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
DISTRIBUTOR
ADS Distributors, 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
<PAGE>
AMERINDO
TECHNOLOGY FUND
ANNUAL REPORT
DECEMBER 31, 1998
<PAGE>
TABLE OF CONTENTS
SHAREHOLDER LETTER 1
1998 REVIEW AND ECONOMIC OUTLOOK 3
SCHEDULE OF INVESTMENTS 7
STATEMENT OF ASSETS AND LIABILITIES 8
STATEMENT OF OPERATIONS 9
STATEMENT OF CHANGES IN NET ASSETS 10
NOTES TO FINANCIAL STATEMENTS 11
FINANCIAL HIGHLIGHTS 16
INDEPENDENT AUDITOR'S REPORT 18
<PAGE>
December 31, 1998
Dear Shareholder:
The Amerindo Technology Fund Class D shares achieved a gain of 84.67%
in 1998. The Class A shares, which became available in August 1998, posted a
return of 61.02% (without sales charge) for the period ended December 1998.
The exponential demand for Internet related services contributed
enormously to the Fund's stellar performance. At year-end, approximately 55%
of the Amerindo Technology Fund portfolio was invested in companies of
Internet related services. The Fund made several key investment decisions
prior to the market's climatic summer sell-off that helped enhance
performance. We reduced our exposure temporarily in the
biotechnology/healthcare stocks and took advantage of the market pullback to
increase our participation in Internet stocks, which finished the year on a
very strong uptrend. We believe companies in the Internet sector offer the
most compelling long-term investment opportunities for our shareholders.
Although many of our portfolio holdings contributed positively to the
performance of the Fund during the fiscal year, the one stock that captured
investors' interest was Yahoo!, which at year-end was the Fund's largest
position. Even though Yahoo! appreciated over several hundred percent in
1998, we continue to believe that it has the potential for very significant
appreciation from current levels. The company will reach into vast areas of
our economy, namely, communications, commerce, and community/entertainment.
Moreover, Yahoo! is constantly adding new services to their site, such as
shopping, free e-mail, free calendar, etc. which increase the amount of time
and frequency of visits. This database enables Yahoo! to advertise and direct
market to a user with increasing effectiveness. Yahoo! makes most of its
money from advertising; yet the Internet has only a 1-2% share of the $200
billion advertising market. We feel that the Internet's unique abilities in
ad targeting and instant feedback provides superior capabilities versus
traditional media (TV, magazines, etc.). The Internet can potentially garner
20% of the advertising market.
Targeting and feedback are also enabling Yahoo! to pursue the $100
billion direct marketing market. Early results in the use of e-mail for
direct marketing where Yahoo! has achieved 2 to 4 times better response rates
have been very impressive. Yahoo! is initiating e-commerce via their shopping
service. The opportunities in e-commerce are probably larger than the
advertising and direct marketing opportunities combined. Given its tiny
penetration into these three massive markets (advertising, direct marketing,
and e-commerce) and their impressive audience of 50 million unique users
which continues to grow, we feel that Yahoo! is literally just getting
started.
Our outlook for emerging technology remains extremely positive. We
continually seek to find well managed, fundamentally sound companies at the
cutting edge of technology whose long term growth prospects and valuations
are attractive compared to the overall market. We intend to remain selective
in our investment choices for the Fund, and to use any weakness in the market
as an opportunity to increase our investment in stocks that we already own,
plus establish new positions in companies that meet our strict criteria for
investment.
1
<PAGE>
Our enclosed 1998 Review and Economic Outlook describes some
developments which emphasize why we perceive that the commercialization of
the Internet is still in its infancy. In our judgment, it should offer
significant investment opportunities for the Fund over the next three to five
years. The Amerindo Technology Fund is designed for long term investors who
can accept above average levels of interim price fluctuations, and who
understand that volatility is inherent in high performance growth stock invest
ing. We greatly appreciate the support of our shareholders, who understand
our unique investment approach, the inherent demands of investing in
technology and have demonstrated confidence in our portfolio management team.
Amerindo Technology Fund
/S/ /S/
- ------------------ ------------------
Alberto W. Vilar Gary A. Tanaka
[Graphic of a line chart with the following information:]
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
AMERINDO TECHNOLOGY FUND CLASS D SHARES AND THE
BENCHMARK SINCE INCEPTION OF 10/29/96
<TABLE>
<CAPTION>
HAMBRECHT & QUIST AMERINDO TECHNOLOGY
GROWTH INDEX FUND
<S> <C> <C>
1996 IV $ 9,490 $ 9,000
1997 I 7,730 6,400
1997 II 9,020 6,930
1997 III 10,870 7,690
1997 IV 9,800 7,370
1998 I 11,660 8,580
1998 II 11,730 9,470
1998 III 9,640 9,130
1998 IV 14,220 13,610
</TABLE>
[Graphic of a table with the following information:]
ANNUALIZED RETURN
1 Year Since Inception
84.67% 15.24%
2
<PAGE>
1998 REVIEW AND ECONOMIC OUTLOOK
The market's stellar fourth quarter recovery from the climatic
sell-off of last August, which was substantially retested in early October,
has come in the face of a major slowdown in corporate profitability. The
current business expansion at 90 months is one of the oldest on record in the
post-war period. While real GDP growth is likely to stay near 2% this year,
corporate profits are not expected to exceed 5% this year or next. This
places the broad market's price earnings (p-e) ratio of 25 at the very high
end of its historical range. The rest of the world is not helping the US
market either; Europe is slowing down, while major parts of Latin America and
Asia are either in a recession or headed for one. How will Europe cope with
the problem of excess capacity with socialist leanings in the air? Japan
seems incapable of getting out of its own downward spiral.
Fortunately, offsetting the "high valuation, low-earnings" dilemma
has been a very favorable flow of money to the stock market. Stock buybacks,
plus mutual fund inflows, came close to $400 billion last year. The cash
portion of merger and acquisition activity provided over $600 billion. In
1998, the market's rise was again based on a handful of large cap
multinational stocks. In the NASDAQ 100, the top seven stocks account for
about half of the Index's entire capitalization. Using the all encompassing
ratio of p-e's to the growth of earnings, the most important measurement of
valuation for growth stocks, or when examined on an earnings yield basis, the
broad market is clearly overvalued. On the basis of fundamentals, there is
little rationale for valuations to go much higher than they are today. The
implicit rise in the p-e ratios of mature growth companies suggests money is
being recycled at ever higher valuations into companies that define
traditional businesses, as contrasted to the new world of electronic
commerce, the Internet, etc. We continue to see mutual fund indexation as the
major culprit of this unfavorable trend. Consequently, there appears to be
minimal safety margin left in the broad market, which may lead to even more
volatility, perhaps a 1500 point Dow trading range.
The only sector that is truly showing impressive real growth is
technology, although not across the board. At year-end, the Internet stocks
dominated financial headlines because they had performed remarkably well in
the fourth quarter. By and large, most media commentators expressed the view
that all the Internet stocks were overvalued and thus highly speculative. We
disagree. First, the Internet play did not originate in October.
Notwithstanding typical declines of 50% in most Internet stocks in the
climatic sell-off in August, the Hambrecht & Quist Growth Index had
underperformed the broad market by some 62% over the prior 21/4 years. The
Internet stocks have been laying the groundwork for this new era of technology
for several years, which unfortunately was coincident with a period in which
the emerging technology sector was enmeshed in a pronounced bear market.
Netscape and America Online are early examples. Second, what recently happened
in the Internet sector is not different from the history of emerging
technology investing in general. Stocks of innovative companies breaking
ground in explosive new growth markets always "appear" expensive. Cisco
Systems did not seem to be a bargain during its first several years of public
market exposure, but in retrospect it clearly was. The rest of this letter
discusses in more detail why we stated several years ago that the Internet
would be the seminal event in a 20-year period in electronic technology. We
believe these stocks offer the best prospects for growth of any market sector
over the short term having only realized perhaps some 10% of the $2 trillion
in new wealth creation.
3
<PAGE>
THE INTERNET-CENTRIC THIRD GENERATION OF COMPUTING
The computer industry underwent two generations or paradigms of
technology from its infancy in 1960 through 1996. The first, called
host-based computing, was based on the mainframe that connected to a dumb
terminal. It was ultimately dominated by IBM, whose superior marketing
overcame its initial, inferior technology. The second, the "client-server"
generation, grew out of the introduction of the PC in the early 1980s. By
1985, seven-to-eight related technologies had come into play. This generation
was built on relational database management, the DOS-Windows operating
system, the microprocessor, Powersoft software, desktop publishing, etc.,
which collectively created approximately $1 trillion in new market
capitalization in half the time of the first generation. The Third Generation
of Computer Technology, which we believe should be almost entirely
Internet-centric, was effectively launched in 1997 as the Internet began to
get enough critical mass after several years of infrastructure building. Our
view is that the Internet-centered generation will likely create $2 trillion
in new capitalization wealth over the next half dozen years of which only 10%
has been created so far. The Third Generation of Computing will permanently
change the landscape of computing, telecommunications and electronic
commerce. This will also occur at a time when the overall stock market, i.e.,
the S&P, is by most valuation yardsticks fully valued, with corporate
earnings slowing down significantly.
For several years, we had argued that growth in the market value of
the Internet sector would be driven by two principal factors. The first would
be user growth; set to reach 300 million worldwide fairly early in the new
century. There is vast data to support this claim. New subscribers to the
Internet are growing at the rate of 19% per month, compounded. User traffic
is doubling every seven-to-eight weeks. The second driver is the amount of
electronic commerce that will ultimately be generated. Our very early guess,
made several years ago, was that within a few short years, $1 trillion would
be generated in such commerce. It is entirely conceivable that the volume of
worldwide electronic commerce will be much higher, especially when the next
phase of the corporate Intranet gains critical mass, which is the Extranet.
This is when large companies force their suppliers to be on their own
corporate Intranet. A second booster to this will be the advent of much
higher speeds of broadband telecommunications.
While the initial thrust for electronic commerce has been in
retailing, we expect numerous additional industries such as banking,
insurance, real estate mortgages, travel and healthcare to experience far
greater penetration in the business-to-business ("B2B") commerce sector.
Examples are the online success of Dell Computer, doing $10 million per day
online, Cisco with over 50% of its revenues coming through electronic
commerce, and Intel booking $1 billion per month. As commerce on the Web
becomes more mainstream, consumers and businesses will undoubtedly divert
increasing amounts of spending toward online purchases. The current volume of
transactions has been small so far. The projected growth for B2B commerce may
be greater overall than business-to-consumer. Multiple approaches to
conducting commerce over the Web continue to proliferate. These range from
focused commerce sites (e.g. eToys) to a broad-based "Wal-Mart" approach
(e.g. Amazon.com), or commerce activities by the horizontal portals (e.g.,
Yahoo! via the ViaWeb acquisition), and hybrid approaches such as the
ShopperConnection alliance of multiple online retailers. A significant number
of start-ups have seized the opportunity to set up virtual businesses within
specific industries (e.g. travel, autos, healthcare, toys, books, mortgages,
insurance) and across multiple categories. B2B commerce, according to
4
<PAGE>
reliable market search estimates, is set to grow to almost $200 billion in
2003, up from $15 billion in 1998. In short, a massive market opportunity and
current low penetration should create an unprecedented opportunity in
electronic technology never before seen in the 40-year history of computing.
In a macro sense, electronic commerce will continue its assault on
the entrenched and battered bricks and mortar world of the major retail
incumbents. For example, in books, where Amazon.com has done an amazing job
of dislodging Barnes & Noble in the $80 billion market, online penetration is
still less than 5% of the total. Companies establishing first-mover advantage
on the Internet are likely to achieve disproportionate gains in market share,
with the potential for far greater operating leverage over time. The leading
commerce names are apt to experience 50-100% plus growth in 1999. From that
point onward, investors will probably focus on non-financial metrics (e.g.
registered users, transactions, reach, usage) as indicators for overall
financial growth in the underlying businesses. Many of these new commerce
facilitators are spawning business models that do not physically touch the
goods, thereby eliminating inventory, but rather just get involved in
physical distribution. They effectively act as intermediaries in bringing
buyers and sellers together in a unique fashion that leverages the scale and
interactive power of the Internet. This eliminates the biggest single risk
companies have, which is producing the wrong inventory at the wrong price.
Priceline.com operates a reduced price auction for unsold inventory such as
hotel rooms and airline seats that must be sold or their value goes to zero.
In September, the horizontal portals like America Online, Yahoo!, Microsoft's
MSN.com, and others, have emerged as the leading aggregators of traffic,
seeking to provide a unique blend of the six "Cs" (Content, Community,
Connectivity, Communications, Commerce, and Context). While the business
models of the portal companies have been driven by advertising and
subscriptions, we expect to see revenues broaden through commerce
partnerships over time on a percentage of transaction basis.
The value-added proposition for Internet commerce companies is to
establish a direct relationship with the customer, squeeze costs out through
disintermediation, add a new interactive service dimension, broaden and
enhance the customer experience over multiple fronts on a mass scale, and
monetize the relationship over time. Electronic commerce markets will explode
because of the benefits they will offer through technology breakthroughs that
have been under development for years. A significant amount of business will
go online because of ease, convenience, and cost savings. The most expensive
part of shopping is frequently one's time, which will now change. Electronic
commerce companies are religiously focused on improving customer ease-of-use,
experience, and service aspects of their retailing environment. This leads to
creative cross-merchandising initiatives that foster increased customer
satisfaction, repeat sales, word-of-mouth referrals, and new customer
acquisition. While transaction revenues are rapidly becoming key drivers for
most electronic-commerce models, the ability to blend other potentially
higher-margin revenue streams, such as targeted advertising, can enrich the
business model further. In some instances, commerce traffic and related
credit card data acquisition can increase consumer "stickiness" that is
reinforced by the sheer numbers of users that over time can be monetized into
ever additional targeted advertising and subscription revenues.
5
<PAGE>
The international market potential for portals could be at least half
as large as the domestic opportunity. Over the last year, many Internet
companies transitioned toward profitability-based valuation models, despite
continued investment to capitalize on global growth opportunities.
Businesses are increasingly viewing Internet technologies as mission-critical
capabilities in their information technology endeavors to reduce costs,
increase efficiencies, and deploy new products and services for customers,
partners, vendors, and suppliers. The fundamental demand (access, software,
and services) for Internet products and services has remained strong, as both
businesses and consumers in industries ranging from telecommunications to
retailing to financial services try to cope with the rapidly evolving
technologies, products, and their impact on business models. Thanks to the
Internet, the traditional operational boundaries between companies have
become entirely fluid. Companies once defined internal processes as those
that stopped at their four walls; now those processes extend out into those
of their partners, suppliers, and customers.
The latest concern in Internet investing is all about valuation. The
facts actually suggest that the Internet remains very "underhyped" relative
to the impact that it has had already and continues to have on many
technology and non-technology industries (software, media, retailing, and
telecommunications, in particular) despite the financial "overhyping" that
occurs in some Internet stocks. In 1999, more substantive fundamental efforts
should be seen in this new medium by major incumbents from retailing,
financial services, media, and consumer products. The trend toward
Internet-standard multimedia content networks is one. Conventional valuation
measures fail to encompass the unique elements of Internet businesses, such
as scalability, operating leverage and the dynamics of increasing returns.
Secondly is their ability to change the face of the US economy while
achieving strong financial profiles as public companies. Sustained sequential
increases in profitability have taken place in record time. Yahoo!, for
example, increased substantially in value, but within a year, it went from
negative operating margins to a 36% operating margin. Investors are clearly
having difficulty in adopting the new valuation metrics that apply to
Internet companies and how investment in this explosive area reaps economic
value through share price appreciation. In fact, the Internet will change
entire segments, some for the better, some for the worse, of the economy by
reorganizing industry value chains. Many investment sectors will be left
behind. In short, the market is sending a very clear signal that the Internet
sector has all the makings of a great tidal wave. While shares of some
companies have risen substantially in value, the great winners in technology
have been known to ultimately increase well over 50 times in value.
The Internet paradigm shift is where most of the new innovation in
computing and communication technology is now focused. As a consequence, we
at Amerindo are naturally expending a good deal of our analytical and
valuation talent on this sector's evolution. Designed to identify and
thoroughly analyze new potential winners, this effort also researches major
sectors of the economy, both technology and non-technology, that will
materially evolve in the Internet revolution, as well as those sectors which
are being impacted but where valuations lag the adverse discounting of the
fundamental change. The commercialization of the Internet is still in very
early stages, but it should offer significant investment opportunities over
the next three-to-five years, much like the PC industry offered early
investment opportunities in hardware, software and eventually services.
6
<PAGE>
AMERINDO TECHNOLOGY FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1998
COMMON STOCKS - 82.25%
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<C> <S> <C>
305,000+ Artisan Components, Inc. $ 1,620,312
15,000+ broadcast.com inc. 1,147,500
20,000+ Broadcom Corporation - Cl A 2,415,000
112,500+ Cygnus, Inc. 548,438
12,500+ eBay Inc. 3,015,625
25,000+ GelTex Pharmaceuticals, Inc. 565,625
40,000+ Inktomi Corporation 5,175,000
160,000+ MMC Networks, Inc. 2,120,000
100,001+ Objective Systems Integrators, Inc. 462,505
95,000+ PeopleSoft, Inc. 1,799,062
100,000+ Siebel Systems, Inc. 3,393,750
110,000+ The Vantive Corporation 880,000
120,000+ Xylan Corporation 2,107,500
120,000+ Yahoo! Inc. 28,207,500
-----------
TOTAL INVESTMENTS
(Cost $28,350,053) 82.25% 53,457,817
OTHER ASSETS LESS LIABILITIES 17.75% 11,539,628
------- -----------
TOTAL NET ASSETS 100.00% $64,997,445
======= ===========
<FN>
(1) Federal Tax Information: At December 31, 1998 the net unrealized
appreciation based on cost for Federal Income tax purposes of
$28,711,915 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over cost $30,697,554
Aggregate gross unrealized depreciation for all investments in
which there was an excess of cost over value (5,951,652)
-----------
Net unrealized appreciation $24,745,902
===========
+Non-income producing security
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
AMERINDO TECHNOLOGY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
ASSETS:
<S> <C>
Investments in securities, at value
(cost $28,350,053) (Note 2) $53,457,817
Receivable for fund shares sold 78,648
Receivable for securities sold 15,944,653
Deferred organization expenses (Note 2) 159,048
Other assets 42,909
Total Assets 69,683,075
LIABILITIES:
Due to custodian bank 397,769
Payables:
Fund shares redeemed $4,055,634
Advisory fees, net (Note 4) 160,708
Distribution fees (Note 5) 34,305
Other payables and accrued expenses 37,214 4,287,861
---------- ----------
Total Liabilities 4,685,630
Net Assets $64,997,445
NET ASSETS:
CLASS A SHARES:
Net assets applicable to 59,131 shares;
one billion shares authorized; $.001 par value $ 803,386
Net asset value and redemption price per
Class A Share ($803,386/59,131 shares) $ 13.59
Offering price per share ($13.59/.96) $ 14.16
CLASS D SHARES:
Net assets applicable to 4,716,001 shares;
one billion shares authorized; $.001 par value $64,194,059
Net asset value, offering and redemption price per
Class D Share ($64,194,059/4,716,001 shares) $ 13.61
NET ASSETS CONSIST OF:
Capital stock $ 4,775
Additional paid in capital 40,498,330
Accumulated net realized loss from
investment transactions (613,424)
Net unrealized appreciation on investments 25,107,764
Net Assets $64,997,445
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
AMERINDO TECHNOLOGY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Other $ 14,308
Expenses:
Investment advisory fees (Note 4) $ 674,525
Distribution fees - Class D (Note 5) 112,067
Distribution fees - Class A (Note 5) 701
Professional fees 64,750
Administration and accounting fees 73,466
Registration fees 59,999
Amortization of organization
expenses (Note 2 ) 55,998
Directors' fees and expenses 54,998
Interest 55,110
Printing 36,778
Transfer agent fees 19,069
Custodian fees 10,979
Miscellaneous 19,060
Total expenses 1,237,500
Less:
Reimbursed expenses (Note 4) (225,991)
Net expenses 1,011,509
Net investment loss (997,201)
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS: (Note 2)
Net realized gain from investment transactions 11,408,771
Net change in unrealized appreciation of investments 21,783,873
Net realized and unrealized gain on investments 33,192,644
Net increase in net assets resulting from operations $32,195,443
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
AMERINDO TECHNOLOGY FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
Net investment loss $ (997,201) $ (913,952)
Net realized gain (loss) from
investment transactions 11,408,771 (12,022,195)
Net change in unrealized
appreciation of investments 21,783,873 6,906,137
Net increase (decrease) in net assets resulting
from operations 32,195,443 (6,030,010)
Net capital share transactions (Note 6 ) (7,389,154) 12,011,486
Net increase in net assets 24,806,289 5,981,476
NET ASSETS:
Beginning of year 40,191,156 34,209,680
End of year $64,997,445 $40,191,156
</TABLE>
The accompanying notes are an integral part of these financial statements.
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 one billion 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
4.00% with a minimum investment of $10,000. Class D shares are sold without
an initial sales load with a minimum investment of $150,000.
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 affect the reported amount 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.
SECURITIES 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 (the "Board"), 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 has determined should represent fair value.
11
<PAGE>
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
FEDERAL INCOME TAXES -- For the year ended December 31, 1998, 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. Subsequent to December 31, 1998, the
Fund's management elected to change the fiscal year-end for tax reporting
purposes to October 31, 1998 (Note 8).
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.
ORGANIZATION EXPENSES -- In April 1998, Statement of Position 98-5,
"Reporting on Costs of Start-Up Activities" ("SOP 98-5"), was issued
requiring start-up costs and organization costs to be expensed as incurred.
SOP 98-5 exempted investment companies that met certain criteria from
retroactively applying the provisions of this pronouncement and allowed them
to continue to amortize start-up costs and organization costs over the
remaining amortization period.
During its organization and initial registration with the Securities
and Exchange Commission (the "SEC"), the Fund incurred organization expenses
of $279,807. In accordance with the provisions of SOP 98-5, 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, 1998, $55,998 was amortized.
OTHER -- The Fund follows industry practice and records securities
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.
YEAR 2000 SYSTEMS COSTS -- The Fund utilizes software and related
technologies thoughout its business that will be affected by the date change
in the year 2000. The Fund is in the process of evaluating the full scope and
related costs to insure that its systems continue to meet its internal needs
and those of its customers. Anticipated costs for system modifications will
be expensed as incurred and are not expected to have a material impact on the
Fund's results of operations. However, the Fund cannot measure the impact
that the Year 2000 issue will have on its investments, vendors, suppliers,
customers and other parties with whom it conducts business.
12
<PAGE>
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, 1998, aggregated
approximately $34,334,000 and $55,193,000, 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 investment 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.
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, interest and brokerage fees and extraordinary expenses
incurred in connection with any matter not in the ordinary course of business
of the Fund) over 2.50% and 2.25% of the average daily net asset values of
the Class A shares and Class D shares, respectively.
For the year ended December 31, 1998, the Advisor earned advisory
fees of $674,525 and reimbursed the Fund $225,991 in expenses.
The Fund has agreements with American Data Services, Inc. (the
"Administrator") 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
$92,535 for the year ended December 31, 1998.
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.
For the year ended December 31, 1998, the Fund incurred distribution
expenditures of $701 and $112,067 on Class A shares and Class D shares,
respectively.
13
<PAGE>
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 6. FUND SHARE TRANSACTIONS
At December 31, 1998, there were one billion shares of $0.001 par
value capital stock authorized. Transactions in capital stock for the years
ended December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
CLASS D SHARES:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 779,033 $ 6,936,614 3,158,607 $22,631,789
Shares issued for reinvestment
dividends and distribution
from realized gains 0 0 0 0
Shares redeemed (net of redemption
fees retained of $11,529 and
$145,946, respectively) (1,518,536) (14,896,561) (1,501,986) (10,620,303)
Net increase (decrease) (739,503) $ (7,959,947) 1,656,621 $12,011,486
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES:
FOR THE PERIOD
AUGUST 3, 1998*
THROUGH
DECEMBER 31, 1998
SHARES AMOUNT
<S> <C> <C>
Shares sold 60,778 $ 589,063
Shares issued for reinvestment
dividends and distribution
from realized gains 0 0
Shares redeemed (net of redemption
fees retained of $563) (1,647) (18,270)
Net increase 59,131 $ 570,793
<FN>
* Commencement of operations of Class A Shares
</FN>
</TABLE>
14
<PAGE>
AMERINDO TECHNOLOGY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 7. CONCENTRATION OF CREDIT RISK
The Fund invests a substantial portion of its assets in securities in
the technology industry. Therefore, it may be more affected by economic and
political developments in that industry than would be a comparable general
equity fund.
NOTE 8. SUBSEQUENT EVENTS
As discussed in Note 2 to the financial statements, for the year
ended December 31, 1998, the Fund did not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986. Subsequent
to December 31, 1998, the Fund's management elected to change the Fund's
fiscal year end to October 31, 1998 for tax reporting purposes. No income
taxes were required to be paid or expensed as a result of this election.
It is management's intent to monitor and comply with all requirements
of Subchapter M of the Internal Revenue Code of 1986, as amended, for the 12
month period ended October 31, 1999 and for all subsequent fiscal years. As a
result, the Fund was not required to record a provision for deferred taxes in
accordance with Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes."
15
<PAGE>
AMERINDO TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
CLASS D SHARES
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 29, 1996
(COMMENCEMENT
FOR THE FOR THE OF OPERATIONS)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
<S> <C> <C> <C>
Net asset value, beginning of period $ 7.37 $ 9.00 $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.20) (0.16) (0.04)
Net realized and unrealized gain (loss) on
investments 6.44 (1.47) (0.96)
Total from investment operations 6.24 (1.63) (1.00)
LESS DISTRIBUTIONS:
Dividends from net investment income 0.00 0.00 0.00
Distributions from realized gains from
security transactions 0.00 0.00 0.00
Total distributions 0.00 0.00 0.00
Net asset value, end of period $ 13.61 $ 7.37 $ 9.00
Total return** 84.67% (18.11%) (10.00%)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (in 000's) $ 64,194 $ 40,191 $ 34,210
Ratio of expenses to average net assets 2.75% 2.83% 3.82%*
Ratio of expenses to average net assets,
net of reimbursement 2.25% 2.25% 2.25%*
Ratio of net investment loss to
average net assets (2.72%) (2.83%) (3.82%)*
Ratio of net investment loss to average
net assets, net of reimbursement (2.21%) (2.25%) (2.25%)*
Portfolio turnover rate 78.46% 355.21% 0.00%
<FN>
* Annualized
** Based on net asset value per share
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
AMERINDO TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
CLASS A SHARES
(FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 3, 1998
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1998
<S> <C>
Net asset value, beginning of period $ 8.44
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.10)
Net realized and unrealized gain (loss) on investments 5.25
Total from investment operations 5.15
LESS DISTRIBUTIONS:
Dividends from net investment income 0.00
Distributions from realized gains from security transactions 0.00
Total distributions 0.00
Net asset value, end of period $ 13.59
Total return** 61.02%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (in 000's) $ 803
Ratio of expenses to average net assets 2.86%*
Ratio of expenses to average net assets, net of reimbursement 2.50%*
Ratio of net investment income (loss) to average net assets (2.76%)*
Ratio of net investment income (loss) to average net assets,
net of reimbursement (2.40%)*
Portfolio turnover rate 78.46%
<FN>
* Annualized
** Based on net asset value per share
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<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, 1998, and the related statement
of operations for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the 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 and financial highlights. Our
procedures included confirmation of securities owned as of December 31, 1998,
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 (the sole fund constituting Amerindo
Funds Inc.) as of December 31, 1998, 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 periods
indicated therein, in conformity with generally accepted accounting
principles.
Certified Public Accountants
Miami, Florida
February 1, 1999
18
