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The following is an excerpt from a 10-Q SEC Filing, filed by MACROVISION CORP on 8/15/2001.
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MACROVISION CORP - 10-Q - 20010815 - MARKET_RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including changes in interest rates, foreign exchange rates and security investments. Changes in these factors may cause fluctuations in our earnings and cash flows. We evaluate and manage the exposure to these market risks as follows:

FIXED INCOME INVESTMENTS. We have an investment portfolio of fixed income securities, including those classified as cash equivalents, short-term investments and long-term marketable investments securities of

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$254.0 million as of June 30, 2001. These securities are subject to interest rate fluctuations. An increase in interest rates could adversely affect the market value of our fixed income securities.

We do not use derivative financial instruments in our investment portfolio to manage interest rate risk. We limit our exposure to interest rate and credit risk, however, by establishing and strictly monitoring clear policies and guidelines for our fixed income portfolios. The primary objective of these policies is to preserve principal while at the same time maximizing yields, without significantly increasing risk. A hypothetical 50 basis point increase in interest rates would result in an approximate $970,000 decrease (approximately 0.5%) in the fair value of our available-for-sale securities as of June 30, 2001.

FOREIGN EXCHANGE RATES. Due to our reliance on international and export sales, we are subject to the risks of fluctuations in currency exchange rates. Because a substantial majority of our international and export revenues are typically denominated in United States dollars, fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country. Our subsidiaries in England and Japan operate in their local currencies, thereby partially offsetting the above operational exposure to the respective currency royalties collected.

STRATEGIC INVESTMENTS. We have expanded our technology base through strategic investments in companies, technologies, products and intellectual property. We currently hold minority equity interests in AudioSoft International (a developer of copyright management reporting systems for music), Command Audio Corporation (an audio-on-demand technology company), Digimarc Corporation (a digital watermarking technology company), InterActual Technologies, Inc. (a developer of DVD technology), iVast, Inc. (an MPEG-4 software platform provider), Rioport, Inc. (a developer of secure delivery technology for digital music), SecureMedia (a developer of encryption technologies) and TTR Technologies, Ltd. (a company developing copy protection technology for audio CDs). These investments, totaling $72.6 million, represented 22% of our total assets as of June 30, 2001. AudioSoft, Command Audio Corporation, InterActual, iVast, Rioport and SecureMedia are privately held companies. There is no active trading market for their securities and our investments in them are illiquid. We may never have an opportunity to realize a return on our investment in these companies, and we may in the future be required to write off all or part of one or more of these investments. Digimarc and TTR are traded on NASDAQ and our investments in these companies are subject to fluctuations in market prices.

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