As filed with the Securities and Exchange Commission on January 11, 2000
Securities Act Registration No: 333-82833
Investment Company Act Registration No: 811-09445
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ X ] Pre-Effective Amendment No. 1 [ ] Post-Effective Amendment No. ___
(Check appropriate box or boxes)
INGENUITY CAPITAL TRUST
(Exact Name of Registrant as Specified in Charter)
26888 Almaden Court
LOS ALTOS, CA 94022
(Address of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
(650) 948-1216
(Registrant's Telephone Number, Including Area Code)
Kendrick W. Kam
Ingenuity 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
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective. The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as
amended, or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.
No filing fee is required under the Securities Act of 1933, as amended, because
an indefinite number of shares of beneficial interest, with par value $0.001 per
share, has previously been registered pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Pursuant to Rule 429 under the
Securities Act of 1933, this Registration Statement relates to the
aforementioned shares previously registered on Form N-1A.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-14 PART A ITEM LOCATION IN PROSPECTUS/PROXY STATEMENT
<S> <C> <C>
1 Beginning of Registration Front Cover; Cross Reference
Statement and Outside Front
Cover Page of Prospectus
2 Beginning and Outside Back Table of Contents
Cover Page of Prospectus
3 Fee Table, Synopsis Introduction; Description of the Proposed
Information, and Risk Factors Reorganization; Comparison of the Funds;
Risk Factors
4 Information About the Introduction, The Proposal, Description of
Transaction the Proposed Reorganization
5, 6 Information About the Comparison of the Funds; Risk Factors;
Registrant Further Information About the Fund and the
Acquiring Fund
7 Voting Information Shares and Voting; Vote Required
8 Interest of Certain Persons Miscellaneous Issues
9 Additional Information Not Applicable
Required for Reoffering by
Persons Deemed to be
Underwriters
FORM N-14 PART B, ITEM LOCATION IN STATEMENT OF ADDITIONAL INFORMATION
10 Cover Page Cover Page
11 Table of Contents Table of Contents
12 Additional Information About Incorporation of Documents by Reference in
the Registrant Statement of Additional Information
13 Additional Information About Not Applicable
the Company Being Acquired
14 Financial Statements Incorporation of Documents by Reference in
Statement of Additional Information
</TABLE>
FORM N-14 PART C ITEM
15-17 Information required to be included in Part C is set
forth under the appropriate item, so numbered, in
Part C of Form N-14.
THE FOLLOWING ITEMS ARE HEREBY INCORPORATED BY REFERENCE:
From Pre-Effective Amendment No. 3 to the Registration Statement of Ingenuity
Capital Trust, filed November 24, 1999 (SEC File No. 811-09445):
Prospectus for Ingenuity Medical Specialists Fund, dated December 14,
1999.
Statement of Additional Information for Ingenuity Medical Specialists
Fund, dated December 14, 1999.
From Post-Effective Amendment No. 9 of Firsthand Funds, filed August 31, 1999
(SEC File No. 811-8268):
Prospectus for Firsthand Medical Specialists Fund, dated August 31,
1999.
Statement of Additional Information for Firsthand Medical Specialists
Fund (and three other series of Firsthand Funds), dated May 11, 1999.
As previously sent to shareholders of Firsthand Medical Specialists Fund, and as
filed with the SEC pursuant to Rule 30b2-1:
Annual Report for the Firsthand Medical Specialists Fund (with other
funds of Firsthand Funds), for the fiscal year ended December 31, 1998,
as contained in the Annual Report for Firsthand Funds dated as of and
for the periods ended December 31, 1998.
Semi-Annual Report for the Firsthand Medical Specialists Fund (with
other funds of Firsthand Funds), for the semi-annual fiscal year ended
June 30, 1999, as contained in the Semi-Annual Report for Firsthand
Funds dated as of and for the periods ended June 30, 1999.
FIRSTHAND FUNDS
101 Park Center Plaza, Suite 1300
San Jose, California 95113
January __, 2000
Dear Medical Specialists Fund Shareholder,
I am writing to shareholders of the Firsthand Medical Specialists Fund ("Fund")
to inform you of a Special Meeting of Shareholders to be held on January __,
2000. Before that meeting, I would like your vote on the important issue
affecting your Fund as described in the attached Combined Prospectus/Proxy
Statement.
The meeting is being held to vote on one proposal to complete the restructuring
of the Fund. As you know, in October 1999, we held a special meeting to vote on
restructuring the adviser for the Fund ("Adviser Restructuring"). The Adviser
Restructuring was approved and as a result Interactive Research Advisers is no
longer the adviser for the Fund. Also, although I am still portfolio manager of
the Fund, I am no longer an owner, director or officer of the Interactive
Research Advisers or a Trustee of the Firsthand Funds. I have formed my own
investment advisory firm - Ingenuity Capital Management LLC - and continue to
advise your Fund through this new advisory firm.
To fully complete the restructuring of the Fund, the Board of Trustees proposes
that shareholders consider and act upon the Agreement and Plan of Reorganization
whereby your Fund would be transferred on a tax-free basis out of the Firsthand
Funds into a new mutual fund group - Ingenuity Capital Trust. Ingenuity Capital
Trust would be a group of mutual funds advised by Ingenuity Capital Management
LLC. If approved by the Fund's shareholders, this proposal will not result in
any change in your Fund's investment objective, policies or strategies.
Furthermore, there will be no tax consequences to Fund shareholders.
If this proposal is approved:
o I will continue to be portfolio manager of your Fund;
o There will be no changes to the expenses of your Fund; and
o The Fund will become a series of Ingenuity Capital Trust group of
mutual funds instead of Firsthand Funds.
The Board of Trustees of Firsthand Funds has approved the proposal and
recommends that you vote FOR this proposal.
Attached with this letter are a Notice of Special Meeting of Shareholders, a
Combined Prospectus/Proxy Statement and a proxy card. I realize that this
Prospectus/Proxy Statement will take time to review, but your vote is very
important. Regardless of the number of Fund shares you own, it is important that
your shares are represented and voted on the proposal.
Please take the time to familiarize yourself with the proposal. If you attend
the meeting, you may vote your shares in person. If you do not expect to attend
the meeting, complete, date, sign and return the enclosed proxy card in the
enclosed envelope. If you have any questions about the proxy, please call (650)
948-1216.
We thank you for your time and for your investment in your Fund.
Sincerely,
- ----------------------
KENDRICK W. KAM, PRESIDENT
INGENUITY CAPITAL MANAGEMENT LLC
FIRSTHAND FUNDS
101 Park Center Plaza
San Jose, California 95113
Firsthand Medical Specialists Fund
(650) 948-1216
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
FIRSTHAND MEDICAL SPECIALISTS FUND
TO BE HELD January __, 2000
To the Shareholders of Firsthand Medical Specialists Fund:
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting")
of shareholders of Firsthand Medical Specialists Fund (the "Fund"), a series of
Firsthand Funds, will be held at the Rickey's Hyatt Hotel, located at 4219 El
Camino Real, Palo Alto, California 94306 on January __, 2000 at 10:00 a.m.,
local time, for the following purposes:
1. To approve or disapprove a proposed reorganization of
the Fund into Ingenuity Medical Specialists Fund, a
series of Ingenuity Capital Trust.
2. To transact such other business as may properly come
before the Meeting or any adjournment(s) thereof.
Only shareholders of record at the close of business on
January __, 2000 (the "Record Date"), will be entitled to notice of and to vote
at the Meeting or any adjournment thereof.
By Order of the Board of Trustees
Secretary
San Jose, California
January ___, 2000
YOUR VOTE IS IMPORTANT REGARDLESS OF HOW MANY
SHARES YOU OWNED ON THE RECORD DATE.
-------------------
AS A SHAREHOLDER OF THE FIRSTHAND MEDICAL SPECIALISTS FUND, YOU ARE ASKED TO
ATTEND THE SPECIAL MEETING EITHER IN PERSON OR BY PROXY. IF YOU ARE UNABLE TO
ATTEND, WE URGE YOU TO PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED
PROXY FORM, DATE AND SIGN IT, AND RETURN IT IN THE PRE-ADDRESSED ENVELOPE
PROVIDED. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES. IN ORDER TO
AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION, WE REQUEST YOUR
COOPERATION IN MAILING YOUR PROXY PROMPTLY.
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS OF
FIRSTHAND MEDICAL SPECIALISTS FUND
ON JANUARY __, 2000
The undersigned hereby appoints each of Kendrick W. Kam and Roy W.
Adams, Jr., proxy for the undersigned, each with full power of substitution, to
represent the undersigned and to vote all of the shares of Firsthand Medical
Specialists Fund (the "Fund") of Firsthand Funds (the "Trust") which the
undersigned is entitled to vote at the Special Meeting of Shareholders of the
Fund to be held on January __, 2000 and at any adjournment thereof.
1. To approve a reorganization of the Fund into Ingenuity Medical
Specialists Fund (the "Acquiring Fund"), a series of Ingenuity
Capital Trust, which provides for (a) the transfer of all of
the net assets of the Fund to the Acquiring Fund, in exchange
for shares of the Acquiring Fund (the "Acquiring Fund Shares")
of equivalent value, (b) the pro rata distribution of such
Acquiring Fund Shares to the shareholders of the Fund in full
redemption of such shareholders' shares in the Fund, and (c)
the immediate liquidation and termination of the Fund.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
And, in their discretion, to transact any other business that may
lawfully come before the Meeting or any adjournment(s) thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES AND
WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL.
Dated:___________________________, 2000
- ---------------------------------
Signature of Shareholder
- ---------------------------------
Signature of Shareholder
When shares are registered jointly in the names of two or more persons, ALL must
sign. Signature(s) must correspond exactly with the name(s) shown. Please sign,
date and return promptly in the enclosed envelope.
-----------------------------------------
PART A
COMBINED PROXY STATEMENT AND PROSPECTUS
FOR THE REORGANIZATION OF
FIRSTHAND MEDICAL SPECIALISTS FUND
INTO
INGENUITY MEDICAL SPECIALISTS FUND
-----------------------------------------
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated: January __, 2000
FIRSTHAND FUNDS
FIRSTHAND MEDICAL SPECIALISTS FUND
AND
INGENUITY CAPITAL TRUST
INGENUITY MEDICAL SPECIALISTS FUND
This Combined Proxy Statement and Prospectus, is furnished in
connection with the solicitation of proxies by the Board of Trustees (the "Board
of Trustees") of Firsthand Funds (the "Firsthand Trust") for use at the Special
Meeting (the "Meeting") of shareholders of the Firsthand Medical Specialists
Fund (the "Fund"), a separate series of the Firsthand Trust, to be held at the
Rickey's Hyatt Hotel, 4219 El Camino Real Alto, California 94306 on January ___,
2000, at 10 a.m. local time.
At the Meeting, the shareholders of the Fund will be asked to vote on
the approval or disapproval of a proposed reorganization (the "Reorganization")
of the Fund into Ingenuity Medical Specialists Fund (the "Acquiring Fund"), a
series of Ingenuity Capital Trust (the "Ingenuity Trust"). The Reorganization
will include (a) the transfer of all of the assets and liabilities of the Fund
to the Acquiring Fund in exchange for shares of the Acquiring Fund (the
"Acquiring Fund Shares") of equivalent value to the assets and liabilities
transferred, (b) the pro rata distribution of such Acquiring Fund Shares to
shareholders of record of the Fund as of the effective date of the
Reorganization (the "Effective Date") in full redemption of such shareholders'
shares in the Fund, and (c) the immediate liquidation and termination of the
Fund. As a result of the Reorganization, each shareholder of the Fund as of the
Effective Date will hold Acquiring Fund Shares having the same aggregate net
asset value as the shares of the Fund held by such shareholder immediately
before consummation of the Reorganization. Lawyers for the Fund will issue an
opinion to the effect that for federal income tax purposes, the Reorganization
will be treated as a tax-free reorganization that will not cause the Fund's
shareholders to recognize a gain or loss for federal income tax purposes. See
Section II.A.3 below.
Both the Firsthand Trust and the Ingenuity Trust are open-end
management investment companies. The investment objective of both the Fund and
the Acquiring Fund is long-term growth of capital. The Board of Trustees,
including the non-interested Trustees, have determined that it is in the best
interest of the Fund and its shareholders for the Fund to be reorganized into
the Ingenuity Medical Specialists Fund. In making this determination, the Board
of Trustees considered the fact that Mr. Kam, the portfolio manager of the Fund,
was no longer a shareholder or employee of Interactive Research Advisers, Inc.,
the investment adviser for the other Firsthand Funds. The Board further
considered the fact that in connection with the reorganization, Mr. Kam resigned
as a Trustee of the Firsthand Trust, established his own advisory firm and as of
September 10, 1999, Mr. Kam's new firm, Ingenuity Capital Management LLC, has
managed the Fund. The Board of Trustees concluded that Mr. Kam could give more
guidance on the investment style and philosophy of the Fund in a separate trust
entity.
This Combined Proxy Statement and Prospectus sets forth concisely the
information that a shareholder of the Fund should know before voting on the
proposal. It should be read and retained for future reference.
The registration statement for the Acquiring Fund (which includes the
Prospectus and the Statement of Additional Information for the Acquiring Fund
dated December 14, 1999) , the Prospectus for the Fund dated August 31, 1999,
the combined Statement of Additional Information relating to the Fund (as well
as certain other mutual funds in the Firsthand Family of Funds) dated May 11,
1999, and the Statement of Additional Information relating to this Combined
Proxy Statement and Prospectus of even date herewith, are on file with the SEC
and are incorporated by reference herein. A copy of the Prospectus of the
Acquiring Fund dated December 14, 1999 and a copy of the Prospectus of the Fund
dated August 31, 1999 accompany this document.
The Statement of Additional Information of the Acquiring Fund dated
December 14, 1999, the Statement of Additional Information of the Fund (as well
as certain other Firsthand Funds) dated May 11, 1999 and the Statement of
Additional Information relating to this Combined Proxy Statement and Prospectus
of even date herewith are available without charge by writing to Ingenuity
Capital Management LLC, 26888 Almaden Court, Los Altos, California 94022 or by
calling (650) 948-1216.
The Annual Report to Shareholders of the Fund for the fiscal year ended
December 31, 1998 containing audited financial statements of the Fund and the
Semi-Annual Report to Shareholders of the Fund for the fiscal period ended June
30, 1999 containing unaudited financial statements of the Fund have previously
been mailed to each shareholder entitled to vote at the Meeting. Additional
copies of that Annual Report and/or Semi-Annual Report are available without
charge by writing or calling the Trust at its address and telephone number
listed above. The Acquiring Fund is a new series of Ingenuity Trust and has not
commenced operations. Therefore, no Annual Report to Shareholders of the
Acquiring Fund is available. It is expected that this Combined Proxy Statement
and Prospectus will be mailed to shareholders on or about January __, 2000.
The principal executive offices of the Firsthand Trust are located at
101 Park Center Plaza, Suite 1300, San Jose, California 95113 (telephone: (408)
294-2200). The principal executive offices of the Ingenuity Trust are located at
26888 Almaden Court, Los Altos, California 94022 (telephone: (650) 948-1216).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
I. INTRODUCTION.............................................................4
A. BACKGROUND AND SUMMARY................................................4
B. THE PROPOSAL..........................................................5
C. COMPARISON OF EXPENSES................................................6
D. SHARES AND VOTING.....................................................7
II. THE PROPOSAL: APPROVAL OF THE PROPOSED REORGANIZATION................8
A. DESCRIPTION OF THE PROPOSED REORGANIZATION............................8
1. THE REORGANIZATION.................................................8
2. EFFECT OF THE REORGANIZATION.......................................9
3. FEDERAL INCOME TAX CONSEQUENCES...................................10
4. DESCRIPTION OF THE ACQUIRING FUND SHARES..........................11
5. CAPITALIZATION....................................................11
B. COMPARISON OF THE FUNDS..............................................11
1. INVESTMENT OBJECTIVES AND POLICIES................................11
2. INVESTMENT RESTRICTIONS...........................................12
3. COMPARATIVE PERFORMANCE INFORMATION...............................13
4. ADVISORY FEES AND OTHER EXPENSES..................................14
5. DISTRIBUTION AND SHAREHOLDER SERVICES.............................14
6. DISTRIBUTION PLANS................................................15
7. ADMINISTRATION, CUSTODY, FUND ACCOUNTING AND TRANSFER AGENCY
SERVICES..........................................................15
8. PURCHASE PROCEDURES...............................................16
9. REDEMPTION AND EXCHANGE PROCEDURES................................16
10. INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES........16
11. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS...............17
12. SHAREHOLDERS'RIGHTS............................................17
C. RISK FACTORS.........................................................18
D. RECOMMENDATION OF THE BOARDS OF TRUSTEES.............................18
E. DISSENTERS'RIGHTS OF APPRAISAL.......................................19
F. FURTHER INFORMATION ABOUT THE FUND AND THE ACQUIRING FUND............19
G. VOTE REQUIRED.....................................................19
H. FINANCIAL HIGHLIGHTS..............................................20
III. MISCELLANEOUS ISSUES.................................................21
A. OTHER BUSINESS.......................................................21
B. NEXT MEETING OF SHAREHOLDERS.........................................21
C. LEGAL MATTERS........................................................21
D. EXPERTS..............................................................21
I. INTRODUCTION
A. BACKGROUND AND SUMMARY
In September this year, shareholders of the Fund were asked to approve
a new investment advisory agreement with Ingenuity Capital Management LLC
("Ingenuity"), an investment advisory firm organized by Mr. Kendrick Kam. Mr.
Kam is, and always has been, the sole portfolio manager of the Firsthand Medical
Specialists Fund. In connection with the reorganization of Interactive Research
Advisers, Inc. ("Interactive Advisers"), Mr. Kam ceased to be a shareholder and
officer of Interactive Advisers and as of September 10, 1999, Mr. Kam continued
to advise the Fund under his new investment advisory company - Ingenuity.
In this combined proxy statement and prospectus, Mr. Kam is seeking
approval by the Fund's shareholders to reorganize the Fund out of the Firsthand
Funds mutual funds group to become a fund in a separate mutual fund family
organized by Mr. Kam. This transfer would be accomplished by reorganizing the
Fund into a new series of Ingenuity Capital Trust (the "Ingenuity Trust") called
the Ingenuity Medical Specialists Fund (the "Acquiring Fund"). Following this
reorganization, the shareholders of the Fund would become shareholders of the
Acquiring Fund. The Acquiring Fund will be the sole initial series of Ingenuity
Trust, a Delaware business trust. The proposed reorganization of the Fund into
the Ingenuity Medical Specialists Fund is called the "Reorganization."
Mr. Kam is seeking shareholders' approval for the Reorganization in
order to allow him, through Ingenuity, to continue managing the Fund in a mutual
fund environment which would allow him to manage the Fund (in its new form)
using the same investment style. Mr. Kam believes that in order to do so, he
would need to be able to advise the Fund in a situation where Mr. Kam could give
more guidance on the investment style and philosophy of the entire trust as well
as the investment advisory entity advising the trust. As of September 9, 1999,
Mr. Kam was no longer a shareholder nor an employee of Interactive Advisers, the
sponsor of the Firsthand Funds (even though he will continue as a consultant for
at least four years). In addition, on September 9, 1999, in connection with the
closing of the reorganization of Interactive Advisers, Mr. Kam resigned as a
Trustee of Firsthand Funds. Mr. Kam anticipates that his resignation as Trustee
and the termination of his employment with Interactive Advisers will diminish
his ability to manage the Fund in the style that he believes will be most
effective. Accordingly, Mr. Kam has proposed, with no objection from Interactive
Advisers or the Trustees of Firsthand Funds, to establish a Acquiring Fund group
to be advised by Mr. Kam's own investment advisory company Ingenuity, a separate
entity of which Mr. Kam will be the sole controlling shareholder. Ingenuity is
not affiliated with Interactive Advisers.
Even though the Ingenuity Trust initially would have only one series --
the Acquiring Fund -- it is anticipated that, in the future, additional series
may be added, each reflecting Mr. Kam's own unique value investment style in the
medical/health-care industry.
The cost of the Reorganization and of the Meeting and solicitation of
proxies therefor, including the cost of copying, printing and mailing of proxy
materials, will be borne by Ingenuity and not by either the Fund or the
Acquiring Fund. In addition to solicitations by mail, proxies may also be
solicited by officers of the Firsthand Trust or Ingenuity Trust, without special
compensation, by telephone, facsimile or otherwise.
B. THE PROPOSAL
At the Meeting, the shareholders of the Fund will be asked to approve
the proposed Reorganization of the Fund into the Acquiring Fund. The
Reorganization will include the transfer of all of the assets and liabilities of
the Fund to the Acquiring Fund in exchange for shares of the Acquiring Fund of
equivalent value, the pro rata distribution of such Acquiring Fund Shares to the
shareholders of the Fund in full redemption of such shareholders' shares in the
Fund, and the immediate liquidation and termination of the Fund.
The Fund and the Acquiring Fund (collectively, the "Funds") have
identical investment objectives and policies. The investment objective of both
the Fund and the Acquiring Fund is long-term growth of capital.
Investments in the Funds are subject to substantially identical risks.
See Section II.C. below.
The purchase and redemption arrangements of the Funds are substantially
identical. The Acquiring Fund and the Fund have different distribution and
exchange arrangements which are more fully discussed in Section II.B. below.
Shareholders should note that if the Reorganization is consummated,
shareholders of the Fund will no longer be able to exchange their Fund shares
into shares of another fund in the Firsthand Funds or enjoy any of the other
shareholder privileges associated with being a shareholder of a fund in the
Firsthand Funds. As discussed below, the Board of Trustees of the Trust believes
that the proposed Reorganization is in the best interests of the Fund and its
shareholders, and that the interests of existing shareholders of the Fund will
not be diluted as a result of the proposed Reorganization. See Section II.D.
below.
C. COMPARISON OF EXPENSES
The following table shows the comparative fees and expenses you may pay
if you buy and hold shares of the Fund and the Acquiring Fund (collectively, the
"Funds"). The Funds do not impose any front-end or deferred sales loads and they
do not charge shareholders for exchanging shares or reinvesting dividends.
FEES AND EXPENSES OF THE FUNDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ------------------ ------------------ ------------------
INGENUITY
FIRSTHAND INGENUITY MEDICAL
MEDICAL MEDICAL SPECIALISTS FUND
SPECIALISTS FUND SPECIALISTS FUND (PRO FORMA)
- -------------------------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Management Fee 1.50% 1.50% 1.50%
Distribution/Service (12b-1) Fee 0.00% 0.00% 0.00%
Other Expenses 0.45% 0.45% 0.45%
----- ----- -----
Total Annual Fund Operating Expenses(1) 1.95% 1.95% 1.95%
- -------------------------------------------------------------- ------------------ ------------------ ------------------
</TABLE>
(1) The Investment Advisory Agreement for the Fund and the
Acquiring Fund each limits the respective Fund's total annual
operating expenses to 1.95% of the Fund's total 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.
EXPENSE 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.
The example 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, you reinvest all dividends and capital gains distributions and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Firsthand Medical Specialists Fund $198 $612 $1,052 $2,275
- -------------------------------------------- ------------- ------------- -------------- -------------
Ingenuity Medical Specialists Fund $198 $612 $1,052 $2,275
- -------------------------------------------- ------------- ------------- -------------- -------------
Ingenuity Medical Specialists Fund (pro
forma) $198 $612 $1,052 $2,275
- -------------------------------------------- ------------- ------------- -------------- -------------
</TABLE>
D. SHARES AND VOTING
The Firsthand Trust is a Delaware business trust and is registered with
the SEC as an open-end management investment company. The Firsthand Trust
currently has four operating series, or funds, outstanding (and two additional
series currently under registration with the SEC), including the Fund. Each
series or fund has its own investment objective and policies and operates
independently for purposes of investments, dividends, other distributions and
redemptions. The Fund has only one class of shares. The Acquiring Fund also has
designated only one class of shares. The Fund's shareholders will receive shares
of the Acquiring Fund in exchange for their Fund shares if the Reorganization is
approved and consummated. In addition, neither the Acquiring Fund nor the Fund
has a plan of distribution pursuant to Rule 12b-1 as promulgated under the
Investment Company Act of 1940, as amended (the "1940 Act").
Each share of the Fund, or fraction thereof, is entitled to one vote or
corresponding fraction thereof at the Meeting. At the close of business on
January __, 2000 (the "Record Date"), the record date for the determination of
shareholders entitled to vote at the Meeting, there were _________________
shares outstanding held by _____ record holders (including omnibus accounts
representing multiple underlying beneficial owners).
All shares represented by each properly signed proxy received prior to
the Meeting will be voted at the Meeting. If a shareholder specifies how the
proxy is to be voted on any business properly to come before the Meeting, it
will be voted in accordance with such instruction. A proxy may be revoked by a
shareholder at any time prior to its use by written notice to the Trust, by
submission of a later-dated proxy or by voting in person at the Meeting. If any
other matters come before the Meeting, proxies will be voted by the persons
named therein as proxies in accordance with such persons' best judgment.
The holders of a majority of outstanding shares entitled to vote
present in person or by proxy will constitute a quorum. When a quorum is
present, approval of the proposal will require the affirmative vote of the
lesser of (i) 67% of the shares represented at the Meeting if more than 50% of
the outstanding shares is represented, or (ii) shares representing more than 50%
of the Fund's outstanding shares. The Meeting may be adjourned from time to time
by a majority of the votes properly cast upon the question of adjourning a
Meeting to another date and time, whether or not a quorum is present, and the
Meeting may be held as adjourned without further notice. The persons named in
the proxy will vote in favor of such adjournment those shares which they are
entitled to vote if such adjournment is necessary to obtain a quorum or to
obtain a favorable vote on any proposal.
For purposes of determining the presence of a quorum for transacting
business at the Meeting, abstentions and broker "non-votes" (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
on a particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are present. However, while
broker non-votes are considered "present," they are disregarded in calculating
the percentage of votes cast in favor of or against a proposal by those "voting
securities present" when the voting requirement is based on achieving a
percentage of the voting securities present in person or by proxy at the
Meeting.
As of the Record Date, the Fund's shareholders of record and (to the
Firsthand Trust's knowledge) beneficial owners who owned more than five percent
of the Fund's shares are as follows:
NAME SHARES % OWNERSHIP
Charles Schwab & Co. [ ] [ %]
101 Montgomery Street
San Francisco, California 94104
Donaldson, Lufkin & Jenrette Securities Corp. [ ] [ %]
P.O. Box 2052
Jersey City, New Jersey 07303
National Financial Services Corp. [ ] [ %]
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
The Acquiring Fund is registered and effective with the Securities and
Exchange Commission and does not have any public shareholders. Currently,
Kendrick W. Kam, Arthur L. Roth and William J. Scilacci hold all the
outstanding shares of the Acquiring Fund for organizational purposes only.
The officers and trustees of the Firsthand Trust and Ingenuity Trust,
as a group, owned of record and beneficially ____% of the outstanding voting
securities of the Fund (for organizational purposes only) and 100% of the
outstanding voting securities of the Acquiring Fund as of the Record Date.
II. THE PROPOSAL:
APPROVAL OF THE PROPOSED REORGANIZATION
A. DESCRIPTION OF THE PROPOSED REORGANIZATION
1. THE REORGANIZATION
If the Reorganization is approved, each shareholder of the
Fund will become a shareholder of the Acquiring Fund. On the Effective Date, the
Acquiring Fund will acquire the assets and liabilities of the Fund, and will
issue to the Fund the number of Acquiring Fund Shares determined by dividing the
value of the Fund's assets and liabilities so transferred by the net asset value
of one Acquiring Fund Share. The assets and liabilities of the Fund and the net
asset value of the Acquiring Fund will be calculated at the close of business on
the date immediately preceding the Effective Date (the "Valuation Date") in
accordance with the Funds' valuation procedures described in their respective
Prospectuses (in the case of the Acquiring Fund, the Prospectus dated December
14, 1999 and, in the case of the Fund, the Prospectus dated August 31, 1999).
Contemporaneously with that asset transfer, the Fund will distribute
the Acquiring Fund Shares it receives pro rata to each remaining shareholder of
the Fund based on the percentage of the outstanding shares of the Fund held of
record by that shareholder on the Valuation Date.
For example, on November 30, 1999, the value of the aggregate net
assets of the Fund was approximately $12,126,880, the total number of
outstanding Fund shares was 973,196, and the net asset value of each Acquiring
Fund Share was $12.46. Therefore, if the Effective Date had been November 30,
1999, the Acquiring Fund would have issued a total of 973,196 Acquiring Fund
Shares to the Fund, and the Fund would then have redeemed each of its then
outstanding shares in exchange for one Acquiring Fund Shares.
This distribution of the Acquiring Fund Shares by the Fund to its
shareholders in full redemption of such shareholders' Fund shares will be
accomplished by the establishment of book accounts on the Acquiring Fund's share
records in the name of the respective shareholders of the Fund, representing the
respective pro rata numbers of Acquiring Fund Shares deliverable to the Fund
shareholders. Fractional shares will be carried to the third decimal place.
Certificates evidencing the Acquiring Fund Shares will not be issued to the
Fund's shareholders.
Immediately following the Fund's pro rata liquidating distribution of
the Acquiring Fund Shares to the Fund shareholders, the Fund will liquidate and
terminate.
Consummation of the Reorganization is subject to approval by the
shareholders of the Fund and the satisfaction of certain other conditions. The
Reorganization may be abandoned at any time before the Effective Date upon the
vote of both independent trustees of the Trust's of the Board of Trustees or a
majority of the Board of Trustees of Ingenuity Trust.
Ingenuity and/or Mr. Kam will pay all costs and expenses of the
Reorganization, including those associated with the Meeting, the copying,
printing and distribution of this Combined Proxy Statement and Prospectus, and
the solicitation of proxies for the Meeting.
The above is a summary of the Reorganization. The summary does not
purport to be a complete description of the terms of the Reorganization, which
are set forth in the Agreement and Plan of Reorganization attached as EXHIBIT A
to this document.
2. EFFECT OF THE REORGANIZATION
If the Reorganization is approved and completed, shareholders of the
Fund as of the Effective Date will become shareholders of the Acquiring Fund,
which will acquire the net assets of the Fund. The net asset value of the
Acquiring Fund Shares held by each shareholder of the Fund immediately after
consummation of the Reorganization will be equivalent to the net asset value of
the Fund Shares held by that shareholder immediately before consummation of the
Reorganization.
On or before the Effective Date the Fund intends to distribute all of
its then remaining net investment income and realized capital gain.
Ingenuity, the current investment adviser to the Fund, will, after the
Reorganization, continue to be the investment adviser for the Acquiring Fund.
Interactive Advisers will cease to have any relationship with the operation of
the Fund (in its new form as the Acquiring Fund). Also, after the
Reorganization, Rafferty Capital Markets, Inc. will be distributor of the
Acquiring Fund's shares instead of CW Fund Distributors, Inc., the distributor
of shares of the Fund. It is, however, expected that the Acquiring Fund will be
managed in accordance with its existing investment objective and policies, which
are identical to that of the Fund.
3. FEDERAL INCOME TAX CONSEQUENCES
As a condition to the closing of the Reorganization, the Fund and the
Acquiring Fund must receive a favorable opinion from Paul, Hastings, Janofsky &
Walker, LLP, counsel to the Fund, substantially to the effect that, for federal
income tax purposes: (a) The transfer by the Fund of substantially all of its
assets to the Acquiring Fund solely in exchange for the Acquiring Fund Shares,
as described above, is a reorganization within the meaning of Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended (the "Code"); (b) no gain or
loss is recognized by the Fund upon the transfer of substantially all of its
assets to the Acquiring Fund in exchange solely for shares of the Acquiring Fund
Shares; (c) no gain or loss is recognized by the Acquiring Fund on receipt of
the Fund assets in exchange for the Acquiring Fund Shares; (d) the basis of the
assets of the Fund in the hands of the Acquiring Fund is, in each instance, the
same as the basis of those assets in the hands of the Fund immediately prior to
the transaction; (e) the holding period of the Fund's assets in the hands of the
Acquiring Fund includes the period during which the assets were held by the
Fund; (f) no gain or loss is recognized to the shareholders of the Fund upon the
receipt of the Acquiring Fund Shares solely in exchange for the Fund's shares;
(g) the aggregate basis of the Acquiring Fund Shares received by the Fund
shareholders is, in each instance, the same as the aggregate basis of the Fund
shares surrendered in exchange therefor; and (h) the holding period of the
Acquiring Fund Shares received by the Fund shareholders includes the holding
period during which shares of the Fund surrendered and exchanged therefor was
held, provided that such shares were held as a capital asset in the hands of the
Fund shareholders on the date of the exchange. The Trust does not intend to seek
a private letter ruling from the Internal Revenue Service with respect to the
tax effects of the Reorganization.
4. DESCRIPTION OF THE ACQUIRING FUND SHARES
Each Acquiring Fund Share issued to Fund shareholders pursuant to the
Reorganization will be duly authorized, validly issued, fully paid and
nonassessable when issued, will be transferable without restriction and will
have no preemptive or conversion rights. Each Acquiring Fund Share will
represent an equal interest in the assets of the Acquiring Fund. The Acquiring
Fund Shares will be sold and redeemed based upon the net asset value of the
Acquiring Fund next determined after receipt of the purchase or redemption
request, as described in the Acquiring Fund's Prospectus.
5. CAPITALIZATION
The capitalization of the Funds as of June 30, 1999 and their pro forma
combined capitalization as of that date after giving effect to the proposed
Reorganization are as follows:
Acquiring The
Fund Fund Pro Forma
(Unaudited) (Unaudited) Combined
---------------- ---------------- ---------------
Aggregate net assets $0** $12,126,880 $12,126,880
Shares outstanding* 0** 973,196 973,196
Net asset value per share $0.00** $12.46 $12.46
---------------- ---------------- ---------------
* Each Fund is authorized to issue an indefinite number of shares.
** The Acquiring Fund is a new series of Ingenuity Capital Trust that has
recently been declared effective with the SEC. Therefore, it has not
commenced operations.
B. COMPARISON OF THE FUNDS
A brief comparison of the Funds is set forth below. See Section II.F.
for more information.
1. INVESTMENT OBJECTIVES AND POLICIES
THE FUND / THE ACQUIRING FUND. Both the New Fund and the Fund will have
identical investment objectives and policies. The investment objective of both
the Fund and the New Fund is long-term growth of capital. In addition, each of
the Fund and the New Fund seeks to achieve their investment objectives by
investing at least sixty five percent (65%) of its assets in securities of
companies in the medical/health care industry which Ingenuity considers to have
a strong earnings growth outlook and potential for capital appreciation. The
Investment Adviser defines the medical/health care industry to include
cardiovascular medical devices, minimally invasive surgical tools,
pharmaceuticals, managed care provider and generic drugs.
The fundamental investment restrictions of the New Fund are identical
to that of the Current Fund with some additions, and cannot be changed without
the affirmative vote of a majority of each Fund's outstanding voting securities
as defined in the Investment Company Act.
2. INVESTMENT RESTRICTIONS
Both the Acquiring Fund and the Fund have identical fundamental
investment restrictions which cannot be changed without the affirmative vote of
a majority of each Fund's outstanding voting securities as defined in the 1940
Act. Neither the Acquiring Fund nor the Fund may:
a. 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, the Fund might be deemed to be an
underwriter for purposes of the Securities Act of 1933;
b. 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;
c. 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;
d. Make loans to other persons except (i) 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 (ii) 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;
e. Purchase securities on margin, but each Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities;
f. 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 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;
g. Purchase or sell puts and calls on securities, except that each Fund may
purchase and sell puts and calls on stocks and stock indices;
h. Make short sales of securities;
i. Participate on a joint or joint and several basis in any securities trading
account; or
j. Purchase the securities of any other investment company except in compliance
with the 1940 Act.
The Acquiring Fund has two additional fundamental restrictions as follows.
The Acquiring Fund may not:
a. Invest in the securities of any one industry, with the exception of
securities of companies in the medical/healthcare industry and securities issued
or guaranteed by the U.S. Government, its agencies, and instrumentalities, if as
a result, more than 20% of the Fund's total assets would be invested in the
securities of such industry. Except during temporary defensive periods, not less
than 65% of the Fund's total assets will be invented in the securities of
companies engaged in the health and biotechnology industries.
b. Issue senior securities except that the Fund may borrow money in amounts up
to 25% of the value of its total assets.
3. COMPARATIVE PERFORMANCE INFORMATION
The chart below shows the risks of investing in the Fund and how the
Fund's total return has varied from year-to-year. The table compares each Fund's
performance to the most commonly used index for its market segment. Of course,
past performance is no guarantee of future results. The Acquiring Fund has not
commenced operations. Therefore, no performance information is available.
FIRSTHAND MEDICAL SPECIALISTS FUND*
Return for the Year ended 12/31
1998
-4.55%
*During the period described above in the bar chart, the Fund's best quarter was
Q4 1998 (+31.97%) and its worst quarter was Q2, 1998 (-19.74%). Total return for
1999 through September 30, 1999 was 25.20%.
The table below indicates the average annual total return (with capital
gains and all dividends and distributions reinvested) for the Fund during the
periods ending December 31, 1998. The Acquiring Fund is a new series that is not
yet in operation. Therefore, no performance information is available.
AVERAGE ANNUAL TOTAL RETURN
ONE YEAR1 SINCE INCEPTION2
Firsthand Medical Specialists Fund -4.55% -3.21%
Ingenuity Medical Specialists Fund N/A N/A
Additional performance information on the Fund may be found in its December 31,
1998 Annual Report to Shareholders and the June 30, 1999 Semi-Annual Report to
Shareholders.
- -------------------------
1 Reflects return for the one-year period ended December 31, 1998.
2 Reflects return since inception on December 10, 1997.
4. ADVISORY FEES AND OTHER EXPENSES
The total advisory fees are identical between the Fund and the
Acquiring Fund. Currently, Ingenuity Capital Management (as defined above,
"Ingenuity") serves as investment adviser to the Fund pursuant to an Investment
Advisory Agreement between the Fund and Ingenuity dated September 10, 1999.
Prior to that day, Interactive Research Advisers served as investment adviser to
the Fund. The Fund has agreed to pay Ingenuity (and, prior to September 10,
1999, Interactive Advisers) a fee, accrued each calendar day (including weekends
and holidays) at the rate of 1.50% per annum of the daily net assets of the
Fund. However, Ingenuity (and, for periods prior to September 10, 1999,
Interactive Advisers) shall reduce such fee or, if necessary, make expense
reimbursements to the Fund to the extent required to limit the total operating
expenses of the Fund to 1.95% of its 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. For the fiscal year ended December 31, 1998, the Fund paid advisory
fees of to Interactive Advisers.
After the Reorganization, Ingenuity will serve as investment adviser to
the Acquiring Fund pursuant to a new Investment Advisory Agreement with the
Fund. The Acquiring Fund will pay Ingenuity an annual advisory fee in the same
amount and calculated in the same manner as the current fee structure between
the Fund and Ingenuity.
5. DISTRIBUTION AND SHAREHOLDER SERVICES
CW Fund Distributors, Inc., an indirect wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending (and which
is unaffiliated with Interactive Research Advisers or Ingenuity), has served as
distributor of the Fund's shares since the Fund's inception. Rafferty Capital
Markets, Inc. (which is also unaffiliated with either Ingenuity or Interactive
Advisers) will serve as distributor of the Acquiring Fund upon the effectiveness
of the Acquiring Fund's registration statement on Form N-1A.
The Acquiring Fund shares to be issued in the Reorganization will be
subject to an identical fee structure as that currently in place for the Fund.
No sales charge is imposed by either the Fund or the Acquiring Fund on either
initial purchase of shares, subsequent redemption (other than a wire transfer
fee in the case of a redemption by wire transfer), or reinvestment of dividends
or capital gains distributions.
6. DISTRIBUTION PLANS
Both the Acquired Fund and the Fund offer only one class of shares and
sell their shares directly to the public at net asset value, without any sales
load or Rule 12b-1 fee. Therefore, neither the Acquiring Fund nor the Fund has
adopted a Rule 12b-1 distribution plan and no distribution fees are charged to
the Fund.
7. ADMINISTRATION, CUSTODY, FUND ACCOUNTING AND TRANSFER AGENCY SERVICES
Pursuant to an Administration Agreement (the "Administration
Agreement") between Ingenuity Trust and the adviser, Ingenuity Capital
Management (as defined above, "Ingenuity"), Ingenuity would act as administrator
for Ingenuity Trust and provide various administrative services including (but
not limited to) arranging for the maintenance of certain books and records of
the Acquiring Fund, preparing and mailing certain documents in connection with
tax and disclosure obligations, preparing agendas and supporting documentation
for, and minutes of, meetings of the Ingenuity Trust Board of Trustees and
meetings of shareholders and coordinating all relationships between the
Acquiring Fund and its other service providers.
The administration services provided to Ingenuity Trust pursuant to the
Administration Agreement are similar in scope to the administration services
provided to the Trust pursuant to its existing administration agreement with
Interactive Research Advisers.
Pursuant to a Custody Agreement (the "Custody Agreement") between
Ingenuity Trust and Firstar Bank, N.A. ("Firstar"), Firstar would act as
custodian of the portfolio securities, cash and other property of the Acquiring
Fund. Firstar also currently serves as custodian to the Fund pursuant to an
existing custody agreement with the Firsthand Trust. The terms of the Custody
Agreement relating to custodial services are similar to the terms of the Trust's
existing custodian arrangement.
Pursuant to a transfer agency agreement (the "Transfer Agency
Agreement") between Ingenuity and Firstar Mutual Fund Services, LLC, Firstar
Mutual Fund Services, LLC would act as the transfer agent for the Acquiring
Fund. The services provided under the Transfer Agency Agreement are similar to
those provided under the Trust's existing transfer agency agreement.
8. PURCHASE PROCEDURES
The Fund generally requires a minimum initial investment of $10,000 for
regular accounts or $2,000 for IRAs, and minimum subsequent investments of $50
or more. The Acquiring Fund has identical minimum purchase requirements.
The Fund's shares are purchased at the public offering price, which is
based on the net asset value next determined after the Fund's transfer agent
receives a shareholder's order in proper form. In most cases, in order to
receive that day's public offering price, the Fund's transfer agent must receive
a shareholder's order in proper form before the close of regular trading on the
New York Stock Exchange. If a shareholder buys shares through his or her
investment representative, the representative must receive the shareholder's
order before the close of regular trading on the New York Stock Exchange to
receive that day's public offering price. The Acquiring Fund shares are
purchased using a similar method except that if a shareholder buys shares
through his or her investment representative, the transfer agent must receive
the shareholder's order from the representative before the close of regular
trading on the New York Stock Exchange to receive that day's public offering
price. To eliminate the need for safekeeping, neither the Fund nor the Acquiring
Fund will issue certificates.
Both Funds have automatic investment plans under which selected amounts
are electronically withdrawn from shareholders' accounts with banks and are
applied to purchase shares of the Funds. Both Funds provide for three methods to
purchase shares -- through an investment representative, through the Fund's
Distributor, and through the Automatic Investment Plan.
9. REDEMPTION AND EXCHANGE PROCEDURES
Shareholders of both Funds may redeem their shares at the net asset
value next determined after receipt of a written redemption request or a
telephone redemption order without the imposition of any fee or other charge.
Each Fund may involuntarily redeem a shareholder's shares if at such
time the aggregate net asset value of the shares in a shareholder's account
(other than an IRA account) is less than $10,000 (based on amounts invested,
unaffected by market fluctuations). In the event of any such redemption, a
shareholder will receive at least 60 days' notice prior to the redemption.
The Fund's shareholders may currently exchange their shares for shares
of certain other funds in the Firsthand Funds family at net asset value. Shares
of the Acquiring Fund, however, may not be exchanged into shares of any funds
within the Firsthand Funds family.
10. INCOME DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
Each of the Fund and the Acquiring Fund distributes substantially all
of its net investment income and net capital gains to shareholders each year.
Both Funds currently intend to distribute at least annually any net investment
income and any net realized capital gains. Both Funds also have identical
distribution options dividends and distributions are automatically reinvested in
additional shares of the Funds unless cash payments are specifically requested.
Shareholders of each of the Fund or the Acquiring Fund can change his or her
distribution option by notifying the transfer agent in writing.
Each Fund intends to qualify as a separate "regulated investment
company" under Subchapter M of the Code for federal income tax purposes and to
meet all other requirements that are necessary for it (but not its shareholders)
to pay no federal taxes on income and capital gains paid to shareholders in the
form of dividends. In order to accomplish this goal, each Fund must, among other
things, distribute substantially all of its ordinary income and net capital
gains on a current basis and maintain a portfolio of investments which satisfies
certain diversification criteria.
11. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
In the case of each of the Fund and the Acquiring Fund, Ingenuity is
responsible for decisions to buy and sell securities, broker-dealer selection,
and negotiation of commission rates through its capacity as adviser. In placing
orders for the Funds' portfolio transactions, Ingenuity will use its best
efforts to seek to execute portfolio transactions in a manner which, under the
circumstances, result in total costs or proceeds being the most favorable to the
Fund. In assessing the best overall terms available for any transaction,
Ingenuity considers all factors it deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commissions, if any, both for the specific transaction and on a continuing
basis. Ingenuity is not required to obtain the lowest commission or the best net
price for the Fund on any particular transaction, and are not required to
execute any order in a fashion either preferential to the Fund relative to other
accounts they manage or otherwise materially adverse to any other accounts.
12. SHAREHOLDERS' RIGHTS
Both the Firsthand Trust and Ingenuity Trust are Delaware business
trusts. Because the Acquired Fund is a series of the Firsthand Trust and the
Acquiring Fund is a series of Ingenuity Trust, their operations are governed by
their respective Trust's Declaration of Trust and By-laws and applicable
Delaware law.
The Funds normally will not hold meetings of shareholders except as
required under the Investment Company Act and Delaware law. However,
shareholders holding 10% or more of the outstanding shares of either the
Acquiring Fund or the Acquired Fund may call meetings for their respective Trust
for the purpose of voting on the removal of one or more of the Trustees.
Shareholders of each Fund have no preemptive, conversion or
subscription rights. The shares of each Fund have non-cumulative voting rights,
with each shareholder of the Funds entitled to one vote for each full share of
the Funds (and a fractional vote for each fractional share) held in the
shareholder's name on the books of the Funds as of the record date for the
action in question. On any matter submitted to a vote of shareholders, shares of
each Fund will be voted by that Fund's shareholders individually when the matter
affects the specific interest of that Fund only, such as approval of that Fund's
investment management arrangements. The shares of all the Funds will be voted in
the aggregate on other matters, such as the election of trustees and
ratification of the Board of Trustees' selection of the Funds' independent
accountants.
C. RISK FACTORS
The Acquiring Fund's portfolio, like that of the Fund, is subject to
the general risks and considerations associated with equity investing. In
addition, both the Fund and the Acquiring Fund invest primarily in companies
within the health and biotechnology segments. This makes the Funds subject to
greater risk because of their concentration of investment in a single industry
and within certain segments of the industry. For example, investments in the
health and biotechnology segments include the risk that the economic prospects,
and the share prices, of health and biotechnology companies can fluctuate
dramatically due to changes in the regulatory or competitive environments.
Furthermore, some of the securities which both the Acquiring Fund and the Fund
may invest may be of smaller companies. The securities of smaller companies
often trade less frequently and in more limited volume, and may be subject to
more abrupt or erratic price movements, than securities of larger, more
established companies. Such companies may have limited product lines, markets or
financial resources, or may depend on a limited management group. The risks of
investing in the Acquiring Fund are not expected to be greater than investing in
the Fund.
D. RECOMMENDATION OF THE BOARDS OF TRUSTEES
The Boards of Trustees of the Firsthand Trust and Ingenuity Trust
(including a majority of the independent Trustees of each trust), after due
consideration, has unanimously determined that the Reorganization is in the best
interests of the shareholders of the Fund (in the case of the Trust's Trustees)
and the Acquiring Fund (in the case of Ingenuity Trust's Trustees) and that the
interests of the existing shareholders of neither the Fund nor the Acquiring
Fund, as the case may be, would not be diluted thereby. The Boards specifically
considered the following factors:
(1) The favorable efficiencies that could result if Mr. Kam and Ingenuity were
able to continue managing the Fund under a fund complex which reflects his
investment style.
(2) All the expenses of the Reorganization are to be borne by Ingenuity and/or
Mr. Kam and that shareholders of the Fund do not need to bear any expenses.
THE TRUSTEES OF THE FIRSTHAND TRUST RECOMMEND THAT SHAREHOLDERS OF THE FUND VOTE
FOR THE ADOPTION OF THE PROPOSAL.
E. DISSENTERS' RIGHTS OF APPRAISAL
Shareholders of the Fund who object to the proposed Reorganization will
not be entitled to any "dissenters' rights" under Delaware law. However, those
shareholders have the right at any time up to the Effective Date to redeem
shares of the Fund at net asset value or to exchange such shares for shares of
the other funds offered by the Firsthand Trust without charge. After the
Reorganization, such shareholders will hold shares of the Acquiring Fund, which
may also be redeemed at net asset value in accordance with the procedures
described in the Acquiring Fund's Prospectus dated December 14, 1999.
F. FURTHER INFORMATION ABOUT THE FUND AND THE ACQUIRING FUND
Further information about the Fund is contained in its current
Prospectus dated August 31, 1999 and the Statement of Additional Information
dated May 11, 1999, which are incorporated herein by reference. Further
information about the Acquiring Fund is contained in its Prospectus dated
December 14, 1999 and the Statement of Additional Information dated December 14,
1999. Documents that relate to the Fund are available, without charge, by
writing to Firsthand Funds, 101 Park Center Plaza, Suite 1300, San Jose,
California 95113 or by calling (650) 948-1216. Copies of the Fund's prospectus
and the Acquiring Fund's Prospectus also accompany this Combined Proxy Statement
and Prospectus.
The Firsthand Trust is subject to the informational requirements of the
Securities and Exchange Act of 1934 and the 1940 Act, and in accordance
therewith files reports, proxy materials and other information with the SEC.
Such reports, proxy materials and other information can be inspected and copied
at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can be obtained at
prescribed rates from the Public Reference Branch, Office of Consumer Affairs
and Information Services, of the SEC, Washington, D.C. 20549.
G. VOTE REQUIRED
Approval of the proposed Reorganization requires the affirmative vote
of the Record Date holders of at least the lesser of (i) sixty seven percent
(67%) of the shares represented at the Meeting if more than fifty percent (50%)
of the outstanding shares is represented, or (ii) shares representing more than
fifty percent (50%) of the Fund's outstanding shares. If the shareholders of the
Fund do not approve the proposed Reorganization, or if the Reorganization is not
consummated for any other reason, then the Board of Trustees will take such
further action as it deems to be in the best interest of the Fund and its
shareholders subject to approval by the shareholders of the Fund if required by
applicable law.
H. FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance. Certain information reflects financial results for
a single Fund share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investment in the Funds (assuming
reinvestment of all dividends and distributions). The Fund's financial
statements are included in the Statement of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
FIRSTHAND MEDICAL SPECIALISTS FUND
Year Period
Ended Ended
12/31/98 12/31/97(A)
------------------------ ---------------------
<S> <C> <C>
Net asset value at beginning of period $ 10.12 $10.00
------------------------ ---------------------
Income from investment operations:
Net investment income (loss) (0.10) 0.01
Net realized and unrealized gains (losses) on
investments (0.36) 0.11
------------------------ ---------------------
Total from investment operations (0.46) 0.12
------------------------ ---------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
------------------------ ---------------------
Total distributions -- --
------------------------ ---------------------
Net asset value at end of period $9.66 $10.12
------------------------ ---------------------
Total return (4.55%) 1.20%(B)
------------------------ ---------------------
Net assets at end of period (millions) $4.5 $2.4
------------------------ ---------------------
Ratio of expenses to average net assets 1.95% 1.81%(C)
Ratio of net investment income (loss) to average net assets (1.33%) 1.75%(C)
Portfolio turnover rate 160% 0%
</TABLE>
(A) Represents the period from commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
III. MISCELLANEOUS ISSUES
A. OTHER BUSINESS
The Board of Trustees of the Trust knows of no other business to be
brought before the Meeting. However, if any other matters come before the
Meeting, it is the Board of Trustee's intention that proxies which do not
contain specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
B. NEXT MEETING OF SHAREHOLDERS
The Trust is not required and does not intend to hold annual or other
periodic meetings of shareholders except as required by the 1940 Act. If the
Reorganization is not consummated, the next meeting of the shareholders of the
Fund will be held at such time as the Board of Trustees may determine or at such
time as may be legally required. Any shareholder proposal intended to be
presented at such meeting must be received by the Trust at its office at a
reasonable time before the meeting, as determined by the Board of Trustees, to
be included in the Trust's proxy statement and form of proxy relating to such
meeting, and must satisfy all other legal requirements.
C. LEGAL MATTERS
Certain legal matters in connection with the issuance of the Acquiring
Fund Shares will be passed upon for the Ingenuity Trust by Roy W. Adams, Jr.,
Attorney at Law.
D. EXPERTS
The financial statements of the Firsthand Medical Specialists Fund for
the year ended December 31, 1998 contained in the Trust's 1999 Annual Report to
Shareholders, together with the related independent auditors reports, as stated
are incorporated herein by reference.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
EXHIBIT A
Agreement and Plan of Reorganization
FIRSTHAND MEDICAL SPECIALISTS FUND
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is made as of this 3rd day of January, 2000, by and between INGENUITY CAPITAL
TRUST ("Ingenuity Capital Trust"), a Delaware business trust, for itself and on
behalf of the Ingenuity Medical Specialists Fund (the "Acquiring Fund"), a
series of Ingenuity Capital Trust, and FIRSTHAND FUNDS ("Firsthand Funds"), a
Delaware business trust, for itself and on behalf of the Firsthand Medical
Specialists Fund (the "Acquired Fund"), a series of Firsthand Funds. Other than
the Acquired Fund, no other series of Firsthand Funds is a party to this
Agreement.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that all of the assets of the Acquired Fund be
transferred to the Acquiring Fund, and that the Acquiring Fund assume the Stated
Liabilities (as defined in paragraph 1.3) of the Acquired Fund, in exchange for
shares of the Acquiring Fund ("Acquiring Fund Shares"), and that such Acquiring
Fund Shares be distributed immediately after the Closing, as defined in this
Agreement, by the Acquired Fund to its shareholders in liquidation of the
Acquired Fund. This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
Internal Revenue Code of 1986, as amended (the "Code").
In consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto, intending to be legally
bound hereby, covenant and agree as follows:
1. REORGANIZATION OF ACQUIRED FUND
1.1 Subject to the terms and conditions herein set forth, and on the
basis of the representations and warranties contained herein, the Acquired Fund
shall assign, deliver and otherwise transfer its assets as set forth in
paragraph 1.2 (the "Fund Assets") to the Acquiring Fund and the Acquiring Fund
shall assume the Acquired Fund's Stated Liabilities. The Acquiring Fund shall,
as consideration therefor, on the Closing Date (as defined in paragraph 3.1),
deliver to the Acquired Fund full and fractional Acquiring Fund Shares, the
number of which shall be determined by dividing (a) the value of the Acquired
Fund Assets, net of the Acquired Fund's Stated Liabilities, computed in the
manner and as of the time and date set forth in paragraph 2.1, by (b) the net
asset value of one share of the Acquiring Fund computed in the manner and as of
the time and date set forth in paragraph 2.2. Such transfer, delivery and
assumption shall take place at the closing provided for in paragraph 3.1
(hereinafter sometimes referred to as the "Closing"). Immediately following the
Closing, the Acquired Fund shall distribute the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided in paragraph 1.4 hereof. Such transactions are hereinafter sometimes
collectively referred to as the "Reorganization."
1.2 (a) With respect to the Acquired Fund, the Fund Assets shall
consist of all property and assets of any nature whatsoever, including, without
limitation, all cash, cash equivalents, securities, claims and receivables
(including dividend and interest receivables) owned by the Acquired Fund, and
any prepaid expenses shown as an asset on the Acquired Fund's books on the
Closing Date.
(b) Before the Closing Date, the Acquired Fund will provide
the Acquiring Fund with information regarding its assets and its known
liabilities. The Acquired Fund reserves the right to sell or otherwise dispose
of any of the securities or other assets shown on the list of the Acquired
Fund's Assets prior to the Closing Date but will not, without the prior approval
of the Acquiring Fund, acquire any additional securities other than securities
which the Acquiring Fund is permitted to purchase in accordance with its stated
investment objective and policies.
1.3 The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring Fund will
assume all liabilities and obligations reflected on an unaudited statement of
assets and liabilities of the Acquired Fund prepared by the Administrator of the
Acquired Fund as of the Applicable Valuation Date (as defined in paragraph 2.1),
in accordance with generally accepted accounting principles consistently applied
from the prior audited period ("Stated Liabilities"). The Acquiring Fund shall
assume only the Stated Liabilities of the Acquired Fund, and no other
liabilities or obligations, whether absolute or contingent, known or unknown,
accrued or unaccrued.
1.4 Immediately following the Closing, the Acquired Fund will
distribute the Acquiring Fund Shares received by the Acquired Fund pursuant to
paragraph 1.1 pro rata to its shareholders of record determined as of the close
of business on the Closing Date ("Acquired Fund Investors") in complete
liquidation of the Acquired Fund. Such distribution will be accomplished by an
instruction, signed by an appropriate officer of Ingenuity Capital Trust, to
transfer the Acquiring Fund Shares then credited to the Acquired Fund's account
on the books of the Acquiring Fund to open accounts on the books of the
Acquiring Fund established and maintained by the Acquiring Fund's transfer agent
in the names of record of the Acquired Fund Investors and representing the
respective pro rata number of shares of the Acquiring Fund due such Acquired
Fund Investor. All issued and outstanding shares of the Acquired Fund will be
canceled simultaneously therewith on the Acquired Fund's books, and any
outstanding share certificates representing interests in the Acquired Fund will
represent only the right to receive such number of Acquiring Fund Shares after
the Closing as determined in accordance with paragraph 1.1.
1.5 If any request shall be made for a change of the registration of
shares of the Acquiring Fund to another person from the account of the
stockholder in which name the shares are registered in the records of the
Acquired Fund, it shall be a condition of such registration of shares that there
be furnished to the Acquiring Fund an instrument of transfer properly endorsed,
accompanied by appropriate signature guarantees and otherwise in proper form for
transfer and that the person requesting such registration shall pay to the
Acquiring Fund any transfer or other taxes required by reason of such
registration or establish to the reasonable satisfaction of the Acquiring Fund
that such tax has been paid or is not applicable.
1.6 Following the transfer of assets by the Acquired Fund to the
Acquiring Fund, the assumption of the Acquired Fund's Stated Liabilities by the
Acquiring Fund, and the distribution by the Acquired Fund of the Acquiring Fund
Shares received by it pursuant to paragraph 1.4, the Administrator of the
Acquired Fund shall terminate the qualification, classification and registration
of the Acquired Fund with all appropriate federal and state agencies. Any
reporting or other responsibility of the Acquired Fund is and shall remain the
responsibility of the Acquired Fund and its Administrator up to and including
the date on which the Acquired Fund is terminated and deregistered, subject to
any reporting or other obligations described in paragraph 4.9.
2 VALUATION
2.1 The value of the Acquired Fund's Fund Assets shall be the value of
such assets computed as of the time at which its net asset value is calculated
pursuant to the valuation procedures set forth in the Acquiring Fund's then
current Prospectus and Statement of Additional Information (which are expected
to be similar in all material respects to the valuation procedures utilized by
the Acquired Fund) on the business day immediately preceding the Closing Date,
or at such time on such earlier or later date as may mutually be agreed upon in
writing among the parties hereto (such time and date being herein called the
"Applicable Valuation Date").
2.2 The net asset value of each share of the Acquiring Fund shall be
the net asset value per share computed on the Applicable Valuation Date, using
the market valuation procedures set forth in the Acquiring Fund's then current
Prospectus and Statement of Additional Information.
2.3 All computations of value contemplated by this Article 2 shall be
made by the Acquired Fund's Custodian in accordance with its regular practice as
pricing agent and reviewed by its independent auditors. The Acquired Fund shall
cause its Administrator to deliver a copy of its valuation report to the
Acquiring Fund at the Closing.
3 CLOSING(S) AND CLOSING DATE
3.1 The Closing for the Reorganization shall occur on February 29, 2000
and/or on such other date(s) as may be mutually agreed upon in writing by the
parties hereto (each, a "Closing Date"). The Closing(s) shall be held at the
offices of Ingenuity Capital Trust or at such other location as is mutually
agreeable to the parties hereto. All acts taking place at the Closing(s) shall
be deemed to take place simultaneously as of 10:00 a.m., local time on the
Closing Date unless otherwise provided.
3.2 The Acquiring Fund's custodian shall deliver at the Closing a
certificate of an authorized officer stating that: (a) the Fund Assets have been
delivered in proper form to the Acquiring Fund on the Closing Date and (b) all
necessary taxes including all applicable federal and state stock transfer
stamps, if any, have been paid, or provision for payment shall have been made,
by the Acquired Fund in conjunction with the delivery of portfolio securities.
3.3 Notwithstanding anything herein to the contrary, in the event that
on the Applicable Valuation Date (a) the New York Stock Exchange shall be closed
to trading or trading thereon shall be restricted or (b) trading or the
reporting of trading on such exchange or elsewhere shall be disrupted so that,
in the judgment of either Ingenuity Capital Trust or Firsthand Funds, accurate
appraisal of the value of the net assets of the Acquiring Fund or the Acquired
Fund is impracticable, the Applicable Valuation Date shall be postponed until
the first business day after the day when trading shall have been fully resumed
without restriction or disruption and reporting shall have been restored.
4 COVENANTS WITH RESPECT TO THE ACQUIRING FUND AND THE ACQUIRED FUND
4.1 With respect to the Acquired Fund, Firsthand Funds has called or
will call a meeting of Acquired Fund shareholders to consider and act upon this
Agreement and to take all other actions reasonably necessary to obtain the
approval of the transactions contemplated herein, including approval for the
Acquired Fund's liquidating distribution of Acquiring Fund Shares contemplated
hereby, and for Firsthand Funds to terminate the Acquired Fund's qualification,
classification and registration if requisite approvals are obtained with respect
to the Acquired Fund. Firsthand Funds, on behalf of the Acquired Fund, shall
prepare the notice of meeting, form of proxy and proxy statement (collectively,
"Proxy Materials") to be used in connection with such meeting. The Proxy
Materials prepared by Firsthand Funds shall not be deemed to include any
disclosure concerning Ingenuity Capital Trust. Each of Firsthand Funds and
Ingenuity Capital Trust have cooperated and shall continue to cooperate with the
other, and have furnished and shall continue to furnish the other with the
information relating to itself, and respectively, the Acquired Fund and the
Acquiring Fund, that is required by the 1933 Act, the Securities Exchange Act of
1934 (the "1934 Act"), the 1940 Act and the rules and regulations thereunder, to
be included in the proxy statement.
4.2 Firsthand Funds, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof, other than in accordance with the
terms of this Agreement.
4.3 Firsthand Funds, on behalf of the Acquired Fund, will assist the
Acquiring Fund in obtaining such information as the Acquiring Fund reasonably
requests concerning the beneficial ownership of shares of the Acquired Fund.
4.4 Subject to the provisions hereof, Ingenuity Capital Trust, Trust on
its own behalf and on behalf of the Acquiring Fund, and Firsthand Funds, on its
own behalf and on behalf of the Acquired Fund, will take, or cause to be taken,
all actions, and do, or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated herein.
4.5 Firsthand Funds, on behalf of the Acquired Fund, shall furnish to
the Acquiring Fund on the Closing Date, a final statement of the total amount of
the Acquired Fund's assets and liabilities as of the Closing Date.
4.6 Ingenuity Capital Trust, on behalf of the Acquiring Fund, has
prepared and filed with the Securities and Exchange Commission (the "SEC") a
registration statement or an amendment to an existing registration statement on
Form N-1A and a registration statement on Form N-14 under the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940 (the
"1940 Act"), as applicable, relating to the Acquiring Fund Shares.
4.7 As soon after the Closing Date as is reasonably practicable,
Firsthand Funds, on behalf of the Acquired Fund: (a) shall prepare and file all
federal and other tax returns and reports of the Acquired Fund required by law
to be filed with respect to all periods ending on or before the Closing Date but
not theretofore filed and (b) shall pay all federal and other taxes shown as due
thereon and/or all federal and other taxes that were unpaid as of the Closing
Date.
4.8 Following the transfer of assets by the Acquired Fund to the
Acquiring Fund and the assumption of the Stated Liabilities of the Acquired Fund
in exchange for Acquiring Fund Shares as contemplated herein, Firsthand Funds
will file any final regulatory reports, including but not limited to any Form
N-SAR and Rule 24f-2 filings with respect to the Acquired Fund, after the
Closing Date but prior to the date of any applicable statutory or regulatory
deadlines and also will take all other steps as are necessary and proper to
effect the termination or declassification of the Acquired Fund in accordance
with the laws of the State of Delaware and other applicable requirements.
5 REPRESENTATIONS AND WARRANTIES
5.1 Ingenuity Capital Trust, on behalf of the Acquiring Fund,
represents and warrants to Firsthand Funds and the Acquired Fund as follows:
(a) Ingenuity Capital Trust was duly created pursuant to its Agreement and
Declaration of Trust by its Trustees (the "Ingenuity Trustees") for the purpose
of acting as a management investment company under the 1940 Act and is validly
existing and in good standing under the laws of the State of Delaware, and the
Agreement and Declaration of Trust directs the Ingenuity Trustees to manage the
affairs of Ingenuity Capital Trust and grants them all powers necessary or
desirable to carry out such responsibility, including administering Ingenuity
Capital Trust's business as currently conducted by Ingenuity Capital Trust and
as described in the current Prospectuses of Ingenuity Capital Trust. Ingenuity
Capital Trust is registered as an investment company classified as an open-end
management company, under the 1940 Act and its registration with the SEC as an
investment company is in full force and effect;
(b) The Acquiring Fund is not in violation of, and the execution, delivery and
performance of this Agreement by Ingenuity Capital Trust for itself and on
behalf of the Acquiring Fund does not and will not (i) violate Ingenuity Capital
Trust's Agreement and Declaration of Trust or By-Laws, or (ii) result in a
breach or violation of, or constitute a default under, any material agreement or
material instrument, to which Ingenuity Capital Trust is a party or by which its
properties or assets are bound.
(c) Except as previously disclosed in writing to the Acquired Fund, no
litigation or administrative proceeding or investigation of or before any court
or governmental body is presently pending or, to Ingenuity Capital Trust's
knowledge, threatened against Ingenuity Capital Trust or its business, the
Acquiring Fund or any of its properties or assets, which, if adversely
determined, would materially and adversely affect Ingenuity Capital Trust or the
Acquiring Fund's financial condition or the conduct of their business, Ingenuity
Capital Trust knows of no facts that might form the basis for the institution of
any such proceeding or investigation, and the Acquiring Fund is not a party to
or subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects, or is reasonably
likely to materially and adversely affect, its business or its ability to
consummate the transactions contemplated herein;
(d) All issued and outstanding shares, including shares to be issued in
connection with the Reorganization, of the Acquiring Fund will, as of the
Closing Date, be duly authorized and validly issued and outstanding, fully paid
and nonassessable; the shares of each class of the Acquiring Fund issued and
outstanding prior to the Closing Date were offered and sold, and all shares to
be issued in connection with the Reorganization will be offered and sold, in
compliance with the applicable registration requirements, or exemptions
therefrom, of the 1933 Act, and all applicable state securities laws, and the
regulations thereunder; and the Acquiring Fund does not have outstanding any
option, warrants or other rights to subscribe for or purchase any of its shares
nor is there outstanding any security convertible into any of its shares;
(e) The execution, delivery and performance of this Agreement on behalf of the
Acquiring Fund will have been duly authorized prior to the Closing Date by all
necessary action on the part of Ingenuity Capital Trust, the Ingenuity Trustees
and the Acquiring Fund, and this Agreement will constitute a valid and binding
obligation of Ingenuity Capital Trust and the Acquiring Fund enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors, rights and to general equity
principles;
(f) On the effective date of the proxy statement, at the time of the meeting of
the Acquired Fund shareholders and on the Closing Date, any written information
furnished by Ingenuity Capital Trust with respect to the Acquiring Fund for use
in the proxy statement or any other materials provided in connection with the
Reorganization does not and will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the information provided
not misleading; and
(g) No governmental consents, approvals, authorizations or filings are required
under the 1933 Act, the 1934 Act, the 1940 Act or Delaware law for the execution
of this Agreement by Ingenuity Capital Trust, for itself and on behalf of the
Acquiring Fund, or the performance of the Agreement by Ingenuity Capital Trust
for itself and on behalf of the Acquiring Fund, except for such consents,
approvals, authorizations and filings as have been made or received, and except
for such consents, approvals, authorizations and filings as may be required
subsequent to the Closing Date.
5.2 Firsthand Funds, on behalf of the Acquired Fund, represents and
warrants to Ingenuity Capital Trust and the Acquiring Fund as follows:
(a) Firsthand Funds was duly created pursuant to its Declaration of Trust by the
Trustees (the "Firsthand Trustees") for the purpose of acting as a management
investment company under the 1940 Act and is validly existing and in good
standing under the laws of the State of Delaware, and the Agreement and
Declaration of Trust directs the Firsthand Trustees to manage the affairs of
Firsthand Funds and grants them all powers necessary or desirable to carry out
such responsibility, including administering Firsthand Funds' business as
currently conducted by Firsthand Funds and as described in the current
Prospectuses of Firsthand Funds. Firsthand Funds is registered as an investment
company classified as an open-end management company under the 1940 Act and its
registration with the SEC as an investment company is in full force and effect;
(b) Until September 9, 1999, all of the issued and outstanding shares of the
Acquired Fund have been offered and sold in compliance in all material respects
with applicable registration requirements of the 1933 Act and state securities
laws; on September 9, 1999, all issued and outstanding shares of each class of
the Acquired Fund were duly authorized and validly issued and outstanding, and
fully paid and non-assessable, and the Acquired Fund did not have outstanding
any options, warrants or other rights to subscribe for or purchase any of its
shares, nor was there outstanding any security convertible into any of its
shares;
(c) The Acquired Fund is not in violation of, and the execution, delivery and
performance of this Agreement by Firsthand Funds for itself and on behalf of the
Acquired Fund does not and will not (i) violate Firsthand Funds' Agreement and
Declaration of Trust or By-Laws, or (ii) result in a breach or violation of, or
constitute a default under, any material agreement or material instrument to
which Firsthand Funds is a party or by its properties or assets are bound;
(d) Except as previously disclosed in writing to the Acquiring Fund, to
Firsthand Funds' knowledge, until September 9, 1999, no litigation or
administrative proceeding or investigation of or before any court or
governmental body was pending or threatened against the Acquired Fund or any of
its properties or assets which, if adversely determined, would materially and
adversely affect the Acquired Fund's financial condition or the conduct of its
business; on September 9, 1999, Firsthand Funds knew of no facts that might form
the basis for the institution of any such proceeding or investigation, and until
September 9, 1999 the Acquired Fund was not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
that materially and adversely affected, or is, reasonably likely to materially
and adversely affect, its business or its ability to consummate the transactions
contemplated herein;
(e) To Firsthhand Funds' knowledge, the Statement of Assets and Liabilities,
Statements of Operations and Statements of Changes in Net Assets of the Acquired
Fund as of and for the period ended December 31, 1998, audited by Tait, Weller &
Baker (copies of which have been or will be furnished to the Acquiring Fund)
fairly present, in all material respects, the Acquired Fund's financial
condition as of such date and its results of operations for such period in
accordance with generally accepted accounting principles consistently applied,
and as of such date there were no liabilities of the Acquired Fund (contingent
or otherwise) known to Firsthand Funds that were not disclosed therein but that
would be required to be disclosed therein in accordance with generally accepted
accounting principles;
(f) Until September 9, 1999, all federal and other tax returns and reports of
Firsthand Funds and the Acquired Fund required by law to be filed have been
filed, and all taxes owed by Firsthand Funds or the Acquired Fund have been paid
so far as due, and, to Firsthand Funds' knowledge, no such return is currently
under audit and no assessment has been asserted with respect to any such return;
(g) To Firsthand Funds' knowledge, for each full and partial taxable year from
its inception through September 9, 1999, the Acquired Fund has qualified as a
separate regulated investment company under the Code and has taken all necessary
and required actions to maintain that status;
(h) To Firsthand Funds' knowledge, at September 9, 1999, the Acquired Fund had
good and marketable title to the Fund Assets and full right, power and authority
to assign, deliver and otherwise transfer such Fund Assets hereunder;
(i) The execution, delivery and performance of this Agreement on behalf of the
Acquired Fund has been duly authorized by all necessary action on the part of
Firsthand Funds and the Firsthand Trustees (other than approval of shareholders
of the Acquired Fund), and this Agreement will constitute a valid and binding
obligation of Firsthand Funds and the Acquired Fund enforceable in accordance
with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors, rights and to general equity
principles;
(j) From the effective date of the Proxy Materials, through the time of the
meeting of the Acquired Fund Investors, and on the Closing Date: (i) the Proxy
Materials will comply in all material respects with the applicable provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the regulations thereunder and
(ii) any written information furnished by Firsthand Funds, on behalf of the
Acquired Fund, for use in the Proxy Materials or in any other manner that may be
necessary in connection with the transactions contemplated hereby does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the information provided not misleading; and
(k) No governmental consents, approvals, authorizations or filings are required
under the 1933 Act, the 1934 Act, the 1940 Act or Delaware law for the execution
of this Agreement by Firsthand Funds, for itself and on behalf of the Acquired
Fund, or the performance of the Agreement by Firsthand Funds for itself and on
behalf of the Acquired Fund, except for such consents, approvals, authorizations
and filings as have been made or received, and except for such consents,
approvals, authorizations and filings as may be required subsequent to the
Closing Date.
(l) The phrase "to Firsthand Funds' knowledge" means the actual, present
knowledge of the officers of Firsthand Funds, excluding Kendrick W. Kam.
6 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRED FUND
The obligations of Firsthand Funds to consummate the
Reorganization with respect to the Acquired Fund shall be subject to the
performance by Ingenuity Capital Trust, for itself and on behalf of the
Acquiring Fund, of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions with
respect to the Acquiring Fund (except as may be waived in writing by Firsthand
Funds):
6.1 All representations and warranties of Ingenuity Capital Trust with
respect to the Acquiring Fund contained herein shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated herein, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
6.2 Ingenuity Capital Trust, on behalf of the Acquiring Fund, shall
have delivered to the Acquired Fund at the Closing a certificate executed on
behalf of the Acquiring Fund by Ingenuity Capital Trust's President, Secretary
or Assistant Secretary in a form reasonably satisfactory to the Acquired Fund
and dated as of the Closing Date, to the effect that, to the best of such
officer's knowledge and belief, the factual representations and warranties of
Ingenuity Capital Trust with respect to the Acquiring Fund made herein are true
and correct in all material respects at and as of the Closing Date, except as
they may be affected by the transactions contemplated herein, and as to such
other matters as the Acquired Fund shall reasonably request.
6.3 As of the Closing Date, there shall have been no material change in
the investment objective, policies and restrictions nor any material change in
the investment management fees, other fees payable for services provided to the
Acquiring Fund, fee waiver or expense reimbursement undertakings, or sales loads
of the Acquiring Fund from those fee amounts, undertakings and sales load
amounts described in the Prospectus of the Acquiring Fund included as part of a
registration statement specified in paragraph 4.6.
6.4 The Acquired Fund shall have received at the Closing a favorable
opinion of Roy W. Adams, Jr., counsel to Ingenuity Capital Trust, dated as of
the Closing Date, in a form reasonably satisfactory to the Acquired Fund,
substantially to the effect that:
(a) Ingenuity Capital Trust is a duly registered, open-end, management
investment company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect; (b) Ingenuity Capital Trust is a
business trust duly created pursuant to its Agreement and Declaration of Trust,
is validly existing and in good standing under the laws of the State of
Delaware, and the Agreement and Declaration of Trust directs the Ingenuity
Trustees to manage the affairs of Ingenuity Capital Trust and grants them all
powers necessary or desirable to carry out such responsibility, including
administering the Acquiring Fund's business as described in the current
Prospectus of the Acquiring Fund; (c) the Acquiring Fund is a validly
established separate series of Ingenuity Capital Trust, (d) this Agreement has
been duly authorized, executed and delivered by Ingenuity Capital Trust on
behalf of the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement on behalf of the Acquired Fund, is a valid and
binding obligation of Ingenuity Capital Trust, enforceable against Ingenuity
Capital Trust in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, arrangement, moratorium and other
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; (e) the Acquiring Fund Shares to be issued to
the Acquired Fund and then distributed to the Acquired Fund Investors pursuant
to this Agreement are duly registered under the 1933 Act on the appropriate
form, and are duly authorized and upon such issuance will be validly issued and
outstanding, fully paid and non-assessable; and (f) a Registration Statement of
Ingenuity Capital Trust has been filed with the SEC with respect to the
Acquiring Fund and has become effective and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
threatened.
7 CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND
The obligations of Ingenuity Capital Trust to consummate the
Reorganization with respect to the Acquiring Fund shall be subject to the
performance by Firsthand Funds of all the obligations to be performed by it
hereunder, with respect to the Acquired Fund, on or before the Closing Date and,
in addition thereto, the following conditions (except as may be waived in
writing by Ingenuity Capital Trust):
7.1 All representations and warranties of Firsthand Funds with respect
to the Acquired Fund contained herein shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date, with the
same force and effect as if made on and as of the Closing Date (except to the
extent a different date is specified in the representation).
7.2 Firsthand Funds, on behalf of the Acquired Fund, shall have
delivered to the Acquiring Fund at the Closing a certificate executed on behalf
of the Acquired Fund, by Firsthand Funds' President, Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Acquiring Fund
and dated as of the Closing Date, to the effect that the representations and
warranties of Firsthand Funds with respect to the Acquired Fund made herein are
true and correct at and as of the Closing Date except to the extent a different
date is specified in the representations, and except as they may be affected by
the transactions contemplated herein and as to such other matters as the
Acquiring Fund shall reasonably request.
7.3 With respect to the Acquired Fund, the Board of Trustees of
Firsthand Funds shall have determined that the Reorganization is in the best
interests of the Acquired Fund and shall have made all the determinations
required by Rule 17a-8 under the 1940 Act.
8 FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND.
The obligations of the Acquiring Fund and of the Acquired Fund
herein are each subject to the further conditions that on or before the Closing
Date with respect to the Acquiring Fund and the Acquired Fund:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of Firsthand Funds'
Declaration of Trust and the requirements of the 1940 Act, and certified copies
of the resolutions evidencing such approval shall have been delivered to the
Acquiring Fund.
8.2 On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or any of the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders,
approvals and permits of federal, state and local regulatory authorities
(including, without limitation, those of the SEC) deemed necessary by Ingenuity
Capital Trust, on behalf of the Acquiring Fund, or Firsthand Funds, on behalf of
the Acquired Fund, to permit consummation, in all material respects, of the
transactions contemplated herein shall have been obtained, except where failure
to obtain any such consent, order or permit would not, in the opinion of the
party asserting that the condition to closing has not been satisfied, involve a
risk of a material adverse effect on the assets or properties of the Acquiring
Fund or the Acquired Fund.
8.4 The registration statement of Ingenuity Capital Trust registering
shares of the Acquiring Fund shall have become effective under the 1933 Act and
the 1940 Act, no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act or the 1940 Act.
8.5 The Acquired Fund shall have declared and paid a dividend or
dividends which, together with all previous such dividends, shall have the
effect of distributing to the Acquired Fund's shareholders substantially all of
the Acquired Fund's investment company taxable income for all taxable years
ending on or prior to the Closing Date (computed without regard to any deduction
for dividends paid) and substantially all of its net capital gain realized in
all taxable years ending on or prior to the Closing Date (after reduction for
any capital loss carryover).
8.6 Firsthand Funds shall have received the opinion of legal counsel to
Firsthand Funds (based on customary certificates and representations from
Ingenuity Capital Trust, the Acquiring Fund and the Acquired Fund) substantially
to the effect that, for federal income tax purposes:
(a) The transfer of substantially all of the Acquired Fund's assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares, as described above,
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
(b) No gain or loss will be recognized by the Acquired Fund upon the transfer of
its assets to the Acquiring Fund in exchange for Acquiring Fund Shares or upon
the distribution of Acquiring Fund Shares to the Acquired Fund's shareholders in
exchange for their shares;
(c) No gain or loss will be recognized by the Acquired Fund's shareholders upon
exchange of their shares of the Acquired Fund for the Acquiring Fund Shares;
(d) The tax basis of the Acquiring Fund Shares received by each Acquired Fund
shareholder pursuant to the Reorganization will be the same as the tax basis of
the Acquired Fund shares held by that shareholder immediately before the
Reorganization;
(e) The holding period of the Acquiring Fund Shares to be received by each
Acquired Fund shareholder will include the period during which shares of the
Acquired Fund exchanged therefor were held by that shareholder.
Notwithstanding anything herein to the contrary, neither the
Acquiring Fund, nor the Acquired Fund may waive the condition set forth in this
paragraph 8.6.
8.7 Prior to the Closing, the unamortized organization expenses of the
Acquired Fund as of the Applicable Valuation Date shall have been removed from
the books of the Acquired Fund.
9 INDEMNIFICATION
9.1 Ingenuity Capital Management and Ingenuity Capital Trust each agree
severally to indemnify Firsthand Funds, its officers, trustees and their agents
(the "Firsthand indemnified parties"), and Firsthand Funds agrees to indemnify
Ingenuity Capital Trust, its officers, trustees and their agents (the "Ingenuity
indemnified parties") from any and all claims, losses, judgments, liabilities,
fines, penalties and interest (including all reasonable attorneys' fees and
disbursements) that directly result from any actual breach or, in the case of
claims by a third party only, any alleged breach by the other party of any
representation, warranty or covenant set forth in this Agreement. No party shall
be entitled to indemnification under this Agreement unless written notice of the
events or circumstances giving rise to such claim for indemnification has been
provided to the indemnifying party or parties not later than two (2) years after
the date of the Closing. Notwithstanding the above, no indemnification is hereby
given for any act occurring after the Closing for which notice is not given
within one (1) year after the date of such Closing.
10 EXPENSES
10.1 The Acquiring Fund and the Acquired Fund shall each be reimbursed
for any expenses incurred in connection with entering into and carrying out of
the provisions of this Agreement, whether or not the transactions contemplated
are consummated. Ingenuity Capital Management LLC has agreed to bear all
expenses incurred in connection with the transactions contemplated in this
Agreement, regardless whether or not the transactions contemplated are
consummated.
11 ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 This Agreement constitutes the entire agreement between the
parties and supersedes any prior or contemporaneous understanding or
arrangement with respect to the subject matter hereof.
11.2 The representations, warranties, covenants, indemnifications and
agreement as to expenses contained in this Agreement or in any document
delivered pursuant hereto or in connection herewith shall survive the
consummation and termination of this Agreement.
12 TERMINATION
12.1 This Agreement may be terminated and the transactions contemplated
hereby may be abandoned at any time before the Closing by the mutual written
consent of Acquiring Fund and the Acquired Fund.
12.2 This Agreement may be terminated and the transactions contemplated
hereby abandoned if approval of the Reorganization is revoked before the Closing
by the Firsthand Trustees who are not interested persons of Firsthand Funds
within the meaning of Section 2(a)(19) of the 1940 Act.
13 AMENDMENTS
This Agreement may be amended, modified or supplemented in
such manner as may be mutually agreed upon in writing by the authorized officers
of Firsthand Funds, acting on behalf of the Acquired Fund and the authorized
officers of Ingenuity Capital Trust, acting on behalf of the Acquiring Fund;
provided, however, that following the meeting of the shareholders of the
Acquired Fund, no such amendment may have the effect of changing the provisions
for determining the number of shares of the Acquiring Fund to be issued to the
Acquired Fund Investors under this Agreement to the detriment of such Acquired
Fund Investors, or otherwise materially and adversely affecting the Acquired
Fund, without the Acquired Fund obtaining the Acquired Fund Investors' further
approval except that nothing in this paragraph 13 shall be construed to prohibit
the Acquiring Fund and the Acquired Fund from amending this Agreement to change
the Closing Date or Applicable Valuation Date by mutual agreement.
14 NOTICES
Any notice, report, statement or demand required or permitted
by any provision of this Agreement shall be in writing and shall be given by
prepaid telegraph, telecopy, certified mail or overnight express courier
addressed to:
For Ingenuity Capital Trust, on behalf of itself and the Acquiring Fund:
Ingenuity Capital Trust, LLC
26888 Almaden Court
Los Altos, California 94022
Attention: Kendrick W. Kam
Fax: (650) 649-2651
With copies to:
Roy W. Adams, Jr., Esq.
1024 Country Club Drive, Suite 135
Moraga, California 94556
Fax: (925) 631-0999
For Firsthand Funds, on behalf of itself and the Acquired Fund:
Interactive Research Advisers, Inc.
101 Park Center Plaza, Suite 1300
San Jose, California 95113
Attention: Kevin M. Landis
Omar N. Billawala
Fax: (408) 490-0291
15 HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
15.1 The article and paragraph headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. All references herein to Articles, paragraphs,
subparagraphs or Exhibits shall be construed as referring to Articles,
paragraphs or subparagraphs hereof or Exhibits hereto, respectively. Whenever
the terms "hereto", "hereunder", "herein" or "hereof" are used in this
Agreement, they shall be construed as referring to this entire Agreement, rather
than to any individual Article, paragraph, subparagraph or sentence.
15.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
15.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
15.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other parties. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed by its authorized officer, and attested by its
Secretary.
INGENUITY CAPITAL TRUST,
for itself and on behalf of
Ingenuity Medical Specialists Fund
By: __________________________________
Title: _______________________________
FIRSTHAND FUNDS,
for itself and on behalf of
Firsthand Medical Specialists Fund
By: _________________________________
Title: ______________________________
Consented to (regarding Sections 9 and 10 only) by:
INGENUITY CAPITAL MANAGEMENT LLC
By: ______________________________
Title: ___________________________
-----------------------------------------
PART B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE REORGANIZATION OF
FIRSTHAND MEDICAL SPECIALISTS FUND
INTO
INGENUITY MEDICAL SPECIALISTS FUND
-----------------------------------------
INGENUITY CAPITAL TRUST
------------------------------
26888 Almaden Court
Los Altos, CA 94022
(650) 948-1216
-----------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY __, 2000
FOR REGISTRATION STATEMENT ON FORM N-14
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Combined Proxy Statement and Prospectus dated
January __, 2000, which has been filed by Ingenuity Capital Trust ("Ingenuity
Trust") in connection with a Special Meeting of Shareholders of Firsthand
Medical Specialists Fund of Firsthand Funds that has been called to vote on an
Agreement and Plan of Reorganization (and the transactions contemplated
thereby). Copies of the Combined Proxy Statement and Prospectus may be obtained
at no charge by writing to Ingenuity Capital Trust at 26888 Almaden Court, Los
Altos, California 94022 or by calling (650) 948-1216 or Firsthand Funds at 101
Park Center Plaza, Suite 1300, San Jose, California 95113 or by calling (408)
294-2200.
Unless otherwise indicated, capitalized terms used herein and not
otherwise defined have the same meanings as are given to them in the Combined
Proxy Statement and Prospectus.
Further information about Ingenuity Medical Specialists Fund (the
"Acquiring Fund") is contained in the Acquiring Fund's Prospectus dated December
14, 1999. The Acquiring Funds' Statement of Additional Information, dated
December 14, 1999, is incorporated by reference in this Statement of Additional
Information and is available without charge by calling Ingenuity Capital Trust
at (650) 948-1216.
Further information about Firsthand Medical Specialists Fund (the
"Acquired Fund") is contained in the Acquired Fund's Prospectus dated August 31,
1999, and the Annual Report of the Acquired Fund for the fiscal year ended
December 31, 1998. The Acquired Funds' Statement of Additional Information (and
other series of Firsthand Funds), dated May 11, 1999, is incorporated by
reference in this Statement of Additional Information and is available without
charge by calling the Firsthand Funds at (408) 294-2200.
TABLE OF CONTENTS
PAGE
----
General Information..........................................................B-2
Documents Incorporated by reference..........................................B-2
GENERAL INFORMATION
The shareholders of Firsthand Medical Specialists Fund (the "Acquired
Fund") are being asked to approve a form of Agreement and Plan of Reorganization
(the "Plan") combining the Firsthand Medical Specialists Fund (the "Acquired
Fund") into Ingenuity Medical Specialists Fund (the "Acquiring Fund") (and the
transactions contemplated thereby). The Plan contemplates the transfer of all or
substantially all of the assets and liabilities of the Acquired Fund as of the
Effective Date to the Acquiring Fund, and the assumption by the Acquiring Fund
of the liabilities of the Acquired Fund, in exchange for shares of the Acquiring
Fund. Immediately after the Effective Date, the Acquired Fund will distribute to
its shareholders of record as of the close of business on the Effective Date the
shares of the Acquiring Fund received. The shares of the Acquiring Fund that
will be issued for distribution to the Acquired Fund's Shareholders will have an
aggregate net asset value equal to the aggregate net asset value of the shares
of the Acquired Fund held as of the Closing Date. Firsthand Funds will then take
all necessary steps to terminate the qualification, registration and
classification of the Acquired Fund. All issued and outstanding shares of the
Acquired Fund will be canceled on the Acquired Fund's books. Shares of the
Acquiring Fund will be represented only by book entries; no share certificates
will be issued.
A Special Meeting of the Acquired Fund's shareholders to consider the
transactions will be held at the offices of Rickey's Hyatt Hotel, located at
4219 El Camino Real, Palo Alto, California 94306 on January __, 2000, at 10:00
a.m., local time.
DOCUMENTS INCORPORATED BY REFERNECE
For further information about the transaction, see the Combined Proxy
Statement and Prospectus. For further information about Ingenuity Capital Trust,
Firsthand Funds, the Acquiring Fund and the Acquired Fund, see (1) the Statement
of Additional Information relating to Ingenuity Medical Specialists Fund dated
December 14, 1999, and (2) the Combined Statement of Additional Information for
the Firsthand Medical Specialists Fund (and other series of Firsthand Funds)
dated May 11, 1999, which are incorporated herein by reference and are available
without charge by calling Ingenuity Capital Trust at (650) 948-1216 or Firsthand
Funds at (408) 294-2200.
-----------------------------------------
PART C
INGENUITY CAPITAL TRUST
OTHER INFORMATION
-----------------------------------------
INGENUITY CAPITAL TRUST
-------------------------------
FORM N-14
-------------------------------
PART C
-------------------------------
ITEM 15. INDEMNIFICATION
Article VII of the Agreement and Declaration of Trust empowers the
Trustees of the Trust, to the full extent permitted by law, to purchase, with
Trust assets, insurance for indemnification from liability and to pay for all
expenses reasonably incurred or paid or expected to be paid by a Trustee or
officer in connection with any claim, action, suit or proceeding in which he or
she becomes involved by virtue of his or her capacity or former capacity with
the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall
indemnify any person who was or is a party or is threatened to be made a party
to any proceeding by reason of the fact that such person is and other amounts or
was an agent of the Trust, against expenses, judgments, fines, settlement and
other amounts actually and reasonable incurred in connection with such
proceeding if that person acted in good faith and reasonably believed his or her
conduct to be in the best interests of the Trust. Indemnification will not be
provided in certain circumstances, however, including instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the duties
involved in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "33 Act") may be permitted to the 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 33 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 33 Act
and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
(1) Amended and Restated Agreement and Declaration of Trust(1)
(2) By-Laws(1)
(3) Voting Trust Agreement - Not Applicable.
(4) Form of Agreement and Plan of Reorganization is included in Part A.
(5) Specimen Share Certificate - Not Applicable.
(6) Investment Advisory Contract(1)
(7) Underwriting Contract
(8) Bonus or Profit Sharing Contracts--Not applicable.
(9) Custodian Agreement(1)
(10) Rule 12b-1 plan and Rule 18f-3 plan - Not applicable.
(11) Consent and Opinion of Counsel as to legality of shares
(12) Opinion and Consent as to Tax Matters
(a) Legal opinion
(b) Acquiring Fund's Representation Letter
(c) Acquired Fund's Representation Letter
(13) Other Material Contracts - Administration Agreement(1)
(14) Independent Auditors' Consent - Not applicable.
(15) Not Applicable.
(16) Power of Attorney(1)
(17) Not Applicable.
(1) Incorporated by reference to the Fund's Registration Statement
filed on Form N-14 September 16, 1999.
ITEM 17. UNDERTAKINGS.
(1) Registrant agrees that, prior to any public
reoffering of the securities registered through the
use of a prospectus which is part of this
registration statement by any person or party who is
deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act of 1933, the
reoffering prospectus will contain the information
called for by the applicable registration form for
the reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable.
(2) The undersigned Registrant agrees that every
prospectus that is filed under paragraph (a) above
will be filed as part of an amendment to the
Registration Statement and will not be used until the
amendment is effective, and that, in determining any
liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new
registration statement for the securities offered
therein, and the offering of the securities at that
time shall be deemed to be the initial bona fide
offering of them.
SIGNATURES
As required by the Securities Act of 1933, this registration
statement has been signed on behalf of the Registrant, in the City of Los Altos
and State of California, on the 11th day of January 2000.
INGENUITY CAPITAL TRUST
/S/ KENDRICK W. KAM*
Kendrick W. Kam
President
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
Kendrick W. Kam* President, Treasurer, Trustee January 11, 2000
- ------------------------ of Trustees
Kendrick W. Kam
Arthur L. Roth* Chairman of the Board January 11, 2000
- ------------------------ of Trustees
Arthur L. Roth
William J. Scilacci* Trustee January 11, 2000
- ------------------------
William J. Scilacci
* By: /s/ Elaine E. Richards.
- ----------------------------------------------------
Elaine E. Richards, pursuant to a Power of Attorney filed herewith.
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of _____________, 1999, between Ingenuity
Capital Management LLC, a Delaware limited liability corporation (hereinafter
referred to as the "ICM"), as investment advisor for the Ingenuity Capital
Trust, (hereinafter referred to as the "Trust"), and Rafferty Capital Markets,
Inc. ("RCM"), a corporation organized and existing under the laws of the State
of New York.
WHEREAS the Fund is registered under the Investment Act of 1940, as
amended ("1940 Act"), as an open-end management investment company, and has
registered one or more distinct series of shares of beneficial interest
("Shares") for sale to the public under the Securities Act of 1933, as amended
("1933 Act"), and has qualified its shares for sale to the public under various
state securities laws; and
WHEREAS the Fund desires to retain RCM as principal underwriter in
connection with the offering and sale of the Shares of each series listed on
Schedule A ( as amended from time to time) to this Agreement; and
WHEREAS this Agreement has been approved by a vote of the Fund's board
of trustees or directors ("Board") and its disinterested trustees/directors in
conformity with Section 15(c) under the 1940 Act; and
WHEREAS RCM is willing to act as principal underwriter for the Fund on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows;
1. APPOINTMENT. The Fund hereby appoints RCM as its agent to be the principal
underwriter so as to hold itself out as available to receive and accept orders
for the purchase and redemption of the Shares and redemption of Shares on behalf
of the Fund, subject to the terms and for the period set forth in this
Agreement. RCM hereby accepts such appointment and agrees to act hereunder. The
Fund understands that any solicitation activities conducted on behalf of the
Fund will be conducted primarily, if not exclusively, by employees of the Fund's
sponsor who shall become registered representatives of RCM.
2. SERVICES AND DUTIES OF RCM.
(a) RCM agrees to sell Shares on a best efforts basis from
time to time during the term of this Agreement as agent for the Fund and upon
the terms described in the Registration Statement. As used in this Agreement,
the term "Registration Statement" shall mean the currently effective
registration statement of the Fund, and any supplements thereto, under the 1933
Act and the 1940 Act.
(1) RCM will hold itself available to receive purchase and redemption orders
satisfactory to RCM for Shares and will accept such orders on behalf of the
Fund. Such purchase orders shall be deemed effective at the time and in the
manner set forth in the Registration Statement.
(2) RCM, with the operational assistance of the Fund's transfer agent, shall
make Shares available through the National Securities Clearing Corporation's
Fund/SERV System.
(3) RCM shall provide to investors and potential investors only such information
regarding the Fund as the Fund shall provide or approve. RCM shall review and
file all proposed advertisements and sales literature with appropriate
regulators and consult with the Fund regarding any comments provided by
regulators with respect to such materials.
(4) The offering price of the Shares shall be the price determined in accordance
with, and in the manner set forth in, the most-current Prospectus. The Fund
shall make available to RCM a statement of each computation of net asset value
and the details of entering into such computation.
(5) RCM at its sole discretion may repurchase Shares offered for sale by the
shareholders. Repurchase of Shares by RCM shall be at the price determined in
accordance with, and in the manner set forth in, the most-current Prospectus. At
the end of each business day, RCM shall notify, by any appropriate means, the
Fund and its transfer agent of the orders for repurchase of Shares received by
RCM since the last report, the amount to be paid for such Shares, and the
identity of the shareholders offering Shares for repurchase. The Fund reserves
the right to suspend such repurchase right upon written notice to RCM. RCM
further agrees to act as agent for the Fund to receive and transmit promptly to
the Fund's transfer agent shareholder requests for redemption of Shares.
(6) RCM shall not be obligated to sell any certain number of Shares.
(7) RCM shall prepare reports for the Board regarding its activities under this
Agreement as from time to time shall be reasonably requested by the Board.
3. DUTIES OF THE FUND.
(1) The Fund shall keep RCM fully informed of its affairs and shall provide to
RCM from time to time copies of all information, financial statements, and other
papers that RCM may reasonably request for use in connection with the
distribution of Shares, including, without limitation, certified copies of any
financial statements prepared for the Fund by its independent public accountant
and such reasonable number of copies of the most current Prospectus, Statement
of Additional Information ("SAI"), and annual and interim reports as RCM may
request, and the Fund shall fully cooperate in the efforts of RCM to sell and
arrange for the sale of Shares.
(2) The Fund shall maintain a currently effective Registration Statement on Form
N-1A with the Securities and Exchange Commission (the "SEC"), maintain
qualification with applicable states and file such reports and other documents
as may be required under applicable federal and state laws. The Fund shall
notify RCM in writing of the states in which the Shares may be sold and shall
notify RCM in writing of any changes to such information. The Fund shall bear
all expenses related to preparing and typesetting such Prospectuses, SAI and
other materials required by law and such other expenses, including printing and
mailing expenses, related to the Fund's communication with persons who are
shareholders.
(3) The Fund shall not use any advertisements or other sales materials that have
not been (i) submitted to RCM for its review and approval, and (ii) filed with
the appropriate regulators.
(4) The Fund represents and warrants that its Registration Statement and any
advertisements and sales literature (excluding statements relating to RCM and
the services it provides that are based upon written information furnished by
RCM expressly for inclusion therein) of the Fund shall not contain any untrue
statement of material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that all statements or information furnished to RCM, pursuant to Section 3(a)
hereof, shall be true and correct in all material respects.
4. OTHER BROKER-DEALERS. RCM in its discretion may enter into agreements to sell
Shares to such registered and qualified retail dealers, as reasonably requested
by the Fund. In making agreements with such dealers, RCM shall not act only as
principal and not as agent for the Fund. The form of any such dealer agreement
shall be mutually agreed upon and approved by the Fund and RCM.
5. WITHDRAWAL OF OFFERING. The Fund reserves the right at any time to withdraw
all offerings of any or all Shares by written notice to RCM at its principal
office. No Shares shall be offered by either RCM or the Fund under any
provisions of this Agreement and no orders for the purchase or Sale of Shares
hereunder shall be accepted by the Fund if and so long as effectiveness of the
Registration Statement then in effect or any necessary amendments thereto shall
be suspended under any of the provisions of the 1933 Act, or if and so long as a
current prospectus as required by Section 5(b)(2) of the 1933 Act is not on file
with the SEC.
6.SERVICES NOT EXCLUSIVE. The services furnished by RCM hereunder are not to be
deemed exclusive and RCM shall be free to furnish similar services to others
so long as its services under this Agreement are not impaired thereby.
7. EXPENSES OF THE FUND. The Fund shall bear all costs and expenses of
registering the Shares with the SEC and state and other regulatory bodies, and
shall assume expenses related to communications with shareholders of the Fund
including, but not limited to, (i) fees and disbursements of its counsel and
independent public accountant; (ii) the preparation, filing, and printing of
Registration Statements and/or Prospectuses or SAIs; (iii) the preparation and
mailing of annual and interim reports, Prospectuses, SAIs, and proxy materials
to shareholders; (iv) such other expenses related to the communications with
persons who are shareholders of the Fund; and (v)the qualifications of Shares
for sale under the securities laws of such jurisdictions as shall be selected by
the Fund pursuant to Paragraph 3(b) hereof, and the costs and expenses payable
to each such jurisdiction for continuing qualification therein. In addition, the
Fund shall bear all costs of preparing, printing, mailing and filing any
advertisements and sales literature. RCM does not assume responsibility for any
expenses not assumed hereunder.
8. COMPENSATION. As compensation for the services performed and the expenses
assumed by RCM under this Agreement including, but not limited to, any
commissions paid for sales of Shares, the Fund shall pay RCM, as promptly as
possible after receipt of a quarterly invoice, a fee for services as set forth
in Schedule B to this Agreement.
9. SHARE CERTIFICATES. The Fund shall not issue certificates representing Shares
unless requested to do so by a shareholder. If such request is transmitted
through RCM, the Fund will cause certificates evidencing the Shares owned to be
issued in such names and denominations as RCM shall from time to time direct.
10. STATUS OF RCM. RCM is an independent contractor and shall be agent of the
Fund only with respect to the sale and redemption of Shares.
11. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend, and hold RCM, its
officers and directors, and any person who controls RCM within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands, or liabilities and any counsel fees incurred
in connection therewith) that RCM, its officers, directors, or any such
controlling person may incur under the 1933 Act, or under common law or
otherwise, arising out of or based upon any (i) alleged untrue statement of a
material fact contained in the Registration Statement, Prospectus, SAI or sales
literature, (ii) alleged omission to state a material fact required to be stated
in the either thereof or necessary to make the statements therein not
misleading, or (iii) failure by the Fund to comply with the terms of the
Agreement; provided, that in no event shall anything contained herein be so
construed as to protect RCM against any liability to the Fund or its
shareholders to which RCM would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations under this Agreement.
(b) The Fund shall not be liable to RCM under this Agreement
with respect to any claim made against RCM on any person indemnified unless RCM
or other such person shall have notified the Fund in writing of the claim within
a reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon RCM or such
other person (or after RCM or the person shall have received notice of service
on any designated agent). However, failure to notify the Fund of any claim shall
not relieve the Fund from any liability that it may have to RCM or any other
person against whom such action is brought otherwise than on account of this
Agreement.
(c) The Fund shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any claims subject to this Agreement. If the Fund elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Fund and satisfactory to indemnified defendants in the suit whose
approval shall not be unreasonably withheld. In the event that the Fund elects
to assume the defense of any suit and retain counsel, the indemnified defendants
shall bear the fees and expenses of any additional counsel retained by them. If
the Fund does not elect to assume the defense of a suit, it will reimburse the
indemnified defendants for the reasonable fees and expenses of any counsel
retained by the indemnified defendants. The Fund agrees to promptly notify RCM
of the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of any of its
Shares.
(d) RCM agrees to indemnify, defend, and hold the Fund, its
officers and directors, and any person who controls the Fund within the meaning
of Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities, and expenses (including the cost of investigating
or defending against such claims, demands, or liabilities and any counsel fees
incurred in connection therewith) that the Fund, its directors or officers, or
any such controlling person may incur under the 1933 Act, or under common law or
otherwise, resulting from RCM's willful misfeasance, bad faith or gross
negligence in the performance of its obligations and duties under this
Agreement, or arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by RCM to the Fund
for use in the Registration Statement, Prospectus or SAI arising out of or based
upon any alleged omission to state a material fact in connection with such
information required to be stated in either thereof or necessary to make such
information not misleading.
(e) RCM shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if RCM elects to assume the defense, the defense shall be
conducted by counsel chosen by RCM and satisfactory to the indemnified
defendants whose approval shall not be unreasonably withheld. In the event that
RCM elects to assume the defense of any suit and retain counsel, the defendants
in the suit shall bear the fees and expenses of any additional counsel retained
by them. If RCM does not elect to assume the defense of any suit, it will
reimburse the indemnified defendants in the suit for the reasonable fees and
expenses of any counsel retained by them.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective on the date first
written above or such later date as indicated in Schedule A and, unless sooner
terminated as provided herein, will continue in effect for two years from the
above written date. Thereafter, if not terminated this Agreement shall continue
in effect for successive annual periods, provided that such continuance is
specifically approved at least annually (i) by a vote of a majority of the
Fund's Board who are neither interested persons (as defined in the 1940 Act) of
the Fund ("Independent trustees/directors") or RCM, cast in person at a meeting
called for the purpose of voting on such approval, and (ii) by the Board or by
vote of a majority of the outstanding voting securities of the Fund.
(b) Notwithstanding the foregoing, this Agreement may be
terminated in its entirety at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent trustees/directors,
or by vote of a majority of the outstanding voting securities of the Fund on
sixty days' written notice to RCM or by RCM at any time, without the payment of
any penalty, on sixty days' written notice to the Fund. This Agreement will
automatically terminate in the event of its assignment.
13. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge,
or termination is sought. This Agreement may be amended with the approval of the
Board or of a majority of the outstanding voting securities of the Fund;
provided, that in either case, such amendment also shall be approved by a
majority of the Independent trustees/directors.
14. LIMITATION OF LIABILITY. The Board and shareholders of the Fund shall not be
personally liable for obligations of the Fund in connection with any matter
arising from or in connection with this Agreement. If the Fund is a
Massachusetts business trust, this Agreement is not binding upon any trustees,
officer or shareholder of the Fund individually, and no such person shall be
individually liable with respect to any action or inaction resulting from this
Agreement.
15. NOTICE. Any notice required or permitted to be given by either party to the
other shall be deemed sufficient upon receipt in writing at the other party's
principal offices.
16. MISCELLANEOUS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court decision, statute, rule, or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors. As used in this Agreement, the terms "majority
of the outstanding voting securities," "interested person," and "assignment"
shall have the same meaning as such terms have in the 1940 Act.
17. GOVERNING LAW. This Agreement shall be construed in accordance with the laws
of the State of New York and the 1940 Act. To the extent that the applicable
laws of the State of New York conflict with the applicable provisions of the
1940 Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated as of the day and year
first above written.
ATTEST: INGENUITY CAPITAL MANAGEMENT LLC
___________________________ By:______________________________
Title:_____________________________
ATTEST: RAFFERTY CAPITAL MARKETS, INC.
___________________________ By:_______________________________
Title:______________________________
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BETWEEN
INGENUITY CAPITAL MANAGEMENT LLC
AND
RAFFERTY CAPITAL MARKETS, INC.
Pursuant to Section 1 of the Distribution Agreement between Ingenuity
Capital Management LLC (the "Adviser"), on behalf of Ingenuity Capital Trust
(the "Fund"), and Rafferty Capital Markets, Inc. ("RCM"), the Adviser hereby
appoints RCM as its agent to be the principal underwriter of the Fund with
respect to its following series:
The Medical Specialist Fund
Dated___________________,1999
ROY W. ADAMS, JR.
ATTORNEY AT LAW
1024 COUNTRY CLUB DRIVE TELEPHONE: (925) 631-0222
SUITE 135 FACSIMILE: (925) 631-0999
MORAGA, CALIFORNIA 94556 E-MAIL: [email protected]
January 3, 2000
Ingenuity Capital Trust
26888 Almaden Court
Los Altos, California
94022
Re: INGENUITY CAPITAL TRUST: FILE NO. 811-09445
-------------------------------------------
Gentlemen:
I have acted as counsel to Ingenuity Capital Trust, a Delaware business
trust (the "Trust"), in connection with the Trust's Registration Statement on
Form N-14 filed on September 16, 1999 and the Trust's Registration Statement on
Form N-1A and subsequent amendments filed with the Securities and Exchange
Commission (the "Pre-Effective Amendments"), and relating to the issuance by the
Trust of an indefinite number shares of beneficial interest (the "Shares") by
the first series of the Trust, The Medical Specialists Fund (the "Fund").
In connection with this opinion, I have assumed the authenticity of all
records, documents and instruments submitted to me as originals, the genuineness
of all signatures, the legal capacity of natural persons and the conformity to
the originals of all records, documents and instruments submitted to me as
copies. I have based my opinion upon my review of the following records,
documents and instruments:
(a) the Trust's Declaration of Trust dated July 20, 1999 (the
"Declaration of Trust"); and the Trust's Certificate of Trust
dated July 9, 1999 (as filed with the Delaware Secretary of
State on July 10, 1999), as certified to me by an officer of
the Trust as being true and complete and in effect on the date
hereof;
(b) the Bylaws of the Trust dated July 20, 1999, certified to me
by an officer of the Trust as being true and complete and in
effect on the date hereof;
(c) resolutions of the Sole Trustee of the Trust adopted by
written consent on July 14, 1999, and resolutions of the Board
of Trustees at its meeting on August 16, 1999, authorizing the
establishment of the Fund and the issuance of the Shares;
(d) the Pre-Effective Amendments; and
(e) a certificate of an officer of the Trust as to certain factual
matters relevant to this opinion.
My opinion below is limited to the federal law of the United States of
America and the business trust law of the State of Delaware. I am not licensed
to practice law in the State of Delaware, and I have based my opinion below
solely on my review of Chapter 38 of Title 12 of the Delaware Code and the case
law interpreting such Chapter as reported in Delaware Laws Annotated (Aspen Law
& Business, supp. 1998). I have not undertaken a review of other Delaware law or
of any administrative or court decisions in connection with rendering this
opinion. I disclaim any opinion as to any law other than that of the United
States of America and the business trust law of the State of Delaware as
described above, and I disclaim any opinion as to any statute, rule, regulation,
ordinance, order or other promulgation of any regional or local governmental
authority.
Based on the foregoing and my examination of such questions of law as I
have deemed necessary and appropriate for the purpose of this opinion, and
assuming that (i) all of the Shares will be issued and sold for cash at the
per-share public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Pre-Effective Amendments,
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, it is my opinion that, when issued and
sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Pre-Effective
Amendments and is solely for your benefit. This opinion may not be relied upon
by you for any other purpose or relied upon by any other person, firm,
corporation or other entity for any purpose, without my prior written consent. I
disclaim any obligation to advise you of any developments in areas covered by
this opinion that occur after the date of this opinion.
I hereby consent to (i) the reference to me as Legal Counsel in the
Prospectus and Statement of Additional Information included in the Pre-Effective
Amendments, and (ii) the filing of this opinion as an exhibit to the
Pre-Effective Amendments.
Very truly yours
/s/ Roy W. Adams, Jr.
Roy W. Adams, Jr., Esq.
January 3, 1999
Firsthand Funds
101 Park Center Plaza
San Jose, California 95113
Re: Reorganization of Firsthand Medical Specialists Fund, a series
of Firsthand Funds, into Ingenuity Medical Specialists Fund, a series
of Ingenuity Capital Trust
---------------------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion as counsel for Firsthand
Medical Specialists Fund (the "Acquired Fund"), a series of the Firsthand Funds,
a Delaware business trust (the "Firsthand Trust"), with respect to certain
Federal income tax matters in connection with the reorganization transaction
between the Acquired Fund and the Ingenuity Medical Specialists Fund (the
"Acquiring Fund"), a series of the Ingenuity Capital Trust, a Delaware business
trust (the "Ingenuity Capital Trust"). This opinion is rendered in connection
with the transaction described in the Agreement and Plan of Reorganization dated
as of January 3, 2000, by and between Firsthand Trust, on behalf of the Acquired
Fund, and Ingenuity Capital Trust, on behalf of the Acquiring Fund (the
"Reorganization Agreement"), and adopts the applicable defined terms therein.
This letter and the opinion expressed herein are for delivery
to the Acquired Fund and may be relied upon only by the Acquired Fund and by its
shareholders. This opinion also may be disclosed by the Acquired Fund or any
shareholder thereof in connection with an audit or other administrative
proceeding before the Internal Revenue Service (the "Service") affecting the
Acquired Fund or any shareholder thereof or in connection with any judicial
proceeding relating to the Federal, state or local tax liability of the Acquired
Fund or any shareholder thereof.
For purposes of this opinion we have assumed the truth and
accuracy of the following facts:
The Firsthand Trust and the Ingenuity Capital Trust were duly
organized under the laws of the State of Delaware and both are open-end
management investment companies.
The Acquiring Fund is a series of the Ingenuity Capital Trust
duly established under the laws of the State of Delaware. The Acquired Fund is a
series of the Firsthand Trust duly established under the laws of the State of
Delaware. The Acquiring Fund and the Acquired Fund have an authorized capital of
an unlimited number of shares, and each outstanding share of the Acquiring Fund
and the Acquired Fund is fully paid, non-assessable, fully transferable and has
full voting rights. The shares of the Acquiring Fund issued pursuant to the
Reorganization Agreement will be fully paid, non-assessable, fully transferable
and have full voting rights.
For valid business purposes, the following transaction will
take place in accordance with the laws of the State of Delaware and pursuant to
the Reorganization Agreement:
(a) On the date of the closing (the "Closing Date"), the
Firsthand Trust will cause the Acquired Fund to transfer substantially all of
its assets to the Acquiring Fund. Solely in exchange therefor, the Ingenuity
Capital Trust will cause the Acquiring Fund to assume all of the liabilities of
the Acquired Fund and to deliver to the Acquired Fund a number of shares of
voting common stock of the Acquiring Fund which represents 50 percent or more of
the aggregate voting shares of such Acquiring Fund.
(b) The Firsthand Trust will then cause the Acquired Fund to
liquidate and distribute all of the shares of the Acquiring Fund to the
shareholders of the Acquired Fund in proportion to their respective interests in
the Acquired Fund in exchange for their shares in the Acquired Fund.
(c) The Firsthand Trust will then cause the Acquired Fund to
wind up and dissolve as soon as practicable thereafter.
In rendering the opinions stated below, we have examined and
relied upon the following, assuming the truth and accuracy of any statements
contained therein:
(1) The Reorganization Agreement;
(2) Combined Proxy Statement and Prospectus dated January __,
2000;
(3) Statement of Assets and Liabilities of the Acquired Fund;
and
(4) Such other documents, records and instruments as we have
deemed necessary in order to enable us to render the
opinions referred to in this letter.
For purposes of rendering the opinions stated below, we have
in addition relied upon the following representations by the Ingenuity Capital
Trust on behalf of Acquiring Fund and by the Ingenuity Capital Management LLC on
behalf of the Acquired Fund, as applicable:
(A) The fair market value of the shares of the Acquiring Fund
received by each shareholder of the Acquired Fund will be approximately equal to
the fair market value of the shares of the Acquired Fund surrendered in the
exchange.
(B) There is no plan or intention by the Acquiring Fund or any
person related to the Acquiring Fund, as defined in section 1.368-1(e)(3) of the
Treasury Regulations to acquire or redeem any of the stock of Acquiring Fund
issued in the transaction either directly or through any transaction, agreement,
or arrangement with any other person, other than redemptions in the ordinary
course of the Acquiring Fund's business as an open-end investment company, as
required by section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"). For this purpose, section 1.368-1(e)(3) of the Treasury Regulations
generally provides that two corporations are related if they are members of the
same affiliated group (i.e., one or more chains of corporations connected
through stock ownership with a common parent corporation where: (i) stock with
at least 80% of the total voting power and value of each corporation in the
chain is owned directly by one or more of the other corporations in the chain;
and (ii) the common parent owns directly stock with at least 80% of the voting
power and value of at least one of the corporations in the chain for
consolidated return purposes ("Affiliated Group Relationship") or if one
corporation owns stock possessing at least 50% or more of the voting power or
value of the other corporation (the "Parent-Subsidiary Relationship").
(C) During the five-year period ending on the date of the
transaction, neither the Acquired Fund nor any person related to the Acquired
Fund by having the Parent-Subsidiary Relationship will have directly or through
any transaction, agreement, or arrangement with any other person, (i) acquired
stock of the Acquired Fund with consideration other than shares of the Acquiring
Fund or the Acquired Fund (except for shares of the Acquired Fund stock acquired
from dissenters in the transaction), (ii) redeemed or made distributions with
respect to the Acquired Fund shares, except for redemptions in the ordinary
course of the Acquired Fund's business as an open-end investment company as
required by section 22(e) of the 1940 Act and distributions necessary to qualify
for the special tax treatment afforded regulated investment companies under
section 852 of the Internal Revenue Code of 1986, as amended (the "Code"), and
made in the ordinary course of the Acquired Fund's business as a qualified
regulated investment company.
(D) Prior to or in the transaction, neither the Acquiring Fund
nor any person related to the Acquiring Fund (having either the Affiliated Group
Relationship or the Parent-Subsidiary Relationship) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
stock of the Acquired Fund with consideration other than shares of the Acquiring
Fund.
(E) The Acquiring Fund will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Acquired Fund immediately prior to the
transaction. For purposes of this representation, amounts used by the Acquired
Fund to pay its reorganization expenses, amounts paid by the Acquired Fund to
shareholders who receive cash or other property, and all redemptions and
distributions (except for distributions and redemptions occurring in the
ordinary course of the Acquired Fund's business as an investment company) made
by the Acquired Fund immediately preceding the transfer have been included as
assets of the Acquired Fund held immediately prior to the transaction.
(F) After the transaction, the shareholders of the Acquired
Fund will be in control of the Acquiring Fund within the meaning of Section
368(a)(2)(H) of the Code, which provides that control means the ownership of
shares possessing at least 50 percent of the total combined voting power of all
classes of shares entitled to vote, or at least 50 percent of the total value of
all classes of shares.
(G) The Acquiring Fund has no plan or intention to reacquire
any of its shares issued in the transaction, except for acquisitions made in the
ordinary course of its business as a series of an investment company.
(H) The Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the assets of the Acquired Fund acquired in the
transaction, except for dispositions made in the ordinary course of its business
as a series of an investment company.
(I) In pursuance of the plan of reorganization, the Acquired
Fund will distribute as soon as practicable the shares of the Acquiring Fund it
receives in the transaction.
(J) The liabilities of the Acquired Fund assumed by the
Acquiring Fund plus the liabilities to which the assets are subject were
incurred by the Acquired Fund in the ordinary course of its business and are
associated with the assets transferred.
(K) The fair market value of the assets of the Acquired Fund
transferred to the Acquiring Fund will equal or exceed the sum of the
liabilities assumed by the Acquiring Fund, plus the amount of liabilities, if
any, to which the transferred assets are subject.
(L) The total adjusted basis of the assets of the Acquired
Fund transferred to the Acquiring Fund will equal or exceed the sum of the
liabilities to be assumed by the Acquiring Fund, plus the amount of liabilities,
if any, to which the transferred assets are subject.
(M) Following the transaction, the Acquiring Fund will
continue the historic business of the Acquired Fund or use a significant portion
of the Acquired Fund's historic business assets in a business.
(N) At the time of the transaction, the Acquiring Fund did not
and will not have any outstanding warrants, options, convertible securities, or
any other type of right pursuant to which any person could acquire shares in the
Acquiring Fund that, if exercised or converted, would affect the Acquired Fund's
shareholders' acquisition or retention of control of the Acquiring Fund, as
defined in Section 368(a)(2)(H) of the Code, which provides that control means
the ownership of shares possessing at least 50 percent of the total combined
voting power of all classes of shares entitled to vote, or at least 50 percent
of the total value of all classes of shares.
(O) There is no intercorporate indebtedness existing between
the Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
(P) The Acquired Fund and the Acquiring Fund meet the
requirements of a regulated investment company as defined in Sections
368(a)(2)(F)(ii) and (iii) of the Code. Section 368(a)(2)(F)(ii) requires that
not more than 25% of the value of investment company's total assets is invested
in the stock and securities of any one issuer and not more than 50% of the value
of its total assets is invested in the stock and securities of 5 or fewer
issuers. Section 368(a)(2)(F)(iii) requires that 50% or more of the value of the
investment company's total assets are stock and securities and 80% or more of
the value of its total assets are assets held for investment.
(Q) The Acquired Fund is not under the jurisdiction of a court
in a case under Title 11 of the United States Code or a receivership,
foreclosure, or similar proceeding in a Federal or state court.
Our opinions set forth in this letter are based upon the Code,
regulations of the Treasury Department, published administrative announcements
and rulings of the Service and court decisions, all as of the date of this
letter. Based on the foregoing facts and representations, and provided that the
transaction will take place in accordance with the terms of the Reorganization
Agreement, and further provided that the Acquired Fund distributes the shares of
the Acquiring Fund received in the transaction as soon as practicable, we are of
the opinion that:
(1) The transfer of substantially all of the Acquired Fund's
assets to the Acquiring Fund in exchange for shares of the Acquiring Fund, and
the distribution of shares of the Acquiring Fund ("Shares") to the Acquired Fund
shareholders in liquidation of the Acquired Fund, will constitute a
"reorganization" (the "Reorganization") within the meaning of Section 368(a) of
the Code;
(2) No gain or loss will be recognized by the Acquired Fund
upon the transfer of its assets to the Acquiring Fund in exchange for Shares or
upon the distribution of Shares to the Acquired Fund's shareholders in exchange
for their shares;
(3) No gain or loss will be recognized by the Acquired Fund's
shareholders upon exchange of their shares of the Acquired Fund shares for
Shares.
(4) The tax basis of Shares received by each Acquired Fund
shareholder pursuant to the Reorganization will be the same as the tax basis of
the Acquired Fund shares held by that shareholder immediately before the
Reorganization; and
(5) The holding period of the Shares to be received by each
Acquired Fund shareholder will include the period during which the Acquired Fund
shares exchanged therefor were held by such shareholder.
The opinions set forth above represent our conclusions as to
the application of Federal income tax law existing as of the date of this letter
to the transaction described above, and we can give no assurance that
legislative enactments, administrative changes or court decisions may not be
forthcoming which would require modifications or revocations of our opinions
expressed herein. Moreover, there can be no assurance that positions contrary to
our opinions will not be taken by the Service, or that a court considering the
issues would not hold contrary to such opinions. Further, all the opinions set
forth above represent our conclusions based upon the documents and facts
referred to above. Any material amendments to such documents or changes in any
significant facts would affect the opinions referred to herein. Although we have
made such inquiries and performed such investigation as we have deemed necessary
to fulfill our professional responsibilities, we have not undertaken an
independent investigation of the facts referred to in this letter.
We express no opinion as to any Federal income tax issue or
other matter except those set forth above.
Very truly yours,
Ingenuity Capital Trust
26888 Almaden Court
Los Altos, CA 94022
January 3, 2000
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071
Re: Reorganization of Firsthand Medical Specialists Fund, a series of
Firsthand Funds, into Ingenuity Medical Specialists Fund, a series of
Ingenuity Capital Trust
----------------------------------------------------------------------
Ladies and Gentlemen:
This letter is furnished to you in connection with the
opinions to be rendered to Firsthand Medical Specialists Fund (the "Acquired
Fund"), a series of the Firsthand Funds, a Delaware business trust (the
"Firsthand Trust"), with respect to certain Federal income tax matters in
connection with the reorganization by and between the Ingenuity Medical
Specialists Fund (the "Acquiring Fund"), a series of the Ingenuity Capital
Trust, a Delaware business trust (the "Ingenuity Capital Trust") and the
Acquired Fund, whereby: (i) the Acquired Fund will transfer substantially all of
its assets to the Acquiring Fund in exchange solely for a number of shares of
voting common stock of the Acquiring Fund which represents 50 percent or more of
the aggregate voting shares of the Acquiring Fund and the assumption of the
Acquired Fund's liabilities; (ii) the Acquired Fund will distribute, in complete
liquidation, the Acquiring Fund shares received by the Acquired Fund to the
shareholders of the Acquired Fund in exchange for their shares in the Acquired
Fund; and (iii) the Acquired Fund will dissolve as soon as practicable
thereafter. The opinion will be rendered in connection with the transaction
described in the Agreement and Plan of Reorganization dated as of January 3,
2000, by and among the Firsthand Trust, on behalf of the Acquired Fund, and the
Ingenuity Capital Trust, on behalf of the Acquiring Fund (the "Reorganization
Agreement"), and adopts the applicable defined terms therein.
A. The fair market value of the shares of the Acquiring Fund
received by each shareholder of the Acquired Fund will be approximately equal to
the fair market value of the shares of the Acquired Fund surrendered in the
exchange.
B. There is no plan or intention by the Acquiring Fund or any
person related to the Acquiring Fund, as defined in section 1.368-1(e)(3) of the
Treasury Regulations to acquire or redeem any of the stock of Acquiring Fund
issued in the transaction either directly or through any transaction, agreement,
or arrangement with any other person, other than redemptions in the ordinary
course of the Acquiring Fund's business as an open-end investment company, as
required by section 22(e) of the Investment Company Act of 1940, as amended (the
"1940 Act"). For this purpose, section 1.368-1(e)(3) of the Treasury Regulations
generally provides that two corporations are related if they are members of the
same affiliated group (i.e., one or more chains of corporations connected
through stock ownership with a common parent corporation where: (i) stock with
at least 80% of the total voting power and value of each corporation in the
chain is owned directly by one or more of the other corporations in the chain;
and (ii) the common parent owns directly stock with at least 80% of the voting
power and value of at least one of the corporations in the chain for
consolidated return purposes ("Affiliated Group Relationship") or if one
corporation owns stock possessing at least 50% or more of the voting power or
value of the other corporation (the "Parent-Subsidiary Relationship").
C. Prior to or in the transaction, neither the Acquiring Fund
nor any person related to the Acquiring Fund (having either the Affiliated Group
Relationship or the Parent-Subsidiary Relationship) will have acquired directly
or through any transaction, agreement or arrangement with any other person,
stock of the Acquired Fund with consideration other than shares of the Acquiring
Fund.
D. The Acquiring Fund will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Acquired Fund immediately prior to the
transaction. For purposes of this representation, amounts used by the Acquired
Fund to pay its reorganization expenses, amounts paid by the Acquired Fund to
shareholders who receive cash or other property, and all redemptions and
distributions (except for distributions and redemptions occurring in the
ordinary course of the Acquired Fund's business as an investment company) made
by the Acquired Fund immediately preceding the transfer have been included as
assets of the Acquired Fund held immediately prior to the transaction.
E. After the transaction, the shareholders of the Acquired
Fund will be in control of the Acquiring Fund within the meaning of Section
368(a)(2)(H) of the Internal Revenue Code of 1986, as amended (the "Code"),
which provides that control means the ownership of shares possessing at least 50
percent of the total combined voting power of all classes of shares entitled to
vote, or at least 50 percent of the total value of all classes of shares.
F. The Acquiring Fund has no plan or intention to reacquire
any of its shares issued in the transaction, except for acquisitions made in the
ordinary course of its business as a series of an investment company.
G. The Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the assets of the Acquired Fund acquired in the
transaction, except for dispositions made in the ordinary course of its business
as a series of an investment company.
H. Following the transaction, the Acquiring Fund will continue
the historic business of the Acquired Fund or use a significant portion of the
Acquired Fund's historic business assets in a business.
I. At the time of the transaction, the Acquiring Fund did not
and will not have any outstanding warrants, options, convertible securities, or
any other type of right pursuant to which any person could acquire shares in the
Acquiring Fund that, if exercised or converted, would affect the Acquired Fund's
shareholders' acquisition or retention of control of the Acquiring Fund, as
defined in Section 368(a)(2)(H) of the Code, which provides that control means
the ownership of shares possessing at least 50 percent of the total combined
voting power of all classes of shares entitled to vote, or at least 50 percent
of the total value of all classes of shares.
J. There is no intercorporate indebtedness existing between
the Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
K. The Acquiring Fund meets the requirements of a regulated
investment company as defined in Sections 368(a)(2)(F)(ii) and (iii) of the
Code. Section 368(a)(2)(F)(ii) requires that not more than 25% of the value of
the investment company's total assets is invested in the stock and securities of
any one issuer and not more than 50% of the value of its total assets is
invested in the stock and securities of 5 or fewer issuers. Section
368(a)(2)(F)(iii) requires that 50% or more of the value of the investment
company's total assets are stock and securities and 80% or more of the value of
its total assets are assets held for investment.
Very truly yours,
Ingenuity Capital Trust, a Delaware business trust, on
behalf of Ingenuity Medical Specialists Fund series
By: __________________________________
Kendrick W. Kam
Chairman of the Board and President
Firsthand Medical Specialists Fund
(a series of Firsthand Funds)
c/o Ingenuity Capital Management LLC
26888 Almaden Court
Los Altos, California 94022
January 3, 2000
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, California 90071
Re: Reorganization of Firsthand Medical Specialists Fund, a series of
Firsthand Funds, into Ingenuity Medical Specialists Fund, a series
of Ingenuity Capital Trust
------------------------------------------------------------------
Ladies and Gentlemen:
This letter is furnished to you in connection with the
opinions to be rendered to Firsthand Medical Specialists Fund (the "Acquired
Fund"), a series of the Firsthand Funds, a Delaware business trust (the
"Firsthand Trust"), with respect to certain Federal income tax matters in
connection with the reorganization by and between the Ingenuity Medical
Specialists Fund (the "Acquiring Fund"), a series of the Ingenuity Capital
Trust, a Delaware business trust (the "Ingenuity Capital Trust") and the
Acquired Fund, whereby: (i) the Acquired Fund will transfer substantially all of
its assets to the Acquiring Fund in exchange solely for a number of shares of
voting common stock of the Acquiring Fund which represents 50 percent or more of
the aggregate voting shares of the Acquiring Fund and the assumption of the
Acquired Fund's liabilities; (ii) the Acquired Fund will distribute, in complete
liquidation, the Acquiring Fund shares received by the Acquired Fund to the
shareholders of the Acquired Fund in exchange for their shares in the Acquired
Fund; and (iii) the Acquired Fund will dissolve as soon as practicable
thereafter. The opinion will be rendered in connection with the transaction
described in the Agreement and Plan of Reorganization dated as of January 3,
2000, by and among the Firsthand Trust, on behalf of the Acquired Fund, and the
Ingenuity Capital Trust, on behalf of the Acquiring Fund (the "Reorganization
Agreement"), and adopts the applicable defined terms therein.
For purposes of rendering your opinion, we understand that you
must rely upon certain matters of fact of which you do not and cannot have first
hand knowledge. After consulting with its counsel and auditors as deemed
reasonably necessary regarding the meaning of and factual support for the
following representations, the undersigned hereby certifies and represents that,
in rendering your opinion, you may rely upon the following matters of fact which
we represent to you to be true and correct as of the date hereof and will
continue to be true as of the date of closing:
A. The fair market value of the shares of the Acquiring Fund
received by each shareholder of the Acquired Fund will be approximately equal to
the fair market value of the shares of the Acquired Fund surrendered in the
exchange.
B. During the five-year period ending on the date of the
transaction, neither the Acquired Fund nor any person related to the Acquired
Fund (related defined as one corporation owns stock possessing at least 50% or
more of the voting power or value of the other corporation) will have directly
or through any transaction, agreement, or arrangement with any other person, (i)
acquired stock of the Acquired Fund with consideration other than shares of the
Acquiring Fund or the Acquired Fund (except for shares of the Acquired Fund
stock acquired from dissenters in the transaction), (ii) redeemed or made
distributions with respect to the Acquired Fund shares, except for redemptions
in the ordinary course of the Acquired Fund's business as an open-end investment
company as required by section 22(e) of the Investment Company Act of 1940, as
amended (the "1940 Act") and distributions necessary to qualify for the special
tax treatment afforded regulated investment companies under section 852 of the
Internal Revenue Code of 1986, as amended (the "Code"), and made in the ordinary
course of the Acquired Fund's business as a qualified regulated investment
company.
C. The Acquiring Fund will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by the Acquired Fund immediately prior to the
transaction. For purposes of this representation, amounts used by the Acquired
Fund to pay its reorganization expenses, amounts paid by the Acquired Fund to
shareholders who receive cash or other property, and all redemptions and
distributions (except for distributions and redemptions occurring in the
ordinary course of the Acquired Fund's business as an investment company) made
by the Acquired Fund immediately preceding the transfer have been included as
assets of the Acquired Fund held immediately prior to the transaction.
D. After the transaction, the shareholders of the Acquired
Fund will be in control of the Acquiring Fund within the meaning of Section
368(a)(2)(H) of the Code, which provides that control means the ownership of
shares possessing at least 50 percent of the total combined voting power of all
classes of shares entitled to vote, or at least 50 percent of the total value of
all classes of shares.
E. In pursuance of the plan of reorganization, the Acquired
Fund will distribute as soon as practicable the shares of the Acquiring Fund it
receives in the transaction.
F. The liabilities of the Acquired Fund assumed by the
Acquiring Fund plus the liabilities to which the assets are subject were
incurred by the Acquired Fund in the ordinary course of its business and are
associated with the assets transferred.
G. The fair market value of the assets of the Acquired Fund
transferred to the Acquiring Fund will equal or exceed the sum of the
liabilities assumed by the Acquiring Fund, plus the amount of liabilities, if
any, to which the transferred assets are subject.
H. The total adjusted basis of the assets of the Acquired Fund
transferred to the Acquiring Fund will equal or exceed the sum of the
liabilities to be assumed by the Acquiring Fund, plus the amount of liabilities,
if any, to which the transferred assets are subject.
I. There is no intercorporate indebtedness existing between
the Acquired Fund and the Acquiring Fund that was issued, acquired, or will be
settled at a discount.
J. The Acquired Fund meets the requirements of a regulated
investment company as defined in Sections 368(a)(2)(F)(ii) and (iii) of the
Code. Section 368(a)(2)(F)(ii) requires that not more than 25% of the value of
the investment company's total assets is invested in the stock and securities of
any one issuer and not more than 50% of the value of its total assets is
invested in the stock and securities of 5 or fewer issuers. Section
368(a)(2)(F)(iii) requires that 50% or more of the value of the investment
company's total assets are stock and securities and 80% or more of the value of
its total assets are assets held for investment.
K. The Acquired Fund is not under the jurisdiction of a court
in a case under Title 11 of the United States Code or a receivership,
foreclosure, or similar proceeding in a Federal or state court.
Very truly yours,
Firsthand Medical Specialists Fund
By: Ingenuity Capital Management LLC,
its investment adviser and administrator
By: ___________________
Kendrick K. Kam
President
