Amerindo
TECHNOLOGY FUND
Annual Report
December 31, 1997
<PAGE>
TABLE OF CONTENTS
SHAREHOLDER LETTER .......................................................... 1
ANALYSIS OF THE 1996-1997 BEAR MARKET IN TECHNOLOGY ......................... 4
SCHEDULE OF INVESTMENTS ..................................................... 7
STATEMENT OF ASSETS AND LIABILITIES ......................................... 8
STATEMENT OF OPERATIONS ..................................................... 9
STATEMENTS OF CHANGES IN NET ASSETS ......................................... 10
NOTES TO FINANCIAL STATEMENTS ............................................... 11
FINANCIAL HIGHLIGHTS ........................................................ 14
INDEPENDENT AUDITOR'S REPORT ................................................ 15
<PAGE>
December 31, 1997
Dear Shareholder:
The Amerindo Technology Fund was down 4.16% for the quarter ending December
31, 1997, which produced a decline of 18.11% for the year. Even though the Fund
posted positive performances of 8.44% for the second quarter and 10.81% for the
third quarter, it was not enough to fully recover from the extremely sharp
decline of the first quarter. The negative performance of the Fund was due to
the convergence of several unusual events, not the least of which was the
disappointing behavior of the networking stocks, a sector in which the Fund was
heavily weighted for the first half of the year. The slow pace of deregulation
in the telecommunications sector that prevented some exciting new products in
data-communications from early commercial launches was another factor negatively
impacting performance.
Ironically, the larger cap technology market fared far better in 1997. For
example, the personal computer and semiconductor stocks turned in respectable
returns for the year. However, we have historically tended to view these areas
of technology as commodity driven, low margin and too cyclical for sustainable
long term gains, and have thus traditionally avoided them. In 1997 many of the
large, influential companies such as Intel, Microsoft, Lucent and Cisco used
their massive financial and marketing resources to prevent new entrants with
promising technologies from penetrating their markets. During the fourth quarter
technology stocks were especially hard hit by the crisis in Southeast Asia,
mostly for the wrong reasons. THE HAMBRECHT & QUIST ("H&Q") GROWTH INDEX
DECLINED ROUGHLY ABOUT 20% FROM THE FOURTH QUARTER PEAK THROUGH THE FIRST WEEK
OF JANUARY 1998. The technology companies that had warned of disappointing
earnings tended to be the large, somewhat commodity-oriented companies. The
political and economic uncertainty that resulted from the ASEAN bubble bursting
had the effect of shifting money from emerging growth stocks to larger cap, far
more liquid, "defensive" stocks. The net result was that the very large
technology companies performed far better than the smaller companies in which we
specialize. Although our biotech names proved to be steady performers for most
of the year, they did not significantly bolster overall performance due to their
lighter overall weighting relative to the technology positions.
In retrospect, the Fund was unfortunately launched during the most severe
correction in our specialty sector since the Crash of 1987, when the H&Q Growth
Index declined 41% between May 1996 and January 1998. We nevertheless remain as
strongly committed to our proven investment approach in managing your money as
we have since the early 1980s, when we effectively pioneered the management of
portfolios dedicated to emerging technology and healthcare stocks.
Our positive long term outlook regarding the growth prospects of technology
and healthcare remains intact. Our investment thesis focuses on those sectors of
emerging technology responsible for producing the next major wave of growth.
These areas are data telecommunications, the Internet, enterprise software and
biotechnology. Our investment strategy will continue to focus on discovering
relatively new public companies in our sectors with substantial growth potential
over the next several years.
At year end the Fund had approximately $42 million invested in 16 stocks.
As the portfolio matures, we anticipate it will hold 20 to 25 stocks. The Fund
is designed for the long term investor who can accept above average levels of
price fluctuation, and who can understand that volatility is inherently part and
parcel to growth stock investing. October's especially steep slide served as a
stiff reminder that equity markets can be inherently unstable over the short
term. Technology stocks were subject to rapidly shifting sentiment that was
accompanied by extraordinary price dislocations during this unusually sharp
correction.
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We now believe that a constructive view of our sector's outlook is warranted. It
was gratifying to see the many shareholders who took advantage of the Fund's
price decline by purchasing more shares.
We highlight below two companies in the current portfolio. The profiles
describe each company's business and are typical of those we seek for the Fund
in terms of our investment criteria.
CYGNUS, INC. is a leader in the development of advanced
transdermal drug delivery systems for the pharmaceutical
industry. The company is aggressively developing a non-invasive
blood glucose measuring technology for diabetics.
A transdermal drug delivery system is an adhesive patch
containing medication which is released through the skin into
the bloodstream at a controlled rate over an extended period of
time. Transdermal delivery can significantly enhance the
therapeutic benefits of certain drugs through improved efficacy,
safety and patient compliance, when compared with conventional
methods of drug administration such as pills, injections and
continuous infusions. The company has numerous products in its
portfolio. Nicotrol, a smoking cessation patch, is marketed in
North America and Europe. Its estrogen patch was recently
launched by Parke-Davis. There are several other products in
clinical testing: two hormone replacement transdermal patches in
Phase III trials; a contraceptive patch in Phase II with Johnson
& Johnson, and a second generation transdermal smoking cessation
patch which has completed Phase I trials.
Cygnus, Inc. has begun pivotal testing of a continuous
non-invasive blood glucose watch-like monitor for diabetics.
Initial clinical findings suggest measurement of glucose
extracted by iontophoresis from just below the skin's surface is
feasible and correlates with traditional fingerstick measurement
of blood glucose. We believe this exciting technology will
increasingly drive the company's valuation. Becton Dickinson
will market the Glucowatch in the U.S. and Europe, and has
recently signed-up for significant funding of the second
generation device. Yamanouchi will market in Japan. Regulatory
filings for approval are expected in mid 1998.
SIEBEL SYSTEMS, INC. is the world's leading provider of
enterprise application software focused on increasing the
productivity of field sales, telesales, call center, and
customer service operations. Applying information technology to
these operational activities can result in enhanced sales and
service productivity, higher profitability, and increased
customer satisfaction.
In today's increasingly competitive global markets,
businesses must continuously improve the efficiency of their
operations. Having spent considerable effort and resources in
previous years applying information technology to finance,
manufacturing, and human resources management, many businesses
are now looking to bring the same type of information technology
leverage to their sales, marketing, and customer service
processes. Unlike previous automation efforts that concentrated
on decreasing expenses, sales, marketing, and service
information systems focus primarily on increasing revenues.
Siebel has emerged as the leader in one of the most dynamic
new markets in technology. Revenues tripled in 1997 to $119
million while operating profitability reached 25%. The outlook
for 1998 is positive with a strong competitive position and new
products scheduled for release in the first calendar quarter.
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In sum, we believe the fundamentals of our portfolio companies are very
strong and that the stocks will show resilience once the present currency and
market crisis in Asia stabilizes. We continue to believe that recovery in our
sector will be very impressive and that over the long term, your investment in
the Amerindo Technology Fund will be rewarding. Our stocks are at a historic
level of undervaluation vis-a-vis the broad market as measured by the ratio of
their price-earnings ratios to their growth in earnings for this year and next.
AMERINDO TECHNOLOGY FUND
/s/ Alberto W. Vilar /s/ Gary A. Tanaka
Alberto W. Vilar Gary A. Tanaka
[Graph omitted] Graph depicts comparison of the change in value of an
initial $10,000 investment in Amerindo Technology Fund and the Hambrecht Quist
Growth Index from the inception date of 10/29/96 through Dec. 31, 1997.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN AMERINDO TECHNOLOGY
FUND AND THE BENCHMARK SINCE INCEPTION OF 10/29/96
ANNUALIZED RETURN
1 Year Since Inception
- -18.11% -22.91%
Hembrecht Quist Amerindo
Date Growth Index Technology Fund
- ---- ------------ ---------------
Inception $10,000.00 $10,000.00
October 1996 $10,170.37 $10,280.00
November 1996 10,024.81 10,160.00
December 1996 10,167.10 9,000.00
January 1997 10,694.13 8,250.00
February 1997 9,541.58 6,970.00
March 1997 8,203.56 6,400.00
April 1997 7,756.20 5,850.00
May 1997 9,389.90 7,530.00
June 1997 9,580.78 6,940.00
July 1997 10,201.22 7,890.00
August 1997 10,450.13 7,660.00
September 1997 11,548.28 7,690.00
October 1997 10,822.05 7,550.00
November 1997 10,359.72 7,500.00
December 1997 10,409.93 7,370.00
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ANALYSIS OF THE 1996-1997 BEAR MARKET IN TECHNOLOGY
---------------------------------------------------
ASIAN CRISIS CREATES A DOUBLE BOTTOM:
WORST BEAR MARKET IN EMERGING TECHNOLOGY IN TEN YEARS
-----------------------------------------------------
The bear market in emerging technology that started in May of 1996, which
dealt a devastating blow to performance last year, differed from the previous
five declines since the Crash of 1987 in three major ways. The 1996-1997 bear
market has been almost four times the duration of the average of the previous
five; its decline was 41% against an average of 30-35% for the prior five, and
most importantly, its 62% divergence from the broad market has been the largest
on record. The emerging technology sector sustained a panic sell-off bottom on
April 25, 1997. The Hambrecht & Quist ("H&Q") Growth Index rallied impressively
off that low, up over 50%, producing an excellent recovery in the 3rd quarter.
Unfortunately, the October Asian crisis stopped the ongoing recovery in the
performance of small cap growth stocks dead in its tracks; technology emerging
growth stocks actually declined on average 25% over the balance of the quarter.
Paradoxically, smaller stocks have substantially less exposure to the turmoil in
international markets. The Asian crisis had the near term effect of reallocating
funds from less liquid stocks back to large liquid stocks, a knee-jerk tactical
defensive move against any further deterioration.
The 41% decline in the H&Q Growth Index, which has now extended to 20
months in the face of a resilient bull market in large cap stocks, was
aggravated by a number of unusual circumstances that for the most part did not
relate to the business fundamentals of the companies involved in the technology
sector. Two principal reasons accounted for the bulk of the decline. The first
was the popularity of the large cap weighted Index mutual funds, which received
approximately 40% of the flow of funds that the "baby-boomers" invested in
mutual funds for their retirement. The second factor was the unprecedented
strong performance of the Standard & Poor's ("S&P") earnings over the last
several years, which saw profits grow at roughly four-to-five times the average
rate of their post-war growth. Investors shun small stock volatility when double
digit growth exists in large company profits. It is also a fact of life that
different sectors of the market undergo cycles that are not tied to the broad
market. Technology has a long history of periodic sharp, volatile downswings
punctuating an otherwise outstanding history of superior, second to none,
secular growth. Large cap stocks typically enjoy a favorable liquidity
perception for two reasons. In good economic times, their profit growth is
sufficiently respectable that investors do not have to trade down in liquidity
to smaller, but generally faster growing companies. Secondly, late in an
economic cycle that is still showing above average growth, they offer a less
risky exit medium should the market turn down.
We expect the earnings impact of Asian developments to be somewhat muted
for U.S. companies. Most U.S. companies are geographically well diversified
abroad and are not overly dependent on any one region. Asia is often a source of
production for U.S. companies rather than a key export market. Nearly 90% of S&P
sales are in healthy economic growth areas, namely the U.S., Canada, Mexico,
Europe, and much of South America. Profit growth for Corporate America will
moderate in 1998. Asia is but one factor contributing to this slowdown in
earnings growth. Incidentally this is the opposite of the outlook for the
emerging technology sector, which will be ACCELERATING profits in 1998.
Technology sector ramifications from Asia range from a negligible effect for
most companies, to a strong positive effect for commodity producers of
technology. The broad market itself will have to grapple with the positive
effects of lower inflation and, in turn, lower interest rates against a slowdown
in overseas profits. The turmoil in Asia is a disinflationary force for the U.S.
economy. It will relieve inflationary pressures that could have built up from
increased resource utilization rates. Any moderate slowdown in global growth in
1998 should help to extend the business cycle by averting any aggressive
tightening by the world's central banks. Lower inflation and increased
information power have combined to produce a muted business cycle. In the
absence of any compelling reason to engineer a recession and with U.S. inflation
low and the global impact of the Asian crisis potentially deflationary, the Fed
could safely move to lower interest rates.
Today, the much debated term "New Paradigm" remains a misnomer. While the
1990s break from the prior 50 years of economic history in many ways, it
represents a return to the original paradigm of competitive capitalism.
Globalization and rapid technological change have reduced pricing power and
increased competition. Companies
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invest to cut costs, increase productivity and grow. Capacity expansion
accelerates and therefore makes growth take on a deflationary rather than
inflationary bias. In this context, Asia's current crisis developed in part
because regional economies were insufficiently market-oriented. Instead, the
crony capitalism endemic to the region permitted the politically favored to have
easy access to capital through bank loans. A market test of profitability was
seldom an issue. A massive misallocation of capital throughout the region was
the end result but in an increasingly integrated world economy, countries
participating in the globalization process cannot escape market forces. As
excess capacity and questionable lending grew, a market backlash was inevitable.
The painful corporate and financial sector restructuring that is now just
beginning will ultimately transform Asia into an increasingly market-driven,
globally integrated economy, more capable of long term sustainable growth.
Current inflation has never been so low at such an advanced stage of a
business cycle. Lack of pricing power in a growth environment reflects the
intensity of the competitive pressures that lie at the very heart of the
paradigm shift that has taken place in the 1990s. This shift has effectively
launched the U.S. economy on its third long-wave expansion of the 20th Century.
The major force behind the long-wave is a technology-driven surge in innovation
and capital spending that has extremely bullish ramifications for productivity
and growth. Moreover, the positive environment of reduced government deficits,
sound money and a reasonably pro-business and non-interventionist ideology means
the private sector is able to reap the full potential of the technology shift.
Our view is that for the U.S. 1998 will be the eighth year of this expansion,
making the 1990s the longest peacetime cycle in history. The next recession is
still not in sight, and 1999 may well be a better year than 1998.
TECHNOLOGY CONTINUES TO BE THE ENGINE OF GROWTH
- -----------------------------------------------
The real economic impact of the ongoing deployment of technology -
disinflation, increased productivity and capacity creation - remains a virtuous
cycle that should keep demand robust for an extended period. Fundamentally,
technology stocks are still the premier growth stocks of this business cycle.
The American Electronics Association and NASDAQ recently completed a study
entitled "Cybernation: The Importance of the High Technology Industry to the
American Economy". The contribution of technology spending to U.S. final demand
and to GDP in the 1990s based on that study is 24% and 27% respectively. The
cycle remains unbroken: demand for technology stays robust as companies
substitute capital for labor, and deploy technology to improve competitiveness
and productivity; the technology spending becomes a larger share of the real
economy through time, allowing for faster than otherwise disinflationary growth;
the business cycle gets extended; the demand for technology stays robust ....
and so on. This process gives every indication of having sufficient momentum for
a fairly long shelf life. The Cybernation Study shows that high technology is
the largest industry segment in the U.S. economy. Telecom deregulation, the
growth of the Internet and the widespread deployment of computing helped push
1996 high technology revenues close to $900 billion, up almost 60% from 1990,
and acts as a strong, positive influence for productivity. Contrary to its
normal downturn in the latter stages of the business cycle, productivity should
continue to rise in 1998 and offset recent compensation costs. With unit labor
costs flat to possibly even lower, it is difficult to see upward pressure on the
inflation rate, despite what appears to be a very tight labor market. Many
people think this has created a new paradigm, which would represent a world that
has not existed before. WE BELIEVE THAT WE ARE GOING BACK TO A WORLD THAT
EXISTED IN THE 1950S AND EARLY 1960S. During that period, GDP growth averaged
3.9%, while the inflation rate averaged 1.6%. The inflation rate remained low
despite rapid growth in the economy because productivity gains averaged 3.6% per
annum. This period demonstrated clearly the power of rapid productivity growth.
During that period, short term interest rates averaged about 3%, while long
rates were 3.5%.
Technology has become a significant proportion of overall capital spending.
Enterprise software will continue to benefit on a worldwide basis from strong
underlying secular trends. The adoption of a new generation of distributed
client/server systems and Internet technologies is likely to fuel strong secular
growth for at least the next five years. Software companies have very high
operating margins typically over 85%, strong top line growth, no debt, and cash
rich balance sheets. The ongoing migration to a new generation of client/server
software continues, aided in part by some urgency to adopt new systems to
address the Year 2000 (Y2K) problem. For Y2K fixes, we expect a step-up in
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demand again next year, which is probably of particular benefit to the software
and computer services sectors. The deployment of mission critical systems on
client/server platforms is stimulating demand for the ERP (Enterprise Resource
Planning) vendors, supply chain management vendors and a large number of systems
and middleware software vendors.
Businesses are increasingly viewing Internet technologies as
mission-critical capabilities in their information technology endeavors to
reduce costs, increase efficiencies and deploy new Internet-enabled products and
services for customers, partners, vendors and suppliers. Backbone providers like
Worldcom/UUNET are seeing bandwidth usage double every three-to-four months,
driven by both business and consumer usage. The commercialization of the
Internet, which started in 1994, is still in the early stages, but it should
provide significant investment opportunities over the next three-to-five years.
Over the next two years, investors will likely increase their emphasis on other
Internet segments like software, content and services.
The migration of computing from the traditional centralized (mainframe)
model of computing to the distributed, client/server model has been taking place
over the past several years and has been a significant focus of our own software
research effort. We believe the transition has many years to go as less than
half of the traditional mainframe market having purchased client/server critical
applications. Much of this software is still not fully implemented at user sites
owing to the complexity of this new technology, and the steep learning curve
encountered by information systems management departments.
The secular trends in the U.S. toward increased technology spending by
companies in all sectors are now being seen abroad. This should be an ongoing
benefit to U.S. software companies particularly, given their overall strong
market share abroad. For 1998, Wall Street consensus estimates are 23% earnings
growth for the broader technology sector, about the same as in 1997, which is
much better growth than the 8% consensus earnings growth forecast for the S&P
500. The software sector at about 30% is expected to produce the fastest
earnings growth in 1998. Amerindo's own estimates are appreciably higher.
Emerging technology stocks will benefit from major new product cycles in three
key areas: enterprise software; the Internet, and the continued buildout of the
new public data networks.
UNPRECEDENTED UNDERVALUATION OF EMERGING GROWTH STOCKS VERSUS THE MARKET
- ------------------------------------------------------------------------
We believe there are two principal reasons emerging growth stocks will
significantly outperform the market over the next several years. The first is
earnings momentum. S&P earnings are expected to decline to a low single digit
figure in 1998, after four years of mid-double digit returns. Conversely, the
earnings growth of our stock universe is likely to be in the 35-50% plus range,
which is a dramatic increase over that of the broad market. Secondly, the
disparity in valuation between our emerging growth sector and the broad market
is probably at an all time high. This is most visible if we examine the ratio of
the p-e to growth. Emerging growth stocks are selling at a ratio of their p-e to
growth of under one, i.e., at roughly 0.7. The same ratio for the broad market
is close to 3.0. This is unprecedented, and we believe, unsustainable. The
fundamental underpinnings for small cap stocks remain attractive. Absolute
valuations are well within historical ranges, while relative valuations are at
historical lows. A re-acceleration in relative earnings growth for the group
versus the S&P 500 should act as a catalyst to a revaluation of the sector.
Investor sentiment is quite negative now towards aggressive growth stocks.
Again, many investors wrongly concluded that the fall-off in purchases from
South East Asia would adversely impact technology. This is not the case, and
will soon be sorted out. Moreover, investment flows away from the emerging
markets usually have benefited the small cap area, as has a reduction in the
capital gains tax rate. Ultimately, capital will evolve beyond the near term
fixation of safety that large liquid stocks promote to the lure of additional
capital gains, which emerging growth stocks will soon deliver.
* * * * * * * * * * * * * * * * * * * * * *
February 6, 1998
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AMERINDO TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS
December 31, 1997
COMMON STOCKS - 102.32%
MARKET
SHARES VALUE
------ -----
50,000 + Arbor Software Corp. ....................... $ 2,025,000
232,500 + Avant! Corp. ............................... 3,894,375
110,000 + COR Therapeutics, Inc. ..................... 2,475,000
75,000 + CIENA Corp. ................................ 4,584,375
112,500 + Cygnus, Inc. ............................... 2,235,937
40,000 + Ergo Science Corp. ......................... 610,000
25,000 + GelTex Pharmaceuticals, Inc. ............... 662,500
100,001 + Objective Systems Integrators, Inc. ........ 837,508
120,000 + Pairgain Technologies, Inc. ................ 2,325,000
190,000 + Peoplesoft, Inc. ........................... 7,410,000
82,500 + Remedy Corp. ............................... 1,732,500
25,000 + Security Dynamics Technologies, Inc. ....... 893,750
55,000 + Siebel Systems, Inc. ....................... 2,299,688
77,500 + Vantive Corp. .............................. 1,956,875
120,000 + Xylan Corp. ................................ 1,815,000
77,500 + Yahoo! Inc. ................................ 5,366,875
-------------
TOTAL INVESTMENTS
(Cost $37,800,492) ............ 102.32% 41,124,383
LIABILITIES LESS OTHER ASSETS .......... (2.32%) (933,227)
----- --------
TOTAL NET ASSETS ....................... 100.00% $ 40,191,156
====== ============
(1)Federal Tax Information: At December 31, 1997 the net
unrealized appreciation based on cost for Federal Income tax
purposes of $37,800,492 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over cost $ 8,247,876
Aggregate gross unrealized depreciation for all investments
in which there was an excess of cost over value (4,923,985)
----------
Net unrealized appreciation $ 3,323,891
=============
+ Non-income producing security
The accompanying notes are an integral part of these financial statements
7
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AMERINDO TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS:
Investments in securities, at value
(cost $37,800,492) (Note 2) .................. $ 41,124,383
Receivable for fund shares sold ................ 16,781
Receivable for securities sold ................. 2,773,262
Deferred organization expenses (Note 2) ........ 202,975
Other assets ................................... 5,955
----------
Total Assets ................................. 44,123,356
----------
LIABILITIES:
Due to custodian bank .......................... 2,294,405
Payables:
Fund shares redeemed ......................... $ 1,211,412
Investment securities purchased .............. 308,406
Advisory fees, net (Note 4) .................. 62,914
Distribution fees (Note 5) ................... 29,159
Other payables and accrued
expenses ................................... 25,904 1,637,795
------------- ---------
Total Liabilities ............................ 3,932,200
----------
Net Assets ................................... $ 40,191,156
============
NET ASSETS CONSIST OF:
Capital stock, $.001 par value;
unlimited shares authorized;
5,455,504 shares outstanding ............... $ 5,455
Additional paid in capital ................... 49,892,170
Accumulated net investment loss .............. (1,008,165)
Accumulated net realized loss from
investment transactions .................... (12,022,195)
Net unrealized appreciation on
investments ................................ 3,323,891
----------
Net Assets ................................... $ 40,191,156
============
Net asset value, redemption and
offering price per share
($40,191,156/5,455,504 shares
of capital stock outstanding) (Note 6) ....... $ 7.37
============
The accompanying notes are an integral part of these financial statements
8
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AMERINDO TECHNOLOGY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
INVESTMENT INCOME:
Income ................................................ $ 0
------------
Expenses:
Investment advisory fees (Note 4) ................... $ 609,301
Directors' fees and expenses ........................ 55,000
Professional fees ................................... 49,235
Administration and accounting fees .................. 66,170
Distribution fees (Note 5) .......................... 101,550
Amortization of organization expenses (Note 2) ...... 55,999
Registration fees ................................... 59,999
Transfer agent fees ................................. 15,068
Printing expense .................................... 46,827
Custodian fees ...................................... 14,495
Interest expense .................................... 60,641
Miscellaneous ....................................... 14,312
---------
Total expenses ...................................... 1,148,597
Less:
Reimbursed expenses (Note 4) ........................ (234,645)
---------
Net expenses ........................................ 913,952
------------
Net investment loss ................................. (913,952)
------------
NET REALIZED AND UNREALIZED GAINS/
(LOSSES) ON INVESTMENTS (Note 2)
Net realized loss from investment transactions ........ (12,022,195)
Net change in unrealized appreciation of investments .. 6,906,137
------------
Net realized and unrealized loss on investments ....... (5,116,058)
------------
Net decrease in net assets resulting from operations .. $ (6,030,010)
============
The accompanying notes are an integral part of these financial statements
9
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AMERINDO TECHNOLOGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1996
(COMMENCEMENT OF
FOR THE OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Net investment loss ............................ $ (913,952) $ (94,213)
Net realized loss from investment transactions . (12,022,195) -0-
Net change in unrealized appreciation
(depreciation) of investments ................ 6,906,137 (3,582,246)
--------- ----------
Net decrease in net assets resulting
from operations .............................. (6,030,010) (3,676,459)
Net capital share transactions (Note 6) ........ 12,011,486 37,786,139
--------- ----------
Net increase in net assets ..................... 5,981,476 34,109,680
NET ASSETS:
Beginning of period ............................ 34,209,680 100,000
--------- ----------
End of period .................................. $ 40,191,156 $ 34,209,680
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
10
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AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1. ORGANIZATION
The Amerindo Technology Fund (the "Fund") is a series of the Amerindo Funds
Inc., a Maryland Corporation incorporated on February 6, 1996 which commenced
operations on October 29, 1996. The Fund is an open-end, non-diversified
management investment company under the Investment Company Act of 1940,
authorized to issue an unlimited number of shares of capital stock in separate
series, with each series representing interests in a separate portfolio of
securities and other assets, each with its own investment objectives and
policies. The Fund's investment objective is to seek long-term capital
appreciation by investing in the common stocks of technology companies.
The Fund offers two classes of shares to investors, Class A and Class D
shares. Class A shares are sold subject to an initial sales load of up to 2.50%
with a minimum investment of $25,000. Class D shares are sold without an initial
sales load with a minimum investment of $150,000. As of December 31, 1997, only
Class D shares were being offered for sale by the Fund with a reduced minimum
investment of $25,000.
The Fund is the only current series of the Amerindo Funds Inc.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements. These policies are
in conformity with generally accepted accounting principles for investment
companies. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results could differ from these estimates.
SECURITY VALUATION - Securities which are traded on any exchange or on the
NASDAQ over-the-counter market are valued at the last quoted sale price. Lacking
a last sale price, a security is valued at its closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
for which market quotations are not readily available are valued in accordance
with procedures established by the Fund's Board of Directors, including use of
an independent pricing service or services which use prices based upon yields or
prices of comparable securities, indications as to values from dealers, and
general market conditions.
Short term investments in fixed income securities with maturities of less
than 60 days when acquired, or which subsequently are within 60 days of
maturity, are valued by using the amortized cost method of valuation, which the
Board of Directors has determined will represent fair value.
FEDERAL INCOME TAXES - For the year ended December 31, 1997, the Fund did
not qualify as a regulated investment company. However, in all subsequent years,
the Fund intends to comply with requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders.
DIVIDENDS AND DISTRIBUTIONS - The Fund intends to distribute substantially
all of its net investment income as dividends to its shareholders on an annual
basis. The Fund intends to distribute its net long term capital gains and its
net short term capital gains at least once a year.
11
<PAGE>
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
ORGANIZATION EXPENSES - During its organization and initial registration
with the Securities and Exchange Commission, the Fund incurred organization
expenses of $279,807. The Fund has elected to defer these expenses and amortize
them on a straight-line basis over a 60 month period beginning with the Fund's
commencement of operations. During the year ended December 31, 1997, $55,999 was
amortized.
OTHER - The Fund follows industry practice and records security
transactions on the trade date. The specific identification method is used for
determining gains or losses for financial statements and income tax purposes.
Dividend income is recorded on the ex-dividend date and interest income is
recorded on an accrual basis.
NOTE 3. PURCHASES AND SALES OF SECURITIES
The cost of purchases and sales of investment securities (other than
short-term investments) for the year ended December 31, 1997 aggregated
$163,724,209 and $148,800,339 respectively.
NOTE 4. INVESTMENT ADVISORY AGREEMENT
The Fund has an agreement with Amerindo Investment Advisors Inc. (the
"Advisor"), with whom certain officers and directors of the Fund are affiliated,
to serve as investment advisor and manager. Under the terms of the agreement, a
monthly fee is paid to the Advisor based on 1/12th of 1.50% (1.50% on an annual
basis) of the average daily net asset value. This advisory agreement is subject
to an annual review by the Board of Directors of the Fund.
The Advisor has agreed to a reduction in the amounts payable to it and to
reimburse the Fund for any expenses (including the advisory fee, but excluding
taxes, brokerage fees and extraordinary expenses incurred in connection with any
matter not in the ordinary course of business of the Fund) over 2.25% of the
average daily net asset value of the Class D shares of the Fund.
For the year ended December 31, 1997, the Advisor earned advisory fees of
$609,301 and reimbursed the Fund $234,645 in expenses.
The Fund has agreements with American Data Services, Inc. to provide
shareholder servicing, fund accounting and administrative services to the Fund.
The services to be provided under the agreements include day-to-day
administration of matters related to the corporate existence of the Fund (other
than rendering investment advice), maintenance of its records, preparation of
reports, supervision of the Fund's arrangement with its custodian and assistance
in the preparation of the Fund's registration statement under federal and state
laws. Costs incurred totaled $81,238 for the year ended December 31, 1997.
NOTE 5. DISTRIBUTION FEES
The Board of Directors has adopted a distribution plan (the "Plan")
applicable to the Fund under Section 12(b) of the Investment Company Act of 1940
and Rule 12b-1 thereunder. Pursuant to the Plan, registered broker-dealers and
qualified recipients will be reimbursed by the Fund for distribution
expenditures up to a limit of 0.50% of 1% and 0.25% of 1% on Class A Shares and
Class D Shares, respectively.
12
<PAGE>
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 6. FUND SHARE TRANSACTIONS
At December 31, 1997 there were an unlimited number of shares of $0.001 par
value capital stock authorized. Transactions in capital stock for the year ended
December 31, 1997 and for the period October 29, 1996 (commencement of
operations) through December 31, 1996 were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1996
FOR THE (COMMENCEMENT OF
YEAR ENDED THROUGH OPERATIONS)
DECEMBER 31,1997 DECEMBER 31, 1996
---------------- -----------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .................. 3,158,607 $ 22,631,789 3,788,883 $37,786,139
Shares issued for reinvestment
dividends and distribution
from realized gains ........ 0 0 0 0
Shares redeemed (net of
redemption fees retained
of $145,946) ............... (1,501,986) (10,620,303) 0 0
Net increase ................. 1,656,621 $ 12,011,486 3,788,883 $37,786,139
</TABLE>
13
<PAGE>
AMERINDO TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE PERIOD
OCTOBER 29, 1996
(COMMENCEMENT
FOR THE OF OPERATIONS)
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
Net asset value, beginning of period ............ $ 9.00 $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment loss ............................. (0.16) (0.04)
Net realized and unrealized loss on
investments ................................... (1.47) (0.96)
Total from investment operations ................ (1.63) (1.00)
LESS DISTRIBUTIONS
Dividends from net investment income ............ 0.00 0.00
Distribution from realized gains from security
transactions .................................. 0.00 0.00
Total distributions ............................. 0.00 0.00
Net asset value, end of period .................. $ 7.37 $ 9.00
Total return** .................................. (18.11%) (45.69%)*
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (in 000's) ............. 40,191 34, 210
Ratio of expenses to average net assets ......... 2.83% 3.82%*
Ratio of expenses to average net assets, net of
reimbursement ................................. 2.25% 2.25%*
Ratio of net investment income (loss) to average
net assets .................................... (2.83%) (3.82%)*
Ratio of net investment income (loss) to average
net assets, net of reimbursement .............. (2.25%) (2.25%)*
Portfolio turnover rate ......................... 355.21% 0.00%
Average commission rate paid .................... 0.0500 0.0500
* Annualized
** Based on net asset value per share
The accompanying notes are an integral part of these financial statements
14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Amerindo Funds Inc.
We have audited the accompanying statement of assets and liabilities of the
Amerindo Technology Fund (the sole fund constituting Amerindo Funds Inc.;
collectively known as the "Fund"), including the schedule of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two periods in
the year then ended, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Amerindo Technology Fund of Amerindo Funds Inc. as of December 31, 1997, the
results of its operations for the year then ended, the changes in its net assets
for each of the two periods in the year then ended, and the financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
MORRISON, BROWN, ARGIZ & COMPANY
Miami, Florida
January 27, 1998
<PAGE>
Investment Advisor
- --------------------------------------------
Amerindo Investment Advisors Inc.
San Francisco, California/New York, New York
Administrator and
Transfer and Dividend Agent
- --------------------------------------------
American Data Services, Inc.
Hauppauge, New York
Custodian
- --------------------------------------------
The Northern Trust Company
Chicago, Illinois
Legal Counsel
- --------------------------------------------
Battle Fowler LLP
New York, New York
Independent Auditors
- --------------------------------------------
Morrison, Brown, Argiz & Company
Miami, Florida
1-888-TECH FUND
www.amerindo.com
