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LIGHT REVOLUTION
FUND
ANNUAL REPORT
OCTOBER 31, 2000
Dear Shareholder:
What goes up can come down. From the market's peak in March to the uncertainty
of the Presidential election, the Nasdaq fell by 45 percent. The average Nasdaq
stock, through October 31, 2000, had fallen by 47.8 percent. This is more severe
than the market's fall in 1990 following the Iraqi invasion of Kuwait (when the
average Nasdaq stock fell by 42.2 percent) and even the Crash of 1987 (when the
average Nasdaq stock fell by 44.5 percent).
So, a bit of perspective is in order. This is not the end of the world. It may
well be, however, the end of the Big Bang phase of what we call the Light
Revolution. Investors should not expect to get returns of 40 percent compounded
year over year. However, that does not mean that the world is done building the
Internet. Recall that only 300 million people, out of six billion worldwide, are
online. Between three and four billion people have still never made a phone
call. This enormous market opportunity has not suddenly dried up. It should,
however, make investors consider carefully what is the most reasonable way to
participate in the (still) long-term growth potential of the information
revolution.
Shares of technology stalwarts such as Intel, Microsoft, Dell, Lucent, WorldCom,
Texas Instruments and Applied Materials have all fallen by half or more since
the ebullient peak of last Spring. However, these businesses are not about to go
out of business. They are still the leaders in their industries, they are still
spending substantial sums on research and development to stay that way, and they
are still companies that patient and prudent long-term investors should own.
The information revolution is not over - far from it. But the easy money (if
there ever was such a thing) is no longer lying on the table. The name of the
game has always been not what you make but what you keep. Keeping great
companies over a long period of time is still the best way to prosper.
Sincerely,
/s/Henry Hewitt
-----------------
Henry Hewitt
President
AVERAGE ANNUAL RATE OF RETURN (%)
FOR PERIODS ENDED OCTOBER 31, 2000
Since
1 Year Inception
------ --------
Light Revolution Fund (No-Load) 33.89% 36.85%
Light Revolution Fund (Load Adjusted) 27.51% 31.97%
NASDAQ-100 Shares Index 24.04% 29.76%
Lipper Science & Technology Index 34.97% 41.91%
S&P 500 Index 6.04% 4.27%
6/29/99* 10/31/99 4/30/00 10/31/00
Light Revolution Fund (No-Load) $10,000 $11,390 $17,170 $15,251
Light Revolution Fund (Load Adjusted) $ 9,525 $10,849 $16,355 $14,526
NASDAQ-100 Shares Index $10,000 $11,409 $16,442 $14,178
Lipper Science & Technology Index $10,000 $11,816 $18.069 $15,948
S&P 500 Index $10,000 $ 9,969 $10,756 $10,575
* Commencement of operations June 29, 1999.
This chart assumes an initial investment of $10,000 made on 6/29/99
(commencement of operations). Total return is based on the net change in N.A.V.
and assuming reinvestment of all dividends and other distributions. Performance
figures represent past performance which is not predictive of future
performance. Investment return and principal value will fluctuate so that your
shares, when redeemed, may be worth more or less than their original cost.
The Lipper Science & Technology Index is composed of 10 mutual funds. Each
mutual fund making up the Index invests at least 65% of its equity portfolio in
science and technology stocks.
The S&P 500 Stock Index is an index of an unmanaged group of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
Assets:
Investments, at value
(cost of $9,399,096) $9,202,804
Dividends and interest receivable 5,271
Receivable for securities sold 191,086
Receivable for fund shares sold 8,289
Receivable from Adviser 409
Other assets 6,983
---------
Total assets 9,414,842
---------
Liabilities:
Payable for securities purchased 205,247
Payable for fund shares purchased 9
Payable to Distributor 5,243
Accrued expenses and other liabilities 43,349
---------
Total liabilities 253,848
---------
Net assets $9,160,994
=========
Net assets consist of:
Paid in capital $9,292,444
Accumulated net realized gain on investments 64,842
Net unrealized depreciation of investments (196,292)
---------
Net assets $9,160,994
=========
Shares issued and outstanding (Five hundred
million shares of $0.0001 par value authorized) 600,590
Net asset value on redemption:
Price per share $ 15.25
---------
Maximum offering price per share $ 16.01
=========
See notes to the financial statements.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 2000
Investment Income:
Dividends (net of foreign taxes withheld of $377) $ 10,173
Interest 45,463
---------
Total investment income 55,636
---------
Expenses:
Investment advisory fees 45,422
Administrative fees 41,248
Transfer agent fees and expenses 41,212
Professional fees 41,076
Fund accounting fees 25,838
Distribution fees (12b-1) 11,356
Registration and filing fees 9,852
Directors' fees and expenses 8,320
Custody fees and expenses 6,080
Shareholder reports 4,886
Insurance expense 980
Other expenses 500
---------
Total expenses before waiver and reimbursement from Adviser 236,770
Expense waiver and reimbursement from Adviser (145,926)
---------
Net expenses 90,844
---------
Net investment loss (35,208)
---------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments 100,050
Net change in unrealized depreciation of investments (350,975)
---------
Net gain (loss) on investments (250,925)
---------
Net decrease in net assets resulting from operations $(286,133)
=========
See notes to the financial statements.
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
June 29, 1999(1)
Year Ended to
October 31, 2000 October 31, 1999
---------------- ----------------
<S> <C> <C>
Operations:
Net investment loss $ (35,208) $ (4,591)
Net realized gain on investments 100,050 0
Net change in unrealized appreciation
(depreciation) of investments (350,975) 154,683
--------- ---------
Net increase (decrease) in net assets
resulting from operations (286,133) 150,092
--------- ---------
Capital Share Transactions:
Proceeds from shares sold 8,026,136 1,198,472
Cost of shares redeemed (27,448) (125)
--------- ---------
Net increase in net assets from capital
share transactions 7,998,688 1,198,347
--------- ---------
Total increase in net assets 7,712,555 1,348,439
Net Assets:
Beginning of period 1,448,439 100,000
--------- ---------
End of period $9,160,994 $1,448,439
========= =========
Changes in Shares Outstanding:
Shares sold 475,149 117,160
Shares redeemed (1,707) (12)
--------- ---------
Net increase in shares outstanding 473,442 117,148
========= =========
(1) Commencement of operations
</TABLE>
See notes to the financial statements.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING
THROUGHOUT THE PERIOD
June 29, 1999(1)
Year Ended to
October 31, 2000 October 31, 1999
---------------- ----------------
<S> <C> <C>
Net Asset Value-- Beginning of Period $11.39 $10.00
------ ------
Income from Investment Operations:
Net investment loss (0.06) (0.04)
Net realized gain and unrealized appreciation(5) 3.92 1.43
------ ------
Total from investment operations 3.86 1.39
------ ------
Net Asset Value-- End of Period $15.25 $11.39
====== ======
Total Return(3) 33.89% 13.90%(2)
Ratios and Supplemental Data:
Net assets, end of period (thousands) $9,161 $1,448
Ratio of expenses to average net assets:
Before expense reimbursement 5.21% 20.74%(4)
After expense reimbursement 2.00% 2.00%(4)
Ratio of net investment loss to average net assets:
Before expense reimbursement (3.99%) (19.85%)(4)
After expense reimbursement (0.78%) (1.11%)(4)
Portfolio turnover rate 17.49% 0.00%
</TABLE>
(1) Commencement of operations
(2) Not annualized
(3) The total return calculation does not reflect the maximum sales charge of
4.75%.
(4) Annualized
(5) The amounts shown may not correlate with aggregate gains and losses of
portfolio securities due to the timing of subscriptions and redemptions of Fund
shares.
See notes to the financial statements.
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000
COMMON STOCKS-- 91.1% Shares Value
Computer Hardware & Electronics-- 15.1%
Apple Computer, Inc.* 3,038 $ 59,431
Compaq Computer Corporation 5,599 170,266
Corning Incorporated 2,445 187,042
Dell Computer Corporation* 3,997 117,912
EMC Corporation* 2,200 195,937
Hewlett-Packard Company 3,030 140,706
International Business Machines Corporation 1,368 134,748
Koninklijke (Royal) Philips Electronics N.V. 3,973 158,672
Lexmark International, Inc.* 2,450 100,450
Sony Corporation ADR 1,384 114,872
---------
1,380,036
---------
E-Commerce-- 6.0%
Enron Corp. 1,120 91,910
The Charles Schwab Corporation 5,233 183,809
Knight Trading Group, Inc.* 3,500 104,781
Wells Fargo & Company 3,653 169,180
---------
549,680
---------
Entertainment & Media-- 10.6%
The Walt Disney Company 4,676 167,459
The News Corporation Limited ADR 3,410 146,630
Nintendo Co., Ltd. ADR 7,689 159,944
Reuters Group PLC ADR 1,621 191,075
Time Warner Inc. 2,101 159,487
Viacom Inc.-- Class B* 2,574 146,396
---------
970,991
---------
Imaging & Graphics-- 7.5%
Adobe Systems Incorporated 3,346 254,505
Canon Inc. ADR 3,829 155,314
Eastman Kodak Company 2,516 112,905
Fuji Photo Film Co., Ltd. ADR 4,397 163,239
---------
685,963
---------
Integrated Circuits & Semiconductors-- 14.6%
Analog Devices, Inc.* 2,361 153,465
Applied Materials, Inc.* 2,344 124,525
Broadcom Corporation-- Class A* 836 185,906
COMMON STOCKS (Continued)
Integrated Circuits & Semiconductors (Continued)
Intel Corporation 3,249 $ 146,205
KLA-Tencor Corporation* 2,998 101,370
Maxim Integrated Products, Inc.* 2,613 173,275
Micron Technology, Inc. 3,294 114,466
Texas Instruments Incorporated 2,978 146,108
Xilinx, Inc.* 2,608 188,917
---------
1,334,237
---------
Internet-- 5.4%
America Online, Inc.* 2,626 132,429
Cisco Systems, Inc.* 2,798 150,742
Sun Microsystems, Inc.* 1,691 187,490
3Com Corporation* 1,328 23,572
---------
494,233
---------
Software-- 9.2%
Intuit Inc.* 2,807 172,455
Microsoft Corporation* 2,094 144,224
Oracle Corporation* 4,458 147,114
SAP AG ADR 2,920 148,920
Symantec Corporation* 2,700 105,469
Synopsys, Inc.* 3,625 126,422
---------
844,604
---------
Spin-Offs-- 2.5%
Agilent Technologies, Inc.* 207 9,587
Avaya Inc.* 295 3,964
Palm, Inc.* 3,959 212,054
---------
225,605
---------
Telecommunications-- 13.0%
AT&T Wireless Group* 4,032 100,548
Lucent Technologies Inc. 3,550 82,759
Nortel Networks Corporation 2,644 120,302
Qwest Communications International Inc.* 3,574 173,786
Sprint Corp. (PCS Group)* 2,247 85,667
Symbol Technologies, Inc. 4,207 191,156
Tellabs, Inc.* 2,828 141,223
Verizon Communications 3,310 191,359
COMMON STOCKS (Continued)
Telecommunications (Continued)
WorldCom, Inc.* 4,582 $ 108,822
---------
1,195,622
---------
Wireless-- 7.2%
General Motors Corporation-- Class H 4,745 153,738
Motorola, Inc. 4,132 103,042
Nokia Oyj ADR 3,584 153,216
QUALCOMM Inc.* 1,868 121,624
Telefonaktiebolaget LM Ericsson AB ADR 9,335 129,523
---------
661,143
---------
Total common stock
(cost $8,538,406) 8,342,114
---------
SHORT-TERM INVESTMENTS-- 9.4%
Shares
------
Registered Investment Companies-- 1.4%
Firstar Institutional Money Market Fund 125,562 125,562
---------
Principal
Amount
--------
Variable Rate Demand Notes-- 8.0%
American Family Financial Services, Inc. $149,512 149,512
Sara Lee Corporation 342,187 342,187
Wisconsin Corporate Central Credit Union 89,429 89,429
Wisconsin Electric Power Company 154,000 154,000
---------
735,128
---------
Total Short-Term Investments
(cost $860,690) 860,690
---------
TOTAL INVESTMENTS-- 100.5%
(cost $9,399,096) 9,202,804
Liabilities in excess of other assets-- (0.5)% (41,810)
---------
Total net assets-- 100.0% $9,160,994
=========
* Non-income producing
See notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
OCTOBER 31, 2000
1. Organization
The Light Revolution Fund, Inc. (the "Corporation") was organized as a Maryland
corporation on October 21, 1997 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company issuing its shares in series, each series representing a distinct
portfolio with its own investment objectives and policies. The series presently
authorized is the Light Revolution Fund (the "Fund"). Pursuant to the 1940 Act,
the Fund is a "diversified" series of the Corporation and has an investment
objective of capital appreciation. The Fund commenced operations on June 29,
1999. Shares of the Fund are subject to an initial sales charge imposed at the
time of purchase, in accordance with the Fund's prospectus. The maximum sales
charge is 4.75% of the offering price.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies employed by the
Fund in preparing its financial statements:
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENT VALUATION
Common stocks and other equity-type securities that are listed on a securities
exchange are valued at the last quoted sales price during regular trading on the
day the valuation is made. Price information, on listed stocks, is taken from
the exchange where the security is primarily traded. Securities which are listed
on an exchange but which are not traded on the valuation date are valued at the
average of the most recent bid and asked prices. Unlisted securities for which
market quotations are readily available are valued at the latest quoted bid
price. Debt securities are valued at the latest bid prices furnished by a
pricing service. Other assets and securities for which no quotations are readily
available are valued at fair value as determined in good faith under the
supervision of the Board of Directors of the Corporation. Short-term instruments
(those with remaining maturities of 60 days or less) are valued at amortized
cost, which approximates market.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and distributions of net realized capital
gains, if any, will be declared and paid at least annually. The character of
distributions made during the period from net investment income or net realized
gains may differ from the characterization for federal income tax purposes due
to differences in the recognition of income, expense and gain items for
financial statement and tax purposes. Where appropriate, reclassifications
between net asset accounts are made for such differences that are permanent in
nature. Accordingly, at October 31, 2000, reclassifications were recorded to
increase accumulated net investment income by $35,208 and decrease accumulated
net realized gain on investments by $35,208.
FEDERAL INCOME TAXES
The Fund has elected to be taxed as a "regulated investment company" and intends
to distribute substantially all taxable income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to regulated
investment companies. Therefore, a provision for federal income taxes or excise
taxes has not been made.
FOREIGN SECURITIES
The Fund may invest in foreign securities. Investing in securities of foreign
companies and foreign governments involves special risks and considerations not
typically associated with investing in U.S. companies and the U.S. Government.
These risks include revaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices more
volatile than securities of comparable U.S. companies and the U.S. Government.
FOREIGN CURRENCY TRANSLATION
Investment securities and other assets and liabilities initially expressed in
foreign currencies are converted to U.S. dollars based upon current exchange
rates. Purchases and sales of foreign investment securities and income are
converted to U.S. dollars based upon currency exchange rates prevailing on the
respective dates of such transactions. The effect of changes in foreign exchange
rates on realized and unrealized security gains or losses is reflected as a
component of such gains or losses.
OTHER
Investment and shareholder transactions are recorded on the trade date. The Fund
determines the gain or loss realized from the investment transactions by
comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date and interest
income is recognized on an accrual basis.
3. Investment Transactions
The aggregate purchases and sales of securities, excluding short-term
investments, by the Fund for the year ended October 31, 2000, were as follows:
Purchases Sales
--------- -----
U.S. Government $ - $ -
Other $8,051,003 $677,167
At October 31, 2000, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $915,358
(Depreciation) (1,111,655)
---------
Net depreciation of investments $ (196,297)
=========
At October 31, 2000, the cost of investments for federal income tax purposes was
$9,399,101.
4. Agreements
The Corporation has entered into an Investment Advisory Agreement with Light
Index Investment Company (the "Investment Adviser"). Pursuant to its advisory
agreement with the Corporation, the Investment Adviser is entitled to receive a
fee, calculated daily and payable monthly, at the annual rate of 1.00% as
applied to the Fund's daily net assets.
Until March 31, 2002, the Investment Adviser has agreed to voluntarily waive its
advisory fee and/or reimburse the Fund's other expenses to the extent that total
operating expenses (exclusive of interest, taxes, brokerage commissions and
other costs incurred in connection with the purchase or sale of portfolio
securities, and extraordinary items) exceed the annual rate of 2.00% of the
average net assets of the Fund, computed on a daily basis. Accordingly, for the
year ended October 31, 2000, the Investment Adviser waived advisory fees and
reimbursed other Fund expenses in the amount of $145,926. After March 31, 2002,
the Investment Adviser may terminate or revise the total annual operating
expense limitations at any time. Any waiver or reimbursement is subject to later
adjustment to allow the Investment Adviser to recoup amounts waived or
reimbursed to the extent actual fees and expenses for a period are less than the
expense limitation cap of 2.00%, provided, however, that the Investment Adviser
shall only be entitled to recoup such amounts for a period of three years from
the date such amount was waived or reimbursed. Waived/reimbursed expenses
subject to potential recovery by year of expiration are as follows:
Year of Expiration Recoverable Amount
--------------- -----------------
10/31/02 172,886
10/31/03 145,926
Provident Distributors, Inc. (the "Distributor") serves as principal underwriter
of the shares of the Fund pursuant to a Distribution Agreement between the
Distributor and the Corporation. The Corporation, on behalf of the Fund, has
adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"),
which authorizes the Fund to pay the Distributor (and others that have entered
into related agreements under the 12b-1 Plan) a distribution fee at an annual
rate of up to 0.25% of the average daily net assets of the Fund. Payments under
the 12b-1 Plan are used to reimburse the recipient for services provided and
expenses incurred in connection with the sale of the Fund's shares.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Light Revolution Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Light Revolution Fund (constituting
the Light Revolution Fund, Inc., and hereafter referred to as the "Fund") at
October 31, 2000, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
December 8, 2000
Milwaukee, Wisconsin
Shares of the Light Revolution Fund are distributed by an independent third
party, Provident Distributors, Inc.* This report has been prepared for the
general information of Light Revolution Fund shareholders. It is not authorized
for distribution to prospective investors unless preceded or accompanied by a
current prospectus. The Fund's prospectus contains more complete information
about the objectives, policies, expenses and risks of the Fund. Please read the
prospectus carefully before investing or sending money.
* Effective December 31, 2000 the Light Revolution Fund will be distributed by
the independent third party, Quasar Distributors, LLC.
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LIGHT REVOLUTION
FUND
704 Court A
Tacoma, Washington 98402
Fund: 1.888.463.3957
Fund Adviser: 1.888.544.4889
