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SEMICONDUCTORS--2.1%
358,900 Altera Corporation* ....................... 11,888,562
193,000 Linear Technology Corporation ............. 11,121,625
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23,010,187
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TOYS--1.0%
293,900 Mattel Inc. ............................... 10,947,775
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THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
================================================================================
SHARES COMMON STOCKS (CONTINUED) VALUE
------ -----
TRANSPORTATION--5.3%
325,200 AMR Corp.* ............................... $ 41,788,200
158,400 Burlington Northern Santa Fe Co. ......... 14,721,379
--------------
56,509,579
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TOTAL COMMON STOCKS
(COST $787,788,280) .................... 966,088,135
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PRINCIPAL
AMOUNT
--------
SHORT-TERM INVESTMENTS--7.0%
SHORT-TERM
CORPORATE NOTES--6.2%
$ 1,000,000 Elf Aquitaine Finance (S.A.),
6.15%, 1/7/98 .......................... 998,975
15,000,000 Four Winds Funding Co.,
6.06%, 1/5/98 (a) ...................... 14,989,900
26,000,000 Merrill Lynch & Co. Inc.,
6.05%, 1/9/98 .......................... 25,965,044
25,000,000 Southland Corporation,
6.05%, 1/7/98 .......................... 24,974,792
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TOTAL SHORT-TERM CORPORATE NOTES
(COST $66,928,711) ..................... 66,928,711
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SECURITIES HELD UNDER
REPURCHASE
AGREEMENTS--.8%
Securities Held Under Repurchase
Agreements, 6.25%, 1/2/98, with Bear,
Stearns & Co. Inc., dtd 12/31/97,
repurchase price $8,861,248;
collateralized by U.S. Treasury Strips
(par value
$38,095,000 due 11/15/21) .............. $ 8,858,172
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TOTAL SHORT-TERM INVESTMENTS
(COST $75,786,883) ..................... 75,786,883
--------------
TOTAL INVESTMENTS
(COST $863,575,163) (b) ................. 97.1% 1,041,875,018
Other Assets in Excess of Liabilities ..... 2.9 30,653,874
----- --------------
NET ASSETS ................................ 100.0 $1,072,528,892
===== ==============
- --------------------------------------------------------------------------------
* Non-income producing security.
+ Securities partially or fully on loan.
(a) Pursuant to Securities and Exchange Commission Rule 144A, these securities
may be sold prior to their maturity only to qualified institutional buyers.
(b) At December 31, 1997, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $863,575,163 amounted to
$178,299,855 which consisted of aggregate gross unrealized appreciation of
$188,915,114 and gross unrealized depreciation of $10,615,259.
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
ALGER AMERICAN GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
=================================================================================================================================
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 34.33 $ 31.16 $ 23.13 $ 24.67 $ 20.17
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.13 0.12 0.02 0.07 0.03
Net realized and unrealized gain on investments 8.66 4.00 8.33 0.15 4.50
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 8.79 4.12 8.35 0.22 4.53
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.13) (0.02) (0.07) (0.03) (0.03)
Distributions from net realized gains (0.23) (0.93) (0.25) (1.73) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.36) (0.95) (0.32) (1.76) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 42.76 $ 34.33 $ 31.16 $ 23.13 $ 24.67
=================================================================================================================================
Total Return 25.75% 13.35% 36.37% 1.45% 22.47%
=================================================================================================================================
Ratios and Supplemental Data:
Net assets, end of year (000's omitted) $ 1,072,529 $991,028 $502,974 $150,390 $74,878
=================================================================================================================================
Ratio of expenses to average net assets 0.79% 0.79% 0.85% 0.86% 0.97%
=================================================================================================================================
Ratio of net investment income to average
net assets 0.27% 0.50% 0.18% 0.48% 0.25%
=================================================================================================================================
Portfolio Turnover Rate 129.50% 82.86% 118.33% 111.76% 112.64%
=================================================================================================================================
Average Commission Rate Paid $ .0697 $ .0683
====================================================================================
See Notes to Financial Statements.
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
PORTFOLIO HIGHLIGHTS THROUGH DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$10,000 HYPOTHETICAL INVESTMENT SINCE INCEPTION September 21, 1988
- --------------------------------------------------------------------------------
[THE FOLLOWING CHART REPRESENTS A GRAPH]
Date Alger American Small Capitalization Russell 2000 Growth
- -------- ----------------------------------- -------------------
09/21/88 $10,000 $10,000
12/31/88 9,665 10,006
12/31/89 15,897 12,024
12/31/90 17,282 9,931
12/31/91 27,225 15,014
12/31/92 28,192 16,180
12/31/93 31,936 18,342
12/31/94 30,541 17,896
12/31/95 44,073 23,447
12/31/96 45,916 26,087
12/31/97 51,147 29,465
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in the Alger American Small Capitalization Portfolio and the
Russell 2000 Growth Index on September 21, 1988, the inception date of the
Alger American Small Capitalization Portfolio. The figures for both the
Alger American Small Capitalization Portfolio and the Russell 2000 Growth
Index, an unmanaged index of common stocks of small capitalization
companies, include reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON THROUGH December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Annual Total Returns
1 Year 5 Years Since Inception
-----------------------------------------------
<S> <C> <C> <C>
Alger American Small
Capitalization Portfolio 11.39% 12.65% 19.23%
Russell 2000 Growth Index 12.95% 12.74% 12.35%
-----------------------------------------------
</TABLE>
PERFORMANCE FIGURES DO NOT REFLECT DEDUCTION OF INSURANCE CHARGES AGAINST
ASSETS OR ANNUITIES. IF THESE CHARGES WERE DEDUCTED, THE TOTAL RETURN
FIGURES WOULD BE LOWER. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
9
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
================================================================================
SHARES COMMON STOCKS--92.5% VALUE
------ -----
AEROSPACE--.7%
289,600 Aviall Inc.* ............................. $ 4,326,045
30,000 Thiokol Corporation ...................... 2,437,500
------------
6,763,545
------------
APPAREL--3.4%
186,100 Brylane Inc.* ............................ 9,165,425
217,200 Mens Wearhouse Inc.*+ .................... 7,547,700
234,100 Nautica Enterprises Inc.* ................ 5,442,825
299,700 St. John Knits Inc. ...................... 11,988,000
------------
34,143,950
------------
APPLIANCES & TOOLS--2.3%
546,400 Sunbeam Corp. ............................ 23,017,100
------------
AUTOMOTIVE EQUIPMENT &
SERVICES--1.8%
350,600 Avis Rent A Car Inc.* .................... 11,197,463
200,000 Dollar Thrifty Automotive Group Inc.* .... 4,100,000
110,000 Keystone Automotive Industries Inc.* ..... 2,612,500
------------
17,909,963
------------
BIO-TECHNOLOGY--5.2%
96,700 BioChem Pharma Inc.*+ .................... 2,018,612
339,600 DEKALB Genetics Corp. Cl. B .............. 13,329,300
205,000 Genset ADR*+ ............................. 4,048,750
142,700 IDEC Pharmaceuticals Corporation* ........ 4,905,313
392,200 INCYTE Pharmaceuticals,Inc.* ............. 17,649,000
50,000 Interpore International Inc.* ............ 300,000
230,000 MedImmune Inc.*+ ......................... 9,861,250
------------
52,112,225
------------
BUILDING & CONSTRUCTION--.4%
120,000 Hirsh International Corp. Cl. A* ......... 2,640,000
159,000 Morrison Knudsen Corp.* .................. 1,550,250
------------
4,190,250
------------
BUSINESS SERVICES--1.9%
226,000 Cognizant Corp. .......................... 10,071,238
188,900 Rent-Way Inc.+ ........................... 3,494,650
130,000 WPP Group ADR ............................ 5,866,250
------------
19,432,138
------------
COMMUNICATIONS--4.5%
116,000 America Online Inc.* ..................... 10,345,808
41,200 Cox Radio,Inc. Cl. A* .................... 1,658,300
347,300 Jacor Communications Inc.*+ .............. 18,450,312
274,600 Outdoor Systems, Inc.* ................... 10,537,775
67,200 Universal Outdoor Holdings Inc.* ......... 3,494,400
------------
44,486,595
------------
COMMUNICATION EQUIPMENT--3.9%
271,200 Advanced Fibre Communications Inc.* ...... 7,898,700
402,200 Bay Networks Inc.* ....................... 10,281,439
204,600 CIENA Corporation.* ...................... 12,506,175
135,000 Gemstar International Group Ltd.* ........ 3,290,625
92,700 Tellabs, Inc.* ........................... 4,901,513
------------
38,878,452
------------
SHARES VALUE
------ -----
COMPUTER RELATED &
BUSINESS EQUIPMENT--.7%
217,200 Essex International Inc.* ................ $ 6,461,700
------------
COMPUTER SERVICES--3.1%
166,100 Keane Inc.* .............................. 6,747,813
379,200 QuickResponse Service Inc.* .............. 14,030,400
366,900 Technology Solutions Co.* ................ 9,676,988
21,900 Transaction Network Services Inc.*+ ...... 377,775
------------
30,832,976
------------
COMPUTER SOFTWARE--6.0%
287,500 CBT Group PLC ADS* ....................... 23,610,938
99,300 Citrix Systems, Inc.* .................... 7,546,800
160,000 HBO & Company ............................ 7,680,000
504,600 Saville Systems PLC ADR* ................. 20,940,900
------------
59,778,638
------------
COMPUTER TECHNOLOGY
4,283 Dataware Technologies Inc.* .............. 11,243
------------
CONSUMER PRODUCTS--1.4%
200,000 Central Garden & Pet Co.* ................ 5,250,000
114,650 Pittway Corp. Cl. A ...................... 7,982,506
------------
13,232,506
------------
DRUG DISTRIBUTION--4.6%
123,800 AmeriSource Health Corp. Cl. A ........... 7,211,350
101,000 Bergen Brunswig Corp. Cl. A .............. 4,254,625
199,900 McKesson Corp. ........................... 21,626,781
402,500 Omnicare, Inc. ........................... 13,035,500
------------
46,128,256
------------
ENERGY & ENERGY SERVICES--2.3%
148,500 Camco International Inc. ................. 9,457,668
149,400 Diamond Offshore Drilling Inc.+ .......... 7,189,875
229,100 Hvide Marine Inc. Cl. A*+ ................ 5,899,325
------------
22,546,868
------------
FINANCIAL SERVICES--8.0%
32,700 CCB Financial Corp. ...................... 3,515,250
69,800 CMAC Investment Corp. .................... 4,214,175
84,200 Colonial BancGroup Inc.+ ................. 2,899,680
89,145 Commerce Bancshares Inc. ................. 6,039,574
157,500 Compass Bancshares Inc. .................. 6,890,625
218,300 Dime Community Bancorp, Inc. ............. 6,603,575
384,900 INMC Mortgage Holdings Inc. .............. 9,021,286
57,150 Mercantile Bankshares Corp. .............. 2,235,994
410,700 Money Store Inc. (The)+ .................. 8,624,700
220,000 National Commerce Bancorp+ ............... 7,755,000
100,485 Provident Bankshares Corp. ............... 6,418,478
478,000 Sovereign Bancorp Inc. ................... 9,918,500
90,000 Wilmington Trust Corp. ................... 5,613,750
------------
79,750,587
------------
10
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
================================================================================
SHARES COMMON STOCKS--(CONTINUED) VALUE
------ -----
FOODS & BEVERAGES--5.6%
158,900 CKE Restaurants Inc.+ ..................... $ 6,693,663
409,700 Earthgrains Company ....................... 19,255,900
585,700 Flowers Industries Inc. ................... 12,043,749
65,500 International Home Foods Inc.* ............ 1,834,000
60,300 Interstate Bakeries Corp. ................. 2,253,713
309,500 JP Foodservice Inc.*+ ..................... 11,432,311
45,900 Suiza Foods Corp.* ........................ 2,733,942
------------
56,247,278
------------
FREIGHT--.2%
47,500 Expeditors International of Washington Inc. 1,828,750
------------
HEALTH CARE--.4%
81,500 Universal Health Services Inc. Cl. B* ..... 4,105,563
------------
INSURANCE--3.1%
100,300 Enhance Financial Services Group Inc.+ .... 5,967,850
133,500 Executive Risk Inc. ....................... 9,320,036
255,500 Vesta Insurance Group Inc. ................ 15,170,312
------------
30,458,198
------------
LEISURE & ENTERTAINMENT--2.6%
40,000 Cinar Films,Inc. Cl. B* ................... 1,555,000
485,100 Family Golf Centers Inc.*+ ................ 15,220,012
347,900 International Game Technology ............. 8,784,475
------------
25,559,487
------------
MANUFACTURING--.8%
114,600 Leggett & Platt Inc. ...................... 4,798,875
130,150 Palm Harbor Homes Inc.* ................... 3,676,737
------------
8,475,612
MEDICAL DEVICES--5.5%
616,500 Biomet Inc. ............................... 15,797,813
371,600 ESC Medical Systems Ltd.* ................. 14,399,500
130,000 Guidant Corp. ............................. 8,092,500
278,000 Mentor Corp. .............................. 10,147,000
113,000 Safeskin Corp.*+ .......................... 6,412,750
------------
54,849,563
------------
MEDICAL SERVICES--1.9%
136,600 Express Scripts Inc. Cl. A* ............... 8,196,000
6,100 Hooper Holmes Inc. ........................ 88,834
100,800 Lincare Holdings Inc.* .................... 5,745,600
91,500 Pediatrix Medical Group Inc.*+ ............ 3,911,625
117,500 Protocol Systems Inc.* .................... 1,182,402
------------
19,124,461
------------
SHARES VALUE
------ -----
OIL & GAS--2.3%
160,200 EVI Inc.* ................................. $ 8,290,350
200,000 Global Industries Ltd.* ................... 3,400,000
531,200 Varco International Inc.* ................. 11,387,865
------------
23,078,215
------------
PHARMACEUTICALS--3.1%
242,000 Dura Pharmaceuticals, Inc.* ............... 11,101,750
387,300 Elan Corp PLC-ADR*+ ....................... 19,825,112
------------
30,926,862
POLLUTION CONTROL--2.6%
100,000 Allied Waste Industries Inc.* ............. 2,331,300
67,500 Superior Services Inc.* ................... 1,949,062
554,572 USA Waste Services, Inc.* ................. 21,766,951
------------
26,047,313
------------
RESTAURANTS & LODGING--1.0%
300,000 Foodmaker Inc.* ........................... 4,518,900
188,703 Patriot American Hospitality Co.+ ......... 5,437,100
------------
9,956,000
------------
RETAILING--5.6%
110,200 BJ's Wholesale Club Inc.* ................. 3,457,525
387,800 Borders Group Inc.* ....................... 12,143,181
115,000 Dress Barn Inc.* .......................... 3,263,125
227,100 Family Dollar Stores Inc. ................. 6,656,982
67,400 Linens'n Things Inc.* ..................... 2,940,325
328,200 Michaels Stores Inc.*+ .................... 9,599,850
100,000 Office Depot Inc.* ........................ 2,393,800
233,300 Proffitt's Inc.* .......................... 6,634,585
191,500 WestPoint Stevens Inc.*+ .................. 9,048,375
------------
56,137,748
------------
SEMICONDUCTORS--2.4%
304,000 Altera Corporation* ....................... 10,070,000
21,810 California Micro Devices Corporation* ..... 117,228
239,600 Linear Technology Corporation ............. 13,806,950
------------
23,994,178
------------
SUPERMARKETS--2.1%
366,000 Fred Meyer, Inc.* ......................... 13,313,250
144,900 Whole Foods Market Inc.* .................. 7,408,013
------------
20,721,263
------------
TRANSPORTATION--3.1%
382,000 Coach USA Inc.*+ .......................... 12,797,000
229,300 Continental Airlines Inc. Cl. B*+ ......... 11,035,063
264,000 Knightsbridge Tankers Ltd. ................ 7,474,632
------------
31,306,695
------------
TOTAL COMMON STOCKS
(COST $698,953,184) .................... 922,494,178
------------
11
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
================================================================================
PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS--8.3% VALUE
------ -----
SHORT-TERM CORPORATE NOTES--7.5%
$20,000,000 Four Winds Funding Co.,
6.06%, 1/5/98 (a) ....................... $ 19,986,535
35,000,000 Merrill Lynch & Co. Inc.,
6.05%, 1/9/98 ........................... 34,952,944
20,000,000 PHH Corp.,
5.85%, 1/6/98 ........................... 19,983,750
-------------
TOTAL SHORT-TERM CORPORATE NOTES
(COST $74,923,229) ...................... 74,923,229
-------------
SECURITIES HELD UNDER
REPURCHASE AGREEMENTS--.8%
Securities Held Under Repurchase
Agreements, 6.25%, 1/2/98 with Bear,
Stearns & Co. Inc., dtd 12/31/97,
repurchase price $8,243,327;
collateralized by U.S. Treasury Strips
(par value $35,440,000 due
5/15/01-11/15/21) ...................... 8,240,465
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $83,163,694) ...................... 83,163,694
-------------
TOTAL INVESTMENTS
(COST $782,116,878)(b) ................... 100.8% 1,005,657,872
Liabilities in Excess Of Other Assets ...... (.8) (8,071,964)
----- -------------
NET ASSETS ................................. 100.0% $ 997,585,908
===== =============
- --------------------------------------------------------------------------------
* Non-income producing security.
+ Security partially or fully on loan.
(a) Pursuant to Securities and Exchange Commission Rule 144A, these securities
may be sold prior to their maturity only to qualified institutional buyers.
(b) At December 31, 1997, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $782,116,878 amounted to
$223,540,994 which consisted of aggregate gross unrealized appreciation of
$234,546,416 and aggregate gross unrealized depreciation of $11,005,422.
See Notes to Financial Statements.
12
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
FINANCIAL HIGHLIGHTS
For a share outstanding throughout the year
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 40.91 $ 39.41 $ 27.31 $ 30.88 $ 27.26
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.05)(i) (0.04)(i) (0.09) (0.03)(i) (0.05)
Net realized and unrealized gain
(loss) on investments 4.45 1.70 12.19 (1.45) 3.67
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.40 1.66 12.10 (1.48) 3.62
Distributions from net realized gains (1.56) (0.16) -- (2.09) --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 43.75 $ 40.91 $ 39.41 $ 27.31 $ 30.88
==========================================================================================================================
Total Return 11.39% 4.18% 44.31% (4.38%) 13.28%
==========================================================================================================================
Ratios and Supplemental Data:
Net assets, end of year (000's omitted) $997,586 $1,469,518 $984,212 $397,037 $238,850
==========================================================================================================================
Ratio of expenses to average net assets 0.89% 0.88% 0.92% 0.96% 1.03%
==========================================================================================================================
Ratio of net investment loss to
average net assets (0.12%) (0.09%) (0.48%) (0.10%) (0.35%)
==========================================================================================================================
Portfolio Turnover Rate 104.43% 110.04% 80.66% 117.61% 148.07%
==========================================================================================================================
Average Commission Rate Paid $ .0640 $ .0591
========================================================================================
(i) Amount was computed based on average shares outstanding during the year.
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
================================================================================
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
Portfolio Highlights Through December 31, 1997 (Unaudited)
================================================================================
================================================================================
$10,000 HYPOTHETICAL INVESTMENT SINCE INCEPTION November 15, 1988
================================================================================
[The following table represents a chart in the printed piece.]
Alger American Growth S&P 500
--------------------- -------
11/15/88 $10,000 $10,000
12/31/88 10,095 10,422
12/31/89 10,842 13,715
12/31/90 10,872 13,279
12/31/91 13,428 17,325
12/31/92 14,589 18,640
12/31/93 16,097 20,512
12/31/94 14,765 20,783
12/31/95 19,952 28,593
12/31/96 23,878 34,139
12/31/97 32,543 45,531
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in the Alger American Income and Growth Portfolio and the S&P
500 Index on November 15, 1988, the inception date of the Alger American
Income and Growth Portfolio. Figures for the Alger American Income and Growth
Portfolio and the S&P 500 Index, an unmanaged index of common stocks, include
reinvestment of dividends.
================================================================================
PERFORMANCE COMPARISON THROUGH December 31, 1997
================================================================================
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS SINCE INCEPTION
-----------------------------------------------
Alger American Income
and Growth Portfolio 36.29% 17.40% 13.80%
S&P 500 Index 33.36% 20.27% 18.06%
-----------------------------------------------
Performance figures do not reflect deduction of insurance charges against
assets or annuities. If these charges were deducted, the total return figures
would be lower. Past performance does not guarantee future results.
14
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
================================================================================
SHARES COMMON STOCKS--93.3% VALUE
------ -----
APPLIANCES & TOOLS--3.0%
10,000 Black & Decker Corp. .................... $ 390,630
24,500 Sunbeam Corp. ........................... 1,032,063
--------------
1,422,693
--------------
AUTOMOTIVE EQUIPMENT
& SERVICES--.5%
8,000 Avis Rent A Car Inc.* ................... 255,504
--------------
BIO-TECHNOLOGY--1.5%
18,000 DEKALB Genetics Corp. Cl. B ............. 706,500
--------------
BROADCASTING--1.0%
15,300 CBS Corp. ............................... 450,400
--------------
BUSINESS SERVICES--1.0%
10,400 Cognizant Corp. ......................... 463,455
--------------
COMMUNICATIONS--3.5%
10,000 America Online Inc.* .................... 891,880
3,900 AT&T Corp. .............................. 238,875
10,000 Jacor Communications Inc.* .............. 531,250
--------------
1,662,005
--------------
COMMUNICATION EQUIPMENT--1.1%
8,300 CIENA Corporation* ...................... 507,338
--------------
CONGLOMERATE--3.1%
33,004 Tyco International Ltd. ................. 1,487,259
--------------
CONSUMER PRODUCTS--.7%
10,000 Cendant Corp.* .......................... 343,750
--------------
DRUG DISTRIBUTION--2.7%
12,000 McKesson Corp. .......................... 1,298,256
--------------
ENERGY & ENERGY SERVICES--2.8%
7,300 Diamond Offshore Drilling Inc. .......... 351,313
9,500 Halliburton Co. ......................... 493,411
6,100 Schlumberger Ltd. ....................... 491,050
--------------
1,335,774
--------------
FINANCIAL SERVICES--21.7%
12,000 American Express Co. .................... 1,071,000
15,500 BankAmerica Corp. ....................... 1,131,500
21,000 Bank of New York Inc. ................... 1,214,073
5,500 Comerica Inc. ........................... 496,375
11,400 Federal Home Loan Mortgage Corporation... 478,093
7,000 Fifth Third Bancorp ..................... 572,250
SHARES VALUE
------ -----
FINANCIAL SERVICES (CONTINUED)
6,500 First Union Corp. ....................... $ 333,125
9,000 Household International Inc. ............ 1,148,067
10,000 INMC Mortgage Holdings Inc. ............. 234,380
12,000 Mellon Bank Corp. ....................... 727,500
10,015 Morgan Stanley, Dean Witter,
Discover & Co. ........................ 592,137
13,000 Norwest Corp. ........................... 502,125
16,500 Schwab (Charles) Corporation (The) ...... 691,977
15,000 SunAmerica Inc. ......................... 641,250
4,000 U.S. Bancorp Inc. ....................... 447,752
--------------
10,281,604
--------------
FOODS & BEVERAGES--3.6%
10,000 Earthgrains Company ..................... 470,000
17,000 Kellogg Co. ............................. 843,625
11,200 PepsiCo, Inc. ........................... 408,106
--------------
1,721,731
--------------
INSURANCE--10.7%
5,000 Allstate Corp. .......................... 454,375
7,850 American International Group, Inc. ...... 853,688
12,000 Executive Risk Inc. ..................... 837,756
15,300 MGIC Investment Corp .................... 1,017,450
17,400 Travelers Group Inc. .................... 937,425
16,000 Vesta Insurance Group Inc. .............. 950,000
--------------
5,050,694
--------------
LEISURE & ENTERTAINMENT--2.5%
15,000 Carnival Corporation Cl. A .............. 830,625
14,500 International Game Technology ........... 366,125
--------------
1,196,750
--------------
MEDICAL DEVICES--3.7%
27,800 Guidant Corp. ........................... 1,730,550
--------------
MEDICAL SERVICES--1.1%
8,500 AmeriSource Health Corp Cl. A* .......... 495,125
--------------
OIL & GAS--1.1%
2,000 Chevron Corp. ........................... 154,000
6,000 Exxon Corp. ............................. 367,128
--------------
521,128
--------------
PHARMACEUTICALS--14.0%
12,000 Bristol Myers Squibb Co. ................ 1,135,500
18,800 Eli Lilly & Company ..................... 1,308,950
17,400 Pfizer Inc. ............................. 1,297,396
22,500 Schering-Plough Corporation ............. 1,397,813
12,100 Warner-Lambert Co. ...................... 1,500,400
--------------
6,640,059
--------------
15
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
================================================================================
SHARES COMMON STOCKS--(CONTINUED) VALUE
------ -----
POLLUTION CONTROL--2.2%
27,100 USA Waste Services, Inc.* ................ $ 1,063,675
--------------
RETAILING--10.4%
16,400 CVS Corp. ................................ 1,050,633
29,350 Home Depot,Inc. .......................... 1,727,981
21,000 Rite Aid Corp. ........................... 1,232,448
23,000 Wal-Mart Stores Inc. ..................... 907,074
--------------
4,918,136
--------------
SEMICONDUCTORS--1.4%
11,600 Linear Technology Corporation ............ 668,450
--------------
TOTAL COMMON STOCKS
(COST $36,963,512) ..................... 44,220,836
--------------
PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS--6.9%
------
SHORT-TERM CORPORATE NOTES --5.1%
$1,100,000 Four Winds Funding Co.,
6.06%,1/5/98 (a) ....................... 1,099,259
1,300,000 Merrill Lynch & Co. Inc.,
6.05%,1/9/98 ........................... 1,298,253
--------------
TOTAL SHORT-TERM CORPORATE NOTES
(COST $2,397,512) ....................... 2,397,512
--------------
VALUE
-----
SECURITIES HELD UNDER
REPURCHASE AGREEMENTS--1.8%
Securities Held Under Repurchase
Agreements, 6.25%, 1/2/98, with Bear,
Stearns & Co. Inc., dtd 12/31/97,
repurchase price $867,452;
collateralized by U.S. Treasury Strips
(par value
$3,730,000 due 11/15/21) ............... $ 867,151
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $3,264,663) ..................... 3,264,663
--------------
TOTAL INVESTMENTS
(COST $40,228,175)(b) .................... 100.2% 47,485,499
Liabilities In Excess Of Other Assets ...... (.2) (86,607)
----- --------------
NET ASSETS ................................. 100.0% $ 47,398,892
===== ==============
- --------------------------------------------------------------------------------
* Non-income producing security.
(a) Pursuant to Securities and Exchange Commission Rule 144A, these securities
may be sold prior to their maturity only to qualified institutional buyers.
(b) At December 31, 1997, the net unrealized appreciation on investments based
on cost for federal income tax purposes of $40,228,175 amounted to
$7,257,324 which consisted of aggregate gross unrealized appreciation of
$7,321,827 and aggregate gross unrealized depreciation of $64,503.
16
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
ALGER AMERICAN INCOME AND GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
=============================================================================================================================
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 8.42 $ 17.79 $ 13.30 $ 15.31 $ 13.93
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.03 0.09(i) 0.11(i) 0.17 0.07
Net realized and unrealized gain
(loss) on investments 2.94 1.87 4.54 (1.47) 1.37
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.97 1.96 4.65 (1.30) 1.44
- -----------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.04) (0.33) (0.16) (0.15) (0.06)
Distributions from net realized gains (0.36) (11.00) -- (0.56) --
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.40) (11.33) (0.16) (0.71) (0.06)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 10.99 $ 8.42 $ 17.79 $ 13.30 $ 15.31
==============================================================================================================================
Total Return 36.29% 19.68% 35.13% (8.28%) 10.34%
=============================================================================================================================
Ratios and Supplemental Data:
Net assets, end of year (000's omitted) $47,399 $20,910 $ 8,639 $29,135 $31,895
=============================================================================================================================
Ratio of expenses to average net assets 0.74% 0.81% 0.75% 0.75% 0.97%
=============================================================================================================================
Ratio of net investment income to average
net assets 0.56% 0.94% 0.61% 1.22% 1.51%
=============================================================================================================================
Portfolio Turnover Rate 150.09% 121.60% 164.05% 177.97% 105.80%
=============================================================================================================================
Average Commission Rate Paid $ .0724 $ .0728
====================================================================================
(i) Amount was computed based on average shares outstanding during the year.
See Notes to Financial Statements.
17
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ALGER AMERICAN BALANCED PORTFOLIO
PORTFOLIO HIGHLIGHTS THROUGH DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$10,000 HYPOTHETICAL INVESTMENT SINCE INCEPTION September 5, 1989
- --------------------------------------------------------------------------------
[THE FOLLOWING CHART REPRESENTS A GRAPH]
<TABLE>
<CAPTION>
Date Alger American Balanced S&P 500 Lehman Brothers Govt/Corp Bond Index
- -------- ----------------------- ------- ------------------------------------
<S> <C> <C> <C>
09/05/89 $10,000 $10,000 $10,000
12/31/89 10,265 10,170 10,399
12/31/90 10,933 9,847 11,261
12/31/91 11,447 12,847 13,077
12/31/92 12,535 13,822 14,067
12/31/93 13,511 15,210 15,623
12/31/94 12,935 15,410 15,075
12/31/95 16,638 21,201 17,975
12/31/96 18,329 26,113 18,501
12/31/97 21,961 32,095 20,305
</TABLE>
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in the Alger American Balanced Portfolio, the S&P 500 Index,
and the Lehman Brothers Government/Corporate Bond Index on September 5,
1989, the inception date of the Alger American Balanced Portfolio. Figures
for the Alger American Balanced Portfolio, the S&P 500 Index, an unmanaged
index of common stocks, and the Lehman Brothers Government/Corporate Bond
Index, an unmanaged index of government and corporate bonds, include
reinvestment of dividends and/or interest.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON THROUGH December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Annual Total Returns
1 Year 5 Years Since Inception
-----------------------------------------
<S> <C> <C> <C>
Alger American Balanced Portfolio 19.82% 11.87% 9.92%
S&P 500 Index 33.36% 20.27% 16.17%
Lehman Brothers Gov't/Corp Bond Index 9.75% 7.61% 8.88%
-----------------------------------------
</TABLE>
PERFORMANCE FIGURES DO NOT REFLECT DEDUCTION OF INSURANCE CHARGES AGAINST
ASSETS OR ANNUITIES. IF THESE CHARGES WERE DEDUCTED, THE TOTAL RETURN
FIGURES WOULD BE LOWER. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
18
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
================================================================================
SHARES COMMON STOCKS--56.4% VALUE
------ -----
AEROSPACE--.6%
3,200 Gulfstream Aerospace Corp.* ................ $ 93,600
-----------
APPLIANCES & TOOLS--1.5%
6,100 Sunbeam Corp. .............................. 256,962
-----------
BROADCASTING--1.8%
10,000 CBS Corp. .................................. 294,380
-----------
BUILDING & CONSTRUCTION--.6%
2,100 Masco Corp. ................................ 106,837
-----------
BUSINESS SERVICES--.9%
3,500 Cognizant Corp. ............................ 155,970
-----------
COMMUNICATIONS--2.8%
2,200 America Online Inc.* ....................... 196,214
2,000 AT&T Corp. ................................. 122,500
4,600 WorldCom Inc.* ............................. 139,150
-----------
457,864
-----------
COMMUNICATION EQUIPMENT--3.0%
4,400 Bay Networks Inc.* ......................... 112,477
2,000 CIENA Corporation* ......................... 122,250
3,300 Cisco Systems, Inc.* ....................... 183,975
1,500 Tellabs, Inc.* ............................. 79,313
-----------
498,015
-----------
COMPUTER SOFTWARE--1.9%
2,600 HBO & Company .............................. 124,800
1,500 Microsoft Corporation* ..................... 193,875
-----------
318,675
-----------
CONGLOMERATE--2.0%
7,250 Tyco International Ltd. .................... 326,707
-----------
CONSUMER PRODUCTS--2.1%
8,550 Cendant Corp.* ............................. 293,905
1,500 Fortune Brands Inc. ........................ 55,595
-----------
349,500
-----------
DRUG DISTRIBUTION--1.7%
2,000 AmeriSource Health Corp Cl. A* ............. 116,500
1,600 Cardinal Health, lnc. ...................... 120,200
500 McKesson Corp. ............................. 54,094
-----------
290,794
-----------
ENERGY & ENERGY SERVICES--1.2%
1,600 Diamond Offshore Drilling Inc. ............. 77,000
2,100 Halliburton Co. ............................ 109,070
-----------
186,070
-----------
FINANCIAL SERVICES--8.7%
2,000 Banc One Corp. ............................. 108,626
2,700 BankAmerica Corp. .......................... 197,100
4,100 Bank of New York Inc. ...................... 237,033
600 CoreStates Financial Corp. ................. 48,038
4,000 Federal Home Loan Mortgage Corporation ..... 167,752
2,000 First Union Corp. .......................... 102,500
SHARES VALUE
------ -----
FINANCIAL SERVICES (CONTINUED)
400 Household International Inc. ............... $ 51,025
3,000 Money Store Inc. (The) ..................... 63,000
3,905 Morgan Stanley, Dean Witter,
Discover & Co. ........................... 230,883
3,300 Paine Webber Group Inc. .................... 114,058
3,000 Schwab (Charles) Corporation (The) ......... 125,813
-----------
1,445,828
-----------
FOODS BEVERAGES--.5%
2,300 PepsiCo, Inc. .............................. 83,807
-----------
FOOD CHAINS--1.0%
2,500 Safeway Inc.* .............................. 158,125
-----------
INSURANCE--3.8%
2,400 American International Group, Inc. ......... 261,000
1,600 MGIC Investment Corp. ...................... 106,400
4,800 Travelers Group Inc. ....................... 258,600
-----------
626,000
-----------
LEISURE & ENTERTAINMENT--2.6%
3,200 Carnival Corporation Cl. A ................. 177,200
10,000 International Game Technology .............. 252,500
-----------
429,700
-----------
MEDICAL DEVICES--1.5%
4,000 Guidant Corp. .............................. 249,000
-----------
PHARMACEUTICALS--6.9%
3,400 Bristol Myers Squibb Co. ................... 321,725
2,600 Eli Lilly & Company ........................ 181,025
1,000 Pfizer Inc. ................................ 74,563
4,700 Schering-Plough Corporation ................ 291,988
2,200 Warner-Lambert Co. ......................... 272,800
-----------
1,142,101
-----------
POLLUTION CONTROL--.8%
3,300 USA Waste Services, Inc.* .................. 129,525
-----------
RETAILING--4.6%
1,400 CVS Corp. .................................. 89,688
5,400 Home Depot, lnc. ........................... 317,925
3,600 Staples Inc.* .............................. 99,900
6,700 Wal-Mart Stores Inc. ....................... 264,235
-----------
771,748
-----------
REAL ESTATE INVESTMENT TRUST--.3%
1,687 Equity Office Properties Trust ............. 53,247
-----------
SEMICONDUCTORS--1.3%
3,100 Altera Corporation* ........................ 102,688
2,100 Linear Technology Corporation .............. 121 ,013
-----------
223,701
-----------
TOYS--1.1%
5,000 Mattel Inc. ................................ 186,250
-----------
19
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN BALANCED PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
SHARES COMMON STOCKS (CONTINUED) VALUE
------ -----
TRANSPORTATION--3.2%
2,300 AMR Corp.* ...................................$ 295,550
2,600 Burlington Northern Santa Fe Co. ............. 241,639
-----------
537,189
-----------
TOTAL COMMON STOCKS
(COST $7,760,050) .......................... 9,371,595
-----------
PRINCIPAL
AMOUNT CORPORATE BONDS--15.2%
--------
AUTOMOTIVE--2.7%
$200,000 Ford Motor B.V.,
9.50%, 6/1/10 .............................. 247,696
200,000 General Motors Acceptance Corp.,
7.125%, 6/1/99 ............................. 202,568
-----------
450,264
-----------
COMPUTER RELATED--2.7%
440,000 International Business Machines Corp.,
6.45%, 8/1/07 .............................. 439,912
-----------
CONGLOMERATE--1.2%
200,000 GE Capital Corp.,
7.25%, 6/5/12 .............................. 201,040
-----------
ELECTRIC & GAS COMPANIES--.6%
100,000 Cincinnati Gas & Electric Co.,
7.20%, 10/1/23 ............................. 102,875
-----------
FINANCIAL SERVICES--4.3%
Bank America Corp.,
200,000 6.625%, 10/15/07 ........................... 199,960
100,000 7.125%, 5/12/05+ ........................... 103,738
200,000 Citicorp.,
7.125%, 6/1/03 ............................. 207,674
200,000 Transamerica Financial Corp.,
7.85%, 10/21/99 ............................ 204,500
-----------
715,872
-----------
INSURANCE--.6%
100,000 Travelers Group Inc.,
7.75%, 6/15/99 ............................. 102,166
-----------
LEISURE & ENTERTAINMENT--1.8%
300,000 Walt Disney Corp.,
6.375%, 3/30/01+ ........................... 301,947
-----------
POLLUTION CONTROL--1.3%
200,000 Waste Management Inc.,
8.25%, 11/15/99 ............................ 206,078
-----------
TOTAL CORPORATE BONDS
(COST $2,550,180) .......................... 2,520,154
-----------
PRINCIPAL U.S. GOVERNMENT &
AMOUNT AGENCY OBLIGATIONS--12.1% VALUE
-------- -----
$200,000 U.S. Treasury Notes,
7.50%, 10/31/99 ............................$ 206,188
400,000 Federal Home Loan Bank Corporation,
8.02%, 1/30/12 ............................. 400,688
300,000 Federal Home Loan Bank Corporation,
7.58%, 7/9/12 .............................. 299,940
400,000 Federal Home Loan Bank Corporation,
7.30%, 12/24/12 ............................ 399,564
500,000 Federal Home Loan Mortgage Corporation,
7.00%, 3/6/07 .............................. 497,265
200,000 Federal National Mortgage Association,
8.50%, 2/1/05 .............................. 209,562
-----------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (COST $2,002,188) .............. 2,013,207
-----------
SHORT-TERM INVESTMENTS--15.7%
SHORT-TERM CORPORATE NOTES--13.8%
750,000 Dow Chemical Co.,
5.80%,1/5/98 ............................... 749,517
400,000 Elf Aquitaine Finance (S.A.),
6.15%,1/7/98 ............................... 399,590
400,000 Merrill Lynch & Co. Inc.,
6.05%,1/9/98 ............................... 399,462
750,000 PHH Corp.,
5.85%, 1/6/98 .............................. 749,391
-----------
TOTAL SHORT-TERM CORPORATE NOTES
(COST $2,297,960) .......................... 2,297,960
-----------
SECURITIES HELD UNDER
REPURCHASE AGREEMENTS--1.9%
Securities Held Under Repurchase
Agreements, 6.25%, 1/2/98, with Bear,
Stearns & Co. Inc., dtd 12/31/97,
repurchase price $313,533;
collateralized by U.S. Treasury Strips
(par value
$920,000 due 8/15/15) ...................... 313,424
-----------
TOTAL SHORT-TERM INVESTMENTS
(COSTS $2,611,384) ......................... 2,611,384
-----------
TOTAL INVESTMENTS
(COST $14,923,802) (a) ...................... 99.4% 16,516,340
Other Assets in Excess of Liabilities ......... .6 97,410
----- -----------
NET ASSETS .................................... 100.0% $16,613,750
===== ===========
- --------------------------------------------------------------------------------
* Non-income producing security.
+ Security partially or fully on loan.
(a) At December 31, 1997, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $14,923,802, amounted to
$1,592,538 which consisted of aggregate gross unrealized appreciation of
$1,733,778 and aggregate gross unrealized depreciation of $141,240.
See Notes to Financial Statements.
20
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN BALANCED PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR
<TABLE>
<CAPTION>
=================================================================================================================================
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.24 $ 13.64 $ 10.80 $ 11.58 $ 10.77
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.17 0.21(i) 0.33(i) 0.20 0.15
Net realized and unrealized gain
(loss) on investments 1.63 1.01 2.73 (0.70) 0.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.80 1.22 3.06 (0.50) 0.84
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.12) (0.73) (0.22) (0.13) (0.03)
Distributions from net realized gains (0.16) (4.89) -- (0.15) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.28) (5.62) (0.22) (0.28) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 10.76 $ 9.24 $ 13.64 $ 10.80 $ 11.58
=================================================================================================================================
Total Return 19.82% 10.17% 28.62% (4.27%) 7.79%
=================================================================================================================================
Ratios and Supplemental Data:
Net assets, end of year (000's omitted) $16,614 $10,486 $ 3,671 $ 10,394 $ 7,848
=================================================================================================================================
Ratio of expenses to average net
assets 1.01% 1.14% 1.00% 1.08% 1.25%
=================================================================================================================================
Decrease reflected in above expense
ratios due to expense
reimbursements -- -- -- -- 0.19%
=================================================================================================================================
Ratio of net investment income to
average net assets 2.14% 2.06% 2.49% 2.30% 2.05%
=================================================================================================================================
Portfolio Turnover Rate 105.01% 68.66% 113.02% 78.80% 85.46%
=================================================================================================================================
Average Commission Rate Paid $ .0712 $ .0712
=================================================================================
(i) Amount was computed based on average shares outstanding during the year.
See Notes to Financial Statements.
21
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
PORTFOLIO HIGHLIGHTS THROUGH DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$10,000 HYPOTHETICAL INVESTMENT SINCE INCEPTION May 3, 1993
- --------------------------------------------------------------------------------
[THE FOLLOWING CHART REPRESENTS A GRAPH]
Date Alger Midcap Growth S&P Midcap 400
- -------- ------------------- --------------
05/23/93 $10,000 $10,000
12/31/93 13,867 11,297
12/31/94 13,653 10,893
12/31/95 19,722 14,624
12/31/96 22,068 17,001
12/31/97 25,380 22,483
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in the Alger American MidCap Growth Portfolio and the S&P
MidCap 400 Index on May 3, 1993, the inception date of the Alger American
MidCap Growth Portfolio. Figures for the Alger American MidCap Growth
Portfolio and the S&P MidCap 400 Index, an unmanaged index of common stocks,
include reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON THROUGH December 31, 1997
- --------------------------------------------------------------------------------
Average Annual Total Return
1 Year Since Inception
----------------------------------
Alger American MidCap Growth Portfolio 15.01% 22.09%
S&P MidCap 400 Index 32.25% 18.96%
----------------------------------
PERFORMANCE FIGURES DO NOT REFLECT DEDUCTION OF INSURANCE CHARGES AGAINST
ASSETS OR ANNUITIES. IF THESE CHARGES WERE DEDUCTED, THE TOTAL RETURN
FIGURES WOULD BE LOWER. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
22
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
================================================================================
SHARES COMMON STOCKS--92.5% VALUE
------ -----
AEROSPACE--1.1%
166,000 Gulfstream Aerospace Corp.* ................ $ 4,855,500
------------
APPAREL--.5%
90,100 Nautica Enterprises Inc.* .................. 2,094,825
------------
APPLIANCES & TOOLS--3.2%
336,000 Sunbeam Corp. .............................. 14,154,000
------------
BIO-TECHNOLOGY--1.3%
278,200 BioChem Pharma Inc.*+ ...................... 5,807,425
------------
BUILDING & CONSTRUCTION--2.0%
175,900 Masco Corp. ................................ 8,948,913
------------
BUSINESS SERVICES--4.8%
304,100 Cognizant Corp. ............................ 13,551,608
22,600 Consolidation Capital Corp.* ............... 459,074
142,300 Paychex, Inc. .............................. 7,203,938
------------
21,214,620
------------
COMMUNICATIONS--1.2%
61,400 America Online Inc.* ....................... 5,476,143
------------
COMMUNICATION EQUIPMENT--5.7%
109,000 Advanced Fibre Communications Inc.* ........ 3,174,625
156,700 Bay Networks Inc.* ......................... 4,005,722
120,300 CIENA Corporation* ......................... 7,353,338
98,700 Cisco Systems, Inc.* ....................... 5,502,525
96,400 Tellabs, Inc.* ............................. 5,097,150
------------
25,133,360
------------
COMPUTER SERVICES--.6%
72,500 Sterling Commerce, Inc.* ................... 2,786,755
------------
COMPUTER SOFTWARE--3.8%
36,500 Citrix Systems, Inc.* ...................... 2,774,000
297,700 HBO & Company .............................. 14,289,600
------------
17,063,600
------------
COMPUTER TECHNOLOGY
171 Dataware Technologies Inc.* ................ 449
------------
CONGLOMERATE--1.8%
181,574 Tyco International Ltd. .................... 8,182,269
------------
CONSUMER PRODUCTS--3.2%
338,750 Cendant Corp.* ............................. 11,644,531
75,000 Fortune Brands Inc. ........................ 2,779,725
------------
14,424,256
------------
DRUG DISTRIBUTION--8.9%
135,000 AmeriSource Health Corp. Cl. A* ............ 7,863,750
198,300 Bergen Brunswig Corp. Cl. A ................ 8,353,388
140,600 Cardinal Health, lnc. ...................... 10,562,575
73,700 McKesson Corp. ............................. 7,973,456
170,700 Omnicare, Inc. ............................. 5,291,700
------------
40,044,869
------------
SHARES VALUE
------ -----
ENERGY & ENERGY SERVICES--2.2%
69,900 Diamond Offshore Drilling Inc. ............. $ 3,363,938
90,000 Global Industries Ltd.* .................... 1,530,000
88,800 Halliburton Co. ............................ 4,612,094
------------
9,506,032
------------
FINANCIAL SERVICES--9.2%
83,500 Dime Community Bancorp, Inc. ............... 2,525,875
173,000 INMC Mortgage Holdings Inc. ................ 4,054,774
434,900 Money Store Inc. (The)+ .................... 9,132,900
178,050 Paine Webber Group Inc. .................... 6,153,942
150,000 Sovereign Bancorp Inc. ..................... 3,112,500
54,700 Star Banc Corp. ............................ 3,138,413
134,300 State Street Corp. ......................... 7,814,648
117,100 SunAmerica Inc. ............................ 5,006,025
------------
40,939,077
------------
FOODS & BEVERAGES--.6%
89,500 International Home Foods Inc.* ............. 2,506,000
------------
INSURANCE--2.9%
197,000 MGIC Investment Corp. ...................... 13,100,500
------------
LEISURE & ENTERTAINMENT--6.2%
168,500 Carnival Corporation Cl. A ................. 9,330,688
9,700 Family Golf Centers Inc.* .................. 304,337
555,900 International Game Technology .............. 14,036,475
174,600 Mirage Resorts, Incorporated* .............. 3,972,150
------------
27,643,650
------------
MANUFACTURING--1.4%
152,200 Leggett & Platt Inc. ....................... 6,373,375
------------
MEDICAL DEVICES--5.5%
23,300 Biomatrix Inc.* ............................ 699,000
230,200 Biomet Inc. ................................ 5,898,875
176,100 Guidant Corp. .............................. 10,962,225
107,600 Mentor Corp. ............................... 3,927,400
53,000 Safeskin Corp.*+ ........................... 3,007,750
------------
24,495,250
------------
MEDICAL SERVICES--1.2%
196,800 Quorum Health Group Inc.* .................. 5,141,400
------------
PHARMACEUTICALS--1.9%
163,400 Elan Corp PLC-ADR*+ ........................ 8,364,119
------------
POLLUTION CONTROL--3.5%
130,100 Allied Waste Industries Inc.* .............. 3,033,020
321,120 USA Waste Services, Inc.* .................. 12,603,960
------------
15,636,980
------------
REAL ESTATE INVESTMENT TRUST--1.1%
56,400 Boston Properties, Inc.* ................... 1,864,753
90,571 Equity Office Properties Trust ............. 2,858,692
------------
4,723,445
------------
23
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
================================================================================
SHARES COMMON STOCKS (CONTINUED) VALUE
------ -----
RETAILING--10.2%
59,400 BJ's Wholesale Club Inc.* .................. $ 1,863,675
236,400 Borders Group Inc.* ........................ 7,402,393
90,500 CVS Corp. .................................. 5,797,701
293,200 CompUSA Inc.* .............................. 9,089,200
344,900 General Nutrition Companies, Inc* .......... 11,726,600
86,600 Rite Aid Corp. ............................. 5,082,381
158,000 Staples Inc.* .............................. 4,384,500
------------
45,346,450
------------
SEMICONDUCTORS--2.4%
115,000 Altera Corporation* ........................ 3,809,375
121,700 Linear Technology Corporation .............. 7,012,963
------------
10,822,338
------------
TOYS--1.9%
224,000 Mattel Inc. ................................ 8,344,000
------------
TRANSPORTATION--4.2%
67,600 AMR Corp.* ................................. 8,686,600
58,000 Alaska Air Group Inc.* ..................... 2,247,500
76,000 Coach USA Inc.* ............................ 2,546,000
102,900 Continental Airlines Inc. Cl. B*+ .......... 4,952,063
------------
18,432,163
------------
TOTAL COMMON STOCKS
(COST $341,957,585) ...................... 411,561,763
------------
PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS--8.6% VALUE
-------- -----
SHORT-TERM CORPORATE NOTES--7.3%
$10,500,000 Elf Aquitaine Finance (S.A.),
6.15%, 1/7/98 ............................ $ 10,489,237
12,000,000 Merrill Lynch & Co. Inc.,
6.05%, 1/9/98 ............................ 11,983,867
10,000,000 PHH Corp.,
5.85%, 1/6/98 ............................ 9,991,875
------------
TOTAL SHORT-TERM CORPORATE NOTES
(COST $32,464,979) ....................... 32,464,979
------------
SECURITIES HELD UNDER
REPURCHASE AGREEMENTS--1.3%
Securities Held Under Repurchase
Agreements, 6.25%, 1/2/98, with Bear,
Stearns & Co. Inc., dtd 12/31/97,
repurchase price $5,797,631;
collateralized by U.S. Treasury Strips
(par value
$12,364,000 due 8/15/02-8/15/15) ......... 5,795,619
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $38,260,598) ....................... 38,260,598
------------
TOTAL INVESTMENTS
(COST $380,218,183)(a) ..................... 101.1% 449,822,361
Liabilities in Excess of Other Assets ........ (1.1) (4,855,661)
----- ------------
NET ASSETS ................................... 100.0% $444,966,700
===== ============
- --------------------------------------------------------------------------------
* Non-income producing security.
+ Security partially or fully on loan.
(a) At December 31, 1997, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $380,218,183 amounted to
$69,604,178 which consisted of aggregate gross unrealized appreciation of
$74,019,327 and gross unrealized depreciation of $4,415,149.
See Notes to Financial Statements.
24
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
====================================================================================================================================
FROM MAY 3, 1993
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
------------------------------------------------------- OPERATIONS)
1997 1996 1995 1994 TO DECEMBER 31, 1993(i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.35 $ 19.44 $ 13.46 $ 13.72 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.04) 0.03 (0.03) 0.00(ii) (0.02)
Net realized and unrealized gain
(loss) on investments 3.20 2.29 6.01 (0.21) 3.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.16 2.32 5.98 (0.21) 3.86
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.01) -- -- -- --
Distributions from net realized gains (0.32) (0.41) -- (0.05) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.33) (0.41) -- (0.05) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.18 $ 21.35 $ 19.44 $ 13.46 $ 13.72
====================================================================================================================================
Total Return 15.01% 11.90% 44.45% (1.54%) 38.67%
====================================================================================================================================
Ratios and Supplemental Data:
Net assets, end of period (000's omitted) $ 444,967 $394,847 $185,349 $ 62,178 $ 21,301
====================================================================================================================================
Ratio of expenses to average net assets 0.84% 0.84% 0.90% 0.97% 1.50%
====================================================================================================================================
Decrease reflected in above expense ratio
due to expense reimbursements -- -- -- -- 0.03%
====================================================================================================================================
Ratio of net investment
net assets income (loss) to average (0.15%) 0.08% (0.25%) 0.03% (0.58%)
====================================================================================================================================
Portfolio Turnover Rate 151.98% 90.97% 104.74% 83.96% 67.22%
====================================================================================================================================
Average Commission Rate Paid $ .0676 $ .0663
================================================================================
(i) Ratios have been annualized; total return has not been annualized.
(ii) Amount was computed based on average shares outstanding during the period.
See Notes to Financial Statements.
25
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
PORTFOLIO HIGHLIGHTS THROUGH DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$10,000 HYPOTHETICAL INVESTMENT SINCE INCEPTION January 25, 1995
- --------------------------------------------------------------------------------
[THE FOLLOWING CHART REPRESENTS A GRAPH]
Date Alger Leveraged AllCap Growth S&P Midcap 500
---- ----------------------------- --------------
01/25/95 $10,000 $10,000
12/31/95 17,430 13,480
12/31/96 19,529 16,586
12/31/97 23,372 22,120
The chart above illustrates the growth in value of a hypothetical $10,000
investment made in the Alger American Leveraged AllCap Portfolio and the S&P
500 Index on January 25, 1995, the inception date of the Alger American
Leveraged AllCap Portfolio. Figures for the Alger American Leveraged AllCap
Portfolio and the S&P 500 Index, an unmanaged index of common stocks,
include reinvestment of dividends.
- --------------------------------------------------------------------------------
PERFORMANCE COMPARISON THROUGH December 31, 1997
- --------------------------------------------------------------------------------
Average Annual Total Return
1 Year Since Inception
-------------------------------
Alger American Leveraged AllCap Portfolio 19.68% 33.55%
S&P 500 Index 33.36% 31.07%
-------------------------------
PERFORMANCE FIGURES DO NOT REFLECT DEDUCTION OF INSURANCE CHARGES AGAINST
ASSETS OR ANNUITIES. IF THESE CHARGES WERE DEDUCTED, THE TOTAL RETURN
FIGURES WOULD BE LOWER. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
26
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997
================================================================================
SHARES COMMON STOCKS--95.5% VALUE
------ -----
APPLIANCES & TOOLS--1.0%
12,000 Sunbeam Corp. .............................. $ 505,500
-----------
AUTOMOTIVE EQUIPMENT & SERVICES--1.1%
19,000 Avis Rent A Car Inc.* ...................... 606,821
-----------
BIO-TECHNOLOGY--1.3%
15,500 INCYTE Pharmaceuticals, Inc.* .............. 697,500
-----------
BROADCASTING--2.2%
40,100 CBS Corp ................................... 1,180,464
-----------
BUSINESS SERVICES--1.1%
12,700 Cognizant Corp. ............................ 565,950
-----------
COMMUNICATIONS--4.5%
4,500 AT&T Corp. ................................. 275,625
19,500 America Online Inc.* ....................... 1,739,165
13,700 WorldCom Inc.* ............................. 414,425
-----------
2,429,215
-----------
COMMUNICATION EQUIPMENT--6.1%
23,000 Advanced Fibre Communications Inc.* ........ 669,875
34,600 Bay Networks Inc.* ......................... 884,480
19,300 CIENA Corporation.* ........................ 1,179,713
10,300 Tellabs, Inc.* ............................. 544,613
-----------
3,278,681
-----------
COMPUTER SERVICES--1.2%
10,300 Sterling Commerce, Inc.* ................... 395,911
15,500 Transaction Network Services Inc.*+ ........ 267,375
-----------
663,286
-----------
COMPUTER SOFTWARE--4.3%
17,500 HBO & Company .............................. 840,000
11,500 Microsoft Corporation* ..................... 1,486,375
-----------
2,326,375
-----------
CONGLOMERATE--3.5%
41,730 Tyco International Ltd. .................... 1,880,479
-----------
DRUG DISTRIBUTION--3.3%
9,000 AmeriSource Health Corp Cl. A* ............. 524,250
11,200 McKesson Corp. ............................. 1,211,706
-----------
1,735,956
-----------
ENERGY & ENERGY SERVICES--2.9%
8,400 Diamond Offshore Drilling Inc.+ ............ 404,250
10,800 Halliburton Co. ............................ 560,930
7,000 Schlumberger Ltd. .......................... 563,500
-----------
1,528,680
-----------
FINANCIAL SERVICES--14.5%
18,300 BankAmerica Corp. .......................... 1,335,900
22,300 Bank of New York Inc. ...................... 1,289,230
14,100 Federal Home Loan Mortgage Corporation ..... 591,326
10,900 First Union Corp. .......................... 558,625
7,400 Household International Inc. ............... 943,966
30,000 INMC Mortgage Holdings Inc. ................ 703,140
14,600 Money Store Inc. (The) ..................... 306,600
SHARES VALUE
------ -----
FINANCIAL SERVICES (CONTINUED)
19,470 Morgan Stanley, Dean Witter, Discover & Co.. $ 1,151,164
21,300 Schwab (Charles) Corporation (The) ......... 893,279
-----------
7,773,230
-----------
FOOD CHAINS--1.3%
10,600 Safeway Inc.* .............................. 670,450
-----------
INSURANCE--6.3%
8,900 American International Group Inc. .......... 967,875
18,800 MGIC Investment Corp. ...................... 1,250,200
21,100 Travelers Group Inc. ....................... 1,136,763
-----------
3,354,838
-----------
LEISURE & ENTERTAINMENT--2.7%
11,000 Carnival Corporation Cl. A ................. 609,125
33,000 International Game Technology .............. 833,250
-----------
1,442,375
-----------
MEDICAL DEVICES--4.7%
14,700 ESC Medical Systems Ltd.* .................. 569,625
31,600 Guidant Corp. .............................. 1,967,100
-----------
2,536,725
-----------
OIL & GAS--.9%
10,000 EVI Inc.* .................................. 517,500
-----------
PHARMACEUTICALS--14.2%
14,000 Bristol Myers Squibb Co. ................... 1,324,750
20,100 Elan Corp PLC-ADR* ......................... 1,028,879
14,600 Eli Lilly & Company ........................ 1,016,525
15,300 Pfizer Inc. ................................ 1,140,814
25,600 Schering-Plough Corporation ................ 1,590,400
11,800 Warner-Lambert Co. ......................... 1,463,200
-----------
7,564,568
-----------
POLLUTION CONTROL--2.1%
28,540 USA Waste Services, Inc.* .................. 1,120,195
-----------
REAL ESTATE INVESTMENT TRUST--1.6%
9,140 Equity Office Properties Trust ............. 288,486
10,000 Starwood Lodging Trust ..................... 578,750
-----------
867,236
-----------
RETAILING--11.8%
12,000 CVS Corp. .................................. 768,756
31,950 Home Depot, Inc. ........................... 1,881,056
23,000 Rite Aid Corp. ............................. 1,349,824
34,300 Staples Inc.* .............................. 951,825
34,200 Wal-Mart Stores Inc. ....................... 1,348,780
-----------
6,300,241
-----------
SEMICONDUCTORS--2.9%
17,400 Altera Corporation* ........................ 576,375
17,000 Linear Technology Corporation .............. 979,625
-----------
1,556,000
-----------
TOTAL COMMON STOCKS
(COST $44,411,723) ....................... 51,102,265
-----------
27
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 1997 (CONT'D)
================================================================================
PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS--4.6% VALUE
--------- -----
SHORT-TERM CORPORATE NOTES--3.8%
$1,000,000 Four Winds Funding Co.,
6.06%, 1/5/98 (a) ........................ $ 999,326
1,000,000 Merrill Lynch & Co. Inc.,
6.05%, 1/9/98 ............................ 998,656
-----------
TOTAL SHORT-TERM CORPORATE NOTES
(COST $1,997,982) ........................ 1,997,982
-----------
SECURITIES HELD UNDER
REPURCHASE AGREEMENTS--.8%
Securities Held Under Repurchase
Agreements, 6.25%,1/2/98, with Bear,
Stearns & Co. Inc., dtd 12/31/97,
repurchase price $421,447;
collateralized by U.S. Treasury Strips
(par value
$1,515,000 due 11/15/18) ................. 421,301
-----------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,419,283) ........................ 2,419,283
-----------
TOTAL INVESTMENTS
(COST $46,831,006) (b) ..................... 100.1% 53,521,548
Liabilities in Excess Of Other Assets ........ (.1) (33,550)
----- -----------
NET ASSETS ................................... 100.0% $53,487,998
===== ===========
- --------------------------------------------------------------------------------
* Non-income producing security.
+ Security partially or fully on loan.
(a) Pursuant to Securities and Exchange Commission Rule 144A, these securities
may be sold prior to their maturity only to qualified institutional buyers.
(b) At December 31, 1997, the net unrealized appreciation on investments, based
on cost for federal income tax purposes of $46,831,006 amounted to
$6,690,542 which consisted of aggregate gross unrealized appreciation of
$7,440,171 and gross unrealized depreciation of $749,629.
See Notes to Financial Statements.
28
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
FINANCIAL HIGHLIGHTS
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
====================================================================================================================================
FROM JANUARY 25, 1995
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
------------------------------------ OPERATIONS)
1997 1996 TO DECEMBER 31, 1995(i)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.36 $ 17.43 $ 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.03) (0.03)(ii) (0.03)
Net realized and unrealized gain on investments 3.84 2.14 7.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.81 2.11 7.43
Distribution from net realized gains -- (0.18) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.17 $ 19.36 $ 17.43
====================================================================================================================================
Total Return 19.68% 12.04% 74.30%
====================================================================================================================================
Ratios and Supplemental Data:
Net assets, end of period (000's omitted) $ 53,488 $ 34,925 $ 5,497
====================================================================================================================================
Ratio of expenses excluding interest to average net assets 0.96% 1.06% 1.50%
====================================================================================================================================
Ratio of expenses including interest to average net assets 1.00% 1.09% 1.56%
====================================================================================================================================
Decrease reflected in above expense ratios
due to expense reimbursements -- -- 2.36%
====================================================================================================================================
Ratio of net investment loss to average net assets (0.17%) (0.15%) (0.71%)
====================================================================================================================================
Portfolio Turnover Rate 164.27% 102.10% 178.23%
====================================================================================================================================
Amount of debt outstanding at end of period -- -- --
====================================================================================================================================
Average amount of debt outstanding during the period $ 201,644 $ 76,079 $ 8,122
====================================================================================================================================
Average daily number of shares outstanding during the period 2,135,458 $1,107,187 75,460
====================================================================================================================================
Average amount of debt per share during the period $ 0.09 $ 0.07 $ 0.11
====================================================================================================================================
Average Commission Rate Paid $ .0703 $ .0682
====================================================================================================================================
(i) Ratios have been annualized; total return has not been annualized.
(ii) Amount was computed based on average shares outstanding during the period.
See Notes to Financial Statements.
29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
=================================================================================================================================
AMERICAN AMERICAN
SMALL INCOME AMERICAN AMERICAN
AMERICAN CAPITALIZA- AND AMERICAN MIDCAP LEVERAGED
GROWTH TION GROWTH BALANCED GROWTH ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value
(identified cost*)--see accompany-
ing schedules of investments $1,041,875,018 $1,005,657,872 $47,485,499 $16,516,340 $449,822,361 $53,521,548
Receivable for investment securities
sold 38,186,519 14,720,290 -- 98,170 8,118,658 --
Receivable for shares of beneficial
interest sold 1,609,688 571,994 10,887 288,046 2,080,335 27,350
Interest and dividends receivable 628,356 213,181 30,739 91,708 180,033 29,227
Other assets 54,076 72,082 1,635 588 19,637 2,098
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets 1,082,353,657 1,021,235,419 47,528,760 16,994,852 460,221,024 53,580,223
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased 8,632,784 -- 72,596 359,191 14,824,145 --
Payable for shares of beneficial
interest redeemed 384,274 22,836,324 16,236 1,564 71,782 32,031
Accrued investment management fees 720,450 737,069 25,803 10,796 317,494 41,299
Accrued expenses 87,257 76,118 15,233 9,551 40,903 18,895
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 9,824,765 23,649,511 129,868 381,102 15,254,324 92,225
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,072,528,892 $ 997,585,908 $47,398,892 $16,613,750 $444,966,700 $53,487,998
=================================================================================================================================
NET ASSETS CONSIST OF:
Paid-in capital $ 692,612,447 $ 649,850,434 $34,571,756 $13,416,427 $337,701,891 $44,079,890
Undistributed net investment
income (accumulated loss) 3,262,091 (7,380,753) 205,238 287,336 (967,068) (119,678)
Undistributed net realized gain 198,354,499 131,575,233 5,364,574 1,317,449 38,627,699 2,837,244
Net unrealized appreciation 178,299,855 223,540,994 7,257,324 1,592,538 69,604,178 6,690,542
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,072,528,892 $ 997,585,908 $47,398,892 $16,613,750 $444,966,700 $53,487,998
=================================================================================================================================
Shares of beneficial interest
outstanding--Note 6 25,081,266 22,801,879 4,314,475 1,544,192 18,403,196 2,308,122
=================================================================================================================================
NET ASSET VALUE PER SHARE $ 42.76 $ 43.75 $ 10.99 $ 10.76 $ 24.18 $ 23.17
=================================================================================================================================
*Identified cost $ 863,575,163 $ 782,116,878 $40,228,175 $14,923,802 $380,218,183 $46,831,006
=================================================================================================================================
See Notes to Financial Statements.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
====================================================================================================================================
AMERICAN AMERICAN
SMALL INCOME AMERICAN AMERICAN
AMERICAN CAPITALIZA- AND AMERICAN MIDCAP LEVERAGED
GROWTH TION GROWTH BALANCED GROWTH ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Interest $ 4,376,996 $ 6,637,890 $ 99,300 $ 372,967 $ 1,412,147 $ 93,307
Dividends 8,330,272 4,707,309 355,467 60,306 1,651,649 296,772
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income 12,707,268 11,345,199 454,767 433,273 3,063,796 390,079
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Management fees-- Note 3(a) 8,988,054 12,582,027 217,844 103,223 3,536,454 399,269
Interest on line of credit utilized -- -- -- -- -- 17,347
Custodian fees 271,226 371,365 20,370 20,876 106,100 27,525
Transfer agent fees 2,500 2,500 2,500 2,500 2,500 2,500
Professional fees 56,068 54,582 6,099 4,868 25,570 7,082
Trustees' fees 4,000 4,000 4,000 4,000 4,000 4,000
Miscellaneous 108,224 150,850 8,078 3,151 42,762 11,667
- -----------------------------------------------------------------------------------------------------------------------------------
Total Expenses 9,430,072 13,165,324 258,891 138,618 3,717,386 469,390
- -----------------------------------------------------------------------------------------------------------------------------------
Net Investment Income
(Loss) 3,277,196 (1,820,125) 195,876 294,655 (653,590) (79,311)
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net realized gain on investments 199,900,299 139,147,522 5,378,374 1,319,306 38,971,626 3,587,761
Net change in unrealized appreciation
on investments 49,343,495 22,504,405 4,254,496 756,566 20,863,695 4,257,904
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments 249,243,794 161,651,927 9,632,870 2,075,872 59,835,321 7,845,665
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS $252,520,990 $159,831,802 $9,828,746 $ 2,370,527 $59,181,731 $7,766,354
===================================================================================================================================
See Notes to Financial Statements.
31
</TABLE>
<PAGE>
THE ALGER AMERICAN FUND
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
================================================================================
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Interest received $ 88,938
Dividends received 281,113
Interest paid (22,317)
Operating expenses paid (430,943)
Disposition (purchase) of short-term securities, net (1,021,152)
Purchase of portfolio securities (83,144,052)
Proceeds from disposition of portfolio securities 74,017,676
Other (1,640)
- --------------------------------------------------------------------------------
Net cash used in operating activities (10,232,377)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from shares sold 30,458,986
Payments on shares redeemed (19,312,173)
Decrease in cash collateral received on securities loaned (914,436)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 10,232,377
- --------------------------------------------------------------------------------
Net increase in cash --
Cash--beginning of year --
- --------------------------------------------------------------------------------
Cash--end of year $ --
================================================================================
RECONCILIATION OF NET INCREASE IN NET ASSETS
TO NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 7,766,354
Increase in investments (10,265,895)
Decrease in receivable for investments sold 118,367
Increase in interest and dividends receivable (20,028)
Net realized gain (3,587,761)
Net increase in unrealized appreciation (4,257,904)
Increase in accrued expenses 16,130
Net increase in other assets (1,640)
- --------------------------------------------------------------------------------
Net cash used in operating activities $(10,232,377)
================================================================================
See Notes to Financial Statements.
32
<PAGE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
====================================================================================================================================
AMERICAN
AMERICAN INCOME AMERICAN AMERICAN
AMERICAN SMALL AND AMERICAN MIDCAP LEVERAGED
GROWTH CAPITALIZATION GROWTH BALANCED GROWTH ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 3,277,196 $ (1,820,125) $ 195,876 $ 294,655 $ (653,590) $ (79,311)
Net realized gain on investments 199,900,299 139,147,522 5,378,374 1,319,306 38,971,626 3,587,761
Net change in unrealized appreciation
on investments 49,343,495 22,504,405 4,254,496 756,566 20,863,695 4,257,904
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 252,520,990 159,831,802 9,828,746 2,370,527 59,181,731 7,766,354
Dividends to shareholders:
Net investment income (3,760,721) -- (141,500) (155,278) (250,596) --
Net realized gains (6,810,754) (54,749,439) (1,170,590) (210,546) (6,110,692) --
Net increase (decrease) from
shares of beneficial interest
transactions-- Note 6 (160,448,991) (577,014,924) 17,971,996 4,123,363 (2,700,477) 10,796,374
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 81,500,524 (471,932,561) 26,488,652 6,128,066 50,119,966 18,562,728
Net Assets
Beginning of year 991,028,368 1,469,518,469 20,910,240 10,485,684 394,846,734 34,925,270
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $1,072,528,892 $ 997,585,908 $47,398,892 $16,613,750 $444,966,700 $53,487,998
====================================================================================================================================
Undistributed net investment income
(accumulated loss) $ 3,262,091 $ (7,380,753) $ 205,238 $ 287,336 (967,068) $ (119,678)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
THE ALGER AMERICAN FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
====================================================================================================================================
AMERICAN
AMERICAN INCOME AMERICAN AMERICAN
AMERICAN SMALL AND AMERICAN MIDCAP LEVERAGED
GROWTH CAPITALIZATION GROWTH BALANCED GROWTH ALLCAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 3,757,275 $ (1,171,148) $ 139,955 $ 153,453 $ 241,899 $ (32,302)
Net realized gain (loss) on investments 10,026,741 74,215,000 1,169,219 215,191 9,953,972 (496,035)
Net change in unrealized appreciation
(depreciation) on investments 75,821,385 (40,231,403) 1,638,507 327,089 17,131,537 2,028,927
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 89,605,401 32,812,449 2,947,681 695,733 27,327,408 1,500,590
Dividends to shareholders:
Net investment income (460,331) -- (229,100) (324,679) -- --
Net realized gains (19,459,452) (4,872,722) (7,658,484) (2,173,260) (5,502,860) (145,132)
Additional paid-in capital -- 1,653,352 -- -- -- --
Net increase from
shares of beneficial
interest transactions-- Note 6 418,369,211 455,713,242 17,210,684 8,616,721 187,673,423 28,072,726
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase 488,054,829 485,306,321 12,270,781 6,814,515 209,497,971 29,428,184
Net Assets
Beginning of year 502,973,539 984,212,148 8,639,459 3,671,169 185,348,763 5,497,086
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $ 991,028,368 $1,469,518,469 $20,910,240 $10,485,684 $394,846,734 $34,925,270
====================================================================================================================================
Undistributed net investment income
(accumulated loss) $ 3,745,616 $ (5,560,628) $ 150,862 $ 147,959 $ (62,882) $ (40,367)
====================================================================================================================================
See Notes to Financial Statements.
33
</TABLE>
<PAGE>
THE ALGER AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
================================================================================
NOTE 1--GENERAL:
The Alger American Fund (the "Fund") is a diversified, open-end registered
investment company organized as an unincorporated business trust under the laws
of the Commonwealth of Massachusetts. The Fund operates as a series company
currently issuing six series of shares of beneficial interest: American Growth
Portfolio, American Small Capitalization Portfolio, American Income and Growth
Portfolio, American Balanced Portfolio, American MidCap Growth Portfolio and
American Leveraged AllCap Portfolio (collectively "the Portfolios"). The
American Growth Portfolio, American Small Capitalization Portfolio, American
MidCap Growth Portfolio and American Leveraged AllCap Portfolio invest primarily
in equity securities and each has an investment objective of long-term capital
appreciation. The American Income and Growth Portfolio's primary investment
objective is to provide a high level of dividend income by investing primarily
in dividend-paying equity securities; capital appreciation is a second
objective. The American Balanced Portfolio's investment objectives are current
income and long-term capital appreciation which it seeks to achieve through
investing in equity and fixed income securities. Shares of the Portfolios are
available and are being marketed exclusively as a pooled funding vehicle for
qualified retirement plans and for life insurance companies writing all types of
variable annuity contracts and variable life insurance policies.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES:
(a) INVESTMENT VALUATION: Investments of the Portfolios are valued on each day
the New York Stock Exchange ("NYSE") is open as of the close of the NYSE
(normally 4:00 p.m. Eastern time). Listed and unlisted securities for which such
information is regularly reported are valued at the last reported sales price
or, in the absence of reported sales, at the mean between the bid and the 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.
Securities for which market quotations are not readily available are valued
according to procedures established by the Board of Trustees to determine fair
value in good faith.
Securities having a remaining maturity of sixty days or less are valued at
amortized cost which approximates market value.
(b) SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on a trade date basis. Resulting receivables and payables are carried
at amounts which approximate fair value. Realized gains and losses from security
transactions are recorded on the identified cost basis. Dividend income is
recognized on the ex-dividend date and interest income is recognized on the
accrual basis.
(c) REPURCHASE AGREEMENTS: The Portfolios enter into repurchase agreements with
approved institutions, primarily U.S. Government securities dealers. The
repurchase agreements are collateralized by U.S. Government securities which are
verified by the investment manager as being either received and held in physical
possession by the custodian or as having been received by such custodian in
book-entry form through the Federal Reserve book-entry system. The investment
manager monitors the value of the collateral at the time the repurchase
agreement is entered into and 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 Portfolio. Additional collateral is obtained when necessary.
(d) LENDING OF PORTFOLIO SECURITIES: The Portfolios lend their securities to
financial institutions, including an affiliate of the custodian, provided that
the market value of securities loaned will not at any time exceed one-third of
the Portfolio's total assets, as defined. The Portfolios earn fees on the
securities loaned which are included in interest income in the accompanying
Statements of Operations. In order to protect against the risk of failure by the
borrower to return the securities loaned or any delay in the delivery of such
securities, the investment manager ensures that the loan is collateralized by
cash, letters of credit or U.S. Government securities that are maintained at all
times in an amount equal to at least 100 percent of the current market value of
the loaned securities. At December 31, 1997, the value of securities loaned and
collateral received thereon were as follows:
VALUE OF
SECURITIES VALUE OF
LOANED COLLATERAL
----------- -----------
American Growth Portfolio........... $ 6,670,125 $ 6,803,795
American Small Capitalization
Portfolio........................ 112,827,261 115,084,103
American Income and Growth
Portfolio........................ -- --
American Balanced Portfolio......... 105,710 107,725
American MidCap Growth
Portfolio........................ 26,666,918 27,200,993
American Leveraged AllCap
Portfolio........................ 306,725 313,443
(e) DIVIDENDS TO SHAREHOLDERS: Dividends payable to shareholders are recorded by
the Fund on the ex-dividend date.
Dividends from net investment income are declared and paid annually.
34
<PAGE>
THE ALGER AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS (CONT'D)
DECEMBER 31, 1997
================================================================================
Dividends from net realized gains, offset by any loss carryforward, are declared
and paid annually after the end of the fiscal year in which earned.
(f) FEDERAL INCOME TAXES: It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of the taxable income, including net realized
capital gains, of each Portfolio to its respective shareholders. Therefore, no
federal income tax provision is required. Each Portfolio is treated as a
separate entity for the purpose of determining such compliance.
(g) EXPENSES: The Fund accounts separately for the assets, liabilities and
operations of each Portfolio. Expenses directly attributable to each Portfolio
are charged to that Portfolio's operations; expenses which are applicable to all
Portfolios are allocated among them.
(h) OTHER: These financial statements have been prepared using estimates and
assumptions that affect the reported amounts therein. Actual results may differ
from those estimates.
NOTE 3--INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES:
(a) INVESTMENT MANAGEMENT FEES: Fees incurred by each Portfolio, pursuant to the
provisions of the Investment Management Agreements (the "Agreements") with Fred
Alger Management, Inc. ("Alger Management"), are payable monthly and computed
based on the average daily net assets of each Portfolio at the following annual
rates:
American Growth Portfolio..................................... .750%
American Small Capitalization Portfolio....................... .850
American Income and Growth Portfolio.......................... .625
American Balanced Portfolio................................... .750
American MidCap Growth Portfolio.............................. .800
American Leveraged AllCap Portfolio........................... .850
The Agreements further provide that if in any fiscal year the aggregate
expenses, excluding interest, taxes, brokerage commissions, and extraordinary
expenses, of the American Growth Portfolio exceed 1.50%; the American Small
Capitalization Portfolio exceed 1.50%; the American Income and Growth Portfolio
exceed 1.25%; the American Balanced Portfolio exceed 1.25%; the American MidCap
Growth Portfolio exceed 1.50% and the American Leveraged AllCap Portfolio exceed
1.50% of the average daily net assets of the applicable Portfolio, Alger
Management will reimburse that Portfolio for the excess expenses.
(b) BROKERAGE COMMISSIONS: During the year ended December 31, 1997, the American
Growth Portfolio, American Small Capitalization Portfolio, American Income and
Growth Portfolio, American Balanced Portfolio, American MidCap Growth Portfolio
and the American Leveraged AllCap Portfolio paid Fred Alger & Company,
Incorporated ("Alger Inc.") $3,071,710, $3,122,828, $127,386, $23,971,
$1,220,558 and $146,246, respectively, in connection with securities
transactions.
(c) TRANSFER AGENCY FEES: The Fund has entered into a transfer agency agreement
with Alger Shareholder Services, Inc. ("Services"), whereby Services will act as
transfer agent for the Fund for a fee of $2,500 per year, per Portfolio, plus
out-of-pocket expenses.
NOTE 4--SECURITIES TRANSACTIONS:
Purchases and sales of securities, other than short-term securities, for the
year ended December 31, 1997, were as follows:
PURCHASES SALES
--------- -----
American Growth Portfolio........... $1,421,429,296 $1,628,944,088
American Small Capitalization
Portfolio........................ 1,386,863,484 2,010,688,167
American Income and Growth
Portfolio........................ 63,711,933 49,269,370
American Balanced Portfolio......... 15,401,391 11,963,812
American MidCap Growth
Portfolio........................ 625,451,561 649,655,141
American Leveraged AllCap
Portfolio........................ 83,144,052 73,899,224
NOTE 5--LINE OF CREDIT:
The American Leveraged AllCap Portfolio has a line of credit with its custodian
bank whereby it may borrow up to one-third of the value of its assets, as
defined, up to a maximum of $25,000,000. Such borrowings have a variable
interest rate and are payable on demand. During the year ended December 31,
1997, the American Leveraged AllCap Portfolio had borrowings which averaged
$201,644 at a weighted average interest rate of 8.48%.
NOTE 6--SHARE CAPITAL:
The Fund has an unlimited number of authorized shares of beneficial interest of
$.001 par value.
35
<PAGE>
THE ALGER AMERICAN FUND
NOTES TO FINANCIAL STATEMENTS (CONT'D)
DECEMBER 31, 1997
================================================================================
During the year ended December 31, 1996, transactions of shares of beneficial
interest were as follows:
SHARES AMOUNT
------ -------
American Growth
Portfolio:
Shares sold..................... 16,488,837 $ 655,951,502
Dividends reinvested............ 283,342 10,571,475
----------- --------------
16,772,179 666,522,977
Shares redeemed................. (20,559,387) (826,971,968)
----------- --------------
Net decrease.................. (3,787,208) $ (160,448,991)
--========= --============
SHARES AMOUNT
------ -------
American Small Capitalization
Portfolio:
Shares sold..................... 24,762,826 $1,038,991,957
Dividends reinvested............ 1,463,106 54,749,439
----------- --------------
26,225,932 1,093,741,396
Shares redeemed................. (39,348,743) (1,670,756,320)
----------- --------------
Net decrease.................. (13,122,811) $ (577,014,924)
--========= --============
SHARES AMOUNT
------ -------
American Income and Growth
Portfolio:
Shares sold..................... 2,857,584 $ 27,984,376
Dividends reinvested............ 142,001 1,312,090
----------- --------------
2,999,585 29,296,466
Shares redeemed................. (1,167,593) (11,324,470)
----------- --------------
Net increase.................. 1,831,992 $ 17,971,996
--========= --============
SHARES AMOUNT
------ -------
American Balanced
Portfolio:
Shares sold..................... 592,297 $ 6,003,090
Dividends reinvested............ 38,027 365,824
----------- --------------
630,324 6,368,914
Shares redeemed................. (220,624) (2,245,551)
----------- --------------
Net increase.................. 409,700 $ 4,123,363
--========= --============
SHARES AMOUNT
------ -------
American MidCap Growth
Portfolio:
Shares sold..................... 14,279,060 $ 328,791,802
Dividends reinvested............ 297,953 6,361,288
----------- --------------
14,577,013 335,153,090
Shares redeemed................. (14,668,073) (337,853,567)
----------- --------------
Net decrease.................. (91,060) $ (2,700,477)
--========= --============
SHARES AMOUNT
------ -------
American Leveraged AllCap
Portfolio:
Shares sold..................... 1,381,000 $ 30,139,481
Shares redeemed................. (876,756) (19,343,107)
----------- --------------
Net increase.................. 504,244 $ 10,796,374
=========== ==============
During the year ended December 31, 1996, transactions of shares of beneficial
interest were as follows:
SHARES AMOUNT
------ -------
American Growth
Portfolio:
Shares sold..................... 19,647,051 $ 642,965,537
Dividends reinvested............ 603,264 19,919,783
----------- -------------
20,250,315 662,885,320
Shares redeemed................. (7,525,422) (244,516,109)
----------- -------------
Net increase.................. 12,724,893 $ 418,369,211
=========== =============
SHARES AMOUNT
------ -------
American Small Capitalization
Portfolio:
Shares sold..................... 23,962,644 $ 986,432,069
Dividends reinvested............ 107,827 4,872,722
----------- -------------
24,070,471 991,304,791
Shares redeemed................. (13,122,238) (535,591,549)
----------- -------------
Net increase.................. 10,948,233 $ 455,713,242
=========== =============
SHARES AMOUNT
------ -------
American Income and Growth
Portfolio:
Shares sold..................... 1,280,083 $ 12,357,144
Dividends reinvested............ 1,064,451 7,887,584
----------- -------------
2,344,534 20,244,728
Shares redeemed................. (347,790) (3,034,044)
----------- -------------
Net increase.................. 1,996,744 $ 17,210,684
=========== =============
SHARES AMOUNT
------ -------
American Balanced
Portfolio:
Shares sold..................... 701,980 $ 7,239,916
Dividends reinvested............ 278,167 2,497,939
----------- -------------
980,147 9,737,855
Shares redeemed................. (114,847) (1,121,134)
----------- -------------
Net increase.................. 865,300 $ 8,616,721
=========== =============
SHARES AMOUNT
------ -------
American MidCap Growth
Portfolio:
Shares sold..................... 16,365,480 $ 340,608,341
Dividends reinvested............ 252,773 5,502,860
----------- -------------
16,618,253 346,111,201
Shares redeemed................. (7,657,192) (158,437,778)
----------- -------------
Net increase.................. 8,961,061 $ 187,673,423
=========== =============
SHARES AMOUNT
------ -------
American Leveraged AllCap
Portfolio:
Shares sold..................... 2,109,229 $ 39,694,878
Dividends reinvested............ 7,221 145,132
----------- -------------
2,116,450 39,840,010
Shares redeemed................. (627,954) (11,767,284)
----------- -------------
Net increase.................. 1,488,496 $ 28,072,726
=========== =============
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND
BOARD OF TRUSTEES OF THE ALGER AMERICAN FUND:
We have audited the accompanying statements of assets and liabilities, including
the schedules of investments, of The Alger American Fund (a Massachusetts
business trust comprising, respectively, the Alger American Growth Portfolio,
Alger American Small Capitalization Portfolio, Alger American Income and Growth
Portfolio, Alger American Balanced Portfolio, Alger American MidCap Growth
Portfolio and Alger American Leveraged AllCap Portfolio) as of December 31,
1997, and the related statements of operations and cash flows for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting The Alger American Fund as of December
31, 1997, the results of their operations and cash flows for the year then
ended, the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
February 2, 1998
37
