PROSPECTUS
April 21, 1997
Revised October 10, 1997
INTERACTIVE INVESTMENTS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
(408) 294-2200
THE TECHNOLOGY VALUE FUND
A No-Load Fund
==============================================================================
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 is only one series
authorized by the Trust, which series has been designated The Technology Value
Fund, (the "Fund"). The Fund is non-diversified and has the primary investment
objective of 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. Please see "Investment Objectives, Policies and Risk
Considerations" in this Prospectus for additional information.
As an open-end management investment company, the Fund will offer its 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 the Fund is $10,000 unless investing through
the vehicle of an Individual Retirement Account ("IRA"), in which case the
minimum initial investment is $2,000. Subsequent investments in the Fund must be
at least $50. Lower minimums are available to investors purchasing shares of the
Fund 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 Fund. Interactive Research Advisers, Inc. intends to focus its research with
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 Fund that a
prospective investor ought to know before investing. Please retain it for future
reference. A Statement of Additional Information dated April 21, 1997, as
revised October 10, 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. This Prospectus is also available on the Fund's Web
Site located at www.techfunds.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 Fund.
- ------------------------------------------------------------------------------
For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free)............................................888-884-2675
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
<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.....................................................4
Financial Highlights.........................................................5
Investment Objectives, Policies and Risk Considerations......................6
Investment Advisory and Other Services.......................................9
How to Purchase Shares......................................................10
How to Redeem Shares........................................................11
Shareholder Services........................................................12
Dividends and Distributions.................................................13
Taxes.......................................................................13
Calculation of Share Price .................................................14
Performance Information.....................................................14
General Information.........................................................15
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 Objectives and Policies
The Fund's investment objective is long-term capital appreciation. The Fund
intends to invest primarily in securities of companies in the high technology
and medical fields which are believed to be undervalued. The receipt of income
is a secondary objective.
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 having its own investment
objectives and policies. The Board of Trustees to date has authorized the
issuance of shares only in the series constituting the Fund but may authorize
additional series in the future without approval of the shareholders.
Risk Factors
Generally
An investment in the Fund may be subject to certain risks hereinafter
described, including general risks associated with all securities investments.
There can be no assurance the Fund will be able to achieve its investment
objectives. See "Investment Objectives, Policies and Risk Considerations."
Non-Diversification
The Fund will be operated as a "non-diversified" investment company so that more
than 5% of the Fund's total assets may be invested in the securities of any one
issuer. As a result of its non-diversified status, the 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. The Fund
nevertheless has qualified and elected, and intends to continue to qualify, to
be treated as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Code") and to meet the Code's separate
requirements for portfolio diversification.
Purchases of Shares
Shares of the Fund 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 (see "How to Purchase
Shares"). Subsequent investments must be made in a minimum amount of 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.
Redemptions of Shares
Investors will be able to redeem shares at their next determined net asset value
per share by so instructing the Fund's Transfer Agent. See "How to Redeem
Shares."
Investment Adviser
The Fund 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 the Fund's average daily net assets. The Investment Adviser is
also responsible for the provision of administrative services to the Fund, 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 the
Fund's overall expense ratio and increasing the return to shareholders during
the period such amount is waived or assumed.
<PAGE>
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 on the Transfer
Agent, see "Investment Advisory and Other Services."
Dividends
The 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 Code. See "Taxes." Currently, the Fund intends to distribute
income and capital gains annually. All dividends and distributions will be
reinvested automatically in shares of the Fund unless the shareholder elects
otherwise. See "Dividends and Distributions."
SUMMARY OF FUND EXPENSES
==============================================================================
The purpose of the tables below is to assist investors in understanding the
various costs and expenses an investor in the Fund 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").
Investor Transaction Expenses
Maximum sales load imposed on purchases........................... None
Maximum sales load imposed on reinvested dividends................ None
Deferred sales load............................................... None
Redemption Fee.................................................... None *
* A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently $8. See
"How to Redeem Shares."
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees................................................... 1.50% (A)
12b-1 Fees........................................................ None
Other Expenses.................................................... .45%
-------
Total Fund Operating Expenses..................................... 1.95% (A)
=======
(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 the 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 be charged the following expenses over the periods indicated:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$20 $61 $105 $227
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. The percentages expressing Annual Fund Operating Expenses have been
restated to reflect the management fee and the administrative fee currently
being charged to the Fund. Please see "Investment Advisory and Other Services"
for a description of the Fund's expenses.
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
==============================================================================
The following information is an integral part of the Fund's audited financial
statements and should be read in conjunction with the financial statements. The
financial statements as of December 31, 1996 were audited by Kevane Peterson
Soto & Pasarell and appear in the Statement of Additional Information of the
Fund, 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.
<CAPTION>
Selected data for a share outstanding throughout each period:
============================================================================================================
Year Ended December 31,
<S> <C> <C> <C>
1996 1995 1994(a)
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 securities 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>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
==============================================================================
Investment Objectives
The Fund's primary investment objective 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's investment objectives may not be changed
without shareholder approval. Potential investors should be aware that risks
exist in all types of investments and there can be no assurance that the Fund
will be successful in achieving its investment objectives. The Fund's investment
policies are outlined below, and where applicable, factors which may increase
the risk of investing in the Fund have been noted.
Investment Policies
Equity Securities
The Fund will invest primarily (i.e. under normal circumstances, at least 65% of
the value of the Fund's total assets) in equity securities of companies in the
electronic and medical technology fields which are believed to be undervalued
and have potential for capital appreciation. Equity securities include common
stock, convertible long-term corporate debt obligations, 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.
The Investment Adviser's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when 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. Fundamental worth is a reflection of the value of an enterprise's
assets and its earning power, and will be determined by use of a dividend and
cash flow discounting model, 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 in appraising an investment.
Little weight will be given to current dividend income. 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.
The 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 the
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. The 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.
The 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, the Fund may have to sell portfolio holdings at discounts
from quoted prices or may have to make a series of small sales over an extended
period of time.
<PAGE>
Foreign Securities
The 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 Fund has no present
intention to invest any significant portion of its assets in foreign securities,
it reserves the right to invest up to 15% of the value of its total 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.
Debt Securities
The 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. The 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 are sold
at a time when prevailing interest rates are lower than they were at the time of
investment will normally 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 normally be realized. Accordingly, investments in the debt
obligations described above will be made when the Investment Adviser expects
that prevailing interest rates will be falling, and will be sold when the
Investment Adviser expects interest rates to rise.
The 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 the 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.
Fundamental Investment Policies
The Fund has adopted the following fundamental investment policies, which may
not be changed without shareholder approval:
Diversification of Investments
As non-diversified investment company, the Fund may be subject to greater risks
than diversified companies because of the possible fluctuation in the values of
securities of fewer issuers. However, at the close of each fiscal quarter at
least 50% of the value of the 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 the Fund's total assets may be invested in the
securities of any one issuer. The Fund will not invest more than 5% of its total
assets in the securities of any single investment company nor more than 10% of
its total assets in the securities of all other investment companies.
<PAGE>
Concentration of Investments
The 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. The Fund will
therefore invest 25% or more of its total assets in the technology industry. The
Fund will be subject to greater risk because of its concentration in a single
industry. The Fund intends to invest primarily in the following segments within
the technology industry:
Electronic Technology Medical Technology
o Semiconductors o Cardiovascular Medical Devices
o Computers o Minimally Invasive Surgical Tools
o Computer Peripherals o Pharmaceutical
o Software o Biotechnology
o Telecommunications o Managed Care Providers
o Mass Storage Devices o Generic Drugs
Borrowing
The 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 the Fund and,
therefore, if employed, increases the possibility of fluctuation in the Fund's
net asset value. This is the speculative factor known as leverage. To reduce the
risks of borrowing, the Fund will limit its borrowings as described above. The
Fund may pledge its assets in connection with borrowings. While the Fund's
borrowings exceed 5% of its total assets, it will not purchase additional
portfolio securities.
Lending Portfolio Securities
The Fund may make short-term loans of its portfolio securities to banks, brokers
and dealers. Lending portfolio securities exposes the Fund to the risk that the
borrower may fail to return the loaned securities or may not be able to provide
additional collateral or that the Fund may experience delays in recovery of the
loaned securities or loss of rights in the collateral if the borrower fails
financially. To minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or U.S. Government
obligations, with the Fund's Custodian in an amount at least equal to the market
value of the loaned securities. The Fund will limit the amount of its loans its
portfolio securities to no more than 30% of its total assets.
Other Investment Policies
The 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 Fund, without a vote of the shareholders:
Companies With Less Than Three Years' Continuous Operation
The Fund 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 the Fund's investments in all such
companies to exceed 25% of the value of its net assets at the time of purchase.
The 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 Fund may purchase warrants, valued at the lower of cost or market, but only
to the extent that such investments do not exceed 5% of the Fund's net assets at
the time of purchase.
<PAGE>
Portfolio Turnover
The Fund will not seek to realize profits by anticipating short-term market
movements but rather intends to purchase securities for long-term capital
appreciation. Under ordinary circumstances, most securities will be held for
more than one year. While the rate of portfolio turnover will not be a limiting
factor when the Investment Adviser deems changes appropriate, it is anticipated
that given the Fund's investment objectives, its annual portfolio turnover will
not generally exceed 75%. Portfolio turnover is calculated by dividing the
lesser of the 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 Fund.
Money Market Instruments
For defensive purposes, the Fund may temporarily hold all or a portion of its
assets in money market instruments. The money market instruments which the Fund
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 the
portfolio managers of the Fund since the Fund's inception. 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 an investment advisory contract (the "Advisory Agreement") between the
Trust and the Investment Adviser, the Investment 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 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 Fund 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 Fund 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.
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 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.
<PAGE>
For the services provided by the Investment Adviser under the Advisory
Agreement, the Investment Adviser receives from the Fund a management fee equal
to 1.50% per annum of the 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 Fund to the extent necessary
to limit the 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 Fund (the "Administration Agreement"). Under
the Administration Agreement, the Investment 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 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 Fund's operating expenses except for brokerage and commission
expenses and any extraordinary and non-recurring expenses.
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
the 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 Fund's transfer agent, dividend paying agent
and shareholder service agent, to provide accounting and pricing services to the
Fund, and to assist the Investment 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 Investment Adviser (not the Funds) pays the
Transfer Agent's fees for these services.
HOW TO PURCHASE SHARES
==============================================================================
Your initial investment in the Fund must be at least $10,000 (or $2,000 for
Individual Retirement Accounts). Lower minimums are available to investors
purchasing shares of the Fund through certain brokerage firms. Shares of the
Fund are sold on a continuous basis at the net asset value next determined after
receipt of a purchase order by the Fund. Purchase orders received by dealers
prior to 4:00 p.m., Eastern time, on any business day and transmitted to the
Transfer Agent by 5:00 p.m., Eastern time, that 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 dealers to
transmit properly completed orders so that they will be received by the Transfer
Agent by 5:00 p.m., Eastern time. Dealers may charge a fee 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. Direct
investments received by the Transfer Agent after 4:00 p.m., Eastern time, and
orders received from dealers after 5:00 p.m., Eastern time, are confirmed at the
net asset value next determined on the following business day.
You may open an account and make an initial investment in the Fund 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 Fund will not accept third party checks for the
purchase of shares. An account application is included in this Prospectus.
<PAGE>
The Fund and the Investment Adviser may enter into arrangements with brokerage
firms and financial institutions under which shares of the Fund may be purchased
or sold. Investors may be charged a fee if they effect transactions in shares of
the Fund through a broker or agent.
The Fund mails you confirmations of all purchases or redemptions of Fund shares.
Certificates representing shares are not issued. The Fund reserves the rights to
limit the amount of investments and to refuse to sell to any person.
Investors should be aware that the Fund's account application contains
provisions in favor of the Fund 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
Fund or the Transfer Agent in the transaction.
You may also purchase shares of the Fund by wire. Please telephone the Transfer
Agent (nationwide call toll-free 888-884-2675) for instructions. You should be
prepared to give 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
Fund 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." 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.
HOW TO REDEEM SHARES
==============================================================================
You may redeem shares of the Fund on each day that the Fund is open for business
by sending a written request to the Transfer Agent. The request must state the
number of shares or the dollar amount to be redeemed and your account number.
The request must be signed exactly as your name appears on the Fund'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.
If your instructions request a redemption by wire, you will be charged an $8
processing fee by the Fund's Custodian. The Transfer Agent reserves the right,
upon thirty days' written notice, to change the processing fee. 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.
<PAGE>
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 Fund or its 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 of your redemption request in the form described above.
Payment is made within three business days after tender in such form, provided
that payment in redemption of shares purchased by check will be effected only
after the check has been collected, which may take up to fifteen days from the
purchase date. To eliminate this delay, you may purchase shares of the Fund by
certified check or wire.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account 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 the 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 Fund.
Automatic Investment Plan
You may make automatic monthly investments in the 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 Fund.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
==============================================================================
The Fund expects to distribute substantially all of its net investment income
and net realized gains, if any, annually. Dividends and distributions are
automatically reinvested in additional shares of the Fund (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 Fund. 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.
The Fund has qualified and elected, and intends to continue to qualify, 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 and net capital gains in dividends to its shareholders and by satisfying
certain other requirements related to the sources of its income and the
diversification of its assets. By so qualifying, the 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 Fund) as ordinary income.
In view of the Fund's investment policies, it is expected that dividends
received from domestic and certain foreign corporations will be part of the
Fund's gross income. Distributions by the Fund 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 the Fund's gross income attributable to dividends received from
qualifying corporations is largely dependent on the Fund's 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.
Distributions of net realized capital gains (i.e., the excess of net long-term
capital gains over net short-term capital losses) by the Fund to its
shareholders are taxable to the recipient shareholders as long-term capital
gains, without regard to the length of time a shareholder has held Fund shares.
Redemptions of shares of the Fund are taxable events on which a shareholder may
realize a gain or loss.
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 Fund 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 Fund 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 Fund 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 Fund.
<PAGE>
Reports containing appropriate federal income tax information (relating to the
tax status of dividends and capital gain distributions by the Fund) 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 Fund. Thus,
dividends and distributions which are taxable as ordinary income or long-term
capital gain are so taxable whether received in cash or reinvested in additional
shares of the Fund.
Additional information regarding the taxation of the Fund and its shareholders
is contained in the Statement of Additional Information under "Taxes."
CALCULATION OF SHARE PRICE
==============================================================================
On each day that the Trust is open for business, the share price (net asset
value) of the Fund's shares 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 Trust 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 the Fund's
investments that its net asset value might be materially affected. The net asset
value per share of the 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.
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
the Fund will fluctuate with the value of the securities it holds.
PERFORMANCE INFORMATION
==============================================================================
The Fund may, from time to time, include figures indicating its total return in
advertisements or reports to shareholders or prospective investors. Quotations
of the 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.
<PAGE>
Performance information for the 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 the 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 the Fund's average annual total return and
yield, please refer to "Performance Information" in the Statement of Additional
Information.
The table below shows the investment results for the 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 results should not be considered a representation of the total return from
an investment made in the Fund today. The periods shown were generally favorable
ones for stock market investing. This information is provided to help you better
understand the Fund and may not provide a basis for comparison with other
investments or mutual funds 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 only one series of shares, the
Fund. 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.
<PAGE>
Each share of the 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. If
the Trust authorizes additional series of shares as separate funds, 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 series.
The Board of Trustees of the Trust is responsible for managing the business and
affairs of the Fund. 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 Fund will issue semiannual reports which will include a list of securities
owned by the Fund and financial statements which, in the case of the annual
report, will be examined and reported upon by the Fund's independent auditors.
<PAGE>
INTERACTIVE INVESTMENTS
STATEMENT OF ADDITIONAL INFORMATION
April 21, 1997
Revised October 10, 1997
THE TECHNOLOGY VALUE FUND
This Statement of Additional Information is not a Prospectus, but is to be read
in conjunction with the Prospectus of The Technology Value Fund dated April 21,
1997, as revised on October 10, 1997. A copy of the Fund's Prospectus can be
obtained by writing the Fund at 101 Park Center Plaza, Suite 1300, San Jose,
California 95113, or by calling the Fund at 888-884-2675.
TABLE OF CONTENTS
The Fund . . . . . . . . . . . . . . . . .. . . . . . . . . . . 2
Definitions, Policies and Risk Considerations . . . . . . . . . 2
Quality Ratings of Corporate Bonds and Preferred Stocks. . . . .8
Investment Restrictions . . . . . . . . . . . . . . . . . . . .10
Management of the Trust . . . . . . . . . . . . . . . . . . . .12
Principal Security Holders . . . . . . . . . . . . . . . . . . 13
Investment Advisory and Other Services . . . . . . . . . . . . 14
Securities Transactions . . . . . . . . . . . . . . . . . . . .16
Purchase, Redemption and Pricing of Shares . . . . . . . . . . 17
Performance Information . . . . . . . . . . . . . . . . . . . .19
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Legal Counsel and Auditors . . . . . . . . . . . . . . . . . . 25
Miscellaneous Information . . . . . . . . . . . . . . . . . . .25
Annual Report. . . . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE>
THE FUND
Interactive Investments (the "Trust") was organized as a Delaware
business trust on November 11, 1993. The Trust currently offers one series of
shares to investors, The Technology Value Fund (the "Fund").
Each share of the Fund represents an equal proportionate interest in
the assets and liabilities of the Fund with each other share of the Fund and is
entitled to such dividends and distributions out of the income of 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 the Fund into a greater or
lesser number of shares of the Fund so long as the proportionate beneficial
interests in the assets of the Fund are in no way affected. In case of any
liquidation of the Fund, the holders of shares of the Fund will be entitled to
receive as a class a distribution out of the assets, net of the liabilities, of
the Fund. No shareholder is liable to further calls or to assessment by the Fund
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 Fund means the
lesser of (1) 67% or more of the outstanding shares of the Fund present at a
meeting, if the holders of more than 50% of the outstanding shares of the Fund
are present or represented at such meeting or (2) more than 50% of the
outstanding shares of the Fund.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from
one to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. The 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.
2
<PAGE>
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 Fund may
invest consist of certificates of deposit, bankers' acceptances and time
deposits issued by national banks and state banks, trust companies and mutual
savings banks, or by banks or institutions the accounts of which are insured by
the Federal Deposit Insurance Corporation or the Federal Savings and Loan
Insurance Corporation. Certificates of deposit are negotiable certificates
evidencing the indebtedness of a commercial bank to repay funds deposited with
it for a definite period of time (usually from 14 days to one year) at a stated
or variable interest rate. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft which has been drawn on it by
a customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. The 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.
3
<PAGE>
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which
the 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, the Fund could experience both delays
in liquidating the underlying security and losses. To minimize these
possibilities, the 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. The 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 the Fund
enters into a repurchase agreement, the value of the underlying security,
including accrued interest, will equal or exceed the value of the repurchase
agreement, and, in the case of a repurchase agreement exceeding one day, the
seller will agree that the value of the underlying security, including accrued
interest, will at all times equal or exceed the value of the repurchase
agreement. The collateral securing the seller's obligation must be of a credit
quality at least equal to the 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 the Fund to the
seller subject to the repurchase agreement and is therefore subject to the
Fund's investment restriction applicable to loans. It is not clear whether a
court would consider the securities purchased by the Fund subject to a
repurchase agreement as being owned by that Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the securities before
repurchase of the
4
<PAGE>
security under a repurchase agreement, the Fund may encounter delay and incur
costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the security. If a court characterized the
transaction as a loan and the Fund has not perfected a security interest in the
security, that Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at the risk of losing some or all of the principal
and income involved in the transaction. As with any unsecured debt obligation
purchased for the Fund, the 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 the 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 the Fund will be unsuccessful in seeking to enforce the seller's
contractual obligation to deliver additional securities.
MONEY MARKET FUNDS. The Fund may under certain circumstances invest a
portion of its assets in money market investment companies. The 1940 Act
prohibits the Fund from investing more than 5% of the value of its total assets
in any one investment company, or more than 10% of the value of its total assets
in investment companies in the aggregate, and also restricts its investment in
any investment company to 3% of the voting securities of such investment
company. Investment in a money market investment company involves payment of
such fund's pro rated share of advisory and administrative fees charged by such
company, in addition to those paid by the Funds.
WARRANTS. The 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
5
<PAGE>
level at which the warrant can be prudently exercised (in which event the
warrant may expire without being exercised, resulting in a loss of the Fund's
entire investment therein).
FOREIGN SECURITIES. Subject to the Fund's investment policies and
quality standards, the Fund may invest in the securities of foreign issuers.
Because the Funds may invest in foreign securities, an investment in the Fund
involves 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.
BORROWING. The use of borrowing by the Fund involves special risk
considerations that may not be associated with other funds having similar
policies. Since substantially all of the Fund's assets fluctuate in value,
whereas the interest obligation resulting from a borrowing will be fixed by the
terms of 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, the 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.
6
<PAGE>
LOANS OF PORTFOLIO SECURITIES. The 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 the Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Fund may also pay fees to placing brokers as well as custodian and
administrative fees in connection with loans. Fees may only be paid to a placing
broker provided that the Trustees determine that the fee paid to the placing
broker is reasonable and based solely upon services rendered, that the Trustees
separately consider the propriety of any fee shared by the placing broker with
the borrower, and that the fees are not used to compensate the Adviser or any
affiliated person of the Fund or an affiliated person of the Adviser or other
affiliated person. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five days' notice or in time to vote on any important matter.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, 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.
7
<PAGE>
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.
The Fund does not intend presently to invest more than 5% of its net
assets in illiquid securities. In the event that the 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 Fund 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.
8
<PAGE>
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD & POOR'S
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
The ratings of Moody's and Standard & Poor's for preferred stocks in
which the Fund 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.
9
<PAGE>
aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a - An issue which is rated a is considered to be an upper- medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
STANDARD & POOR'S
AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as
matters of fundamental investment policy, which restrictions may not be changed
without the approval of a majority of the outstanding voting securities of the
Fund. The Fund may not:
10
<PAGE>
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.
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.
8. Make short sales of securities.
9. Participate on a joint or joint and several basis in
any securities trading account.
11
<PAGE>
10. Purchase the securities of any other investment company
except in compliance with the 1940 Act.
With respect to the percentages adopted by the Fund 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.
MANAGEMENT OF THE TRUST
The business of the Fund is managed under the direction of the Board of
Trustees in accordance with the Declaration of Trust of the Fund, 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 Fund 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 Fund's purposes. The Trustees, officers, employees and agents of the
Fund, 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.
NAME AGE POSITION HELD COMPENSATION
- ---- --- ------------- ------------
*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 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.
12
<PAGE>
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 1985. He served as Product Line Manager for
Calera Recognition Systems, Inc., a manufacturer of Optical Character
Recognition Software, from 1990 to 1995.
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 April 1, 1997, the following persons owned of record 5% or more
of the shares of the Funds:
NAME SHARES % OWNERSHIP
Donaldson, Lufkin &. 582,747 29.07%
Jenrette Securities Corp.
P.O. Box 2052
Jersey City, New Jersey 07303
National Financial 482,335 24.06%
Services Corp.
55 Water Street, 5th Floor
New York, New York 10041
As of April 1, 1997, the Trustees and officers of the Trust owned of
record or beneficially less than 1% of the Fund's outstanding shares.
13
<PAGE>
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 Fund 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 the Fund and the composition of its portfolio,
including the purchase, retention and disposition of securities in accordance
with the Fund's investment objective, (ii) provides all statistical, economic
and financial information reasonably required by the Fund and reasonably
available to the 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 the Fund's outstanding voting securities; provided that in
either event continuance is also approved by a majority of the Trustees who are
not interested persons of the Trust, by a vote cast in person at a meeting
called for the purpose of voting such approval. 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 the 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, the 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 Fund
to the extent necessary to limit the Fund's total operating expenses to
14
<PAGE>
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, 1996, 1995 and 1994, The 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 Fund.
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
Fund. The Investment Adviser, at its expense, shall supply the Trustees and the
officers of the Fund 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 Fund's security transactions and the Fund's 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, the 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 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 the 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
Fund's shares and act as dividend and distribution disbursing agent. Countrywide
also provides administrative services to the Fund, calculates daily
15
<PAGE>
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 Fund) pays Countrywide (i) a fee for
administrative services at the annual rate of .1% of the average value of the
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 Fund; and (iii) a monthly fee for accounting
and pricing services which will vary according to the 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 Fund's portfolio decisions and, subject to the supervision of the
Board of Trustees of the Trust, determines the broker to be used in each
specific transaction. In executing the Fund's portfolio transactions, the
Investment Adviser seeks to obtain the best net results for the Fund, taking
into account such factors as the overall net economic result to the Fund
(involving both price paid or received and any commissions and other costs
paid), the efficiency with which the specific transaction is effected, the
ability to effect the transaction where a large block is involved, the known
practices of brokers and the availability to execute possibly difficult
transactions in the future and the financial strength and stability of the
broker. While the Investment Adviser generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest commission or
spread available.
The Investment Adviser may direct the Fund's portfolio transactions to
persons or firms because of research and investment services provided by such
persons or firms if the amount of commissions in effecting the transactions is
reasonable in relationship to the value of the investment information provided
by those persons or firms. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries.
16
<PAGE>
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 Fund may be used in managing the
Investment Adviser's other investment accounts.
The Fund 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.
It 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 Fund's own behalf, except in those circumstances
where, in the opinion of the Investment Adviser, better prices and executions
may be available elsewhere. The Fund does not allocate brokerage business in
return for sales of the Fund's shares.
Neither the Investment Adviser nor any affiliated person thereof will
participate in commissions paid by the Fund to brokers or dealers or will
receive any reciprocal business, directly or indirectly, as a result of such
commissions.
The 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 the 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 Fund is open
for business. The Fund 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 Fund may also be open for business on other days
in which there is sufficient trading in the 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.
17
<PAGE>
In valuing the Fund's assets for the purpose of determining net asset
value, readily marketable portfolio securities listed on a national securities
exchange are valued at the last sale price on such exchange on the business day
as of which such value is being determined. If there has been no sale on such
exchange on such day, the security is valued at the closing bid price on such
day. If no bid price is quoted on such exchange on such day, then the security
is valued by such method as the 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 Fund, 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 Fund 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 Exchange at the end of
the day. 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 the
Fund of securities owned by it is not reasonably practicable or as a result of
which it is not reasonably practicable for the Fund to fairly determine the
value of its net assets, or for such other period as the Securities and Exchange
Commission may by order permit for the protection of security holders of the
Fund.
18
<PAGE>
The Fund will redeem all or any portion of a shareholder's shares of
the Fund when requested in accordance with the procedures set forth in the "How
to Redeem Shares" section of the Prospectus.
TRANSACTIONS THROUGH BROKERS
The Fund has authorized one or more brokers to accept on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts
the order. Customer orders will be priced at the Fund's net asset value computed
after they are accepted by an authorized broker or the broker's authorized
designee.
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 the Fund. If payment for shares
redeemed is made wholly or partly in portfolio securities, brokerage costs may
be incurred by the investor in converting the securities to cash. The Fund has
filed an election with the Securities and Exchange Commission pursuant to which
the 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 Fund 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
The 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 Fund
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:
19
<PAGE>
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5, or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1-, 5-, or 10-
year period, at the end of such period (or fractional
portion thereof).
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover 1, 5, and 10 year periods of the 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 the Fund's
investment objectives and policies, as well as the risks incurred in the Fund's
investment practices. Future results will be affected by the future composition
of the 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 Fund for the periods ended
December 31, 1996 are as follows:
1-Year 60.55%
Since inception (May 20, 1994) 56.69%
The 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 Fund's total returns as
calculated in this manner for each of the 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.
20
<PAGE>
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 the
Fund's average annual total return as described above.
The performance quotations described above are based on historical
earnings and are not intended to indicate future performance.
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements regarding the 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 Fund may use the following
publications or indices to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and
average current yield for the mutual fund industry and ranks individual mutual
fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Fund may provide comparative
performance information appearing in any appropriate category published by
Lipper Analytical Services, Inc. In addition, the Fund may use comparative
performance information of relevant indices, including the S&P 500 Index, the
Dow Jones Industrial Average, the Russell 2000 Index, the NASDAQ Composite Index
and the Value Line Composite Index. The S&P 500 Index is an unmanaged index of
500 stocks, the purpose of which is to portray the pattern of common stock price
movement. The Dow Jones Industrial Average is a measurement of general market
price movement for 30 widely held stocks listed on the New York Stock Exchange.
The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S. domiciled
publicly-traded common stocks in the Russell 3000 Index (an unmanaged index of
the 3,000 largest U.S. domiciled publicly-traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly-traded equity
market). The NASDAQ Composite Index is an unmanaged index which averages the
trading prices of more than 3,000 domestic over-the-counter companies. The Value
Line Composite Index is an unmanaged index comprised of approximately 1,700
stocks, the purpose of which is to portray the pattern of common stock price
movement.
21
<PAGE>
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.
TAXES
The Fund has elected, and intends to qualify annually, for the special
tax treatment afforded regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, the 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) 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 Fund controls 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.
22
<PAGE>
As regulated investment companies, the 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. The Fund intends to
distribute annually to its shareholders substantially all of its investment
company taxable income and any net capital gains. In addition, amounts not
distributed by the Fund on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax. To avoid
the tax, the Fund must distribute during each calendar year an amount equal to
the sum of (1) at least 98% of its ordinary income (with adjustment) for the
calendar year and (2) at least 98% of its capital gains in excess of its
capital losses (and adjusted for certain ordinary losses) for the 12 month
period ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. In order to avoid application of the excise tax, the Fund intends to
make distributions in accordance with these distribution requirements.
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 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.
The Fund may invest as much as 15% of its net assets in securities of
foreign companies and may therefore be liable for foreign withholding and other
taxes, which will reduce the amount available for distribution to shareholders.
Tax conventions between the United States and various other countries may reduce
or eliminate such taxes. A foreign tax credit or deduction is generally allowed
for foreign taxes paid or deemed to be paid. A regulated investment company may
elect to have the foreign tax credit or deduction claimed by the shareholders
rather than the company if certain requirements are met, including the
requirement that more than 50% of the value of the company's total assets at the
end of the taxable year consist of securities
23
<PAGE>
in foreign corporations. Because the Fund does not anticipate investment in
securities of foreign corporations to this extent, the Fund will likely not be
able to make this election and foreign tax credits will be allowed only to
reduce the 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 the Fund's investment company taxable income.
Any dividend or distribution received shortly after a share purchase
will have the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Such dividend or distribution is fully
taxable. Accordingly, prior to purchasing shares of the Fund, an investor should
carefully consider the amount of dividends or capital gains distributions 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 Fund that are held by the shareholder as capital
assets. However, if a shareholder sells shares of the Fund 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 Fund will be disallowed by the "wash sale" rules to
the extent the shares sold are replaced (including through the receipt of
additional shares through reinvested dividends) within a period of time
beginning 30 days before and ending 30 days after the shares are sold. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Provided that the 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 Fund. 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
24
<PAGE>
from the Fund. Shareholders are advised to consult with their own tax advisors
concerning the application of foreign, federal, state and local taxes to an
investment in the Fund.
CUSTODIAN
Fifth Third Bank, 38 Fountain Square Plaza, Cincinnati, Ohio 45263, has
been retained to act as Custodian for the Fund's investments. Fifth Third Bank
acts as the 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 Fund for
the fiscal year ending December 31, 1997. Tait, Weller & Baker performs an
annual audit of the Fund's financial statements and will advise the Fund as to
certain accounting matters.
MISCELLANEOUS INFORMATION
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Fund'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.
ANNUAL REPORT
The Fund's audited financial statements as of December 31, 1996 appear
in the reports which are attached to this Statement of Additional Information.
25
<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>
