SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
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Pre-Effective Amendment No. _____
Post-Effective Amendment No. 4
and/or
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
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Amendment No. 9
(Check appropriate box or boxes.)
INTERACTIVE INVESTMENTS FILE NO. 33-73832 AND 811-8268
(Exact name of Registrant as Specified in Charter)
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (408)956-0567
Kevin M. Landis
Interactive Research Advisers, Inc.
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
(Name and Address of Agent for Service)
Copies of all communications to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker
345 California Street, 29th Floor
San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate
box)
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/X/ immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to
paragraph (b) / / 60 days after filing pursuant to paragraph (a) / / on (date)
pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of shares under the Securities Act of
1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1996 was
filed with the Commission on February 25, 1997.
<PAGE>
INTERACTIVE INVESTMENT TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
UNDER THE SECURITIES ACT OF 1933
PART A
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Prospectus Summary;
Summary of Fund Expenses
3. Condensed Financial Information Financial Highlights;
Performance Information
4. General Description of Registrant General Information;
Investment Objectives,
Policies and Risk
Considerations
5. Management of the Fund Investment Avisory and
Other Services;
General Information
5A. Management's Discussion of Management Discussion
Fund Performance and Analysis (Annual
Report)
6. Capital Stock and Other Securities Cover Page; General
Information; Dividends
and Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Shareholder Services;
Calculation of Share
Price
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
PART B
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Investment and History The Trust
<PAGE>
13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations;
Quality Ratings of
Corporate Bonds and
Preferred Stocks;
Investment Restrictions;
Securities Transactions
14. Management of the Fund Management of the Trust
15. Control Persons and Principal Principal Security
Holders of Securities Holders
16. Investment Advisory and Other Investment Advisory and
Other Services;
Services Custodian; Auditors;
Securities Transactions
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Trust; Management of
the Trust
19. Purchase, Redemption and Pricing Purchase, Redemption and
of Securities Being Offered and Pricing of Shares
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
PART C
The information to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
Technology
Value Fund
Medical
Specialists Fund
Technology
Leaders Fund
NO-LOAD mutual funds
brought to you by
Logo: Interactive Investments
<PAGE>
PROSPECTUS
December 3, 1997
INTERACTIVE INVESTMENTS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
(408) 294-2200
THE TECHNOLOGY VALUE FUND
THE MEDICAL SPECIALISTS FUND
THE TECHNOLOGY LEADERS FUND
No-Load Funds
===============================================================================
Interactive Investments (the "Trust"), a Delaware business trust, is an open-end
management investment company that is offering shares of beneficial interest
("shares") in series, each series representing a distinct fund with its own
investment objectives and policies. At present, there are three series
authorized by the Trust, The Technology Value Fund, The Medical Specialists
Fund, and The Technology Leaders Fund (individually, a "Fund," and collectively,
the "Funds"). Each Fund is non-diversified and has the primary investment
objective of long-term growth of capital. Although certain of the Funds'
investments may produce dividends, interest or other income, current income is
not a consideration in selecting a Fund's investments.
As an open-end management investment company, the Trust will offer each Fund's
shares on a continuous basis and will redeem such shares upon the demand of a
shareholder. Sales and redemptions will be effected at the net asset value per
share next determined after receipt of a proper order. The investor will pay no
sales charge or redemption fee.
The initial minimum investment in each Fund is $10,000 unless the investment is
made by an Individual Retirement Account ("IRA"), in which case the minimum
initial investment is $2,000. Subsequent investments in each Fund must be at
least $50. Lower minimums are available to investors purchasing shares of the
Funds through certain brokerage firms. Please see "How to Purchase Shares" in
this Prospectus for additional information.
Interactive Research Advisers, Inc. will serve as the investment adviser to the
Funds. Interactive Research Advisers, Inc. intends to focus its research on the
objective of long-term growth. Please see "Investment Advisory and Other
Services" in this Prospectus for additional information.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor ought to know before investing. Please retain it for future
reference. A Statement of Additional Information dated December 3,1997 has been
filed with the Securities and Exchange Commission and is hereby incorporated be
reference in its entirety. A copy of the Statement of Additional Information can
be obtained at no charge by calling the number listed below. The Internet
address for the Funds is www.iinvest.com. The Securities and Exchange Commission
maintains a Web Site (www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information regarding
the Funds.
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For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free).............................................888-884-2675
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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.
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<PAGE>
INTERACTIVE INVESTMENTS
===============================================================================
Board of Trustees Investment Adviser
Kevin M. Landis, Chairman Interactive Research Advisers, Inc.
Kendrick W. Kam 101 Park Center Plaza
Michael T. Lynch Suite 1300
Mark K. Taguchi San Jose, CA 95113
Officers Transfer Agent
Kevin M. Landis, President Countrywide Fund Services, Inc.
Kendrick W. Kam, Secretary P.O. Box 5354
Yakoub Billawala, Treasurer Cincinnati, OH 45201
(Toll-free) 888-884-2675
TABLE OF CONTENTS
===============================================================================
Prospectus Summary...........................................................3
Summary of Fund Expenses.....................................................5
Financial Highlights.........................................................6
Investment Objectives, Policies and Risk Considerations......................7
Investment Advisory and Other Services......................................11
How to Purchase Shares......................................................13
How to Redeem Shares........................................................14
Shareholder Services........................................................15
Exchange Privilege..........................................................15
Dividends and Distributions.................................................16
Taxes.......................................................................16
Calculation of Share Price .................................................17
Performance Information.....................................................17
General Information.........................................................19
No person has been authorized to give any information or to make any
representation with respect to the Fund other than those contained in this
Prospectus, and information or representations not herein contained, if given or
made, must not be relied upon as having been authorized by the Fund. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy in any jurisdiction to any person to whom it is unlawful to make such an
offer or solicitation in such jurisdiction.
<PAGE>
PROSPECTUS SUMMARY
===============================================================================
INVESTMENT OBJECTIVE AND POLICIES
Each Fund's investment objective is long-term capital appreciation.
The TECHNOLOGY VALUE FUND seeks to achieve its objective by investing primarily
in securities of companies in the electronic technology and medical technology
fields which Interactive Research Advisers, Inc. (the "Investment Adviser")
considers to be undervalued and have potential for capital appreciation.
The MEDICAL SPECIALISTS FUND seeks to achieve its objective by investing
primarily in securities of companies in the health and biotechnology field which
the Investment Adviser considers to have a strong earnings growth outlook and
potential for capital appreciation.
The TECHNOLOGY LEADERS FUND seeks to achieve its objective by investing
primarily in securities of companies in the high technology field which the
Investment Adviser considers to have the strongest competitive position.
THE TRUST
Interactive Investments, a Delaware business trust organized in November 1993,
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company which will issue its shares
in series, each series representing a distinct fund with its own investment
objectives and policies. The Board of Trustees to date has authorized the
issuance of shares in the three series which are the subject of this Prospectus
but may authorize additional series in the future.
RISK FACTORS
Generally
An investment in the Funds may be subject to certain risks hereinafter
described, including general risks associated with all securities investments.
There can be no assurance the Funds will be able to achieve their investment
objectives.
Each Fund may also invest a portion of its assets in securities that entail
certain risks, such as foreign securities, securities of unseasoned issuers and
options on futures. Please see "Investment Objective, Policies and Risk
Considerations" in this Prospectus for additional information.
<PAGE>
NON-DIVERSIFICATION
Each Fund will be operated as a "non-diversified" portfolio, which means that
half of each Fund's portfolio can be invested in two or more stocks, while the
other half is spread out among investments not exceeding 5% of the Fund's total
assets. As a result of their non-diversified status, each Fund's shares may be
more susceptible to adverse change in the value of securities of a particular
company than would be the shares of a diversified investment company.
PURCHASES OF SHARES
Shares of the Funds may be purchased at the next determined net asset value per
share (see "Calculation of Share Price"). Shares will be sold without a sales
load, with an initial investment of at least $10,000, or $2,000 for initial
investments by an IRA (see "How to Purchase Shares"). Subsequent investments
must be at least $50, subject to certain exceptions. Purchases may be made by
check or by bank wire. Lower minimums are available to investors purchasing
shares of the Funds through certain brokerage firms or financial institutions.
REDEMPTIONS OF SHARES
Investors may redeem shares at their next determined net asset value per share
by so instructing the Funds' Transfer Agent. Investors may also redeem shares
through a brokerage firm or financial institution through whom shares are owned.
See "How to Redeem Shares."
INVESTMENT ADVISER
The Funds will be managed by Interactive Research Advisers, Inc. (the
"Investment Adviser"). The Investment Adviser is paid a monthly management fee
at the annual rate of 1.50% of each Fund's average daily net assets. The
Investment Adviser is also responsible for the provision of administrative
services to the Funds, for which it receives an additional fee. From time to
time, the Investment Adviser may waive all or some of its fees which would have
the effect of lowering a Fund's overall expense ratio and increasing the return
to shareholders during the period such amount is waived or assumed.
TRANSFER AGENT
The Investment Adviser has retained Countrywide Fund Services, Inc. (the
"Transfer Agent"), P.O. Box 5354, Cincinnati, Ohio 45201, to provide
administrative, accounting and pricing, dividend disbursing, shareholder
servicing and transfer agent services. For further information regarding the
Transfer Agent, see "Investment Advisory and Other Services."
DIVIDENDS
Each Fund intends to declare and distribute income dividends and capital gains
distributions as may be required to qualify as a regulated investment company
under the Internal Revenue Code. See "Taxes." Currently, each Fund intends to
distribute income and capital gains annually. All dividends and distributions
will be reinvested automatically in shares of the applicable Fund unless the
shareholder elects otherwise. See "Dividends and Distributions."
<PAGE>
SUMMARY OF FUND EXPENSES
===============================================================================
The purpose of the tables below is to assist the investor in understanding the
various costs and expenses an investor in each of the Funds will bear directly
or indirectly. There are no sales charges, "loads" or maintenance charges of any
kind imposed on the purchase of shares (see "How to Purchase Shares").
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
THE THE THE
TECHNOLOGY MEDICAL TECHNOLOGY
VALUE SPECIALISTS LEADERS
FUND FUND FUND
<S> <C> <C> <C>
Maximum sales load imposed on purchases............................. None None None
Maximum sales load imposed
on reinvested dividends........................................... None None None
Deferred sales load................................................. None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees..................................................... 1.50%(A) 1.50%(A) 1.50% (A)
12b-1 Fees.......................................................... None None None
Other Expenses...................................................... .45% .45% .45%
--------- --------- ---------
Total Fund Operating Expenses....................................... 1.95%(A) 1.95%(A) 1.95% (A)
========= ========= =========
<FN>
(A)The Advisory Agreement requires the Investment Adviser to waive its
management fees and, if necessary, reimburse expenses of the Fund to the
extent necessary to limit each Fund's total annual operating expenses to
1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from $500
million to $1 billion, and 1.80% of such assets in excess of $1 billion.
Example:
Assuming (i) a $1,000 investment and (ii) a 5% annual return, an investor would
pay the following expenses over the periods indicated:
THE MEDICAL
THE TECHNOLOGY SPECIALISTS THE TECHNOLOGY
VALUE FUND FUND LEADERS FUND
1 Year........................................... $ 20 $ 20 $ 20
3 Years.......................................... 61 61 61
5 Years.......................................... 105
10 Years......................................... 227
</FN>
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. With respect to The Technology Value Fund, Annual Fund Operating Expenses
are based on amounts incurred during the most recent fiscal year, except that
they have been restated to reflect current fees as if they had been in effect
during such year. With respect to The Medical Specialists Fund and The
Technology Leaders Fund, the percentages expressing Other Expenses are based on
estimated amounts for the current fiscal year. Please see "Investment Advisory
and Other Services" for a description of the Funds' expenses.
<PAGE>
FINANCIAL HIGHLIGHTS
===============================================================================
The following information is an integral part of The Technology Value Fund's
financial statements and should be read in conjunction with the financial
statements. The financial statements of The Technology Value Fund as of December
31, 1996 and following information were audited by Kevane Peterson Soto &
Pasarell; the financial statements of The Technology Value Fund as of June 30,
1997 are unaudited. These financial statements appear in the Statement of
Additional Information of the Funds, which can be obtained by shareholders by
calling the Transfer Agent (nationwide call toll-free 888-884-2675) or by
writing to the Trust at the address on the front of this Prospectus. As of the
date of this Prospectus, the Medical Specialists Fund and The Technology Leaders
Fund have not commenced operations and thus no financial information has been
provided as to these Funds.
<TABLE>
<CAPTION>
TECHNOLOGY VALUE FUND
===================================================================================================================
Six Months
Ended Year Year Period From
06/30/97 Ended Ended 05/20/94(a)
(unaudited) 12/31/96 12/31/95 to 12/31/94
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<S> <C> <C> <C> <C>
Net asset value at beginning of period......... $ 26.66 $ 18.44 $ 11.70 $ 10.00
------------ -------------- ------------- -------------
Income from investment operations:
Net investment loss......................... ( 0.07) ( 0.08) ( 0.14 ) ( 0.03 )
Net realized and unrealized gains on
investments............................... 5.21 11.20 7.28 2.56
------------ -------------- ------------- -------------
Total from investment operations............... 5.14 11.12 7.14 2.53
------------ -------------- ------------- -------------
Less distributions:
Distributions from net realized gains....... ( 0.12) ( 2.90 ) ( 0.40 ) ( 0.83 )
------------ -------------- ------------- -------------
Net asset value at end of period............... $ 31.68 $ 26.66 $ 18.44 $ 11.70
============ ============== ============= =============
Ratios and supplemental data:
Total return .................................. 39.1%(c) 60.5% 61.2% 25.3% (b)
============ ============== ============= =============
Net assets at end of period (millions)......... $ 108.7 $ 35.1 $ 2.7 $ 0.2
============ ============== ============= =============
Ratio of expenses to average net assets........ 1.89%(c) 1.81% 1.98% 1.96% (c)
Ratio of net investment loss to average
net assets................................ ( 1.41%)(c) ( 0.55%) ( 1.45%) ( 1.29%)(c)
Portfolio turnover rate........................ 41%(c) 43% 45% 56%
Average commission rate per share.............. $ 0.0380 $ 0.0426 N/A N/A
<FN>
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
</FN>
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
===============================================================================
INVESTMENT OBJECTIVE
The Technology Value Fund
The Technology Value Fund's investment objective is long-term growth of capital.
Under normal market conditions, the Fund will invest at least 65% of the value
of its total assets in equity securities of companies, which may be of any size,
in the electronic technology and medical technology fields which, in the
Investment Adviser's opinion, are undervalued and have potential for capital
appreciation.
The Medical Specialists Fund
The Medical Specialists Fund's investment objective is long-term growth of
capital. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of companies, which may be of any size, in
the health and biotechnology fields that, in the Investment Adviser's opinion,
have a strong earnings growth outlook and potential for capital appreciation
without regard to market capitalization. The health and biotechnology fields
include the cardiovascular medical device, minimally invasive surgical tool,
pharmaceutical, biotechnology, managed care provider and generic drug segments
of the technology industry.
The Technology Leaders Fund
The Technology Leaders Fund's investment objective is long-term growth of
capital. Under normal market conditions, the Fund will invest at least 65% of
its total assets in equity securities of companies, which may be of any size, in
the high technology field that, in the Investment Adviser's opinion, have the
strongest competitive position. In assessing the strength of a company's
competitive position, the Investment Adviser may consider such factors as
technology leadership, market share, patents and other intellectual property,
strength of management, marketing prowess and product development capabilities.
The high technology field includes the semiconductor, computer, computer
peripheral, software, telecommunication and mass storage device segments of the
technology industry.
Each Fund's investment objectives may not be changed without shareholder
approval. However, for temporary defensive purposes, each Fund may invest any
portion of its assets in cash or cash equivalents. Potential investors should be
aware that risks exist in all types of investments and there can be no assurance
that the Funds will be successful in achieving their respective investment
objectives. The Funds' shares are intended for long-term investment. The Funds'
investment policies are outlined below, and where applicable, factors which may
increase the risk of investing in the Funds have been noted.
<PAGE>
INVESTMENT POLICIES
Equity Securities
The equity securities in which the Funds may invest include common stock,
convertible long-term corporate debt obligations, preferred stock, convertible
preferred stock and warrants. The securities selected will typically be traded
on a national securities exchange, the NASDAQ System or over-the-counter, and
may include securities of both large, well-known companies as well as smaller,
less well-known companies, including foreign securities listed on a foreign
securities exchange or traded in the United States. Although certain of the
Funds' investments may produce dividends, interest or other income, current
income is not a consideration in selecting a Fund's investments.
The Investment Adviser's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Adviser believes that value exceeds the market price. The Investment
Adviser intends to focus on the fundamental worth of the companies under
consideration, where fundamental worth is defined as the value of the basic
businesses of the firm, including products, technologies, customer relationships
and other sustainable competitive advantages. For purposes of the Investment
Adviser's analysis, fundamental worth is a reflection of the value of an
enterprise's assets and its earning power, and will be determined by use of
price-earnings ratios and comparison with sales of comparable assets to
independent third party buyers in arms' length transactions. Balance sheet
strength, the ability to generate earnings and a strong competitive position are
the major factors the Investment Adviser will use in appraising an investment.
Applicable price-earnings ratios depend on the earnings potential of an
enterprise as determined by the Investment Adviser. For example, an enterprise
that is a relatively high growth company would normally command a higher
price-earnings ratio than lower growth companies because expected future profits
would be higher.
Each Fund invests primarily in equity securities, which by definition entail
risk of loss of capital. Investments in equity securities are subject to
inherent market risks and fluctuation in value due to earnings, economic
conditions and other factors beyond the control of the Investment Adviser.
Securities in a Fund's portfolio may not increase as much as the market as a
whole and some undervalued securities may continue to be undervalued for long
periods of time. Some securities may be inactively traded, i.e., not quoted
daily in the financial press, and thus may not be readily bought or sold.
Although profits in some Fund holdings may be realized quickly, it is not
expected that most investments will appreciate rapidly. Each Fund may invest up
to 15% of its net assets in illiquid securities, but each Fund does not
presently intend to invest more than 5% of its net assets in securities of
unseasoned issuers or in securities which are subject to legal or contractual
restrictions on resale.
Each Fund may, from time to time, invest a substantial portion of its assets in
small capitalization companies. While smaller companies generally have potential
for rapid growth, they often involve higher risks because they lack the
management experience, financial resources, product diversification and
competitive strengths of larger corporations. In addition, in many instances,
the securities of smaller companies are traded only over-the-counter or on a
regional securities exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price fluctuations. When
making large sales, a Fund may have to sell portfolio holdings at discounts from
quoted prices or may have to make a series of small sales over an extended
period of time.
Foreign Securities
Each Fund may purchase foreign securities that are listed on a foreign
securities exchange or over-the-counter market, or which are represented by
American Depository Receipts and are listed on a domestic securities exchange or
traded in the United States on over-the-counter markets. While the Funds have no
present intention to invest any significant portion of their assets in foreign
securities, each Fund reserves the right to invest up to 15% of the value of its
net assets (measured at the time of purchase) in the securities of foreign
issuers and obligors. Foreign investments may be subject to risks that are not
typically associated with investing in domestic companies. For example, such
investment may be adversely affected by changes in currency rates and exchange
control regulations, future political and economic developments and the
possibility of seizure or nationalization of companies, or the imposition of
withholding taxes on income.
<PAGE>
Debt Securities
Each Fund may also invest in debt obligations of corporate issuers, the U.S.
Government, states, municipalities or state or municipal government agencies
that in the opinion of the Investment Adviser offer long-term capital
appreciation possibilities because of the timing of such investments. Each Fund
intends that no more than 35% of its total assets will be comprised of such debt
securities. Investments in such debt obligations may result in long-term capital
appreciation because the value of debt obligations varies inversely with
prevailing interest rates. Thus, an investment in debt obligations that is sold
at a time when prevailing interest rates are lower than they were at the time of
investment will typically result in capital appreciation. However, the reverse
is also true, so that if an investment in debt obligations is sold at a time
when prevailing interest rates are higher than they were at the time of
investment, a capital loss will typically be realized. Accordingly, if a Fund
invests in the debt obligations described above, such investments will generally
be made when the Investment Adviser expects that prevailing interest rates will
be falling, and will generally be sold when the Investment Adviser expects
interest rates to rise.
Each Fund's investments in this area will consist solely of investment grade
securities (rated BBB or higher by Standard & Poor's Ratings Group or Baa or
higher by Moody's Investors Service, Inc., or unrated securities determined by
the Investment Adviser to be of comparable quality). While securities in these
categories are generally accepted as being of investment grade, securities rated
BBB or Baa have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to pay
principal and interest than is the case with higher grade securities. In the
event a security's rating is reduced below a Fund's minimum requirements, the
Fund will sell the security, subject to market conditions and the Investment
Adviser's assessment of the most opportune time for sale.
Put and Call Options
The Medical Specialists Fund and The Technology Leaders Fund may each write
(sell) covered put and call options as a means of enhancing their respective
returns, and may buy put and call options written by others covering securities
and stock indices to attempt to provide protection against the adverse effects
of anticipated changes in the prices of such securities. Each Fund may write
covered call options as a means of enhancing its return through the receipt of
premiums when the Investment Adviser determines that the underlying securities
have achieved their potential for appreciation. Option writing, while designed
to hedge and enhance income, may result in lost profit and transaction costs.
The Statement of Additional Information contains more information regarding
these activities.
<PAGE>
Fundamental Investment Policies
Each Fund has adopted the following fundamental investment policies, which may
not be changed without shareholder approval:
Non-Diversification of Investments
As non-diversified investment companies, the Funds may be subject to greater
risks than diversified companies because of the possible fluctuation in the
values of securities of fewer issuers. However, at the close of each fiscal
quarter at least 50% of the value of each Fund's total assets will be
represented by one or more of the following: (i) cash and cash items, including
receivables; (ii) U.S. Government securities; (iii) securities of other
registered investment companies; and (iv) securities (other than U.S. Government
securities and securities of other regulated investment companies) of any one or
more issuers which meet the following limitations: (a) the Fund will not invest
more than 5% of its total assets in the securities of any such issuer and (b)
the entire amount of the securities of such issuer owned by the Fund will not
represent more than 10% of the outstanding voting securities of such issuer.
Additionally, not more than 25% of the value of a Fund's total assets may be
invested in the securities of any one issuer. Each Fund will not invest more
than 5% of its total assets in the securities of any single investment company
nor more than 10% of their total assets in the securities of all other
investment companies.
Concentration of Investments
Each Fund will concentrate its investments in the technology industry.
Concentration allows a Fund to invest 25% or more of the value of its total
assets in securities of issuers in a particular industry. Each Fund will
therefore invest 25% or more of its total assets in the technology industry. It
is possible that, compared to the broad market, a particular group of related
stocks will decline in price due to developments affecting an industry. For
example, the technology industry may be strongly affected by changes in the
economic climate, broad market swings, moves in a dominant industry stock or
regulatory changes.
The Technology Value Fund will invest primarily in a combination of companies
within the electronic and medical technology segments, while The Medical
Specialists Fund will invest primarily in companies within the health and
biotechnology segment, and The Technology Leaders Fund will invest primarily in
companies within the high technology segment. The Funds will be subject to
greater risk because of their concentration of investments 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.
Investments in the high technology segment include the risk that certain high
technology products and services are subject to competitive pressures and
aggressive pricing. Additionally, health, biotechnology and high technology
segment products and services are subject to risk of rapid obsolescence caused
by scientific developments and technological advances.
<PAGE>
Although the Investment Adviser currently believes that investments by the Funds
in certain health, biotechnology and technology companies may offer greater
opportunities for growth of capital than investments in other industries, such
investments may also expose investors to greater than average financial and
market risk. Accordingly, an investment in one or more of the Funds does not
constitute a balanced investment program.
The Funds intend to invest primarily in the following industry segments:
ELECTRONIC/HIGH TECHNOLOGY HEALTH AND BIOTECHNOLOGY
o Semiconductor o Cardiovascular Medical Device
o Computer o Minimally Invasive Surgical Tool
o Computer Peripheral o Pharmaceutical
o Software o Biotechnology
o Telecommunication o Managed Care Provider
o Mass Storage Device o Generic Drug
Borrowing
Each Fund may borrow from banks for temporary or emergency purposes in an
aggregate amount not to exceed 25% of its total assets. Borrowing magnifies the
potential for gain or loss on the portfolio securities of a Fund and, therefore,
if employed, increases the possibility of fluctuation in the Fund's net asset
value. This is the speculative factor known as leverage. To reduce the risks of
borrowing, each Fund will limit its borrowings as described above. Each Fund may
pledge its assets in connection with borrowings. While a Fund's borrowings
exceed 5% of its total assets, it will not purchase additional portfolio
securities.
Lending Portfolio Securities
Each Fund may make short-term loans of its portfolio securities to banks,
brokers and dealers. Lending portfolio securities exposes a Fund to the risk
that the borrower may fail to return the loaned securities or may not be able to
provide additional collateral or that a Fund may experience delays in recovery
of the loaned securities or loss of rights in the collateral if the borrower
fails financially. To minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or U.S. Government
obligations, with the Funds' Custodian in an amount at least equal to the market
value of the loaned securities. Each Fund will limit the amount of its loans of
its portfolio securities to no more than 30% of its total assets.
<PAGE>
Other Investment Policies
Each Fund proposes to follow certain other investment policies set forth below,
which are not matters of fundamental policy and may be changed at the discretion
of management of the Trust, without a vote of the shareholders:
Companies With Less Than Three Years' Continuous Operation
The Funds may purchase securities of any company with a record of less than
three years' continuous operation (including that of predecessors) but only to
the extent that such purchase would not cause a Fund's investments in all such
companies to exceed 25% of the value of its net assets at the time of purchase.
Each Fund presently intends not to invest more than 5% of the value of its net
assets in such companies during the coming year.
Warrants
The Funds may purchase warrants, valued at the lower of cost or market, but only
to the extent that such investments do not exceed 5% of a Fund's net assets at
the time of purchase.
Portfolio Turnover
The Funds will not seek to realize profits by anticipating short-term market
movements but rather intend to purchase securities for long-term capital
appreciation. While the rate of portfolio turnover will not be a limiting factor
when the Investment Adviser deems changes appropriate, it is expected that given
the Funds' investment objectives, each Fund's annual portfolio turnover will not
exceed 75%. Portfolio turnover is calculated by dividing the lesser of a Fund's
purchases or sales of portfolio securities during the period in question by the
monthly average of the value of the Fund's portfolio securities during that
period. Excluded from consideration in the calculation are all debt securities
with remaining maturities of one year or less when purchased by the Funds.
<PAGE>
Money Market Instruments
For defensive purposes, each Fund may temporarily hold all or a portion of its
assets in money market instruments. The money market instruments which the Funds
may own from time to time include U.S. Government obligations having a maturity
of less than one year, commercial paper rated A-2 or better by Standard & Poor's
Ratings Group or Prime-2 or better by Moody's Investors Service, Inc.,
repurchase agreements, shares of money market investment companies, bank debt
instruments (certificates of deposit, time deposits and bankers' acceptances)
and other short-term instruments issued by domestic branches of U.S. financial
institutions that are insured by the Federal Deposit Insurance Corporation and
have assets exceeding $10 billion.
INVESTMENT ADVISORY AND OTHER SERVICES
==============================================================================
INVESTMENT ADVISER
The Trust retains Interactive Research Advisers, Inc., 101 Park Center Plaza,
Suite 1300, San Jose, California 95113, as its Investment Adviser. The
Investment Adviser is controlled by Kendrick W. Kam and Kevin M. Landis, who
also serve as Trustees of the Trust.
Mr. Kam and Mr. Landis have served as co-portfolio managers of The Technology
Value Fund since the Fund's inception. Mr. Kam is the portfolio manager of The
Medical Specialists Fund and Mr. Landis is the portfolio manager for The
Technology Leaders Fund. Prior to his association with the Investment Adviser,
Mr. Kam was co-founder and Vice President of Marketing and Finance for Novoste
Corporation, a medical device company headquartered in Aguadilla, Puerto Rico.
Prior to his association with the Investment Adviser, Mr. Landis served as New
Products Marketing Manager for S-MOS Systems, Inc., a San Jose, California-based
semiconductor firm.
Under investment advisory contracts (the "Advisory Agreement") between the Trust
and the Investment Adviser, the Investment Adviser furnishes advice and
recommendations with respect to each Fund's portfolio of securities and
investments and provides persons satisfactory to the Trust's Board of Trustees
to act as officers of the Trust responsible for the overall management and
administration of the Trust, subject to supervision of the Trust's Board of
Trustees. Such officers as well as certain Trustees of the Trust may be
directors, officers or employees of the Investment Adviser or its affiliates.
All orders for transactions in securities on behalf of the Funds are placed with
broker-dealers selected by the Adviser. The Adviser may select broker-dealers
that provide it with research services and may cause the Funds to pay these
broker-dealers commissions that exceed those that other broker-dealers may have
charged, if it views the commissions as reasonable in relation to the value of
the brokerage and/or research services provided.
<PAGE>
Under the Advisory Agreement, the Investment Adviser is responsible for (i) the
compensation of any of the Trust's Trustees, officers and employees who are
directors, officers, employees or shareholders of the Investment Adviser, (ii)
compensation of the Investment Adviser's personnel and payment of other expenses
in connection with the provision of portfolio management services under the
Advisory Agreement, and (iii) expenses of printing and distributing the Funds'
Prospectus and sales and advertising materials to prospective clients.
For the services provided by the Investment Adviser under the Advisory
Agreement, the Investment Adviser receives from each Fund a management fee equal
to 1.50% per annum of such Fund's average daily net assets. The management fee
is accrued daily and is paid to the Investment Adviser at the end of each month.
The Advisory Agreement requires the Investment Adviser to waive its management
fees and, if necessary, reimburse expenses of the Funds to the extent necessary
to limit each Fund's total operating expenses to 1.95% of its average net assets
up to $200 million, 1.90% of such assets from $200 million to $500 million,
1.85% of such assets from $500 million to $1 billion, and 1.80% of such assets
in excess of $1 billion.
FUND ADMINISTRATION
The Trust has entered into a separate contract with the Investment Adviser
wherein the Investment Adviser is responsible for providing administrative and
general supervisory services to the Funds (the "Administration Agreement").
Under the Administration Agreement, the Investment Adviser oversees the
maintenance of all books and records with respect to the Funds' securities
transactions and the Funds' book of accounts in accordance with all applicable
federal and state laws and regulations. The Investment Adviser also arranges for
the preservation of journals, ledgers, corporate documents, brokerage account
records and other records which are required to be maintained pursuant to the
1940 Act.
Under the Administration Agreement, the Investment Adviser is responsible for
the equipment, staff, office space and facilities necessary to perform its
obligations. The Investment Adviser has also assumed responsibility for payment
of all of the Funds' operating expenses except for brokerage and commission
expenses and any extraordinary and non-recurring expenses.
<PAGE>
For the services rendered by the Investment Adviser under the Administration
Agreement, the Investment Adviser receives a fee at the annual rate of .45% of
each Fund's average daily net assets up to $200 million, .40% of such assets
from $200 million to $500 million, .35% of such assets from $500 million to $1
billion, and .30% of such assets in excess of $1 billion.
The Investment Adviser has retained Countrywide Fund Services, Inc. (the
"Transfer Agent") to serve as the Funds' transfer agent, dividend paying agent
and shareholder service agent, to provide accounting and pricing services to the
Funds, and to assist the Investment Adviser in providing executive,
administrative and regulatory services to the Funds. The Transfer Agent is 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. The Investment Adviser (not the Funds) pays the
Transfer Agent's fees for these services. In addition to the Transfer Agent, the
Adviser may retain and pay brokers who provide shareholder servicing to their
customers.
HOW TO PURCHASE SHARES
===============================================================================
You may purchase shares directly through the Funds' Transfer Agent or through a
brokerage firm or financial institution that has agreed to sell the Funds'
shares. Your initial investment in the Funds must be at least $10,000 per Fund
(or $2,000 per Fund for IRAs). Lower minimums are available to investors
purchasing shares of the Funds through certain brokerage firms. Shares of the
Funds are sold on a continuous basis at the net asset value next determined
after receipt of a purchase order by the Funds or an agent of the Funds.
Purchase orders received by such agents prior to 4:00 p.m., eastern time, on any
business day are confirmed at the net asset value determined as of the close of
the regular session of trading on the New York Stock Exchange on that day. It is
the responsibility of agents to transmit properly completed orders promptly.
Agents may charge a fee (separately negotiated with their customers) for
effecting purchase orders. Direct purchase orders received by the Transfer Agent
by 4:00 p.m., eastern time, are confirmed at that day's net asset value.
You may open an account and make an initial investment in the Funds through
selected brokerage firms or financial intermediaries or by sending a check and a
completed account application form to Interactive Investments, P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to "The Technology
Value Fund," "The Medical Specialists Fund," or "The Technology Leaders Fund."
The Funds will not accept third party checks for the purchase of shares.
<PAGE>
The Transfer Agent (or your broker) mails you confirmations of all purchases or
redemptions of Fund shares. Certificates representing shares are not issued. The
Trust reserves the rights to limit the amount of investments and to refuse to
sell to any person.
Investors should be aware that the Funds' account application contains
provisions in favor of the Trust and certain of its affiliates, excluding such
entities from certain liabilities (including, among others, losses resulting
from unauthorized shareholder transactions) relating to the various services
made available to investors.
Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred by the
Trust or the Transfer Agent in the transaction.
You may also purchase shares of the Funds by wire. Please telephone the Transfer
Agent (Nationwide call toll-free 888-884-2675) for instructions. You should be
prepared to give the name of the Fund in which you wish to purchase shares, the
name in which the account is to be established, the address, telephone number
and taxpayer identification number for the account, and the name of the bank
which will wire the money.
Your investment will be made at the next determined net asset value after your
wire is received together with the account information indicated above. If the
Transfer Agent does not receive timely and complete account information, there
may be a delay in the investment of your money and any accrual of dividends. To
make your initial wire purchase, you are required to mail a completed account
application to the Transfer Agent. Your bank may impose a charge for sending
your wire. There is presently no fee for receipt of wired funds, but the
Transfer Agent reserves the right to charge shareholders for this service upon
thirty days' prior notice to shareholders.
You may purchase and add shares to your account ($50 minimum) by mail or by bank
wire. Checks should be sent to Interactive Investments, P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to "The Technology
Value Fund," "The Medical Specialists Fund" or "The Technology Leaders Fund."
Bank wires should be sent as outlined above. Each additional purchase request
must contain the name of your account and your account number to permit proper
crediting to your account.
<PAGE>
HOW TO REDEEM SHARES
===============================================================================
You may redeem shares of each Fund on each day that the Transfer Agent is open
for business by sending a written request to the Transfer Agent. You may also
redeem shares through a broker or financial intermediary through whom you own
shares. When requesting a direct redemption through the Transfer Agent, the
request must state the number of shares or the dollar amount to be redeemed and
your account number. The request must be signed exactly as your name appears on
the Trust's account records. If the shares to be redeemed have a value of
$25,000 or more, your signature must be guaranteed by any eligible guarantor
institution, including banks, brokers and dealers, municipal securities brokers
and dealers, government securities brokers and dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies and
savings associations. A notary public is not an acceptable guarantor.
Redemption requests may direct that the proceeds be wired directly to your
existing account in any commercial bank or brokerage firm in the United States.
There is currently no charge for processing wire redemptions. However, the
Transfer Agent reserves the right, upon thirty days' written notice, to make
reasonable charges for wire redemptions. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
You may also redeem shares by placing a wire redemption through a securities
broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the Trust's agent of your wire redemption
request. It is the responsibility of broker-dealers to properly transmit wire
redemption orders.
You will receive the net asset value per share next determined after receipt by
the Transfer Agent (or other agents of the Funds) of your redemption request in
the form described above. Payment is made within three business days after
tender in such form, provided that payment for redemption of shares purchased by
check will be effected only after the check has been collected, which may take
up to fifteen days from the purchase date. To eliminate this delay, you may
purchase shares of the Funds by certified check or wire.
The Transfer Agent will consider all written and verbal instructions as
authentic and will not be responsible for the processing of exchange
instructions received by telephone which are reasonably believed to be genuine
or the delivery or transmittal of the redemption proceeds by wire. The affected
shareholders will bear the risk of any such loss.
<PAGE>
At the discretion of the Transfer Agent, corporate investors and other
associations may be required to furnish an appropriate certification authorizing
redemptions to ensure proper authorization.
The Trust reserves the right to require you to close your account, other than an
IRA account, if at any time the value of your shares is less than $10,000 (based
on actual amounts invested, unaffected by market fluctuations), or such other
minimum amount as the Trust may determine from time to time. After notification
to you of the Trust's intention to close your account, you will be given sixty
days to increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
SHAREHOLDER SERVICES
===============================================================================
Contact the Transfer Agent (Nationwide call toll-free 888-884-2675) for
additional information about the shareholder services described below.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Fund are available for purchase in connection with the following
tax-deferred retirement plans:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and
their non-employed spouses
-- Qualified pension and profit-sharing plans for employees,
including those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit
organizations meeting certain requirements of the Internal
Revenue Code
DIRECT DEPOSIT PLANS
Shares of each Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or Social Security checks
transferred automatically to purchase shares of the Funds.
<PAGE>
AUTOMATIC INVESTMENT PLAN
You may make automatic monthly investments in each Fund from your bank, savings
and loan or other depository institution account. The minimum monthly investment
must be $50 under the plan. The Transfer Agent pays the costs associated with
these transfers, but reserves the right, upon thirty days' written notice, to
make reasonable charges for this service. Your depository institution may impose
its own charge for debiting your account which would reduce your return from an
investment in the Funds.
EXCHANGE PRIVILEGE
===============================================================================
Shares of the Funds may be exchanged for each other at net asset value.
To request an exchange, you may send a written request to the Transfer Agent.
The request must be signed exactly as your name appears on the Trust's account
records. Exchanges may also be requested by telephone. If you are unable to
execute your transaction by telephone (for example during times of unusual
market activity) consider requesting your exchange by mail. An exchange will be
effected at the next determined net asset value after receipt of a request by
the Transfer Agent.
The telephone exchange privilege is automatically available to all shareholders.
Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine for any loss, damage, cost or expense in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust, or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
Exchanges may only be made for shares of the Funds then offered for sale in your
state of residence and are subject to the applicable minimum initial investment
requirements. The exchange privilege may be modified or terminated by the Board
of Trustees upon 60 days' prior notice to shareholders. An exchange results in a
sale of Fund shares, which may cause you to recognize a capital gain or loss.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
===============================================================================
Each Fund expects to distribute substantially all of its net investment income
and net realized gains, if any, at least annually. Dividends and distributions
are automatically reinvested in additional shares of the Funds (the Share
Option) unless cash payments are specified on your application or are otherwise
requested by contacting the Transfer Agent.
If you elect to receive dividends in cash and the U.S. Postal Service cannot
deliver your checks or if your checks remain uncashed for six months, your
dividends may be reinvested in your account at the then-current net asset value
and your account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
TAXES
===============================================================================
The following discussion relates solely to the federal income tax treatment of
dividends and distributions by the Funds. Investors should consult their own tax
advisers for further details and for the application of state, local and foreign
tax laws to their particular situations.
Each Fund intends to qualify and to be treated as a "regulated investment
company" under Subchapter M of the Code by annually distributing substantially
all of its net investment company taxable income, net tax-exempt income and net
capital gains in dividends to its shareholders and by satisfying certain other
requirements related to the sources of its income and the diversification of its
assets. By so qualifying, a Fund will not be subject to federal income tax or
excise tax on that part of its investment company taxable income and net
realized short-term and long-term capital gains which it distributes to its
shareholders in accordance with the Code's timing requirements.
Dividends and distributions paid to shareholders are generally subject to
federal income tax and may be subject to state and local income tax. Dividends
from net investment income and distributions from any excess of net realized
short-term capital gains over net realized capital losses are currently taxable
to shareholders (other than tax-exempt entities that have not borrowed to
purchase or carry their shares of the Funds) as ordinary income.
Distributions of net capital gains (i.e., the excess of net long-term capital
gains over net short-term capital losses) by a Fund to its shareholders are
taxable to the recipient shareholders as capital gains, without regard to the
length of time a shareholder has held Fund shares. The maximum capital gains
rate for individuals is 28% with respect to assets held for more than 12 months,
but not more than 18 months, and 20% with respect to assets held more than 18
months. The maximum capital gains rate for corporate shareholders is the same as
the maximum tax rate for ordinary income. Redemptions of shares of the Funds are
taxable events on which a shareholder may realize a gain or loss.
<PAGE>
To avoid a 31% federal backup withholding tax requirement on dividends,
distributions and redemption proceeds, individuals and other non-exempt
shareholders must certify their taxpayer identification number to the Trust on
the investment application and provide certain other certifications. A
shareholder may also be subject to backup withholding if the Internal Revenue
Service or a broker notifies the Trust that the number furnished by the
shareholder is subject to backup withholding for previous under-reporting of
interest or dividend income. Amounts withheld by the Funds are applied to the
shareholder's federal income tax liability. In addition, foreign shareholders
may be subject to federal income tax withholding of up to 30% of dividends,
distributions and redemption proceeds from the Funds.
Reports containing appropriate federal income tax information (relating to the
tax status of dividends and capital gain distributions by the Funds) will be
furnished to each shareholder not later than 30 days following the close of the
calendar year during which the payments are made.
The above discussion concerning the taxation of dividends and distributions
received by shareholders is applicable whether a shareholder receives such
payment in cash or reinvests such amount in additional shares of the Funds.
Thus, dividends and distributions which are taxable as ordinary income or
capital gain are so taxable whether received in cash or reinvested in additional
shares of the Funds.
Additional information regarding the taxation of the Funds and their
shareholders is contained in the Statement of Additional Information under
"Taxes."
CALCULATION OF SHARE PRICE
===============================================================================
On each day that the Transfer Agent is open for business, the share price (net
asset value) of the shares of each Fund is determined as of the close of the
regular session of trading on the New York Stock Exchange, currently 4:00 p.m.,
eastern time. The Transfer Agent is open for business on each day the New York
Stock Exchange is open for business and on any other day when there is
sufficient trading in a Fund's investments that its net asset value might be
materially affected. The net asset value per share of each Fund is calculated by
dividing the sum of the value of the securities held by the Fund plus cash or
other assets minus all liabilities (including estimated accrued expenses) by the
total number of shares outstanding of the Fund, rounded to the nearest cent.
<PAGE>
Portfolio securities are valued as follows: (1) securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the most recent bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
most recent bid price, as obtained from one or more of the major market makers
for such securities, as of the close of the regular session of trading on the
New York Stock Exchange on the day the securities are being valued, (3)
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market,
and (4) securities (and other assets) for which market quotations are not
readily available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees. The net asset value per share of
each Fund will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
===============================================================================
Each Fund may, from time to time, include figures indicating its total return,
or yield and total return, in advertisements or reports to shareholders or
prospective investors. Any quotations of yield will be based on all investment
income per share earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period and annualizing the
result. Quotations of a Fund's average annual compounded rate of return on a
hypothetical investment in the Fund over a period of 1, 5 and 10 years (or
shorter periods dating from the commencement of Fund operations) will reflect
the deduction of a proportional share of Fund expenses (on an annual basis) and
will assume that all dividends and distributions are reinvested when paid.
Performance information for a Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of a Fund's investment objectives and policies, the types and quality of
the Fund's portfolio investments, market conditions during the particular time
period and operating expenses. Such information should not be considered as a
representation of the Fund's future performance. For a further description of
the methods to be used to determine a Fund's average annual total return and
yield, please refer to "Performance Information" in the Statement of Additional
Information.
<PAGE>
The table below shows the investment results for The Technology Value Fund for
various periods throughout the Fund's lifetime. The results represent "total
return" investment performance, which assumes the reinvestment of all capital
gains and income dividends for the indicated periods. Also included is
comparative information with respect to the unmanaged Standard & Poor's 500
Stock Index (the "S&P 500"), the NASDAQ Composite Index ("NASDAQ") and the Dow
Jones Industrial Average (the "DJIA"). The table does not make any allowance for
federal, state or local income taxes. The Technology Value Fund's Annual Report
contains additional performance information and is available on request and
without charge by calling 888-884-2675. As of the date of this Prospectus, The
Medical Specialists Fund and The Technology Leaders Fund have not commenced
operations and thus have no performance history.
The results should not be considered a representation of the total return from
an investment made in The Technology Value Fund today. The periods shown were
generally favorable ones for stock market investing. This information is
provided to help you better understand The Technology Value Fund and may not
provide a basis for comparison with other investments or mutual funds (including
The Medical Specialists Fund and The Technology Leaders Fund) which are managed
according to different investment objectives or strategies or which use a
different method to calculate performance.
<TABLE>
<CAPTION>
TECHNOLOGY
PERIOD VALUE FUND S&P 500 DJIA NASDAQ**
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5/20/94* - 12/31/94 25.30% 2.74% 3.52% 3.48%
1/1/95 - 12/31/95 61.17% 37.58% 36.84% 39.92%
1/1/96 - 12/31/96 60.55% 22.96% 28.88% 22.71%
1/1/97- 6/30/97 19.40% 20.61% 20.12% 11.94%
Aggregate Total
Return Since Inception 287.13% 109.62% 119.30% 98.88%
Annualized Total
Return Since Inception 54.43% 26.70% 28.75% 25.07%
<FN>
* Fund Inception Date
** Measures price appreciation only; dividends not included.
</FN>
</TABLE>
<PAGE>
GENERAL INFORMATION
===============================================================================
ORGANIZATION AND CAPITAL STRUCTURE
The Trust was organized in November 1993 as a Delaware business trust and is
authorized to issue an unlimited number of shares of beneficial interest. The
Trust currently has authorized the issuance of three series of shares, or Funds.
The Board of Trustees may authorize the creation of additional series without
shareholder approval.
All shares, when issued, will be fully paid and non-assessable and will be
redeemable and freely transferable. All shares have equal voting rights. They
can be issued as full or fractional shares. A fractional share has pro rata the
same kind of rights and privileges as a full share. The shares possess no
preemptive or conversion rights.
Each share of a Fund has one vote irrespective of the relative net asset value
of the shares. The voting rights of shareholders are non-cumulative, so that
holders of more than 50% of the shares can elect all Trustees being elected. On
issues affecting only a particular Fund, the shares of the affected Fund will
vote as a separate series. An example of such an issue would be a fundamental
investment restriction pertaining to only one Fund.
Charles Schwab & Co., 101 Montgomery Street, San Francisco, California 94104,
may be deemed to control The Technology Value Fund by virtue of the fact that it
owns of record more than 25% of the Fund's shares as of the date of this
Prospectus.
The Board of Trustees of the Trust is responsible for managing the business and
affairs of the Trust. The Board exercises all of the rights and responsibilities
required by, or made available under, the Delaware Business Trust Act.
SHAREHOLDER MEETINGS AND INQUIRIES
Annual meetings of shareholders will not be held unless called by the
shareholders pursuant to the Delaware Business Trust Act or unless required by
the 1940 Act and the rules and regulations promulgated thereunder.
Special meetings of the shareholders may be held, however, at any time and for
any purpose, (i) if called by the Chairman of the Board of Trustees, if one
exists, the President and two or more Trustees, (ii) if called by one or more
shareholders holding 10% or more of the shares entitled to vote on matters
presented to the meeting, or (iii) if an annual meeting is not held within any
13-month period, upon application of any shareholder, a court of competent
jurisdiction may summarily order that such meeting be held.
REPORTS TO SHAREHOLDERS
The Funds will issue semiannual reports which will include a list of securities
owned by the Funds and financial statements which, in the case of the annual
report, will be examined and reported upon by the Funds' independent auditors.
<PAGE>
Technology
Value Fund
Medical
Specialists Fund
Technology
Leaders Fund
===============================================================================
Website:
www.techfunds.com
===============================================================================
===============================================================================
E-Mail Auto-responder:
[email protected]
===============================================================================
===============================================================================
Toll-Free Number:
1-888-883-3863
<PAGE>
INTERACTIVE INVESTMENTS
STATEMENT OF ADDITIONAL INFORMATION
December 3, 1997
THE TECHNOLOGY VALUE FUND
THE MEDICAL SPECIALISTS FUND
THE TECHNOLOGY LEADERS FUND
This Statement of Additional Information is not a Prospectus, but is to be read
in conjunction with the Prospectus of Interactive Investments dated December 3,
1997. A copy of the Prospectus can be obtained by writing the Trust at 101 Park
Center Plaza, Suite 1300, San Jose, California 95113, or by calling the Trust at
888- 884-2675.
TABLE OF CONTENTS
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Definitions, Policies and Risk Considerations . . . . . . . . . 2
Quality Ratings of Corporate Bonds and Preferred Stocks . . . .11
Investment Restrictions . . . . . . . . . . . . . . . . . . . .13
Management of the Trust . . . . . . . . . . . . . . . . . . . .15
Principal Security Holders . . . . . . . . . . . . . . . . . . 16
Investment Advisory and Other Services . . . . . . . . . . . . 17
Securities Transactions . . . . . . . . . . . . . . . . . . . .19
Purchase, Redemption and Pricing of Shares . . . . . . . . . . 20
Performance Information . . . . . . . . . . . . . . . . . . . .22
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .28
Legal Counsel and Auditors . . . . . . . . . . . . . . . . . . 28
Miscellaneous Information . . . . . . . . . . . . . . . . . . .28
Financial Statements. . . . . . . . . . . . . . . . . . . . . .28
December 1, 1997
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THE TRUST
Interactive Investments (the "Trust") was organized as a Delaware
business trust on November 11, 1993. The Trust currently offers three series of
shares to investors, The Technology Value Fund, The Medical Specialists Fund,
and The Technology Leaders Fund (referred individually as a "Fund" and
collectively as the "Funds"). Each Fund has its own investment objectives and
policies.
Each share of a Fund represents an equal proportionate interest in the
assets and liabilities belonging to that Fund with each other share of that Fund
and is entitled to such dividends and distributions out of the income belonging
to the Fund as are declared by the Trustees. The shares do not have cumulative
voting rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interests in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees allocate such expenses on the basis of relative net
assets or number of shareholders. No shareholder is liable to further calls or
to assessment by the Trust without his express consent.
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS
A more detailed discussion of some of the terms used and investment
policies described in the Prospectus (see "Investment Objectives, Policies and
Risk Considerations") appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) 67% or more of the outstanding shares of the
Trust (or the applicable Fund) present at a meeting, if the holders of more than
50% of the outstanding shares of the Trust (or the applicable Fund) are present
or represented at such meeting or (2) more than 50% of the outstanding shares of
the Trust (or the applicable Fund).
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COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
one to 270) unsecured promissory notes issued by corporations in order to
finance their current operations. Each Fund will only invest in commercial paper
rated A-1 by Standard & Poor's Ratings Group ("Standard & Poor's") or Prime-1 by
Moody's Investors Service, Inc. ("Moody's") or unrated paper of issuers who have
outstanding unsecured debt rated AA or better by Standard & Poor's or Aa or
better by Moody's. Certain notes may have floating or variable rates. Variable
and floating rate notes with a demand notice period exceeding seven days will be
subject to each Fund's policy with respect to illiquid investments unless, in
the judgment of the Adviser, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned
by Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the issuer's parent company and the relationships which exist with
the issuer; and recognition by the management of obligations which may be
present or may arise as a result of public interest questions and preparations
to meet such obligations. These factors are all considered in determining
whether the commercial paper is rated Prime-1. Issuers of commercial paper rated
A (highest quality) by Standard & Poor's have the following characteristics:
liquidity ratios are adequate to meet cash requirements; long-term senior debt
is rated "A" or better, although in some cases "BBB" credits may be allowed; the
issuer has access to at least two additional channels of borrowing; basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances; typically, the issuer's industry is well established and the
issuer has a strong position within the industry; and the reliability and
quality of management are unquestioned. The relative strength or weakness of the
above factors determines whether the issuer's commercial paper is rated A-1.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or by banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable
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certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from 14 days to one
year) at a stated or variable interest rate. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer, which instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Each Fund will not
invest in time deposits maturing in more than seven days if, as a result
thereof, more than 15% of the value of its net assets would be invested in such
securities and other illiquid securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
a Fund purchases a security and simultaneously commits to resell that security
to the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and, in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
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collateral securing the seller's obligation must be of a credit quality at least
equal to a Fund's investment criteria for portfolio securities and will be held
by the Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from a Fund to the
seller subject to the repurchase agreement and is therefore subject to a Fund's
investment restriction applicable to loans. It is not clear whether a court
would consider the securities purchased by a Fund subject to a repurchase
agreement as being owned by that Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before repurchase of
the security under a repurchase agreement, a Fund may encounter delay and incur
costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the security. If a court characterized the
transaction as a loan and a Fund has not perfected a security interest in the
security, that Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, a Fund would be at the risk of losing some or all of the principal and
income involved in the transaction. As with any unsecured debt obligation
purchased for a Fund, the Investment Adviser seeks to minimize the risk of loss
through repurchase agreements by analyzing the creditworthiness of the obligor,
in this case, the seller. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security, in which case a Fund may incur a loss if the proceeds to that Fund of
the sale of the security to a third party are less than the repurchase price.
However, if the market value of the securities subject to the repurchase
agreement becomes less than the repurchase price (including interest), the Fund
involved will direct the seller of the security to deliver additional securities
so that the market value of all securities subject to the repurchase agreement
will equal or exceed the repurchase price. It is possible that a Fund will be
unsuccessful in seeking to enforce the seller's contractual obligation to
deliver additional securities.
MONEY MARKET FUNDS. Each Fund may under certain circumstances invest a
portion of its assets in money market investment companies. The 1940 Act
prohibits a Fund from investing more than 5% of the value of its total assets in
any one investment company, or more than 10% of the value of its total assets in
investment companies in the aggregate, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
Investment in a
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money market investment company involves payment of such company's pro rated
share of advisory and administrative fees charged by such company, in addition
to those paid by the Funds.
WARRANTS. Each Fund may invest a portion of its assets in warrants. A
warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a fixed
coupon or dividend. Investments in warrants involve certain risks, including the
possible lack of a liquid market for resale of the warrants, potential price
fluctuations as a result of speculation or other factors, and failure of the
price of the underlying security to reach or have reasonable prospects of
reaching a level at which the warrant can be prudently exercised (in which event
the warrant may expire without being exercised, resulting in a loss of a Fund's
entire investment therein).
FOREIGN SECURITIES. Subject to each Fund's investment policies and
quality standards, the Funds may invest in the securities of foreign issuers.
Because the Funds may invest in foreign securities, an investment in the Funds
involve risks that are different in some respects from an investment in a fund
which invests only in securities of U.S. domestic issuers. Foreign investments
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. There may be less publicly available information
about a foreign company than about a U.S. company, and foreign companies may not
be subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. There may be less
governmental supervision of securities markets, brokers and issuers of
securities. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Settlement
practices may include delays and may differ from those customary in United
States markets. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
WRITING COVERED CALL OPTIONS (THE MEDICAL SPECIALISTS FUND AND THE
TECHNOLOGY LEADERS FUND ONLY). The Medical Specialists Fund and The Technology
Leaders Fund may write covered call options on equity securities or futures
contracts to earn premium income, to assure a definite price for a security that
those Funds have considered selling, or to close out options previously
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purchased. A call option gives the holder (buyer) the right to purchase a
security or futures contract at a specified price (the exercise price) at any
time until a certain date (the expiration date). A call option is "covered" if a
Fund owns the underlying security subject to the call option at all times during
the option period. A covered call writer is required to deposit in escrow the
underlying security in accordance with the rules of the exchanges on which the
option is traded and the appropriate clearing agency.
The writing of covered call options is a conservative investment
technique which the Investment Adviser believes involves relatively little risk.
However, there is no assurance that a closing transaction can be effected at a
favorable price. During the option period, the covered call writer has, in
return for the premium received, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline.
WRITING COVERED PUT OPTIONS (THE MEDICAL SPECIALISTS FUND AND THE
TECHNOLOGY LEADERS FUND ONLY). The Medical Specialists Fund and The Technology
Leaders Fund may write covered put options on equity securities and futures
contracts to assure a definite price for a security if they are considering
acquiring the security at a lower price than the current market price or to
close out options previously purchased. A put option gives the holder of the
option the right to sell, and the writer has the obligation to buy, the
underlying security at the exercise price at any time during the option period.
The operation of put options in other respects is substantially identical to
that of call options. When a Fund writes a covered put option, it maintains in a
segregated account with its Custodian cash or liquid securities in an amount not
less than the exercise price at all times while the put option is outstanding.
The risks involved in writing put options include the risk that a
closing transaction cannot be effected at a favorable price and the possibility
that the price of the underlying security may fall below the exercise price, in
which case a Fund may be required to purchase the underlying security at a
higher price than the market price of the security at the time the option is
exercised.
OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Funds
may engage involve the specific risks described above as well as the following
risks: the writer of an option may be assigned an exercise at any time during
the option period; disruptions in the markets for underlying instruments could
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result in losses for options investors; imperfect or no correlation between the
option and the securities being hedged; the insolvency of a broker could present
risks for the broker's customers; and market imposed restrictions may prohibit
the exercise of certain options. In addition, the option activities of a Fund
may affect its portfolio turnover rate and the amount of brokerage commissions
paid by a Fund. The success of a Fund in using the option strategies described
above depends, among other things, on the Investment Adviser's ability to
predict the direction and volatility of price movements in the options, futures
contracts and securities markets and the Investment Adviser's ability to select
the proper time, type and duration of the options.
By writing options, a Fund forgoes the opportunity to profit from an
increase in the market price of the underlying security or stock index above the
exercise price except insofar as the premium represents such a profit. Each Fund
may also seek to earn additional income through receipt of premiums by writing
covered put options. The risk involved in writing such options is that there
could be a decrease in the market value of the underlying security or stock
index. If this occurred, the option could be exercised and the underlying
security would then be sold to the Fund at a higher price than its then current
market value. The Funds may purchase put and call options to attempt to provide
protection against adverse price effects from anticipated changes in prevailing
prices of securities or stock indices. The purchase of a put option generally
protects the value of portfolio holdings in a falling market, while the purchase
of a call option generally protects cash reserves from a failure to participate
in a rising market. In purchasing a call option, a Fund would be in a position
to realize a gain if, during the option period, the price of the security or
stock index increased by an amount greater than the premium paid. A Fund would
realize a loss if the price of the security or stock index decreased or remained
the same or did not increase during the period by more than the amount of the
premium. If a put or call option purchased by a Fund were permitted to expire
without being sold or exercised, its premium would represent a realized loss to
the Fund. When writing put options a Fund will be required to segregate cash
and/or liquid securities to meet its obligations. When writing call options a
Fund will be required to own the underlying financial instrument or segregate
with its Custodian cash and/or liquid securities to meet its obligations under
written calls. By so doing, a Fund's ability to meet current obligations, to
honor redemptions or to achieve its investment objective may be impaired. The
staff of the Securities and Exchange Commission has taken the position that
over-the-counter options and the assets used as "cover" for over-the-counter
options are illiquid securities.
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The imperfect correlation in price movement between an option and the
underlying financial instrument and/or the costs of implementing such an option
may limit the effectiveness of the strategy. A Fund's ability to establish and
close out options positions will be subject to the existence of a liquid
secondary market. Although the Funds generally will purchase or sell only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If an option purchased by a Fund
expires unexercised, the Fund will lose the premium it paid. In addition, a Fund
could suffer a loss if the premium paid by the Fund in a closing transaction
exceeds the premium income it received. When a Fund writes a call option, its
ability to participate in the capital appreciation of the underlying obligation
is limited.
BORROWING. The use of borrowing by the Funds involves special risk
considerations that may not be associated with other funds having similar
policies. Since substantially all of a Fund's assets fluctuate in value, whereas
the interest obligation resulting from a borrowing will be fixed by the terms of
the Fund's agreement with their lender, the asset value per share of the Fund
will tend to increase more when its portfolio securities increase in value and
decrease more when its portfolio securities decrease in value than would
otherwise be the case if the Fund did not borrow funds. In addition, interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio
securities subject to the restrictions stated in its Prospectus. Under
applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Funds may also pay fees to placing brokers as well as custodian
and administrative fees in
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connection with loans. Fees may only be paid to a placing broker provided that
the Trustees determine that the fee paid to the placing broker is reasonable and
based solely upon services rendered, that the Trustees separately consider the
propriety of any fee shared by the placing broker with the borrower, and that
the fees are not used to compensate the Adviser or any affiliated person of the
Trust or an affiliated person of the Adviser or other affiliated person. The
terms of the Funds' loans must meet applicable tests under the Internal Revenue
Code and permit the Funds to reacquire loaned securities on five days' notice or
in time to vote on any important matter.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), securities which are otherwise not readily marketable and
securities such as repurchase agreements having a maturity of longer than seven
days. Securities which have not been registered under the Securities Act are
referred to as private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemption requirements. A mutual fund might
also have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. The Board of Trustees may determine that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid.
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Each Fund does not intend presently to invest more than 5% of its net
assets in illiquid securities. In the event that a Fund's investments in
illiquid securities are deemed to exceed 5% of its net assets due to changes in
the liquidity of securities already held, the Fund will expeditiously dispose of
such securities in order to satisfy the 5% limitation.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
The ratings of Moody's and Standard & Poor's for CORPORATE BONDS in
which the Funds may invest are as follows:
MOODY'S
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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STANDARD & POOR'S
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
The ratings of Moody's and Standard & Poor's for PREFERRED STOCKS in
which the Funds may invest are as follows:
MOODY'S
aaa - An issue which is rated aaa is considered to be a top- quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a - An issue which is rated a is considered to be an upper- medium
grade preferred stock. While risks are judged to be somewhat greater than in the
aaa and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
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STANDARD & POOR'S
AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following investment restrictions as
matters of fundamental investment policy (except where noted below), which
restrictions may not be changed with respect to any Fund without the approval of
a majority of the outstanding voting securities of that Fund. Each Fund may not:
1. Underwrite the securities of other issuers, except that the
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. The Fund does not
intend to invest more than 5% of net assets in restricted
securities.
2. Purchase or sell real estate or interests in real estate, but
the Fund may purchase marketable securities of companies
holding real estate or interests in real estate.
3. Purchase or sell commodities or commodity contracts, including
futures contracts, except that The Medical Specialists Fund
and The Technology Leaders Fund may purchase and sell futures
contracts to the extent authorized by the Board of Trustees.
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4. 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 the
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
the Fund's total assets. See Prospectus, "Investment
Objectives, Policies and Risk Considerations."
5. Purchase securities on margin, but the Fund may obtain
such short-term credits as may be necessary for the
clearance of purchases and sales of securities.
6. Borrow money from banks except for temporary or
emergency (not leveraging) purposes, including the
meeting of redemption requests that might otherwise
require the untimely disposition of securities, in an
aggregate amount not exceeding 25% of the value of the
Fund's total assets at the time any borrowing is made.
While the Fund's borrowings are in excess of 5% of its
total assets, the Fund will not purchase portfolio
securities.
7. Purchase or sell puts and calls on securities, except
that The Medical Specialists Fund and The Technology
Leaders Fund may purchase and sell puts and calls on
stocks and stock indices.
8. Make short sales of securities.
9. Participate on a joint or joint and several basis in
any securities trading account.
10. Purchase the securities of any other investment company
except in compliance with the 1940 Act.
With respect to the percentages adopted by the Trust as maximum
limitations on the Funds' investment policies and restrictions, an excess above
the fixed percentage (except for the percentage limitations relative to the
borrowing of money) will not be a violation of the policy or restriction unless
the excess results immediately and directly from the acquisition of any security
or the action taken.
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MANAGEMENT OF THE TRUST
The business of the Trust is managed under the direction of the Board
of Trustees in accordance with the Declaration of Trust of the Trust, which
Declaration of Trust has been filed with the Securities and Exchange Commission
and is available upon request. Pursuant to the Declaration of Trust, the
Trustees shall elect officers including a president, secretary and treasurer.
The Board of Trustees retains the power to conduct, operate and carry on the
business of the Trust and has the power to incur and pay any expenses which, in
the opinion of the Board of Trustees, are necessary or incidental to carry out
any of the Trust's purposes. The Trustees, officers, employees and agents of the
Trust, when acting in such capacities, shall not be subject to any personal
liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. Following is a list of
the Trustees and executive officers of the Trust and their compensation from the
Trust for the fiscal year ended December 31, 1996.
AGGREGATE COMPENSATION
NAME AGE POSITION HELD FROM THE TRUST**
- ---- --- ------------- -------------------
*Kevin M. Landis 36 Trustee/President $ 0
*Kendrick W. Kam 37 Trustee/Secretary 0
Michael T. Lynch 36 Trustee 400
Mark K. Taguchi 41 Trustee 400
Yakoub Billawala 32 Treasurer 0
* This Trustee is an "interested person" (as defined in section 2(a)(19) of
the 1940 Act) by virtue of his affiliation with the Investment Adviser.
** The Trust does not maintain pension or retirement plans.
The principal occupations of the Trustees and officers of the Fund during
the past five years are set forth below:
KENDRICK W. KAM, 101 Park Center Plaza, Suite 1300, San Jose,
California 95113, has been President of Interactive Research Advisers, Inc.
since its founding in August 1993. From 1988-1992 Mr. Kam was the Vice President
of Marketing and Finance for Novoste Corporation, a medical device manufacturer.
KEVIN M. LANDIS, 101 Park Center Plaza, Suite 1300, San Jose,
California 95113, has been Vice President and Secretary of Interactive Research
Advisers, Inc. since its founding in August 1993. From 1991-1993 he served as
New Products Marketing Manager for S-MOS Systems, a semiconductor firm.
MICHAEL T. LYNCH, 523 E. Hods Hollow Drive, Kaysville, Utah 84037, is
currently a Product Manager for Iomega Corp. Mr. Lynch served as a Product
Manager for Adaptec, Inc. during 1995. He served as Product Line Manager for
Calera Recognition Systems, Inc., a manufacturer of Optical Character
Recognition Software, from 1990 to 1995.
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MARK K. TAGUCHI, 526 Occidental Avenue, San Mateo, California 94402, is
currently strategic relations manager for the WebFORCE group at Silicon
Graphics, Inc. Mr. Taguchi is also a principal with Renaissance Management, a
business development firm. From 1990-1993 he was a Vice President of Postal
Buddy Corporation, a delivery services company.
YAKOUB BILLAWALA, 101 Park Center Plaza, Suite 1300, San Jose,
California 95113, is Chief Operating Officer for Interactive Research Advisers,
Inc. He was previously the Database Marketing Manager for Silicon Graphics, Inc.
(1995- 1996); the Director of Product Management and Product Marketing for
Starbase Corporation (1994-1995); and a Senior Product Manager for Oracle
Corporation (1989-1994).
PRINCIPAL SECURITY HOLDERS
As of November 14, 1997, the following persons owned of record 5% or
more of the shares of the Funds:
THE TECHNOLOGY VALUE FUND:
NAME SHARES % OWNERSHIP
Charles Schwab & Co. 2,597,877 35.05%
101 Montgomery Street
San Francisco, California 94104
Donaldson, Lufkin & 1,006,521 13.58%
Jenrette Securities Corp.
P.O. Box 2052
Jersey City, New Jersey 07303
National Financial 1,662,144 22.43%
Services Corp.
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
Charles Schwab & Co., a corporation organized in California, may be
deemed to control The Technology Value Fund. For purposes of voting on matters
submitted to shareholders, any person who owns more than 50% of the outstanding
shares of a Fund generally would be able to cast the deciding vote.
As of November 14, 1997, the Trustees and officers of the Trust owned
of record or beneficially less than 1% of the Fund's outstanding shares.
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INVESTMENT ADVISORY AND OTHER SERVICES
THE INVESTMENT ADVISER
Interactive Research Advisers, Inc., a California corporation, 101 Park
Center Plaza, Suite 1300, San Jose, California 95113 (the "Investment Adviser"),
is registered as an investment adviser with the Securities and Exchange
Commission under the Investment Advisers Act of 1940. The Investment Adviser is
controlled by Kendrick W. Kam and Kevin M. Landis.
The Investment Advisory and Management Agreement (the "Advisory
Agreement") between the Trust and the Investment Adviser has been approved by
the Board of Trustees of the Trust, including a majority of the Trustees who
were not a party to the Advisory Agreement or "interested persons" (as defined
in the 1940 Act) of a party to the Advisory Agreement.
Under the Advisory Agreement, the Investment Adviser (i) manages the
investment operations of each Fund and the composition of its portfolio,
including the purchase, retention and disposition of securities in accordance
with the Fund's investment objective, (ii) provides all statistical, economic
and financial information reasonably required by the Fund and reasonably
available to the Investment Adviser, (iii) provides the Custodian of the Fund's
securities on each business day with a list of trades for that day, and (iv)
provides persons satisfactory to the Trust's Board of Trustees to act as
officers and employees of the Trust.
By its terms, the Advisory Agreement remains in force from year to
year, subject to annual approval by (a) the Board of Trustees or (b) a vote of
the majority of a Fund's outstanding voting securities; provided that in either
event continuance is also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a meeting called
for the purpose of voting such approval. The Advisory Agreement may be
terminated at any time, on 60 days' written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of a Fund's
outstanding voting securities, or by the Investment Adviser. The Advisory
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.
Pursuant to the Advisory Agreement, each Fund pays to the Investment
Adviser, on a monthly basis, an advisory fee equal to 1.50% per annum of its
average daily net assets. The Advisory Agreement requires the Investment Adviser
to waive its management fees and, if necessary, reimburse expenses of the Funds
to the extent necessary to limit each Fund's total operating expenses to 1.95%
of its average net assets up to $200 million, 1.90% of such assets from $200
million to $500 million, 1.85% of such assets from $500 million to $1 billion,
and 1.80% of such assets in excess of $1 billion. For the fiscal years ended
December 31,
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1996, 1995 and 1994, The Technology Value Fund paid advisory fees of $122,185,
$13,192 and $867, respectively.
The Investment Adviser may act as an investment adviser to other
persons, firms or corporations (including investment companies), and may have
numerous advisory clients besides the Funds.
THE ADMINISTRATION AGREEMENT
The Board of Trustees of the Trust has approved an Administration
Agreement with the Investment Adviser wherein the Investment Adviser is
responsible for the provision of administrative and supervisory services to the
Funds. The Investment Adviser, at its expense, shall supply the Trustees and the
officers of the Trust with all statistical information and reports reasonably
required by it and reasonably available to the Investment Adviser. The
Investment Adviser shall oversee the maintenance of all books and records with
respect to the Funds' security transactions and the Funds' books of account in
accordance with all applicable federal and state laws and regulations. The
Investment Adviser will arrange for the preservation of the records required to
be maintained by the 1940 Act.
Pursuant to the Administration Agreement, each Fund will pay to the
Investment Adviser, on a monthly basis, a fee equal to .45% per annum of its
average daily net assets up to $200 million, .40% of such assets from $200
million to $500 million, .35% of such assets from $500 million to $1 billion,
and .30% of such assets in excess of $1 billion. For the fiscal years ended
December 31, 1996, 1995 and 1994, The Technology Value Fund paid administrative
fees of $101,257, $13,192 and $867, respectively.
The Administration Agreement may be terminated by the Trust at any
time, on 60 days' notice to the Investment Adviser, without penalty either (1)
by vote of the Board of Trustees of the Trust, or (2) by vote of a majority of
the outstanding voting securities of a Fund. It may be terminated at any time by
the Investment Adviser on 60 days' written notice to the Trust.
COUNTRYWIDE FUND SERVICES, INC.
Countrywide Fund Services, Inc. ("Countrywide"), 312 Walnut Street,
Cincinnati, Ohio 45202, is retained by the Investment Adviser to maintain the
records of each shareholder's account, process purchases and redemptions of the
Funds' shares and act as dividend and distribution disbursing agent. Countrywide
also provides administrative services to the Funds, calculates daily
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net asset value per share and maintains such books and records as are necessary
to enable Countrywide to perform its duties. For the performance of these
services, the Investment Adviser (not the Funds) pays Countrywide (i) a fee for
administrative services at the annual rate of .1% of the average value of each
Fund's daily net assets up to $100,000,000, .075% of such assets from
$100,000,000 to $200,000,000 and .05% of such assets in excess of $200,000,000;
(ii) a fee for transfer agency and shareholder services at the annual rate of
$16 per shareholder account of the Funds; and (iii) a monthly fee for accounting
and pricing services which will vary according to each Fund's average net assets
during such month. In addition, the Investment Adviser reimburses Countrywide
for out-of-pocket expenses, including but not limited to, postage, stationery,
checks, drafts, forms, reports, record storage, communication lines and the
costs of external pricing services.
Countrywide is 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.
SECURITIES TRANSACTIONS
The Investment Adviser furnishes advice and recommendations with
respect to the Funds' portfolio decisions and, subject to the supervision of the
Board of Trustees of the Trust, determines the broker to be used in each
specific transaction. In executing the Funds' portfolio transactions, the
Investment Adviser seeks to obtain the best net results for the Funds, taking
into account such factors as the overall net economic result to the Funds
(involving both price paid or received and any commissions and other costs
paid), the efficiency with which the specific transaction is effected, the
ability to effect the transaction where a large block is involved, the known
practices of brokers and the availability to execute possibly difficult
transactions in the future and the financial strength and stability of the
broker. While the Investment Adviser generally seeks reasonably competitive
commission rates, the Funds do not necessarily pay the lowest commission or
spread available.
The Investment Adviser may direct the Funds' portfolio transactions to
persons or firms because of research and investment services provided by such
persons or firms if the amount of commissions in effecting the transactions is
reasonable in relationship to the value of the investment information provided
by those persons or firms. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data
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and research reports on particular companies and industries. These services may
be used by the Investment Adviser in connection with all of its investment
activities, and some of the services obtained in connection with the execution
of transactions for the Funds may be used in managing the Investment Adviser's
other investment accounts.
The Funds may deal in some instances in securities which are not listed
on a national securities exchange but are traded in the over-the-counter market.
The Funds may also purchase listed securities through the "third market" (i.e.,
otherwise than on the exchanges on which the securities are listed). When
transactions are executed in the over-the-counter market or the third market,
the Investment Adviser will seek to deal with primary market makers and to
execute transactions on the Funds' own behalf, except in those circumstances
where, in the opinion of the Investment Adviser, better prices and executions
may be available elsewhere. The Funds do not allocate brokerage business in
return for sales of the Funds' shares.
Neither the Investment Adviser nor any affiliated person thereof will
participate in commissions paid by the Funds to brokers or dealers or will
receive any reciprocal business, directly or indirectly, as a result of such
commissions.
The Technology Value Fund paid brokerage commissions of $57,050, $6,298
and $550 during the fiscal years ended December 31, 1996, 1995 and 1994,
respectively.
The Board of Trustees reviews periodically the allocation of brokerage
orders to monitor the operation of these policies.
PURCHASE, REDEMPTION AND PRICING OF SHARES
CALCULATION OF SHARE PRICE
The share price (net asset value) of the shares of each Fund is
determined as of the close of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., eastern time), on each day the Trust is
open for business. The Trust is open for business on every day except Saturdays,
Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. The Trust may also be open for business on other
days in which there is sufficient trading in a Fund's portfolio securities that
its net asset value might be materially affected. For a description of the
methods used to determine the share price, see "Calculation of Share Price" in
the Prospectus.
In valuing a Fund's assets for the purpose of determining net asset
value, readily marketable portfolio securities listed
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<PAGE>
on a national securities exchange are valued at the last sale price on such
exchange on the business day as of which such value is being determined. If
there has been no sale on such exchange on such day, the security is valued at
the closing bid price on such day. If no bid price is quoted on such exchange on
such day, then the security is valued by such method as the Investment Adviser
under the supervision of the Board of Trustees determines in good faith to
reflect its fair value. Readily marketable securities traded only in the
over-the-counter market are valued at the current bid price. If no bid price is
quoted on such day, then the security is valued by such method as the Investment
Adviser under the supervision of the Board of Trustees determines in good faith
to reflect its fair value. All other assets of the Funds, including restricted
securities and securities that are not readily marketable, are valued in such
manner as the Investment Adviser under the supervision of the Board of Trustees
in good faith deems appropriate to reflect their fair value.
PURCHASE OF SHARES
Orders for shares received by the Trust in proper form prior to the
close of business on the New York Stock Exchange (the "Exchange") on each day
during such periods that the Exchange is open for trading are priced at net
asset value per share computed as of the close of the regular session of trading
on the Exchange. Orders received in proper form after the close of the Exchange,
or on a day it is not open for trading, are priced at the close of such Exchange
on the next day on which it is open for trading at the next determined net asset
value per share.
REDEMPTION OF SHARES
The right of redemption may not be suspended or the date of payment
upon redemption postponed for more than seven calendar days after a
shareholder's redemption request made in accordance with the procedures set
forth in the Prospectus, except for any period during which the Exchange is
closed (other than customary weekend and holiday closing) or during which the
Securities and Exchange Commission determines that trading thereon is
restricted, or for any period during which an emergency (as determined by the
Securities and Exchange Commission) exists as a result of which disposal by a
Fund of securities owned by it is not reasonably practicable or as a result of
which it is not reasonably practicable for a Fund to fairly determine the value
of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of security holders of the
Funds.
The Trust will redeem all or any portion of a shareholder's shares of
the Funds when requested in accordance with the procedures set forth in the "How
to Redeem Shares" section of the Prospectus.
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REDEMPTION IN KIND
Payment of the net redemption proceeds may be made either in cash or in
portfolio securities (selected in the discretion of the Investment Adviser under
supervision of the Board of Trustees and taken at their value used in
determining the net asset value), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a
practice detrimental to the best interests of a Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. The Trust has
filed an election with the Securities and Exchange Commission pursuant to which
a Fund will effect a redemption in portfolio securities only if the particular
shareholder of record is redeeming more than $250,000 or 1% of net assets,
whichever is less, during any 90-day period. The Trust expects, however, that
the amount of a redemption request would have to be significantly greater than
$250,000 or 1% of net assets before a redemption wholly or partly in portfolio
securities would be made.
PERFORMANCE INFORMATION
A Fund's total returns are based on the overall dollar or percentage
change in value of a hypothetical investment in the Fund, assuming all dividends
and distributions are reinvested. Average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative total return if the Fund's performance had been constant over the
entire period presented. Because average annual total returns tend to smooth out
variations in the Fund's returns, investors should recognize that they are not
the same as actual year-by- year returns.
For the purposes of quoting and comparing the performance of the Funds
to that of other mutual funds and to other relevant market indices in
advertisements, performance will be stated in terms of average annual total
return. Under regulations adopted by the Securities and Exchange Commission,
funds that intend to advertise performance must include average annual total
return quotations calculated according to the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1-, 5-, or 10- year period, at the end of
such period (or fractional portion thereof).
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Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover 1, 5, and 10 year periods of a Fund's existence or shorter periods dating
from the commencement of the Fund's operations. In calculating the ending
redeemable value, all dividends and distributions by the Fund are assumed to
have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Additionally, redemption of shares is
assumed to occur at the end of each applicable time period.
The foregoing information should be considered in light of a Fund's
investment objectives and policies, as well as the risks incurred in the Fund's
investment practices. Future results will be affected by the future composition
of a Fund's portfolio, as well as by changes in the general level of interest
rates, and general economic and other market conditions.
The average annual total returns of the Technology Value Fund for the
periods ended June 30, 1997 are as follows:
1-Year 38.41%
Since inception (May 20, 1994) 54.51%
Each Fund may also advertise total return (a "nonstandardized
quotation") which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. The Technology Value Fund's total
returns as calculated in this manner for each of its past three fiscal periods
are as follows:
PERIOD ENDED
December 31, 1994* 25.30%
December 31, 1995 61.17%
December 31, 1996 60.55%
* From May 20, 1994 to December 31, 1994.
A nonstandardized quotation may also indicate average annual compounded rates of
return over periods other than those specified for average annual total return.
A nonstandardized quotation of total return will always be accompanied by a
Fund's average annual total return as described above.
The performance quotations described above are based on historical
earnings of The Technology Value Fund only and are not intended to indicate
future performance of any of the Funds.
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To help investors better evaluate how an investment in the Funds might
satisfy their investment objective, advertisements regarding each Fund may
discuss various measures of Fund performance, including current performance
ratings and/or rankings appearing in financial magazines, newspapers and
publications which track mutual fund performance. Advertisements may also
compare performance (using the calculation methods set forth in the Prospectus)
to performance as reported by other investments, indices and averages. When
advertising current ratings or rankings, the Funds may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and
average current yield for the mutual fund industry and ranks individual mutual
fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Funds may provide comparative
performance information appearing in any appropriate category published by
Lipper Analytical Services, Inc. In addition, the Funds may use comparative
performance information of relevant indices, including the S&P 500 Index, the
Dow Jones Industrial Average, the Russell 2000 Index, the NASDAQ Composite Index
and the Value Line Composite Index. The S&P 500 Index is an unmanaged index of
500 stocks, the purpose of which is to portray the pattern of common stock price
movement. The Dow Jones Industrial Average is a measurement of general market
price movement for 30 widely held stocks listed on the New York Stock Exchange.
The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S. domiciled
publicly-traded common stocks in the Russell 3000 Index (an unmanaged index of
the 3,000 largest U.S. domiciled publicly-traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly-traded equity
market). The NASDAQ Composite Index is an unmanaged index which averages the
trading prices of more than 3,000 domestic over-the-counter companies. The Value
Line Composite Index is an unmanaged index comprised of approximately 1,700
stocks, the purpose of which is to portray the pattern of common stock price
movement.
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
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TAXES
The Technology Value Fund has elected, and each Fund intends to qualify
annually, for the special tax treatment afforded regulated investment companies
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, a Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividend, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or foreign currencies, or
other income (including gains from options, futures and forward contracts)
derived with respect to their business of investing in such stock, securities or
currencies; (b) for taxable years beginning on or before August 5, 1997, derive
in each taxable year less than 30% of its gross income from the sale or other
disposition of certain assets held less than three months, namely (1) stocks or
securities, (2) options, futures or forward contracts (other than those on
foreign currencies), and (3) foreign currencies (or options, futures and forward
contracts on foreign currencies) not directly related to the business of
investing in stocks and securities; (c) diversify its holdings so that, at the
end of each quarter of the taxable year, (i) at least 50% of the market value of
the Fund's assets are represented by cash, U.S. Government securities, the
securities of other regulated investment companies, and other securities, with
such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets are invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies) or in two or more issuers which the Funds
control and which are engaged in the same or similar trades or businesses; and
(d) distribute at least 90% of its investment company taxable income (which
includes dividends, interest and net short-term capital gains in excess of any
net long-term capital losses) each taxable year.
As regulated investment companies, each Fund will not be subject to
U.S. Federal income tax on its investment company taxable income and net capital
gains (any long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers available from the eight prior
years), if any, that it distributes to shareholders. Each Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income and any net capital gains. In addition, amounts not
distributed by a Fund on a timely basis in accordance with a calendar year
distribution requirement are
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subject to a nondeductible 4% excise tax. To avoid the tax, a Fund must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (with adjustment) and its net capital gain (not
taking into account any capital gains or losses from sales and exchanges) for
the calendar year and (2) at least 98% of its capital gains in excess of its
capital losses (and adjusted for certain ordinary losses) for the 12 month
period ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. In order to avoid application of the excise tax, each Fund intends to
make distributions in accordance with these distribution requirements.
In view of each Fund's investment policies, it is expected that
dividends received from domestic and certain foreign corporations will be part
of each Fund's gross income. Distributions by the Funds of such dividends to
corporate shareholders may be eligible for the "70% dividends received"
deduction, subject to the holding period and debt-financing limitations of the
Code. However, the portion of each Fund's gross income attributable to dividends
received from qualifying corporations is largely dependent on its investment
activities for a particular year and therefore cannot be predicted with
certainty. In addition, for purposes of the dividends received deduction
available to corporations, a capital gain dividend received from a regulated
investment company is not treated as a dividend. Corporate shareholders should
be aware that availability of the dividends received deduction is subject to
certain restrictions. For example, the deduction is not available if Fund shares
are deemed to have been held for less than 46 days (within the 90-day period
that begins 45 days before the ex-dividend date and ends 45 days after the
ex-dividend date) and is reduced to the extent such shares are treated as
debt-financed under the Code. Dividends, including the portions thereof
qualifying for the dividends received deduction, are includible in the tax base
on which the federal alternative minimum tax is computed. Dividends of
sufficient aggregate amount received during a prescribed period of time and
qualifying for the dividends received deduction may be treated as "extraordinary
dividends" under the Code, resulting in a reduction in a corporate shareholder's
federal tax basis in its Fund shares.
Each Fund may invest as much as 15% of its net assets in securities of
foreign companies and may therefore be liable for foreign withholding and other
taxes, which will reduce the amount available for distribution to shareholders.
Tax conventions between the United States and various other countries may reduce
or eliminate such taxes. A foreign tax credit or deduction is generally allowed
for foreign taxes paid or deemed to be paid. A
26
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regulated investment company may elect to have the foreign tax credit or
deduction claimed by the shareholders rather than the company if certain
requirements are met, including the requirement that more than 50% of the value
of the company's total assets at the end of the taxable year consist of
securities in foreign corporations. Because the Funds do not anticipate
investment in securities of foreign corporations to this extent, the Funds will
likely not be able to make this election and foreign tax credits will be allowed
only to reduce a Fund's tax liability, if any.
Under the Code, upon disposition of securities denominated in a foreign
currency, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the securities and the date
of disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income.
Any dividend or distribution received shortly after a share purchase
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Such dividend or distribution is fully
taxable. Accordingly, prior to purchasing shares of the Funds, an investor
should carefully consider the amount of dividends or capital gains distributions
which are expected to be or have been announced.
Generally, the Code's rules regarding the determination and character
of gain or loss on the sale of a capital asset apply to a sale, redemption or
repurchase of shares of the Funds that are held by the shareholder as capital
assets. However, if a shareholder sells shares of the Funds which he has held
for less than six months and on which he has received distributions of capital
gains, any loss on the sale or exchange of such shares must be treated as
long-term capital loss to the extent of such distributions. Any loss realized on
the sale of shares of the Funds will be disallowed by the "wash sale" rules to
the extent the shares sold are replaced (including through the receipt of
additional shares through reinvested dividends) within a period of time
beginning 30 days before and ending 30 days after the shares are sold. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Provided that a Fund qualifies as a regulated investment company under
the Code, it will not be liable for California corporate taxes, other than a
minimum franchise tax, if all of its income is distributed to shareholders for
each taxable year.
The above discussion and the related discussion in the Prospectus are
not intended to be complete discussions of all applicable federal tax
consequences of an investment in the
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Funds. The law firm of Paul, Hastings, Janofsky & Walker LLP has expressed no
opinion in respect thereof. Nonresident aliens and foreign persons are subject
to different tax rules, and may be subject to withholding of up to 30% on
certain payments received from the Funds. Shareholders are advised to consult
with their own tax advisors concerning the application of foreign, federal,
state and local taxes to an investment in the Funds.
CUSTODIAN
Star Bank, N.A., 425 Walnut Street, Cincinnati, Ohio 45201, has been
retained to act as Custodian for each Fund's investments. Star Bank, N.A. acts
as each Fund's depository, safekeeps its portfolio securities, collects all
income and other payments with respect thereto, disburses funds as instructed
and maintains records in connection with its duties.
LEGAL COUNSEL AND AUDITORS
The law firm of Paul, Hastings, Janofsky & Walker LLP, 345 California
Street, 29th Floor, San Francisco, California 94104, acts as legal counsel for
the Trust and the Trust's independent Trustees.
The firm of Tait, Weller & Baker, Two Penn Center Plaza, Philadelphia,
Pennsylvania 19102, has been selected as independent auditors for the Trust for
the fiscal year ending December 31, 1997. Tait, Weller & Baker performs an
annual audit of the Trust's financial statements and will advise the Trust as to
certain accounting matters.
MISCELLANEOUS INFORMATION
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the Securities Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The registration statement, including the exhibits filed therewith,
may be examined at the offices of the Securities and Exchange Commission in
Washington, D.C.
Statements contained herein and in the Prospectus as to the
contents of any contract or other documents referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other documents filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The Technology Value Fund's audited financial statements as of December
31, 1996 and its unaudited financial statements as of June 30, 1997 appear in
the reports which are attached to this Statement of Additional Information.
28
<PAGE>
INTERACTIVE INVESTMENTS
Technology Value Fund
1996
Annual
Report
<PAGE>
1996 Results .......... 2
Portfolio
Discussion ............. 3
Portfolio Detail ...... 4
Auditor's Report .... 6
Financial
Statements ............. 7
1996 Results
1996 was an excellent year for the Technology Value Fund. Returns of 60.5 %
for the full year far exceeded our expectations and easily outpaced all of our
performance yardsticks (including the broad market indices shown at right).
This marks the second consecutive year that the TVF has returned over 60%.
Peer group comparisons were equally impressive. For 1996 TVF was the #1
no-load fund in America (ranked third overall) and ranked #1 among our peer
group, science & technology funds. (As reported in the Wall Street Journal -
source: Lipper Analytical)
Although we are pleased by our recent results, it is important to note that
our historical returns are well above reasonable long-term expectations. We
expect that the industries and companies we invest in will remain volatile,
and will continue to offer excellent investment opportunities for years to
come.
(Note: All performance and ranking data are net of expenses.)
<TABLE>
<CAPTION>
Performance
=================================================
Q496 1 5/20/94 -
year 12/31/96
- -------------------------------------------------
<S> <C> <C> <C>
TVF 7.0% 60.5% 224.2%
DJIA 9.6% 26.0% 71.2%
S&P 500 7.8% 20.3% 77.7%
NASDAQ 5.2% 22.7% 62.8%
</TABLE>
Long Term Performance
The chart below shows the monthly performance of the Technology Value Fund
(since inception) versus the three most commonly referenced market indices:
The Dow Jones Industrial Average, the Standard & Poor's 500 index and the
NASDAQ composite. (Note: Each of these indices represent an unmanaged,
broad-based basket of stocks. They are typically used as a proxy for overall
market performance.)
<TABLE>
<CAPTION>
MOUNTAIN CHART COMPARING CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
TECHNOLOGY VALUE FUND (TVF), THE STANDARD & POOR's 500 INDEX (S&P 500), THE
DOW JONES INDUSTRIAL AVERAGE (DJIA) AND THE NASDAQ COMPOSITE (NASDAQ)
TVF S&P 500 DJIA NASDAQ
--- ------- ---- ------
<S> <C> <C> <C> <C>
May 1994 $10,000 $10,000 $10,000 $10,000
June 1994 9,190 9,766 9,625 9,714
September 1994 11,190 10,171 10,204 10,519
December 1994 12,530 10,096 10,181 10,348
March 1995 13,344 11,007 11,039 11,246
June 1995 15,743 11,975 12,097 12,845
September 1995 20,680 12,846 12,715 14,360
December 1995 20,195 13,539 13,586 14,478
March 1996 21,586 14,189 14,834 15,156
June 1996 27,971 14,742 15,014 16,307
September 1996 30,292 15,108 15,618 16,883
December 1996 32,423 16,283 17,121 17,766
TVF PERFORMANCE AS OF DECEMBER 31, 1996
1996 Annual Return +60.5%
Average Annual Return Since Inception* +56.7%
Average Annual Return Since Effectiveness** +63.4%
* TVF inception on 05/20/94
** TVF effectiveness: 12/15/94 (per SEC)
- -- Past performance is no guarantee of future results --
</TABLE>
<PAGE>
Portfolio Discussion
Assets under management more than doubled during the fourth quarter. Strong
cash inflows afforded us a great deal of flexibility in adjusting our sector
weightings. Although the Fund's overall Q4 performance was a steady 7.0%,
there was tremendous volatility beneath the surface, as sector performance
diverged significantly. At a more granular level, the performance of specific
stocks ran the gamut from spectacular to appalling. In our view, this
divergence vividly illustrates the importance of individual stock selection
within each sector.
The chart below shows the Fund's holdings by sector as of year end. Our
weighting in semiconductors rose from 33.1% to 44.7%. Among the biggest winners
were Lattice, Altera, Intel and Triquint. We lost money on C-Cube, Cirrus
Logic and S-3. Our investment in the semiconductor capital equipment sector
declined from 5.3% to 1.8%. Opal was purchased by Applied Materials.
The Fund's weighting in Electronic Design Automation (EDA) rose
from 11.0% to 12.8%. We added to our holdings in Avanti, Epic and,
unfortunately, Silicon Valley Research, which lost more than half its value.
Software fell from 1.3% to 0.2%.
We dramatically increased our weighting in the networking sector, from 4.5% to
20.8%. In addition to increasing our holding in Cisco Systems, we also
established new positions in 3 Com, Cabletron and US Robotics. We added to
our position in Iomega, causing our investment in the computer peripherals
sector to expand from 1.5% to 3.0%. Our weighting in medical stocks
contracted from 19.0% to 12.4%. We added to our position in Arterial Vascular
Engineering and established new positions in Medwave and TheraTx.
Portfolio Snapshot
The accompanying table shows the Fund's positions as of year end. Portfolio
snapshots are available through the Fund's e-mail auto-responder. To obtain a
snapshot, send any e-mail message to: [email protected]. The quarter-end
snapshot will be posted near the end of the following month.
<TABLE>
<CAPTION>
pie chart:
Fund Holdings by Sector as of 12/31/96
<S> <C>
Semiconductors 44.7%
Software 0.2%
Cash 4.4%
EDA 12.7%
Medical 12.4%
Networking 20.8%
Peripheral 3.0%
Semi Equip 1.8%
</TABLE>
<PAGE>
Investment Philosophy
We believe that a thorough understanding of the industries we follow enables
us to buy great companies at bargain prices.
Because these industries are characterized by rapid rates of innovation,
and therefore obsolescence, companies can fall in and out of favor very
quickly, causing drastic swings in valuation. Often these sudden mark-ups or
mark-downs are deserved, sometimes not.
We look for situations in which a quality company is unjustly punished by
the investment community. This misunderstanding allows us to buy a strong
company near the low end of its normal valuation range. If we are right,
continued success leads to eventual reassessment, and a healthy return on
investment.
But why are technology companies so often, and so easily,
misunderstood? We believe that the most common reasons are the lofty
expectations and perceptions of risk associated with innovation. Just as great
teams seldom enjoy an undefeated season, great companies occasionally have a
bad quarter. When they do, the market tends to build more risk and less growth
into their company models.
An excellent example of this phenomenon is the current sell-off in
networking stocks. As we write this (in mid-February), several networking
companies have reported results below street expectations, and the group is
being marked down as a result. Clearly, the expected growth outlook is being
revised downward for the entire sector.
<TABLE>
<CAPTION>
=====================================================
Top 5 Stocks by $ Gain in Q4 1996
- -----------------------------------------------------
Stock Symbol $ Gain % Inc.
- -----------------------------------------------------
<S> <C> <C> <C>
Intel INTC 674,113 34.6
Lattice Semi LSCC 640,763 53.4
Opal Inc. OPAL 506,250 83.9
Altera ALTR 413,663 39.8
Triquint TQNT 273,800 52.9
- -----------------------------------------------------
</TABLE>
We believe this is a mistake. Our view is that the growth in demand for
data communications in general, and networking products in particular, is
still in its infancy, and that the current sell off represents an excellent
entry point. We plan on participating in the growth of the networking group
for years to come.
We also believe that basic industry research can reveal undiscovered gems.
Companies with great products can go unnoticed due to the technical nature of
their products - They simply take a great deal of time and effort to understand.
Those of us who are already following the business closely have an investment
advantage in the form of an early discovery window.
Last year's examples include companies such as Corvita, EP Technologies,
Iomega, Ikos, Opal and Vitesse, and we believe many current opportunities
lie in the EDA, semiconductor and medical sectors today.
<TABLE>
<CAPTION>
Technology Value Fund 12/31/96
=================================================================
Security Shares Price ...Balance...
- -----------------------------------------------------------------
<S> <C> <C> <C>
3 Com 25,000 73 3/8 1,834,375.00
Advanced Micro 40,000 25 3/4 1,030,000.00
Altera 20,000 72 11/16 1,453,750.00
Amgen 4,000 54 3/8 217,500.00
Applied Materials 10,000 35 15/16 359,375.00
Arterial Vascular 70,000 12 1/2 875,000.00
Avanti 60,000 31 3/4 1,905,000.00
C-Cube Microsystems 10,000 36 15/16 369,375.00
Cabletron Systems 25,000 33 1/4 831,250.00
Centocor 6,000 35 3/4 214,500.00
Cisco Systems 50,000 63 5/8 3,181,250.00
Endosonics 26,100 15 1/4 398,025.00
Epic Design Tech 50,000 25 1,250,000.00
Everest Medical 35,000 2 3/4 96,250.00
IKOS 55,000 20 1,100,000.00
Informix 3,000 20 3/8 61,125.00
Intel 20,000 130 15/16 2,618,750.00
Iomega 60,000 17 3/8 1,042,500.00
Lam Research 4,000 28 1/8 112,500.00
Lattice Semi 40,000 46 1,840,000.00
Level One 40,000 35 3/4 1,430,000.00
MedCath 8,000 16 128,000.00
Medtronic 9,000 68 612,000.00
Medwave 8,700 11 1/4 97,875.00
Mentor 4,000 29 1/2 118,000.00
Mini-Med 20,000 32 1/4 645,000.00
Novellus 3,000 54 3/16 162,562.50
Quality Semi 175,000 9 1,575,000.00
S - 3, Inc. 100,000 16 1/4 1,625,000.00
Sierra Semi 170,000 15 2,550,000.00
Silicon Valley Rsrch 110,000 2 220,000.00
Target Therapeutics 5,900 42 247,800.00
Theratx 69,800 10 1/4 715,450.00
Triquint 30,000 26 3/8 791,250.00
US Robotics 20,000 72 1,440,000.00
Vitesse 1,000 45 1/2 45,500.00
Xilinx 10,000 36 13/16 368,125.00
- -Cash- 1,526,524 1 1,526,523.68
- -----------------------------------------------------------------
Total Investments 35,088,611.18
=================================================================
</TABLE>
<PAGE>
Cardiometrics, CFLO
Endosonics has committed to acquire Cardiometrics for a combination of cash
and stock valued at a minimum of $9.00 - a little more than a 40% premium to
CFLO's market price of 6 3/8 prior to the announcement.
<TABLE>
<CAPTION>
======================================================
Bottom 5 Stocks by $ Loss in Q4 1996
- ------------------------------------------------------
Stock Symbol $ Loss % Dec.
- ------------------------------------------------------
<S> <C> <C> <C>
Arterial Vascular AVEI 676,425 43.6
S-3, Inc. SIII 389,894 19.4
Silicon Valley Re SVRI 288,068 56.7
Iomega IOM 227,875 17.9
Cabletron Systems CS 140,350 14.4
- ------------------------------------------------------
</TABLE>
When the acquisition is completed each share of Cardiometrics will be
converted into: $2.00 in cash, 0.35 shares of newly issued Endosonics stock,
and between 0.20 and 0.2636 shares of Cardiovascular Dynamics (Nasdaq:CCVD).
The exact number of shares of CCVD will be determined so as to make the
total package worth at least $9.00 per CFLO share.
The strange thing is even now, two weeks after the announcement, you can
still buy Cardiometrics shares for about $7 1/2. When the deal closes, you
will essentially receive $9.00 - a gain of $1.50 per Cardiometrics share or
20%. If you assume that it takes 3 months to close the deal, buying
Cardiometrics at $7 1/2 will give you an annualized return of 107.36%. Of
course, you have to remember to subtract transactions costs, but
this looks almost to good to be true.
Since the January 27, 1997 acquisition announcement, the fund has been
buying Cardiometrics shares. As of this writing, the fund owns 212,500
shares at an average price (including commissions) of $7.542. We look
forward to the completion of this acquisition.
TheraTx, THTX
TheraTx first attracted our attention because its sales and earnings have
grown at about 20% per year while the stock trades at a PE of 9.5. The company
operates 29 nursing homes, provides rehabilitation services on contract to
other nursing home companies, and runs several occupational health clinics.
With the help of several acquisitions, sales have grown from $40 million 3
years ago to a revenue run-rate of $400 million today.
During the 2nd half of 1996, the stock was hit hard because of uncertainty
regarding Medicare contract rehabilitation rates. Medicare represents
roughly 50% of the company's revenues. The other 50% of TheraTx's revenues
looks like a mini-OccuSystems (OSYS), a company which trades roughly at a
PE of 30. If you apply OccuSystem's PE to the earnings associated with this
half of TheraTx's operations, you get a valuation of about $19. So, if
Medicare sets its reimbursement rate so low that TheraTx is forced to exit
the business, shareholders would be left with a business unit that the market
might value at $19.
Based on this analysis, the fund purchased a total of 113,800 shares at an
average price of $11.58 in late December and early January. On February 11,
1997, Vencor, Inc. (NYSE:VC) announced an agreement to acquire TheraTx for
$17.10 per share in cash.
Outlook
We remain convinced that the medical and electronic technology sectors will
continue to offer excellent investment opportunities for years to come. These
companies continue to improve people's lives through constant innovation; the
art, science and business of making new things possible will enrich all
parties concerned.
We are bullish about the business prospects of each and every company in
which we invest. While we are likely to make mistakes from time to time,
we believe we are right to focus the bulk of our time and energy on the
all-important company selection process. We are comfortable that our
approach will continue to lead to good company selection within the right
sectors, positioning the Technology Value Fund well for future success.
/s/ Kevin Landis /s/ Ken Kam
KEVIN LANDIS KEN KAM
Portfolio Manager Portfolio Manager
Technology Value Fund Technology Value Fund
<PAGE>
Getting the most Current information on
THE TECHNOLOGY VALUE FUND
Ticker symbol: TVFQX
Newspaper listing: TECH VALUE
Toll-Free number: 888-TVF-FUND
888-883-3863
Website: WWW.IINVEST.COM
E-mail Auto-responder:
To receive TVF information send an e-mail to:
[email protected]
Important Legal Disclosures
This report is provided for the general information of TVF shareholders and is
not authorized for distribution to prospective investors in the Fund unless
preceeded or accompanied by a current prospectus.
Past performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
Investing in high technology and medical technology stocks entails certain
risks, including increased volatility of share value. Investors are encouraged
to read the prospectus carefully. Copies of the most recent prospectus are
available on the Fund's web site, or by calling (888) TVF-FUND.
You may also request the most recent prospectus from the following brokers:
Fidelity Investments, Jack White & Co. and National Investors
Service Corporation..
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Certified Public Accountants
KEVANE PETERSON SOTO & PASARELL Donald Kevane
To the Board of Trustees and John Peterson
Shareholders of Adamina Soto
Interactive Investments Jorge Pasarell
(Technology Value Fund): Waldemar Gonzalez
Luis Valenzuela
Nelly Ruiz
Miguel Ocasio
Alfredo Rivera
We have audited the accompanying statement of assets and liabilities of
INTERACTIVE INVESTMENTS (TECHNOLOGY VALUE FUND), including the schedule of
portfolio investments (Schedule I), as of December 31, 1996, the related
statements of operations, changes in net assets and financial highlights for
the periods indicated in the accompanying financial statements and the per
share data as of December 31, 1996. These financial statements and per share
data are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and on the per share data
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements, financial highlights, and
per share data referred to above present fairly, in all material respects, the
financial position of Interactive Investments (Technology Value Fund) as of
December 31, 1996, the results of its operations, changes in its net assets,
financial highlights, for the periods indicated, and the per share data as of
December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Kevane, Peterson, Soto & Pasarell
San Juan, Puerto Rico,
January 15, 1997, except for
Note (9) which date is January 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
ASSETS:
Cash in bank $ 58
Accrued interest receivable 15,433
Investment securities, at value
(cost--$32,863,373) 35,088,611
------------
Total assets $ 35,104,102
------------
LIABILITIES: $ 0
------------
Total liabilities 0
------------
NET ASSETS--at value $ 35,104,102
===========
NET ASSETS COMPRISED OF:
Paid-in capital $ 32,703,582
Net unrealized gain on investments 2,225,238
Undistributed net realized gains from sale
of securities 300,692
Accumulated net investment loss (125,410)
------------
Total net assets $ 35,104,102
===========
NET ASSET VALUE/OFFERING PRICE/REDEMPTION PRICE
PER SHARE BASED ON 1,316,631.691 SHARES $ 26.66
===========
</TABLE>
The accompanying notes and schedule are an
integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 5,393
Dividends 114,196
------------
Total investment income $ 119,589
------------
EXPENSES--investment advisory fees (administration
fees of $101,257 and management fees of $122,185) $ (223,442)
------------
NET INVESTMENT LOSS $ (103,853)
===========
REALIZED GAINS AND UNREALIZED
APPRECIATION ON INVESTMENTS:
Realized gains from security transactions-
Proceeds from sales 4,377,520
Cost of securities sold 1,831,380
------------
Realized gains $ 2,546,140
------------
Amount of unrealized appreciation-
December 31, 1995 549,516
December 31, 1996 2,225,238
------------
Increase in unrealized appreciation
during 1996 1,675,722
------------
Realized gains and increase in unrealized
appreciation $ 4,221,862
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,118,009
===========
</TABLE>
The accompanying notes and schedule are an
integral part of these statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
Year Ended
-----------------------------
December 31, December 31,
1996 1995
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment loss ($ 103,853) ($ 20,937)
Net realized gain from investment
transactions 2,546,140 54,123
Increase in unrealized appreciation on
securities 1,675,722 526,841
------------ ------------
Net increase from operating results 4,118,009 560,027
DISTRIBUTIONS TO SHAREHOLDERS FROM
REALIZED GAINS ON SECURITIES: (2,244,807) (55,432)
REINVESTMENT OF DIVIDENDS BY
SHAREHOLDERS: 1,153,485 66,554
CAPITAL TRANSACTIONS--Proceeds from sale of
shares, net of redemption of $6,274,508 in 1996
and $14,643 in 1995 29,396,421 1,953,122
------------ ------------
Total increase in net assets 32,423,108 2,524,271
NET ASSETS:
Beginning of year 2,680,994 156,723
------------ ------------
End of year $ 35,104,102 $ 2,680,994
============ ============
</TABLE>
The accompanying notes and schedule are an
integral part of these statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
(1) HISTORY:
The Trust was formed and registered with the office of the Secretary of
State of Delaware on November 8, 1993. The purpose of the Trust is to offer
shares in series in an open-ended management investment company. The Trust has
authorized only one series of shares designated as Technology Value Fund (the
"Fund"). All costs and expenses incurred in the organization of the Fund were
absorbed by the investment advisor.
(2) ESTIMATES:
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(3) SECURITY VALUATION:
Portfolio securities traded on a securities exchange are valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the last bid price quoted on such day. Listed securities not
traded are valued at the mean between the most recent quoted bid and asked
prices provided by the principal market makers.
(4) INVESTMENT ADVISER:
The Fund's adviser is Interactive Research Advisers, Inc. (IRAI), a
company owned and controlled by the same individuals who have organized the
Trust. The investment advisory contract between the Fund and IRAI has been
approved by the Board of Trustees of the Fund including the disinterested
trustees.
IRAI is responsible for the management and administration of the Fund's
portfolio and provides the necessary personnel, facilities, equipment, and
other services necessary for the operations of the Fund. Fees paid by the Fund
for such services are payable monthly, calculated and accrued on a daily basis
by applying an annual rate (1% for the management fee and 1% of the first $10
million invested in the Fund and 1/2 of 1% of the amount of funds in excess of
$10 million, for fund administration) to the net assets of the Fund,
determined at the close of business each day. Total annual expenses of the
Fund, exclusive of taxes, interest, all brokers' commissions and other normal
charges incidental to the purchase and sale of portfolio securities, but
including fees paid to IRAI, do not exceed the limits prescribed by any state
in which the Fund's shares are offered for sale, and IRAI will reimburse the
Fund for any expenses in excess of such limits.
(5) DISTRIBUTOR:
The Fund has been and is presently being self-distributed. Shares are
sold at the net asset value per share, without a sales load. The adviser bears
any sales or promotional costs incurred in connection with the sale of the
Fund's shares out of its own resources.
(6) OPERATIONS:
Management fees have been accrued daily at the rate of 1/365 of 1% of
net assets as stipulated in the investment advisory contract.
Administrative fees also have been accrued daily at the rate of 1/365 of
1% of the first $10 million and 1/2 of 1% of amounts in excess of $10 million
of net assets as stipulated in the investment advisory contract.
Interest is accrued daily on the cash balance maintained in the
securities account at the rate of interest in effect at the first of each
month. On the first of each month, the custodian bank credits the securities
account with interest earned during the previous month.
<PAGE>
(7) FEDERAL INCOME TAXES:
It is the Fund's policy to comply with the requirements of the U.S.
Internal Revenue Code applicable to regulated investment companies and to
distribute its taxable income to shareholders; accordingly, no Federal income
tax provision is required [see Notes (8) and (9), below].
(8) DIVIDENDS:
On November 29, 1996, the Fund's Board of Trustees approved the payment
of a dividend of $2.90 per share payable on November 22, 1996, to stockholders
of record as of November 18, 1996. Shareholders owning approximately 51% of
the total shares outstanding elected to reinvest their dividends in the Fund
[see also Note (12), below].
(9) INVESTMENT TRANSACTIONS:
At December 31, 1996, the cost of portfolio securities for federal income
tax purposes was the same as the cost for financial reporting purposes. At
December 31, 1996, the Fund had a net capital loss carry-forward of $70,378.
During the year ended December 31, 1996, the Fund purchased securities having
a cost of $31,153,233 and sold securities having total sales proceeds of
$4,377,520.
(10) TRANSACTIONS IN SHARES:
There is no specified limit to the number of shares that may be issued.
Transactions during 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
(rounded to the nearest share)
1996 1995
<S> <C> <C>
Shares sold 1,435,204 129,835
Shares issued on reinvestment
of dividends 43,942 3,135
Shares redeemed (307,953) (931)
---------- ----------
Net increase 1,171,193 132,039
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(11) FINANCIAL HIGHLIGHTS:
Selected data for a share outstanding throughout each period:
Year Ended December 31,
--------------------------------------------------
1996 1995 1994 (a)
--------- -------------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 18.44 $ 11.70 $ 10.00
--------- -------------- --------
Investment operations:
Net investment income (loss) (.08) (.14) (.03)
Net realized and unrealized gain
(loss) on investments 11.20 7.28 2.56
Total from investment operations 11.12 7.14 2.53
Capital gains distributions (2.90) (.40) (.83)
--------- -------------- --------
Net asset value, end of period $ 26.66 $ 18.44 $ 11.70
========= ============== ========
Total return (b) 60.5% 61.2% 25.3%
Ratios/supplemental data:
Net assets, end of period (millions) $ 35.1 $ 2.7 $ 0.2
Ratio of expenses to average net assets 1.81% 1.98% 1.96%(c)
Ratio of net investment income (loss)
to average net assets (0.55%) (1.45%) (1.29%)(c)
Portfolio turnover rate 43% 45% 56%
Average commission rate for securi-
ties transactions (cost per share) $ .0426 N/A N/A
<FN>
(a) The Fund commenced operations on 05/20/94; therefore, 1994
statistics do not reflect an entire year of operations.
(b) Total investment return is calculated assuming an initial
investment made at the net asset value at the beginning of
the period, reinvestment of all dividends and distributions
at net asset value during the period, and redemption in the
last day of the period.
(c) Annualized.
</FN>
</TABLE>
(12) SUBSEQUENT EVENT--DIVIDEND:
On January 31, 1997, the Fund's Board of Trustees approved the payment of
an additional dividend of $270,274 based on realized undistributed gains
during 1996 (without taking into consideration net long-term capital losses
realized subsequent to October 31, 1996) and after taking into consideration
the dividend paid on November 22, 1996.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF PORTFOLIO OF INVESTMENTS (NOTE 3)
December 31, 1996
NUMBER OF UNREALIZED
SHARES OR PERCENT OF INCOME CURRENT GAIN
COMMON STOCKS FACE AMOUNT TOTAL PRODUCING COST MARKET VALUE (LOSS)
- ------------------ ---------- ----------- ------------ -------- --------------- ------
<S> <C> <C> <C> <C> <C> <C>
ELECTRONIC DESIGN AUTOMATION:
IKOS 55,000 No $ 845,187 $ 1,100,000 $ 254,813
Avanti 60,000 No 1,792,013 1,905,000 112,987
Epic Design Tech 50,000 No 1,270,750 1,250,000 (20,750)
Silicon Valley Research 110,000 No 514,556 220,000 (294,556)
------------ ------------ ------------
Total Electronic Design Automation 12.7% 4,422,506 4,475,000 52,494
------------ ------------ ------------
MEDICAL:
Amgen 4,000 No 182,175 217,500 35,325
Arterial Vascular 70,000 No 1,442,555 875,000 (567,555)
Centocor 6,000 No 204,800 214,500 9,700
Endosonics 26,100 No 369,569 398,025 28,456
Everest Medical 35,000 No 135,513 96,250 (39,263)
Medcath 8,000 No 182,037 128,000 (54,037)
Medtronic 9,000 No 459,300 612,000 152,700
Medwave 8,700 No 100,423 97,875 (2,548)
Mentor 4,000 Yes 44,875 118,000 73,125
Mini-Med 20,000 No 480,726 645,000 164,274
Target Therapeutics 5,900 No 303,332 247,800 (55,532)
TheraTx 69,800 No 812,933 715,450 (97,483)
------------ ------------ ------------
Total Medical 12.4% 4,718,238 4,365,400 (352,838)
------------ ------------ ------------
NETWORKING:
3 Com 25,000 No 1,944,528 1,834,375 (110,153)
Cisco Systems 50,000 Yes 3,095,045 3,181,250 86,205
Cabletron Systems 25,000 No 971,600 831,250 (140,350)
U.S. Robotics 20,000 No 1,495,688 1,440,000 (55,688)
------------ ------------ ------------
Total Networking 20.8% 7,506,861 7,286,875 (219,986)
------------ ------------ ------------
PERIPHERAL:
Iomega 60,000 3.0% No 1,262,125 1,042,500 (219,625)
------------ ------------ ------------
SEMICONDUCTOR EQUIPMENT:
Applied Materials 10,000 No 399,974 359,375 (40,599)
Lam Research 4,000 No 177,450 112,500 (64,950)
Novellus 3,000 No 173,338 162,563 (10,775)
------------ ------------ ------------
Total Semiconductor Equipment 1.8% 750,762 634,438 (116,324)
------------ ------------ ------------
(continued on next page)
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SEMICONDUCTORS:
Advanced Micro 40,000 Yes 831,600 1,030,000 198,400
Altera 20,000 No 1,017,542 1,453,750 436,208
C-Cube Microsystems 10,000 No 343,375 369,375 26,000
Intel 20,000 Yes 1,574,078 2,618,750 1,044,672
Lattice Semi 40,000 No 1,152,800 1,840,000 687,200
Level One 40,000 No 1,201,400 1,430,000 228,600
Quality Semi 175,000 No 1,492,319 1,575,000 82,681
S-3, Inc. 100,000 No 1,873,344 1,625,000 (248,344)
Sierra Semi 170,000 No 2,287,556 2,550,000 262,444
Triquint 30,000 No 517,450 791,250 273,800
Vitesse Semi 1,000 No 8,875 45,500 36,625
Xilinx 10,000 No 308,831 368,125 59,294
------------ ------------ ------------
Total Semiconductors 44.7% 12,609,170 15,696,750 3,087,580
------------ ------------ ------------
SOFTWARE:
Informix 3,000 .2% No 67,187 61,124 (6,063)
-------- ------------ ------------ ------------
Total Common Stocks 95.6% 31,336,849 33,562,087 2,225,238
CASH:
4.4% 1,526,524 1,526,524 --
-------- ------------ ------------ ------------
Total Investments 100.0% $ 32,863,373 $ 35,088,611 $ 2,225,238
======== ============ ============ ============
</TABLE>
<PAGE>
INTERACTIVE INVESTMENTS TRUST
446 Martil Way
Milpitas, CA 95035
BOARD OF TRUSTEES
Ken Kam
Kevin Landis
Michael Lynch
Mark Taguchi
OFFICERS
Kevin Landis, President
Kendrick Kam, Secretary
Yakoub Billawala, Operations
Steve Witt, Marketing
INVESTMENT ADVISER
Interactive Research Advisers, Inc.
446 Martil Way
Milpitas, CA 95035
TRANSFER AGENT / FUND ACCOUNTANT / FUND ADMINISTRATOR
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, OH 45201
This report is authorized for distribution only when it is accompanied or
preceded by a current prospectus of Interactive Investments' Technology Value
Fund.
<PAGE>
Technology Value Fund
June 30, 1997
Semi-Annual Report
<PAGE>
Second Quarter Results
The Technology Value Fund performed extremely well in the second quarter,
gaining 31.5%. In fact, Q2 was the best quarter in the Fund's history. Relative
comparisons for the quarter were strong - the fund easily outpaced the broad
market indices as well as all other Science and Technology Funds.
For the quarter, TVF ranked number two among all U.S. mutual funds tracked
by Lipper Analytical. This makes three out of the last eight quarters in which
the Fund has placed either first or second among all funds.
Performance was lead by the Electronic Design Automation and Semiconductor
sectors. Medical, Networking and Peripherals stocks also performed well. All
sectors made money during the quarter.
More importantly, we are pleased that the Fund's first half and twelve month
performance figures compare favorably with the indices as well as with other
Science and Technology Funds. Although it is gratifying to post a great quarter,
we are well aware that long term investors are best rewarded by consistently
strong results.
Long Term Performance
The chart below shows the monthly performance of the Technology Value Fund
(since inception) versus the three most commonly referenced market indices: The
Dow Jones Industrial Average, the Standard & Poor's 500 index, and the NASDAQ
composite index. (Note: Each of these indices represent an unmanaged,
broad-based basket of stocks. They are typically used as a proxy for overall
market performance.)
Performance
(returns as of 06/30/97)
===============================================================================
Avg. Ann.
1 05/20/94-
Q2 '97 YTD Year 06/30/97
- -------------------------------------------------------------------------------
TVF 31.50% 19.40% 38.41% 54.42%
- -------------------------------------------------------------------------------
DJIA 17.06% 20.12% 38.59% 28.75%
- -------------------------------------------------------------------------------
S&P 500 17.46% 20.61% 34.70% 26.70%
- -------------------------------------------------------------------------------
NASDAQ 18.23% 11.94% 22.08% 25.07%
- -------------------------------------------------------------------------------
Relative Performance: Technology Value Fund vs. Market Indices
TVF PERFORMANCE AS OF JUNE 30, 1997
One-Year Return +38.4%
Average Annual Return Since Inception* +54.4%
Average Annual Return Since Effectiveness** +59.7%
* TVF inception on 05/20/94 ** TVF effectiveness: 12/15/94 (per SEC)
===============================================================================
<TABLE>
MOUNTAIN CHART
<CAPTION>
TVF DJIA NASDAQ S&P 500
--- ---- ------ -------
<S> <C> <C> <C> <C>
5/20/94 $10,000 $10,000 $10,000 $10,000
5/31/94 $10,040 $10,004 $10,108 $10,013
6/30/94 $9,190 $9,666 $9,706 $9,768
7/31/94 $9,430 $10,045 $9,929 $10,088
8/31/94 $10,510 $10,489 $10,527 $10,502
9/30/94 $11,200 $10,320 $10,510 $10,246
10/31/94 $12,170 $10,504 $10,690 $10,475
11/30/94 $11,830 $10,094 $10,316 $10,094
12/31/94 $12,530 $10,372 $10,339 $10,244
1/31/95 $12,412 $10,407 $10,386 $10,509
2/28/95 $13,215 $10,905 $10,926 $10,919
3/31/95 $13,333 $11,325 $11,260 $11,241
4/30/95 $14,436 $11,778 $11,634 $11,572
5/31/95 $14,543 $12,217 $11,930 $12,034
6/30/95 $15,742 $12,487 $12,890 $12,314
7/31/95 $17,980 $12,913 $13,832 $12,722
8/31/95 $19,212 $12,691 $14,103 $12,754
9/30/95 $20,679 $13,206 $14,435 $13,293
10/31/95 $20,047 $13,122 $14,335 $13,245
11/30/95 $20,294 $14,053 $14,663 $13,827
12/31/95 $20,194 $14,194 $14,577 $14,093
1/31/96 $20,063 $14,976 $14,687 $14,573
2/29/96 $21,454 $15,274 $15,255 $14,708
3/31/96 $21,585 $15,581 $15,273 $14,849
4/30/96 $26,984 $15,539 $16,513 $15,068
5/31/96 $30,751 $15,801 $17,251 $15,457
6/30/96 $27,970 $15,855 $16,444 $15,516
7/31/96 $26,316 $15,519 $14,997 $14,830
8/31/96 $27,400 $15,817 $15,845 $15,143
9/30/96 $30,291 $16,594 $17,035 $15,996
10/31/96 $29,251 $17,023 $16,962 $16,437
11/30/96 $32,786 $18,470 $17,952 $17,679
12/31/96 $32,422 $18,293 $17,934 $17,329
1/31/97 $34,915 $19,337 $19,170 $18,411
2/28/97 $31,886 $19,579 $18,189 $18,556
3/31/97 $29,438 $18,771 $16,980 $17,793
4/30/97 $31,039 $19,998 $17,532 $18,856
5/31/97 $38,053 $20,972 $19,484 $20,004
6/30/97 $38,714 $21,974 $20,075 $20,900
</TABLE>
NOTE:The Fund's performance information assumes reinvestment of all dividends
and includes all fund expenses. Past performance does not guarantee future
results. Both the return from and the principal value of an investment in
the Fund will fluctuate so that any investor's shares, when redeemed, may
be worth more or less than their original cost.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
Portfolio Discussion
Assets under management more than doubled during the quarter - from $50.6M
to $108.7M. Most of the new cash was employed in the medical, semiconductor and
networking sectors. Sector performance varied from a slight gain in the
semiconductor equipment stocks to very strong returns by the EDA group. All
sectors posted positive performance.
The chart below details the Fund's holdings by sector as of 06/30/97. Our
weighting in semiconductors declined from 37.4% to 30.3%. Our best performers
were PMC-Sierra, Dallas Semiconductor, Triquint, Level One and Quality
Semiconductor. AMD and Texas Instruments declined in value. We established a new
position in Texas Instruments, re-established a position in Vitesse, and closed
our position in C-Cube Microsystems.
Our investment in semiconductor capital equipment declined from 1.3% to
.76%. We established a new position in KLA-Tencor and closed out our position in
Novellus.
The Fund's weighting in Electronic Design Automation (EDA) stocks fell from
11.2% to 7.7%. We added to our position in Avant!, established a new position in
Technology Modeling Associates, and sold our Synopsys shares.
Our weighting in the medical sector expanded from 19.6% to 24.8%. We
established new positions in Cardiothoracic Systems, Chiron, Endocardial
Solutions, HCIA and Mariner Health Care. We closed our positions in Occu Systems
and Regeneron.
Our weighting in networking declined slightly, from 20.4% to 20.1%. Our best
performers were US Robotics and Cisco Systems. We added significantly to our
positions in Cisco and Cascade. US Robotics was acquired by 3Com.
===============================================================================
Top 5 Stocks by $ Gain in Q2 1997
- -------------------------------------------------------------------------------
Stock Symbol $ Gain % Gain
- -------------------------------------------------------------------------------
PMC-Sierra PMCS 3,314,375 60.49
Arterial Vascular AVEI 3,008,528 96.13
Avant! AVNT 1,476,285 41.38
3Com/USRobot. COMS/USRX 1,355,000 29.77
Level One LEVL 1,177,533 43.05
===============================================================================
===============================================================================
Bottom 5 Stocks by $ Loss in Q2 1997
- -------------------------------------------------------------------------------
Stock Symbol $ Loss % Loss
- -------------------------------------------------------------------------------
Cascade Comm. CSCC 837,588 15.14
Advanced Micro AMD 225,000 13.55
Ascend ASND 82,500 3.37
Novellus NVLS 57,500 27.78
Texas Instruments TXN 26,825 0.77
- -------------------------------------------------------------------------------
Fund Holdings by Sector as of 06/30/97
Pie Chart:
EDA 7.6%
Semiconductors 30.3%
Semi Equip 0.8%
Networking 20.1%
Peripherals 3.4%
Cash 13.0%
Medical 24.8%
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
Portfolio Snapshot
Technology Value Fund 06/30/97
- -------------------------------------------------------------------------------
Security Shares Price Market Value
- -------------------------------------------------------------------------------
3 Com 131,250 45 $5,906,250
Advanced Micro 40,000 36 $1,440,000
Affymetrix 40,000 34 3/4 $1,390,000
Amgen 10,000 58 1/8 $581,250
Applied Materials 5,000 70 13/16 $354,063
Arterial Vascular1 90,700 32 3/16 $6,138,156
Ascend 60,000 39 3/8 $2,362,500
Avanti 156,100 32 5/16 $5,043,981
Cabletron Systems 25,000 28 5/16 $707,813
Cardiometrics 281,700 7 11/16 $2,165,569
Cardiothoracic Sys 199,800 14 $2,797,200
Cascade Comm. 170,000 27 5/8 $4,696,250
Centocor 35,000 31 1/16 $1,087,187
Chiron 25,000 20 7/8 $521,875
Cisco Systems 130,000 67 1/8 $8,726,250
Dallas Semi 50,200 39 1/4 $1,970,350
Endocardial Solutions 120,000 9 7/8 $1,185,000
Endosonics 340,000 10 7/8 $3,697,500
Everest Medical 35,000 3 1/8 $109,375
HCIA, Inc. 15,900 33 1/2 $532,650
HMT Technology 60,000 12 15/16 $776,250
IKOS 150,000 21 3/8 $3,206,250
Intel 20,000 141 13/16 $2,836,250
Iomega 150,000 19 7/8 $2,981,250
KLA-Tencor Corp. 10,000 48 3/4 $487,500
Lattice Semi 110,000 56 1/2 $6,215,000
Level One 101,800 38 7/16 $3,912,938
Mariner Health Care 269,000 15 7/16 $4,152,687
MedCath 17,100 14 7/8 $254,362
Medtronic 40,000 81 $3,240,000
Medwave 21,300 13 1/4 $282,225
Mini-Med 32,400 26 5/8 $862,650
PMC-Sierra 370,000 26 1/4 $9,712,500
Quality Semi 237,800 10 5/8 $2,526,625
Silicon Valley Re. 110,000 1 $110,000
Technology Modeling 17,500 13 5/8 $238,437
Texas Instruments 40,000 84 1/16 $3,362,500
Triquint 79,500 34 3/8 $2,732,813
Vitesse 35,000 32 11/16 $1,144,063
Cash- 14,455,888 1 $14,455,888
===============================================================================
Total Investments $114,903,407
===============================================================================
Portfolio snapshots are available through the Fund's e-mail auto-responder.
To obtain a snapshot, send any e-mail message to: [email protected]. The
month-end snapshot will be posted near the end of the following month.
The Doctors' Choice
New surgical instruments and techniques will change the way most coronary
bypass operations are performed. Minimally invasive cardiac surgery (MICS) makes
it possible for surgeons to perform open-heart surgery without a sternotomy
(cracking open the patient's chest). Access to the heart is achieved through
relatively small incisions made between the ribs.
Although angioplasty is less invasive than MICS, its beneficial effects are
short-lived in about 40% of the cases. Normal coronary bypass operations have a
much higher success rate, but are also much more traumatic for the patient. If
the success rate for MICS equals that of standard open procedures, MICS could
become the procedure of choice, offering the best trade-off between trauma and
effectiveness.
Two companies are currently leading this revolution. Cupertino-based
Cardiothoracic Systems, Inc. (CTSI) currently leads in the number of procedures
performed, and the number of surgical teams trained. Redwood City based,
Heartport, Inc. (HPRT) is ahead in sales and market value.
Doctors Wall Street
Choice Choice
(CTSI) (HPRT)
CLINICAL COMPARISON
Q2 Bypass Procedures 1,700 660
Total Bypass Procedures 3,100 1,200
Surgical Teams Trained 260 128
FINANCIAL COMPARISON ($ MILLIONS)
Q2 Revenues $2.8 $4.7
Q2 Losses $4.8 $14.6
Market Cap. $175 $493
Although both companies are growing their procedure volumes at a healthy
rate, CTSI has a significant lead in training surgeons. The number of trained
surgical teams which prefer one procedure over the other is probably the best
predictor of each company's relative share of the patients who could be treated
equally well by either system.
As things are now developing, the future "average" patient, about 50% of the
cases, would be treated with a combination of CTSI's system, balloon
angioplasty, and/or stents. The more "difficult" cases will more likely be
performed on a stopped heart using Heartport's system. The "less" difficult
cases will continue to be candidates for balloon angioplasty alone.
Between the two companies, we believe CTSI is currently the better
investment. CTSI is closer to breaking into profitability, is getting more
procedures done, and has trained more surgical teams than HPRT. And, CTSI's
market cap is less than 50% of HPRT's. Whenever Wall Street and the physician
community disagree on the value of a medical technology, I will always be on the
physicians' side because I think the doctors have better medical judgement than
Wall Street. TVF has accumulated a position in CTSI at prices ranging from $12
to $14. We think CTSI could be trading between $28 and $30 within 2 years.
Heartport may also be a good investment. Although at its current valuation, we
want to see more clinical data to justify its higher price.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
Calculated Risk Pays Off
In our 1996 annual report, we reported that Cardiometrics (CFLO) had
announced an agreement to be acquired by Endosonics (ESON) for a package of
securities and cash valued at a minimum of $9 per share. With CFLO's stock then
trading at 7 1/2, we calculated that if it took 3 months to close the deal an
investment in CFLO stock could give you an annualized return of about 107%. We
liked this risk/reward profile, so the fund started buying.
By the time we issued our Q197 report to shareholders, CFLO had fallen to
around $6 and the value of the package of securities Endosonics had agreed to
pay for each CFLO share had fallen to $7.46 (valued at 5/16/97). Our Q197 report
outlined our reasons for adding to our positions in both Endosonics (then at
$9.50) and Cardiometrics.
On July 24, 1997, Endosonics completed the acquisition of Cardiometrics.
CFLO stockholders received 0.35 of a newly issued share of ESON common stock,
0.1364 of a share of CardioVascular Dynamics Inc. (CCVD) common stock and $3 in
cash, in exchange for each CFLO share.
Between February 3, 1997 and June 3, 1997 the fund purchased a total of
281,700 shares at an average price of $7.43. As of July 30, 1997, the cash and
securities exchanged for each CFLO share was worth a total of $9.10. The fund's
internal rate of return on its CFLO investment was 56%. Endosonics is currently
trading at 13 7/8, an increase of 46% since our Q197 report.
Three Trends You Can Count On
BROADBAND ACCESS TO THE HOME: Cable TV and On-line information services have
clearly demonstrated two things: One, that people love greater access to
information, and two, that they are unwilling to pay a premium for it.
Furthermore, consumer behavior is evolving as people learn how to make fuller
use of their new capabilities. The combination of increasing user sophistication
and ever richer content should lead to years of growing consumer demand for
bandwidth.
There are a number of competing technologies aimed at providing more
information to the home. These include cable modems, Direct Broadcast Satellite,
and the various flavors of Digital Subscriber Line techniques (xDSL).
Balancing our two assumptions: the need for a "wider information pipe", and
the price sensitivity of the typical consumer, we observe that the
easier-and-cheaper-to-deploy mousetrap could easily win-out over the better
mousetrap. We are therefore investing in companies that can provide and apply
practical technology to this opportunity.
EXPANSION OF THE COMMUNICATIONS BACKBONE: If we believe that "broadband to
the home" is inevitable because people want it, then it stands to reason that
once it's in place, people will use it aggressively. As surely as having more
cars jams surface streets and freeways alike, upgrading the edges of a network
puts amazing pressure on the central backbone.
This pressure will come not only from the home, but from the workplace as
well. Companies are upgrading their Local Area Networks as fast as they can. The
combination of faster upgraded LAN's, along with new deployments, will place
greater demands on the corresponding Wide Area Networks which, in turn, will
stress the backbone like never before.
That the backbone will have to expand is not in dispute. It is the magnitude
of the coming change that goes unappreciated. Most people understand, for
example, that a 56K modem can download information almost four times as fast as
a 14.4K modem, or that a 1% growth in phone lines translates into an increase of
at least 1% in phone traffic, but we fail to note the gradual, often subtle
changes in how we use technology. More often than not, it is the secondary
changes that prove to be most profound.
A good example of a behavioral change is the fax machine, which
fundamentally altered the basic demand each of us places on the telephone
network. But most do not appreciate that many more such fundamental shifts lie
ahead. Most of us are still so busy learning how to best utilize simple-text
e-mail, that we don't stop to ponder the ramifications of having the ability to
e-mail a photograph, then an entire photo album and even a home video to a
distant relative.
Although we can't say exactly how people's behavior will change, it's a safe
bet that it will. Whatever form these changes take, they are sure to create
problems and bottlenecks in the communications infrastructure - and we'll be
looking to invest in the companies that can best take advantage of those
opportunities.
BETTER-FASTER-CHEAPER-SMALLER: The chip industry pushes the rest of
high-tech along by constantly shrinking current products onto future designs
which are either more feature-rich, less expensive, or both. In order to
continue down this path, the semiconductor industry will need help from both
Electronic Design Automation (EDA) and Process Technology companies.
Within the EDA realm, chip companies will face severe challenges at either
end of the design process. At the transistor level, designers will find that the
basic assumptions of device modeling will need to be revisited at the "deep
sub-micron" level. Basic transistor behavior will need to be re-examined (and
"re-modeled") as second-order effects become nontrivial.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
At the other end of the design process, the task of verifying designs of
ever-increasing complexity is becoming untenable. New techniques will soon be an
absolute requirement for any chip company wishing to hit its market windows on
time. The challenge for us is to invest in those EDA companies which provide the
right solutions to tomorrow's challenges.
But all of this is moot if you can't physically build the chip. In order to
pack more transistors into a given area, chip companies are thinking in all
three dimensions - adding more layers of interconnect, for instance, as well as
shrinking line geometries.
Building more layers on a chip sounds like an easy way to increase the
density of a device, but there are considerable complications involved. Each
process step, whether it's an etch, a deposition, an oxide growth or even an
implant, assumes a flat surface, but leaves an uneven one. Past a certain point,
the loss of planarity makes further process steps impractical.
Hence the need for Chemical/Mechanical Planarization (CMP). By precisely
applying a fine mixture of chemical abrasives, CMP equipment can re-planarize a
wafer in mid-process. This effectively enables the manufacture of higher
density, and therefore lower cost, devices. We believe that we are witnessing
the early stages of industry-wide adoption of this process, and are looking to
invest heavily in the emerging leaders.
Automatic Investing in TVF Now Available
Once you establish a direct account with Interactive Investments, you may
now automatically add a minimum of $50 per month. Investing fixed sums at
regular intervals brings the power of dollar cost averaging to your TVF account.
Call our Shareholder Services Office at the toll-free number listed below for
details.
Money Market Fund Also Available
For our clients with direct accounts, a money market account is now
available. Call our Shareholder Services Office at the toll-free number listed
below and request a prospectus for details.
Staying Current on the Technology Value Fund
===============================================================================
Newspaper Listing TECH VALUE
- - - - - - - - -
Web Site WWW.TECHFUNDS.COM
- - - - - - - - -
Ticker Symbol TVFQX
- - - - - - - - -
Getting Info Via Email Send any email message to:
General Info and Portfolio Holdings [email protected]
Application and Prospectus [email protected]
- - - - - - - - -
Getting Info Via U.S. Mail 1-888-TVF-FUND
- - - - - - - - -
Direct Account Shareholder Services 1-888-884-2675
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
Outlook
Given that the first quarter's 9.2% decline was our worst ever, and that the
second quarter's 31.5% gain was our best ever, we feel it's safe to say that
1997 is already shaping up to be a year of sharp contrasts and interesting
lessons. Although active traders had ample opportunity to make and lose money,
patient investors enjoyed a very respectable 19.4% gain over the first six
months, demonstrating that often, the best way to react to volatility is to
ignore it.
Looking forward, we are excited about the potential of the medical and
electronic industries, as they continue to offer unique new possibilities to the
world through the creative application of technology. Our portfolio represents
the collection of companies which we feel have the greatest potential to benefit
from this on-going renaissance.
We would like to take this opportunity to once again thank our shareholders,
both new and old, for their patience and confidence in us.
/s/KEVIN LANDIS /s/KEN KAM
KEVIN LANDIS KEN KAM
Portfolio Manager, Electronic Technology Portfolio Manager, Medical Technology
Technology Value Fund Technology Value Fund
Important Legal Disclosures
This report is provided for the general information of TVF shareholders and
is not authorized for distribution to prospective investors in the Fund unless
preceded or accompanied by a current prospectus. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Investing in high technology and medical technology
stocks entails certain risks, including increased volatility of share value.
Investors are encouraged to read the prospectus carefully. Copies of the most
recent prospectus are available on the Fund's web site, or by calling 1 (888)
TVF-FUND. You may also request the most recent prospectus from the following
brokers: Charles Schwab's OneSource, Fidelity Investments, Jack White & Co., and
National Investors Service Corporation.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
<S> <C>
ASSETS
Investments in securities, at value (cost $85,127,710) (Note 1) $ 100,447,519
Investments in repurchase agreements (Note 1) 14,455,000
Cash 888
Receivable for capital shares sold 2,178,471
Dividends and interest receivable 6,286
Other assets 11,578
----------------
TOTAL ASSETS $ 117,099,742
----------------
LIABILITIES
Payable to affiliates (Note 3) 149,255
Payable for capital shares redeemed 67,800
Payable for securities purchased 8,136,375
----------------
TOTAL LIABILITIES $ 8,353,430
----------------
NET ASSETS $ 108,746,312
================
Net assets consist of:
Paid-in capital (Note 1) $ 94,180,157
Accumulated net investment loss (432,532)
Accumulated net realized losses from security transactions (321,122)
Net unrealized appreciation on investments 15,319,809
----------------
Net assets $ 108,746,312
================
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) 3,432,876
================
Net asset value, offering price and redemption price per share (Note 1) $ 31.68
================
</TABLE>
See accompanying notes to financial statements.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997 (unaudited)
===============================================================================
INVESTMENT INCOME
<S> <C>
Interest income $ 134,711
Dividend income 12,344
--------------
TOTAL INVESTMENT INCOME 147,055
--------------
EXPENSES
Investment management fees (Note 3) 304,127
Administration fees (Note 3) 275,460
--------------
TOTAL EXPENSES 579,587
--------------
NET INVESTMENT LOSS (432,532)
--------------
REALIZED AND UNREALIZED GAINS/
(LOSSES) ON INVESTMENTS
Net realized losses from security transactions (257,726)
Net increase in unrealized appreciation on investments 13,094,571
--------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS 12,836,845
--------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 12,404,313
==============
</TABLE>
See accompanying notes to financial statements.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended June 30, 1997 and December 31, 1996
=====================================================================================================
Six Months
Ended Year
06/30/97 Ended
(unaudited) 12/31/96
---------------- ---------------
FROM OPERATIONS
<S> <C> <C>
Net investment loss $ (432,532) $ (103,853)
Net realized gains/(losses) from security transactions (257,726) 2,546,140
Net change in unrealized appreciation on investments 13,094,571 1,675,722
---------------- ---------------
Net increase in net assets from operations 12,404,313 4,118,009
---------------- ---------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net realized gains (238,678) (2,244,807)
---------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS (A)
Proceeds from shares sold 98,197,767 35,670,929
Net asset value of shares issued in
reinvestment of distributions to shareholders 164,773 1,153,485
Payments for shares redeemed (36,885,965) (6,274,508)
---------------- ---------------
Net increase in net assets from capital share transactions 61,476,575 30,549,906
---------------- ---------------
TOTAL INCREASE IN NET ASSETS 73,642,210 32,423,108
NET ASSETS
Beginning of period 35,104,102 2,680,994
---------------- ---------------
End of period $ 108,746,312 $ 35,104,102
================ ===============
(a) CAPITAL SHARE ACTIVITY:
Shares sold 3,432,255 1,435,204
Shares issued in reinvestment of distributions
to shareholders 6,840 43,942
Shares redeemed (1,322,851) (307,953)
---------------- ---------------
Net increase in shares outstanding 2,116,244 1,171,193
Shares outstanding, beginning of period 1,316,632 145,439
---------------- ---------------
Shares outstanding, end of period 3,432,876 1,316,632
================ ===============
</TABLE>
See accompanying notes to financial statements.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Per Share Data for a Share Outstanding Throughout Each Period
===============================================================================================================================
Six Months
Ended Year Year Period From
06/30/97 Ended Ended 05/20/94 (a)
(unaudited) 12/31/97 12/31/95 to 12/31/94
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 26.66 $ 18.44 $ 11.70 $ 10.00
----------- ---------- --------- ---------
Income from investment operations:
Net investment loss (0.07) (0.08) (0.14) (0.03)
Net realized and unrealized gains on investments 5.21 11.20 7.28 2.56
----------- ---------- --------- ---------
Total from investment operations 5.14 11.12 7.14 2.53
----------- ---------- --------- ---------
Less distributions:
Distributions from net realized gains (0.12) (2.90) (0.40) (0.83)
----------- ---------- --------- ---------
Net asset value at end of period $ 31.68 $ 26.66 $ 18.44 $ 11.70
=========== ========== ========= =========
Ratios and supplemental data:
Total return 39.1% (c) 60.5% 61.2% 25.3% (b)
=========== ========== ========= =========
Net assets at end of period (millions) $ 108.7 $ 35.1 $ 2.7 $ 0.2
=========== ========== ========= =========
Ratio of expenses to average net assets 1.89% (c) 1.81% 1.98% 1.96% (c)
Ratio of net investment loss to average net assets (1.41%) (c) (0.55%) (1.45%) (1.29%) (c)
Portfolio turnover rate 41% (c) 43% 45% 56%
Average commission rate per share $ 0.0380 $0.0426 N/A N/A
<FN>
(a) Commencement of operations.
(b) Not annualized.
(c) Annualized.
</FN>
</TABLE>
See accompanying notes to financial statements.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited)
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Technology Value Fund (the Fund) is a non-diversified series of
Interactive Investments Trust (the Trust), an open-end management
investment company registered under the Investment Company Act of 1940.
The Trust was organized as an Delaware business trust on November 8, 1993.
The Fund commenced operations on May 20, 1994. The public offering of
shares of the Fund commenced on January 3, 1995.
The primary investment objective of the Fund is long-term growth of
capital. Receipt of income is a secondary objective, as some investments
may yield dividends, interest or other income. The Fund will invest
primarily in securities of companies in the high technology and medical
fields which are believed to be undervalued and have potential for capital
appreciation. The Fund may also invest portions of its total assets in
securities that entail special risks, such as foreign securities and
securities of unseasoned issuers.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of
the close of business of the regular session of trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time). Securities which are
traded on a national stock exchange or are quoted by NASDAQ are valued
based upon the last reported sale price as of the close of the regular
session of trading on the New York Stock Exchange, or, if not traded, at
the most recent bid price. Securities which are traded over-the-counter,
and which are not quoted by NASDAQ, are valued based on the most recent
bid price as obtained from one or more of the major market makers for such
securities.
Repurchase agreements -- Repurchase agreements, which are collateralized
by U.S. Government obligations, are valued at cost which, together with
accrued interest, approximates market. At the time the Fund enters into a
repurchase agreement, the seller agrees that the value of the underlying
securities, including accrued interest, will at all times be equal to or
exceed the face amount of the repurchase agreement.
Share valuation -- The net asset value per share of the Fund is calculated
daily by dividing the total value of the Fund's assets, less liabilities,
by the number of shares outstanding, rounded to the nearest cent. The
offering and redemption price per share of the Fund is equal to the net
asset value per share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
Distributions to shareholders -- Distributions to shareholders arising
from net investment income and net realized capital gains, if any, are
distributed at least once each year. Dividends from net investment income
and capital gain distributions are determined in accordance with income
tax regulations, which may differ from generally accepted accounting
principles.
Security transactions -- Security transactions are accounted for on the
trade date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Federal income tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which the
Fund so qualifies and distributes at least 90% of its taxable net income,
the Fund (but not the shareholders) will be relieved of federal income tax
on the income distributed. Accordingly, no provision for income taxes has
been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital
gains (earned during the twelve months ended October 31) plus
undistributed amounts from prior years.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
As of June 30, 1997, net unrealized appreciation on investments was
$15,319,809 for federal income tax purposes, of which $19,985,183 related
to appreciated securities and $4,665,374 related to depreciated securities
based on a federal income tax cost basis of $85,127,710.
2. INVESTMENT TRANSACTIONS
During the six months ended June 30, 1997, purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted
to $66,155,604 and $12,043,457, respectively.
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of
Interactive Research Advisers, Inc. (the Adviser) or of Countrywide Fund
Services, Inc. (CFS), the administrative services agent, shareholder
servicing and transfer agent, and accounting services agent for the Trust.
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by the Adviser pursuant to the terms of
an Investment Advisory Agreement (the Advisory Agreement). Under the
Advisory Agreement, the Adviser furnishes advice and recommendations with
respect to the Fund's portfolio of securities and investments and provides
persons satisfactory to the Trust's Board of Trustees to act as officers
and employees of the Trust responsible for the overall management and
administration of the Trust, subject to the supervision of the Trust's
Board of Trustees. The Adviser is responsible for (i) the compensation of
any of the Trust's trustees, officers and employees who are directors,
officers, employees or shareholders of the Adviser, (ii) compensation of
the Adviser's personnel and payment of other expenses in connection with
the provision of portfolio management services under the Advisory
Agreement, and (iii) expenses of printing and distributing the Fund's
Prospectus and sales and advertising materials to prospective clients.
For the services provided by the Adviser under the Advisory Agreement, the
Adviser receives from the Fund a management fee, computed and accrued
daily and paid monthly, equal to 1% per annum of the Fund's average daily
net assets.
ADMINISTRATION AGREEMENT
The Trust has entered into a separate contract with the Adviser wherein
the Adviser is responsible for providing administrative and supervisory
services to the Fund (the Administration Agreement). Under the
Administration Agreement, the Adviser oversees the maintenance of all
books and records with respect to the Fund's securities transactions and
the Fund's book of accounts in accordance with all applicable federal and
state laws and regulations. The Adviser also arranges for the preservation
of journals, ledgers, corporate documents, brokerage account records and
other records which are required to be maintained pursuant to the 1940
Act.
Under the Administration Agreement, the Adviser is responsible for the
equipment, staff, office space and facilities necessary to perform its
obligations. The Adviser has also assumed responsibility for payment of
all of the Fund's operating expenses except for brokerage and commission
expenses and any extraordinary and non-recurring expenses.
For the services rendered by the Adviser under the Administration
Agreement, the Adviser receives a fee at the annual rate of .95% of the
Fund's average daily net assets.
The Adviser has retained Countrywide Fund Services, Inc. (the Transfer
Agent) to serve as the Fund's transfer agent, dividend paying agent and
shareholder service agent, to provide accounting and pricing services to
the Fund, and to assist the Adviser in providing executive, administrative
and regulatory services to the Fund. The Transfer Agent is 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. The Adviser (not the Fund) pays the Transfer
Agent's fees for these services.
4. SPECIAL MEETING OF SHAREHOLDERS
On July 21, 1997, a special meeting of shareholders of the Fund was held
at which a new investment advisory agreement with the Adviser (the New
Advisory Agreement) was approved. The New Advisory Agreement increases the
investment management fees payable by the Fund to the Adviser from an
annual rate of 1% of the Fund's average daily net assets to an annual rate
of 1.50%. However, due to a corresponding decrease in the administration
fees payable by the Fund to the Adviser, the Fund's total operating
expenses will not increase as a result of the New Advisory Agreement.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
June 30, 1997 (unaudited)
% of Unrealized
COMMON STOCKS SHARES TOTAL COST MARKET VALUE GAIN/(LOSS)
------------- ------- ----- ------------ ------------ -------------
<S> <C> <C> <C> <C>
ELECTRONIC DESIGN AUTOMATION
IKOS Systems, Inc. * 150,000 $ 2,902,150 $ 3,206,250 $ 304,100
Avant! Corp. * 156,100 3,755,583 5,043,981 1,288,398
Silicon Valley Research * 110,000 514,556 110,000 (404,556)
Technology Modeling Associates. Inc. * 17,500 241,563 238,437 (3,126)
---------- ------- -------
TOTAL ELECTRONIC DESIGN AUTOMATION 7.9% 7,413,852 8,598,668 1,184,816
--------- --------- ---------
MEDICAL
HCIA, Inc. * 15,900 367,136 532,650 165,514
Affymetrix, Inc. * 40,000 1,119,513 1,390,000 270,487
Amgen, Inc. * 10,000 499,790 581,250 81,460
Arterial Vascular Engineering, Inc. * 190,700 3,208,433 6,138,156 2,929,723
Cardiometrics, Inc. * 281,700 2,093,544 2,165,569 72,025
Cardiothoracic Systems, Inc. * 199,800 2,716,776 2,797,200 80,424
Centocor, Inc. * 35,000 1,091,585 1,087,187 (4,398)
Chiron Corp. * 25,000 461,937 521,875 59,938
Endocardial Solutions, Inc. * 120,000 1,144,800 1,185,000 40,200
Endosonics Corp. * 340,000 3,742,390 3,697,500 (44,890)
Everest Medical Corp. 35,000 135,513 109,375 (26,138)
Mariner Health Group, Inc. * 269,000 3,087,802 4,152,687 1,064,885
Medcath, Inc. * 17,100 309,058 254,362 (54,696)
Medtronic, Inc. 40,000 2,646,930 3,240,000 593,070
Medwave, Inc. * 21,300 240,902 282,225 41,323
Minimed, Inc. * 32,400 880,346 862,650 (17,696)
------- ------- --------
TOTAL MEDICAL 26.7% 23,746,455 28,997,686 5,251,231
----------- ---------- ---------
NETWORKING
3 Com Corp. * 131,250 4,994,326 5,906,250 911,924
Ascend Communications, Inc. * 60,000 4,302,550 2,362,500 (1,940,050)
Cabletron Systems, Inc. * 25,000 971,600 707,813 (263,787)
Cascade Communications Corp. * 170,000 5,754,390 4,696,250 (1,058,140)
Cisco Systems, Inc. * 130,000 8,241,383 8,726,250 484,867
---------- ----------- -------------
TOTAL NETWORKING 20.6% 24,264,249 22,399,063 (1,865,186)
---------- ---------- -----------
PERIPHERAL
HMT Technology Corp. * 60,000 741,564 776,250 34,686
Iomega Corp. * 150,000 2,826,775 2,981,250 154,475
--------- ----------- ---------
TOTAL PERIPHERAL 3.4% 3,568,339 3,757,500 189,161
--------- ----------- ---------
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
<CAPTION>
PORTFOLIO OF INVESTMENTS, continued
June 30, 1997 (unaudited)
% of Unrealized
COMMON STOCKS SHARES TOTAL COST MARKET VALUE GAIN/(LOSS)
------------- ------- ----- ------------ ------------ -------------
<S> <C> <C> <C> <C>
SEMICONDUCTOR EQUIPMENT
Applied Materials, Inc. * 5,000 187,508 354,063 166,555
KLA-Tencor Corp. * 10,000 434,500 487,500 53,000
------- ---------- ------------
TOTAL SEMICONDUCTOR EQUIPMENT 0.8% 622,008 841,563 219,555
------- ---------- -----------
SEMICONDUCTORS
Advanced Micro Devices, Inc. * 40,000 831,600 1,440,000 608,400
Dallas Semiconductor Corp. 50,200 1,312,910 1,970,350 657,440
Intel Corp. 20,000 1,574,077 2,836,250 1,262,173
Lattice Semiconductor Corp. * 110,000 4,429,445 6,215,000 1,785,555
Level One Communications, Inc. * 101,800 2,773,498 3,912,938 1,139,440
PMC-Sierra, Inc. * 370,000 5,933,931 9,712,500 3,778,569
Quality Semiconductor, Inc. * 237,800 2,048,394 2,526,625 478,231
Texas Instruments, Inc. 40,000 3,491,825 3,362,500 (129,325)
TriQuint Semiconductor, Inc. * 79,500 1,972,126 2,732,813 760,687
Vitesse Semiconductor, Corp. * 35,000 1,145,001 1,144,063 (938)
---------- ----------- --------------
TOTAL SEMICONDUCTORS 33.0% 25,512,807 35,853,039 10,340,232
---------- ---------- ----------
TOTAL COMMON STOCKS 92.4% 85,127,710 100,447,519 15,319,809
---------- ----------- ----------
FACE AMOUNT
-----------
REPURCHASE AGREEMENTS (1)
The Fifth Third Bank, 5.07%, dated
6/30/97, due 7/01/97, repurchase
proceeds $14,457,036 $ 14,455,000 13.3% 14,455,000 14,455,000
----- ------------ -------------
TOTAL INVESTMENTS AND
REPURCHASE AGREEMENTS 105.7% $ 99,582,710 $ 114,902,519 $ 15,319,809
============= ============
Liabilities in Excess of Other Assets (5.7%) (6,156,207)
------ -------------
TOTAL NET ASSETS 100.0% $ 108,746,312
====== =============
<FN>
* Non-income producing security.
(1) Repurchase agreements are fully collateralized by U.S. Government obligations.
</FN>
</TABLE>
See accompanying notes to financial statements.
===============================================================================
Interactive Investments o 101 Park Center Plaza - Suite 1300 o
San Jose, CA 95113 o 1 (888) 884-2675
<PAGE>
INTERACTIVE INVESTMENTS TRUST
101 Park Center Plaza, Suite 1300
San Jose, CA 95113
BOARD OF TRUSTEES
Ken Kam
Kevin Landis
Michael Lynch
Mark Taguchi
OFFICERS
Kevin Landis, President
Kendrick Kam, Secretary
Yakoub Billawala, Treasurer
INVESTMENT ADVISER
Interactive Research Advisers, Inc.
101 Park Center Plaza, Suite 1300
San Jose, CA 95113
TRANSFER AGENT / FUND ACCOUNTANT / FUND ADMINISTRATOR
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, OH 45201
This report is authorized for distribution only when it is accompanied or
preceded by a current prospectus of Interactive Investments' Technology Value
Fund.
<PAGE>
INTERACTIVE INVESTMENTS
Part C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) (i) Financial Statements included in Part A:
Financial Highlights of The Technology Value Fund
(ii) Financial Statements included in Part B:
Statement of Assets and Liabilities of The
Technology Value Fund, December 31, 1996
Statement of Operations for The Technology Value
Fund for the Year Ended December 31, 1996
Statements of Changes in Net Assets for The
Technology Value Fund for the Years Ended December
31, 1996 and 1995
Schedule of Investments for The Technology Value
Fund, December 31, 1996
Financial Highlights of The Technology Value Fund
Notes to Financial Statements, December 31, 1996
Independent Auditor's Report
Statement of Assets and Liabilities of The
Technology Value Fund, June 30, 1997
Statement of Operations of The technology Value
Fund for the Six Months Ended June 30, 1997
Statements of Changes in Net Assets of The
Technology Value Fund for the Periods Ended June
30, 1997 and December 31, 1996
Schedule of Investments of The Technology Value
Fund, June 30, 1997
Financial Highlights of The Technology Value Fund
Notes to Financial Statements, June 30, 1997
(b) Exhibits
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Advisory Agreement with Interactive Research
Advisers, Inc.*
(6) Inapplicable
(7) Inapplicable
(8) Custody Agreement with Star Bank, N.A.
(9)(i) Administration Agreement with Interactive Research
Advisers, Inc.*
(ii) Transfer, Dividend Disbursing, Shareholder Service
and Plan Agency Agreement with Countrywide Fund
Services, Inc.*
(iii) Administration Agreement with Countrywide Fund
Services, Inc.*
(iv) Accounting Services Agreement with Countrywide Fund
Services, Inc.*
(10) Opinion and Consent of Counsel relating to Issuance
of Shares*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Prototype Individual Retirement Account*
(15) Inapplicable
(16) Computation for Performance Quotations*
(17) Financial Data Schedule*
(18) Inapplicable
* Incorporated by reference to Registration Statement on Form N-1A.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of the Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose and the State of California
on the 3rd of December, 1997.
INTERACTIVE INVESTMENT TRUST
By: /S/ KEVIN M. LANDIS
Kevin M. Landis, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ KEVIN M. LANDIS President and December 3, 1997
- --------------------
Kevin M. Landis Trustee
/S/ KENDRICK W. KAM Secretary/Treasurer December 3, 1997
- --------------------
Kendrick W. Kam and Trustee
Michael T. Lynch* Trustee By:/S/JOHN F. SPLAIN
John F. Splain
Attorney-in-Fact*
Mark K. Taguchi* Trustee December 3, 1997
INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Advisory Agreement with Interactive Research Advisers,
Inc.*
(6) Inapplicable
(7) Inapplicable
(8) Custody Agreement with Star Bank, N.A.
(9)(i) Administration Agreement with Interactive Research
Advisers, Inc.*
(ii) Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with Countrywide Fund Services,
Inc.*
(iii) Administration Agreement with Countrywide Fund
Services, Inc.*
(iv) Accounting Services Agreement with Countrywide Fund
Services, Inc.*
(10) Opinion and Consent of Counsel relating to issuance of
shares*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Prototype Individual Retirement Account*
(15) Inapplicable
(16) Computation for Performance Quotations*
(17) Financial Data Schedule*
(18) Inapplicable
*Incorporated by reference to Registration Statement on Form N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
No person is directly or indirectly controlled by or under
common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of October 31, 1997, there were 2,779 holders of the shares
of beneficial interest of The Technology Value Fund series of
Registrant.
ITEM 27, INDEMNIFICATION.
Under section 3817(a) of the Delaware Business Trust Act, a
Delaware business trust has the power to indemnify and hold
harmless any trustee, beneficial owner or other person from
and against any and all claims and demands whatsoever.
Reference is made to sections 5.1 and 5.2 of the Declaration
of Trust of Interactive Investments (the "Trust") pursuant to
which no trustee, officer, employee or agent of the Trust
shall be subject to any personal liability, when acting in his
or her individual capacity, except for his own bad faith,
willful misfeasance, gross negligence or reckless disregard of
his or her duties. The Trust shall indemnify each of its
trustees, officers, employees and agents against all
liabilities and expenses reasonably insurred by him or her in
connection with the defense or disposition of any actions,
suits or other proceedings by reason of his or her being or
having been a trustee, officer, employee or agent, except with
respect to any matter as to which he or she shall have been
adjudicated to have acted in or with bad faith, willful
misfeasance, gross negligence or reckless disregard of his or
her duties. The Trust will comply with Section 17(h) of the
Investment Company Act of 1940, as amended (the "1940 Act")
and 1940 Act Releases number 7221 (June 9, 1972) and number
11330 (September 2, 1980).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Trust pursuant to the
foregoing, the Trust has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification
is against public policy and therefore may be unenforceable.
In the event that a claim for indemnification (except insofar
as it provides for the payment by the Trust of expenses
incurred or paid by a trustee, officer or controlling person
in the successful defense of any action, suit or
<PAGE>
proceeding) is asserted against the Trust by such trustee,
officer or controlling person and the Securities and Exchange
Commission is still of the same opinion, the Trust 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 of whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
Indemnification provisions exist in the Investment Advisory
and Management Agreement and the Administration Agreement
which are identical to those in the Declaration of Trust noted
above.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
ADVISER
(a) Inapplicable
(b) Inapplicable
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the
Rules promulgated thereunder will be maintained by the
Registrant at its offices located at 101 Park Center Plaza,
Suite 1300, San Jose, California 95113 or at the offices of
the Registrant's transfer agent located at 312 Walnut Street,
Cincinnati, Ohio 45202.
ITEM 31. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A AND B.
Inapplicable
- 4 -
<PAGE>
ITEM 32. UNDERTAKINGS.
(a) Inapplicable
(b) The Registrant undertakes to file a post-effective
amendment, using financial statements which need not
be certified, within four to six months from the
effective date of The Medical Specialists Fund series
and The Technology Leaders Fund series.
(c) The Registrant undertakes that, if so requested, it
will furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual
report to shareholders without charge.
<PAGE>
CUSTODY AGREEMENT
This AGREEMENT, dated as of 27 October, 1997, by and between
Interactive Investments (the "Trust"), a business trust organized under the laws
of the State of Delaware, acting with respect to TECHNOLOGY VALUE FUND,
TECHNOLOGY LEADERS FUND AND MEDICAL SPECIALISTS FUND (individually, a "Fund"
and, collectively, the "Funds"), each of them a series of the Trust and each of
them operated and administered by the Trust, and STAR BANK, N.A., a national
banking association (the "Custodian").
W I T N E S S E T H:
WHEREAS, the Trust desires that the Fund's Securities and cash be held
and administered by the Custodian pursuant to this Agreement; and
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Fund and named in Exhibit A hereto or in
such resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "BOARD OF TRUSTEES" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as from time to
time amended.
1.3 "BOOK-ENTRY SYSTEM" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" shall mean any day recognized as a settlement day by
The New York Stock Exchange, Inc. and any other day for which the Trust computes
the net asset value of Shares of the Fund.
1.5 "FUND CUSTODY ACCOUNT" shall mean any of the accounts in the name
of the Trust, which is provided for in Section 3.2 below.
1.6 "NASD" shall mean The National Association of Securities Dealers,
Inc.
1.7 "OFFICER" shall mean the Chairman, President, any Vice President,
any Assistant Vice President, the Secretary, any Assistant Secretary, the
Treasurer, or any Assistant Treasurer of the Trust.
1.8 "ORAL INSTRUCTIONS" shall mean instructions orally
<PAGE>
transmitted to and accepted by the Custodian because such instructions are: (i)
reasonably believed by the Custodian to have been given by an Authorized Person,
(ii) recorded and kept among the records of the Custodian made in the ordinary
course of business and (iii) orally confirmed by the Custodian. The Trust shall
cause all Oral Instructions to be confirmed by Written Instructions prior to the
end of the next Business Day. If such Written Instructions confirming Oral
Instructions are not received by the Custodian prior to a transaction, it shall
in no way affect the validity of the transaction or the authorization thereof by
the trust. If Oral Instructions vary from the Written Instructions which purport
to confirm them, the Custodian shall notify the trust of such variance but such
Oral Instructions will govern unless the Custodian has not yet acted.
1.9 "PROPER INSTRUCTIONS" shall mean Oral Instructions or
Written Instructions. Proper Instructions may be continuing
Written Instructions when deemed appropriate by both parties.
1.10 "SECURITIES DEPOSITORY" shall mean The Depository Trust Company
and (provided that Custodian shall have received a copy of a resolution of the
Board Of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Fund) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 as amended (the "1934 Act"), which acts as a
system for the central handling of Securities where all Securities of any
particular class or series of an issuer deposited within the system are treated
as fungible and may be transferred or pledged by bookkeeping entry
<PAGE>
without physical delivery of the Securities.
1.11 "SECURITIES" shall include, without limitation, common and
preferred stocks, bonds, call options, put options, debentures, notes, bank
certificates of deposit, bankers' acceptances, mortgage-backed securities or
other obligations, and any certificates, receipts, warrants or other instruments
or documents representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or any
similar property or assets that the Custodian has the facilities to clear and to
service.
1.12 "SHARES" shall mean, with respect to a Fund, the units of
beneficial interest issued by the trust on account of the Fund.
1.13 "SUB-CUSTODIAN" shall mean and include (i) any branch of a "U.S.
Bank," as that term is defined in Rule 17f-5 under the 1940 Act, (ii) any
"Eligible Foreign Custodian," as that term is defined in Rule 17f-5 under the
1940 Act, having a contract with the Custodian which the Custodian has
determined will provide reasonable care of assets of the Funds based on the
standards specified in Section 3.3 below. Such contract shall include provisions
that provide: (i) for indemnification or insurance arrangements (or any
combination of the foregoing) such that the Funds will be adequately protected
against the risk of loss of assets held in accordance with such contract; (ii)
that the Funds' assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the Sub-Custodian or its
creditors except a claim of payment for their safe custody or administration, in
the case of cash deposits, liens or rights in favor of creditors of the
Sub-Custodian arising under
<PAGE>
bankruptcy, insolvency, or similar laws; (iii) that beneficial ownership for the
Funds' assets will be freely transferable without the payment of money or value
other than for safe custody or administration; (iv) that adequate records will
be maintained identifying the assets as belonging to the funds or as being held
by a third party for the benefit of the Funds; (v) that the Funds' independent
public accountants will be given access to those records or confirmation of the
contents of those records; and (vi) that the Funds will receive periodic reports
with respect to the safekeeping of the Funds' assets, including, but not limited
to, notification of any transfer to or from a Fund's account or a third party
account containing assets held for the benefit of the Fund. Such contract may
contain, in lieu of any or all of the provisions specified above, such other
provisions that the Custodian determines will provide, in their entirety, the
same or a greater level of care and protection for Fund assets as the specified
provisions, in their entirety.
1.14 "WRITTEN INSTRUCTIONS" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized Person, or (ii)
communications by telex or any other such system from one or more persons
reasonably believed by the Custodian to be Authorized Persons, or (iii)
communications between electro-mechanical or electronic devices provided that
the use of such devices and the procedures for the use thereof shall have been
approved by resolutions of the Board Of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
<PAGE>
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 APPOINTMENT. The Trust hereby constitutes and appoints the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Funds at any time during the period of this Agreement.
2.2 ACCEPTANCE. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
2.3 DOCUMENTS TO BE FURNISHED. The following documents, including any
amendments thereto, will be provided contemporaneously with the execution of the
Agreement to the Custodian by the trust:
a. A copy of the Declaration of Trust of the Trust
certified by the Secretary;
b. A copy of the Bylaws of the Trust certified by the
Secretary;
c. A copy of the resolution of the Board Of Trustees
of the Trust appointing the Custodian, certified
by the Secretary;
d. A copy of the then current Prospectus of the Fund;
and
e. A certification of the President and Secretary of
the Trust setting forth the names and signatures
of the current Officers of the Trust and other
Authorized Persons.
2.4 NOTICE OF APPOINTMENT OF DIVIDEND AND TRANSFER AGENT. The Trust
agrees to notify the Custodian in writing of the
<PAGE>
appointment, termination or change in appointment of any Dividend
and Transfer Agent of the Fund.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 SEGREGATION. All Securities and non-cash property held by the
Custodian for the account of the Fund (other than Securities maintained in a
Securities Depository or Book-Entry System) shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian
(including the Securities and non-cash property of the other Funds) and shall be
identified as subject to this Agreement.
3.2 FUND CUSTODY ACCOUNTS. As to each Fund, the Custodian shall open
and maintain in its trust department a custody account in the name of the Trust
coupled with the name of the Fund, subject only to draft or order of the
Custodian, in which the Custodian shall enter and carry all Securities, cash and
other assets of the Fund which are delivered to it.
3.3 APPOINTMENT OF AGENTS. (a) In its discretion, the Custodian may
appoint one or more Sub-Custodians to act as Securities- Depositories or as
sub-custodians to hold Securities and cash of the Funds and to carry out such
other provisions of this Agreement as it may determine, provided, however, that
the appointment of any such agents and maintenance of any Securities and cash of
the Fund shall be at the Custodian's expense and shall not relieve the Custodian
of any of its obligations or liabilities under this Agreement.
(b) If, after the initial approval of Sub-Custodians by the
<PAGE>
Board Of Trustees in connection with this Agreement, the Custodian wishes to
appoint other Sub-Custodians to hold property of the Fund, it will so notify the
Trust and provide it with information reasonably necessary to determine any such
new Sub-Custodian's eligibility under Rule 17f-5 under the 1940 Act, including a
copy of the proposed agreement with such Sub-Custodian. The Trust shall at the
meeting of the Board Of Trustees next following receipt of such notice and
information give a written approval or disapproval of the proposed action.
(c) The Agreement between the Custodian and each Sub-Custodian acting
hereunder shall contain the required provisions set forth in Rule
17f-5(a)(1)(iii).
(d) At the end of each calendar quarter, the Custodian shall provide
written reports notifying the Board of Trustees of the placement of the
Securities and cash of the Funds with a particular Sub-Custodian and of any
material changes in the Funds' arrangements. The Custodian shall promptly take
such steps as may be required to withdraw assets of the Funds from any
Sub-Custodian that has ceased to meet the requirements of Rule 17f-5 under the
1940 Act.
(e) With respect to its responsibilities under this Section 3.3, the
Custodian hereby warrants to the Trust that it agrees to exercise reasonable
care, prudence and diligence such as a person having responsibility for the
safekeeping of property of the Funds. The Custodian further warrants that a
Fund's assets will be subject to reasonable care, based on the standards
applicable to custodians in the relevant market, if maintained with each
Sub-Custodian, after considering all factors relevant to the
<PAGE>
safekeeping of such assets, including, without limitation: (i) the
Sub-Custodian's practices, procedures, and internal controls, for certificated
securities (if applicable), the method of keeping custodial records, and the
security and data protection practices; (ii) whether the Sub-Custodian has the
requisite financial strength to provide reasonable care for Fund assets; (iii)
the Sub-Custodian's general reputation and standing and, in the case of a
Securities Depository, the Securities Depository's operating history and number
of participants; and (iv) whether the Fund will have jurisdiction over and be
able to enforce judgments against the Sub-Custodian, such as by virtue of the
existence of any offices of the Sub-Custodian in the United States or the
Sub-Custodian's consent to service of process in the United States.
(f) The Custodian shall establish a system to monitor the
appropriateness of maintaining the Fund's assets with a particular Sub-Custodian
and the contract governing the Funds' arrangements with such Sub-Custodian.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Funds' Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. The
<PAGE>
Custodian may deposit and/or maintain Securities of the Fund in a Securities
Depository or in a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Funds in any
Securities Depository or Book-Entry System, the Trust
shall deliver to the Custodian a resolution of the
Board Of Trustees, certified by an Officer, authorizing
and instructing the Custodian on an on-going basis to
deposit in such Securities Depository or Book-Entry
System all Securities eligible for deposit therein and
to make use of such Securities Depository or Book-Entry
System to the extent possible and practical in
connection with its performance hereunder, including,
without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities,
and deliveries and returns of collateral consisting of
Securities.
(b) Securities of the Funds kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book- Entry System or
Securities Depository which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for
customers.
(c) The records of the Custodian with respect to Securities of the
Fund maintained in a Book-Entry System or Securities
Depository shall, by book-entry, identify such Securities as
belonging to such Fund.
(d) If Securities purchased by a Fund are to be held in a
Book-Entry System or Securities Depository, the
<PAGE>
Custodian shall pay for such Securities upon (i) receipt of
advice from the Book-Entry System or Securities Depository
that such Securities have been transferred to the Depository
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of such Fund. If Securities sold by a Fund are held in a
Book-Entry System or Securities Depository, the Custodian
shall transfer such Securities upon (i) receipt of advice from
the Book-Entry System or Securities Depository that payment
for such Securities has been transferred to the Depository
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of such Fund.
(e) The Custodian shall provide the Trust with copies of any
report (obtained by the Custodian from a Book-Entry System or
Securities Depository in which Securities of the Fund are
kept) on the internal accounting controls and procedures for
safeguarding Securities deposited in such Book-Entry System or
Securities Depository.
(f) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall be liable to the Trust for any loss or
damage to the Fund resulting (i) from the use of a Book-Entry
System or Securities Depository by reason of any negligence or
willful misconduct on the part of Custodian or any Sub-
Custodian appointed pursuant to Section 3.3 above or
<PAGE>
any of its or their employees, or (ii) from failure of
Custodian or any such Sub-Custodian to enforce effectively
such rights as it may have against a Book- Entry System or
Securities Depository. At its election, the Trust shall be
subrogated to the rights of the Custodian with respect to any
claim against a Book-Entry System or Securities Depository or
any other person from any loss or damage to the Fund arising
from the use of such Book-Entry System or Securities
Depository, if and to the extent that the Funds have not been
made whole for any such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM FUND CUSTODY ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall disburse moneys from the Fund Custody
Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only in
accordance with Section 4.1 of this Agreement and only
(i) in the case of Securities (other than options on
Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or
any Sub-Custodian appointed pursuant to Section 3.3
above) of such Securities registered as provided in
Section 3.9 below or in proper form for transfer, or if
the purchase of such Securities is effected through a
Book-Entry System or Securities Depository, in
accordance with the conditions set forth in Section 3.5
above; (ii) in the case of options on Securities,
against delivery to the Custodian (or such Sub-
Custodian) of such receipts as are required by the
<PAGE>
customs prevailing among dealers in such options; (iii) in the
case of futures contracts and options on futures contracts,
against delivery to the Custodian (or such Sub-Custodian) of
evidence of title thereto in favor of the Fund or any nominee
referred to in Section 3.9 below; and (iv) in the case of
repurchase or reverse repurchase agreements entered into
between the Trust and a bank which is a member of the Federal
Reserve System or between the Trust and a primary dealer in
U.S. Government securities, against delivery of the purchased
Securities either in certificate form or through an entry
crediting the Custodian's account at a Book-Entry System or
Securities Depository with such Securities;
(b) In connection with the conversion, exchange or
surrender, as set forth in Section 3.7(f) below, of
Securities owned by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as
provided in Section 5.1 below;
(e) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: interest; taxes;
administration, investment advisory, accounting,
auditing, transfer agent, custodian, trustee and legal
fees; and other operating expenses of the Fund; in all
cases, whether or not such expenses are to be in whole
or in part capitalized or treated as deferred expenses;
<PAGE>
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Fund;
(g) For transfer in accordance with the provision of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institution
(including the Custodian), which deposit or account has a term
of one year or less; and
(i) For any other proper purpose, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of
the Board Of Trustees, certified by an Officer, specifying the
amount and purpose of such payment, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to
<PAGE>
whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM FUND CUSTODY ACCOUNT. Upon receipt of
Proper Instructions, the Custodian shall release and deliver Securities from the
Fund Custody Account but only in the following cases:
(a) Upon the sale of Securities for the account of the Fund
but only against receipt of payment therefor in cash,
by certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer
into the name of the Fund, the Custodian or any Sub-
Custodian appointed pursuant to Section 3.3 above, or
of any nominee or nominees of any of the foregoing, or
(ii) for exchange for a different number of
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new Securities are to be
delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan or
<PAGE>
merger, consolidation, recapitalization, reorganization or
readjustment of the issuer of such Securities, or pursuant to
provisions for conversion contained in such Securities, or
pursuant to any deposit agreement, including surrender or
receipt of underlying Securities in connection with the
issuance or cancellation of depository receipts; provided
that, in any such case, the new Securities and cash, if any,
are to be delivered to the Custodian;
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by the Fund;
(h) In the case of warrants, rights or similar Securities, upon
the exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by
the Fund requiring a pledge of assets by the Trust, but only
against receipt by the Custodian of the amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Trust;
<PAGE>
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Fund; or
(n) For any other proper corporate purpose, but only upon
receipt, in addition to Proper Instructions, of a copy
of a resolution of the Board Of Trustees, certified by
an Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
instructed by the Trust, the Custodian shall with
<PAGE>
respect to all Securities held for the Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Fund is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the
IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund; and
(g) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details
<PAGE>
in connection with the sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of the
Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for a
Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System if eligible therefor. All other Securities held for the Fund
may be registered in the name of such Fund, the Custodian, or any Sub- Custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof. The Trust shall furnish to the Custodian appropriate
instruments to enable the Custodian to hold or deliver in proper form for
transfer, or to register in the name of any of the nominees hereinabove referred
to or in the name of a Book-Entry System or Securities Depository, any
Securities registered in the name of a Fund.
3.10 RECORDS. (a) The Custodian shall maintain, by Fund, complete and
accurate records with respect to Securities, cash or other property held for the
Fund, including (i) journals or other records of original entry containing an
itemized daily record in detail of all receipts and deliveries of Securities and
all receipts and disbursements of cash; (ii) ledgers (or other records)
reflecting (A) Securities in transfer, (B) Securities in physical possession,
(C) monies and Securities borrowed and monies and Securities loaned (together
with a record of the collateral therefor and substitutions of such collateral),
(D)
<PAGE>
dividends and interest received, and (E) dividends receivable and interest
receivable; and (iii) canceled checks and bank records related thereto. The
Custodian shall keep such other books and records of the Funds as the Trust
shall reasonably request, or as may be required by the 1940 Act, including, but
not limited to, Section 31 of the 1940 Act and Rule 31a-2 promulgated
thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.11 FUND REPORTS BY CUSTODIAN. The Custodian shall furnish the Trust
with a daily activity statement and a summary of all transfers to or from each
Fund Custody Account on the day following such transfers. At least monthly and
from time to time, the Custodian shall furnish the Trust with a detailed
statement of the Securities and moneys held by the Custodian and the
Sub-Custodians for the Fund under this Agreement.
3.12 OTHER REPORTS BY CUSTODIAN. The Custodian shall
provide the Trust with such reports, as the Trust may reasonably
request from time to time, on the internal accounting controls
<PAGE>
and procedures for safeguarding Securities, which are employed by the Custodian
or any Sub-Custodian appointed pursuant to Section 3.3 above.
3.13 PROXIES AND OTHER MATERIALS. The Custodian shall cause all proxies
relating to Securities which are not registered in the name of the Fund, to be
promptly executed by the registered holder of such Securities, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy soliciting materials and
all notices relating to such Securities.
3.14 INFORMATION ON CORPORATE ACTIONS. The Custodian shall promptly
deliver to the Trust all information received by the Custodian and pertaining to
Securities being held by the Fund with respect to optional tender or exchange
offers, calls for redemption or purchase, or expiration of rights as described
in the Standards of Service Guide attached as Exhibit B. If the Trust desires to
take action with respect to any tender offer, exchange offer or other similar
transaction, the Trust shall notify the Custodian at least five Business Days
prior to the date on which the Custodian is to take such action. The Trust will
provide or cause to be provided to the Custodian all relevant information for
any Security which has unique put/option provisions at least five Business Days
prior to the beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
<PAGE>
4.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
for the Fund, Written Instructions shall be delivered to the Custodian,
specifying (a) the name of the issuer or writer of such Securities, and the
title or other description thereof, (b) the number of shares, principal amount
(and accrued interest, if any) or other units purchased, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, and (f) the name of the person to whom such amount
is payable. The Custodian shall upon receipt of such Securities purchased by
such Fund pay out of the moneys held for the account of a Fund the total amount
specified in such Written Instructions to the person named therein. The
Custodian shall not be under any obligation to pay out moneys to cover the cost
of a purchase of Securities for the Fund, if in the Fund Custody Account there
is insufficient cash available to the Fund for which such purchase was made.
4.2 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED. In any and every case where payment for the purchase of Securities
for a Fund is made by the Custodian in advance of receipt of the Securities
purchased but in the absence of specified Written Instructions to so pay in
advance, the Custodian shall be liable to the Fund for such Securities to the
same extent as if the Securities had been received by the Custodian.
4.3 SALE OF SECURITIES. Promptly upon each sale of Securities by a
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of
<PAGE>
such Securities, and the title or other description thereof, (b) the number of
shares, principal amount (and accrued interest, if any), or other units sold,
(c) the date of sale and settlement, (d) the sale price per unit, (e) the total
amount payable upon such sale, and (f) the person to whom such Securities are to
be delivered. Upon receipt of the total amount payable to the Fund as specified
in such Written Instructions, the Custodian shall deliver such Securities to the
person specified in such Written Instructions. Subject to the foregoing, the
Custodian may accept payment in such form as shall be satisfactory to it, and
may deliver Securities and arrange for payment in accordance with the customs
prevailing among dealers in Securities.
4.4 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Fund shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the Custodian shall have no liability for any for the
foregoing.
4.5 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
time to time, the Custodian may credit the Fund Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it
<PAGE>
has been instructed to deliver against payment, (ii) proceeds from the
redemption of Securities or other assets of the Fund, and (iii) income from
cash, Securities or other assets of the Fund. Any such credit shall be
conditional upon actual receipt by Custodian of final payment and may be
reversed if final payment is not actually received in full. The Custodian may,
in its sole discretion and from time to time, permit the Fund to use funds so
credited to the Fund Custody Account in anticipation of actual receipt of final
payment. Any such funds shall be repayable immediately upon demand made by the
Custodian at any time prior to the actual receipt of all final payments in
anticipation of which funds were credited to the Fund Custody Account.
4.6 ADVANCES BY CUSTODIAN FOR SETTLEMENT. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of a Fund's transactions in the Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF FUND SHARES
5.1 TRANSFER OF FUNDS. From such funds as may be available for the
purpose in the relevant Fund Custody Account, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of the
Fund, the Custodian shall wire each amount specified in such Proper Instructions
to or through such bank as the Trust may designate with respect to such amount
<PAGE>
in such Proper Instructions.
5.2 NO DUTY REGARDING PAYING BANKS. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement
among the Trust, the Custodian and a broker-dealer
registered under the 1934 Act and a member of the NASD
(or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance
with the rules of The Options Clearing Corporation and
of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or
organizations, regarding escrow or other arrangements
in connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in
connection with securities options purchased or written
by the Fund or in connection with financial futures
<PAGE>
contracts (or options thereon) purchased or sold by the
Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Fund with requirements under
the 1940 Act for the maintenance of segregated accounts by
registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and
firm commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board Of Trustees, certified by an Officer,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
Each segregated account established under this Article VI shall be
established and maintained for a single Fund only. All Proper Instructions
relating to a segregated account shall specify the Fund involved.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 STANDARD OF CARE. The Custodian shall be held to the
exercise of reasonable care in carrying out its obligations under
this Agreement, and shall be without liability to the Trust or
<PAGE>
any Fund for any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability or claim unless such loss, damage, cost, expense,
liability or claim arises from negligence, bad faith or willful misconduct on
its part or on the part of any Sub-Custodian appointed pursuant to Section 3.3
above. The Custodian shall be entitled to rely on and may act upon advice of
counsel on all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. The Custodian shall promptly notify
the Trust of any action taken or omitted by the Custodian pursuant to advice of
counsel. The Custodian shall not be under any obligation at any time to
ascertain whether the Trust or the Fund is in compliance with the 1940 Act, the
regulations thereunder, the provisions of the Trust's charter documents or
by-laws, or its investment objectives and policies as then in effect.
7.2 ACTUAL COLLECTION REQUIRED. The Custodian shall not be liable for,
or considered to be the custodian of, any cash belonging to a Fund or any money
represented by a check, draft or other instrument for the payment of money,
until the Custodian or its agents actually receive such cash or collect on such
instrument.
7.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 LIMITATION ON DUTY TO COLLECT. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities
<PAGE>
held for the Fund if such Securities are in default or payment is not made after
due demand or presentation.
7.5 RELIANCE UPON DOCUMENTS AND INSTRUCTIONS. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and any Written Instructions
actually received by it pursuant to this Agreement.
7.6 EXPRESS DUTIES ONLY. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 CO-OPERATION. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the Trust to keep
the books of account of the Funds and/or compute the value of the assets of the
Funds. The Custodian shall take all such reasonable actions as the Trust may
from time to time request to enable the Trust to obtain, from year to year,
favorable opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
<PAGE>
INDEMNIFICATION
8.1 INDEMNIFICATION BY TRUST. The Trust shall indemnify and hold
harmless the Custodian and any Sub-Custodian appointed pursuant to Section 3.3
above, and any nominee of the Custodian or of such Sub-Custodian, from and
against any loss, damage, cost, expense (including attorneys' fees and
disbursements), liability (including, without limitation, liability arising
under the Securities Act of 1933, the 1934 Act, the 1940 Act, and any state or
foreign securities and/or banking laws) or claim arising directly or indirectly
(a) from the fact that Securities are registered in the name of any such
nominee, or (b) from any action or inaction by the Custodian or such
Sub-Custodian (i) at the request or direction of or in reliance on the advice of
the Trust, or (ii) upon Proper Instructions, or (c) generally, from the
performance of its obligations under this Agreement or any sub-custody agreement
with a Sub-Custodian appointed pursuant to Section 3.3 above, provided that
neither the Custodian nor any such Sub-Custodian shall be indemnified and held
harmless from and against any such loss, damage, cost, expense, liability or
claim arising from the Custodian's or such Sub-Custodian's negligence, bad faith
or willful misconduct.
8.2 INDEMNIFICATION BY CUSTODIAN. The Custodian shall indemnify and
hold harmless the Trust from and against any loss, damage, cost, expense
(including attorneys' fees and disbursements), liability (including without
limitation, liability arising under the Securities Act of 1933, the 1934 Act,
the 1940 Act, and any state or foreign securities and/or banking
<PAGE>
laws) or claim arising from the negligence, bad faith or willful misconduct of
the Custodian or any Sub-Custodian appointed pursuant to Section 3.3 above, or
any nominee of the Custodian or of such Sub-Custodian.
8.3 INDEMNITY TO BE PROVIDED. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
8.4 SECURITY. If the Custodian advances cash or Securities to the Fund
for any purpose, either at the Trust's request or as otherwise contemplated in
this Agreement, or in the event that the Custodian or its nominee incurs, in
connection with its performance under this Agreement, any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim
(except such as may arise from its or its nominee's negligence, bad faith or
willful misconduct), then, in any such event, any property at any time held for
the account of such Fund shall be security therefor, and should the Fund fail
promptly to repay or indemnify the Custodian, the Custodian shall be entitled to
utilize available cash of such Fund and to dispose of other assets of such Fund
to the extent necessary to obtain reimbursement or indemnification.
<PAGE>
ARTICLE IX
FORCE MAJEURE
Neither the Custodian nor the Trust shall be liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control,
including, without limitation, acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; strikes; epidemics; riots; power
failures; computer failure and any such circumstances beyond its reasonable
control as may cause interruption, loss or malfunction of utility,
transportation, computer (hardware or software) or telephone communication
service; accidents; labor disputes; acts of civil or military authority;
governmental actions; or inability to obtain labor, material, equipment or
transportation; provided, however, that the Custodian in the event of a failure
or delay (i) shall not discriminate against the Funds in favor of any other
customer of the Custodian in making computer time and personnel available to
input or process the transactions contemplated by this Agreement and (ii) shall
use its best efforts to ameliorate the effects of any such failure or delay.
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 EFFECTIVE PERIOD. This Agreement shall become effective as of its
execution and shall continue in full force and effect until terminated as
hereinafter provided.
10.2 TERMINATION. Either party hereto may terminate this Agreement by
giving to the other party a notice in writing specifying the date of such
termination, which shall be not less
<PAGE>
than sixty (60) days after the date of the giving of such notice. If a successor
custodian shall have been appointed by the Board Of Trustees, the Custodian
shall, upon receipt of a notice of acceptance by the successor custodian, on
such specified date of termination (a) deliver directly to the successor
custodian all Securities (other than Securities held in a Book-Entry System or
Securities Depository) and cash then owned by the Fund and held by the Custodian
as custodian, and (b) transfer any Securities held in a Book-Entry System or
Securities Depository to an account of or for the benefit of the Funds at the
successor custodian, provided that the Trust shall have paid to the Custodian
all fees, expenses and other amounts to the payment or reimbursement of which it
shall then be entitled. Upon such delivery and transfer, the Custodian shall be
relieved of all obligations under this Agreement. The Trust may at any time
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by regulatory authorities or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
10.3 FAILURE TO APPOINT SUCCESSOR CUSTODIAN. If a successor custodian
is not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or corporation company of its own selection, which (a) is a
"bank" as defined in the 1940 Act and (b) has aggregate capital, surplus and
undivided profits as shown on its then most recent published report of not less
than $25 million, all Securities, cash and other property held by Custodian
under this Agreement and to transfer to an account of or for the Funds at such
bank or trust
<PAGE>
company all Securities of the Funds held in a Book-Entry System or Securities
Depository. Upon such delivery and transfer, such bank or trust company shall be
the successor custodian under this Agreement and the Custodian shall be relieved
of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to compensation as agreed upon from
time to time by the Trust and the Custodian. The fees and other charges in
effect on the date hereof and applicable to the Fund are set forth in Exhibit C
attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the property of
the Trust as provided in the Trust's Agreement and Articles of Incorporation, as
from time to time amended. The execution and delivery of this Agreement have
been authorized by the Trustees, and this Agreement has been signed and
delivered by an authorized officer of the Trust, acting as such, and neither
such authorization by the Trustees nor such execution and delivery by such
officer shall be deemed to have been made by any of them individually or to
impose any liability on any of them personally, but shall bind only the
corporation property of the Trust as provided in the above-mentioned Agreement
and Articles of Incorporation.
<PAGE>
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
hereinbelow:
TO THE TRUST:
Interactive Investments
101 Park Center Plaza Suite 1300
San Jose, California 95113
Telephone: 408-294-2200
Facsimile: 408-490-0291
TO CUSTODIAN:
Star Bank, N.A.
425 Walnut Street, M.L. 6118
Sixth Floor
Cincinnati, Ohio 45202
Attention: Mutual Fund Custody Services
Telephone: (800) 485-8510
Facsimile: (513) 632-3299
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
14.2 REFERENCES TO CUSTODIAN. The Trust shall not circulate any printed
matter which contains any reference to
<PAGE>
Custodian without the prior written approval of Custodian, excepting printed
matter contained in the prospectus or statement of additional information for
the Fund and such other printed matter as merely identifies Custodian as
custodian for the Fund. The Trust shall submit printed matter requiring approval
to Custodian in draft form, allowing sufficient time for review by Custodian and
its counsel prior to any deadline for printing.
14.3 NO WAIVER. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 AMENDMENTS. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
14.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
14.6 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired
<PAGE>
thereby.
14.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; PROVIDED, HOWEVER, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: INTERACTIVE INVESTMENTS
/S/ KENDRICK KAM By:/S/ KEVIN M. LANDIS
Secretary President
ATTEST: STAR BANK, N.A.
/S/ LYNETTE C. GIBSON By:/S/ MARSHA A. CROXTON
Senior Trust Officer Vice President
<PAGE>
EXHIBIT A
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Fund Custody Accounts.
<TABLE>
<CAPTION>
SPECIMEN SIGNATURES AUTHORIZED PERSON
<S> <C> <C>
President: Kevin M. Landis /S/ KEVIN M. LANDIS
Secretary: Kendrick W. Kam /S/ KENDRICK KAM
Treasurer: Yakoub Billawala /S/ YAKOUB BILLAWALA
Vice President: Steven Witt /S/ STEVEN C. WITT
Adviser Employees: Francine Plunkett /S/ FRANCINE PLUNKETT
Transfer Agent/Fund Accountant
Employees:
Robert G. Dorsey /S/ ROBERT G. DORSEY
John F. Splain /S/ JOHN F. SPLAIN
Mark J. Seger /S/ MARK J. SEGER
Christina H. Kelso /S/ CHRISTINA H. KELSO
M. Kathleen Leugers /S/ M. K. LEUGERS
</TABLE>
<PAGE>
APPENDIX B
STAR BANK, N.A.
STANDARDS OF SERVICE GUIDE
Star Bank, N.A. is committed to providing superior quality service to
all customers and their agents at all times. We have compiled this guide as a
tool for our clients to determine our standards for the processing of security
settlements, payment collection, and capital change transactions. Deadlines
recited in this guide represent the times required for Star Bank to guarantee
processing. Failure to meet these deadlines will result in settlement at our
client's risk. In all cases, Star Bank will make every effort to complete all
processing on a timely basis.
Star Bank is a direct participant of the Depository Trust Company, a
direct member of the Federal Reserve Bank of Cleveland, and utilizes the Bankers
Trust Company as its agent for ineligible and foreign securities.
For corporate reorganizations, Star Bank utilizes SEI's
Reorg Source, Financial Information, Inc., XCITEK, DTC Important
Notices, and the WALL STREET JOURNAL,
For bond calls and mandatory puts, Star Bank utilizes SEI's Bond
Source, Kenny Information Systems, Standard & Poor's Corporation, and DTC
Important Notices. Star Bank will not
notify clients of optional put opportunities.
Any securities delivered free to Star Bank or its agents must be
received three (3) business days prior to any payment or settlement in order for
the Star Bank standards of service to apply.
Should you have any questions regarding the information contained in
this guide, please feel free to contact your account representative.
The information contained in this Standards of Service Guide
is subject to change. Should any changes be made Star Bank
will provide you with an updated copy of its Standards of
Service Guide.
<PAGE>
<TABLE>
<CAPTION>
STAR BANK SECURITY SETTLEMENT STANDARDS
- -------------------------------------------------------------------------------
TRANSACTION TYPE INSTRUCTIONS DEADLINES* DELIVERY
INSTRUCTIONS
<S> <C> <C>
DTC 1:30 P.M. on Settlement Date DTC Participant #2219
Agent Bank ID 27895
Institutional #
For Account #
Federal Reserve Book Entry 12:30 P.M. on Settlement Date Federal Reserve Bank of
Cinti/Trust for Star Bank, N.A.
ABA# 042000013
For Account #
Federal Reserve Book Entry 1:00 P.M. on Settlement Date Federal Reserve Bank of
(Repurchase Agreement Cinti/Spec for Star Bank, N.A.
Collateral Only) ABA# 042000013
For Account #
PTC Securities 12:00 P.M. on Settlement Date PTC For Account BTRST/CUST
(GNMA Book Entry) Sub Account: Star Bank, N.A.
#090334
Physical Securities 9:30 A.M. EST on Settlement Bankers Trust Company
Date (for Deliveries, by 4:00 P.M. 6 Wall Street 4th Floor, Window
on Settlement Date minus 1) 43 for Star Bank Account
#090334
CEDEL/EURO-CLEAR 11:00 A.M. on Settlement Date Euroclear Via Cedel Bridge
minus 2 In favor of Bankers Trust Comp
Cedel 53355
For Star Bank Account
#501526354
Cash Wire Transfer 3:00 P.M. Star Bank, N.A. Cinti/Trust
ABA# 042000013
Credit Account #9901877
Further Credit to
Account #
</TABLE>
*All times listed are Eastern Standard Time.
<PAGE>
<TABLE>
<CAPTION>
STAR BANK PAYMENT STANDARDS
SECURITY TYPE INCOME PRINCIPAL
<S> <C> <C>
Equities Payable Date
Municipal Bonds* Payable Date Payable Date
Corporate Bonds* Payable Date Payable Date
Federal Reserve Bank
Book Entry* Payable Date Payable Date
PTC GNMA's (P&I) Payable Date + 1 Payable Date + 1
CMOs*
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
SBA Loan Certificates When Received When Received
Unit Investment Trust Payable Date Payable Date
Certificates*
Certificates of Deposit* Payable Date + 1 Payable Date + 1
Limited Partnerships When Received When Received
Foreign Securities When Received When Received
*Variable Rate Securities
Federal Reserve Bank
Book Entry Payable Date Payable Date
DTC Payable Date + 1 Payable Date + 1
Bankers Trust Payable Date + 1 Payable Date + 1
</TABLE>
NOTE: If a payable date falls on a weekend or bank holiday, payment will be made
on the immediately following business day.
<PAGE>
<TABLE>
<CAPTION>
STAR BANK CORPORATE REORGANIZATION STANDARDS
TYPE OF ACTION NOTIFICATION TO CLIENT DEADLINE FOR CLIENT INSTRUCTIONS TRANSACTION
TO STAR BANK POSTING
<S> <C> <C> <C>
Rights, Warrants, Later of 10 business days prior 5 business days prior to Upon receipt
and Optional Mergers to expiration or receipt of notice expiration
Mandatory Puts with Later of 10 business days prior 5 business days prior to Upon receipt
Option to Retain to expiration or receipt of notice expiration
Class Actions 10 business days prior to 5 business days prior to Upon receipt
expiration date expiration
Voluntary Tenders, Later of 10 business days prior 5 business days prior to Upon receipt
Exchanges, to expiration or receipt of notice expiration
and Conversions
Mandatory Puts, Defaults, At posting of funds or securities None Upon receipt
Liquidations, Bankruptcies, received
Stock Splits, Mandatory
Exchanges
Full and Partial Calls Later of 10 business days prior None Upon receipt
to expiration or receipt of notice
</TABLE>
NOTE: Fractional shares/par amounts resulting from any of the above will
be sold.
<PAGE>
APPENDIX C
STAR BANK, N.A.
DOMESTIC CUSTODY FEE SCHEDULE
INTERACTIVE INVESTMENTS
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. PORTFOLIO TRANSACTION FEES:
(a) For each repurchase agreement trade not $7.00
executed by Star Bank, N.A.
(b) For each portfolio transaction processed
through DTC or Federal Reserve $ 9.00
(c) For each portfolio transaction processed
through our New York custodian $20.00
(d) For each GNMA/Amortized Security Purchase $16.00
(e) For each GNMA/Prin/Int Paydown, GNMA Sales $8.00
(f) For each option/future contract written,
exercised or expired $40.00
(g) For each Cedel/Euroclear transaction $80.00
(h) For each Disbursement (Fund expenses only) $5.00
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange:
II. MARKET VALUE FEE
Based upon an annual rate of: MILLION
.00010 (1.0 Basis Points) on First $25
.000050 (.50 Basis Points) on Next $25
.000025 (.25 Basis Points) Balance Balance
III. MONTHLY MINIMUM FEE-PER FUND $250.00
IV. OUT-OF-POCKET EXPENSES
The only out-of-pocket expenses charged to your account will be shipping fees
or transfer fees.
<PAGE>
<TABLE>
<CAPTION>
STAR BANK, N.A.
CASH MANAGEMENT FEE SCHEDULE
INTERACTIVE INVESTMENTS
SERVICES UNIT COST ($) MONTHLY COST ($)
- -------- ------------- ----------------
<S> <C> <C>
D.D.A. Account Maintenance $14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Deposited Items Returned 6.00
International Returned Items 10.00
NSF Returned Check 25.00
Stop Payments 22.00
Balance Reporting-P.C. Access 50.00 1st Acct
35.00 each add
ACH Transaction .105
ACH Maintenance 40.00
ACH Additions, Deletions,Changes 3.50
ACH Debits .12
Data Transmission per account 110.00
Data Capture* .10
Drafts Cleared .179
Lockbox Maintenance 55.00
Lockbox items Processed
with copy of check .32
without copy of check .26
Positive Pay .06
Issued Items .015
ARP Tape/Transmission/Diskette 25.00
Special Statements 6.00
Invoicing for Service Charges 15.00
Wires Incoming
Domestic: 10.00
International: 10.00
Wires Outgoing
Domestic:
Repetitive 8.00
Non Repetitive 8.00
International:
Repetitive 35.00
Non Repetitive 40.00
PC-Initiated Wires:
Domestic:
Repetitive 8.00
Non Repetitive 8.00
International:
Repetitive 25.00
Non Repetitive 25.00
UNCOLLECTED CHARGE
Star Bank assesses a penalty of prime rate plus 4% on any combined relationship
with average uncollected balances for the month.
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Certified Public Accountants
---------------------------------------------------------
Kevane, Peterson, Soto & Pasarell
Donald Kevane
John Peterson
Adamina Soto
Jorge Pasarell
Waldemar Gonzalez
Luis Valenzuela
Nelly Ruiz
Miguel Ocasio
Marta L. Betancourt
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated January 15, 1997, accompanying the Company's
financial statements as of December 31, 1996, and schedule of portfolio
investments, incorporated by reference, of INTERACTIVE INVESTMENTS (TECHNOLOGY
VALUE FUND). We hereby consent to the use of said report in this Registration
Statements of Interactive Investments (Technology Value Fund) on Form N-1A
appearing in the related Prospectus.
We also consent to the use of our name and the references to us
under the captions "Auditors" and "Miscellaneous Information."
/s/Kevane, Peterson, Soto & Pasarall
San Juan, Puerto Rico,
December 1, 1997.
33 Bolivia Street, Fourth Floor, San Juan, Puerto Rico 00917
tel.(787)754-1915 fax.(787)751-1284
member firm of Grant Thornton International
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