UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05550
The Alger Portfolios
Alger Weatherbie Specialized Growth Portfolio
(Exact name of registrant as specified in charter)
100 Pearl Street New York, New York 10004
(Address of principal executive offices) (Zip code)
Mr. Hal Liebes
Fred Alger Management, LLC
100 Pearl Street
New York, New York 10004
(Name and address of agent for service)
Registrant's telephone number, including area code: 212-806-8800
Date of fiscal year end: December 31
Date of reporting period: December 31, 2021
Form N-CSR is to be used by management investment companies to file reports with the Commission, not later than 10 days after the transmission to Stockholders of any report to be transmitted to Stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. | REPORTS TO STOCKHOLDERS. |
Table of Contents
ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO
1 | |
9 | |
11 | |
12 | |
15 | |
17 | |
18 | |
19 | |
20 | |
33 | |
35 |
Dear Shareholders,
The Appeal of Long-Term Fundamentals
Equities of companies with attractive long-term fundamentals fell out of favor with investors during the 12-month reporting period ended December 31, 2021. However, we believe this category of equities now has strong potential for outperformance in 2022. To understand the events of 2021 and why market conditions may change, it’s helpful to look at specific market rotations that occurred in each half of the year.
Economic Outlook Leads to Cyclicals
Economically sensitive stocks, such as Energy and Financials, were among the best performing equities in the first half of 2021, as investors clamored for exposure to an accelerating economy. The stage for this change in investor preference was set in late 2020, when favorable COVID-19 vaccine trials sparked optimism about the pandemic faltering and hopes that efforts to curtail the public health emergency would be scaled back or eliminated. This optimism, combined with record levels of fiscal stimulus, caused the economy to start rebounding after lockdowns had previously sparked an acute recession. The optimism strengthened when the Food and Drug Administration eventually granted emergency use authorization of COVID-19 vaccines and by the beginning of 2021, some 2.8 million Americans had received their first dose—a slow start but a start nevertheless. The aggressive vaccination campaign in the subsequent months and continued economic growth sustained investor optimism, which contributed to a selloff in safe-haven Treasury bonds with the 10-year yield rising 53 basis points (“bps”) to 1.47% in the first half of 2021.
A few points illustrate the dramatic strength of the economy:
• | At the start of 2021, the consensus GDP growth forecast was 4.0%, an esti- mate that increased 250bps during the first half of 2021 to 6.5%, according to FactSet. |
• | Unemployment dropped substantially from 6.7% to 3.9% by year-end. |
Many equity investors reacted to economic optimism and higher long-term interest rates by rotating into cyclical stocks or companies with earnings growth closely or directly tied to economic expansion. In our view, these companies usually have weak long-term growth potential, are typically found within the value category, and are lower quality; unlike secular growth leaders that use innovation to disrupt their respective industries and generate future earnings growth. The investor preference for these companies can be seen in the in the first half of 2021 when factors such as high debt, low gross margins, high beta, slow long-term growth and low shorthand metrics of valuation, such as price-to-book value, outperformed companies with stronger balance sheets, higher gross margins and stronger forecasted profit growth1.
Rate Hike Anxiety Leads to Defensiveness
In the second half of 2021, inflation was higher than expected, topping 6%, and the Federal Reserve (“the Fed”) signaled a desire to raise rates sooner than anticipated. As a result, yields of shorter term debt increased rapidly. During this period, the 2-year Treasury Bill increased nearly 50bps from 25bps to 73bps after only rising 14bps from to 25bps in the first half of the year. Investors responded by selling stocks perceived as riskier. This was reflected in the market sensitivity factor or Beta underperforming the sector-neutral S&P 1500 Index by 7%, after having outperformed in the first half of the year.
Investors also sought safety in large cap companies, with the small capitalization Russell 2000 Index underperforming the S&P 500 Index by nearly 1,400bps in the second half of the year. This was particularly true in the large cap growth area of the market, which has become highly concentrated– the top ten companies accounted for nearly half (48%) of the Russell 1000 Growth Index at the end of 2021. Indeed, for the 2021 calendar year we estimate that the top ten constituents accounted for 62% of the Russell 1000 Growth Index’s performance, thereby outperforming the rest of the Russell 1000 Growth Index by approximately a stunning 2,000bps. Accordingly, the average growth stock did not fare nearly as well as the Russell 1000 Growth Index.
Summing Up 2021
In a word, much of the equity performance last year can be attributed to duration. In our view, investors sought instant gratification from a one-time re-opening of the economy in the first half of the year to hiding in defensive businesses in the second half. Short-duration cash flow stocks, businesses with limited opportunities to invest their earnings that instead distribute their cash to shareholders, did very well at the expense of long-duration cash flow equities that are more likely to reinvest for long-term growth.
Whether it was rising risk-free rates or simply higher risk premiums, many investors adjusted their cash flow modeling by increasing the rate at which they discounted future cash flows back to the present. This process lowered the value of long duration assets most, just as long-term bonds are impacted more by rising rates than short-term bonds.
We saw this dynamic in the largest spread in performance between the small capitalization Russell 2000 Growth Index and the S&P 500 Index in more than 20 years (over 2,700bps). On a more granular basis, within the S&P 1500 Index, there was a very wide performance spread between short-duration characteristics such as shareholder yield, which measures the performance of companies with the highest dividend and share repurchase yields, and long-duration characteristics, such as the long-term growth factor, which measures the performance of those companies with the highest forecasted long-term growth2.
This rotation to companies with high current shareholder yields was apparent not only in the broad market but within growth stocks as illustrated by the S&P 1500 Growth Index3, which helps explain why large cap growth, which tends to include more companies with significant current earnings, was relatively strong in 2021, with the Russell 1000 Growth Index generating a 27.6% return compared to the 25.2% return of the Russell 1000 Value Index. On the contrary, small cap growth tends to include younger companies that are aggressively investing in innovation rather than generating earnings or paying dividends.
A Brighter Path Forward
While many smaller growth company stock prices underperformed, their fundamentals did not. During 2021, the next 12-month (“NTM”) earnings per share (EPS) estimates for the S&P SmallCap 600 Growth Index increased by 63%, according to FactSet data, easily trouncing the still quite strong 36% increase in S&P 500 Index NTM EPS estimates.
But what happens when price underperformance meets fundamental outperformance? Compressed valuations may ensue. The rotation away from smaller growth equities juxtaposed with strong fundamental growth has resulted in historically attractive valuations in these types of companies. The S&P SmallCap 600 Growth Index valuation is 20% lower than that of the S&P 500 Index, its biggest discount in two decades. Typically, small cap growth equities trade at a premium to large cap stocks based on their superior forecasted fundamental trajectory.
The last time this occurred in February 2001, small cap growth outperformed the broad market by over 50% in the ensuing five years. We maintain that the potential normalization of the small cap growth price-to-equity ratio (P/E) relative to the S&P 500 Index may provide a strong tailwind to small cap performance. Additionally, we believe long-term fundamentals for small cap growth are compelling. Based on FactSet consensus estimates, small cap growth EPS is expected to increase 17.4% over the next two years compared to only 6.9% for the S&P 500 Index.
We believe small cap growth stocks could also benefit from a rally in Healthcare and biotech in particular, with the S&P Biotechnology Select Industry Index declining 24% in 2021, drastically underperforming the broad market and the small cap category. This underperformance has resulted in the equity market capitalization to net cash value ratio of the biotech group declining to 3x—its lowest level in 20 years.
Potential for Shifting Sentiment
In our view, valuations, while compelling, may not be enough to drive a shift in sentiment. To that end, we believe it’s important to consider that the economy can only re-open once so the strong economic boost in the aftermath of the pandemic is likely to be a one-time event. Eventually, we believe GDP growth resulting from the re-opening is likely to weaken or a COVID-19 variant such as Omicron may weigh upon economic growth. If either occurs, investors may be willing to pay a premium for companies that can grow earnings with innovative products rather than cyclical growth. Additionally, the Federal Reserve’s shrinking of its balance sheet and increasing of the fed funds rate could potentially result in lower long-term interest rates, which would support the equity performance of long- duration companies. Ultimately, irrespective of changes in valuation, the potential for high- quality growth companies to generate compound earnings and revenue growth should support strong returns over the long-term, in our view.
The Road Ahead
In closing, since our founding more than 55 years ago, we have believed that companies with strong long-term fundamentals offer the best potential for generating attractive returns for patient investors. The significant rotation we witnessed in 2021 has not changed our strong conviction in using in-depth fundamental research to find secular growth leaders with potential for generating long-term earnings growth. We continue to believe that our investment philosophy is highly appropriate as historically high levels of innovation, including the digital revolution that is disrupting all industries, are providing leading companies with strong opportunities to generate secular growth. A wide range of medical advances, such as genetic sciences, is also providing secular growth. We believe where there is growth in fundamentals, there will be solid returns. Now it is the stock market’s turn to catch up.
Portfolio Matters
Alger Weatherbie Specialized Growth Portfolio
The Alger Weatherbie Specialized Growth Portfolio returned 6.85% during the fiscal 12-month period ended December 31, 2021, compared to the 5.04% return of its benchmark, the Russell 2500 Growth Index. During the reporting period, the largest portfolio sector weightings were Information Technology and Healthcare. The largest sector overweight was Financials and the largest sector underweight was Information Technology.
Contributors to Performance
The Financials and Industrials sectors provided the largest contributions to relative performance. Regarding individual positions, Upstart Holdings, Inc.; Signature Bank; FirstService Corp.; SiteOne Landscape Supply, Inc.; and Progyny, Inc. were among the top contributors to performance. Progyny is a leading benefits management company specializing in fertility and family building solutions. It addresses a significant, underserved niche market with unique benefit plan designs, coordinated clinical delivery and a network of carefully selected providers that culminate in superior clinical outcomes, significant cost savings and other benefits to constituents. The prevalence of infertility is high, affecting one in eight couples in the U.S., according to the Centers for Disease Control and Prevention. The market for fertility treatments grew at a 10.5% compound annual growth rate (CAGR) from 2013 to 2017.
Early in 2021, Progyny reported strong results and said revenue for the first quarter had grown 51% year over year, ahead of Wall Street estimates by $400,000. Revenue for Progyny’s Fertility Benefit area grew more than 50%, while its Pharmacy Benefit revenue grew more than 54%. Earnings before interest, taxes, depreciation and amortization (EBITDA) were also strong, exceeding estimates by $2.5 million. Still early in the selling season, Progyny is seeing a normal pace of sales commitments, and it anticipates that the majority of client decisions may occur in the late summer and early fall for implementations next year.
Detractors from Performance
The Consumer Discretionary and Healthcare sectors were among the sectors that detracted from absolute performance. Regarding individual positions, Chegg, Inc.; Nevro Corp.; ACADIA Pharmaceuticals Inc.; Vertex, Inc., Cl. A; and Eargo, Inc. were among the top detractors from absolute performance. Chegg provides online textbook rentals and other internet-delivered services, such as homework help, tutoring and assistance with obtaining scholarships and finding internships. The company has been acquiring customers at a low cost, in part because it is a leader in providing supplementary educational services to college students. Its Chegg Services offering helps students master subjects, get better grades, graduate and pursue careers.
After posting a very strong 2020, the stock has experienced a general pullback based on the market perception that Chegg was simply a “COVID-19 beneficiary” and now may experience weakness with a reopening economy.
As always, we strive to deliver consistently superior investment results to you, our shareholders, and we thank you for your continued confidence in Alger.
Sincerely,
Daniel C. Chung, CFA Chief Investment Officer
Fred Alger Management, LLC
1 Source: Cornerstone Macro. Factor performance relative to the S&P 1500 Index, which is sector neutral and is calculated by taking the relative performance of the top quintile of stocks against the bottom quintile of stocks for each factor. The constituents in the quintiles are rebalanced monthly. High debt is based on the ratio of net debt (debt minus cash) and earnings. Gross margin is based on revenue and the cost of goods sold. Beta is based on the monthly stock return and the monthly market return over the past 5 years. Price to book is the ratio of a company’s market valuation to its book value. For more details, see the Alger paper “The Growing Appeal of Long-Term Fundamentals."
2 Source: Cornerstone Macro. Factor performance relative to the S&P 1500 Index, which is sector neutral and is calculated by taking the relative performance of the top quintile of stocks against the bottom quintile of stocks for each factor. The constituents in the quintiles are rebalanced monthly. Shareholder yield is the total value of stock repurchases by a company minus stock sold by the company. Dividends are then added to the result. The result is then divided by a company’s total market value. The long-term growth factor is based on 5-Year earnings per share growth. For more details, see the Alger paper “The Growing Appeal of Long-Term Fundamentals."
3 Source: Cornerstone Macro. Factor performance relative to the S&P 1500 Growth Index, which is sector neutral and is calculated by taking the relative performance of the top quintile of stocks against the bottom quintile of stocks for each factor. The constituents in the quintiles are rebalanced monthly. Current shareholder yield is the total value of stock repurchases by a company minus stock sold by the company. Dividends are then added to the result. The result is then divided by a company’s total market value. For more details, see the Alger paper “The Growing Appeal of Long-Term Fundamentals."
Investors cannot invest directly in an index. Index performance does not reflect the deduction for fees, expenses, or taxes.
This report and the financial statements contained herein are submitted for the general information of shareholders of the Alger Weatherbie Specialized Growth Portfolio. This report is not authorized for distribution to prospective investors in the Portfolio unless preceded or accompanied by an effective prospectus for the Portfolio. The Portfolio’s returns represent the fiscal 12-month period return of Class I-2 shares. Returns include reinvestment of dividends and distributions.
The performance data quoted in these materials represent past performance, which is not an indication or guarantee of future results.
Standard performance results can be found on the following pages. The investment return and principal value of an investment in the Portfolio will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. For performance data current to the most recent month-end, visit us at www.alger.com, or call us at (800) 992-3863.
The views and opinions of the Portfolio’s management in this report are as of the date of the Shareholders’ Letter and are subject to change at any time subsequent to this date. There is no guarantee that any of the assumptions that formed the basis for the opinions stated herein are accurate or that they will materialize. Moreover, the information forming the basis for such assumptions is from sources believed to be reliable; however, there is no guarantee that such information is accurate. Any securities mentioned, whether owned in the Portfolio or otherwise, are considered in the context of the construction of an overall portfolio of securities and therefore reference to them should not be construed as a recommendation or offer to purchase or sell any such security. Inclusion of such securities in the Portfolio and transactions in such securities, if any, may be for a variety of reasons, including without limitation, in response to cash flows, inclusion in a benchmark, and risk control. The reference to a specific security should also be understood in such context and not viewed as a statement that the security is a significant holding in the Portfolio. Please refer to the Schedule of Investments for the Portfolio, which is included in this report, for a complete list of Portfolio holdings as of December 31, 2021. Securities mentioned in the Shareholders’ Letter, if not found in the Schedule of Investments, may have been held by the Portfolio during the 12-month fiscal period.
Risk Disclosure
Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness such as COVID-19 or other public health issues, recessions, or other events could have a significant impact on investments. A significant portion of assets may be invested in securities of companies in related sectors, and may be similarly affected by economic, political, or market events and conditions and may be more vulnerable to unfavorable sector developments. Investing in companies of small and medium capitalizations involve the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Foreign securities and emerging markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility.
For a more detailed discussion of the risks associated with the Portfolio, please see the Portfolio’s Prospectus.
Before investing, carefully consider the Portfolio’s investment objective, risks, charges, and expenses. For a prospectus containing this and other information about The Alger Portfolios, call us at (800) 992-3863 or visit us at www.alger.com. Read it carefully before investing.
Fred Alger & Company, LLC, Distributor.
NOT FDIC INSURED. NOT BANK GUARANTEED. MAY LOSE VALUE.
Definitions:
• | Earnings per share (EPS) is calculated as a company’s profit divided by the outstanding shares of its common stock. |
• | The price-to-book ratio is the ratio of a company’s market price to its book value. |
• | Price-to-earnings is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). |
• | Free cash flow is the cash a company generates after taking into consideration cash outflows that support its operations and maintain its capital assets. |
• | EBITDA (earnings before interest, taxes, depreciation, and amortization) is a commonly used accounting measure of a company's overall financial performance. COGS (cost of goods sold) is generally defined as the direct costs attributable to the production of the goods sold by a company. |
• | FactSet provides software and market data to financial professionals. FactSet is an independent source, which Alger believes to be a reliable source. Alger, however, makes no representation that it is complete or accurate. |
• | Beta measures a portfolio’s sensitivity to market movements relative to a particular index; a portfolio with a beta of 1.00 would be expected to have returns equal to such index. |
• | The S&P 1500 Index is an unmanaged index that covers approximately 90% of the U.S. market capitalization. |
• | The S&P 1500 Growth Index measure the performance of growth equities as defined by sales growth, the ratio of earnings change to price, and momentum. |
• | The Russell 2000 Index is a small cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. |
• | The S&P 500 tracks the performance of 500 large companies listed on stock exchanges in the U.S. |
• | The Russell 1000 Growth Index is an unmanaged index designed to measure the performance of the largest 1000 companies in the Russell 3000 Index with higher price to book ratios and higher forecasted growth values. |
• | The Russell 2000 Growth Index measures the performance of the small cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher growth earning potential as defined by Russell's leading style methodology. |
• | The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price to book ratios and lower forecasted growth values. |
• | The S&P SmallCap 600 Growth Index measures growth stocks using three factors: sales growth, the ratio of earnings change to price, and momentum. Constituents are drawn from the S&P 600. |
• | S&P Select Industry Indices are designed to measure the performance of narrow GICS® sub-industries. The S&P Biotechnology Select Industry In- dex comprises stocks in the S&P Total Market Index that are classified in the GICS biotechnology sub-industry. |
• | The Russell 3000 Growth Index combines the large-cap Russell 1000 Growth, the small-cap Russell 2000 Growth and the Russell Microcap Growth Index. It includes companies that are considered more growth oriented relative to the overall market as defined by Russell's leading style methodology. The Russell 3000 Growth Index is constructed to provide a comprehensive, un- biased, and stable barometer of the growth opportunities within the broad market. |
• | The Russell 3000 Value Index measures the performance of the broad value segment of the U.S. equity value universe. It includes those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000 Value Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad value market. |
• | Russell 2500 Growth Index: An unmanaged index designed to measure the performance of the 2,500 smallest companies in the Russell 3000 Index with higher price-to-book ratios and higher forecasted growth values. |
The chart above illustrates the change in value of a hypothetical $10,000 investment made in Alger Weatherbie Specialized Growth Portfolio Class I-2 shares and the Russell 2500 Growth Index (an unmanaged index of common stocks) for the ten years ended December 31, 2021. From August 30, 2017 to October 30 2019, the Portfolio was named “Alger SMid Cap Focus Portfolio”. Prior to August 30, 2017, the Portfolio followed different investment strategies under the name “Alger SMid Cap Growth Portfolio” and prior to March 1, 2017 was managed by different portfolio managers. Accordingly, performance prior to those dates does not reflect the Portfolio's current investment strategies and investment personnel. Figures for each of the Alger Weatherbie Specialized Growth Portfolio Class I-2 shares and the Russell 2500 Growth Index include reinvestment of dividends. Figures for the Alger Weatherbie Specialized Growth Portfolio Class I-2 shares also include reinvestment of capital gains. Investors cannot invest directly in any index. Index performance does not reflect deduction for fees, expenses, or taxes.
ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO |
Fund Highlights Through December 31, 2021 (Unaudited) (Continued) |
PERFORMANCE COMPARISON AS OF 12/31/21 | ||||||||||||||||
AVERAGE ANNUAL TOTAL RETURNS | ||||||||||||||||
1 YEAR | 5 YEARS | 10 YEARS | Since 1/2/2008 | |||||||||||||
Class I-2 (Inception 1/2/08) | 6.85 | % | 25.48 | % | 17.72 | % | 11.17 | % | ||||||||
Russell 2500 Growth Index | 5.04 | % | 17.65 | % | 15.75 | % | 11.53 | % |
The performance data quoted represents past performance, which is not an indication or a guarantee of future results. Investment return and principal will fluctuate and the Portfolio’s shares, when redeemed, may be worth more or less than their original cost. From August 30, 2017 to October 30 2019, the Portfolio was named “Alger SMid Cap Focus Portfolio”. Prior to August 30, 2017, the Portfolio followed different investment strategies under the name “Alger SMid Cap Growth Portfolio” and prior to March 1, 2017 was managed by different portfolio managers. Accordingly, performance prior to those dates does not reflect the Portfolio's current investment strategies and investment personnel. Current performance may be higher or lower than the performance quoted. For performance current to the most recent quarter end, visit us at www.alger.com or call us at (800) 992-3863.
Returns indicated assume reinvestment of all distributions, no transaction costs or taxes, and are net of management fees and fund operat- ing expenses only. Total return does not include deductions at the Portfolio or contract level for the cost of the insurance charges, premium load, administrative charges, mortality and expense risk charges or other charges that may be incurred under the variable annuity contract, variable life insurance plan or retirement plan for which the Portfolio serves as an underlying investment vehicle. If these charges were deducted, the total return figures would be lower. Please refer to the variable insurance product or retirement plan disclosure documents for any additional applicable expenses. Investing in the stock market involves gains and losses and may not be suitable for all investors.
SECTORS/SECURITY TYPES | Alger Weatherbie Specialized Growth Portfolio | |||
Communication Services | 0.2 | % | ||
Consumer Discretionary | 12.2 | |||
Energy | 2.3 | |||
Financials | 13.3 | |||
Healthcare | 19.8 | |||
Industrials | 20.2 | |||
Information Technology | 20.0 | |||
Materials | 2.1 | |||
Real Estate | 6.0 | |||
Total Equity Securities | 96.1 | |||
Short-Term Investments and Net Other Assets | 3.9 | |||
100.0 | % |
† | Based on net assets for the Portfolio. |
THE ALGER PORTFOLIOS | ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO |
COMMON STOCKS—96.1% | SHARES | VALUE | ||||||
ADVERTISING—0.2% | ||||||||
TechTarget, Inc.* | 79 | $ | 7,557 | |||||
AEROSPACE & DEFENSE—0.3% | ||||||||
Kratos Defense & Security Solutions, Inc.* | 656 | 12,726 | ||||||
APPAREL ACCESSORIES & LUXURY GOODS—0.9% | ||||||||
Canada Goose Holdings, Inc.* | 1,016 | 37,653 | ||||||
APPAREL RETAIL—1.7% | ||||||||
MYT Netherlands Parent BV#,* | 3,274 | 69,442 | ||||||
APPLICATION SOFTWARE—10.2% | ||||||||
BTRS Holdings, Inc., Cl. A* | 1,534 | 11,996 | ||||||
Cerence, Inc.* | 1,149 | 88,060 | ||||||
Ebix, Inc. | 333 | 10,123 | ||||||
Everbridge, Inc.* | 470 | 31,645 | ||||||
LivePerson, Inc.* | 451 | 16,110 | ||||||
SEMrush Holdings, Inc., Cl. A* | 766 | 15,971 | ||||||
SPS Commerce, Inc.* | 1,243 | 176,941 | ||||||
Vertex, Inc., Cl. A* | 3,798 | 60,274 | ||||||
411,120 | ||||||||
ASSET MANAGEMENT & CUSTODY BANKS—9.0% | ||||||||
Hamilton Lane, Inc., Cl. A | 1,818 | 188,381 | ||||||
StepStone Group, Inc., Cl. A | 4,205 | 174,802 | ||||||
363,183 | ||||||||
BIOTECHNOLOGY—6.6% | ||||||||
ACADIA Pharmaceuticals, Inc.* | 1,739 | 40,588 | ||||||
Natera, Inc.* | 2,142 | 200,041 | ||||||
Ultragenyx Pharmaceutical, Inc.* | 296 | 24,891 | ||||||
265,520 | ||||||||
CONSTRUCTION & ENGINEERING—2.6% | ||||||||
Ameresco, Inc., Cl. A* | 1,301 | 105,953 | ||||||
CONSUMER FINANCE—0.8% | ||||||||
LendingTree, Inc.* | 275 | 33,715 | ||||||
EDUCATION SERVICES—3.1% | ||||||||
Chegg, Inc.* | 4,056 | 124,519 | ||||||
ELECTRONIC EQUIPMENT & INSTRUMENTS—2.7% | ||||||||
Novanta, Inc.* | 618 | 108,972 | ||||||
ENVIRONMENTAL & FACILITIES SERVICES—10.6% | ||||||||
Casella Waste Systems, Inc., Cl. A* | 2,631 | 224,740 | ||||||
Montrose Environmental Group, Inc.* | 2,865 | 202,011 | ||||||
426,751 | ||||||||
GENERAL MERCHANDISE STORES—1.6% | ||||||||
Ollie's Bargain Outlet Holdings, Inc.* | 1,284 | 65,728 | ||||||
HEALTHCARE DISTRIBUTORS—0.4% | ||||||||
PetIQ, Inc., Cl. A* | 783 | 17,782 | ||||||
HEALTHCARE EQUIPMENT—3.0% | ||||||||
Glaukos Corp.* | 986 | 43,818 | ||||||
Inogen, Inc.* | 152 | 5,168 | ||||||
Nevro Corp.* | 879 | 71,260 | ||||||
120,246 |
THE ALGER PORTFOLIOS | ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO |
Schedule of Investments December 31, 2021 (Continued) |
COMMON STOCKS—96.1% (CONT.) | SHARES | VALUE | ||||||
HEALTHCARE SERVICES—2.7% | ||||||||
Apria, Inc.* | 3,268 | $ | 106,537 | |||||
HEALTHCARE TECHNOLOGY—1.5% | ||||||||
Inspire Medical Systems, Inc.* | 178 | 40,951 | ||||||
Tabula Rasa HealthCare, Inc.* | 1,186 | 17,790 | ||||||
58,741 | ||||||||
INSURANCE BROKERS—1.0% | ||||||||
Goosehead Insurance, Inc., Cl. A | 314 | 40,845 | ||||||
IT CONSULTING & OTHER SERVICES—4.9% | ||||||||
CI&T, Inc., Cl. A* | 1,472 | 17,502 | ||||||
Globant SA* | 514 | 161,443 | ||||||
Grid Dynamics Holdings, Inc.* | 427 | 16,213 | ||||||
195,158 | ||||||||
LEISURE FACILITIES—1.8% | ||||||||
Planet Fitness, Inc., Cl. A* | 783 | 70,924 | ||||||
LEISURE PRODUCTS—2.4% | ||||||||
Latham Group, Inc.* | 3,776 | 94,513 | ||||||
LIFE SCIENCES TOOLS & SERVICES—0.5% | ||||||||
NeoGenomics, Inc.* | 528 | 18,015 | ||||||
MANAGED HEALTHCARE—5.0% | ||||||||
Progyny, Inc.* | 3,990 | 200,897 | ||||||
OIL & GAS EQUIPMENT & SERVICES—2.3% | ||||||||
Core Laboratories NV | 4,224 | 94,237 | ||||||
PAPER PACKAGING—2.1% | ||||||||
Ranpak Holdings Corp., Cl. A* | 2,249 | 84,517 | ||||||
PHARMACEUTICALS—0.1% | ||||||||
Aerie Pharmaceuticals, Inc.* | 490 | 3,440 | ||||||
REAL ESTATE SERVICES—6.0% | ||||||||
FirstService Corp. | 1,217 | 239,104 | ||||||
REGIONAL BANKS—0.9% | ||||||||
Seacoast Banking Corp. of Florida | 1,055 | 37,337 | ||||||
RESTAURANTS—0.7% | ||||||||
Wingstop, Inc. | 152 | 26,266 | ||||||
SEMICONDUCTORS—1.3% | ||||||||
Impinj, Inc.* | 592 | 52,510 | ||||||
SYSTEMS SOFTWARE—0.9% | ||||||||
Rapid7, Inc.* | 297 | 34,954 | ||||||
THRIFTS & MORTGAGE FINANCE—1.6% | ||||||||
Axos Financial, Inc.* | 1,142 | 63,849 | ||||||
TRADING COMPANIES & DISTRIBUTORS—6.7% | ||||||||
SiteOne Landscape Supply, Inc.* | 976 | 236,465 | ||||||
Transcat, Inc.* | 331 | 30,595 | ||||||
267,060 | ||||||||
TOTAL COMMON STOCKS | ||||||||
(Cost $3,549,411) | 3,859,771 |
THE ALGER PORTFOLIOS | ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO |
Schedule of Investments December 31, 2021 (Continued) |
PREFERRED STOCKS—0.0% | SHARES | VALUE | ||||||
BIOTECHNOLOGY—0.0% | ||||||||
Prosetta Biosciences, Inc., Series D*,@,(a),(b) | 10,615 | $ | – | |||||
(Cost $47,768) | – | |||||||
Total Investments | ||||||||
(Cost $3,597,179) | 96.1 | % | $ | 3,859,771 | ||||
Affiliated Securities (Cost $47,768) | – | |||||||
Unaffiliated Securities (Cost $3,549,411) | 3,859,771 | |||||||
Other Assets in Excess of Liabilities | 3.9 | % | 154,792 | |||||
NET ASSETS | 100.0 | % | $ | 4,014,563 |
(a) | Deemed an affiliate of the Portfolio in accordance with Section 2(a)(3) of the Investment Company Act of 1940. See Note 11 - Affiliated Securities. |
(b) | Security is valued in good faith at fair value determined using significant unobservable inputs pursuant to procedures established by the Board. |
# | American Depositary Receipts. |
* | Non-income producing security. |
@ | Restricted security - Investment in security not registered under the Securities Act of 1933. Sales or transfers of the investment may be restricted only to qualified buyers. |
Security | Acquisition Date(s) | Acquisition Cost | % of net assets (Acquisition Date) | Market Value | % of net assets as of 12/31/2021 | |||||||||||||
Prosetta Biosciences, Inc., Series D | 2/6/15 | $ | 47,768 | 0.10 | % | $ | 0 | 0.00 | % | |||||||||
Total | $ | 0 | 0.00 | % |
See Notes to Financial Statements.
Alger Weatherbie Specialized Growth Portfolio | ||||
ASSETS: | ||||
Investments in unaffiliated securities, at value (Identified cost below)* see accompanying schedule of investments | $ | 3,859,771 | ||
Investments in affiliated securities, at value (Identified cost below)** see accompanying schedule of investments | — | |||
Cash and cash equivalents | 204,881 | |||
Receivable for investment securities sold | 5,351 | |||
Receivable for shares of beneficial interest sold | 28 | |||
Dividends and interest receivable | 805 | |||
Receivable from Investment Manager | 9,997 | |||
Prepaid expenses | 21,410 | |||
Total Assets | 4,102,243 | |||
LIABILITIES: | ||||
Payable for investment securities purchased | 28,065 | |||
Payable for shares of beneficial interest redeemed | 23,508 | |||
Accrued investment advisory fees | 2,650 | |||
Accrued shareholder administrative fees | 33 | |||
Accrued administrative fees | 90 | |||
Accrued custodian fees | 2,689 | |||
Accrued transfer agent fees | 55 | |||
Accrued printing fees | 2,594 | |||
Accrued professional fees | 11,615 | |||
Accrued fund accounting fees | 12,838 | |||
Accrued other expenses | 3,543 | |||
Total Liabilities | 87,680 | |||
NET ASSETS | $ | 4,014,563 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital (par value of $.001 per share) | 3,751,396 | |||
Distributable earnings | 263,167 | |||
NET ASSETS | $ | 4,014,563 | ||
* Identified cost | $ | 3,549,411(a) | ||
** Identified cost | $ | 47,768(a) |
See Notes to Financial Statements.
(a) At December 31, 2021, the net unrealized appreciation on investments, based on cost for federal income tax purposes of $3,662,907, amounted to $196,864, which consisted of aggregate gross unrealized appreciation of $686,818 and aggregate gross unrealized depreciation of $489,954.
ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO |
Statement of Assets and Liabilities December 31, 2021 (Continued) |
Alger Weatherbie Specialized Growth Portfolio | ||||
NET ASSETS BY CLASS: | ||||
Class I-2 | $ | 4,014,563 | ||
SHARES OF BENEFICIAL INTEREST OUTSTANDING — NOTE 6: | ||||
Class I-2 | 1,916,816 | |||
NET ASSET VALUE PER SHARE: | ||||
Class I-2 | $ | 2.09 |
See Notes to Financial Statements.
ALGER WEATHERBIE SPECIALIZED GROWTH PORTFOLIO |
Alger Weatherbie Specialized Growth Portfolio | ||||
INCOME: | ||||
Dividends (net of foreign withholding taxes*) | $ | 6,480 | ||
Total Income | 6,480 | |||
EXPENSES: | ||||
Investment advisory fees — Note 3(a) | 31,833 | |||
Shareholder administrative fees — Note 3(f) | 393 | |||
Administration fees — Note 3(b) | 1,081 | |||
Custodian fees | 13,573 | |||
Interest expenses | 67 | |||
Transfer agent fees — Note 3(f) | 260 | |||
Printing fees | 4,435 | |||
Professional fees | 32,720 | |||
Registration fees | 15,025 | |||
Trustee fees — Note 3(g) | 94 | |||
Fund accounting fees | 51,919 | |||
Other expenses | 58 | |||
Total Expenses | 151,458 | |||
Less, expense reimbursements/waivers — Note 3(a) | (109,937 | ) | ||
Net Expenses | 41,521 | |||
NET INVESTMENT LOSS | (35,041 | ) | ||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized gain on unaffiliated investments | 1,108,221 | |||
Net change in unrealized depreciation on unaffiliated investments | (767,975 | ) | ||
Net change in unrealized depreciation on affiliated investments | (1,592 | ) | ||
Net realized and unrealized gain on investments | 338,654 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 303,613 | ||
* Foreign withholding taxes | $ | 167 |
See Notes to Financial Statements.
Alger Weatherbie Specialized Growth Portfolio | ||||||||
For the Year Ended December 31, 2021 | For the Year Ended December 31, 2020 | |||||||
Net investment loss | $ | (35,041 | ) | $ | (19,802 | ) | ||
Net realized gain on investments | 1,108,221 | 381,424 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (769,567 | ) | 793,384 | |||||
Net increase in net assets resulting from operations | 303,613 | 1,155,006 | ||||||
Dividends and distributions to shareholders: | ||||||||
Class I-2 | (1,101,846 | ) | (290,029 | ) | ||||
Total dividends and distributions to shareholders | (1,101,846 | ) | (290,029 | ) | ||||
Increase from shares of beneficial interest transactions — Note 6: | ||||||||
Class I-2 | 910,752 | 1,480,317 | ||||||
Total increase | 112,519 | 2,345,294 | ||||||
Net Assets: | ||||||||
Beginning of period | 3,902,044 | 1,556,750 | ||||||
END OF PERIOD | $ | 4,014,563 | $ | 3,902,044 |
See Notes to Financial Statements.
Alger Weatherbie Specialized Growth Portfolio | Class I-2 | |||||||||||||||||||
Year ended 12/31/2021 | Year ended 12/31/2020 | Year ended 12/31/2019 | Year ended 12/31/2018 | Year ended 12/31/2017 | ||||||||||||||||
Net asset value, beginning of period | $ | 2.75 | $ | 1.89 | $ | 1.90 | $ | 2.27 | $ | 1.82 | ||||||||||
INCOME FROM INVESTMENT OPERATIONS: | ||||||||||||||||||||
Net investment loss(i) | (0.03 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | ||||||||||
Net realized and unrealized gain (loss) on investments | 0.20 | 1.12 | 0.74 | (0.05 | ) | 0.68 | ||||||||||||||
Total from investment operations | 0.17 | 1.10 | 0.72 | (0.07 | ) | 0.66 | ||||||||||||||
Distributions from net realized gains | (0.83 | ) | (0.24 | ) | (0.73 | ) | (0.30 | ) | (0.21 | ) | ||||||||||
Net asset value, end of period | $ | 2.09 | $ | 2.75 | $ | 1.89 | $ | 1.90 | $ | 2.27 | ||||||||||
Total return | 6.85 | % | 58.82 | % | 38.31 | % | (3.19 | )% | 36.91 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: | ||||||||||||||||||||
Net assets, end of period (000's omitted) | $ | 4,015 | $ | 3,902 | $ | 1,557 | $ | 1,032 | $ | 5,226 | ||||||||||
Ratio of gross expenses to average net assets | 3.85 | % | 6.78 | % | 10.84 | % | 3.33 | % | 3.33 | % | ||||||||||
Ratio of expense reimbursements to average net assets | (2.80 | )% | (5.73 | )% | (9.81 | )% | (2.34 | )% | (2.34 | )% | ||||||||||
Ratio of net expenses to average net assets | 1.05 | % | 1.05 | % | 1.03 | % | 0.99 | % | 0.99 | % | ||||||||||
Ratio of net investment loss to average net assets | (0.89 | )% | (0.85 | )% | (0.81 | )% | (0.82 | )% | (0.80 | )% | ||||||||||
Portfolio turnover rate | 83.01 | % | 87.20 | % | 64.29 | % | 55.80 | % | 133.48 | % |
See Notes to Financial Statements.
(i) | Amount was computed based on average shares outstanding during the period. |
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
The Alger Portfolios (the “Fund”) is an open-end registered investment company organized as a business trust under the laws of the Commonwealth of Massachusetts. The Fund qualifies as an investment company as defined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 946 – Financial Services – Investment Companies. The Fund operates as a series company currently offering seven series of shares of beneficial interest: Alger Capital Appreciation Portfolio, Alger Large Cap Growth Portfolio, Alger Growth & Income Portfolio, Alger Mid Cap Growth Portfolio, Alger Weatherbie Specialized Growth Portfolio, Alger Small Cap Growth Portfolio and Alger Balanced Portfolio (collectively, the “Portfolios”). These financial statements include only the Alger Weatherbie Specialized Growth Portfolio (the “Portfolio”). The Portfolio invests primarily in equity securities and has an investment objective of long-term capital appreciation. Shares of the Portfolio are available to investment vehicles for variable annuity contracts and variable life insurance policies offered by separate accounts of life insurance companies, as well as qualified pension and retirement plans.
NOTE 2 — Significant Accounting Policies:
(a) Investment Valuation: The Portfolio values its financial instruments at fair value using independent dealers or pricing services under policies approved by the Fund’s Board of Trustees (the “Board”). Investments held by the Portfolio are valued on each day the New York Stock Exchange (the “NYSE”) is open, as of the close of the NYSE (normally 4:00
p.m. Eastern Time).
Investments in money market funds and short-term securities held by the Portfolio having a remaining maturity of sixty days or less are valued at amortized cost which approximates market value.
Equity securities, including traded rights, warrants and option contracts for which valuation information is readily available, are valued at the last quoted sales price or official closing price on the primary market or exchange on which they are traded as reported by an independent pricing service. In the absence of quoted sales, such securities are valued at the bid price or, in the absence of a recent bid price, the equivalent as obtained from one or more of the major market makers for the securities to be valued.
Debt securities generally trade in the over-the-counter market. Debt securities with remaining maturities of more than sixty days at the time of acquisition are valued on the basis of the last available bid prices or current market quotations provided by dealers or pricing services. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures based on valuation technology commonly employed in the market for such investments. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche-specific spread to the benchmark yield based on the unique attributes of the tranche. Debt securities with a remaining maturity of sixty days or less are valued at amortized cost which approximates market value.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
Securities for which market quotations are not readily available are valued at fair value, as determined in good faith pursuant to procedures established by the Board and described further herein.
Securities in which the Portfolio invests may be traded in foreign markets that close before the close of the NYSE. Developments that occur between the close of the foreign markets and the close of the NYSE may result in adjustments to the closing foreign prices to reflect what the Portfolio’s investment adviser, pursuant to policies established by the Board, believes to be the fair value of these securities as of the close of the NYSE. The Portfolio may also fair value securities in other situations, for example, when a particular foreign market is closed but the Portfolio is open.
FASB Accounting Standards Codification 820 – Fair Value Measurements and Disclosures (“ASC 820”) defines fair value as the price that the Portfolio would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. ASC 820 established a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability and may be observable or unobservable. Observable inputs are based on market data obtained from sources independent of the Portfolio. Unobservable inputs are inputs that reflect the Portfolio’s own assumptions based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad Levels listed below.
• | Level 1 – quoted prices in active markets for identical investments |
• | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3 – significant unobservable inputs (including the Portfolio’s own assump- tions in determining the fair value of investments) |
The Portfolio’s valuation techniques are generally consistent with either the market or the income approach to fair value. The market approach considers prices and other relevant information generated by market transactions involving identical or comparable assets to measure fair value. The income approach converts future amounts to a current, or discounted, single amount. These fair value measurements are determined on the basis of the value indicated by current market expectations about such future events. Inputs for Level 1 include exchange-listed prices and broker quotes in an active market. Inputs for Level 2 include the last trade price in the case of a halted security, an exchange-listed price which has been adjusted for fair value factors, and prices of closely related securities. Additional Level 2 inputs include an evaluated price which is based upon a compilation of observable market information such as spreads for fixed income and preferred securities. Inputs for Level 3 include, but are not limited to, revenue multiples, earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples, discount rates, time to exit and the probabilities of success of certain outcomes. Such unobservable market information may be obtained from a company’s financial statements and from industry studies, market data, and market indicators such as benchmarks and indexes. Because of the inherent uncertainty and often limited markets for restricted securities, the valuations assigned to such securities by the Portfolio may significantly differ from the valuations that would have been assigned by the Portfolio had there been an active market for such securities.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
Valuation processes are determined by a Valuation Committee (“Committee”) authorized by the Board and comprised of representatives of the Portfolio’s investment adviser and officers of the Fund. The Committee reports its fair valuation determinations and related valuation information to the Board. The Board is responsible for approving the valuation policy and procedures.
While the meetings are held on an as-needed basis, the Committee generally meets quarterly to review and evaluate the effectiveness of the procedures for making fair value determinations. The Committee considers, among other things, the results of quarterly back testing of the fair value model for foreign securities, pricing comparisons between primary and secondary price sources, the outcome of price challenges put to the Portfolio’s pricing vendor, and variances between transactional prices and the previous day’s price.
In December 2020, the Securities and Exchange Commission adopted Rule 2a-5, Good Faith Determinations of Fair Value, under the 1940 Act, which is intended to address valuation practices and the role of the board of directors with respect to the fair value of the investments of a registered investment company. Among other things, Rule 2a-5 will permit the Portfolio’s Board to designate the Portfolio’s primary investment adviser to perform the Portfolio’s fair value determinations, which will be subject to the Board’s oversight and certain reporting and other requirements intended to ensure that the Board receives the information it needs to oversee the investment adviser’s fair value determinations. Compliance with Rule 2a-5 will not be required until September 2022. The Adviser continues to review Rule 2a-5 and its impact on the Adviser’s and the Portfolio’s valuation policies and related practices.
(b) Cash and Cash Equivalents: Cash and cash equivalents include U.S. dollars, foreign cash and overnight time deposits.
(c) Securities Transactions and Investment Income: Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions are recorded on the identified cost basis. Dividend income is recognized on the ex-dividend date and interest income is recognized on the accrual basis.
Premiums and discounts on debt securities purchased are amortized or accreted over the lives of the respective securities.
(d) Foreign Currency Transactions: The books and records of the Portfolio are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the prevailing rates of exchange on the valuation date. Purchases and sales of investment securities and income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of such transactions.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
Net realized gains and losses on foreign currency transactions represent net gains and losses from the disposition of foreign currencies, currency gains and losses realized between the trade dates and settlement dates of security transactions, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities are included in realized and unrealized gain or loss on investments in the accompanying Statement of Operations.
(e) Lending of Fund Securities: The Portfolio may lend its securities to financial institutions, provided that the market value of the securities loaned will not at any time exceed one third of the Portfolio’s total assets including borrowings, as defined in its prospectus. The Portfolio earns fees on the securities loaned, which are included in interest income in the accompanying Statement of Operations. In order to protect against the risk of failure by the borrower to return the securities loaned or any delay in the delivery of such securities, the loan is collateralized by cash or securities that are maintained with Brown Brothers Harriman & Company, the Portfolio’s custodian (“BBH” or the “Custodian”), in an amount equal to at least 102% of the current market value of U.S. loaned securities or 105% for non-
U.S. loaned securities. The market value of the loaned securities is determined at the close of business of the Portfolio. Any required additional collateral is delivered to the Custodian each day and any excess collateral is returned to the borrower on the next business day. In the event the borrower fails to return the loaned securities when due, the Portfolio may take the collateral to replace the securities. If the value of the collateral is less than the purchase cost of replacement securities, the Custodian shall be responsible for any shortfall, but only to the extent that the shortfall is not due to any diminution in collateral value, as defined in the securities lending agreement. The Portfolio is required to maintain the collateral in a segregated account and determine its value each day until the loaned securities are returned. Cash collateral may be invested as determined by the Portfolio. Collateral is returned to the borrower upon settlement of the loan. There were no securities loaned as of December 31, 2021.
(f) Dividends to Shareholders: Dividends and distributions payable to shareholders are recorded by the Portfolio on the ex-dividend date.
Dividends from net investment income, if available, are declared and paid annually. 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.
The characterization of distributions to shareholders for financial reporting purposes is determined in accordance with federal income tax rules. Therefore, the source of the Portfolio’s distributions may be shown in the accompanying financial statements as either from, or in excess of, net investment income, net realized gain on investment transactions, or return of capital, depending on the type of book/tax differences that may exist. Capital accounts within the financial statements are adjusted for permanent book/tax differences. Reclassifications result primarily from the differences in tax treatment of net operating losses, passive foreign investment companies, and foreign currency transactions.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
The reclassifications are done annually at year-end and have no impact on the net asset value of the Portfolio and are designed to present the Portfolio’s capital accounts on a tax basis.
(g) Federal Income Taxes: It is the Portfolio’s policy to comply with the requirements of the Internal Revenue Code Subchapter M applicable to regulated investment companies and to distribute all of its taxable income to its shareholders. Provided that the Portfolio maintains such compliance, no federal income tax is required.
FASB Accounting Standards Codification 740 – Income Taxes (“ASC 740”) requires the Portfolio to measure and recognize in its financial statements the benefit of a tax position taken (or expected to be taken) on an income tax return if such position will more likely than not be sustained upon examination based on the technical merits of the position. No tax years are currently under investigation. The Portfolio files income tax returns in the
U.S. Federal jurisdiction, as well as the New York State and New York City jurisdictions. The statute of limitations on the Portfolio’s tax returns remains open for the tax years 2018-2021. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.
(h) Allocation Methods: The Fund accounts separately for the assets, liabilities and operations of the Portfolio. Expenses directly attributable to the Portfolio are charged to the Portfolio’s operations; expenses which are applicable to all Portfolios are allocated among them based on net assets.
(i) Estimates: These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require using estimates and assumptions that affect the reported amounts therein. Actual results may differ from those estimates. All such estimates are of a normal recurring nature.
NOTE 3 — Investment Advisory Fees and Other Transactions with Affiliates:
(a) Investment Advisory Fees: Fees incurred by the Portfolio, pursuant to the provisions of the Fund’s Investment Advisory Agreement with Fred Alger Management, LLC (“Alger Management” or the “Investment Manager”), are payable monthly and computed based on the following rates. The actual rate paid as a percentage of average daily net assets, for the year ended December 31, 2021, is set forth below under the heading “Actual Rate”:
Tier 1 | Tier 2 | Actual Rate | ||||||||||
Alger Weatherbie Specialized Growth Portfolio(a) | 0.81 | % | 0.75 | % | 0.81 | % |
(a) | Tier 1 rate is paid on assets up to $1 billion and Tier 2 rate is paid on assets in excess of $1 billion. |
The Portfolio’s sub-adviser, Weatherbie Capital, LLC (“Weatherbie”), an affiliate of Alger Management, is paid a fee, out of the investment advisory fee that Alger Management receives at no additional cost to the Portfolio, which is equal to 70% of the net investment advisory fee paid by the Portfolio to Alger Management. For the year ended December 31, 2021, Alger Management paid a sub-advisory fee of $0 to Weatherbie, as investment advisory fees, payable by the Portfolio to Alger Management were fully waived by Alger Management in accordance with its contractual fee waiver/expense reimbursement agreement with the Fund, on behalf of the Portfolio, as discussed below.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
Alger Management has contractually agreed to waive fees owed to it by, or to reimburse expenses of, the Portfolio through April 30, 2023. Alger Management will waive its fees and/or reimburse expenses to the extent total annual operating expenses of the Portfolio exceed 1.05% of average daily net assets. This expense limitation does not include acquired fund fees and expenses, dividend expense on short sales, borrowing costs, interest, taxes, brokerage and extraordinary expenses. For the year ended December 31, 2021, Alger Management waived management fees and reimbursed expenses of the Portfolio totaling
$109,937.
Alger Management may, during the term of the expense limitation contract, recoup any fees waived or expenses reimbursed pursuant to the contract; however, the Portfolio will only make repayments to Alger Management if such repayment does not cause the Portfolio's expense ratio, after the repayment is taken into account, to exceed both (i) the expense cap in place at the time such amounts were waived or reimbursed, and (ii) the Portfolio's current expense cap. Such recoupment is limited to two years from the date the amount is initially waived or reimbursed. For the year ended December 31, 2021, Alger Management did not recoup any fees or expenses from the Portfolio.
(b) Administration Fees: Fees incurred by the Portfolio, pursuant to the provisions of the Fund’s Fund Administration Agreement with Alger Management, are payable monthly and computed based on the average daily net assets of the Portfolio at the annual rate of 0.0275%.
(c) Brokerage Commissions: During the year ended December 31, 2021, there were no payments to Fred Alger & Company, LLC, the Fund’s distributor and affiliate of Alger Management (the “Distributor” or “Alger LLC”), in connection with securities transactions.
(d) Interfund Loans: The Portfolio, along with other funds in the Alger Fund Complex (as defined below), may borrow money from and lend money to each other for temporary or emergency purposes. To the extent permitted under its investment restrictions, the Portfolio may lend uninvested cash in an amount up to 15% of its net assets to other funds in the Alger Fund Complex. If the Portfolio has borrowed from other funds in the Alger Fund Complex and has aggregate borrowings from all sources that exceed 10% of the Portfolio’s total assets, the Portfolio will secure all of its loans from other funds in the Alger Fund Complex. The interest rate charged on interfund loans is equal to the average of the overnight time deposit rate and bank loan rate available to the Portfolio. There were no interfund loans outstanding as of December 31, 2021.
During the year ended December 31, 2021, the Portfolio incurred interfund loan interest expenses of $15, which are included as interest expenses in the accompanying Statement of Operations.
(e) Other Transactions with Affiliates: Certain officers and one trustee of the Fund are directors and/or officers of Alger Management, the Distributor, or their affiliates. No shares of the Portfolio were held by Alger Management and its affiliated entities as of December 31, 2021.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
(f) Shareholder Administrative Fees: The Fund has entered into a Shareholder Administrative Services Agreement with Alger Management to compensate Alger Management for providing administrative oversight of the Portfolio’s transfer agent and for other related services. The Portfolio compensates Alger Management at the annual rate of 0.01% of the average daily net assets for these services.
(g) Trustee Fees: For 2021, each trustee who is not an “interested person” of the Fund, as defined in the Investment Company Act of 1940, as amended (“Independent Trustee”), received a fee of $142,000 per annum, paid pro rata based on net assets by each fund in the Alger Fund Complex, plus travel expenses incurred for attending board meetings. The term “Alger Fund Complex” refers to the Fund, The Alger Institutional Funds, The Alger Funds II, The Alger Funds, Alger Global Focus Fund and The Alger ETF Trust, each of which is a registered investment company managed by Alger Management. The Independent Trustee appointed as Chairman of the Board received additional compensation of $20,000 per annum paid pro rata based on net assets by each fund in the Alger Fund Complex. Additionally, each member of the Audit Committee received a fee of $13,000 per annum, paid pro rata based on net assets by each fund in the Alger Fund Complex.
On December 15, 2021, the Board approved the following changes in Trustee compensation. Effective January 1, 2022, each Independent Trustee receives a fee of $156,000 per annum, paid pro rata based on net assets by each fund in the Alger Fund Complex, plus travel expenses incurred for attending board meetings. The Independent Trustee appointed as Chairman of the Board receives additional compensation of $22,000 per annum paid pro rata based on net assets by each fund in the Alger Fund Complex. Additionally, each member of the Audit Committee receives a fee of $13,000 per annum, paid pro rata based on net assets by each fund in the Alger Fund Complex. Effective January 1, 2022, the Board adopted a policy that requires the trustees to receive a minimum of 10% of their annual compensation in shares of funds in the Alger Fund Complex.
(h) Interfund Trades: The Portfolio may engage in purchase and sale transactions with other funds advised by Alger Management or Weatherbie. There were no interfund trades during the year ended December 31, 2021.
NOTE 4 — Securities Transactions:
Purchases and sales of securities, other than U.S. Government securities and short-term securities, for the year ended December 31, 2021, were as follows:
PURCHASES | SALES | |||||||
Alger Weatherbie Specialized Growth Portfolio | $ | 3,184,919 | $ | 3,292,897 |
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
NOTE 5 — Borrowings:
The Portfolio may borrow from the Custodian on an uncommitted basis. The Portfolio pays the Custodian a market rate of interest, generally based upon a rate of return with respect to each respective currency borrowed taking into consideration relevant overnight and short- term reference rates, the range of distribution between and among the interest rates paid on deposits to other institutions, less applicable commissions, if any. The Portfolio may also borrow from other funds in the Alger Fund Complex, as discussed in Note 3(d). For the year ended December 31, 2021, the Portfolio had the following borrowings from the Custodian and other funds in the Alger Fund Complex:
AVERAGE DAILY BORROWING | WEIGHTED AVERAGE INTEREST RATE | |||||||
Alger Weatherbie Specialized Growth Portfolio | $ | 3,939 | 1.74 | % |
The highest amount borrowed from the Custodian and other funds during the year ended December 31, 2021 by the Portfolio was as follows:
HIGHEST BORROWING | ||||
Alger Weatherbie Specialized Growth Portfolio | $ | 260,940 |
NOTE 6 — Share Capital:
The Portfolio has an unlimited number of authorized shares of beneficial interest of $.001 par value. During the year ended December 31, 2021 and the year ended December 31, 2020, transactions of shares of beneficial interest were as follows:
FOR THE YEAR ENDED DECEMBER 31, 2021 | FOR THE YEAR ENDED DECEMBER 31, 2020 | |||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Alger Weatherbie Specialized Growth Portfolio | ||||||||||||||||
Class I-2: | ||||||||||||||||
Shares sold | 374,403 | $ | 1,033,564 | 797,692 | $ | 1,800,906 | ||||||||||
Dividends reinvested | 516,060 | 1,057,923 | 106,028 | 279,913 | ||||||||||||
Shares redeemed | (391,963 | ) | (1,180,735 | ) | (310,218 | ) | (600,502 | ) | ||||||||
Net increase | 498,500 | $ | 910,752 | 593,502 | $ | 1,480,317 |
NOTE 7 — Income Tax Information:
The tax character of distributions paid during the year ended December 31, 2021 and the year ended December 31, 2020 was as follows:
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
FOR THE YEAR ENDED DECEMBER 31, 2021 | FOR THE YEAR ENDED DECEMBER 31, 2020 | |||||||
Alger Weatherbie Specialized Growth Portfolio | ||||||||
Distributions paid from: | ||||||||
Ordinary Income | $ | 522,324 | $ | 17,767 | ||||
Long-term capital gain | 579,522 | 272,262 | ||||||
Total distributions paid | $ | 1,101,846 | $ | 290,029 |
As of December 31, 2021, the components of accumulated earnings (losses) on a tax basis were as follows:
Alger Weatherbie Specialized Growth Portfolio | ||||
Undistributed ordinary income | $ | 7,195 | ||
Undistributed long-term gains | 59,108 | |||
Net accumulated earnings | 66,303 | |||
Capital loss carryforwards | — | |||
Net unrealized appreciation | 196,864 | |||
Total accumulated earnings | $ | 263,167 |
At December 31, 2021, the Portfolio, for federal income tax purposes, had no capital loss carryforwards and no capital loss carryforwards were utilized in 2021.
Net capital losses incurred after October 31 and within the taxable year are deemed to arise on the first business day of the Portfolio’s next taxable year.
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is determined annually and is attributable primarily to the tax deferral of losses on wash sales, U.S. Internal Revenue Code Section 988 currency transactions, the tax treatment of partnership investments, the realization of unrealized appreciation of passive foreign investment companies, and the return of capital from real estate investment trust investments.
The Portfolio accrues tax on unrealized gains in foreign jurisdictions that impose a foreign capital tax.
Permanent differences, primarily from net operating losses and real estate investment trusts and partnership investments sold by the Portfolio, resulted in the following reclassifications among the Portfolio’s components of net assets at December 31, 2021:
Alger Weatherbie Specialized Growth Portfolio | ||||
Distributable earnings | $ | (2 | ) | |
Paid in Capital | $ | 2 |
NOTE 8 — Fair Value Measurements:
The major categories of securities and their respective fair value inputs are detailed in the Portfolio’s Schedule of Investments. Based upon the nature, characteristics, and risks associated with its investments as of December 31, 2021, the Portfolio has determined that presenting them by security type and sector is appropriate.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
Alger Weatherbie Specialized Growth Portfolio | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
COMMON STOCKS | ||||||||||||||||
Communication Services | $ | 7,557 | $ | 7,557 | $ | — | $ | — | ||||||||
Consumer Discretionary | 489,045 | 489,045 | — | — | ||||||||||||
Energy | 94,237 | 94,237 | — | — | ||||||||||||
Financials | 538,929 | 538,929 | — | — | ||||||||||||
Healthcare | 791,178 | 791,178 | — | — | ||||||||||||
Industrials | 812,490 | 812,490 | — | — | ||||||||||||
Information Technology | 802,714 | 802,714 | — | — | ||||||||||||
Materials | 84,517 | 84,517 | — | — | ||||||||||||
Real Estate | 239,104 | 239,104 | — | — | ||||||||||||
TOTAL COMMON STOCKS | $ | 3,859,771 | $ | 3,859,771 | $ | — | $ | — | ||||||||
PREFERRED STOCKS | ||||||||||||||||
Healthcare | — | * | — | — | — | * | ||||||||||
TOTAL INVESTMENTS IN SECURITIES | $ | 3,859,771 | $ | 3,859,771 | $ | — | $ | — |
* | Prosetta Biosciences, Inc., Series D shares are classified as a Level 3 investment and are fair valued at zero as of December 31, 2021. |
FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) | ||||
Alger Weatherbie Specialized Growth Portfolio | Preferred Stocks | |||
Opening balance at January 1, 2021 | $ | 1,592 | ||
Transfers into Level 3 | — | |||
Transfers out of Level 3 | — | |||
Total gains or losses | ||||
Included in net realized gain (loss) on investments | — | |||
Included in net change in unrealized appreciation (depreciation) on investments | (1,592 | ) | ||
Purchases and sales | ||||
Purchases | — | |||
Sales | — | |||
Closing balance at December 31, 2021 | — | * | ||
Net change in unrealized appreciation (depreciation) attributable to investments still held at December 31, 2021** | (1,592 | ) |
* | Prosetta Biosciences, Inc., Series D shares are classified as a Level 3 investment and are fair valued at zero as of December 31, 2021. |
** | Net change in unrealized appreciation (depreciation) is included in net change in unrealized appreciation/(depreciation) on investments in the accompanying Statement of Operations. |
The following table provides quantitative information about the Portfolio’s Level 3 fair value measurements of the Portfolio’s investments as of December 31, 2021. The table below is not intended to be all-inclusive, but rather provides information on the Level 3 inputs as they relate to the Portfolio’s fair value measurements.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
Fair Value December 31, 2021 | Valuation Methodology | Unobservable Input | Range | Weighted Average | ||||||||||
Alger Weatherbie Specialized Growth Portfolio | ||||||||||||||
Preferred Stocks | $ | — | * | Income Approach | Discount Rate | 100.00 | % | N/A |
* | Prosetta Biosciences, Inc., Series D shares are classified as a Level 3 investment and are fair valued at zero as of December 31, 2021. |
The significant unobservable inputs used in the fair value measurement of the Portfolio’s securities are revenue and EBITDA multiples, discount rates, and the probabilities of success of certain outcomes. Significant increases and decreases in these inputs in isolation and interrelationships between these inputs would have resulted in significantly higher or lower fair value measurements than those noted in the table above. Generally, all other things being equal, increases in revenue and EBITDA multiples, decreases in discount rates, and increases in the probabilities of success result in higher fair value measurements, whereas decreases in revenues and EBITDA multiples, increases in discount rates, and decreases in the probabilities of success result in lower fair value measurements.
Certain of the Portfolio’s assets and liabilities are held at carrying amount or face value, which approximates fair value for financial statements purposes. As of December 31, 2021, such assets were categorized within the ASC 820 disclosure hierarchy as follows:
TOTAL FUND | LEVEL 1 | LEVEL 2 | LEVEL 3 | |||||||||||||
Cash and cash equivalents | $ | 204,881 | $ | — | $ | 204,881 | $ | — |
NOTE 9 — Derivatives:
FASB Accounting Standards Codification 815 – Derivatives and Hedging (“ASC 815”) requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
Options—The Portfolio seeks to capture the majority of the returns associated with equity market investments. To meet this investment goal, the Portfolio invests in a broadly diversified portfolio of common stocks and may also buy and sell call and put options on equities and equity indexes. The Portfolio may purchase call options to increase its exposure to the stock market and also provide diversification of risk. The Portfolio may purchase put options in order to protect from significant market declines that may occur over a short period of time. The Portfolio may write covered call and cash-secured put options to generate cash flows while reducing the volatility of the portfolio. The cash flows may be an important source of the Portfolio’s return, although written call options may reduce the Portfolio’s ability to profit from increases in the value of the underlying security or equity portfolio. The value of a call option generally increases as the price of the underlying stock increases and decreases as the stock decreases in price. Conversely, the value of a put option generally increases as the price of the underlying stock decreases and decreases as the stock increases in price. The combination of the diversified stock portfolio and the purchase and sale of options is intended to provide the Portfolio with the majority of the returns associated with equity market investments but with reduced volatility and returns that are augmented with the cash flows from the sale of options.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
There were no options or other derivative instruments held by the Portfolio throughout the year or as of December 31, 2021.
NOTE 10 — Risk Disclosures:
Investing in the stock market involves risks, including the potential loss of principal. Your investment in Portfolio shares represents an indirect investment in the securities owned by the Portfolio. The value of these securities, like other investments, may move up or down, sometimes rapidly and unpredictably. Your Portfolio shares at any point in time may be worth less than what you invested, even after taking into account the reinvestment of Portfolio dividends and distributions. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness such as COVID-19 or other public health issues, recessions, or other events could have a significant impact on investments. A significant portion of assets may be invested in securities of companies in related sectors, and may be similarly affected by economic, political, or market events and conditions and may be more vulnerable to unfavorable sector developments. Investing in companies of small and medium capitalizations involves the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Foreign securities and emerging markets involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility.
NOTE 11 — Affiliated Securities:
The issuers of the securities listed below are deemed to be affiliates of the Portfolio because the Portfolio or its affiliates owned 5% or more of the issuer’s voting securities during all or part of the year ended December 31, 2021 or because the Portfolio and the issuer are managed by the same investment adviser. Information regarding the Portfolio’s holdings of such securities is set forth in the following table:
Security | Value at December 31, 2020 | Purchases/ Conversion | Sales/ Conversion | Dividend/ Interest Income | Realized Gain (Loss) | Net Change in Unrealized App(Dep) | Value at December 31, 2021 | |||||||||||||||||||||
Alger Weatherbie Specialized Growth Portfolio | ||||||||||||||||||||||||||||
Preferred Stocks | ||||||||||||||||||||||||||||
Prosetta Biosciences, Inc., | ||||||||||||||||||||||||||||
Series D | $ | 1,592 | $ | – | $ | – | $ | – | $ | – | $ | (1,592 | ) | $ | – | * | ||||||||||||
Total | $ | 1,592 | $ | – | $ | – | $ | – | $ | – | $ | (1,592 | ) | $ | – |
* | Prosetta Biosciences, Inc., Series D shares are classified as a Level 3 investment and are fair valued at zero as of December 31, 2021. |
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
NOTES TO FINANCIAL STATEMENTS (Continued) |
NOTE 12 — Subsequent Events:
Management of the Portfolio has evaluated events that have occurred subsequent to December 31, 2021, through the issuance date of the Financial Statements. The following items were noted which require recognition and/or disclosure:
On September 7, 2021, BBH, the Portfolio’s custodian, announced that it had entered into an agreement with State Street Bank and Trust Company (“State Street”) to sell BBH’s Investor Services business to State Street (the “Transaction”). The Transaction is subject to certain closing conditions, including regulatory and customary approvals, and it is expected to be consummated during the second calendar quarter of 2022 (the “Closing Date”). Consequently, as a result of the Transaction, it is expected that State Street will replace BBH as the Portfolio’s custodian effective as of the Closing Date.
To the Shareholders of Alger Weatherbie Specialized Growth Portfolio and the Board of Trustees of The Alger Portfolios:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statement of assets and liabilities of Alger Weatherbie Specialized Growth Portfolio, one of the portfolios constituting The Alger Portfolios (the "Fund"), including the schedule of investments, as of December 31, 2021, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2021, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2021, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
New York, New York
February 25, 2022
We have served as the auditor of one or more investment companies within the Alger group of investment companies since 2009.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
As a shareholder of the Portfolio, you incur two types of costs: transaction costs, if applicable; and ongoing costs, including management fees, distribution (12b-1) fees, if applicable, and other fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The example below is based on an investment of $1,000 invested at the beginning of the six-month period starting July 1, 2021 and ending December 31, 2021 and held for the entire period.
Actual Expenses
The first line for each class of shares in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Six Months Ended December 31, 2021” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line for each class of shares in the table below provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio for each class of the Portfolio’s shares and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs or deduction of insurance charges against assets or annuities. Therefore, the second line under each class of shares in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Beginning Account Value July 1, 2021 | Ending Account Value December 31, 2021 | Expenses Paid During the Six Months Ended December 31, 2021(a) | Annualized Expense Ratio For the Six Months Ended December 31, 2021(b) | ||||||||||||||
Alger Weatherbie Specialized Growth Portfolio | |||||||||||||||||
Class I-2 | Actual | $ | 1,000.00 | $ | 976.20 | $ | 5.23 | 1.05 | % | ||||||||
Hypothetical(c) | 1,000.00 | 1,019.91 | 5.35 | 1.05 |
(a) | Expenses are equal to the annualized expense ratio of the share class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
(b) | Annualized. |
(c) | 5% annual return before expenses. |
Trustees and Officers of the Fund
Information about the trustees and officers of the Fund is set forth below. In the table the term “Alger Fund Complex” refers to the Fund, The Alger Funds, The Alger Institutional Funds, Alger Global Focus Fund, The Alger Funds II and The Alger ETF Trust, each of which is a registered investment company managed by Alger Management. Each Trustee serves until an event of termination, such as death or resignation, or until his or her successor is duly elected; each officer’s term of office is one year.
Additional information regarding the Trustees and Officers of the Fund is available in the Fund’s Statement of Additional Information.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Name (Year of Birth) and Address(1) | Position(s) Held with the Fund and Length of Time Served | Principal Occupation(s) During Past Five Years | Number of Funds in the Alger Fund Complex(3) which are Overseen by Trustee | Other Directorships Held by Trustee During Past Five Years | ||||
Interested Trustee(2): | ||||||||
Hilary M. Alger (1961) | Trustee since 2007 | Non-Profit Fundraising Consultant since 2015, Schultz & Williams; Emeritus Trustee since 2020 and Trustee from 2013 to 2020, Pennsylvania Ballet; School Committee Member since 2017, Germantown Friends School. | 29 | Board of Directors, Alger Associates, Inc.; Director of Target Margin Theater | ||||
Non-Interested Trustees: | ||||||||
Charles F. Baird, Jr. (1953) | Trustee since 2007 | Managing Partner since 1997, North Castle Partners (private equity securities group). | 29 | None | ||||
Roger P. Cheever (1945) | Trustee since 2007 | Retired; Associate Vice President for Development Strategy from 2020 to 2021 and Associate Vice President Principal Gifts from 2008 to 2020, Harvard University. | 29 | Board of Directors, Alger SICAV Fund | ||||
Stephen E. O’Neil (1932) | Trustee since 1988 | Retired. | 29 | None | ||||
David Rosenberg (1962) | Trustee since 2007 | Associate Professor of Law since August 2000, Zicklin School of Business, Baruch College, City University of New York. | 29 | None | ||||
Nathan E. Saint-Amand M.D. (1938) | Trustee since 1988 | Medical doctor in private practice since 1970; Member of the Board of the Manhattan Institute (non-profit policy research) since 1988. | 29 | None |
(1) | The address of each Trustee is c/o Fred Alger Management, LLC, 100 Pearl Street, 27th Floor, New York, NY 10004. |
(2) | Ms. Alger is an “interested person” (as defined in the Investment Company Act of 1940, as amended) of the Fund by virtue of her ownership control of Alger Associates, Inc., which indirectly controls Alger Management and its affiliates. |
(3) | “Alger Fund Complex” refers to the Fund and the five other registered investment companies managed by Alger Management and the series therof. Each Trustee serves until an event of termination, such as death or resignation, or until his or her successor is duly elected. Each of the Trustees serves on the board of trustees of the other five registered investment companies in the Alger Fund Complex. |
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Name (Year of Birth), Position with Fund and Address(1) | Principal Occupations | Officer Since | ||
Officers(2): | ||||
Hal Liebes (1964) President, Principal Executive Officer | Executive Vice President, Chief Operating Officer (“COO”) and Secretary, Alger Management; Managing Member, Alger LLC; COO and Secretary, Alger Associates, Inc. and Alger Alternative Holdings, LLC; Director, Alger SICAV, Alger International Holdings, and Alger Dynamic Return Offshore Fund; Vice President, COO, Managing Member, and Secretary, Alger Capital, LLC and Alger Group Holdings, LLC; Executive Director and Chairman, Alger Management, Ltd.; Manager and Secretary, Weatherbie Capital, LLC and Alger Apple Real Estate LLC; Manager, Alger Partners Investors I LLC, Alger Partners Investors II LLC, and Alger Partners Investors KEIGF; Secretary, Alger-Weatherbie Holdings, LLC and Alger Boulder I LLC; and Director and Secretary, The Foundation for Alger Families. | 2005 | ||
Tina Payne (1974) Secretary, Chief Compliance Officer, Chief Legal Officer | Since 2017, Senior Vice President, General Counsel, and Chief Compliance Officer (“CCO”), Alger Management; Senior Vice President, General Counsel, and Secretary, Alger LLC; CCO, Alger Management, Ltd.; Vice President and Assistant Secretary, Alger Group Holdings, LLC; Assistant Secretary, Weatherbie Capital, LLC and Alger Alternative Holdings, LLC; and since 2019, Assistant Secretary, Alger-Weatherbie Holdings, LLC. Formerly, Senior Vice President and Associate General Counsel, Cohen & Steers Capital Management, from 2007 to 2017. | 2017 | ||
Michael D. Martins (1965) Treasurer, Principal Financial Officer | Senior Vice President of Alger Management. | 2005 | ||
Anthony S. Caputo (1955) Assistant Treasurer | Vice President of Alger Management. | 2007 | ||
Sergio M. Pavone (1961) Assistant Treasurer | Vice President of Alger Management. | 2007 | ||
Mia G. Pillinger (1989) Assistant Secretary | Associate Counsel of Alger Management since 2020. Formerly, Associate at Willkie Farr & Gallagher, LLP, from 2016 to 2020. | 2020 | ||
Sushmita Sahu (1981) AML Compliance Officer | Vice President of Alger Management. | 2021 |
(1) | The address of each officer is c/o Fred Alger Management, LLC, 100 Pearl Street, 27th Floor, New York, NY 10004. |
(2) | Each officer’s term of office is one year. Each officer serves in the same capacity for the other funds in the Alger Fund Complex. |
The Statement of Additional Information contains additional information about the Fund’s Trustees and is available without charge upon request by calling (800) 992-3863.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Board Approval of Investment Advisory Agreement
At a meeting held on September 22, 2021 (Meeting), the Board of Trustees (Board) of The Alger Portfolios (Trust), including a majority of the trustees who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended) of the Trust (Independent Trustees), reviewed and approved the continuance of the investment advisory agreement between Fred Alger Management, LLC (Fred Alger Management) and the Trust, on behalf of the Fund, and the investment sub-advisory agreement between Fred Alger Management and Weatherbie Capital, LLC (Sub-Adviser), an affiliate of Fred Alger Management, on behalf of Alger Weatherbie Specialized Growth Portfolio (each, a Management Agreement), for an additional one-year period. Fred Alger Management and the Sub-Adviser are collectively referred to herein as the “Manager.”
In considering the continuation of each Management Agreement, the Board reviewed and considered information provided by the Manager and its representatives at the Meeting and throughout the year at meetings of the Board and its committees. The Board also reviewed and considered information the Manager provided in response to a detailed request for information Independent Trustee counsel submitted to the Manager on behalf of the Independent Trustees in connection with the Board’s annual contract consideration, as well as information provided in response to a supplemental request from Independent Trustee counsel on behalf of the Independent Trustees. The materials for the Meeting included a presentation and analysis of the Fund and the Manager by FUSE Research Network LLC (FUSE), an independent consulting firm. The Board also spoke directly with FUSE representatives at the Meeting and, among other things, received a description of the methodology FUSE used to select the mutual funds included in the Fund’s Peer Universe and Peer Group (as described herein).
The Independent Trustees also received advice from, and met separately with, their Independent Trustee counsel in considering whether to approve the continuation of each Management Agreement. The Independent Trustees also received a memorandum from Independent Trustee counsel discussing their duties in considering the continuation of the Management Agreements. In addition, prior to the Meeting, the chair of the Board, on behalf of the other Independent Trustees, conferred with Independent Trustee counsel about the contract renewal process.
The Board reviewed the materials provided and considered all of the factors it deemed relevant in approving the continuance of each Management Agreement, including, but not limited to: (i) the nature, extent and quality of the services provided by the Manager; (ii) the investment performance of the Fund; (iii) the costs of the services the Manager provided and profits it realized; (iv) the extent to which economies of scale are realized as the Fund grows; and (v) whether fee levels reflect these economies of scale for the benefit of Fund shareholders. The Board did not identify any one factor as dispositive, and each Board member may have attributed different weights to the factors considered.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
In the discussions that follow, reference is made to the “median” in the Peer Group and Peer Universe categories. With respect to performance, below median performance represents performance that is worse relative to the median, and above median performance represents performance that is better relative to the median of the funds in the relevant Performance Universe. With respect to expenses, below median fees or expenses represent fees or expenses that are lower relative to the median, and above median fees or expenses represent fees or expenses that are higher relative to the median of the funds in the relevant Expense Group. FUSE information is calculated on a share class basis.
In particular, in approving the continuance of each Management Agreement, the Board considered the following factors:
Nature, Extent and Quality of Services
The Board reviewed and considered information regarding the nature, extent and quality of investment management services provided by the Manager to the Fund. This information included, among other things, the qualifications, background and experience of the professional personnel who perform services for the Fund; the structure of investment professional compensation; oversight of third-party service providers; investment performance, fee information and related financial information for the Fund; fees and payments to intermediaries for fund administration, transfer agency and shareholder services; legal and compliance matters; risk controls; pricing and other services provided by the Manager; and the range of advisory fees charged by the Manager to other funds and accounts, including the Manager’s explanation of differences among accounts where relevant. The Board noted that it received information at regular meetings throughout the year regarding the services rendered by Fred Alger Management concerning the management of the Fund’s affairs and Fred Alger Management’s role in coordinating and overseeing providers of other services to the Fund.
The Board noted Fred Alger Management’s history and expertise in the “growth” style of investment management and management’s ongoing efforts to develop strategies and products, and adjust portfolios as necessary, as well as to address the changing investment landscape as evidenced, in part, by the recent launch of a suite of actively-managed non- transparent exchange-traded funds. The Board also considered the investment approach of Weatherbie, which takes a fundamental, bottom-up research approach to investing in growth equities, similar to that of Fred Alger Management. The Board noted the length of time the Manager had provided services as an investment adviser to the Fund and also noted FUSE’s analysis that Fred Alger Management’s successful flagship offerings support Fred Alger Management’s overall investment capabilities.
The Board considered information provided by the Manager with respect to its business continuity plans, including the continued effectiveness of those plans throughout the ongoing COVID-19 pandemic. The Board further noted the Manager’s ongoing engagement with key service providers with respect to their operations and personnel supporting the Fund during the COVID-19 pandemic.
The Board also reviewed and considered the benefits provided to Fund shareholders of investing in a Fund that is part of the Alger Family of Funds. The Board noted the strong financial position of the Manager and its commitment to the fund business as evidenced, in part, by a continued focus on offerings in focused strategies. The Board also noted that certain administrative, compliance, reporting and accounting services necessary for the conduct of the Fund’s affairs are provided separately under a Fund Administration Agreement and a Shareholder Administrative Services Agreement with Fred Alger Management.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Following consideration of such information, each Trustee was satisfied with the nature, extent and quality of services provided by the Manager to the Fund under the Management Agreements.
Fund Performance
The Board reviewed and considered the performance results of the Fund over various time periods. The Board considered the performance returns for the Fund in comparison to the performance returns of a universe of mutual funds deemed comparable to the Fund based on various investment, operational, and pricing characteristics (Peer Universe), and a group of mutual funds from within such Peer Universe deemed comparable to the Fund based primarily on investment strategy similarity (Peer Group), each as selected by FUSE, as well as the Fund’s benchmark index. The Board took into account that long-term performance could be impacted by one period of significant outperformance or underperformance.
The Board also reviewed and considered Fund performance reports provided by management and discussions that occurred with investment personnel and senior management at Board meetings throughout the year. As had been the practice at every quarterly meeting of the Board throughout the year, representatives of the Manager reviewed with the Trustees the recent and longer-term performance of the Fund and, where appropriate, the measures that the Manager was considering, or had implemented during the past year, to address any performance outliers.
The Trustees concluded that the Fund’s performance was acceptable. Further discussion of the Board’s considerations with respect to the Fund’s performance is set forth below.
The Board noted that the Fund’s annualized total return for the one-, three-, five-, and 10- year periods outperformed the median of its Peer Group. The Board also noted that the Fund’s annualized total return for the one-, three-, five- and 10-year periods was in the first quartile of its Peer Universe. The Board further noted that the Fund had outperformed the Fund’s benchmark index for the three-, five- and 10-year periods and underperformed for the one-year period.
Comparative Fees and Expenses
The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) payable by the Fund to Fred Alger Management in light of the nature, extent and quality of the services provided by Fred Alger Management pursuant to the Management Agreement for the Fund. The Board also reviewed and considered the fee waiver and/or expense reimbursement arrangements for the Fund (if any), including specific share classes thereof, and considered the actual fee rate (after taking any waivers and reimbursements into account) payable by the Fund (the “Actual Management Fee”). Additionally, the Board received and considered information comparing the Fund’s Contractual Management Fee, Actual Management Fee and overall expenses, including administrative fees payable to Fred Alger Management, with those of the funds in the Peer Group provided by FUSE. For purposes of the comparisons below, the FUSE Contractual Management Fee includes administrative fees.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
The Board discussed those factors that could contribute to the Fund’s Contractual Management Fee, Actual Management Fee or total expenses being above or below the median of the Fund’s Peer Group and concluded that the Contractual Management Fee charged to the Fund is reasonable. Further discussion of the Board’s considerations with respect to the Fund’s comparative fees and expenses is set forth below.
The Board noted that the Contractual Management Fee for the Fund was below the median and in the second quartile of its Peer Group, and that the total expenses for the Fund were above the median and in the third quartile of its Peer Group. The Board also noted that, with respect to the Fund, the Sub-Adviser is paid by Fred Alger Management out of the management fee Fred Alger Management receives from the Fund.
In connection with its consideration of the Fund’s fees payable under the Management Agreement, the Board also received information on Fred Alger Management’s standard institutional account fees for accounts of a similar investment type to the Fund. The Board noted management’s explanation that comparisons with such accounts may be of limited relevance given the different structures and regulatory requirements of mutual funds, such as the Fund, versus those accounts and the differences in the levels of services required by the Fund and those accounts. The Board also received information on fees charged to other funds managed by Fred Alger Management.
Profitability
The Board reviewed and considered information regarding the profits realized by Fred Alger Management and its affiliates in connection with the operation of the Fund. In this respect, the Board considered overall profitability, including in comparison to certain investment advisory peers, as well as the profits, of Fred Alger Management, in providing investment management and other services to the Fund during the year ended June 30, 2021. The Board also reviewed the profitability methodology and any changes thereto, noting that management applies its methods consistently from year to year.
The Board noted that costs incurred in establishing and maintaining the infrastructure necessary for the mutual fund operations conducted by Fred Alger Management may not be fully reflected in the expenses allocated to the Fund in determining Fred Alger Management’s profitability. The Board also noted that the scope of services provided by the Manager, and the related costs of providing those services, had expanded over time as a result of regulatory and other developments.
The Board also considered the extent to which the Manager might derive ancillary benefits from Fund operations, including, for example, through soft dollar arrangements. Based upon its consideration of all these factors, the Trustees concluded that the level of profits realized by Fred Alger Management from providing services to the Fund was not excessive in view of the nature, extent and quality of services provided to the Fund.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Economies of Scale
The Board reviewed and considered the extent to which the Manager may realize economies of scale, if any, as the Fund grows larger and whether the Fund’s management fee structure reflects any economies of scale for the benefit of Fund shareholders. The Board noted the existence of a management fee breakpoint for the Fund, which operates to share economies of scale with the Fund’s shareholders by reducing the Fund’s effective management fees as the Fund grows in size. The Board considered the Manager’s view that the overall size of Fred Alger Management allows it to realize other economies of scale, such as with office space, purchases of technology, and other general business expenses.
The Trustees concluded that for the Fund, to the extent economies of scale may be realized by Fred Alger Management and its affiliates, the benefits of such economies of scale would be shared with the Fund and its shareholders as the Fund grows, including through the management fee breakpoint in place for the Fund.
Conclusion
The Board’s consideration of the Contractual Management Fee for the Fund also had the benefit of a number of years of reviews of the Management Agreement, during which lengthy discussions took place between the Board and representatives of the Manager. Certain aspects of the arrangements may receive greater scrutiny in some years than in others, and the Board’s conclusions may be based, in part, on its consideration of the Fund’s arrangements in prior years.
Based on its review, consideration and evaluation of all factors it believed relevant, including the above-described factors and conclusions, the Board, including the Independent Trustees voting separately, unanimously approved the continuation of each Management Agreement for an additional one-year period.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Privacy Policy
U.S. Consumer Privacy Notice | Rev. 06/22/21 |
FACTS | WHAT DOES ALGER DO WITH YOUR PERSONAL INFORMATION? | ||
Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. | ||
What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include: • Social Security number and • Account balances and • Transaction history and • Purchase history and • Assets When you are no longer our customer, we continue to share your information as described in this notice. | ||
How? | All financial companies need to share personal information to run their everyday business. In the section below, we list the reasons financial companies can share their personal information; the reasons Alger chooses to share; and whether you can limit this sharing. |
Reasons we can share your personal information | Does Alger share? | Can you limit this sharing? | |||
For our everyday business purposes — such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus | Yes | No | |||
For our marketing purposes —to offer our products and services to you | Yes | No | |||
For joint marketing with other financial companies | No | We don’t share | |||
For our affiliates’ everyday business purposes — information about your transactions and experiences | Yes | No | |||
For our affiliates’ everyday business purposes — information about your creditworthiness | No | We don’t share | |||
For nonaffiliates to market to you | No | We don’t share | |||
Questions? Call 1-800-223-3810 |
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Who we are | |||
Who is providing this notice? | Alger includes Fred Alger Management, LLC and Fred Alger & Company, LLC as well as the following funds: The Alger Funds, The Alger Funds II, The Alger Institutional Funds, The Alger Portfolios, Alger Global Focus Fund, and The Alger ETF Trust. |
What we do | |||
How does Alger protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include computer safeguards and secured files and buildings. | ||
How does Alger collect my personal information? | We collect your personal information, for example, when you: • Open an account or • Make deposits or withdrawals from your account or • Give us your contact information or • Provide account information or • Pay us by check. | ||
Why can’t I limit all sharing? | Federal law gives you the right to limit some but not all sharing related to: • sharing for affiliates’ everyday business purposes ─ information about your credit worthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you State laws and individual companies may give you additional rights to limit sharing. |
Definitions | |||
Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies. • Our affiliates include Fred Alger Management, LLC, Weatherbie Capital, LLC and Fred Alger & Company, LLC as well as the following funds: The Alger Funds, The Alger Funds II, The Alger Institutional Funds, The Alger Portfolios, Alger Global Focus Fund, and The Alger ETF Trust. | ||
Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies. | ||
Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you. |
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
Proxy Voting Policies
A description of the policies and procedures the Portfolio uses to determine how to vote proxies relating to portfolio securities and the proxy voting record is available, without charge, by calling (800) 992-3863 or online on the Portfolio’s website at http://www.alger. com or on the SEC’s website at http://www.sec.gov.
Fund Holdings
The Board has adopted policies and procedures relating to disclosure of the Portfolio’s securities. These policies and procedures recognize that there may be legitimate business reasons for holdings to be disclosed and seek to balance those interests to protect the proprietary nature of the trading strategies and implementation thereof by the Portfolio.
Generally, the policies prohibit the release of information concerning portfolio holdings, which have not previously been made public, to individual investors, institutional investors, intermediaries that distribute the Portfolio’s shares and other parties which are not employed by the Investment Manager or its affiliates except when the legitimate business purposes for selective disclosure and other conditions (designed to protect the Portfolio) are acceptable.
The Portfolio files its complete schedule of portfolio holdings with the SEC semi-annually in shareholder reports on Form N-CSR and after the first and third fiscal quarters as an exhibit to its reports on Form N-PORT. The Portfolio’s Forms N-CSR and N-PORT are available online on the SEC’s website at www.sec.gov.
In addition, the Portfolio makes publicly available its month-end top 10 holdings with a 10 day lag and its month-end full portfolio with a 60 day lag on its website www.alger. com and through other marketing communications (including printed advertising/sales literature and/or shareholder telephone customer service centers). No compensation or other consideration is directly received for the non-public disclosure of portfolio holdings information.
In accordance with the foregoing, the Portfolio provides portfolio holdings information to third parties including financial intermediaries and service providers who need access to this information in the performance of their services and are subject to duties of confidentiality (1) imposed by law, including a duty not to trade on non-public information, and/or (2) pursuant to an agreement that confidential information is not to be disclosed or used (including trading on such information) other than as required by law. From time to time, the Fund will communicate with these third parties to confirm that they understand the Portfolio’s policies and procedures regarding such disclosure. These agreements must be approved by the Portfolio’s Chief Compliance Officer.
The Board periodically reviews a report disclosing the third parties to whom the Portfolio’s holdings information has been disclosed and the purpose for such disclosure, and it considers whether or not the release of information to such third parties is in the best interest of the Portfolio and its shareholders.
THE ALGER PORTFOLIOS | Alger Weatherbie Specialized Growth Portfolio |
ADDITIONAL INFORMATION (Unaudited) (Continued) |
In addition to material the Portfolio routinely provides to shareholders, the Investment Manager may make additional statistical information available regarding the Alger Family of Funds. Such information may include, but not be limited to, relative weightings and characteristics of the Portfolio versus an index (such as P/E ratio, alpha, beta, capture ratio, maximum drawdown, standard deviation, EPS forecasts, Sharpe ratio, information ratio, R-squared, and market cap analysis), security specific impact on overall portfolio performance, month-end top ten contributors to and detractors from performance, portfolio turnover, and other similar information. Shareholders should visit www.alger.com or may also contact the Funds at (800) 992-3863 to obtain such information.
Liquidity Risk Management Program
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), the Fund has adopted and implemented a liquidity risk management program (the “LRMP”), which is reasonably designed to assess and manage the Portfolio’s liquidity risk.
The Board met on December 15, 2021 (the “Meeting”) to review the LRMP. The Board previously appointed Alger Management as the program administrator for the LRMP and approved an agreement with Ice Data Services (“ICE”), a third party vendor that assists the Portfolio with liquidity classifications required by the Liquidity Rule. Alger Management also previously delegated oversight of the LRMP to the Liquidity Risk Committee (the “Committee”). At the Meeting, the Committee, on behalf of Alger Management, provided the Board with a report that addressed the operation of the LRMP and assessed its adequacy and effectiveness of implementation, and any material changes to the LRMP (the “Report”). The Report covered the period from December 1, 2020 through November 30, 2021 (the “Review Period”).
The Report stated that the Committee assessed the Portfolio’s liquidity risk by considering qualitative factors such as the Portfolio’s investment strategy, holdings, diversification of investments, redemption policies, cash flows, cash levels, shareholder concentration, and access to borrowings, among others, in conjunction with the quantitative classifications generated by ICE. In addition, in connection with the review of the Portfolio’s liquidity risks and the operation of the LRMP and the adequacy and effectiveness of its implementation, the Committee also evaluated the levels at which to set the reasonably anticipated trade size and market price impact. The Report described the process for determining that the Portfolio primarily holds investments that are highly liquid. The Report noted that the Committee also performed stress tests on certain Portfolios in light of the market volatility caused by the COVID-19 pandemic, and it was concluded that the Portfolio remained primarily highly liquid.
There were no material changes to the LRMP during the Review Period, except that certain changes were made to the LRMP to add liquidity considerations for certain exchange-traded funds managed by Alger Management. The Report provided to the Board stated that the Committee concluded that based on the operation of the functions, as described in the Report, during the Review Period the Fund’s LRMP is operating effectively and adequate with respect to the Portfolio and has been effectively implemented during the Review Period.
THE ALGER PORTFOLIOS
100 Pearl Street, 27th Floor
New York, NY 10004
(800) 992-3863
www.alger.com
Investment Manager
Fred Alger Management, LLC
100 Pearl Street, 27th Floor
New York, NY 10004
Sub-Advisor
Weatherbie Capital, LLC
265 Franklin Street, Suite 1603
Boston, MA 02110
Distributor
Fred Alger & Company, LLC
100 Pearl Street, 27th Floor
New York, NY 10004
Transfer Agent and Dividend Disbursing Agent
UMB Fund Services, Inc.
235 W. Galena Street
Milwaukee, WI 53212
Custodian
Brown Brothers Harriman & Company
50 Post Office Square
Boston, MA 02110
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
30 Rockefeller Plaza
New York, NY 10112
This report is submitted for the general information of the shareholders of Alger Weatherbie Specialized Growth Portfolio. It is not authorized for distribution to prospective investors unless accompanied by an effective Prospectus for the Portfolio, which contains information concerning the Portfolio’s investment policies, fees and expenses as well as other pertinent information.
(This page has been intentionally left blank.)
(This page has been intentionally left blank.)
(This page has been intentionally left blank.)
(This page has been intentionally left blank.)
ITEM 2. | CODE OF ETHICS. |
(a) The Registrant has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
(b) | Not applicable. |
(c) | The Registrant has not amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto. |
(d) | The Registrant has not granted a waiver or an implicit waiver from a provision of its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto. |
(e) | Not applicable. |
(f) | The Registrant's Code of Ethics is attached as an Exhibit hereto. |
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Trustees of the Registrant determined that Stephen E. O’Neil is an audit committee financial expert (within the meaning of that phrase specified in the instructions to Form N-CSR) on the Registrant’s audit committee. Mr. O’Neil is an “independent” trustee – i.e., he is not an interested person of the Registrant as defined in the Investment Company Act of 1940, nor has he accepted directly or indirectly any consulting, advisory or other compensatory fee from the Registrant, other than in his capacity as Trustee.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
a) Audit Fees:
December 31, 2021 | $ | 25,900 | ||
December 31, 2020 | $ | 25,100 |
b) Audit-Related Fees: NONE
c) Tax Fees for tax advice, tax compliance and tax planning:
December 31, 2021 | $ | 5,150 | ||
December 31, 2020 | $ | 5,000 |
d) All Other Fees:
December 31, 2021 | $ | 2,268 | ||
December 31, 2020 | $ | 1,972 |
Other fees include a review and consent for Registrants registration statement filing and a review of the semi-annual financial statements.
e) 1) Audit Committee Pre-Approval Policies And Procedures:
Audit and non-audit services provided by the Registrant’s independent registered public accounting firm (the “Auditors”) on behalf the Registrant must be pre-approved by the Audit Committee. Non-audit services provided by the Auditors on behalf of the Registrant’s Investment Adviser or any entity controlling, controlled by, or under common control with the Investment Adviser must be pre-approved by the Audit Committee if such non-audit services directly relate to the operations or financial reporting of the Registrant.
2) All fees in item 4(b) through 4(d) above were approved by the Registrants’ Audit Committee.
f) Not Applicable
g) Non-Audit Fees:
December 31, 2021 | $ | 228,972 | € | 91,934 | ||||
December 31, 2020 | $ | 232,670 | € | 72,885 |
h) The audit committee of the board of trustees has considered whether the provision of the non-audit services that were rendered to the registrant's investment adviser and any entity controlling, controlled by, or under common control, with the adviser that provides ongoing services to the registrant that were not approved pursuant to (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principle accountant's independence.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable
ITEM 6. | INVESTMENTS. |
(a) A Schedule of Investments in securities of unaffiliated issuers is included as part of the report to shareholders filed under Item 1 of this Form N-CSR.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
None
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) The Registrant’s principal executive officer and principal financial officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective based on their evaluation of the disclosure controls and procedures as of a date within 90 days of the filing date of this document.
(b) No changes in the Registrant’s internal control over financial reporting occurred during the Registrant’s second fiscal half-year that materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
ITEM 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not Applicable.
ITEM 13. | EXHIBITS. |
(a) (3) Not applicable
(a) (4) Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The Alger Portfolios | ||
Alger Weatherbie Specialized Growth Portfolio | ||
By: | /s/Hal Liebes | |
Hal Liebes | ||
President | ||
Date: | February 23, 2022 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/Hal Liebes | |
Hal Liebes | ||
President | ||
Date: | February 23, 2022 |
By: | /s/Michael D. Martins | |
Michael D. Martins | ||
Treasurer | ||
Date: | February 23, 2022 |