MARKETOCRACY FUNDS, 485APOS, 2000-12-21

MARKETOCRACY FUNDS
485APOS, 2000-12-21

Previous: ENEXI HOLDINGS INC, SB-2/A, EX-23, 2000-12-21

Next: MARKETOCRACY FUNDS, 485APOS, EX-99.D(I), 2000-12-21

Filed with the Securities and Exchange Commission on December 20, 2000

1933 Act Registration File No. 333-82833
1940 Act File No. 811-09445

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|

Pre-Effective Amendment No. |_|

Post-Effective Amendment No. 3 |X|

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

Amendment No. 6 |X|

(Check appropriate box or boxes.)
MARKETOCRACY FUNDS
------------------
(Exact Name of Registrant as Specified in Charter)

881 Fremont Street, Suite B2
LOS ALTOS, CA 94024
-----------------------------------------------------
(Address and Zip Code of Principal Executive Offices)

(888) 884-8482
---------------------------------------------------------
Registrant's Telephone Number, including Area Code

Kendrick W. Kam
Marketocracy Capital Management LLC
26888 Almaden Court

LOS ALTOS, CA 94022
-----------------------------------------------------
(Name and Address of Agent for Service)

COPIES OF ALL COMMUNICATIONS TO:
----------------------------------
Roy W. Adams, Jr.
Attorney At Law
1024 Country Club Drive, Suite 135
Moraga, CA 94556

It is proposed that this filing will become effective

______ immediately upon filing pursuant to paragraph (b)

______ on ________________ pursuant to paragraph (b)

__X___ 60 days after filing pursuant to paragraph (a)(1)

______ on ___________ pursuant to paragraph (a)(1)

______ 75 days after filing pursuant to paragraph (a)(2)

______ on ______________ pursuant to paragraph (a)(2) of Rule 485.

MARKETOCRACY FUNDS

THE CHANGEWAVE FUND
THE MEDICAL SPECIALISTS FUND
THE TECHNOLOGY PLUS FUND

PROSPECTUS

December __, 2000

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

NOTE:

The distributor for The ChangeWave Fund and The Technology Plus Fund (the
"Funds") will solicit orders to purchase shares of the Funds during an initial
offering period from Thursday, December 21, 2000 to Thursday, December 28, 2000
(the "Subscription Period").

Orders received during the Subscription Period will not be processed before
commencement of operations (currently scheduled for Friday, December 29, 2000).
Orders to purchase shares of the Funds that are accompanied by payment and that
are RECEIVED AFTER DECEMBER 21, 2000 will be deemed orders to purchase shares of
the Funds as of the commencement of operations and will be processed and priced
at the initial offering price of $10.00 per share into the appropriate Fund on
December 29, 2000.

IMPORTANT: BECAUSE OF GOVERNMENTAL RULES AND REGULATIONS, ORDERS TO PURCHASE
SHARES OF THE FUNDS THAT ARE ACCOMPANIED BY PAYMENT AND THAT ARE RECEIVED ON OR
BEFORE THURSDAY, DECEMBER 21, 2000 WILL BE RETURNED TOGETHER WITH PAYMENT EVEN
THOUGH THE SUBSCRIPTION PERIOD COMMENCES ON THURSDAY, DECEMBER 21, 2000.

Thus, in order to obtain the initial offering price of $10.00 per share, an
order, accompanied by payment, must be received on or after Friday, December 22,
2000 but not later than 4:00 P.M. Eastern Time, Friday, December 29, 2000.

Shares of the Funds will not be available to the public prior to the Funds'
commencement of operations except through these subscription offers.

--------------------------------------------------------------------------------
Marketocracy Funds (the "Trust") currently offers three series of shares to
investors: The ChangeWave Fund, The Medical Specialists Fund and The Technology
Plus Fund. The Funds are all no-load funds.
--------------------------------------------------------------------------------

TABLE OF CONTENTS

THE CHANGEWAVE FUND -- RISK/RETURN SUMMARY.....................................3

THE MEDICAL SPECIALISTS FUND -- RISK/RETURN SUMMARY............................6

THE TECHNOLOGY PLUS FUND -- RISK/RETURN SUMMARY................................9

MORE ON THE FUNDS' INVESTMENT STRATEGIES AND RELATED RISKS....................12

MANAGEMENT OF THE FUNDS.......................................................17

HOW TO PURCHASE SHARES........................................................18

HOW TO REDEEM SHARES..........................................................20

EXCHANGING SHARES.............................................................21

SHAREHOLDER SERVICES..........................................................21

DIVIDENDS AND DISTRIBUTIONS...................................................21

TAXES.........................................................................22

CALCULATION OF SHARE PRICE....................................................22

FINANCIAL HIGHLIGHTS..........................................................23

THE CHANGEWAVE FUND -- RISK/RETURN SUMMARY
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.

PRINCIPAL STRATEGIES

The Fund generally invests at least 65% of its total assets in common stocks of
U.S. and foreign companies of any size. The Fund uses a growth style of
investing favoring companies with a strong earnings growth outlook. Simply put,
the Fund focuses its investments on companies that it believes have significant
growth potential. The Fund's basic premise is that within any commercial
marketplace, technological or regulatory changes create new demands and business
opportunities, and thus new investment opportunities. An illustration of this
was the significant wave of changes to a variety of industries and their
markets, including the growth of entirely new industries and markets, due to
widespread and convenient accessibility to the Internet. This resulted from the
introduction of a new technology based on a NARROWBAND, standardized,
internetworked communication protocol.

Another investment premise of the Fund is that the new high speed, BROADBAND
wireline and wireless data communications services currently being introduced
throughout the world will result in similar waves of changes in a range of
industries, which the portfolio manager refers to as the "New Economy Enabling
Technology Industries" or the "NETI."

Thus, the Fund seeks companies that are strategically positioned to be the
primary beneficiaries of these broadband-driven waves of changes to the NETI.
Within the "NETI", the portfolio manager favors those companies having key
enabling technologies, solutions or intellectual property. The portfolio manager
also favors companies in the following categories:

o higher Internet bandwidth o "datatone" enablers and
"bottleneck breakers" (E.G., service providers (E.G., long-term
optical Internet) "always-on" data storage)
o non-personal computer o uninterruptible electrical
wireless Web networking and micro-power generation
o e-commerce o e-sourcing

o "always on" Web server
connectivity and value-added
web-server hosting services
o e-customer relationship
management

In selecting portfolio investments, the Fund's portfolio manager screens
possible NETI industries based principally on (1) their five-year cumulative
annual growth rates, (2) five-year market opportunities and average gross profit
margins and (3) on third-party NETI-focused research. The Fund's portfolio
manager then uses fundamental and technical analysis criteria to arrive at a
portfolio of approximately 35 to 50 equity securities, primarily common stocks.

When selling securities from a Fund's portfolio, the Fund's portfolio manager
usually considers whether (1) the performance of the security has achieved the
Fund's investment objective, (2) the Fund's portfolio manager's outlook has
changed about the security (E.G. anticipated changes in the company's market
place or product line do not result); and (3) the security is no longer
attractive because it no longer meets the Fund's criteria for purchase or
because of circumstances impacting the security's value (E.G., unexpected
regulatory delays). The Fund's portfolio manager also may consider anticipated
or actual market shifts or threats to capital.

PRINCIPAL RISKS
There are risks involved with any investment that could cause you to lose money.
The principal risks associated with an investment in the Fund include:

STOCK MARKET RISKS: The return on and value of an investment in the Fund will
fluctuate in response to stock market movements. Stocks and other equity
securities are subject to market risks and fluctuations in value due to
earnings, economic conditions and other factors beyond the control of the Fund,
the Fund's investment adviser or its portfolio manager.

STOCK SELECTION RISKS: The strategies used by the Fund's portfolio manager in
selecting stocks for the Fund's portfolio may not always be successful. The
investments may decline in value or not increase in value when the stock market
in general is rising.

NON-DIVERSIFICATION RISKS: As a non-diversified fund, the Fund has added risk
because it may invest a greater percentage of assets in a more limited number of
issuers compared to other mutual funds.

BROADBAND-DRIVEN CHANGES RISKS: The Fund will be subject to greater risks
because of its focus on companies and industries related to the introduction of
broadband communication services. The introduction of new broadband
communications services is dependent upon consumer and business acceptance as
new services and technologies evolve. Special risks include substantial
investments in technological research and development that may or may not be
successful, potentially rapid obsolescence of products or technology, dependence
upon governmental policies regarding introduction of new broadband
communications services, above-average dependence upon proprietary rights such
as patents.

SMALL AND MEDIUM COMPANIES RISKS: Small and medium-size companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of the Fund's portfolio.

FOREIGN INVESTMENT RISKS: Investments in foreign securities entail risks not
present in domestic investments including, among others, risks related to
political or economic instability, currency exchange, and taxation.

MANAGERIAL RISKS: The Fund has only a brief operating history, and the Fund's
portfolio manager has not previously managed a mutual fund.

PLEASE SEE "MORE ON THE FUNDS' INVESTMENT STRATEGIES AND RELATED RISKS" FOR
FURTHER INFORMATION.

PERFORMANCE SUMMARY
As a recently organized series of the Trust, the Fund has little operating
history. Accordingly, no performance for the Fund has been included in this
prospectus.

FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------- ----------
Maximum sales charge (load) imposed on purchases None
Maximum sales charge (load) imposed on reinvested None
dividends
Maximum deferred sales charge (load) None
Exchange fee None(1)
Redemption fee None(2)
Maximum account fee None(3)
--------------------------------------------------------- ----------

ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

--------------------------------------------------------- ----------
Management Fees 1.50%
Distribution (12b-1) Fees None
Other Expenses(4) 0.45%
Total Annual Fund Operating Expenses(5) 1.95%
--------------------------------------------------------- ----------
(1) The Fund's Transfer Agent charges a $5 transaction fee to shareholder
accounts for telephone exchanges between any two series of Trust. The
Transfer Agent does not charge a transaction fee for written exchange
requests.

(2) The Fund's transfer agent charges a wire redemption fee of $12 and IRA
accounts are charged a $15 redemption fee.

(3) IRA Accounts are assessed a $12.50 annual fee.

(4) The percentage in "Other Expenses" is based on estimated amounts for the
current fiscal year. The Fund's administrator receives an annual
compensation of 0.45% of average daily net assets for Fund administration
duties. From this compensation, the Fund's administrator pays all expenses
of the Fund.

EXAMPLE:
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, your dividends and distributions have been
reinvested, and the Fund's operating expenses remain the same. Although your
actual cost may be higher or lower, based on these assumptions your costs would
be:

1 YEAR 3 YEAR
------ ------
$ 198 $ 612

THE MEDICAL SPECIALISTS FUND -- RISK/RETURN SUMMARY
-------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks long-term growth of capital.

PRINCIPAL STRATEGIES

The Fund invests at least 65% of its total assets in common stocks of companies
of any size, primarily in the U.S., in the medical/healthcare industry. The
Fund's portfolio manager favors companies with a strong earnings growth outlook
and potential for capital appreciation. The Fund defines the medical/healthcare
industry to include cardiovascular medical devices, minimally invasive surgical
tools, pharmaceuticals, generic drugs and managed care providers.

PRINCIPAL RISKS
There are risks involved with any investment that could cause you to lose money.
The principal risks associated with an investment in the Fund include:

STOCK SELECTION RISKS: The strategies used by the Fund's portfolio manager in
selecting stocks for the Fund's portfolio may not always be successful. The
investments selected may decline in value or not increase in value when the
stock market in general is rising.

NON-DIVERSIFICATION RISKS: As a non-diversified fund, the Fund has added risk
because it may invest a greater percentage of assets in a more limited number of
issuers compared to other mutual funds.

MEDICAL/HEALTHCARE INDUSTRY RISKS: Because of its concentration in the
medical/healthcare industry, the Fund is subject to above-average risks,
inducing: adverse industry-specific developments, large investments in research
and development with uncertain results, rapid product or technology
obsolescence, governmental regulation of healthcare costs and product approvals,
heavy reliance on patents and similar rights, short product cycles, competitive
pricing and above-average investment volatility.

PLEASE SEE "MORE ON THE FUNDS' INVESTMENT STRATEGIES AND RELATED RISKS" FOR
FURTHER INFORMATION.

PERFORMANCE SUMMARY

The following bar chart and table show performance information for the Fund. The
Fund's performance includes that of the Firsthand Medical Specialists Fund, a
former series of Firsthand Funds, that was reorganized into the Fund on March
15, 2000. The Firsthand Medical Specialist Fund was managed by the same
investment adviser and portfolio manager as the Fund. The bar chart indicates
the risks of investing in the Fund by showing the changes in it's the Fund's
performance (including performance while it was a series of the Firsthand Funds)
(i) from year to year (on a calendar year basis) and (ii) compared to those of
broad-based securities market indices. OF COURSE, PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.

[GRAPH]

The return for the quarter ended September 30, 2000 was +3.69% and for nine
months ended September 30, 2000, it was +23.08%

-------------------- ----------- ------------
Best Quarter: Q4 1998 +31.97%
-------------------- ----------- ------------
Worst Quarter: Q2 1998 -19.74%
-------------------- ----------- ------------

------------------------------------- ------------ -------------------
AVERAGE ANNUAL TOTAL RETURNS (ended 12/31/1999)
One Year Since Inception*
THE MEDICAL SPECIALISTS FUND 52.13% 20.57%
Standard & Poor's 500 Index(1) 21.04% 24.01%
Russell 3000 Healthcare Index(2) -7.96% 12.41%
------------------------------------- ------------ -------------------
* The Fund commenced the public offering of its shares on December 10, 1997,
as The Firsthand Medical Specialists Fund, a series of Firsthand Funds. The
Fund was reorganized into the Trust effective March 15, 2000.

(1) The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
(2) The Russell 3000 Healthcare Index is comprised of 255 healthcare stocks in
the Russell 3000 (large and small-cap) Index.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

(2) The Fund's transfer agent charges a wire redemption fee of $12 and IRA
accounts are charged a $15 redemption fee.

(3) IRA Accounts are assessed a $12.50 annual fee.

(4) The Fund's administrator receives an annual compensation of 0.45% of
average daily net assets for Fund administration duties. From this
compensation, the Fund's administrator pays all expenses of the Fund.

(5) Under the Investment Advisory and Management Agreement dated November 24,
1999, the Fund's investment adviser has contractually agreed that the
Fund's total annual operating expenses will be 1.95% of the Fund's average
daily net assets up to $200 million, 1.90% of such assets from $200 million
to $500 million, 1.85% of such assets from $500 million to $1 billion, and
1.80% of such assets in excess of $1 billion. This arrangement is definite
for two years until November 23, 2001 and will continue thereafter as long
as the Trust's Board of Trustees annually renews the Investment Advisory and
Management Agreement.

EXAMPLE:

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year, your dividends and distributions have been
reinvested, and the Fund's operating expenses remain the same. Although your
actual cost may be higher or lower, based on these assumptions your costs would
be:

1 YEAR 3 YEAR 5 YEAR 10 YEAR
------ ------- ------ -------
$ 198 $ 612 $1,052 $2,275

THE TECHNOLOGY PLUS FUND -- RISK/RETURN SUMMARY
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.

PRINCIPAL STRATEGIES

The Fund invests at least 65% of its total assets in common stocks of
technology-related companies of any size, primarily in the U.S. Technologies to
which such companies may relate include, but are not limited to, biotechnology,
communications, computers, electronics, Internet, IT services and consulting,
software, telecommunications equipment and services, office and factory
automation, networking, robotics, data storage and security, and video. The
Fund's portfolio manager considers a company to be related to technology if over
50% of the company's actual or anticipated (1) products or services, or (2)
assets, revenues or profits, are related to technology. As an added "plus," the
Fund sells securities short (and may from time to time engage in hedging, option
trading and investing in futures and other derivatives seeking) to reduce market
risks and improve long-term returns. In short selling, the Fund's portfolio
manager favors securities of technology-related companies that the portfolio
manager determines are significantly over-valued on a fundamental analysis
basis.

The Fund uses a growth style of investing favoring companies with a strong
earnings growth outlook. The Fund's portfolio manager uses fundamental research
and analysis methods to identify companies that the portfolio manager believes
have superior growth potential and considers factors such as sales, earnings,
earnings growth, profit margins, debt, cash flow, insider transactions, and
assessments of the companies' products and technologies. The Fund's portfolio
manager uses the same techniques to identify companies that it believes are
significantly over-valued and whose securities Fund the can sell short.

PRINCIPAL RISKS
There are risks involved with any investment that could cause you to lose money.
The principal risks associated with an investment in the Fund include:

NON-DIVERSIFICATION RISKS: As a non-diversified fund, the Fund has added risks
because it may invest a greater percentage of assets in a more limited number of
issuers compared to other mutual funds.

TECHNOLOGY-RELATED COMPANIES RISKS: The Fund will be subject to greater than
average risk because of its focus on technology-related companies. Some of the
special risks of technology-related companies include substantial investments in
technological research and development that may or may not be successful,
potentially rapid obsolescence of products or technology, above-average
dependence upon proprietary rights such as patents. Technology-related companies
may be subject to short product cycles and aggressive pricing which may increase
their volatility. The value of investments in the technology-related companies
can and often does fluctuate dramatically and may expose you to greater than
average financial and market risk. Additionally, technology-related companies in
this industry are dependent upon consumer and business acceptance as new
technologies and products evolve.

SHORT-SELLING RISKS: Short selling involves greater risks that investing in
stocks. Unlike regular stock investments, losses from short selling could be
significantly larger than the Fund's original investment in the transaction.
Losses from short-selling could be potentially unlimited and may result from
general market forces, such as a lack of stock available for short sellers to
borrow for delivery, or improving conditions with a company. Thus, an investment
in the Fund may be more volatile than investments in many other mutual funds.
Short selling also involves higher transaction costs than, and generally is not
as tax efficient as that of, investing in stocks

FUTURES AND OPTIONS RISKS: The Fund may lose money on futures and options
transactions because, among other things, the futures and options may be
illiquid or their prices may not correlate perfectly with the securities or
indices underlying them or with the prices of any investments which they are
intended to hedge, or because the Fund's portfolio manager forecasts market or
price movements incorrectly. The Fund also incurs transaction costs when it
opens or closes futures or option positions.

LEVERAGING RISKS: Borrowing money to invest in additional securities
("leverage") increases the Fund's market exposure and risk and may result in
losses. The interest that the Fund must pay on borrowed money will reduce its
net gains or increase any losses.

PLEASE SEE "MORE ON THE FUNDS' INVESTMENT STRATEGIES AND RELATED RISKS" FOR
FURTHER INFORMATION.

PERFORMANCE SUMMARY
As a recently organized series of the Trust, the Fund has little operating
history. Accordingly, no performance information for the Fund has been included
in this prospectus.

FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES

ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

(1) The Fund's Transfer Agent charges a $5 transaction fee to shareholder
accounts for telephone exchanges between any two series of Trust. The Transfer
Agent does not charge a transaction fee for written exchange requests.

(2)The Fund's transfer agent charges a wire redemption fee of $12 and IRA
accounts are charged a $15 redemption fee.

(3) IRA Accounts are assessed a $12.50 annual fee.

(4)The percentage in "Other Expenses" is based on estimated amounts for the
current fiscal year. The Fund's administrator receives an annual compensation
of 0.45% of average daily net assets for Fund administration duties. From
this compensation, the administrator pays all expenses of the Fund.

(5)Under the Investment Advisory and Management Agreement dated November 10,
2000, the Fund's investment adviser has contractually agreed that the Fund's
total annual operating expenses will be 1.95% of the Fund's average daily net
assets up to $200 million, 1.90% of such assets from $200 million to $500
million, 1.85% of such assets from $500 million to $1 billion, and 1.80% of
such assets in excess of $1 billion; provided, however, that such agreement
does NOT extend to the Fund's expenses, estimated to be 0.25% of such assets,
due to holding or carrying a Fund's securities, including without limitation
expenses of dividends on stock borrowed to cover a short sale or interest,
fees or other charges incurred in connection with any leverage and related
borrowings. This arrangement is definite for two years until September 8,
2002 and will continue thereafter as long as the Fund's Board of Trustees
annually renews the Investment Advisory and Management Agreement.

1 YEAR 3 YEAR
------ ------
$ 198 $ 612

MORE ON THE FUNDS' INVESTMENT STRATEGIES AND RELATED RISKS
--------------------------------------------------------------------------------

THE CHANGEWAVE FUND
To achieve its goal of long-term growth of capital, the Fund invests at least
65% of its assets in common stocks of U.S. and foreign companies of any size.
The Fund seeks companies that are strategically positioned to be the primary
beneficiaries of the waves of changes in a range of industries that the
portfolio manager likes to refer to as the "New Economy Enabling Technology
Industries" or the "NETI." The Fund expects companies within the NETI to benefit
from the new high speed, broadband wireline and wireless data communications
services currently being introduced throughout the world.

INTRODUCTION OF BROADBAND COMMUNICATIONS SERVICES AND THE INTERNET-RELATED
RISKS. Although the Fund does not concentrate its investments in any single
industry, the Fund will be subject to greater risk because of its focus on
companies and industries affected by the waves of changes due to the
introduction of broadband communication services around the world, including
Internet-related industries. The introduction of new broadband communications
services is dependent upon consumer and business acceptance as new services and
technologies evolve as well as the existing Internet. Special risks include
substantial investments in technological research and development that may or
may not be successful, potentially rapid obsolescence of products or technology,
dependence upon governmental policies regarding introduction of new broadband
communications services, above-average dependence upon proprietary rights such
as patents. The NETI may be characterized by rapid change, evolving industry
standards, frequent new service and product announcements, introductions, and
enhancements, and changing customer demands. The failure of a company to adapt
to such changes could have a material adverse effect on the company's business,
results of operations, and financial condition. In addition, the widespread
adoption of new technologies or other technological changes could require
substantial expenditures by a company to modify or adapt its services or
infrastructure, which could have a material adverse effect on its business,
results of operations, and financial condition. Investments in companies of the
NETI may be highly volatile.

THE MEDICAL SPECIALISTS FUND
To achieve its goal of long-term growth of capital, the Fund invests at least
65% of its assets in securities of companies in the medical/healthcare industry.
At any point in time, however, the Fund may invest more than 25% of its assets
in any one segment of the medical/healthcare industry.

The Fund considers the medical/healthcare industry to consist of companies
primarily engaged in the design, manufacture or sale of products or services
used for or in connection with medicine or healthcare. The Fund's portfolio
manager considers a company to be PRIMARILY ENGAGED in the medical or healthcare
industry if over 50% of the company's actual or anticipated (1) products or
services, or (2) assets, revenues or profits, are related to that industry.

The Fund's portfolio manager uses fundamental analysis to select securities by
valuing a company and purchasing its securities if the portfolio manager
believes the company's value exceeds its market price. The Fund values a company
by focusing on the company's fundamental worth. PLEASE SEE "INVESTMENT STYLES"
FOR FURTHER INFORMATION ABOUT FUNDAMENTAL AND TECHNICAL STOCK MARKET ANALYSIS
METHODS.

CONCENTRATION OF INVESTMENTS IN THE MEDICAL INDUSTRY. The Fund will be subject
to greater risk because of its concentration of investments in the
medical/healthcare industry generally and within specific segments thereof. Some
of the special risks include substantial investments in technological research
and development that may or may not be successful, potentially rapid
obsolescence of products or technology, dependence upon governmental policies
regarding reimbursement of healthcare costs, above-average dependence upon
proprietary rights such as patents, and above-average governmental regulation,
including approval of products and services. Companies in some segments of the
medical/healthcare industry may be subject to short product cycles and
aggressive pricing which may increase their volatility. The value of investments
in the medical/healthcare industry can and often does fluctuate dramatically and
may expose you to greater than average financial and market risk. Additionally,
companies in this industry are dependent upon consumer and business acceptance
as new technologies evolve. Concentrating investments in a single issuer or a
group of issuers makes the value of the Fund's shares more susceptible to
adverse developments affecting a single issuer or industry than a more
diversified fund.

THE TECHNOLOGY PLUS FUND

To achieve its goal of long-term growth of capital, the Fund invests at least
65% of its total assets in common stocks of technology-related companies of any
size. The Fund's portfolio manager uses fundamental research and analysis
methods to identify companies that it believes have superior growth potential
and considers factors such as sales, earnings, earnings growth, profit margins,
debt, cash flow, insider transactions, and assessments of the companies'
products and technologies. PLEASE SEE "INVESTMENT STYLES" FOR FURTHER
INFORMATION ABOUT FUNDAMENTAL AND TECHNICAL STOCK MARKET ANALYSIS METHODS.

The Fund's portfolio manager uses the same techniques to identify companies that
it believes are sufficiently over-valued and whose securities Fund the can sell
short. The Fund also invests in investment grade fixed income and other money
market instruments having an average maturity of three years or less, to
collateralize or "cover" its short positions. The Fund also engages from time to
time in hedging, option trading, leverage (including but not limited to margin
trading) and investing in derivatives.

SHORT SALES. When the Fund's portfolio manager anticipates that the price of a
security will decline, the portfolio manager may sell the security short and
borrow the same security from a broker or other institution to complete the
sale. The Fund may make a profit or incur a loss depending upon whether the
market price of the security decreases or increases between the date of the
short sale and the date on which the Fund must replace the borrowed security. An
increase in the value of a security sold short by the Fund over the price at
which it was sold short will result in a loss to the Fund, and there can be no
assurance that the Fund will be able to close out the position at any particular
time or at an acceptable price.

The Fund may enter into short sales on securities with a value of up to 40% of
the Fund's total assets. Use of short sales by the Fund may have the effect of
providing the Fund with investment leverage.

OPTIONS AND FUTURES; INDEX FUTURES AND OPTIONS. The Fund may buy and sell call
and put options to hedge against changes in net asset value or to attempt to
realize a greater current return. In addition, through the purchase and sale of
futures contracts and related options, the Fund may at times seek to hedge
against fluctuations in net asset value and to attempt to increase its
investment return.

The Fund's ability to engage in options and futures strategies will depend on
the availability of liquid markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in various types of
options or futures contracts. Therefore, there is no assurance that the Fund
will be able to utilize these instruments effectively for the purposes stated
above. Options and futures involve certain risks that are described below.
Transactions in options and futures contracts involve brokerage costs and may
require the Fund to segregate assets to cover its outstanding positions.

The Fund may buy and sell index futures contracts ("index futures") and options
on index futures and on indices (or may purchase investments whose values are
based on the value from time to time of one or more securities indices) for
hedging purposes. An index future is a contract to buy or sell units of a
particular bond or stock index at an agreed price on a specified future date.
Depending on the change in value of the index between the time when the Fund
enters into and terminates an index futures or option transaction, the Fund
realizes a gain or loss. The Fund may also buy and sell index futures and
options to increase its investment return.

Options and futures transactions involve costs and may result in losses. Certain
risks arise because of the possibility of imperfect correlations between
movements in the prices of futures and options and movements in the prices of
the underlying security or index or of the securities held by the Fund that are
the subject of a hedge. The successful use by the Fund of the strategies
described above further depends on the ability of the investment adviser to
forecast market movements correctly. Other risks arise from the Fund's potential
inability to close out futures or options positions. Although the Fund will
enter into an options or futures transactions only if the investment adviser
believes that a liquid secondary market exists for such option or futures
contract, there can be no assurance that the Fund will be able to effect closing
transactions at any particular time or at an acceptable price.

The Fund expects that its options and futures transactions generally will be
conducted on recognized exchanges. The Fund may in certain instances purchase
and sell options in the over-the-counter markets. The Fund's ability to
terminate options in the over-the-counter markets may be more limited than for
exchange-traded options, and such transactions also involve the risk that
securities dealers participating in such transactions would be unable to meet
their obligations to the Fund. The Fund will, however, engage in
over-the-counter transactions only when appropriate exchange-traded transactions
are unavailable and when, in the opinion of its investment adviser, the pricing
mechanism and liquidity of the over-the-counter markets are satisfactory and the
participants are responsible parties likely to meet their obligations.

The Fund will not purchase futures or options on futures or sell futures if, as
a result, the sum of the initial margin deposits on the Fund's existing futures
positions and premiums paid for outstanding options on futures contracts would
exceed 5% of the Fund's net assets. (For options that are "in-the-money" at the
time of purchase, the amount by which the option is "in-the-money" is excluded
from this calculation.)

BORROWING AND LEVERAGE. The Fund may borrow money to invest in additional
portfolio securities. This practice, known as "leveraging," increases the Fund's
market exposure and its risk. In addition, use of short sales by the Fund may
provide the economic equivalent of the Fund's borrowing money. When the Fund has
borrowed money for leverage and its investments increase or decrease in value,
the Fund's net asset value will normally increase or decrease more than if it
had not borrowed money. The interest the Fund must pay on borrowed money will
reduce the amount of any potential gains or increase any losses. The extent to
which the Fund will borrow money, and the amount it may borrow, depend on market
conditions and interest rates. Successful use of leverage depends on the ability
of the Fund's portfolio manager to predict market movements correctly. The Fund
may at times borrow money by means of reverse repurchase agreements.

DERIVATIVES. Derivatives are financial instruments whose value depends upon, or
is derived from, the value of the underlying investment, pool of investments, or
index. The Fund's return on a derivative typically depends on the change in the
value of the investment, pool of investments, or index specified in the
derivative instrument. Derivatives involve special risks and may result in
losses. The Fund will be dependent on its portfolio manager's ability to analyze
and manage these sophisticated instruments. The prices of derivatives may move
in unexpected ways, especially in abnormal market conditions. The Fund's use of
derivatives may also increase the amount of taxes payable by shareholders.

FOCUS OF INVESTMENTS IN THE TECHNOLOGY-RELATED COMPANIES. The Fund will be
subject to greater than average risks because of its concentration in
technology-related companies generally and with respect to certain types of
technology. Some of the special risks include substantial investments in
technological research and development that may or may not be successful,
potentially rapid obsolescence of products or technology, and above-average
dependence upon proprietary rights such as patents. Technology-related companies
also are often subject to dependence upon governmental policies and governmental
regulation, including approval of products and services. Technology-related
companies may be subject to short product cycles and aggressive pricing which
may increase their volatility. Technology-related companies also are dependent
upon consumer and business acceptance as new technologies and products evolve.
The value of investments in technology-related companies can and often does
fluctuate dramatically due to technology-specific changes or developments in the
regulatory or competitive environments and may expose you to greater than
average financial and market risk.

INVESTMENT STYLES

In addition to the principal investment strategies described in each Fund's
summary above, the Funds may at times use one or more of the strategies and
techniques described below, each of which involves certain special risks.

GROWTH STYLE OF INVESTING. Equity mutual funds generally emphasize either
"growth" or "value" styles of investing. Growth funds invest in companies that
exhibit faster-than-average growth in revenues and earnings, appealing to
investors who are willing to accept more volatility in hopes of a greater
increase in share price. Value funds invest in companies that appear under
priced according to certain financial measurements of their intrinsic worth or
business prospects. Value funds appeal to investors who want some dividend
income and the potential for capital gains, but are less tolerant of share-price
fluctuations. The Funds invest primarily in growth companies. Although certain
of the Funds' investments may produce dividends, interest or other income,
current income is not a consideration in selecting the Funds' investments.

STOCK MARKET ANALYSIS. The stock market analysis used in determining whether a
particular security or group of securities are undervalued or overvalued
relative to their current market prices generally falls into two major schools.
The first major school is "fundamental analysis," which relies on an analysis of
the balance sheet and income statements of companies in order to forecast their
future stock price movements. The other major school is "technical analysis,"
which is not concerned with the financial position of a company, but instead
relies on stock market price and volume movements through the use of charts and
computer programs to identify and project trends in a market or security. Each
Fund's portfolio manager principally uses fundamental research and analysis for
all the Funds, but in some instances uses technical research and analysis as
well.

PORTFOLIO SECURITY SELECTION. When applying fundamental analysis, each Fund's
portfolio manager generally values a company by focusing on the company's
fundamental worth. A company's fundamental worth is the value of the basic
businesses of the company, including products, technologies, customer
relationships and other sustainable competitive advantages.

When analyzing fundamental worth of a company, the Fund's portfolio manager
usually considers the company's assets and earning power, price-earnings ratios
compared with sales and balance sheet strength, and whether or not the company
has a strong competitive position in market share, brand identification,
technological exclusivity, product and service. The Fund's portfolio manager
also may review traditional financial data such as return on assets and equity,
gross and net margins, inventory turns, book value, and debt-equity ratios. The
Fund's portfolio manager may, from time-to-time, employ dividend and cash flow
discounting models to determine the company's intrinsic value, and then compares
to the company's current share price.

As part of its fundamental research, the Fund's portfolio manager may rely upon
specific sources of information including general economic and industry data as
provided by the U.S. Government, various trade associations and other sources,
brokerage research reports, and published corporate financial data such as
annual reports, Form 10-Ks, and quarterly statements, as well as direct
interviews with company management.

TEMPORARY DEFENSIVE STRATEGIES. At times, the Fund's investment adviser or its
portfolio manager may judge that market conditions make pursuing a Fund's basic
investment strategy inconsistent with the best interests of its shareholders. At
such times, the Fund's investment adviser or portfolio manager may temporarily
use alternative strategies primarily designed to reduce fluctuations in the
values of the Fund's assets. In implementing these "defensive" strategies, a
Fund may invest in U.S. Government securities, other high-quality debt
instruments, and other securities the Fund's investment adviser or portfolio
manager believes to be consistent with the Fund's best interests. Such action
may help the Fund minimize or avoid losses during adverse market, economic or
political conditions. If such a temporary "defensive" strategy is implemented, a
Fund may not achieve its investment objective. For example, should the market
advance during this period, the Fund may not participate as much as it would
have if it had been more fully invested.

NON-DIVERSIFICATION. Under the Investment Company Act, all mutual funds must
elect to be "diversified" or "non-diversified." As non-diversified mutual funds,
the Funds each may invest half of its total assets in two or more securities,
while the other half is spread out among investments not exceeding 5% of the
Fund's total assets at the time of purchase. As a result, each Fund has the
ability to take larger positions in a smaller number of securities than
diversified mutual funds. These limitations do not apply to U.S. Government
securities.

INVESTMENTS COMMON TO ALL FUNDS

EQUITY SECURITIES. The equity securities in which the Funds may invest include
common stock, preferred stock, convertible preferred stock, warrants and
securities purchased on a when-issued basis. The securities selected will
typically be traded on a national or regional securities exchange, the NASDAQ
System or over-the-counter, and may include securities of both large (over $1
billion capitalized) companies as well as smaller (less than $1 billion
capitalized) companies. Each of the Funds also may hold a portion of its assets
in cash and certain fixed income, debt securities and money market interests.

FIXED INCOME, DEBT AND OTHER DEBT SECURITIES. Each Fund may invest in U.S.
government and corporate notes, bonds and other debt securities and money market
instruments from time to time, if the Fund's Adviser believes investing in such
securities might help achieve the Fund's objective. The Funds may invest in debt
securities to the extent consistent with its investment policies. However, the
respective investment adviser and portfolio manager of The ChangeWave Fund and
The Medical Specialists Fund expect that under normal circumstances those Funds
would not likely invest a substantial portion of their assets in debt
securities. The Funds are limited to investing up to 35% of their total assets,
except that The Technology Plus Fund may invest as necessary to collateralize or
"cover" its short selling positions, which may be up to 40% of its total assets.
The Funds will invest only in securities rated "investment grade" or considered
by the investment adviser to be of comparable quality. Investment grade
securities are rated Baa or higher by Moody's Investors Service, Inc. or BBB or
higher by Standard & Poor's. Securities rated Baa or BBB lack outstanding
investment characteristics, have speculative characteristics, and are subject to
greater credit and market risks than higher-rated securities.

RISKS COMMON TO ALL FUNDS

STOCK MARKET RISKS. Each Fund invests primarily in equity securities
(principally common stocks), which by definition entail risk of loss of capital.
Investments in equity securities are subject to inherent market risks and
fluctuation in value due to earnings, economic conditions and other factors
beyond the control of the Fund, the Fund's investment adviser or its portfolio
manager. Securities in a Fund's portfolio may not increase as much as the market
as a whole and some undervalued securities may continue to be undervalued for
long periods of time. Some securities may be inactively traded, and thus may not
be readily bought or sold. Although profits in some of a Fund's holdings may be
realized quickly, it is not expected that most investments will appreciate
rapidly.

NON-DIVERSIFIED INVESTMENT COMPANIES RISKS. The Funds are all "non-diversified"
mutual funds under the Investment Company Act and may invest their assets in a
more limited number of issuers than may other mutual funds. Under the Internal
Revenue Code, an investment company, including a non-diversified investment
company, generally may not invest more than 25% of its assets in the securities
of any one issuer other than U.S. Government securities and other securities of
certain other investment companies and, with respect to 50% of its total assets,
a Fund may not invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government securities and securities of certain other
investment companies). Thus, each Fund may invest up to 25% of its total assets
in the securities of any two issuers. This practice involves an increased risk
of loss to a Fund if the market value of a security should decline or its issuer
were otherwise not to meet its obligations.

SMALL AND MEDIUM-SIZED COMPANIES RISKS. Each of the Funds may, from time to
time, invest a substantial portion of its assets in companies with small or
medium-sized capitalization. Small or medium-sized capitalization companies
often involve higher risks because they lack the management experience,
financial resources, product diversification and competitive strengths of larger
corporations. In addition, such companies may have been recently organized, and
have little or no track record or success. Also, less publicly available
information about the issuers of these securities or less market interest in
such securities may be available than in the case of larger companies, and it
may take a longer period of time for the prices of such securities to reflect
the full value of their issuers' underlying earnings potential or assets. In
many instances the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of small capitalization companies may be
subject to wider price fluctuations than the fluctuations for larger
capitalization companies. When making large sales of securities having small
trading volumes, the Fund may have to sell portfolio holdings at discounts from
quoted prices or may have to make a series of small sales over an extended
period of time.

PORTFOLIO TURNOVER RISKS. A change in the securities held by a Fund is known as
"portfolio turnover." The length of time a Fund has held a particular security
is not generally a consideration in investment decisions. However, the
investment policies of a Fund may lead to frequent changes in the Fund's
investments, particularly in periods of volatile market movements. In addition,
the Fund's investment adviser or its portfolio manager also may engage in active
trading of its portfolio securities to achieve its investment goals. Each Fund
may purchase securities in anticipation of relatively short-term price gains.
Short-term transactions may also result from liquidity needs, securities having
reached a price or yield objective, changes in interest rates, or by reason of
economic or other developments not foreseen at the time of the investment
decision. The Funds may also sell one security and simultaneously purchase the
same or comparable security to take advantage of short-term differentials in
securities prices. These practices could result in the Fund experiencing a high
turnover rate (100% or more) and could negatively affect a Fund's performance.
Portfolio turnover generally involves some expense to a Fund, including
brokerage commissions or dealer mark-ups and other transaction costs on the sale
of securities and reinvestment in other securities. Such sales may result in
realization of taxable capital gains including short-term capital gains that are
generally taxed to shareholders at ordinary income tax rates.

MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
INVESTMENT ADVISERS

MARKETOCRACY CAPITAL MANAGEMENT LLC. The Trust retains Marketocracy Capital
Management LLC ("MCM"), to manage the investments of The ChangeWave Fund and The
Technology Plus Fund. MCM is located at 881 Fremont Street, Suite B2, Los Altos,
California 94024. MCM has no other assets under management besides The
ChangeWave Fund and The Technology Plus Fund. MCM uses ChangeWave Capital
Management, LLC ("CWCM") as a sub-adviser to The ChangeWave Fund, and Skye
Investment Advisors LLC ("SIA") as a sub-adviser to The Technology Plus Fund.

INGENUITY CAPITAL MANAGEMENT LLC. The Trust retains Ingenuity Capital Management
LLC ("ICM") to manage the investments of The Medical Specialists Fund. ICM is
located at 26888 Almaden Court, Los Altos, California, 94022. ICM was the
investment adviser of the Fund while it was still The Firsthand Medical
Specialists Fund. (The Medical Specialists Fund commenced the public offering of
its shares on December 10, 1997, as "The Firsthand Medical Specialists Fund," a
series of The Firsthand Funds, a Delaware business trust. On March 5, 2000,
shareholders of The Firsthand Medical Specialists Fund approved reorganizing the
Fund into The Ingenuity Medical Specialists Fund, now called The Marketocracy
Medical Specialists Fund, a series of the Trust. The reorganization was
effective on March 15, 2000.) ICM has no other assets under management besides
The Medical Specialists Fund.

PORTFOLIO MANAGERS

KENDRICK W. KAM is the portfolio manager of The Medical Specialists Fund and has
served as portfolio manager of the Fund ever since its inception as a series of
Firsthand Funds. Mr. Kam is the President of Marketocracy Capital Management LLC
("MCM") since its formation in June 2000 and the President of Ingenuity Capital
Management LLC ("ICM") since its formation in 1999. From 1994 until 1999, Mr.
Kam served as a portfolio manager for the Firsthand Funds, which were all
technology and medical related mutual funds, and was President and co-founder of
Interactive Research Advisers, Inc., the investment adviser to Firsthand Funds.
Prior to 1994, Mr. Kam was co-founder and Vice President of Marketing and
Finance for Novoste Puerto Rico, Inc., a medical device company headquartered in
Aguadilla, Puerto Rico. Mr. Kam holds a Bachelor of Science Degree in Finance
from Santa Clara University and a Masters of Business Administration in
Marketing from Stanford University.

TOBIN S. SMITH is the portfolio manager for The ChangeWave Fund and has served
as portfolio manager of the Fund ever since its inception. Mr. Smith has been
Chairman and Chief Investment Officer of CWCM since August 2000. From October
2000 to the present, Mr. Smith, in addition to his duties at CWCM and its
affiliates, has served as an independent consultant to Phillips International,
an advisory and direct research publishing company, for whom Mr. Smith served as
Vice President from 1995 to September 2000. From August 1999 to March 2000, Mr.
Smith served as portfolio manager of ChangeWave Capital Partners, a private
hedge fund that used many of the same investment strategies used by the
ChangeWave Fund. From November 2000 to present, Mr. Smith also serves as General
Partner and Portfolio Manager of ChangeWave Capital Partners L.P., a private
hedge fund utilizing many of the same strategies used by the ChangeWave Fund.
Mr. Smith also authored CHANGEWAVE INVESTING, a book published in June 2000 and
listed as a New York Times bestseller. Mr. Smith also appears frequently on
television and radio programs regarding various investment topics. Mr. Smith
attended California State Long Beach majoring in Finance and Marketing
Management.

PAUL L. MCENTIRE, is the portfolio manager for The Technology Plus Fund and has
served as portfolio manager of the Fund ever since its inception. Mr. McEntire
has been Chairman and Managing Member of SIA since 1996. From 1999 to the
present, Mr. McEntire has served as portfolio manager for the Bearguard Fund, a
mutual fund whose principal investment strategy is short selling common stocks.
From 1989 to 1996, Mr. McEntire served as Chairman and chief executive officer
of Skye Investments, Inc., the predecessor of SIA ("SII"). From 1994 to 1997,
Mr. McEntire served as a broker with Brookstreet Securities Corporation in
Irvine, California. From 1993 to 1994, Mr. McEntire served as a broker with
PaineWebber, Inc. in Menlo Park, California. Mr. McEntire graduated Phi Beta
Kappa from Stanford University in 1965 with a Bachelor of Science degree in
Mathematics and received a Master of Science in Mathematics from the State
University of New York at Buffalo in 1972 and received a PhD in
Engineering-Economic Systems from Stanford University in 1982.

FEES
The Funds' investment adviser, MCM or ICM, as the case may be, receives an
investment advisory and management fee from the Fund at the annual rate of 1.50%
of the average daily net assets of the Fund. Each Fund's Investment Advisory and
Management Agreement also requires the Fund's investment adviser to waive its
management fees and, if necessary, reimburse expenses of a Fund to the extent
necessary to limit such Fund's total operating expenses to 1.95% of its average
net assets up to $200 million, 1.90% of such assets from $200 million to $500
million, 1.85% of such assets from $500 million to $1 billion, and 1.80% of such
assets in excess of $1 billion. For The Medical Specialists Fund's fiscal year
(six months) ended June 30, 1999, ICM received aggregate management fees of
1.50% of the Fund's average daily net assets for such fiscal year.

FUND ADMINISTRATION, TRANSFER AGENT, AND CUSTODY SERVICES
As fund administrators and not as investment advisers, Marketocracy Capital
Management LLC and Ingenuity Capital Management LLC, provide services to The
ChangeWave Fund and The Technology Plus Fund, and to The Medical Specialists
Fund, respectively. Firstar Mutual Fund Services, LLC provides transfer agent
services to each Fund and is located in Milwaukee, Wisconsin. Firstar Bank,
N.A., serves as custodian for each Fund.

DISTRIBUTOR
Rafferty Capital Markets, Inc. serves as principal underwriter for each Fund and
as such, is the exclusive agent for the distribution of shares of such Fund.

HOW TO PURCHASE SHARES
--------------------------------------------------------------------------------
OPENING AN ACCOUNT - $10,000 MINIMUM
You may open an account directly through the Funds' Transfer Agent or through a
brokerage firm or financial institution that has agreed to sell the Funds'
shares. An account application is included with this prospectus.

Your initial investment in the Fund ordinarily must be at least $10,000. Lower
minimums are available if you are purchasing shares of the Fund through certain
brokerage firms. If you are investing for an IRA, the minimum initial investment
is $2,000.

ADDITIONAL INVESTMENTS - $50 MINIMUM
You may purchase and add shares to your account through the Funds' Transfer
Agent or through a brokerage firm or financial institution that has agreed to
sell the Funds' shares. The minimum additional investment is $50. Each
additional purchase request must contain the account name and number to permit
proper crediting.

PURCHASING SHARES THROUGH YOUR BROKER
Any order placed with a brokerage firm is treated as if it were placed directly
with the Trust. Your shares will be held in a pooled account in the broker's
name, and the broker will maintain your individual ownership information. In
addition, your brokerage firm may charge you a fee for handling your order. Your
brokerage firm is responsible for processing your order correctly and promptly,
keeping you advised of the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Trust's prospectus.
Purchase orders given to such agents must be received by the Transfer Agent
prior to 4:00 p.m., Eastern time, on any business day to be confirmed at the net
asset value determined as of the close of the regular session of trading on the
New York Stock Exchange on that day. It is the responsibility of agents to
transmit properly completed orders promptly. Agents may charge a fee (separately
negotiated with their customer) for effecting purchase orders.

PURCHASING SHARES BY MAIL
You may also open an account and make an initial investment in the Funds by
sending a check and a completed account application form to the addresses below.
Checks should be made payable to "MARKETOCRACY FUNDS." Third party checks will
not be accepted.

BY REGULAR MAIL BY OVERNIGHT MAIL
Marketocracy Funds Marketocracy Funds
Firstar Mutual Fund Services, LLC Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street
Milwaukee, Wisconsin 53201-0701 Milwaukee, Wisconsin 53202

NOTE: THE FUND DOES NOT CONSIDER THE U.S. POSTAL SERVICE OR OTHER INDEPENDENT
DELIVERY SERVICES TO BE ITS AGENTS.

PURCHASING SHARES BY WIRE
Provided the Trust has received a completed account application form, you may
also purchase shares of the Funds by bank wire. Please telephone the Transfer
Agent (Nationwide toll-free 1-888-884-8482) for instructions. You should be
prepared to give the Fund name, the name in which the account is to be
established, the address, telephone number and taxpayer identification number
for the account, and the name of the bank that will wire the money. Your
investment will be made at the next determined net asset value after your wire
is received together with the account information indicated above. If the
Transfer Agent does not timely receive and complete account information, there
may be a delay in the investment of your money and any accrual of dividends. To
make your initial wire purchase, you must mail a completed account application
to the Transfer Agent. Your bank may impose a charge for sending your wire.
There is presently no fee for receipt of wired funds, but the Transfer Agent
reserves the right to charge shareholders for this service upon 30 days prior
notice to shareholders. You may use the following wire instructions:

Firstar Bank, N.A.
Milwaukee, WI 53202
ABA #: 042000013
Credit: Firstar Mutual Fund Services, LLC
Account #: 112-952-137
Further Credit:Marketocracy Funds, NAME OF FUND
(name/title on the account & account #)

AUTOMATIC INVESTMENT PLAN
By completing the Automatic Investment Plan section of the account application,
you may make automatic monthly investments in the Funds from your bank, savings
and loan or other depository institution account. The minimum investment must be
$50 under the plan. The Transfer Agent pays the costs associated with these
transfers, but reserves the right, upon 30 days written notice, to make
reasonable charges for this service. Your depository institution may impose its
own charge for debiting your account, which would reduce your return from an
investment in the Funds. You may change the amount of the investment or
discontinue the plan at any time by writing to the Transfer Agent.

WHEN PURCHASE ORDERS ARE RECEIVED
Shares of the Funds are sold on a continuous basis at the net asset value next
determined after the Trust or an agent has received your purchase order.
Purchase orders received by the Transfer Agent prior to 4:00 p.m., Eastern time,
on any business day are confirmed at the net asset value determined as of the
close of the regular session of trading on the New York Stock Exchange on that
day.

The Transfer Agent (or your broker) mails you confirmations of all purchases or
redemptions of Fund shares. Certificates representing shares are not issued. The
Trust reserves the right to limit the amount of investments and to refuse to
sell to any person. If an order to purchase shares is cancelled because your
check does not clear, you will be responsible for any resulting losses or fees
incurred by the Trust or the Transfer Agent in the transaction.

HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
You may redeem shares of the Funds on any day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
below. Payment is normally made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Funds by certified check or wire. If you would like your proceeds to go
somewhere other than your home address or bank address of record, you may send a
letter of instruction signed by all owners of the account. The letter will need
to have all signatures guaranteed by an eligible guarantor institution.

REDEEMING BY TELEPHONE
You may redeem shares having a value of less than $50,000 by telephone. The
proceeds will be sent by mail to the address designated on your account or wired
directly to your existing account in any commercial bank or brokerage firm in
the United States as designated on your application. To redeem by telephone,
call the Transfer Agent (nationwide toll-free 1-888-884-8482). The redemption
proceeds will normally be sent by mail or by wire within three business days
after receipt of your telephone instructions. IRA accounts are not redeemable by
telephone.

The telephone redemption privilege is automatically available to all new
accounts (except for IRAs). If you do not want the telephone redemption
privilege, you must indicate this in the appropriate area on your account
application or you must write to the Transfer Agent and instruct them to remove
this privilege from your account.

You may change the bank or brokerage account which you have designated at any
time by writing to the Transfer Agent with your signature guaranteed by any
eligible guarantor institution (including banks, brokers and dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations) or by completing a supplemental
telephone redemption authorization form. Contact the Transfer Agent to obtain
this form. Further documentation will be required to change the designated
account if shares are held by a corporation, fiduciary or other organization.

The Transfer Agent reserves the right to suspend the telephone redemption
privilege with respect to any account if the name(s) or the address on the
account has been changed within the previous 30 days.

Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.

REDEEMING BY MAIL
You may redeem any number of shares from your account by sending a written
request to the Transfer Agent. The request must state the number of shares or
the dollar amount to be redeemed and your account number. The request must be
signed exactly as your name appears on the Trust's account records. If the
shares to be redeemed have a value of $50,000 or more, your signature must be
guaranteed by any of the eligible guarantor institutions outlined above. If the
name(s) or the address on your account has been changed within 30 days of your
redemption request, you will be required to request the redemption in writing
with your signature guaranteed, regardless of the value of the shares being
redeemed. Written redemption requests may also direct that the proceeds be
deposited directly in a domestic bank or brokerage account designated on your
account application for telephone redemptions. Proceeds of redemptions requested
by mail are normally mailed within three business days following receipt of
instructions in proper form.

REDEEMING THROUGH BROKER-DEALERS
You may also redeem shares of the Fund by placing a wire redemption request
through a securities broker or dealer. Unaffiliated broker-dealers may charge
you a fee for this service. You will receive the net asset value per share next
determined after receipt by the Trust or its agent of your wire redemption
request. It is the responsibility of broker-dealers to promptly transmit wire
redemption orders.

ADDITIONAL REDEMPTION INFORMATION
If your instructions request a redemption by wire, the proceeds will be wired
directly to your existing account in any commercial bank or brokerage firm in
the United States as designated on your application and you will be charged a
$12 processing fee by the Fund's Transfer Agent. The Trust reserves the right,
upon 30 days written notice, to change the processing fee. All charges will be
deducted from your account by redeeming shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.

Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.

At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization.

The Trust reserves the right to require you to close your account, other than an
IRA account, if at any time the value of your shares is less than $10,000 (based
on actual amounts invested, unaffected by market fluctuations), or such other
minimum amount as the Trust may determine from time to time. After notification
to you of the Trust's intention to close your account, you will be given 60 days
to increase the value of your account to the minimum amount.

The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the Fund
may make payment for shares redeemed in portfolio securities of the Funds taken
at current value. If you are an IRA shareholder, you must indicate on your
redemption request whether or not to withhold federal income tax. Requests that
do not indicate a preference will be subject to withholding.

EXCHANGING SHARES
--------------------------------------------------------------------------------

You may exchange shares between one Fund and another. Exercising the exchange
privilege is really two transactions: a sale of shares in one Fund and the
purchase of shares in another. The same policies that apply to purchases and
sales apply to exchanges, including minimum investment amounts. Exchanges also
have the same tax consequence as ordinary sales and purchases and you could
realize short or long-term capital gains or losses. Generally, exchanges may
only be made between identically registered accounts unless you send written
instructions with a signature guarantee. The Transfer Agent charges a $5.00 fee
for each exchange transaction executed via the telephone.

SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
Contact the Transfer Agent (nationwide toll-free 1-888-884-8482) for additional
information about the shareholder services described below.

RETIREMENT PLANS
You may purchase shares of the Funds for your individual retirement plans.
Please call the Transfer Agent at the above number for the most current listing
and appropriate disclosure documentation on how to open a retirement account.

SHAREHOLDER REPORTS AND CONFIRMATIONS
As a shareholder, you will be provided annual and semi-annual reports showing
the Funds' portfolio investments and financial information. Account and tax
statements will be mailed to you on an annual basis. You will also receive
confirmations of your purchases and redemptions of Fund shares.

DIVIDENDS AND DISTRIBUTIONS
--------------------------------------------------------------------------------
The Funds expect to distribute substantially all of its net investment income
and net realized gains, if any, at least annually. Unless you provide a written
request to receive payments in cash, your dividends and distributions will
automatically be reinvested in additional shares of the Funds. You may indicate
on your application whether or not you wish to have your dividends distributed
in cash payments. All distributions will be based on the net asset value in
effect on the payable date.

If you elect to receive dividends in cash and the U.S. Postal Service cannot
deliver your checks or if your checks remain uncashed for six months, your
dividends may be reinvested in your account at the then-current net asset value.
All future distributions will automatically be reinvested in shares of the Fund.
No interest will accrue on amounts represented by uncashed distribution checks.

TAXES
-------------------------------------------------------------------------------
The Funds intend to continue to qualify and to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code by annually
distributing substantially all of its net investment company taxable income, net
tax-exempt income and net capital gains in dividends to its shareholders and by
satisfying certain other requirements related to the sources of its income and
the diversification of its assets. By so qualifying, the Funds will not be
subject to federal income tax or excise tax on that part of its investment
company taxable income and net realized short-term and long-term capital gains
which it distributes to its shareholders in accordance with the Internal Revenue
Code's timing requirements.

Dividends and distributions paid to shareholders (whether received in cash or
reinvested in additional shares) are generally subject to federal income tax and
may be subject to state and local income tax. Dividends from net investment
income and distributions from any excess of net realized short-term capital
gains over net realized capital losses are taxable to shareholders (other than
tax-exempt entities that have not borrowed to purchase or carry their shares of
the Funds) as ordinary income.

Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) by a Fund to its shareholders are taxable to
you as capital gains, without regard to the length of time you have held your
Fund shares. Capital gains distributions may be taxable at different rates
depending on the length of time a Fund holds its assets. Redemptions of shares
of the Funds are taxable events on which you may realize a gain or loss.

The Trust will mail a statement to you annually indicating the amount and
federal income tax status of all distributions made during the year. The Fund's
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.

CALCULATION OF SHARE PRICE
--------------------------------------------------------------------------------
The share price (net asset value) of the shares of the Funds is determined as of
the close of the regular session of trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time) on each day the New York Stock Exchange is
open for business and may also be determined on any other day when there is a
purchases or redemption of the shares of the Funds. The net asset value per
share of the Funds is calculated by dividing the sum of the value of the
securities held by a Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the particular Fund, rounded to the nearest cent. The price at which a
purchase or redemption of Fund shares is effected is based on the next
calculation of net asset value after the order is placed.

Portfolio securities are valued as follows:

(1) securities that are traded on stock exchanges or are quoted by NASDAQ are
valued at the last reported sale price as of the close of the regular
session of trading on the New York Stock Exchange on the day the securities
are being valued, or, if not traded on a particular day, at the most recent
bid price,

(2) securities traded in the over-the-counter market, and which are not quoted
by NASDAQ, are valued at the last sale price (or, if the last sale price is
not readily available, at the most recent bid price as quoted by brokers
that make markets in the securities) as of the close of the regular session
of trading on the New York Stock Exchange on the day the securities are
being valued,

(3) securities that are traded both in the over-the-counter market and on a
stock exchange are valued according to the broadest and most representative
market, and

(4) securities (and other assets) for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under
the general supervision of the Board of Trustees.

The net asset value per share of the Fund will fluctuate with the value of the
securities it holds.

NOTE: If the Funds have portfolio securities that are primarily listed on
foreign exchanges and trade on weekends or other days when the Funds do not
price their shares, please note that the net asset value of the Funds' shares
may change on days when shareholders will not be able to purchase or redeem the
Fund's shares.

FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights table below shows financial performance information of
The Medical Specialists Fund. The Medical Specialist Fund is a former series of
Firsthand Funds that was managed by the same investment adviser and portfolio
manager and was reorganized into the Trust on March 15, 2000. Certain
information reflects financial results for a single share of the Fund. The total
returns in the table represent the rate that you would have earned or lost on an
investment in The Medical Specialists Fund (assuming you reinvested all
dividends and distributions). This information has been audited by Tait, Weller
& Baker, whose report, along with the Fund's financial statements, are included
in the Fund's annual report, which is available upon request. There are no
financial highlights to report for The ChangeWave Fund or The Technology Plus
Fund because those Funds have recently commenced operations.

----------------------------------------------- ------------ ---------- ---------- ------------
Six Months Year Year Period
Ended Ended Ended Ended
6/30/00(D) 12/31/99 12/31/98 12/31/97(A)
----------------------------------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $14.17 $9.66 $10.12 $10.00
------------ ---------- ---------- ------------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.10) (0.06) (0.10) 0.01
Net realized and unrealized gains
(losses) on investments 2.75 5.05 (0.36) 0.11
----------- ---------- ---------- ------------
Total from investment operations 2.65 4.99 (0.46) 0.12
----------- ---------- ---------- ------------

LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- --
Distributions from net realized gains -- (0.48) -- --
------------ ---------- ---------- ------------
Total distributions -- (0.48) -- --
------------ ---------- ---------- ------------
NET ASSET VALUE AT END OF PERIOD $16.82 $14.17 $9.66 $10.12
------------ ---------- ---------- ------------
TOTAL RETURN 18.70%(B) 52.13% (4.55)% 1.20%(B)
------------ ---------- ---------- ------------
Net assets at end of period (millions) $46.9 $16.6 $4.5 $2.4
------------ ---------- ---------- ------------

Ratio of expenses to average net assets 1.95%(C) 1.77% 1.95% 1.81%(C)

Ratio of net investment income (loss) to
average net assets (1.32)%(C) (0.91)% (1.33)% 1.75%(C)
Portfolio turnover rate 19% 71% 160% 0%
----------------------------------------------- ------------ ---------- ---------- ------------
</TABLE>

(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not Annualized.
(C) Annualized.
(D) Effective March 15, 2000, the Fund's fiscal year end was changed to June 30
from December 31.

MARKETOCRACY FUNDS
881 Fremont Street, Suite B2
Los Altos, California 94024

UNDERWRITER INVESTMENT ADVISERS
Rafferty Capital Markets, Inc. Ingenuity Capital Management LLC
1311 Mamaroneck Avenue 26888 Almaden Court
White Plains, NY 10605 Los Altos, CA 94022

TRANSFER AGENT Marketocracy Capital Management LLC
Firstar Mutual Fund Services, LLC 881 Fremont Street, Suite B2
615 East Michigan Street Los Altos, California 94024
Milwaukee, WI 53202

Additional information about the Funds is included in the Statement of
Additional Information ("SAI") dated December __, 2000, which is incorporated by
reference in its entirety. Additional information about the Funds' investments
is available in the Funds' annual and semiannual reports to shareholders. In the
Funds' annual report, you will find a discussion of the market conditions and
strategies that significantly affected the Funds' performance during the last
fiscal year.

To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Funds, or to make shareholder inquiries about the Funds,
please call:

1-888-884-8482

You may review and obtain copies of Funds information (including the SAI) at the
SEC Public Reference Room in Washington, D.C. Please call 1-202-942-8090 for
information relating to the operation of the Public Reference Room. Reports and
other information about the Fund are available on the EDGAR Database on the
SEC's Internet site at http://www.sec.gov. Copies of information may be obtained
after paying a duplicating fee, by electronic request at the following E-mail
address: [email protected], or by writing to the Securities and Exchange
Commission, Public Reference Section, Washington, D.C. 20549-0102.

Investment Act No. 811-09445

MARKETOCRACY FUNDS

THE CHANGEWAVE FUND

THE MEDICAL SPECIALISTS FUND

THE TECHNOLOGY PLUS FUND

STATEMENT OF ADDITIONAL INFORMATION

December __, 2000

This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus of Marketocracy Funds (formerly "Ingenuity
Capital Trust") dated December __, 2000. A copy of the Prospectus can be
obtained by calling the Trust toll-free at 1-888-884-8482, or by writing the
Trust at 881 Fremont Street, Suite B2, Los Altos, California 94024.

The audited financial statements for the Medical Specialists Fund for the fiscal
year ended June 30, 2000 are incorporated by reference to Marketocracy Funds'
June 30, 2000 Annual Report.

TABLE OF CONTENTS

THE TRUST......................................................................3
INVESTMENTS, POLICIES AND RISKS................................................3
INVESTMENT RESTRICTIONS.......................................................21
TRUSTEES AND OFFICERS.........................................................22
INVESTMENT ADVISORY AND OTHER SERVICES........................................24
THE UNDERWRITER...............................................................27
SECURITIES TRANSACTIONS.......................................................28
PORTFOLIO TURNOVER............................................................29
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................29
TAXES.........................................................................31
HISTORICAL PERFORMANCE INFORMATION............................................33
CUSTODIAN.....................................................................35
LEGAL COUNSEL AND AUDITORS....................................................35
FIRSTAR MUTUAL FUND SERVICES, LLC.............................................35
FINANCIAL STATEMENTS..........................................................35
APPENDIX A....................................................................36

THE TRUST
-------------------------------------------------------------------------------

Marketocracy Funds (the "Trust"), an open-end management investment
company, was organized as a Delaware business trust on July 20, 1999. The Trust
currently offers three series of shares to investors, The Marketocracy
CHANGEWAVE FUND, The Marketocracy MEDICAL SPECIALISTS FUND and The Marketocracy
TECHNOLOGY PLUS Fund. Each Fund is a non-diversified series and has its own
investment objective and policies. The Trust may start another series and offer
shares of a new fund under the Trust at any time.

Shares of each Fund have equal voting rights and liquidation rights,
and are voted in the aggregate and not by Fund except in matters where a
separate vote is required by the Investment Company Act of 1940 (the "1940 Act")
or when the matter affects only the interest of a particular Fund. When matters
are submitted to shareholders for a vote, each shareholder is entitled to one
vote for each full share owned and fractional votes for fractional shares owned.
The Trust does not normally hold annual meetings of shareholders. The Trustees
shall promptly call and give notice of a meeting of shareholders for the purpose
of voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the 1940 Act in order to
facilitate communications among shareholders.

Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interests in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees allocate such expenses on the basis of relative net
assets or number of shareholders. No shareholder is liable to further calls or
to assessment by the Trust without his or her express consent.

INVESTMENTS, POLICIES AND RISKS
--------------------------------------------------------------------------------

A more detailed discussion of some of the terms used and investment
policies described in the Prospectus appears below:

MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
the Funds) means the lesser of (1) two-thirds or more of the outstanding shares
of the Trust (or that Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or that Fund) are present or
represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or that Fund).

THE FOLLOWING INVESTMENTS, POLICIES AND RISKS ARE COMMON TO ALL OF THE
FUNDS (EXCEPT AS OTHERWISE EXPRESSLY NOTED):

DEBT SECURITIES. Each of the Funds may invest in debt obligations of
corporate issuers, the U.S. Government, states, municipalities or state or
municipal government agencies that in the opinion of the Fund's portfolio
manager offer long-term capital appreciation possibilities because of the timing
of such investments. Each of the Fund intends that no more than 35% of its total
assets will be comprised of such debt securities. HOWEVER, PLEASE SEE ALSO "DEBT
SECURITIES" BELOW REGARDING INVESTMENTS, POLICIES AND RISKS SPECIFIC TO THE
TECHNOLOGY PLUS FUND.

Investments in such debt obligations may result in long-term capital
appreciation because the value of debt obligations varies inversely with
prevailing interest rates. Thus, an investment in debt obligations that is sold
at a time when prevailing interest rates are lower than they were at the time of
investment will typically result in capital appreciation. However, the reverse
is also true, so that if an investment in debt obligations is sold at a time
when prevailing interest rates are higher than they were at the time of
investment, a capital loss will typically be realized. Accordingly, if each of
the Funds invests in the debt obligations described above, such investments will
generally be made when that Fund's portfolio manager expects that prevailing
interest rates will be falling, and will generally be sold when the Fund's
portfolio manager expects interest rates to rise.

Each Fund's investments in this area will consist solely of investment
grade securities (rated BBB or higher by Standard & Poor's Ratings Group or Baa
or higher by Moody's Investors Service, Inc., or unrated securities determined
by the Fund's portfolio manager to be of comparable quality). While securities
in these categories are generally accepted as being of investment grade,
securities rated BBB or Baa have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to pay principal and interest than is the case with higher grade
securities. In the event a security's rating is reduced below the Fund's minimum
requirements, the Fund will sell the security, subject to market conditions and
the Fund's portfolio manager's assessment of the most opportune time for sale.

To the extent each Fund invests in bonds, it will be exposed to the
risks of bond investing. A bond's market value is affected significantly by
changes in interest rates. Generally, when interest rates rise, the bond's
market value declines and when interest rates decline, its market value rises.
Also, the longer a bond's maturity, the greater the risk and the higher its
yield. Conversely, the shorter a bond's maturity, the lower the risk and the
lower its yield. A bond's value can also be affected by changes in the bond's
credit quality rating or its issuer's financial condition. Because bond values
fluctuate, the Fund's share price fluctuates.

COMMERCIAL PAPER. Commercial paper consists of short-term (usually
from one to 270 days) unsecured promissory notes issued by corporations in order
to finance their current operations. Each Fund will only invest in commercial
paper rated A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") or
Prime-1 by Moody's Investors Service, Inc. ("Moody's") or unrated paper of
issuers who have outstanding unsecured debt rated AA or better by Standard &
Poor's or Aa or better by Moody's. Certain notes may have floating or variable
rates. Variable and floating rate notes with a demand notice period exceeding
seven days will be subject to the Fund's policy with respect to illiquid
investments unless, in the judgment of the Fund's portfolio manager, such note
is liquid.

The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are
the following: valuation of the management of the issuer; economic evaluation of
the issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the issuer's parent company and the relationships which exist with
the issuer; and recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. These factors are all considered in determining
whether the commercial paper is rated Prime-1. Issuers of commercial paper
rated A (highest quality) by Standard & Poor's have the following
characteristics: liquidity ratios are adequate to meet cash requirements;
long-term senior debt is rated "A" or better, although in some cases "BBB"
credits may be allowed; the issuer has access to at least two additional
channels of borrowing; basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances; typically, the issuer's industry is
well established and the issuer has a strong position within the industry; and
the reliability and quality of management are unquestioned. The relative
strength or weakness of the above factors determines whether the issuer's
commercial paper is rated A-1.

BANK DEBT INSTRUMENTS. Bank debt instruments in which each Fund may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or by banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from 14 days to one year) at a stated
or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it
by a customer, which instruments reflect the obligation both of the bank and of
the drawer to pay the face amount of the instrument upon maturity. Time
deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. No Fund will invest
in time deposits maturing in more than seven days if, as a result thereof, more
than 15% of the value of its net assets would be invested in such securities and
other illiquid securities.

REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. No Fund will enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.

Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after a Fund's acquisition of the securities and normally would be
within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time a Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and, in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
collateral securing the seller's obligation must be of a credit quality at least
equal to a Fund's investment criteria for portfolio securities and will be held
by the Custodian or in the Federal Reserve Book Entry System.

For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from a Fund to the seller subject to the repurchase agreement and is
therefore subject to that Fund's investment restriction applicable to loans. It
is not clear whether a court would consider the securities purchased by the Fund
subject to a repurchase agreement as being owned by that Fund or as being
collateral for a loan by the Fund to the seller. In the event of the
commencement of bankruptcy or insolvency proceedings with respect to the seller
of the securities before repurchase of the security under a repurchase
agreement, the Fund may encounter delay and incur costs before being able to
sell the security. Delays may involve loss of interest or decline in price of
the security. If a court characterized the transaction as a loan and the Fund
has not perfected a security interest in the security, that Fund may be required
to return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, the Fund would be at the risk
of losing some or all of the principal and income involved in the transaction.
As with any unsecured debt obligation purchased for the Fund, the Fund's
portfolio manager seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case, the
seller. Apart from the risk of bankruptcy or insolvency proceedings, there is
also the risk that the seller may fail to repurchase the security, in which case
the Fund may incur a loss if the proceeds to the Fund of the sale of the
security to a third party are less than the repurchase price. However, if the
market value of the securities subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the security to deliver additional securities so that the market value of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that a Fund will be unsuccessful in seeking to
enforce the seller's contractual obligation to deliver additional securities.

MONEY MARKET FUNDS. Each Fund may under certain circumstances invest a
portion of its assets in money market investment companies. The 1940 Act
prohibits a Fund from investing more than 5% of the value of its total assets in
any one investment company, or more than 10% of the value of its total assets in
investment companies in the aggregate, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
Investment in a money market investment company involves payment of such
company's pro rata share of advisory and administrative fees charged by such
company, in addition to those paid by a Fund.

WARRANTS. Each Fund may invest a portion of its assets in warrants,
but only to the extent that such investments do not exceed 5% of that Fund's net
assets at the time of purchase. A warrant gives the holder a right to purchase
at any time during a specified period a predetermined number of shares of common
stock at a fixed price. Unlike convertible debt securities or preferred stock,
warrants do not pay a fixed coupon or dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of the Fund's entire investment therein).

INITIAL PUBLIC OFFERINGS. Each Fund may purchase shares in initial
public offerings (IPOs). Because IPO shares frequently are volatile in price,
a Fund may hold IPO shares for a very short period of time. This may increase
the turnover of each Fund's portfolio and may lead to increased expenses to a
Fund, such as commissions and transaction costs. By selling shares, a Fund may
realize taxable capital gains that it will subsequently distribute to
shareholders. Investing in IPOs have added risks because their shares are
frequently volatile in price. As a result, their performance can be more
volatile and they face greater risk of business failure, which could increase
the volatility of a Fund's portfolio.

FOREIGN SECURITIES. Subject to the Fund's investment policies and
quality standards, each Fund may invest in the securities of foreign issuers
listed on foreign securities exchanges or over-the-counter markets, or which are
represented by American Depository Receipts ("ADRs") and listed on domestic
securities exchange or traded in the United States on over-the-counter markets.

ADRs are receipts typically issued by a U.S. Bank or trust company
evidencing ownership of the underlying securities. For purposes of the Fund's
investment strategies, ADRs are deemed to have the same classification as the
underlying securities they represent. Generally, ADRs, in registered form, are
denominated in U.S. dollars and are designed for use in the U.S. securities
markets. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Although
denominated in U.S. dollars, the market price of ADRs may be affected by
currency fluctuations in the currency of the underlying security.

ADR facilities may be established as either "unsponsored" or
"sponsored." A sponsored depositary is required to provide shareholder
information under its contractual arrangements with the issuer, including
reliable financial statements. Under the terms of most sponsored arrangements,
depositories agree to distribute notices of shareholder meetings and voting
instructions, and to provide shareholder communications and other information to
the ADR holders at the request of the issuer of the deposited securities.

Because each Fund may invest in foreign securities, an investment in
the Funds involves risks that are different in some respects from an investment
in a fund that invests only in securities of U.S. domestic issuers. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations. There may be less publicly available
information about a foreign company than about a U.S. company, and foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
There may be less governmental supervision of securities markets, brokers and
issuers of securities. Securities of some foreign companies are less liquid or
more volatile than securities of U.S. companies, and foreign brokerage
commissions and custodian fees are generally higher than in the United States.
Settlement practices may include delays and may differ from those customary in
United States markets. Investments in foreign securities may also be subject to
other risks different from those affecting U.S. investments, including local
political or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.

NON-DIVERSIFICATION OF INVESTMENTS. Each Fund is operated as a
"non-diversified" portfolio. As a non-diversified investment company, each Fund
may be subject to greater risks than diversified companies because of the
possible fluctuation in the values of securities of fewer issuers. However, at
the close of each fiscal quarter at least 50% of the value of each Fund's total
assets will be represented by one or more of the following: (i) cash and cash
items, including receivables; (ii) U.S. Government securities; (iii) securities
of other regulated investment companies; and (iv) securities (other than U.S.
Government securities and securities of other regulated investment companies)
of any one or more issuers which meet the following limitations: (a) no Fund
will invest more than 5% of its total assets in the securities of any such
issuer and (b) the entire amount of the securities of such issuer owned by no
Fund will represent more than 10% of the outstanding voting securities of such
issuer. Additionally, not more than 25% of the value of a Fund's total assets
may be invested in the securities of any one issuer.

LOANS OF PORTFOLIO SECURITIES. Each Fund may make short-term loans of
its portfolio securities to banks, brokers and dealers. Lending portfolio
securities exposes a Fund to the risk that the borrower may fail to return the
loaned securities or may not be able to provide additional collateral or that
the Fund may experience delays in recovery of the loaned securities or loss of
rights in the collateral if the borrower fails financially. To minimize these
risks, the borrower must agree to maintain collateral marked to market daily, in
the form of cash and/or U.S. Government obligations, with the Funds' Custodian
in an amount at least equal to the market value of the loaned securities. Each
Fund will limit the amount of its loans of its portfolio securities to no more
than 30% of its total assets.

Under applicable regulatory requirements (which are subject to change),
the loan collateral must, on each business day, at least equal the value of the
loaned securities. To be acceptable as collateral, letters of credit must
obligate a bank to pay amounts demanded by each Fund if the demand meets the
terms of the letter. Such terms and the issuing bank must be satisfactory to the
Fund. Each Fund receives amounts equal to the dividends or interest on loaned
securities and also receive one or more of (a) negotiated loan fees, (b)
interest on securities used as collateral, or (c) interest on short-term debt
securities purchased with such collateral; either type of interest may be shared
with the borrower. Each Fund may also pay fees to placing brokers as well as
custodian and administrative fees in connection with loans. Fees may only be
paid to a placing broker provided that the Trustees determine that the fee paid
to the placing broker is reasonable and based solely upon services rendered,
that the Trustees separately consider the propriety of any fee shared by the
placing broker with the borrower, and that the fees are not used to compensate
the Fund's investment adviser or any affiliated person of the Trust or an
affiliated person of the Fund's investment adviser or other affiliated person.
The terms of the Fund's loans must meet applicable tests under the Internal
Revenue Code and permit the Fund to reacquire loaned securities on five days'
notice or in time to vote on any important matter.

ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933 (the "Securities
Act"), securities which are otherwise not readily marketable and securities such
as repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requirements. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public
offering of securities.

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. The Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid. No Fund will invest more than 15% of the value
of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice, non negotiable
fixed time deposits with maturates over seven days, over-the-counter options and
certain restricted securities not determined by the Trustee to be liquid.

OPTIONS.

PUT AND CALL OPTIONS. A call option gives the holder (buyer) the right
to purchase a security or futures contract at a specified price (the exercise
price) at any time until a certain date (the expiration date). A put option
gives the holder of the option the right to sell, and the writer has the
obligation to buy, the underlying security at the exercise price at any time
during the option period.

PURCHASING PUT AND CALL OPTIONS. Each Fund may purchase put and call
options to attempt to provide protection against adverse price effects from
anticipated changes in prevailing prices of securities or stock indices. The
purchase of a put option generally protects the value of portfolio holdings in a
falling market, while the purchase of a call option generally protects cash
reserves from a failure to participate in a rising market. In purchasing a call
option, a Fund would be in a position to realize a gain if, during the option
period, the price of the security or stock index increased by an amount greater
than the premium paid. The Fund would realize a loss if the price of the
security or stock index decreased or remained the same or did not increase
during the period by more than the amount of the premium. If a put or call
option purchased by a Fund were permitted to expire without being sold or
exercised, its premium would represent a realized loss to the Fund.

WRITING COVERED CALL OPTIONS. Each Fund may write covered call options
on equity securities or futures contracts to earn premium income, to assure a
definite price for a security that the Fund has considered selling, or to close
out options previously purchased. A call option is "covered" if a Fund either
owns the underlying security (or comparable securities satisfying the cover
requirements of the securities exchanges), or has the right to acquire the
underlying security through immediate conversion of securities, subject to the
call option at all times during the option period. A covered call writer is
required to deposit in escrow the underlying security in accordance with the
rules of the exchanges on which the option is traded and the appropriate
clearing agency.

WRITING COVERED PUT OPTIONS. Each Fund may also seek to earn additional
income through receipt of premiums by writing covered put options. Each Fund
may write covered put options on equity securities and futures contracts to
assure a definite price for a security if they are considering acquiring the
security at a lower price than the current market price or to close out options
previously purchased. The operation of put options in other respects is
substantially identical to that of call options. When a Fund writes a covered
put option, it maintains in a segregated account with its custodian cash or
liquid securities in an amount not less than the exercise price at all times
while the put option is outstanding.

OPTIONS RISKS. Option transactions in which each Fund may engage
involve following risks:

The imperfect correlation in price movement between an option and the
underlying financial instrument and/or the costs of implementing such an option
may limit the effectiveness of the strategy. A Fund's ability to establish and
close out options positions will be subject to the existence of a liquid
secondary market. Although each Fund generally will purchase or sell only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If an option purchased by a Fund
expires unexercised, the Fund will lose the premium it paid. In addition, a
Fund could suffer a loss if the premium paid by the Fund in a closing
transaction exceeds the premium income it received.

By writing options, each Fund forgoes the opportunity to profit from an
increase in the market price of the underlying security or stock index above the
exercise price except insofar as the premium represents such a profit.

When a Fund writes a call option, its ability to participate in the
capital appreciation of the underlying obligation is limited. The writing of
covered call options is a conservative investment technique, which the Fund's
portfolio manager believes involves relatively little risk. However, there is
no assurance that a closing transaction can be effected at a favorable price.
During the option period, the covered call writer has, in return for the premium
received, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.

Each Fund may terminate a call option that it has written before it
expires by entering into a closing purchase transaction. A Fund may enter into
closing purchase transactions in order to free itself to sell the underlying
security or to write another call on the security, realize a profit on a
previously written call option, or protect a security from being called in an
unexpected market rise. Any profits from a closing purchase transaction may be
offset by a decline in the value of the underlying security. Conversely, because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from a
closing purchase transaction is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by a Fund.

The risks involved in writing put options include the risk that the
writer of an option may be assigned an exercise at any time during the option
period, that a closing transaction cannot be effected at a favorable price and
the possibility that the price of the underlying security may fall below the
exercise price, in which case a Fund may be required to purchase the underlying
security at a higher price than the market price of the security at the time the
option is exercised. Also, there could be a decrease in the market value of the
underlying security or stock index. If this occurred, the option could be
exercised and the underlying security would then be sold to the Fund at a higher
price than its then current market value.

When writing put options, each Fund will be required to segregate cash
and/or liquid securities to meet its obligations. When writing call options,
each Fund will be required to own the underlying financial instrument (or
comparable securities satisfying the cover requirements of the securities
exchanges), or have the right to acquire the underlying financial instrument
through immediate conversion of securities, or segregate with its Custodian cash
and/or liquid securities to meet its obligations under written calls. By so
doing, a Fund's ability to meet current obligations, to honor redemptions or to
achieve its investment objective may be impaired. The staff of the Securities
and Exchange Commission has taken the position that over-the-counter options and
the assets used as "cover" for over-the-counter options are illiquid securities.

Each Fund may terminate a put option that it has written before it
expires by a closing purchase transaction. Any loss from this transaction may
be partially or entirely offset by the premium received on the terminated
option.

An exchange-listed option may be closed out only on an exchange that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If no secondary market were to
exist, it would be impossible to enter into a closing transaction to close out
an option position. As a result, a Fund may be forced to continue to hold, or
to purchase at a fixed price, a security on which it has sold an option at a
time when the Fund's portfolio manager believes it is inadvisable to do so.

Higher than anticipated trading activity or order flow or other
unforeseen events might cause The Options Clearing Corporation or an exchange to
institute special trading procedures or restrictions that might restrict the
Fund's use of options. The exchanges have established limitations on the
maximum number of calls and puts of each class that may be held or written by
an investor or group of investors acting in concert. It is possible that the
Trust and other clients of each Fund's investment adviser, any of its
sub-advisers or the Fund's portfolio manager may be considered such a group.
These position limits may restrict the Fund's ability to purchase or sell
options on particular securities.

Options that are not traded on national securities exchanges may be
closed out only with the other party to the option transaction. For that
reason, it may be more difficult to close out unlisted options than listed
options. Furthermore, unlisted options are not subject to the protection
afforded purchasers of listed options by The Options Clearing Corporation.

Government regulations also may restrict each Fund's use of options.

Other risks include disruptions in the markets for underlying
instruments could result in losses for options investors; imperfect or no
correlation between the option and the securities being hedged; the insolvency
of a broker could present risks for the broker's customers; and market imposed
restrictions may prohibit the exercise of certain options. In addition, the
option activities of a Fund may affect its portfolio turnover rate and the
amount of brokerage commissions paid by the Fund. The success of a Fund in using
the option strategies described above depends, among other things, on the Fund's
portfolio manager's ability to predict the direction and volatility of price
movements in the options, futures contracts and securities markets and the
ability of the Fund's portfolio manager to select the proper time, type and
duration of the options.

It is the present intention of each Fund's portfolio manager not to
commit greater than 30% of the Fund's net assets to option strategies.

BORROWING. The CHANGEWAVE FUND and The MEDICAL SPECIALISTS FUND each
may borrow from banks for temporary or emergency purposes in an aggregate amount
not to exceed 25% of its total assets, and The TECHNOLOGY PLUS FUND likewise may
borrow up to 331/2% of its total assets. Borrowing magnifies the potential for
gain or loss on the portfolio securities of a Fund and, therefore, if employed,
increases the possibility of fluctuation in the Fund's net asset value. This is
the speculative factor known as leverage. To reduce the risks of borrowing, The
CHANGEWAVE FUND and The MEDICAL SPECIALISTS FUND each will limit its borrowings
as described above. Neither The CHANGEWAVE FUND nor The MEDICAL SPECIALISTS
FUND purchases additional portfolio securities while its borrowings exceed 5% of
its total assets. Each Fund may pledge its assets in connection with
borrowings. PLEASE SEE "LEVERAGE" BELOW REGARDING THE TECHNOLOGY PLUS FUND'S
BORROWING TO MAKE INVESTMENTS.

The use of borrowing by a Fund involves special risk considerations
that may not be associated with other funds having similar policies. Since
substantially all of the Fund's assets fluctuate in value, whereas the interest
obligation resulting from a borrowing will be fixed by the terms of a Fund's
agreement with its lender, the asset value per share of the Fund will tend to
increase more when its portfolio securities increase in value and decrease more
when its portfolio securities decrease in value than would otherwise be the case
if the Funds did not borrow funds. In addition, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions,
each Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.

THE FOLLOWING INVESTMENTS, POLICIES AND RISKS ARE SPECIFIC TO THE
TECHNOLOGY PLUS FUND:

DEBT SECURITIES. To collateralize or "cover" its short positions
(which may be up to 40% of the Fund's total assets), the Fund will invest in a
wide variety of debt securities, including corporate debt securities (including
bonds, debentures and notes), U.S. government securities, commercial paper
(including variable amount master demand notes), and bank obligations such as
certificates of deposit, banker's acceptances and time deposits of domestic and
foreign banks, domestic savings associations and their subsidiaries and branches
(in amounts in excess of the current $100,000 per account insurance coverage
provided by the Federal Deposit Insurance Fund).

GOVERNMENT SECURITIES. U.S. government securities are issued or
guaranteed by the U.S. government or its agencies or instrumentalities. These
securities may have different levels of government backing. U.S. Treasury
obligations, such as Treasury bills, notes, and bonds are backed by the full
faith and credit of the U.S. Treasury. Some U.S. government agency securities
are also backed by the full faith and credit of the U.S. Treasury, such as
securities issued by the Government National Mortgage Association (GNMA). Other
U.S.government securities may be backed by the right of the agency to borrow
from the U.S. Treasury, such as securities issued by the Federal Home Loan Bank,
or may be backed only by the credit of the agency. The U.S. government and its
agencies and instrumentalities only guarantee the payment of principal and
interest and not the market value of the securities. The market value of U.S.
government securities will fluctuate based on interest rate changes and other
market factors.

VARIABLE- OR FLOATING-RATE SECURITIES. Variable-rate securities provide
for automatic establishment of a new interest rate at fixed intervals (e.g.,
daily, monthly, semi-annually, etc.). Floating-rate securities generally
provide for automatic adjustment of the interest rate whenever some specified
interest rate index changes. The interest rate on variable- or floating-rate
securities is ordinarily determined by reference to or is a percentage of a
bank's prime rate, the 90-day U.S. Treasury bill rate, the rate of return on
commercial paper or bank certificates of deposit, an index of short-term
interest rates or some other objective measure.

Variable- or floating-rate securities frequently include a demand
feature entitling the holder to sell the securities to the issuer at par. In
many cases, the demand feature can be exercised at any time on seven days
notice, in other cases, the demand feature is exercisable at any time on 30 days
notice or on similar notice at intervals of not more than one year. Some
securities that do not have variable or floating interest rates may be
accompanied by puts producing similar results and price characteristics.

Variable-rate demand notes include master demand notes which are
obligations that permit the Fund to invest fluctuating amounts, which may change
daily without penalty, pursuant to direct arrangements between the Fund, as
lender, and the borrower. The interest rates on these notes fluctuate from time
to time. The issuer of such obligations normally has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days
notice to the holders of such obligations. The interest rate on a floating-rate
demand obligation is based on a known lending rate, such as a bank's prime rate,
and is adjusted automatically each time such rate is adjusted. The interest
rate on a variable-rate demand obligation is adjusted automatically at specified
intervals. Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because these obligations
are direct lending arrangements between the lender and borrower, it is not
contemplated that such instruments will generally be traded. There generally is
not an established secondary market for these obligations, although they are
redeemable at face value. Accordingly, where the obligations are not secured by
letters of credit or other credit support arrangements, the Fund's right to
redeem is dependent on the ability of the borrower to pay principal and interest
on demand. Such obligations frequently are not rated by credit rating agencies
and, if not so rated, the Fund may invest in them only if the Fund's portfolio
manager determines that at the time of investment other obligations are of
comparable quality to the other obligations in which the Fund may invest.

In addition, each variable- and floating-rate obligation must meet the
credit quality requirements applicable to all the Fund's investments at the time
of purchase. When determining whether such an obligation meets the Fund's credit
quality requirements, the Fund may look to the credit quality of the financial
guarantor providing a letter of credit or other credit support arrangement.

OPTIONS. In addition to investments, policies and risks for all of the
Funds described in "Options" above, the Fund may invest as follows::

PURCHASING PUT AND CALL OPTIONS. The Fund may purchase put and call
options to attempt to enhance its return.

OPTIONS ON FOREIGN SECURITIES. The Fund may purchase and sell options
on foreign securities if its portfolio manager believes that the investment
characteristics of such options, including the risks of investing in such
options, are consistent with the Fund's investment objective. The Fund's
portfolio manager expects that risks related to such options will not differ
materially from risks related to options on U.S. securities. However, position
limits and other rules of foreign exchanges may differ from those in the U.S.
In addition, options markets in some countries, many of which are relatively
new, may be less liquid than comparable markets in the U.S.

SPECIAL EXPIRATION PRICE OPTIONS. Certain of the Fund may purchase
over-the-counter ("OTC") puts and calls with respect to specified securities
("special expiration price options") pursuant to which the Fund in effect may
create a custom index relating to a particular industry or sector that the
Fund's portfolio manager believes will increase or decrease in value generally
as a group. In exchange for a premium, the counterparty, whose performance is
guaranteed by a broker-dealer, agrees to purchase (or sell) a specified number
of shares of a particular stock at a specified price and further agrees to
cancel the option at a specified price that decreases straight line over the
term of the option. Thus, the value of the special expiration price option is
comprised of the market value of the applicable underlying security relative to
the option exercise price and the value of the remaining premium. However, if
the value of the underlying security increases (or decreases) by a
pre-negotiated amount, the special expiration price option is canceled and
becomes worthless. A portion of the dividends during the term of the option
are applied to reduce the exercise price if the options are exercised.
Brokerage commissions and other transaction costs will reduce these Fund'
profits if the special expiration price options are exercised. The Fund will
not purchase special expiration price options with respect to more than 25%
of the value of its net assets, and will limit premiums paid for such options
in accordance with applicable securities laws.

FUTURES CONTRACTS.

INDEX FUTURES CONTRACTS AND OPTIONS. The Fund may buy and sell stock
index futures contracts and related options for hedging purposes or to attempt
to increase investment return. A stock index futures contract is a contract to
buy or sell units of a stock index at a specified future date at a price agreed
upon when the contract is made. A unit is the current value of the stock index.

The following example illustrates generally the manner in which index
futures contracts operate. The Standard & Poor's 100 Stock Index (the "S&P 100
Index") is composed of 100 selected common stocks, most of which are listed on
the New York Stock Exchange. The S&P 100 Index assigns relative weightings to
the common stocks included in the Index, and the Index fluctuates with changes
in the market values of those common stocks. In the case of the S&P 100 Index,
contracts are to buy or sell 100 units. Thus, if the value of the S&P 100 Index
were $180, one contract would be worth $18,000 (100 units x $180). The stock
index futures contract specifies that no delivery of the actual stocks making up
the index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract. For example, if the Fund enters into a futures contract to buy
100 units of the S&P 100 Index at a specified future date at a contract price of
$180 and the S&P 100 Index is at $184 on that future date, the Fund will gain
$400 (100 units x gain of $4). If the Fund enters into a futures contract to
sell 100 units of the stock index at a specified future date at a contract
price of $180 and the S&P 100 Index is at $182 on that future date, the Fund
will lose $200 (100 units x loss of $2).

Positions in index futures may be closed out only on an exchange or
board of trade that provides a secondary market for such futures. In order to
hedge its investments successfully using futures contracts and related options,
the Fund must invest in futures contracts with respect to indexes or sub-indexes
the movements of which will, in its judgment, have a significant correlation
with movements in the prices of the Fund's securities.

Options on index futures contracts give the purchaser the right, in
return for the premium paid, to assume a position in an index futures contract
(a long position if the option is a call and a short position if the option is a
put) at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the holder would assume the underlying futures
position and would receive a variation margin payment of cash or securities
approximating the increase in the value of the holder's option position. If an
option is exercised on the last trading day prior to the expiration date of the
option, the settlement will be made entirely in cash based on the difference
between the exercise price of the option and the closing level of the index on
which the futures contract is based on the expiration date. Purchasers of
options who fail to exercise their options prior to the exercise date suffer a
loss of the premium paid.

As an alternative to purchasing and selling call and put options on
index futures contracts, the Fund which may purchase and sell index futures
contracts may purchase and sell call and put options on the underlying indexes
themselves to the extent that such options are traded on national securities
exchanges. Index options are similar to options on individual securities in that
the purchaser of an index option acquires the right to buy (in the case of a
call) or sell (in the case of a put), and the writer undertakes the obligation
to sell or buy (as the case may be), units of an index at a stated exercise
price during the term of the option. Instead of giving the right to take or make
actual delivery of securities, the holder of an index option has the right to
receive a cash "exercise settlement amount." This amount is equal to the amount
by which the fixed exercise price of the option exceeds (in the case of a put)
or is less than (in the case of a call) the closing value of the underlying
index on the date of the exercise, multiplied by a fixed "index multiplier."

The Fund may purchase or sell options on stock indices in order to
close out its outstanding positions in options on stock indices that it has
purchased. The Fund may also allow such options to expire unexercised.

Compared to the purchase or sale of futures contracts, the purchase of
call or put options on an index involves less potential risk to the Fund because
the maximum amount at risk is the premium paid for the options plus transactions
costs. The writing of a put or call option on an index involves risks similar to
those risks relating to the purchase or sale of index futures contracts.

MARGIN PAYMENTS. When the Fund purchases or sells a futures contract,
it is required to deposit with its custodian an amount of cash, U.S. Treasury
bills, or other permissible collateral equal to a small percentage of the amount
of the futures contract. This amount is known as "initial margin." The nature
of initial margin is different from that of margin in security transactions in
that it does not involve borrowing money to finance transactions. Rather,
initial margin is similar to a performance bond or good faith deposit that is
returned to the Fund upon termination of the contract, assuming the Fund
satisfies its contractual obligations.

Subsequent payments to and from the broker occur on a daily basis in a
process known as "marking to market." These payments are called "variation
margin" and are made as the value of the underlying futures contract fluctuates.
For example, when the Fund sells a futures contract and the price of the
underlying index rises above the delivery price, the Fund's position declines in
value. The Fund then pays the broker a variation margin payment equal to the
difference between the delivery price of the futures contract and the value of
the index underlying the futures contract. Conversely, if the price of the
underlying index falls below the delivery price of the contract, the Fund's
futures position increases in value. The broker then must make a variation
margin payment equal to the difference between the delivery price of the futures
contract and the value of the index underlying the futures contract.

When the Fund terminates a position in a futures contract, a final
determination of variation margin is made, additional cash is paid by or to the
Fund, and the Fund realizes a loss or a gain. Such closing transactions involve
additional commission costs.

SPECIAL RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS.

LIQUIDITY RISKS. Positions in futures contracts may be closed out only
on an exchange or board of trade that provides a secondary market for such
futures. Although the Fund intend to purchase or sell futures only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. If there is
not a liquid secondary market at a particular time, it may not be possible to
close a futures position at such time and, in the event of adverse price
movements, the Fund would continue to be required to make daily cash payments of
variation margin. However, in the event financial futures are used to hedge
portfolio securities, such securities will not generally be sold until the
financial futures can be terminated. In such circumstances, an increase in the
price of the portfolio securities, if any, may partially or completely offset
losses on the financial futures.

The ability to establish and close out positions in options on futures
contracts will be subject to the development and maintenance of a liquid
secondary market. It is not certain that such a market will develop. Although
the Fund generally will purchase only those options for which there appears to
be an active secondary market, there is no assurance that a liquid secondary
market on an exchange will exist for any particular option or at any particular
time. In the event no such market exists for particular options, it might not
be possible to effect closing transactions in such options, with the result that
the Fund would have to exercise the options in order to realize any profit.

HEDGING RISKS. There are several risks in connection with the use by
the Fund of futures contracts and related options as a hedging device. One risk
arises because of the imperfect correlation between movements in the prices of
the futures contracts and options and movements in the underlying securities or
index or movements in the prices of the Fund's securities that are the subject
of a hedge. The Fund's portfolio manager will, however, attempt to reduce this
risk by purchasing and selling, to the extent possible, futures contracts and
related options on securities and indexes the movements of which will, in its
judgment, correlate closely with movements in the prices of the underlying
securities or index and the Fund's portfolio securities sought to be hedged.

Successful use of futures contracts and options by the Fund for hedging
purposes is also subject to the Fund's portfolio manager's ability to predict
correctly movements in the direction of the market. It is possible that, where
the Fund has purchased puts on futures contracts to hedge its portfolio against
a decline in the market, the securities or index on which the puts are purchased
may increase in value and the value of securities held in the portfolio may
decline. If this occurred, the Fund would lose money on the puts and also
experience a decline in value in its portfolio securities. In addition, the
prices of futures, for a number of reasons, may not correlate perfectly with
movements in the underlying securities or index due to certain market
distortions. First, all participants in the futures market are subject to margin
deposit requirements. Such requirements may cause investors to close futures
contracts through offsetting transactions, which could distort the normal
relationship between the underlying security or index and futures markets.
Second, the margin requirements in the futures markets are less onerous than
margin requirements in the securities markets in general, and as a result the
futures markets may attract more speculators than the securities markets do.
Increased participation by speculators in the futures markets may also cause
temporary price distortions. Due to the possibility of price distortion, even
a correct forecast of general market trends by the Fund's portfolio manager
still may not result in a successful hedging transaction over a very short time
period.

OTHER RISKS. Fund will incur brokerage fees in connection with their
futures and options transactions. In addition, while futures contracts and
options on futures will be purchased and sold to reduce certain risks,
those transactions themselves entail certain other risks. Thus, while the Fund
may benefit from the use of futures and related options, unanticipated changes
in interest rates or stock price movements may result in a poorer overall
performance for the Fund than if it had not entered into any futures contracts
or options transactions. Moreover, in the event of an imperfect correlation
between the futures position and the portfolio position which is intended to be
protected, the desired protection may not be obtained and the Fund may be
exposed to risk of loss.

INDEXED SECURITIES. The Fund may purchase securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
precious metals, or other commodities, or other financial indicators. Indexed
securities typically, but not always, are debt securities or deposits whose
value at maturity or coupon rate is determined by reference to a specific
instrument or statistic. Gold-indexed securities, for example, typically provide
for a maturity value that depends on the price of gold, resulting in a security
whose price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed securities
may be positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a security
whose price characteristics are similar to a put option on the underlying
currency. Currency-indexed securities also may have prices that depend on the
values of a number of different foreign currencies relative to each other.

The performance of indexed securities depends to a great extent on
the performance of the security, currency, commodity or other instrument to
which they are indexed, and also may be influenced by interest rate changes in
the U.S. and abroad. At the same time, indexed securities are subject to the
credit risks associated with the issuer of the security, and their values may
decline substantially if the issuer's creditworthiness deteriorates. Recent
issuers of indexed securities have included banks, corporations, and certain
U.S. Government agencies.

LEVERAGE. Leverage, the speculative practice of borrowing to make
additional investments, magnifies the potential for gain or loss on the
portfolio securities of the Fund and, therefore, if employed, increases the
possibility of fluctuation in the Fund's net asset value. Leveraging the Fund
creates an opportunity for increased net income but, at the same time, creates
special risk considerations. For example, leveraging may exaggerate changes in
the net asset value of the Fund's shares and in the yield on the Fund's
portfolio. Although the principal of such borrowings will be fixed, the Fund's
assets may change in value during the time the borrowing is outstanding. Since
any decline in value of the Fund's investments will be borne entirely by the
Fund's shareholders (and not by those persons providing the leverage to the
Fund), the effect of leverage in a declining market would be a greater decrease
in net asset value than if the Fund were not so leveraged. Leveraging will
create interest expenses for the Fund, which can exceed the investment return
from the borrowed Fund. To the extent the investment return derived from
securities purchased with borrowed Fund exceeds the interest the Fund will have
to pay, the Fund's investment return will be greater than if leveraging were not
used. Conversely, if the investment return from the assets retained with
borrowed Fund is not sufficient to cover the cost of leveraging, the investment
return of the Fund will be less than if leveraging were not used.

REVERSE REPURCHASE AGREEMENTS. In connection with its leveraging
activities, the Fund may enter into reverse repurchase agreements, in which the
Fund sells securities and agrees to repurchase them at a mutually agreed date
and price. A reverse repurchase agreement may be viewed as a borrowing by the
Fund, secured by the security which is the subject of the agreement. In addition
to the general risks involved in leveraging, reverse repurchase agreements
involve the risk that, in the event of the bankruptcy or insolvency of the
Fund's counterparty, the Fund would be unable to recover the security which is
the subject of the agreement, that the amount of cash or other property
transferred by the counterparty to the Fund under the agreement prior to such
insolvency or bankruptcy is less than the value of the security subject to the
agreement, or that the Fund may be delayed or prevented, due to such insolvency
or bankruptcy, from using such cash or property or may be required to return it
to the counterparty or its trustee or receiver.

SHORT SALES. The Fund may seek to hedge investments or realize
additional gains through short sales. Short sales are transactions in which the
Fund sells a security it does not own, in anticipation of a decline in the
market value of that security. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing it at the market price at or prior
to the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to repay the lender any dividends or interest
that accrue during the period of the loan. To borrow the security, the Fund also
may be required to pay a premium, which would increase the cost of the security
sold. The net proceeds of the short sale will be retained by the broker (or by
the Fund's custodian in a special custody account), to the extent necessary to
meet margin requirements, until the short position is closed out. The Fund also
will incur transaction costs in effecting short sales.

The Fund will incur a loss as a result of the short sale if the
price of the security increases between the date of the short sale and the date
on which the Fund replaces the borrowed security. The Fund will realize a gain
if the security declines in price between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, interest or expenses the Fund may be required to pay in
connection with a short sale. An increase in the value of a security sold short
by the Fund over the price at which it was sold short will result in a loss to
the Fund, and there can be no assurance that the Fund will be able to close out
the position at any particular time or at an acceptable price. The Fund may take
short positions in sponsored ADRs.

All short sale positions will be fully collateralized in compliance
with Regulation T and Section 18 of the 1940 Act. Until the Fund closes its
short position or replaces the borrowed stock, the Fund will: (1) maintain an
account containing cash or liquid assets at such a level that (a) the amount
deposited in the account plus that amount deposited with the broker as
collateral will equal the current value of the stock sold short and (b) the
amount deposited in the account plus the amount deposited with the broker as
collateral will not be less than the market value of the stock at the time the
stock was sold short; or (2) otherwise cover the Fund's short position.

The Fund will set aside in a segregated custodial account an amount of
cash, U.S. government securities or other liquid debt securities equal to the
excess of the current market value, as calculated on a daily basis, of the
securities sold short over the amount of collateral deposited with the broker or
other institution in respect of the short sale (not including the proceeds of
the short sale). These assets may not be sold while the corresponding short
position is open unless they are replaced by similar assets.

FOREIGN CURRENCY TRANSACTIONS.

HEDGING. The Fund may engage in currency exchange transactions to
protect against uncertainty in the level of future foreign currency exchange
rates and to increase current return. The Fund may engage in both "transaction
hedging" and "position hedging."

There can be no assurance that appropriate foreign currency
transactions will be available for the Fund at any time; or that the Fund will
enter into such transactions at any time or under any circumstances even if
appropriate transactions are available to it.

When it engages in transaction hedging, the Fund enters into
foreign currency transactions with respect to specific receivables or payables
of the Fund generally arising in connection with the purchase or sale of its
portfolio securities. The Fund will engage in transaction hedging when it
desires to "lock in" the U.S. dollar price of a security it has agreed to
purchase or sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging, the Fund will attempt to
protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold or on
which the dividend or interest payment is declared, and the date on which such
payments are made or received.

The Fund may purchase or sell a foreign currency on a spot (i.e.,
cash) basis at the prevailing spot rate in connection with transaction hedging.
The Fund may also enter into contracts to purchase or sell foreign currencies at
a future date ("forward contracts") and purchase and sell foreign currency
futures contracts.

For transaction hedging purposes, the Fund may also purchase
exchange-listed and over-the-counter call and put options on foreign currency
futures contracts and on foreign currencies. A put option on a futures contract
gives the Fund the right to assume a short position in the futures contract
until expiration of the option. A put option on currency gives the Fund the
right to sell a currency at a specified exercise price until the expiration of
the option. A call option on a futures contract gives the Fund the right to
assume a long position in the futures contract until the expiration of the
option. A call option on currency gives the Fund the right to purchase a
currency at the exercise price until the expiration of the option. The Fund will
engage in over-the-counter transactions only when appropriate exchange-traded
transactions are unavailable and when, in the opinion of the Fund's portfolio
manager, the pricing mechanism and liquidity are satisfactory and the
participants are responsible parties likely to meet their contractual
obligations.

When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in the values of the
foreign currencies in which securities held by the Fund are denominated or are
quoted in their principle trading markets or an increase in the value of
currency for securities which the Fund expects to purchase. In connection with
position hedging, the Fund may purchase put or call options on foreign currency
and foreign currency futures contracts and buy or sell forward contracts and
foreign currency futures contracts. The Fund may also purchase or sell foreign
currency on a spot basis.

The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved will not
generally be possible since the future value of such securities in foreign
currencies will change as a consequence of market movements in the values of
those securities between the dates the currency exchange transactions are
entered into and the dates they mature.

It is impossible to forecast with precision the market value of the
Fund's portfolio securities at the expiration or maturity of a forward or
futures contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security or securities being hedged is less
than the amount of foreign currency the Fund is obligated to deliver and if a
decision is made to sell the security or securities and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency received upon the sale of the portfolio security or
securities of the Fund if the market value of such security or securities
exceeds the amount of foreign currency the Fund is obligated to deliver.

To offset some of the costs to the Fund of hedging against fluctuations
in currency exchange rates, the Fund may write covered call options on those
currencies.

Transaction and position hedging do not eliminate fluctuations in the
underlying prices of the securities that the Fund owns or intends to purchase or
sell. They simply establish a rate of exchange, which one can achieve at some
future point in time. Additionally, although these techniques tend to minimize
the risk of loss due to a decline in the value of the hedged currency, they tend
to limit any potential gain, which might result from the increase in the value
of such currency. The Fund may also seek to increase its current return by
purchasing and selling foreign currency on a spot basis, by purchasing and
selling options on foreign currencies and on foreign currency futures contracts,
and by purchasing and selling foreign currency forward contracts.

CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract as agreed by the parties, at a price set at the time of the contract.
In the case of a cancelable forward contract, the holder has the unilateral
right to cancel the contract at maturity by paying a specified fee. The
contracts are traded in the interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. A forward contract
generally has no deposit requirement, and no commissions are charged at any
stage for trades. A foreign currency futures contract is a standardized contract
for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Foreign currency futures
contracts traded in the United States are designed by and traded on exchanges
regulated by the Commodity Futures Trading Commission (the "CFTC"), such as the
New York Mercantile Exchange.

Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the maturity date
of a forward contract may be any fixed number of days from the date of the
contract agreed upon by the parties, rather than a predetermined date in a given
month. Forward contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange contracts are traded
directly between currency traders so that no intermediary is required. A forward
contract generally requires no margin or other deposit.

At the maturity of a forward or futures contract, the Fund may either
accept or make delivery of the currency specified in the contract, or at or
prior to maturity enter into a closing transaction involving the purchase or
sale of an offsetting contract. Closing transactions with respect to forward
contracts are usually effected with the currency trader who is a party to the
original forward contract. Closing transactions with respect to futures
contracts are effected on a commodities exchange; a clearing corporation
associated with the exchange assumes responsibility for closing out such
contracts.

Positions in foreign currency futures contracts and related options may
be closed out only on an exchange or board of trade that provides a secondary
market in such contracts or options. Although the Fund will normally purchase or
sell foreign currency futures contracts and related options only on exchanges or
boards of trade where there appears to be an active secondary market, there is
no assurance that a secondary market on an exchange or board of trade will exist
for any particular contract or option or at any particular time. In such event,
it may not be possible to close a futures or related option position and, in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin on its futures positions.

FOREIGN CURRENCY OPTIONS. Options on foreign currencies operate
similarly to options on securities, and are traded primarily in the
over-the-counter market, although options on foreign currencies have recently
been listed on several exchanges. Such options will be purchased or written only
when the Fund's portfolio manager believes that a liquid secondary market exists
for such options. There can be no assurance that a liquid secondary market will
exist for a particular option at any specific time. Options on foreign
currencies are affected by all of those factors that influence exchange rates
and investments generally.

The value of a foreign currency option is dependent upon the value
of the foreign currency and the U.S. dollar, and may have no relationship to the
investment merits of a foreign security. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, investors may
be disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.

There is no systematic reporting of last-sale information for
foreign currencies and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a timely
basis. Available quotation information is generally representative of very large
transactions in the interbank market and thus may not reflect relatively smaller
transactions (less than $1 million) where rates may be less favorable. The
interbank market in foreign currencies is a global, around-the-clock market. To
the extent that the U.S. options markets are closed while the markets for the
underlying currencies remain open, significant price and rate movements may take
place in the underlying markets that cannot be reflected in the U.S. options
markets.

FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do
not charge a fee for currency conversion, they do realize a profit based on the
difference (the "spread") between prices at which they buy and sell various
currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at
one rate, while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------

The Trust has adopted certain fundamental investment restrictions designed
to reduce the risk of an investment in each Fund. These restrictions may not be
changed with respect to a Fund without the affirmative vote of a majority of the
outstanding voting securities of that Fund. Unless otherwise expressly noted,
each Fund may not:

1. Underwrite the securities of other issuers, except that each Fund
may, as indicated in the Prospectus, acquire restricted securities
under circumstances where, if such securities are sold, each Fund
might be deemed to be an underwriter for purposes of the
Securities Act of 1933, but with respect to The CHANGEWAVE FUND
and The TECHNOLOGY PLUS FUND each may invest in companies that
engage in such businesses to the extent authorized by the Board of
Trustees.

2. Purchase or sell real estate or interests in real estate, but each
Fund may purchase marketable securities of companies holding real
estate or interests in real estate.

3. Purchase or sell commodities or commodity contracts, including
futures contracts, except that each Fund may purchase and sell
futures contracts to the extent authorized by the Board of
Trustees.

4. Make loans to other persons except (a) by the purchase of a
portion of an issue of publicly distributed bonds, debentures or
other debt securities or privately sold bonds, debentures or other
debt securities immediately convertible into equity securities,
such purchases of privately sold debt securities not to exceed 5%
of each Fund's total assets, and (b) the entry into portfolio
lending agreements (i.e., loans of portfolio securities) provided
that the value of securities subject to such lending agreements
may not exceed 30% of the value of each Fund's total assets.

5. Purchase securities on margin, except (a) each Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities, and (b) The TECHNOLOGY PLUS
FUND may purchase securities on margin to the extent authorized by
the Board of Trustees.

6. Borrow money from banks except for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests
that might otherwise require the untimely disposition of
securities, in an aggregate amount not exceeding 25% of the value
of each Fund's total assets (33 1/3% with respect to The
TECHNOLOGY PLUS FUND) at the time any borrowing is made. While
each Fund's borrowings are in excess of 5% of its total assets,
each Fund will not purchase portfolio securities, but with respect
to The TECHNOLOGY PLUS FUND, the Fund may use leverage to the
extent authorized by the Board of Trustees.

7. Purchase or sell puts and calls on securities, except (a) that
each Fund may purchase and sell puts and calls on stocks and stock
indices, and (b) The TECHNOLOGY PLUS FUND may purchase or sell
puts and calls on securities to the extent authorized by the Board
of Trustees.

8. Make short sales of securities, except that The TECHNOLOGY PLUS
FUND, may make short sales of securities to the extent authorized
by the Board of Trustees.

9. Participate on a joint or joint and several basis in any s
ecurities trading account.

10. Purchase the securities of any other investment company except in
compliance with the 1940 Act.

11. Invest in the securities of any one industry if as a result, more
than 25% of each Fund's total assets would be invested in the
securities of such industry (except that (a) the foregoing does
not apply to securities issued or guaranteed by the U.S.
Government, its agencies, and instrumentalities; (b) The MEDICAL
SPECIALISTS FUND may not invest more than 20% of its total assets
in securities in any one industry other than the
medical/healthcare industry for which it may invest more than 25%
of its total assets in securities of companies, and (c) The
TECHNOLOGY PLUS FUND may invest more than 25% in securities of
companies in technology-related companies. Except during
temporary defensive periods, not less than 65% of The MEDICAL
SPECIALISTS FUND'S total assets will be invested in the
securities of companies engaged in the medical/healthcare
industries.

12. Issue senior securities except that (a) each Fund may borrow money
in amounts up to 25% of the value of its total assets, and (b) The
TECHNOLOGY PLUS FUND may issue senior securities to the extent
authorized by the Board of Trustees and disclosed elsewhere in the
Prospectus and the Statement of Additional Information and in
Investment Restrictions Nos. 5, 6, and 8.

With respect to the percentages adopted by the Trust as maximum limitations
on each Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.

TRUSTEES AND OFFICERS
-------------------------------------------------------------------------------

The business of the Trust is managed under the direction of the Board of
Trustees in accordance with the Declaration of Trust of the Trust, which
Declaration of Trust has been filed with the Securities and Exchange Commission
and is available upon request. Pursuant to the Declaration of Trust, the
Trustees shall elect officers including a president, secretary and treasurer.
The Board of Trustees retains the power to conduct, operate and carry on the
business of the Trust and has the power to incur and pay any expenses which, in
the opinion of the Board of Trustees, are necessary or incidental to carry out
any of the Trust's purposes. The Trustees, officers, employees and agents of the
Trust, when acting in such capacities, shall not be subject to any personal
liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. Following is a list of
the Trustees and executive officers of the Trust and their principal occupation
over the last five years.

PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS
NAME AND ADDRESS AGE POSITION
---------------------------------- ------- ---------------------- ----------------------------------------------------
<S> <C> <C>
*Kendrick W. Kam 40 Trustee, President President, Ingenuity Capital Management LLC (July
26888 Almaden Court and Treasurer 1999 to Present); President, Interactive Research
Los Altos, CA 94022 Advisers, Inc. and co-portfolio manger (1993 to
1999).
---------------------------------- ------- ---------------------- ----------------------------------------------------
William J. Scilacci 77 Trustee Retired; Director, Bank of Santa Clara
26888 Almaden Court (1973-2000); President, Bank of Santa Clara
Los Altos, CA 94022 (1982-1993).
---------------------------------- ------- ---------------------- ----------------------------------------------------
Arthur L. Roth 77 Trustee, Chairman of Retired; Director and CEO, Levi Strauss & Co., a
26888 Almaden Court Board clothing manufacturer, (1949 to 1973); CEO,
Los Altos, CA 94022 PharmChem Laboratories, a national drug testing
firm (1981 to 1987).
---------------------------------- ------- ---------------------- ----------------------------------------------------
Elaine E. Richards 32 Secretary Assistant Vice President and Legal Compliance
615 East Michigan Street Administrator, Firstar Mutual Fund Services, LLC
Milwaukee, WI 53202 (1998 to present); Associate Attorney, Reinhart,
Boerner, Van Deuren, Norris & Rieselbach, s.c.,
Milwaukee, Wisconsin (1995 to 1998).
---------------------------------- ------- ---------------------- ----------------------------------------------------
</TABLE>

* Kendrick W. Kam, as an affiliated person of both Marketocracy Capital
Management LLC and Ingenuity Capital Management LLC, the Trust's investment
advisers, is an "interested person" of the Trust within the meaning of Section
2(a)(19) of the 1940 Act.

COMPENSATION

For their service as Trustees, the independent Trustees receive a fee of
$50 per meeting attended, as well as reimbursement for expenses incurred in
connection with attendance at such meetings. However the Trustees' fees are not
paid by the Trust or any of the Fund series. The interested Trustees of the
Trust receive no compensation for their service as Trustees. The table below
details the estimated amount of compensation the Trustees may receive from the
Trust for the next fiscal year. None of the executive officers receives
compensation from the Trust. The aggregate compensation is provided for the
Trust, which is comprised of three portfolios.

<TABLE>
<CAPTION>
--------------------------- ------------------- ---------------------- ---------------------- ------------------------
NAME AND POSITION AGGREGATE PENSION OR ANNUAL BENEFITS UPON TOTAL COMPENSATION
COMPENSATION FROM RETIREMENT BENEFITS RETIREMENT FROM TRUST AND FUND
TRUST ACCRUED AS PART OF COMPLEX PAID TO
TRUST EXPENSES TRUSTEES
--------------------------- ------------------- ---------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Kendrick W. Kam * None None None None
Arthur L. Roth None None None None
William J. Scilacci None None None None
--------------------------- ------------------- ---------------------- ---------------------- ------------------------
</TABLE>

*This trustee is deemed to be an interested person as defined in the 1940 Act.

CONTROL PERSONS, PRINCIPAL HOLDERS OF SECURITIES AND MANAGEMENT OWNERSHIP. The
following table provides the name and address of any person who owns of record
or beneficially 5% or more of the outstanding shares of the MEDICAL SPECIALISTS
Fund as of November 30, 2000. A principal shareholder is any person who owns of
record or beneficially 5% or more of the outstanding shares of the Funds. A
control person is one who owns beneficially or through controlled companies more
than 25% of the voting securities of a company or acknowledges the existence of
control.

-----------------------------------------------------------------------------------------------------

NAME AND ADDRESS SHARES % OWNERSHIP TYPE OF OWNERSHIP

------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Charles Schwab & Co.. Special 1,079,224.110 43.84% Record
Custody Account for the Benefit of
Customers
101 Montgomery Street
San Francisco, CA 94104-4122

National Financial Services Corp. 512,038.403 20.80% Record
1 World Financial center
200 Liberty Street, #5
New York, NY 10281-1003

National Investors Services Corp. 131,115.645 5.33% Record
for the Exclusive Benefit of
Customers
55 Water Street, Floor 32
New York, NY 10041-3299

------------------------------------- ---------------------- --------------------- --------------------------
</TABLE>

MANAGEMENT OWNERSHIP

As of November 30, 2000, there were no shareholders of The ChangeWave Fund and
The Technology Plus Fund. As of November 30, 2000, the Trustees, as a group
owned 4.99% of the outstanding shares of The Medical Specialists Fund.

INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------------------------------------------------

MARKETOCRACY CAPITAL MANAGEMENT LLC. The Trust retains Marketocracy
Capital Management LLC, a Delaware limited liability company ("MCM") that is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), to manage the investments of The ChangeWave
Fund and The Technology Plus Fund. MCM is located at 881 Fremont Street, Suite
B2, Los Altos, California 94024. Kendrick W. Kam has served as the President of
MCM since its formation in July 2000 and as a Trustee of the Trust since 1999.

MCM has no other assets under management besides The ChangeWave Fund
and The Technology Plus Fund. MCM is a wholly-owned subsidiary of Marketocracy
Inc., a Delaware limited liability company ("Parent"). Parent's principal
business is operating a World Wide Web Internet site (the "Site"). Members of
the Site manage one or more model mutual fund portfolios, all at no cost, and
establish verifiable long-term performance records. Parent plans to use the Site
to identify potential portfolio managers for one or more series of the Trust.
Mr. Kam and Bruce L. Horn, Parent's Chief Technical Officer, together currently
own a majority of Parent's outstanding voting securities.

From 1999 to the present, Mr. Kam has been President of both Parent and
Ingenuity Capital Management LLC ("ICM"), an investment adviser. From 1994 until
1999, Mr. Kam served as a portfolio manager for certain technology and medical
related mutual funds of the Firsthand Funds. Prior to 1994, Mr. Kam was
co-founder and Vice President of Marketing and Finance for Novoste Puerto Rico,
Inc., a medical device company headquartered in Aguadilla, Puerto Rico.

With the approval of the Trust and subject to the supervision of its Board
of Trustees, MCM, at its own and not the Fund's expense, retains ChangeWave
Capital Management, LLC ("CWCM") to act as an investment sub-adviser to MCM with
respect to the investments of The ChangeWave Fund, including CWCM providing
Tobin S. Smith, to serve as a portfolio manager for such Fund. CWCM is located
at 11005 Petersborough Drive, Suite 101, North Bethesda, Maryland, 20852. Mr.
Smith is the Chairman, Chief Investment Officer and sole owner of CWCM. CWCM and
its predecessor has served as an independent consultant to an advisory firm
since 1995.

With the approval of the Trust and subject to the supervision of its
Board of Trustees, MCM, at its own and not the Fund's expense, retains Skye
Investment Advisors LLC ("SIA"), to act as an investment sub-adviser to MCM with
respect to the investments of The Technology Plus Fund, including SIA providing
Paul L. McEntire, to serve as a portfolio manager for such Fund. SIA is located
at 985 University Avenue, Suite 26, Los Gatos, California, 95032. Mr. McEntire
has been Chairman and Managing Member of SIA since 1996. SIA and its predecessor
companies have been advising clients since 1985. SIA manages accounts for other
individual and institutional clients, including the Bearguard Fund, a mutual
fund whose principal investment strategy is short selling common stocks.

INGENUITY CAPITAL MANAGEMENT LLC. The Trust retains ICM to manage the
investments of The Medical Specialists Fund. ICM, which is registered as an
investment adviser under the Advisers Act, is located at 26888 Almaden Court,
Los Altos, California, 94022. Mr. Kam has served as the President of ICM since
its formation in 1999. Mr. Kam has served as portfolio manager of this Fund ever
since its inception as a series of Firsthand Funds. ICM has no other assets
under management besides The Medical Specialists Fund.

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENTS AND FEES. Under the terms of
the Investment Advisory and Management Agreement (each an "Advisory Agreement")
between the Trust, on behalf of each Fund, and the Fund's investment adviser,
MCM or ICM, the Fund's investment adviser (i) manages the investment operations
of the Fund and the composition of its portfolio, including the purchase,
retention and disposition of securities in accordance with the Fund's investment
objective, (ii) provides all statistical, economic and financial information
reasonably required by the Fund and reasonably available to the Fund's
investment adviser, (iii) provides the Custodian of the Fund's securities on
each business day with a list of trades for that day, and (iv) provides persons
satisfactory to the Trust's Board of Trustees to act as officers and employees
of the Trust. MCM's Advisory Agreements with respect to The ChangeWave Fund and
The Technology Plus Fund, respectively, authorize MCM to delegate any or all of
MCM's portfolio management responsibilities under such Agreement, subject to the
approval of the Trust and subject to compliance with applicable law.

Pursuant to each Fund's Advisory Agreement, the Fund pays to the Fund's
investment adviser, on a monthly basis, an advisory fee at an annual rate of
1.50% of its average daily net assets. Each Advisory Agreement requires the
Fund's investment adviser to waive its management fees and, if necessary,
reimburse expenses of the Fund to the extent necessary to limit each Fund's
total operating expenses to 1.95% of its average net assets up to $200 million,
1.90% of such assets from $200 million to $500 million, 1.85% of such assets
from $500 million to $1 billion, and 1.80% of such assets in excess of $1
billion, provided, however, that with respect to The Technology Plus, MCM's
obligation does not extend does NOT extend to the Fund's expenses, estimated to
be 0.25% of such assets, of holding or carrying a Fund's securities, including
without limitation expenses of dividends on stock borrowed to cover a short sale
or interest, fees or other charges incurred in connection with any leverage and
related borrowings. The dollar amounts of fees earned by ICM and paid by THE
MEDICAL SPECIALIST FUND for the past two fiscal years are shown below.

------------------------------- -----------------
FOR FISCAL PERIOD ENDED: ADVISER FEES
EARNED & PAID
------------------------------- -----------------
June 30, 2000(1) $317,194
------------------------------- -----------------
December 31, 1999(2) $100,573
------------------------------- -----------------
(1) On March 15, 2000, The Medical Specialists Fund changed its fiscal year end
from December 31 to June 30.

(2) An advisory fee was not collected for the time period of September 9, 1999
through October 10, 1999 due to the conversion of ICM from Interactive
Research Advisors Inc.

By its terms, each Advisory Agreement remains in force from year to year,
subject to annual approval by (a) the Board of Trustees or (b) a vote of the
majority of the Fund's outstanding voting securities; provided that in either
event continuance is also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a meeting called
for the purpose of voting such approval. Each Advisory Agreement may be
terminated at any time, on 60 days' written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of the Fund's
outstanding voting securities, or by the investment adviser. Each Advisory
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.

SUB-ADVISORY AGREEMENTS AND FEES. Under the terms of the Sub-Advisory
Agreement (each a "Sub-Advisory Agreement") between the MCM and, with respect to
The ChangeWave Fund, CWCM, and, with respect to The Technology Plus Fund, SIA
(CWCM and SIA each a "Sub-Adviser"), MCM has delegated a portion of its
portfolio management responsibilities under the Fund's Advisory Agreement to the
Fund's Sub-Adviser to (i) manage, together with such other MCM portfolio
managers as MCM appoints from time to time, the investment operations of the
Fund and the composition of its portfolio, including the purchase, retention and
disposition of securities in accordance with the Fund's investment objective,
(ii) provides all statistical, economic and financial information reasonably
required by the Fund and reasonably available to the Fund's investment adviser,
(iii) provides the Custodian of the Fund's securities on each business day with
a list of trades for that day, and (iv) provides, with respect to The ChangeWave
Fund, Mr. Smith, and with respect to The Technology Plus Fund, Mr. McEntire, to
serve as a portfolio manager of the Fund.

Pursuant to each Sub-Advisory Agreement, MCM pays to the Fund's
Sub-Adviser, on a monthly basis, an advisory fee at an annual rate of (i) 0.50%
of its average daily net assets with respect which, in the case of The
ChangeWave Fund, Mr. Smith, and in the case of The Technology Plus Fund, Mr.
McEntire, serves as the sole portfolio manager, and (ii) 0.20% of its average
daily net assets with respect which, in the case of The ChangeWave Fund, Mr.
Smith, and in the case of The Technology Plus Fund, Mr. McEntire, does not serve
as the sole portfolio manager.

By its terms, each Sub-Advisory Agreement remains in force from year to
year, subject to annual approval by (a) the Board of Trustees or (b) a vote of
the majority of the Fund's outstanding voting securities; provided that in
either event continuance is also approved by a majority of the Trustees who are
not interested persons of the Trust, by a vote cast in person at a meeting
called for the purpose of voting such approval. Each Sub-Advisory Agreement may
be terminated at any time, on written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of the Fund's
outstanding voting securities, or by MCM, and may be terminated by the
Sub-Adviser following the third anniversary of its initial effectiveness upon
ninety (90) days written notice to MCM and the Trust. Each Sub-Advisory
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.

ADMINISTRATION AGREEMENTS AND FEES. The Board of Trustees of the Trust has
approved an Administration Agreement for THE CHANGEWAVE FUND and THE TECHNOLOGY
PLUS FUND with MCM, and for THE MEDICAL SPECIALISTS FUND with ICM, each in its
capacity as a fund administrator and not as an investment adviser (each an
"Administrator"), wherein the Fund's Administrator is responsible for the
provision of administrative and supervisory services to the Fund. Each Fund's
Administrator, at its expense, supplies the Trustees and the officers of the
Trust with all statistical information and reports reasonably required by it and
reasonably available to the Administrator. Each Fund's Administrator shall
oversee the maintenance of all books and records with respect to the Fund's
security transactions and the Fund's books of account in accordance with all
applicable federal and state laws and regulations. Each Fund's Administrator
arranges for the preservation of the records required to be maintained by the
1940 Act.

Pursuant to the Administration Agreement, the Fund will pay to each Fund's
Administrator, on a monthly basis, a fee equal to 0.45% per annum of its average
daily net assets up to $200 million, 0.40% of such assets from $200 million to
$500 million, 0.35% of such assets from $500 million to $1 billion, and 0.30% of
such assets in excess of $1 billion. From this compensation, each Fund's
Administrator pays all expenses of the Fund other than fees for the Fund's
investment adviser.

The Administration Agreement may be terminated by the Trust at any time, on
60 days' notice to the investment adviser, without penalty either (a) by vote of
the Board of Trustees of the Trust, or (b) by vote of a majority of the
outstanding voting securities of a Fund. It may be terminated at any time by the
Fund's investment adviser on 60 days' written notice to the Trust.

Over the last two fiscal years, The MEDICAL SPECIALISTS FUND has paid the
following amounts in administrative fees to ICM:

------------------------- --------------------------------
Fiscal Period Ended Administrative Fee Paid
------------------------- --------------------------------
June 30, 2000(1) $95,158
------------------------- --------------------------------
December 31, 1999(2) $33,956
------------------------- --------------------------------
(1) On March 15, 2000, The Medical Specialists Fund changed its fiscal year end
from December 31 to June 30.

THE UNDERWRITER
--------------------------------------------------------------------------------

Rafferty Capital Markets, Inc. (the "Underwriter"), 1311 Mamaroneck Ave,
White Plains, New York 10605, serves as principal underwriter for the Trust
pursuant to an Underwriting Agreement. No affiliated persons of the Trust are
affiliated persons of the Underwriter. Shares are sold on a continuous basis by
the Underwriter. The Underwriter has agreed to use its best efforts to solicit
orders for the sale of Trust shares, but it is not obliged to sell any
particular amount of shares. The Underwriting Agreement provides that, unless
sooner terminated, it will continue in effect from year to year, subject to
annual approval by (a) the Board of Trustees or a vote of a majority of the
outstanding shares, and (b) by a majority of the Trustees who are not interested
persons of the Trust or of the Underwriter by vote cast in person at a meeting
called for the purpose of voting on such approval.

The Underwriting Agreement may be terminated by the Trust at any time,
without the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by vote of a majority of the outstanding shares of the
Funds on 60 days' written notice to the Underwriter, or by the Underwriter at
any time, without the payment of any penalty, on 60 days' written notice to the
Trust. The Underwriting Agreement will automatically terminate in the event of
its assignment.

SECURITIES TRANSACTIONS
-------------------------------------------------------------------------------

The Funds' respective investment adviser (or sub-adviser) furnishes advice
and recommendations with respect to that Fund's portfolio decisions and, subject
to the supervision of the Board of Trustees of the Trust, determines the broker
to be used in each specific transaction. In executing a Fund's portfolio
transactions, the Fund's investment adviser (or sub-adviser) seeks to obtain the
best net results for that Fund, taking into account such factors as the overall
net economic result to the Fund (involving both price paid or received and any
commissions and other costs paid), the efficiency with which the specific
transaction is effected, the ability to effect the transaction where a large
block is involved, the known practices of brokers and the availability to
execute possibly difficult transactions in the future and the financial strength
and stability of the broker. While the Fund's investment adviser (or
sub-adviser) generally seeks reasonably competitive commission rates, the Fund
does not necessarily pay the lowest commission or spread available.

The Fund's investment adviser (or sub-adviser) may direct the Fund's
portfolio transactions to persons or firms because of research and investment
services provided by such persons or firms if the amount of commissions in
effecting the transactions is reasonable in relationship to the value of the
investment information provided by those persons or firms. Such research and
investment services are those that brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. These services may be used by
the investment adviser (or sub-adviser) in connection with all of its investment
activities, and some of the services obtained in connection with the execution
of transactions for the Fund may be used in managing the investment adviser's
other investment accounts.

The Funds may deal in some instances in securities that are not listed on a
national securities exchange but are traded in the over-the-counter market. The
Funds may also purchase listed securities through the "third market" (i.e.,
otherwise than on the exchanges on which the securities are listed). When
transactions are executed in the over-the-counter market or the third market,
the Funds' respective investment adviser will seek to deal with primary market
makers and to execute transactions on the Fund's own behalf, except in those
circumstances where, in the opinion of the investment adviser, better prices and
executions may be available elsewhere. The Funds do not allocate brokerage
business in return for sales of Fund shares.

Neither the investment adviser, sub-advisers, nor any affiliated persons
thereof will participate in commissions paid by the Funds to brokers or dealers
or will receive any reciprocal business, directly or indirectly, as a result of
such commissions.

The Board of Trustees periodically reviews the allocation of brokerage
orders to monitor the operation of these policies.

PORTFOLIO TURNOVER
--------------------------------------------------------------------------------

Each Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund. A 100% turnover rate would occur if all of the Fund's portfolio securities
were replaced once within a one-year period.

Generally, each Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Fund's portfolio manager believes that
portfolio changes are appropriate.

If the Funds' respective investment adviser (or sub-adviser) engages in
active trading of its portfolio securities to achieve its investment goals, it
could result in the Fund experiencing a high turnover rate (100% or more). High
turnover rates lead to increase loss, could cause you to pay higher taxes and
could negatively affect a Fund's performance. The table below shows the turnover
rates for The MEDICAL SPECIALISTS FUND for the past two fiscal years.

-------------------------------- -----------------------------
FOR THE FISCAL PERIOD ENDED TURNOVER RATES
-------------------------------- -----------------------------
June 30, 2000(1) 19%
December 31, 1999 71%
-------------------------------- -----------------------------
(1) On March 15, 2000, The Medical Specialists Fund changed its fiscal year end
from December 31 to June 30.

PURCHASE, REDEMPTION AND PRICING OF SHARES
-------------------------------------------------------------------------------

CALCULATION OF SHARE PRICE

The share price (net asset value) of the shares of each of the Funds is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. The Trust may also be open for business on other
days in which there is sufficient trading in a Fund's portfolio securities that
its net asset value might be materially affected. For a description of the
methods used to determine the share price, see "Calculation of Share Price" in
the Prospectus.

In valuing the Funds' assets for the purpose of determining net asset
value, readily marketable portfolio securities listed on a national securities
exchange are valued at the last sale price on such exchange on the business day
as of which such value is being determined. If there has been no sale on such
exchange on such day, the security is valued at the closing bid price on such
day. If no bid price is quoted on such exchange on such day, then the security
is valued by such method as the Funds' respective investment adviser under the
supervision of the Board of Trustees determines in good faith to reflect its
fair value. Readily marketable securities traded only in the over-the-counter
market are valued at the last sale price, if available, otherwise at the most
recent bid price. If no bid price is quoted on such day, then the security is
valued by such method as the investment adviser under the supervision of the
Board of Trustees determines in good faith to reflect its fair value. All other
assets of the Funds, including restricted securities and securities that are not
readily marketable, are valued in such manner as the investment adviser under
the supervision of the Board of Trustees in good faith deems appropriate to
reflect their fair value.

The portfolio securities in which the Portfolio invests fluctuate in
value, and hence the net asset value per share of the Portfolio also fluctuates.
An example of how the net asset value per share for the Portfolio was calculated
on June 30, 2000 is as follows:

THE MEDICAL SPECIALISTS FUND
-----------------------------------------------------------

NET ASSETS
Shares Outstanding = Net Asset Value per Share

$46,884,987
-----------------
2,787,407 = $16.82

PURCHASE OF SHARES

Orders for shares received by the Trust in good order prior to the close of
business on the New York Stock Exchange (the "Exchange") on each day during such
periods that the Exchange is open for trading are priced at net asset value per
share computed as of the close of the regular session of trading on the
Exchange. Orders received in good order after the close of the Exchange, or on a
day it is not open for trading, are priced at the close of such Exchange on the
next day on which it is open for trading at the next determined net asset value
per share.

Good order means that your purchase request includes: (1) the name of the
fund, (2) the dollar amount of shares to be purchased, (3) your purchase
application or investment status, (4) your check payable to "Marketocracy
Funds."

REDEMPTION OF SHARES

The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven calendar days after a shareholder's
redemption request made in accordance with the procedures set forth in the
Prospectus, except for any period during which the Exchange is closed (other
than customary weekend and holiday closing) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by a Fund of securities owned
by it is not reasonably practicable or as a result of which it is not reasonably
practicable for the Fund to fairly determine the value of its net assets, or for
such other period as the Securities and Exchange Commission may by order permit
for the protection of security holders of the Fund.

The Trust will redeem all or any portion of a shareholder's shares of a
Fund when requested in accordance with the procedures set forth in the "How to
Redeem Shares" section of the Prospectus.

REDEMPTION IN KIND

Payment of the net redemption proceeds may be made either in cash or in
portfolio securities (selected in the discretion of the Fund's investment
adviser under supervision of the Board of Trustees and taken at their value used
in determining the net asset value), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a
practice detrimental to the best interests of the Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. The Trust has
filed an election with the Securities and Exchange Commission pursuant to which
the Funds will effect a redemption in portfolio securities only if the
particular shareholder of record is redeeming more than $250,000 or 1% of net
assets, whichever is less, during any 90-day period. The Trust expects, however,
that the amount of a redemption request would have to be significantly greater
than $250,000 or 1% of net assets before a redemption wholly or partly in
portfolio securities would be made.

TAXES
--------------------------------------------------------------------------------

Each Fund has elected, and intends to qualify annually, for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, each Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividend, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures and forward contracts) derived with
respect to their business of investing in such stock, securities or currencies;
(b) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets are represented
by cash, U.S. Government securities, the securities of other regulated
investment companies, and other securities, with such other securities of any
one issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets or 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets are invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment companies)
or in two or more issuers which the Funds control and which are engaged in the
same or similar trades or businesses; and (c) distribute at least 90% of its
investment company taxable income (which includes dividends, interest and net
short-term capital gains in excess of any net long-term capital losses) each
taxable year.

As regulated investment companies, the Funds will not be subject to U.S.
federal income tax on their investment company taxable income and net capital
gains (any long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers available from the eight prior
years), if any, that it distributes to shareholders. Each Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income and any net capital gains. In addition, amounts not
distributed by the Fund on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To avoid
the tax, each Fund must distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income (with adjustment) for the
calendar year and (2) at least 98% of its capital gains in excess of its capital
losses (and adjusted for certain ordinary losses) for the 12 month period ending
on October 31 of the calendar year, and (3) all ordinary income and capital
gains for previous years that were not distributed during such years. In order
to avoid application of the excise tax, each Fund intends to make distributions
in accordance with these distribution requirements.

In view of each Fund's investment policies, it is expected that dividends
received from domestic and certain foreign corporations will be part of a Fund's
gross income. Distributions by the Funds of such dividends to corporate
shareholders may be eligible for the "70% dividends received" deduction, subject
to the holding period and debt-financing limitations of the Code. However, the
portion of each Fund's gross income attributable to dividends received from
qualifying corporations is largely dependent on its investment activities for a
particular year and therefore cannot be predicted with certainty. In addition,
for purposes of the dividends received deduction available to corporations, a
capital gain dividend received from a regulated investment company is not
treated as a dividend. Corporate shareholders should be aware that availability
of the dividends received deduction is subject to certain restrictions. For
example, the deduction is not available if Fund shares are deemed to have been
held for less than 46 days (within the 90-day period that begins 45 days before
the ex-dividend date and ends 45 days after the ex-dividend date) and is reduced
to the extent such shares are treated as debt-financed under the Code.
Dividends, including the portions thereof qualifying for the dividends received
deduction, are includable in the tax base on which the federal alternative
minimum tax is computed. Dividends of sufficient aggregate amount received
during a prescribed period of time and qualifying for the dividends received
deduction may be treated as "extraordinary dividends" under the Code, resulting
in a reduction in a corporate shareholder's federal tax basis in its Fund
shares.

Each Fund may invest as much as 15% of its net assets in securities of
foreign companies and may therefore be liable for foreign withholding and other
taxes, which will reduce the amount available for distribution to shareholders.
Tax conventions between the United States and various other countries may reduce
or eliminate such taxes. A foreign tax credit or deduction is generally allowed
for foreign taxes paid or deemed to be paid. A regulated investment company may
elect to have the foreign tax credit or deduction claimed by the shareholders
rather than the company if certain requirements are met, including the
requirement that more than 50% of the value of the company's total assets at the
end of the taxable year consist of securities in foreign corporations. Because
the Funds do not anticipate investment in securities of foreign corporations to
this extent, the Funds will likely not be able to make this election and foreign
tax credits will be allowed only to reduce each Fund's tax liability, if any.

Under the Code, upon disposition of certain securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the securities and the
date of disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of the Fund's investment company taxable income.

Any dividend or distribution received shortly after a share purchase will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Such dividend or distribution is fully taxable.
Accordingly, prior to purchasing shares of the Fund, an investor should
carefully consider the amount of dividends or capital gains distributions that
are expected to be or have been announced.

Generally, the Code's rules regarding the determination and character of
gain or loss on the sale of a capital asset apply to a sale, redemption or
repurchase of shares of a Fund that are held by the shareholder as capital
assets. However, if a shareholder sells shares of a Fund which the shareholder
has held for less than six months and on which the shareholder has received
distributions of capital gains, any loss on the sale or exchange of such shares
must be treated as long-term capital loss to the extent of such distributions.
Any loss realized on the sale of shares of a Fund will be disallowed by the
"wash sale" rules to the extent the shares sold are replaced (including through
the receipt of additional shares through reinvested dividends) within a period
of time beginning 30 days before and ending 30 days after the shares are sold.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.

The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.

Provided that each Fund qualifies as a regulated investment company under
the Code, it will not be liable for California corporate taxes, other than a
minimum franchise tax, if all of its income is distributed to shareholders for
each taxable year. Shareholders, however, may be liable for state and local
income taxes on distributions from the Funds.

The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Funds. The law has expressed no opinion in respect
thereof. Nonresident aliens and foreign persons are subject to different tax
rules, and may be subject to withholding of up to 30% on certain payments
received from the Funds. Shareholders are advised to consult with their own tax
advisors concerning the application of foreign, federal, state and local taxes
to an investment in the Fund.

HISTORICAL PERFORMANCE INFORMATION
--------------------------------------------------------------------------------

The Funds' total returns are based on the overall dollar or percentage
change in value of a hypothetical investment in the Funds, assuming all
dividends and distributions are reinvested. Average annual total return reflects
the hypothetical annually compounded return that would have produced the same
cumulative total return if the Funds' performance had been constant over the
entire period presented. Because average annual total returns tend to smooth out
variations in the Funds' returns, investors should recognize that they are not
the same as actual year-by-year returns.

For the purposes of quoting and comparing the performance of the Funds to
that of other mutual funds and to other relevant market indices in
advertisements, performance will be stated in terms of average annual total
return. Under regulations adopted by the Securities and Exchange Commission,
funds that intend to advertise performance must include average annual total
return quotations calculated according to the following formula:

P(1+T)N = ERV

Where:
P = a hypothetical initial payment of $1,000 T = average annual total return n =
number of years (1, 5, or 10)

ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1-, 5-, or 10- year period, at the end of such period (or
fractional portion thereof).

Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
1, 5, and 10 year periods of the Funds' existence or shorter periods dating from
the commencement of the Fund's operations. In calculating the ending redeemable
value, all dividends and distributions by the Funds are assumed to have been
reinvested at net asset value as described in the Prospectus on the reinvestment
dates during the period. Additionally, redemption of shares is assumed to occur
at the end of each applicable time period.

The average annual total returns of The MEDICAL SPECIALISTS FUND for
one year ending June 30, 2000 is as follows:

------------------------------ ------------------------ ------------------------
THE MEDICAL SPECIALISTS FUND Annualized Total Return Ending Redeemable Value
------------------------------ ------------------------ ------------------------
1 Year Ended 6/30/00 45.37% $1,505
------------------------------ ------------------------ ------------------------

The foregoing information should be considered in light of the Fund's
investment objectives and policies, as well as the risks incurred in the Fund's
investment practices. Future results will be affected by the future composition
of a Fund's portfolio, as well as by changes in the general level of interest
rates, and general economic and other market conditions.

The Fund may also advertise total return (a "non-standardized quotation")
which is calculated differently from average annual total return. A
non-standardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. A non-standardized quotation may
also indicate average annual compounded rates of return over periods other than
those specified for average annual total return. A non-standardized quotation of
total return will always be accompanied by the Fund's average annual total
return as described above.

The performance quotations described above are based on historical earnings
and are not intended to indicate future performance of the Fund(s).

To help investors better evaluate how an investment in the Funds might
satisfy their investment objective, advertisements regarding the Funds may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Fund may use the following
publications or indices to discuss or compare Fund performance:

Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Fund may provide comparative
performance information appearing in any appropriate category published by
Lipper Analytical Services, Inc. In addition, the Fund may use comparative
performance information of relevant indices, including the S&P 500 Index, the
Dow Jones Industrial Average, the Russell 2000 Index, the NASDAQ Composite Index
and the Value Line Composite Index. The S&P 500 Index is an unmanaged index of
500 stocks, the purpose of which is to portray the pattern of common stock price
movement. The Dow Jones Industrial Average is a measurement of general market
price movement for 30 widely held stocks listed on the New York Stock Exchange.
The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S. domiciled
publicly-traded common stocks in the Russell 3000 Index (an unmanaged index of
the 3,000 largest U.S. domiciled publicly-traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly-traded equity
market). The NASDAQ Composite Index is an unmanaged index which averages the
trading prices of more than 3,000 domestic over-the-counter companies. The Value
Line Composite Index is an unmanaged index comprised of approximately 1,700
stocks, the purpose of which is to portray the pattern of common stock price
movement.

In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Fund's portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate their
performance. In addition, there can be no assurance that the Funds will continue
this performance as compared to such other averages.

CUSTODIAN
--------------------------------------------------------------------------------

Firstar Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201, has been
retained to act as Custodian for the Funds' investments. Firstar Bank, N.A.
acts as each Fund's depository, safekeeps portfolio securities, collects
all income and other payments with respect thereto, disburses funds as
instructed and maintains records in
connection with its duties.

LEGAL COUNSEL AND AUDITORS
--------------------------------------------------------------------------------

The law offices of Roy W. Adams, Attorney At Law, 1024 Country Club Drive,
Suite 135, Moraga, California, 94556, act as legal counsel for the Trust.

The firm of Tait, Weller & Baker, Eight Penn Center Plaza, Philadelphia,
Pennsylvania, 19103, has been selected as independent auditors for the Trust.

FIRSTAR MUTUAL FUND SERVICES, LLC
--------------------------------------------------------------------------------

Firstar Mutual Fund Services, LLC ("Firstar"), 615 East Michigan Street,
Milwaukee, Wisconsin 53202, is retained by the investment advisers to maintain
the records of each shareholder's account, process purchases and redemptions of
the Fund's shares and act as dividend and distribution disbursing agent. Firstar
also provides administrative services to the Funds, calculates daily net asset
value per share and maintains such books and records as are necessary to enable
Firstar to perform its duties. For the performance of these services, the
investment advisers (not the Funds) pay Firstar a fee for administrative
services. In addition, the investment advisers reimburse Firstar for
out-of-pocket expenses, including but not limited to, postage, stationery,
checks, drafts, forms, reports, record storage, communication lines and the
costs of external pricing services.

Firstar is an indirect wholly-owned subsidiary of Firstar Corporation
principally engaged in the business of commercial banking.

FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

The audited financial statements for The MEDICAL SPECIALISTS FUND are
incorporated by reference to the Fund's Annual Report for the fiscal period
ended June 30, 2000 as filed with the SEC.

APPENDIX A
--------------------------------------------------------------------------------

QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS

THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR CORPORATE BONDS IN WHICH
THE FUNDS MAY INVEST ARE AS FOLLOWS:

MOODY'S

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

STANDARD & POOR'S

AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.

A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.

THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR PREFERRED STOCKS IN WHICH
THE FUNDS MAY INVEST ARE AS FOLLOWS:

MOODY'S

aaa - An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.

aa - An issue which is rated aa is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.

baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.

STANDARD & POOR'S

AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.

AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.

A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.

BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.

MARKETOCRACY FUNDS
PART C
OTHER INFORMATION

Item 23. EXHIBITS

(a) Declaration of trust

(i) Certificate of Amendment of Certificate of Trust(3)

(ii) Amended and Restated Agreement and Declaration of Trust(3)

(b) Amended and Restated Bylaws(3)

(c) Instruments Defining Rights of Security Holders-- Incorporated by
reference to the Amended and Restated Agreements and Declaration of
Trust and Amended and Restated Bylaws

(d) Advisory Agreement

(i) Investment Advisory Agreement between the Trust and Marketocracy
Capital Management, LLC - Filed Herewith.

(ii) Investment Advisory Agreement between the Trust and Ingenuity
Capital Management, LLC(2)

(e) Underwriting Agreement (1)

(f) Bonus or Profit Sharing Contracts - Not applicable

(g) Custody Agreement (1)

(h) Other Material Contracts

(i) Administration Agreement between the Trust and Marketocracy
Capital Management, LLC - Filed Herewith

(ii) Administration Agreement between the Trust and Ingenuity Capital
Management, LLC (1)

(iii) Transfer Agent Servicing Agreement (1)

(iv) Fund Accounting Servicing Agreement (1)

(i) Opinion and Consent of Counsel - Filed Herewith.

(j) Consent of Independent Public Accountants - Filed Herewith.

(k) Omitted Financial Statements - Not Applicable

(l) Agreement Relating to Initial Capital (1)

(m) Rule 12b-1 plan - Not Applicable

(n) Rule 18f-3 plan - Not Applicable

(o) Reserved

(p) Code of Ethics (3)

(1) Incorporated by Reference to Registrant's Pre-Effective Amendment No. 2 of
Form N-1a filed October 14, 1999.
(2) Incorporated by Reference to Registrant's Pre-Effective Amendment No. 3 of
Form N-1a filed November 24, 1999.
(3) Incorporated by Reference to Registrant's Post-Effective Amendment No. 1 of
Form N-1a filed October 13, 2000.

Item 24. Persons Controlled by or Under Common Control with Registrant.

No person is directly or indirectly controlled by or under common
control with the Registrant.

Item 25. Indemnification.

Reference is made to Article VII, Section 7.02 of the Registrant's Agreement and
Declaration of Trust.

Pursuant to Rule 484 under the Securities Act of 1933, as Amended, the
registrant furnishes the following undertaking: "insofar as indemnification for
liability arising under the securities act of 1933 (the "act") may be permitted
to trustees, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that, in the
opinion of the securities and exchange commission such indemnification is
against public policy as expressed in the act and is, therefore, unenforceable.
in the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a trustee,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue."

Item 26. Business and other Connections of the Iinvestment Adviser

(a) Inapplicable

(b) Inapplicable

Item 27. Principal Underwriters.

(a) Rafferty Capital Markets, Inc., 1311 Mamaroneck Avenue, White
Plains, New York 10605, serves as principal underwriter for the
Ingenuity Capital Trust, Potomac Funds, Badgley Funds, Homestate
Group, Texas Capital Value Funds, Brazos Mutual Funds, Bremer
Investment Funds, Inc., Bearguard Funds, Inc., Kirr Marbauch
Partners Funds, Inc., Golf Associated Fund and Leuthold Funds.

(b) The director and officers of Rafferty Capital Markets, Inc. are:

Positions and Offices Position and Offices
Name With Underwriter With Registrant
---- ---------------- ---------------
Thomas A. Mulrooney President None
Lawrence C. Rafferty Director None
Stephen P. Sprague CFO/FINOP None

The principal business address of each of the persons listed above is
1311 Mamaroneck Avenue, White Plains, New York 10605.

item 28. Location of Accounts and Records.

The books and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 are maintained in the physical possession of
the Marketocracy Funds' investment advisers, administrators, custodian,
subcustodian, or transfer agent.

item 29. Management Services Not Discussed in Parts A and B.

Inapplicable

item 30. Undertakings.

The Registrant hereby undertakes to furnish each person to whom a
Prospectus for one or more of the series of the Registrant is delivered with a
copy of the relevant latest annual report to shareholders, upon request and
without charge.

Signatures

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this amendment to the Registration Statement to be signed below on its behalf by
the undersigned, thereunto duly authorized, in the City of Los Altos and the
State of California on the 20th day of December, 2000.

MARKETOCRACY FUNDS

By: /s/ Kendrick W. Kam*
-----------------------
Kendrick W. Kam, President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on December 20, 2000.

Signature Title

/s/ Kendrick W. Kam* President and Trustee
-------------------
Kendrick W. Kam

/s/ Arthur L. Roth* Trustee, Chairman of the Board
------------------
Arthur L. Roth

/s/ William J. Scilacci* Trustee
-----------------------
William J. Scilacci

* By: /s/ Elaine E. Richards
------------------------
Elaine E. Richards

Signed as attorney-in-fact pursuant to a Power of Attorney dated August 16, 1999
with Pre-Effective Amendment No. 2 on form N-1a filed October 14, 1999.

EXHIBIT INDEX

Exhibit

(d)(i) Form of Investment Advisory Agreement between Marketocracy
Capital Management, LLC and Marketocracy Funds on behalf of The
ChangeWave Fund and The Technology Plus Fund

(h)(i) Admisntration Agreement between Marketocracy Funds and
Marketocracy Capital Management, LLC.

(i) Opinion and Consent of Counsel

(j) Consent of Independent Public Accountants