SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 2
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7
(Check appropriate box or boxes.)
INTERACTIVE INVESTMENTS FILE NO. 33-73832 AND 811-8268
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(Exact name of Registrant as Specified in Charter)
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (408)956-0567
Kevin M. Landis
Interactive Research Advisers, Inc.
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
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(Name and Address of Agent for Service)
Copies of all communications to:
Julie Allecta, Esq.
Heller Ehrman White & McAuliffe
333 Bush Street
San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate
box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on Februay 1, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
Registrant registered an indefinite number of shares under the Securities Act
of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1996 was
filed with the Commission on February 25, 1997.
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INTERACTIVE INVESTMENT TRUST
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
PART A
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis Prospectus Summary;
Summary of Fund Expenses
3. Condensed Financial Information Financial Highlights;
Performance Information
4. General Description of Registrant General Information;
Investment Objective,
Policies and Risk
Considerations
5. Management of the Fund Investment Avisory and
Other Services;
General Information
5A. Management's Discussion of Management Discussion
Fund Performance and Analysis (Annual
Report)
6. Capital Stock and Other Securities Cover Page; General
Information; Dividends
and Distributions; Taxes
7. Purchase of Securities Being Offered How to Purchase Shares;
Calculation of Share
Price
8. Redemption or Repurchase How to Redeem Shares
9. Pending Legal Proceedings Not Applicable
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PART B
ITEM NO. REGISTRATION STATEMENT CAPTION CAPTION IN PROSPECTUS
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Investment and History The Fund
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13. Investment Objectives and Policies Definitions, Policies and
Risk Considerations;
Quality Ratings of
Corporate Bonds and
Preferred Stocks;
Investment Limitations;
Securities Transactions;
Portfolio Turnover
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Principal Security
Holders of Securities Holders
16. Investment Advisory and Other The Investment Adviser;
Services Custodian; Auditors;
Countrywide Fund
Services, Inc.;
Securities Transactions
17. Brokerage Allocation and Other Securities Transactions
Practices
18. Capital Stock and Other Securities The Fund; Management
19. Purchase, Redemption and Pricing Purchase Redemption and
of Securities Being Offered and Pricing of Shares
20. Tax Status Taxes
21. Underwriters Not Applicable
22. Calculation of Performance Data Historical Performance
Information
23. Financial Statements Annual Report for the
Year Ended December 31,
1996
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PART C
The information to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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PROSPECTUS
April 21, 1997
INTERACTIVE INVESTMENTS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
(408) 956-0567
THE TECHNOLOGY VALUE FUND
A No-Load Fund
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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, with each series representing a distinct fund having 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 its 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 the investment is
made by 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 Others 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 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.
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For Information or Assistance in Opening an Account, Please Call:
Nationwide (Toll-Free)............................................888-884-2675
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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INTERACTIVE INVESTMENTS
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Board of Trustees
Kevin M. Landis, Chairman
Kendrick W. Kam
Michael T. Lynch
Mark K. Taguchi
Officers
Kevin M. Landis, President
Kendrick W. Kam, Secretary
Yakoub Billawala, Treasurer
Investment Adviser
Interactive Research Advisers, Inc.
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
Transfer Agent/Administrator
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, OH 45201
(Toll-Free) 888-884-2675
TABLE OF CONTENTS
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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.
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PROSPECTUS SUMMARY
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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, with 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 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, or $2,000 for initial
investments by an IRA (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 Fund 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% 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
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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.
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
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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
Annual Fund Operating Expenses (as a percentage of average net assets)
Management Fees.................................................. 1.00%
12b-1 Fees....................................................... None
Other Expenses................................................... .95%
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Total Fund Operating Expenses.................................... 1.95%
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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 LESSER THAN THOSE
SHOWN. The percentages expressing Annual Fund Operating Expenses are based on
amounts incurred during the most recent fiscal year, except that Other Expenses
have been restated to reflect the administrative fee currently being charged to
the Fund. Please see "Investment Advisory and Other Services" for a description
of the Fund's expenses.
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FINANCIAL HIGHLIGHTS
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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.
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Selected data for a share outstanding throughout each period:
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Year Ended December 31,
1996 1995 1994(a)
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Net asset value, beginning of period............................ $ 18.44 $ 11.70 $ 10.00
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Investment operations:
Net investment income (loss)................................. (.08) (.14) (.03)
Net realized and unrealized gain (loss) on investments....... 11.20 7.28 2.56
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Total from investment operations................................ 11.12 7.14 2.53
Capital gains distributions..................................... (2.90) (.40) (.83)
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Net asset value, end of period.................................. $ 26.66 $ 18.44 $ 11.70
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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
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<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.
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INVESTMENT OBJECTIVES, POLICIES AND RISK
CONSIDERATIONS
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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, convertible preferred stock and warrants. The securities
selected will typically be traded on a national securities exchange, the NASDAQ
System or over-the-counter, and may include securities of both large, well-known
companies as well as smaller, less well-known companies.
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
<PAGE>
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.
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 (at
time of purchase, giving effect thereto) 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 debt
obligations 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 a 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%
<PAGE>
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 (other than U.S. Government securities and
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. 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.
CONCENTRATION OF INVESTMENTS
The Fund will concentrate its investments in the electronic and medical
technology industries. Concentration allows the 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 each of these
two industries. The Fund will be subject to greater risk because of its
relationship with a limited number of industries. The Fund intends to invest
primarily in the following segments within these industries:
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 5% of the Fund's 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.
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 the 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 the Fund's net assets at the time,
giving effect to the 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 purchase does not exceed 5% of the Fund's net assets at
the time of purchase.
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, 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
<PAGE>
that given the Fund's investment objective, its annual portfolio turnover
generally will not 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
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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 from March 1988 to May 1992. 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 from
June 1991 through July 1993.
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 and employees 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 and employees 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.
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% per annum of the Fund's average daily net assets. The management fee is
accrued daily in computing the net assets of the Fund for the purpose of
determining the offering and redemption price per share, and is paid to the
Investment Adviser at the end of each month.
<PAGE>
FUND ADMINISTRATION
The Trust has entered into a separate contract with the Investment Adviser
wherein the Investment Adviser is responsible for providing administrative and
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 .95% of
the Fund's average daily net assets.
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 Fund) 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
IRAs). 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." An account application is included in this Prospectus.
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.
<PAGE>
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 30-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.
There is currently no charge for processing wire redemptions. However, the
Transfer Agent reserves the right, upon 30-days' written notice, to make
reasonable charges for wire redemptions. All charges will be deducted from your
account by redemption of shares in your account. Your bank or brokerage firm may
also impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
You may also redeem shares by placing a wire redemption through a securities
broker or dealer. Unaffiliated broker-dealers may impose a fee on the
shareholder for this service. You will receive the net asset value per share
next determined after receipt by the 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.
<PAGE>
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 60-days to increase the value of your account to
the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission.
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 initial and
subsequent investments must be $50 under the plan. The Transfer Agent pays the
costs associated with these transfers, but reserves the right, upon 30-days'
written notice, to make reasonable charges for this service. Your depository
institution may impose its own charge for debiting your account which would
reduce your return from an investment in the 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.
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 based on net income 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 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, or
yield and total return, in advertisements or reports to shareholders or
prospective investors. Any quotations of yield will be based on all investment
income per share earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and will be computed by dividing net investment income by the maximum public
offering price per share on the last day of the period and annualizing the
result. Quotations of 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.
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
<PAGE>
light of the Fund's investment objective 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 listed below shows the investment results for the Fund for several
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 which shareholders must pay on a current basis.
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 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%
Aggregate Total Return
Since Inception 224.23% 73.80% 82.57% 77.66%
Annualized Total Return
Since Inception 56.69% 23.50% 25.84% 24.54%
- ------------------------------------------------------------------------------------------------------------
<FN>
* Fund Inception Date
** Measures price appreciation only; dividends not included.
</FN>
</TABLE>
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.
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.
<PAGE>
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
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. 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....................7
Investment Restrictions...................................................10
Management of the Trust...................................................11
Principal Security Holders................................................12
Investment Advisory and Other Services....................................13
Securities Transactions...................................................15
Purchase, Redemption and Pricing of Shares................................16
Performance Information...................................................18
Taxes.....................................................................21
Custodian.................................................................24
Auditors..................................................................24
Miscellaneous Information.................................................24
Annual Report.............................................................24
<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) 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 the 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 Fund's
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 the 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, the 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 the Fund of the sale of
the security to a third party are less than the repurchase price. However, if
the market value of the securities subject to the repurchase agreement becomes
less than the repurchase price (including interest), the Fund will direct the
seller of the security to deliver additional securities so that the market value
of all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
MONEY MARKET SECURITIES. The Fund may under certain circumstances
invest a portion of its assets in money market funds. 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 fund involves payment of such fund's pro rated
share of advisory and administrative fees charged by such fund, in addition to
those paid by the Fund.
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 level at which the warrant can be prudently exercised (in which event
the warrant may
5
<PAGE>
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 Fund may invest in foreign securities, 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 its lender, the asset value per share of the
Fund will tend to increase more when its portfolio securities increase in value
and decrease more when its portfolio securities decrease in value than would
otherwise be the case if the 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.
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
6
<PAGE>
repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requirements. A mutual fund might also have to register such
restricted securities in order to dispose of them, resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments. The Board of Trustees may determine that such securities
are not illiquid securities notwithstanding their legal or contractual
restrictions on resale. In all other cases, however, securities subject to
restrictions on resale will be deemed illiquid.
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 the Fund's 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
7
<PAGE>
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
STANDARD & POOR'S
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than for bonds in higher rated categories.
The ratings of Moody's and Standard & Poor's for preferred stocks in
which the Fund may invest are as follows:
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<PAGE>
MOODY'S
aaa - An issue which is rated aaa is considered to be a top- quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the foreseeable
future.
a - An issue which is rated a is considered to be an upper- medium
grade preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset protection
appear adequate at present but may be questionable over any great length of
time.
STANDARD & POOR'S
AAA - This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
9
<PAGE>
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:
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 it 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 5% of the
value of the Fund's total assets at the time any borrowing is
made.
7. Purchase or sell puts and calls on securities.
10
<PAGE>
8. Make short sales of securities.
9. Participate on a joint or joint and several basis in any
securities trading account.
10. Purchase the securities of any other investment company
except in compliance with the 1940 Act.
11. Invest in or hold securities of any issuer if, to the
knowledge of the Fund, those officers and directors of the
Fund or the Investment Adviser (defined below) owning
individually more than 1/2 of 1% of the securities of such
issuer together own more than 5% of the securities of such
issuer.
With respect to the percentages adopted by the Fund as maximum
limitations on the Fund's investment policies and restrictions, an excess above
the fixed percentage 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 Trust, which
Declaration of Trust has been filed with the Securities and Exchange Commission
and is available upon request. Pursuant to the Declaration of Trust, the
Trustees shall elect officers including a president, secretary and treasurer.
The Board of Trustees retains the power to conduct, operate and carry on the
business of the Trust and has the power to incur and pay any expenses which, in
the opinion of the Board of Trustees, are necessary or incidental to carry out
any of the Trust's purposes. The Trustees, officers, employees and agents of the
Trust, when acting in such capacities, shall not be subject to any personal
liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. Following is a list of
the Trustees and executive officers of the Trust and their compensation from the
Trust for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD COMPENSATION
- ---- --- ------------- ------------
<S> <C> <C> <C>
*Kevin M. Landis 35 Trustee/President $ 0
*Kendrick W. Kam 36 Trustee/Secretary $ 0
Michael T. Lynch 35 Trustee $400
Mark K. Taguchi 40 Trustee $400
Yakoub Billawala 31 Treasurer $ 0
<FN>
* 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.
</FN>
</TABLE>
11
<PAGE>
The principal occupations of the Trustees and officers of the Fund during
the past five years are set forth below:
KENDRICK W. KAM, 26888 Almaden Court, Los Altos Hills, California
94022, has been President of Interactive Research Advisers, Inc. since its
founding in August 1993. From 1988-1992 Mr. Kam was the Vice President of
Marketing and Finance for Novoste Corporation, a medical device manufacturer.
KEVIN M. LANDIS, 21346 Sarahills Drive, Saratoga, California 95070,
has been the Secretary/Treasurer 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 Operations Partner for Interactive Research Advisers, Inc.
He was previously a manager in the Database Marketing Group of 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 Fund:
NAME SHARES % OWNERSHIP
Donaldson, Lufkin & 582,746 29.07%
Jenrette Securities Corp.
P.O. Box 2052
Jersey City, New Jersey 07303
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<PAGE>
National Financial 482,335 24.06%
Services Corp.
55 Water Street, 5th Floor
New York, NY 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.
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 and wholly owned by Kendrick W. Kam and Kevin M. Landis.
The Investment Advisory and Management Agreement (the "Advisory
Agreement") between the Trust and the Investment Adviser has been approved by
the Board of Trustees of the Trust, including a majority of the Trustees who
were not a party to the Advisory Agreement or "interested persons" (as defined
in the 1940 Act) of a party to the Advisory Agreement.
Under the Advisory Agreement, the Investment Adviser (i) manages the
investment operations of 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.
13
<PAGE>
Pursuant to the Advisory Agreement, the Fund pays to the Investment
Adviser, on a monthly basis, an advisory fee equal to 1% per annum of the Fund's
average daily net assets. For the fiscal year 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 book 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 .95% per annum of the
Fund's average daily net assets. 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 net
14
<PAGE>
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
(subject to a minimum fee of $1,000 per month); (ii) a fee for transfer agency
and shareholder services at the annual rate of $16 per shareholder account of
the Fund (subject to a minimum fee of $1,500 per month); 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
15
<PAGE>
investors and include statistical and economic data and research reports on
particular companies and industries. These services may be used by the
Investment Adviser in connection with all of its investment activities, and some
of the services obtained in connection with the execution of transactions for
the 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 will not pay mark-ups.
The Fund paid brokerage commissions of $57,050, $6,298 and $550 during
the fiscal periods ended December 31, 1996, 1995 and 1994.
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, 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.
16
<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 week's end.
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.
17
<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.
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 the Fund's total
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 total 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:
18
<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 Fund registration. In calculating the ending
redeemable value, all dividends and distributions by the Fund are assumed to
have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Additionally, redemption of shares is
assumed to occur at the end of each applicable time period.
The foregoing information should be considered in light of 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.
19
<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 the Small Company Growth Funds category. 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.
20
<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 Fund's portfolio, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
performance. In addition, there can be no assurance that the Fund will continue
this performance as compared to such other averages.
TAXES
The Fund has qualified and elected, and intends to continue to qualify
annually, for the special tax treatment afforded a regulated investment company
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 its 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 is 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 is 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.
As a regulated investment company, 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
21
<PAGE>
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) and its net capital gain
(not taking into account any capital gains or losses from sales and exchanges)
for the calendar year and (2) at least 98% of its capital gains in excess of its
capital losses (and adjusted for certain ordinary losses) for the 12 month
period ending on October 31 of the calendar year, and (3) all ordinary income
and capital gains for previous years that were not distributed during such
years. In order to avoid application of the excise tax, 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 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.
22
<PAGE>
The Fund may also be subject to special rules under the Code that apply
to income derived from stock issued by a "passive foreign investment company"
(or PFIC), which might subject the Fund to a non-deductible federal income tax.
The Fund may be able to avoid this tax by electing to be taxed on its share of
the PFIC's income (whether or not such income is actually distributed by the
PFIC). The Fund will endeavor to limit its exposure to the PFIC tax by investing
in PFICs only where the election to be taxed currently will be made. Because it
is not always possible to identify a foreign issuer as a PFIC before an
investment is made, however, the Fund may incur the PFIC tax in some instances.
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.
23
<PAGE>
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 Heller, Ehrman, White
& McAuliffe has expressed no opinion in respect thereof. Nonresident aliens and
foreign persons are subject to different tax rules, and may be subject to
withholding of up to 30% on certain payments received from the 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.
AUDITORS
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 will perform 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 Trust's registration statement
filed with the Securities and Exchange Commission under the Securities Act with
respect to the securities offered hereby, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The registration statement, including the exhibits filed therewith,
may be examined at the offices of the Securities and Exchange Commission in
Washington, D.C.
Statements contained herein and in the Prospectus as to the
contents of any contract or other documents referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other documents filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
ANNUAL REPORT
The Fund's audited financial statements as of December 31, 1996 appear
in the Fund's annual report which is attached to this Statement of Additional
Information.
24
<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>
INTERACTIVE INVESTMENT TRUST
Part C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) (i) Financial Statements included in Part A:
Financial Highlights
(ii) Financial Statements included in Part B:
Statement of Assets and Liabilities, December 31,
1996
Statement of Operations for the Year Ended
December 31, 1996
Statements of Changes in Net Assets for the Years
Ended December 31, 1996 and 1995
Schedule of Investments, December 31, 1996
Financial Highlights
Notes to Financial Statements
Independent Auditor's Report
(b) Exhibits
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Advisory Agreement Interactive Research Advisers,
Inc.*
(6) Inapplicable
(7) Inapplicable
(8) Custody Agreement with Fifth Third Bank
(9)(i) Administration Agreement with Interactive Research
Advisers, Inc.
(ii) Transfer, Dividend Disbursing, Shareholder Service
and Plan Agency Agreement with Countrywide Fund
Services, Inc.
<PAGE>
(iii) Administration Agreement with Countrywide Fund
Services, Inc.
(iv) Accounting Services Agreement with Countrywide
Fund Services, Inc.
(10) Opinion and Consent of Counsel relating to
Issuance of Shares*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Prototype Individual Retirement Account*
(15) Inapplicable
(16) Computation for Performance Quotations*
(17) Financial Data Schedule
(18) Inapplicable
* Incorporated by reference to Registration Statement on Form
N-1A.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
No person is directly or indirectly controlled by or under
common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of January 31, 1997, there were 800 holders of the shares
of beneficial interest of the Registrant.
ITEM 27, INDEMNIFICATION.
Under section 3817(a) of the Delaware Business Trust Act, a
Delaware business trust has the power to indemnify and hold
harmless any trustee, beneficial owner or other person from
and against any and all claims and demands whatsoever.
Reference is made to sections 5.1 and 5.2 of the Declaration
of Trust of Interactive Investments (the "Trust")(Exhibit 2)
pursuant to which no trustee, officer, employee or
2
<PAGE>
agent of the Trust shall be subject to any personal
liability, when acting in his or her individual capacity,
except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. The
Trust shall indemnify each of its trustees, officers,
employees and agents against all liabilities and expenses
reasonably insurred by him or her in connection with the
defense or disposition of any actions, suits or other
proceedings by reason of his or her being or having been a
trustee, officer, employee or agent, except with respect to
any matter as to which he or she shall have been adjudicated
to have acted in or with bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duties.
The Trust will comply with Section 17(h) of the Investment
Company Act of 1940, as amended (the "1940 Act") and 1940
Act Releases number 7221 (June 9, 1972) and number 11330
(September 2, 1980).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Trust pursuant to
the foregoing, the Trust has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy and therefore may
be unenforceable. In the event that a claim for
indemnification (except insofar as it provides for the
payment by the Trust of expenses incurred or paid by a
trustee, officer or controlling person in the successful
defense of any action, suit or proceeding) is asserted
against the Trust by such trustee, officer or controlling
person and the Securities and Exchange Commission is still
of the same opinion, the Trust will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
Indemnification provisions exist in the Investment Advisory
and Management Agreement, Administration Agreement and
Custodian Agreement which are identical to those in the
Declaration of Trust noted above.
3
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT
ADVISER
(a) Inapplicable
(b) Inapplicable
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Inapplicable
(b) Inapplicable
(c) Inapplicable
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company Act of
1940 and the Rules promulgated thereunder will be maintained
by the Registrant at its offices located at 101 Park Center
Plaza, Suite 1300, San Jose, California 95113 or at the
offices of the Registrant's transfer agent located at 312
Walnut Street, Cincinnati, Ohio 45202.
ITEM 31. MANAGEMENT SERVICES NOT DISCUSSED IN PARTS A AND B.
Inapplicable
ITEM 32. UNDERTAKINGS.
(a) Inapplicable
(b) Inapplicable
(c) The Registrant undertakes that, if so requested, it
will furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual
report to shareholders without charge.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose and the State of California
on the 21st of April, 1997.
INTERACTIVE INVESTMENT TRUST
By: /S/ KEVIN M. LANDIS
--------------------------
Kevin M. Landis, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/S/ KEVIN M. LANDIS President and April 21, 1997
- -------------------- Trustee
Kevin M. Landis
/S/ KENDRICK W. KAM Secretary/Treasurer April 21, 1997
- -------------------- and Trustee
Kendrick W. Kam
/S/ MICHAEL T. LYNCH Trustee April 21, 1997
- --------------------
Michael T. Lynch
/S/ MARK K. TAGUCHI Trustee April 21, 1997
- --------------------
Mark K. Taguchi
INDEX TO EXHIBITS
(1) Agreement and Declaration of Trust*
(2) Bylaws*
(3) Inapplicable
(4) Inapplicable
(5) Advisory Agreement with Interactive Research Advisers,
Inc.*
(6) Inapplicable
(7) Inapplicable
(8) Custody Agreement with Fifth Third Bank
(9)(i) Administration Agreement with Interactive Research
Advisers, Inc.
(ii) Transfer, Dividend Disbursing, Shareholder Service and
Plan Agency Agreement with Countrywide Fund Services,
Inc.
(iii) Administration Agreement with Countrywide Fund
Services, Inc.
(iv) Accounting Services Agreement with Countrywide Fund
Services, Inc.
(10) Opinion and Consent of Counsel relating to issuance of
shares*
(11) Consent of Independent Public Accountants
(12) Inapplicable
(13) Agreement Relating to Initial Capital*
(14) Prototype Individual Retirement Account*
(15) Inapplicable
(16) Computation for Performance Quotations*
(17) Financial Data Schedule
(18) Inapplicable
* Incorporated by reference to Registration Statement on Form
N-1A.
CUSTODY AGREEMENT
THIS AGREEMENT, made as of April 7, 1997, by and between INTERACTIVE
INVESTMENTS, a business trust organized under the laws of the State of Delaware
(the "Trust"), acting with respect to The Technology Value Fund (the "Fund"), a
series of the Trust operated and administered by the Trust, INTERACTIVE RESEARCH
ADVISERS, INC., a California corporation (the "Adviser"), and THE FIFTH THIRD
BANK, a banking company organized under the laws of the State of Ohio (the
"Custodian").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 and provides advisory services to the Trust
pursuant to an Investment Advisory and Management Agreement; and
WHEREAS, under the Investment Advisory and Management Agreement the
Adviser is responsible for retaining and compensating agents to provide
non-advisory services to the Trust; and
WHEREAS, the Adviser and the Trust desire that the Fund's Securities
and cash be held and administered by the Custodian pursuant to this Agreement;
and
WHEREAS, the Custodian represents that it is a bank having the
qualifications prescribed in Section 26(a)(i) of the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust, the Adviser and the Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
<PAGE>
1.1 "AUTHORIZED PERSON" means any Officer or other person duly
authorized by resolution of the Board of Trustees to give Oral Instructions and
Written Instructions on behalf of the Trust and named in Exhibit A hereto or in
such resolutions of the Board of Trustees, certified by an Officer, as may be
received by the Custodian from time to time.
1.2 "BOARD OF TRUSTEES" shall mean the Trustees from time to time
serving under the Trust's Agreement and Declaration of Trust, as from time to
time amended.
1.3 "BOOK-ENTRY SYSTEM" shall mean a federal book-entry system as
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, in Subpart B of
31 CFR Part 350, or in such book-entry regulations of federal agencies as are
substantially in the form of such Subpart O.
1.4 "BUSINESS DAY" shall mean any day recognized as a settlement day
by The New York Stock Exchange, Inc. and any other day for which the Trust
computes the net asset value of shares of the Fund.
1.5 "NASD" shall mean The National Association of Securities
Dealers, Inc.
1.6 "OFFICER" shall mean the Chairman, the President, any Vice
President, the Secretary, any Assistant Secretary, the Treasurer, or any
Assistant Treasurer of the Trust.
1.7 "ORAL INSTRUCTIONS" shall mean instructions orally transmitted to
and accepted by the Custodian because such instructions are: (i) reasonably
believed by the Custodian to have been given by an Authorized Person, (ii)
recorded and kept among the records of the Custodian made in the ordinary course
of business and (iii) orally confirmed by the Custodian. The Trust shall cause
all Oral Instructions to be confirmed by Written Instructions. If such Written
Instructions confirming Oral Instructions are not received by the Custodian
prior to a transaction, it shall in no way affect the validity of the
transaction or the authorization thereof by the Trust. If Oral Instructions vary
from the Written Instructions which purport to confirm them, the Custodian shall
notify the Trust of such variance but such Oral Instructions will govern unless
the Custodian has not yet acted.
1.8 "FUND CUSTODY ACCOUNT" shall mean any account in the name of the
Trust, which is provided for in Section 3.2 below.
1.9 "PROPER INSTRUCTIONS" shall mean Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions
when deemed appropriate by both parties.
- 2 -
<PAGE>
1.10 "SECURITIES DEPOSITORY" shall mean The Depository Trust Company
and (provided that Custodian shall have received a copy of a resolution of the
Board of Trustees, certified by an Officer, specifically approving the use of
such clearing agency as a depository for the Trust) any other clearing agency
registered with the Securities and Exchange Commission under Section 17A of the
Securities and Exchange Act of 1934 (the "1934 Act"), which acts as a system for
the central handling of Securities where all Securities of any particular class
or series of an issuer deposited within the system are treated as fungible and
may be transferred or pledged by bookkeeping entry without physical delivery of
the Securities.
1.11 "SECURITIES" shall include, without limitation, common and
preferred stocks, bonds, call options, debentures, notes, bank certificates of
deposit, bankers' acceptances, mortgage-backed securities, other money market
instruments or other obligations, and any certificates, receipts, warrants or
other instruments or documents representing rights to receive, purchase or
subscribe for the same, or evidencing or representing any other rights or
interests therein, or any similar property or assets that the Custodian has the
facilities to clear and to service.
1.12 "SHARES" shall mean the units of beneficial interest
issued by the Trust on account of the Fund.
1.13 "WRITTEN INSTRUCTIONS" shall mean (i) written communications
actually received by the Custodian and signed by an Authorized Person or (ii)
communications by telex or any other such system from a person or persons
reasonably believed by the Custodian to be Authorized, or (iii) communications
transmitted electronically through the Institutional Delivery System (IDS), or
any other similar electronic instruction system acceptable to Custodian and
approved by resolutions of the Board of Trustees, a copy of which, certified by
an Officer, shall have been delivered to the Custodian.
ARTICLE II
APPOINTMENT OF CUSTODIAN
2.1 APPOINTMENT. The Trust and the Adviser constitute and appoint the
Custodian as custodian of all Securities and cash owned by or in the possession
of the Trust at any time during the period of this Agreement which are delivered
to the Custodian, provided that such Securities or cash at all times shall be
and remain the property of the Trust.
2.2 ACCEPTANCE. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as hereinafter set forth.
- 3 -
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
3.1 SEGREGATION. All Securities and non-cash property held by the
Custodian for the account of the Fund, except Securities maintained in a
Securities Depository or Book-Entry System, shall be physically segregated from
other Securities and non-cash property in the possession of the Custodian and
shall be identified as subject to this Agreement.
3.2 CUSTODY ACCOUNT. The Custodian shall open and maintain in its trust
department a custody account in the name of the Trust coupled with the name of
the Fund, subject only to Proper Instructions, in which the Custodian shall
enter and carry all Securities, cash and other assets of the Fund which are
delivered to it.
3.3 APPOINTMENT OF AGENTS. In its discretion, the Custodian may
appoint, and at any time remove, any domestic bank or trust company, which has
been approved by the Board of Trustees and is qualified to act as a custodian
under the 1940 Act, as sub-custodian to hold Securities and cash of the Fund and
to carry out such other provisions of this Agreement as it may determine, and
may also open and maintain one or more banking accounts with such a bank or
trust company (any such accounts to be in the name of the Custodian and subject
only to its draft or order), provided, however, that the appointment of any such
agent shall not relieve the Custodian of any of its obligations or liabilities
under this Agreement.
3.4 DELIVERY OF ASSETS TO CUSTODIAN. The Trust shall deliver, or cause
to be delivered, to the Custodian all of the Fund's Securities, cash and other
assets, including (a) all payments of income, payments of principal and capital
distributions received by the Fund with respect to such Securities, cash or
other assets owned by the Fund at any time during the period of this Agreement,
and (b) all cash received by the Fund for the issuance, at any time during such
period, of Shares. The Custodian shall not be responsible for such Securities,
cash or other assets until actually received by it.
3.5 SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. The Custodian may
deposit and/or maintain Securities of the Fund in a Securities Depository or
in a Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of Securities of the Fund in any Securities
Depository or Book-Entry System, the Trust shall deliver to
the Custodian a resolution of the Board of Trustees, certified
by an Officer, authorizing
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and instructing the Custodian on an on-going basis to deposit
in such Securities Depository or Book-Entry System all
Securities eligible for deposit therein and to make use of
such Securities Depository and Book- Entry System to the
extent possible and practical in connection with its
performance hereunder, including, without limitation, in
connection with settlements of purchases and sales of
Securities, loans of Securities, and deliveries and returns of
collateral consisting of Securities. So long as such
Securities Depository or Book-Entry System shall continue to
be employed for the deposit of Securities of the Fund, the
Trust shall annually re-adopt such resolution and delivery a
copy thereof, certified by an Officer, to the Custodian.
(b) Securities of the Fund kept in a Book-Entry System or
Securities Depository shall be kept in an account ("Depository
Account") of the Custodian in such Book- Entry System or
Securities Depository which includes only assets held by the
Custodian as a fiduciary, custodian or otherwise for
customers.
(c) The records of the Custodian and the Custodian's account on
the books of the Book-Entry System and Securities Depository
as the case may be, with respect to Securities of the Fund
maintained in a Book-Entry System or Securities Depository
shall, by book-entry or otherwise, identify such Securities as
belonging to the Fund.
(d) If Securities purchased by the Fund are to be held in a
Book-Entry System or Securities Depository, the
Custodian shall pay for such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that such Securities have been
transferred to the Depository Account, and (ii) the
making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of
the Fund. If Securities sold by the Fund are held in a
Book-Entry System or Securities Depository, the
Custodian shall transfer such Securities upon (i)
receipt of advice from the Book-Entry System or
Securities Depository that payment for such Securities
has been transferred to the Depository Account, and
(ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of the Fund.
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(e) Upon request, the Custodian shall provide the Trust with
copies of any report (obtained by the Custodian from a
Book-Entry System or Securities Depository in which Securities
of the Fund are kept) on the internal accounting controls and
procedures for safeguarding Securities deposited in such
Book-Entry System or Securities Depository.
(f) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to the Fund resulting (i)
from the use of a Book-Entry System or Securities
Depository by reason of any negligence or willful
misconduct on the part of Custodian or any sub-
custodian appointed pursuant to Section 3.3 above or
any of its or their employees, or (ii) from failure of
Custodian or any such sub-custodian to enforce
effectively such rights as it may have against a Book-
Entry System or Securities Depository. At its
election, the Trust shall be subrogated to the rights
of the Custodian with respect to any claim against a
Book-Entry System or Securities Depository or any other
person for any loss or damage to the Fund arising from
the use of such Book-Entry System or Securities
Depository, if and to the extent that the Fund has not
been made whole for any such loss or damage.
3.6 DISBURSEMENT OF MONEYS FROM CUSTODY ACCOUNTS. Upon
receipt of Proper Instructions, the Custodian shall disburse moneys from a
Fund Custody Account but only in the following cases:
(a) For the purchase of Securities for the Fund but only
upon compliance with Section 4.1 of this Agreement and
only (i) in the case of Securities (other than options
on Securities, futures contracts and options on futures
contracts), against the delivery to the Custodian (or
any sub-custodian appointed pursuant to Section 3.3
above) of such Securities registered as provided in
Section 3.9 below in proper form for transfer, or if
the purchase of such Securities is effected through a
Book-Entry System or Securities Depository, in
accordance with the conditions set forth in Section 3.5
above; (ii) in the case of options on Securities,
against delivery to the Custodian (or such sub-
custodian) of such receipts as are required by the
customs prevailing among dealers in such options; (iii)
in the case of futures contracts and options on futures
contracts, against delivery to the Custodian (or such
sub-custodian) of evidence of title thereto in favor of
the Trust or any nominee referred to in Section 3.9
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below; and (iv) in the case of repurchase or reverse
repurchase agreements entered into between the Trust and a
bank which is a member of the Federal Reserve System or
between the Trust and a primary dealer in U.S. Government
securities, against delivery of the purchased Securities
either in certificate form or through an entry crediting the
Custodian's account at a Book-Entry System or Securities
Depository for the account of the Fund with such Securities;
(b) In connection with the conversion, exchange or
surrender, as set forth in Section 3.7(f) below, of
Securities owned by the Fund;
(c) For the payment of any dividends or capital gain
distributions declared by the Fund;
(d) In payment of the redemption price of Shares as
provided in Section 5.1 below;
(e) For the payment of any expense or liability incurred by the
Trust, including but not limited to the following payments for
the account of a Fund: interest; taxes; investment advisory
fees; trustee fees and expenses; and other operating expenses
of a Fund, in all cases, whether or not such expenses are to
be in whole or in part capitalized or treated as deferred
expenses;
(f) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Trust;
(g) For transfer in accordance with the provisions of any
agreement among the Trust, the Custodian, and a futures
commission merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or
contract market (or any similar organization or
organizations) regarding account deposits in connection
with transactions by the Trust;
(h) For the funding of any uncertificated time deposit or other
interest-bearing account with any banking institutions
(including the Custodian), which deposit or account has a term
of one year or less; and
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(i) For any other proper purposes, but only upon receipt, in
addition to Proper Instructions, of a copy of a resolution of
the Board of Trustees, certified by an Officer, specifying the
amount and purpose of such payment, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
3.7 DELIVERY OF SECURITIES FROM FUND CUSTODY ACCOUNTS.
Upon receipt of Proper Instructions, the Custodian shall release
and deliver Securities from a Fund Custody Account but only in
the following cases:
(a) Upon the sale of Securities for the account of the Fund
but only against receipt of payment therefor in cash,
by certified or cashiers check or bank credit;
(b) In the case of a sale effected through a Book-Entry
System or Securities Depository, in accordance with the
provisions of Section 3.5 above;
(c) To an Offeror's depository agent in connection with tender or
other similar offers for Securities of the Fund; provided
that, in any such case, the cash or other consideration is to
be delivered to the Custodian;
(d) To the issuer thereof or its agent (i) for transfer
into the name of the Fund, the Custodian or any sub-
custodian appointed pursuant to Section 3.3 above, or
of any nominee or nominees of any of the foregoing, or
(ii) for exchange for a different number of
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new Securities are to be
delivered to the Custodian;
(e) To the broker selling Securities, for examination in
accordance with the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the issuer of such Securities, or
pursuant to provisions for conversion contained in such
Securities, or pursuant to any deposit agreement,
including surrender or receipt of underlying Securities
in connection with the issuance or cancellation of
depository receipts; provided that, in any such case,
the new Securities and cash, if any, are to be
delivered to the Custodian;
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<PAGE>
(g) Upon receipt of payment therefor pursuant to any
repurchase or reverse repurchase agreement entered into
by the Fund;
(h) In the case of warrants, rights or similar Securities, upon
the exercise thereof, provided that, in any such case, the new
Securities and cash, if any, are to be delivered to the
Custodian;
(i) For delivery in connection with any loans of Securities of the
Fund, but only against receipt of such collateral as the Trust
shall have specified to the Custodian in Proper Instructions;
(j) For delivery as security in connection with any borrowings by
the Trust on behalf of the Fund requiring a pledge of assets
by the Fund, but only against receipt by the Custodian of the
amounts borrowed;
(k) Pursuant to any authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Trust or the Fund;
(l) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer registered under the 1934 Act and a member of
the NASD, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange (or of any similar
organization or organizations) regarding escrow or
other arrangements in connection with transactions by
the Trust on behalf of the Fund;
(m) For delivery in accordance with the provisions of any
agreement among the Trust on behalf of the Fund, the
Custodian, and a futures commission merchant registered
under the Commodity Exchange Act, relating to
compliance with the rules of the Commodity Futures
Trading Commission and/or any contract market (or any
similar organization or organizations) regarding
account deposits in connection with transactions by the
Trust on behalf of the Fund; or
(n) For any other proper corporate purposes, but only upon
receipt, in addition to Proper Instructions, of a copy
of a resolution of the Board of Trustees, certified by
an Officer, specifying the Securities to be delivered,
setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to
whom delivery of such Securities shall be made.
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<PAGE>
3.8 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless
otherwise instructed by the Trust, the Custodian shall with
respect to all Securities held for the Fund:
(a) Subject to Section 7.4 below, collect on a timely basis all
income and other payments to which the Fund is entitled either
by law or pursuant to custom in the securities business;
(b) Present for payment and, subject to Section 7.4 below, collect
on a timely basis the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise
become payable;
(c) Endorse for collection, in the name of the Fund,
checks, drafts and other negotiable instruments;
(d) Surrender interim receipts or Securities in temporary
form for Securities in definitive form;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the federal income tax
laws or the laws or regulations of any other taxing
authority now or hereafter in effect, and prepare and
submit reports to the Internal Revenue Service ("IRS")
and to the Trust at such time, in such manner and
containing such information as is prescribed by the
IRS;
(f) Hold for the Fund, either directly or, with respect to
Securities held therein, through a Book-Entry System or
Securities Depository, all rights and similar securities
issued with respect to Securities of the Fund;
(g) Execute in the name of the Fund such ownership and
other certificates as may be required to obtain the
payment of income from Securities; and
(h) In general, and except as otherwise directed in Proper
Instructions, attend to all non-discretionary details in
connection with sale, exchange, substitution, purchase,
transfer and other dealings with Securities and assets of the
Fund.
3.9 REGISTRATION AND TRANSFER OF SECURITIES. All Securities held for
the Fund that are issued or issuable only in bearer form shall be held by the
Custodian in that form, provided that any such Securities shall be held in a
Book-Entry System for the account of the Trust on behalf of the Fund, if
eligible
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<PAGE>
therefor. All other Securities held for the Fund may be registered in the name
of the Trust on behalf of the Fund, the Custodian, or any sub-custodian
appointed pursuant to Section 3.3 above, or in the name of any nominee of any of
them, or in the name of a Book-Entry System, Securities Depository or any
nominee of either thereof; provided, however, that such Securities are held
specifically for the account of the Trust on behalf of the Fund. The Trust shall
furnish to the Custodian appropriate instructions to enable the Custodian to
hold or deliver in proper form for transfer, or to register in the name of any
of the nominees hereinabove referred to or in the name of a Book-Entry System or
Securities Depository, any Securities registered in the name of the Fund.
3.10 RECORDS. (a) The Custodian shall maintain complete and accurate
records with respect to Securities, cash or other property held for the Fund,
including (i) journals or other records of original entry containing an itemized
daily record in detail of all receipts and deliveries of Securities and all
receipts and disbursements of cash; (ii) ledgers (or other records) reflecting
(A) Securities in transfer, (B) Securities in physical possession, (C) monies
and Securities borrowed and monies and Securities loaned (together with a record
of the collateral therefor and substitutions of such collateral), (D) dividends
and interest received, and (E) dividends receivable and interest accrued; and
(iii) cancelled checks and bank records related thereto. The Custodian shall
keep such other books and records of the Trust as the Trust shall reasonably
request, or as may be required by the 1940 Act, including, but not limited to,
Section 31 of the 1940 Act and Rule 31a-1 and 31a-2 promulgated thereunder.
(b) All such books and records maintained by the Custodian shall (i) be
maintained in a form acceptable to the Trust and in compliance with rules and
regulations of the Securities and Exchange Commission, (ii) be the property of
the Trust and at all times during the regular business hours of the Custodian be
made available upon request for inspection by duly authorized officers,
employees or agents of the Trust and employees or agents of the Securities and
Exchange Commission, and (iii) if required to be maintained by Rule 31a-1 under
the 1940 Act, be preserved for the periods prescribed in Rule 31a-2 under the
1940 Act.
3.11 FUND REPORTS BY CUSTODIAN. The Custodian shall furnish the Trust
with a daily activity statement and a summary of all transfers to or from the
Fund Custody Account on the day following such transfers. At least monthly and
from time to time, the Custodian shall furnish the Trust with a detailed
statement of the Securities and moneys held for the Fund under the Agreement.
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<PAGE>
3.12 OTHER REPORTS BY CUSTODIAN. The Custodian shall provide the Trust
with such reports, as the Trust may reasonably request from time to time, on the
internal accounting controls and procedures for safeguarding Securities, which
are employed by the Custodian or any sub-custodian appointed pursuant to Section
3.3 above.
3.13 PROXIES AND OTHER MATERIALS. The Custodian shall cause all
proxies, if any, relating to Securities which are not registered in the name of
the Fund, to be promptly executed by the registered holder of such Securities,
without indication of the manner in which such proxies are to be voted, and
shall include all other proxy materials, if any, promptly deliver to the Trust
such proxies, all proxy soliciting materials and all notices to such Securities.
3.14 INFORMATION ON CORPORATE ACTIONS. Custodian will promptly notify
the Trust of corporate actions, limited to those Securities registered in
nominee name and to those Securities held at a Depository or sub-custodian
acting as agent for Custodian. Custodian will be responsible only if the notice
of such corporate actions is published by the Financial Daily Card Service, J.J.
Kenny Called Bond Service, DTC, or received by first class mail from the agent.
For market announcements not yet received and distributed by Custodian's
services, Trust will inform its custody representative with appropriate
instructions. Custodian will, upon receipt of Trust's response within the
required deadline, affect such action for receipt or payment for the Trust. For
those responses received after the deadline, Custodian will affect such action
for receipt or payment, subject to the limitations of the agent(s) affecting
such actions. Custodian will promptly notify Trust for put options only if the
notice is received by first class mail from the agent. The Trust will provide or
cause to be provided to Custodian all relevant information contained in the
prospectus for any Security which has unique put/option provisions and provide
Custodian with specific tender instructions at least ten Business Days prior to
the beginning date of the tender period.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
4.1 PURCHASE OF SECURITIES. Promptly upon each purchase of Securities
for the Fund, Written Instructions shall be delivered to the Custodian,
specifying (a) the name of the issuer or writer of such Securities, and the
title or other description thereof, (b) the number of shares, principal amount
(and accrued interest, if any) or other units purchased, (c) the date of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, and (f) the name of the person to whom such amount
is payable. The Custodian shall upon receipt of such Securities purchased by the
Fund pay out of the moneys held for the account of the Fund the total amount
specified in such
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Written Instructions to the person named therein. The Custodian shall not be
under any obligation to pay out moneys to cover the cost of a purchase of
Securities for the Fund, if in the Fund Custody Account there is insufficient
cash available to the Fund for which such purchase was made.
4.2 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES
PURCHASED. In any and every case where payment for the purchase of Securities
for the Fund is made by the Custodian in advance of receipt for the account of
the Fund of the Securities purchased but in the absence of specific Written or
Oral Instructions to so pay in advance, the Custodian shall be liable to the
Fund for such Securities to the same extent as if the Securities had been
received by the Custodian.
4.3 SALE OF SECURITIES. Promptly upon each sale of Securities by the
Fund, Written Instructions shall be delivered to the Custodian, specifying (a)
the name of the issuer or writer of such Securities, and the title or other
description thereof, ((b) the number of shares, principal amount (and accrued
interest, if any), or other units sold, (c) the dale of sale and settlement, (d)
the sale price per unit, (e) the total amount payable upon such sale, and (f)
the person to whom such Securities are to be delivered. Upon receipt of the
total amount payable to the Fund as specified in such Written Instructions, the
Custodian shall deliver such Securities to the person specified in such Written
Instructions. Subject to the foregoing, the Custodian may accept payment in such
form as shall be satisfactory to it, and may deliver Securities and arrange for
payment in accordance with the customs prevailing among dealers in Securities.
4.4 DELIVERY OF SECURITIES SOLD. Notwithstanding Section 4.3 above or
any other provision of this Agreement, the Custodian, when instructed to deliver
Securities against payment, shall be entitled, if in accordance with generally
accepted market practice, to deliver such Securities prior to actual receipt of
final payment therefor. In any such case, the Trust shall bear the risk that
final payment for such Securities may not be made or that such Securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and the custodian shall have no liability for any of the
foregoing.
4.5 PAYMENT FOR SECURITIES SOLD, ETC. In its sole discretion and from
time to time, the Custodian may credit the Fund Custody Account, prior to actual
receipt of final payment thereof, with (i) proceeds from the sale of Securities
which it has been instructed to delivery against payment, (ii) proceeds from the
redemption of Securities or other assets of the Fund, and (iii) income from
cash, Securities or other assets of the Fund. Any such credit shall be
conditional upon actual receipt
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by Custodian of final payment and may be reversed if final payment is not
actually received in full. The Custodian may, in its sole discretion and from
time to time, permit the Fund to use funds so credited to its Fund Custody
Account in anticipation of actual receipt of final payment. Any such funds shall
be repayable immediately upon demand made by the Custodian at any time prior to
the actual receipt of all final payments in anticipation of which funds were
credited to the Fund Custody Account.
4.6 ADVANCES BY CUSTODIAN FOR SETTLEMENT. The Custodian may, in its
sole discretion and from time to time, advance funds to the Trust to facilitate
the settlement of the Fund's transactions in its Fund Custody Account. Any such
advance shall be repayable immediately upon demand made by Custodian.
ARTICLE V
REDEMPTION OF TRUST SHARES
5.1 TRANSFER OF FUNDS. From such funds as may be available for the
purpose in the Fund Custody Account, and upon receipt of Proper Instructions
specifying that the funds are required to redeem Shares of the Fund, the
Custodian shall wire each amount specified in such Proper Instructions to or
through such bank as the Trust may designate with respect to such amount in such
Proper Instructions.
5.2 NO DUTY REGARDING PAYING BANKS. The Custodian shall not be under
any obligation to effect payment or distribution by any bank designated in
Proper Instructions given pursuant to Section 5.1 above of any amount paid by
the Custodian to such bank in accordance with such Proper Instructions.
ARTICLE VI
SEGREGATED ACCOUNTS
Upon receipt of Proper Instructions, the Custodian shall establish and
maintain a segregated account or accounts for and on behalf of the Fund, into
which account or accounts may be transferred cash and/or Securities, including
Securities maintained in a Depository Account,
(a) in accordance with the provisions of any agreement among the
Trust, the Custodian and a broker-dealer registered under the
1934 Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange
(or the
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Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Fund,
(b) for purposes of segregating cash or Securities in connection
with securities options purchased or written by the Fund or in
connection with financial futures contracts (or options
thereon) purchased or sold by the Fund,
(c) which constitute collateral for loans of Securities
made by the Fund,
(d) for purposes of compliance by the Trust with requirements
under the 1940 Act for the maintenance of segregated accounts
by registered investment companies in connection with reverse
repurchase agreements and when-issued, delayed delivery and
firm commitment transactions, and
(e) for other proper corporate purposes, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees, certified by an Officer,
setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate
purposes.
ARTICLE VII
CONCERNING THE CUSTODIAN
7.1 STANDARD OF CARE. The Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to the Trust for any loss, damage, cost, expense (including
attorneys' fees and disbursements), liability or claim unless such loss,
damages, cost, expense, liability or claim arises from negligence, bad faith or
willful misconduct on its part or on the part of any sub-custodian appointed
pursuant to Section 3.3 above. The Custodian shall be entitled to rely on and
may act upon advice of counsel on all matters, and shall be without liability
for any action reasonably taken or omitted pursuant to such advice. The
Custodian shall promptly notify the Trust of any action taken or omitted by the
Custodian pursuant to advice of counsel. The Custodian shall not be under any
obligation at any time to ascertain whether the Trust is in compliance with the
1940 Act, the regulations thereunder, the provisions of the Trust's charter
documents or bylaws, or its investment objectives and policies as then in
effect.
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<PAGE>
7.2 ACTUAL COLLECTION REQUIRED. The Custodian shall not be liable for,
or considered to be the custodian of, any cash belonging to the Trust or any
money represented by a check, draft or other instrument for the payment of
money, until the Custodian or its agents actually receive such cash or collect
on such instrument.
7.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
it is in the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of title
thereto received or delivered by it pursuant to this Agreement.
7.4 LIMITATION ON DUTY TO COLLECT. Custodian shall not be required to
enforce collection, by legal means or otherwise, of any money or property due
and payable with respect to Securities held for the Fund if such Securities are
in default or payment is not made after due demand or presentation.
7.5 RELIANCE UPON DOCUMENTS AND INSTRUCTIONS. The Custodian shall be
entitled to rely upon any certificate, notice or other instrument in writing
received by it and reasonably believed by it to be genuine. The Custodian shall
be entitled to rely upon any Oral Instructions and/or any Written Instructions
actually received by it pursuant to this Agreement.
7.6 EXPRESS DUTIES ONLY. The Custodian shall have no duties or
obligations whatsoever except such duties and obligations as are specifically
set forth in this Agreement, and no covenant or obligation shall be implied in
this Agreement against the Custodian.
7.7 COOPERATION. The Custodian shall cooperate with and supply
necessary information to the entity or entities appointed by the Trust to keep
the books of account of the Trust and/or compute the value of the assets of the
Fund. The Custodian shall take all such reasonable actions as the Trust may from
time to time request to enable the Trust to obtain, from year to year, favorable
opinions from the Trust's independent accountants with respect to the
Custodian's activities hereunder in connection with (a) the preparation of the
Trust's reports on Form N-1A and Form N-SAR and any other reports required by
the Securities and Exchange Commission, and (b) the fulfillment by the Trust of
any other requirements of the Securities and Exchange Commission.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION. The Trust shall indemnify and hold harmless the
Custodian and any sub-custodian appointed pursuant to Section 3.3 above, and any
nominee of the Custodian or of such sub-custodian from and against any loss,
damage, cost, expense (including attorneys' fees and disbursements), liability
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(including, without limitation, liability arising under the Securities Act of
1933, the 1934 Act, the 1940 Act, and any state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
Securities are registered in the name of any such nominee, or (b) from any
action or inaction by the Custodian or such sub-custodian (i) at the request or
direction of or in reliance on the advice of the Trust, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement or any sub-custody agreement with a sub-custodian appointed
pursuant to Section 3.3 above or, in the case of any such sub-custodian, from
the performance of its obligations under such custody agreement, provided that
neither the Custodian nor any such sub-custodian shall be indemnified and held
harmless from and against any such loss, damage, cost, expense, liability or
claim arising from the Custodian's or such sub-custodian's negligence, bad
faith, willful misconduct, or reckless disregard of its duties under this
Agreement.
8.2 INDEMNITY TO BE PROVIDED. If the Trust requests the Custodian to
take any action with respect to Securities, which may, in the opinion of the
Custodian, result in the Custodian or its nominee becoming liable for the
payment of money or incurring liability of some other form, the Custodian shall
not be required to take such action until the Trust shall have provided
indemnity therefor to the Custodian in an amount and form satisfactory to the
Custodian.
ARTICLE IX
FORCE MAJEURE
Neither the Custodian, the Trust nor the Adviser shall be liable for
any failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including, without limitation, acts of God; earthquakes;
fires; floods; wars; civil or military disturbances; sabotage; strikes;
epidemics; riots; power failures; computer failure and any such circumstances
beyond its reasonable control as may cause interruption, loss or malfunction of
utility, transportation, computer (hardware or software) or telephone
communication service; accidents; labor disputes, acts of civil or military
authority; governmental actions; or inability to obtain labor, material,
equipment or transportation; provided, however, that the Custodian in the event
of a failure or delay shall use its best efforts to ameliorate the effects of
any such failure or delay.
- 17 -
<PAGE>
ARTICLE X
EFFECTIVE PERIOD; TERMINATION
10.1 EFFECTIVE PERIOD. This Agreement shall become effective as
of the date first set forth above and shall continue in full force and effect
until terminated as hereinafter provided.
10.2 TERMINATION. Any party hereto may terminate this Agreement by
giving to the other parties a notice in writing specifying the date of such
termination, which shall be not less than sixty (60) days after the date of the
giving of such notice. If a successor custodian shall have been appointed by the
Board of Trustees, the Custodian shall, upon receipt of a notice of acceptance
by the successor custodian, on such specified date of termination (a) deliver
directly to the successor custodian all Securities (other than Securities held
in a Book-Entry System or Securities Depository) and cash then owned by the Fund
and held by the Custodian as custodian, and (b) transfer any Securities held in
a Book-Entry System or Securities Depository to an account of or for the benefit
of the Fund at the successor custodian, provided that the Adviser shall pay to
the Custodian, on behalf of the Fund, all fees, expenses and other amounts to
the payment or reimbursement of which it shall then be entitled. Upon such
delivery and transfer, the Custodian shall be relieved of all obligations under
this Agreement. The Trust may at any time immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for the Custodian
by regulatory authorities in the State of Ohio or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
10.3 FAILURE TO APPOINT SUCCESSOR CUSTODIAN. If a successor custodian
is not designated by the Trust on or before the date of termination specified
pursuant to Section 10.1 above, then the Custodian shall have the right to
deliver to a bank or trust company of its own selection, which is (a) a "Bank"
as defined in the 1940 Act, (b) has aggregate capital, surplus or undivided
profits as shown on its then most recent published report of not less than $25
million, and (c) is doing business in New York, New York, all Securities, cash
and other property held by Custodian under this Agreement and to transfer to an
account of or for the Fund at such bank or trust company all Securities of the
funds held in a Book-Entry System or Securities Depository. Upon such delivery
and transfer, such bank or trust company shall be the successor custodian under
this Agreement and the Custodian shall be relieved of all obligations under this
Agreement. If, after reasonable inquiry, Custodian cannot find a successor
custodian as contemplated in this Section 10.3, then Custodian shall have the
right to deliver to the Trust all Securities and cash then
- 18 -
<PAGE>
owned by the Trust and to transfer any Securities held in a Book- Entry System
or Securities Depository to an account of or for the Fund. Thereafter, the Trust
shall be deemed to be its own custodian with respect to the Fund and the
Custodian shall be relieved of all obligations under this Agreement.
ARTICLE XI
COMPENSATION OF CUSTODIAN
The Adviser shall compensate the Custodian as agreed upon from time to
time by the parties. The fees and other charges in effect on the date hereof and
applicable to the Fund are set forth in Exhibit B attached hereto.
ARTICLE XII
LIMITATION OF LIABILITY
The Trust is a business trust organized under the laws of the State of
Delaware and under an Agreement and Declaration of Trust, to which reference is
hereby made a copy of which is on file at the office of the Secretary of State
of Delaware as required by law, and to any and all amendments thereto so filed
or hereafter filed. The obligations of the Trust entered into in the name of the
Trust or on behalf thereof by any of the Trustees, officers, employees or agents
are made not individually, but in such capacities, and are not binding upon any
of the Trustees, officers, employees, agents or shareholders of the Trust
personally, but bind only the assets of the Trust as provided in the
above-mentioned Agreement and Declaration of Trust, and all persons dealing with
the Trust must look solely to the assets of the Trust for the enforcement of any
claims against the Trust.
ARTICLE XIII
NOTICES
Unless otherwise specified herein, all demands, notices, instructions,
and other communications to be given hereunder shall be in writing and shall be
sent or delivered to the recipient at the address set forth after its name
herein below:
TO THE TRUST OR TO THE ADVISER:
Interactive Research Advisers, Inc.
446 Martil Way
Milpitas, California 95035
Attn: Yakoub Billawala
Telephone: (408) 956-0567
Facsimile: (408) 956-1422
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<PAGE>
TO THE CUSTODIAN:
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attn: Area Manager - Trust Operations
Telephone: (513) 579-5300
Facsimile: (513) 579-4312
or at such other address as either party shall have provided to the other by
notice given in accordance with this Article XIII. Writing shall include
transmission by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
ARTICLE XIV
MISCELLANEOUS
14.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio.
14.2 REFERENCES TO CUSTODIAN. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for the Trust and such other printed matter
as merely identifies Custodian as custodian for the Trust. The Trust shall
submit printed matter requiring approval to Custodian in draft form, allowing
sufficient time for review by Custodian and its counsel prior to any deadline
for printing.
14.3 NO WAIVER. No failure by either party hereto to exercise and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
14.4 AMENDMENTS. This Agreement cannot be changed orally and no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
14.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
- 20 -
<PAGE>
14.6 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
14.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party hereto.
14.8 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provisions of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered in its name and on its behalf by its
representatives thereunto duly authorized, all as of the day and year first
above written.
ATTEST: INTERACTIVE INVESTMENTS
By:
Its:
ATTEST: INTERACTIVE RESEARCH ADVISERS, INC.
By:
Its:
ATTEST: THE FIFTH THIRD BANK
By:
Its:
- 21 -
<PAGE>
EXHIBIT A
TO THE CUSTODY AGREEMENT BETWEEN
INTERACTIVE INVESTMENTS, INTERACTIVE RESEARCH ADVISERS, INC.
AND THE FIFTH THIRD BANK
APRIL 7, 1997
AUTHORIZED PERSONS
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Fund Custody Accounts.
NAME SIGNATURE
Kendrick W. Kam /s/ Kendrick W. Kam
--------------------
Kevin M. Landis /s/ Kevin M. Landis
--------------------
M. Kathleen Leugers /s/ M. Kathleen Leugers
--------------------
Robert G. Dorsey /s/ Robert G. Dorsey
--------------------
John F. Splain /s/ John F. Splain
--------------------
Mark J. Seger /s/ Mark J. Seger
--------------------
- 22 -
<PAGE>
<TABLE>
<CAPTION>
FIFTH THIRD BANK
MUTUAL FUND CUSTODY FEE SCHEDULE
PER UNIT FEE
<S> <C>
I Basic Per Account Fee
Annual Asset Based Fees
Under $25 Million 1 bp
$25 - $100 Million .75 bp
$100 - $200 Million .5 bp
Over $200 Million .25 bp
Minimum $2,400.00
II Security Transaction Fees
DTC/Fed Eligible $ 9.00
Physical 25.00
Amortized Securities 25.00
Options 25.00
Mutual Funds 15.00
Foreign - Euroclear & Cedel 50.00
Foreign - Other TBD
III Systems
Automated Securities Workstation $150.00
$200.00 Initial Setup
Mainframe-To-Mainframe 150.00
$200.00 Initial Setup
ACCESS Single Account 50.00
Multiple Accounts 100.00
IV. Miscellaneous Fees
P & I Collection
(on amortized securities) $ 5.00
Per additional issue for repo 5.00
collateral
Voluntary Corporate Actions 25.00
Wire Transfers (In/Out) 7.00
Check Requests 6.00
Automated Asset Reconciliation 25.00
Escrow Receipt 5.00
Special Services - per hr. fee 75.00
Overnight Packages 8.00
Other TBD
</TABLE>
The above fees may not be increased for a period of five years from the
effective date of this Agreement. These fees will be discounted by 15% until
January 1, 1998.
- 23 -
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made this 1st day of February, 1997,
by and between INTERACTIVE INVESTMENTS, a Delaware business trust (the
"Fund"), and INTERACTIVE RESEARCH ADVISERS, INC., a California corporation
(the "Administrator").
WITNESSETH:
WHEREAS, the Fund is engaged in business as a non-diversified
open-end management investment company and is to be registered as such under
the Investment Company Act of 1940, as amended (the "Act"); and
WHEREAS, the Administrator is engaged in the business of
rendering administrative and supervisory services to investment
companies; and
WHEREAS, the Fund desires to retain the Administrator to render
supervisory and corporate administrative services to the Fund in the manner
and on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the terms and
provisions hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF THE ADMINISTRATOR. The Fund hereby employs the
Administrator to administer the affairs of the Fund subject to the direction
of the Board of Trustees and the officers of the Fund, for the period and on
the terms hereinafter set forth. The Administrator hereby accepts such
employment and agrees during such period to render the services and to assume
the obligations herein set forth for the compensation herein provided. The
Administrator shall for all purposes herein be deemed to be an independent
contractor and, except as expressly provided or authorized (whether herein or
otherwise), shall have no authority to act for or represent the Fund in any
way or otherwise be deemed an agent of the Fund.
2. OBLIGATIONS OF THE ADMINISTRATOR. The Administrator, at its
expense, shall supply the Board of Trustees and officers of the Fund with all
statistical information and reports reasonably required by it and reasonably
available to the Administrator and furnish the Fund with office facilities,
including space, furniture and equipment and all personnel reasonably
necessary for the operation of the Fund. The Administrator shall oversee the
maintenance of all books and records with respect to the Fund's securities
transactions and the Fund's book of account in accordance with all applicable
1
<PAGE>
federal and state laws and regulations. In compliance with the requirements of
Rule 31a-3 under the Act, the Administrator hereby agrees that any records
which it maintains for the Fund are the property of the Fund and further
agrees to surrender promptly to the Fund any of such records upon the Fund's
request. The Administrator further agrees to arrange for the preservation of
the records required to be maintained by Rule 31a-1 under the Act for the
periods prescribed by Rule 31a-2 under the Act.
3. EXPENSES OF THE FUND. The Administrator assumes and shall pay for
maintaining its staff and personnel, and shall at its own expense provide the
equipment, office space and facilities necessary to perform its obligations
under this Agreement. In addition, the Administrator assumes and shall pay all
other expenses of the Fund, including, without limitation: insurance, taxes,
expenses for legal and auditing services, costs of printing proxies, stock
certificates and prospectuses (except to the extent paid by the investment
adviser pursuant to the Investment Advisory and Management Agreement by and
between the parties hereto dated March 29, 1994), the insurance required by
Section 17(g) of the Act, charges of a custodian for safekeeping of the Fund's
securities, Securities and Exchange Commission fees, expense of registering
the shares of the Fund under Federal and state securities laws, fees and
expenses of trustees who are not interested persons of the Fund, accounting
and pricing costs (including the daily calculation of net asset value),
interest, brokerage costs, litigation and other extraordinary or non-recurring
expenses, and other expenses properly payable to the Fund.
4. COMPENSATION. As compensation for the services rendered, the
facilities furnished and the expenses assumed by the Administrator, the Fund
shall pay to the Administrator at the end of each calendar month a fee at the
annual rate of .95% of the Fund's average daily net assets, as determined and
computed in accordance with the description of the method of determination of
net asset value contained in the Fund's Prospectus and Statement of Additional
Information.
5. EXPENSE LIMITATION. If, in any fiscal year, the aggregate expenses
of the Fund (including advisory, administrative and transfer agency fees, but
excluding interest, local, state and federal taxes), exceed the expense
limitations of any state having jurisdiction over the Fund, then the fee paid
to the Administrator hereunder will be reduced PRO RATA (but not below zero)
to the extent required by such expense limitation. The Administrator will bear
its PRO RATA share of any such fee reduction based on the percentage that the
Administrator's fee bears to the total administrative and advisory fees paid
by the Fund to the Administrator and to the investment adviser of the Fund,
for the month and year in which this Agreement becomes
2
<PAGE>
effective or terminates, there shall be an appropriate proration of said fee
reduction based on the number of days that the Agreement is in effect during
such month and year, respectively.
6. ACTIVITIES OF THE ADMINISTRATOR. The services of the Administrator
to the Fund hereunder are not to be deemed exclusive and the Administrator
shall be free to render similar services to others. Subject to, and in
accordance with the Declaration of Trust and By-Laws of the Fund and Section
10(a) of the Act, it is understood that trustees, officers, agents and
beneficial holders of the Fund are or may be "interested persons" (as defined
in the Act) of the Administrator or its affiliates, and that directors,
officers, agents or shareholders of the Administrator or its affiliates are or
may be "interested persons" of the Fund as beneficial holders or otherwise.
7. LIABILITIES OF THE ADMINISTRATOR. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations
or duties hereunder on the part of the Administrator, the Administrator shall
not be liable to the Fund or to any beneficial holder of the Fund for any act
or omission in the course of, or in connection with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
8. RENEWAL. The term of this Agreement shall commence on the date
hereof and shall continue in effect until March 29, 1998 and is renewable
thereafter for successive one year periods if such continuance is approved at
least annually by (i) the Fund's Board of Trustees, or by a vote of the
holders of a majority of the outstanding voting securities of the Fund, and
(ii) a majority of the Trustees who are not parties to the Agreement or
"interested persons" (as defined in the Act) of any such party cast in person
at a meeting called for the purpose of voting on such approval.
9. TERMINATION. This Agreement (i) may be terminated at any time
without the payment of any penalty either by vote of the Board of Trustees of
the Fund, or by vote of a majority of the outstanding voting securities of the
Fund, on 60 days written notice to the Administrator and (ii) may be
terminated at any time by the Administrator on 60 days written notice to the
Fund.
10. AMENDMENTS. This Agreement may be amended by the parties only if
such amendment is specifically approved by (i) the Board of Trustees of the
Fund, or by a vote of the holders of a majority of the outstanding voting
securities of the Fund, and (ii) a majority of those trustees of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
3
<PAGE>
11. NOTICES. Any and all notices or other communications required or
permitted under this Agreement shall be in writing and shall be deemed
sufficient when mailed by United States certified mail, return receipt
requested, or delivered in person against receipt to the party to whom it is
to be given, at the address of such party set forth below:
If to the Administrator:
Interactive Research Advisers, Inc.
446 Martil Way
Milpitas, CA 95035
If to the Fund:
Interactive Investments
446 Martil Way
Milpitas, CA 95035
or to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 11.
12. SEVERABILITY. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect and this Agreement shall be construed in all respects as if
such invalid, illegal or unenforceable provision were omitted.
13. HEADINGS. Any paragraph headings in this Agreement are for
convenience of reference only, and shall be given no effect in the construction
and interpretation of this Agreement or any provisions thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the date first written above,
INTERACTIVE INVESTMENTS
By: /S/ KEVIN M. LANDIS
----------------------------
Kevin M. Landis, President
INTERACTIVE RESEARCH
ADVISERS, INC.
By: /S/ KENDRICK M. KAM
---------------------------
Kendrick M. Kam, President
4
TRANSFER, DIVIDEND DISBURSING, SHAREHOLDER SERVICE
AND PLAN AGENCY AGREEMENT
AGREEMENT dated as of February 28, 1997 between Interactive
Investments (the "Trust"), a Delaware business trust, Interactive
Research Advisers, Inc. (the "Adviser"), a California
corporation, and Countrywide Fund Services, Inc. ("Countrywide"),
an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is responsible for retaining and compensating
agents to provide non-advisory services to the Trust pursuant to the terms of an
Administration Agreement; and
WHEREAS, the Adviser wishes to employ the services of Countrywide to
serve as the Trust's transfer, dividend disbursing, shareholder service and plan
agent; and
WHEREAS, Countrywide wishes to provide such services under
the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. APPOINTMENT.
Countrywide is hereby appointed as agent to perform those
services described in this Agreement for the Trust. Countrywide shall act under
such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust will furnish from time to time the following
documents:
A. Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities
and Exchange Commission (the "SEC") and amendments
thereof;
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to
Countrywide;
- 1 -
<PAGE>
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving
such forms;
F. Such other certificates, documents or opinions which
Countrywide may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in
effect;
H. Copies of all Investment Advisory Agreements in effect;
and
I. Copies of all documents relating to special investment
or withdrawal plans which are offered or may be offered
in the future by the Trust and for which Countrywide is
to act as plan agent.
3. COUNTRYWIDE TO RECORD SHARES.
Countrywide shall record the issuance of shares of the Trust
and maintain pursuant to applicable rules of the SEC a record of the total
number of shares of the Trust which are authorized, issued and outstanding,
based upon data provided to it by the Trust. Countrywide shall also provide the
Trust on a regular basis or upon reasonable request the total number of shares
which are authorized, issued and outstanding, but shall have no obligation when
recording the issuance of the Trust's shares, except as otherwise set forth
herein, to monitor the issuance of such shares or to take cognizance of any laws
relating to the issue or sale of such shares, which functions shall be the sole
responsibility of the Trust.
4. COUNTRYWIDE TO VALIDATE TRANSFERS.
Upon receipt of a proper request for transfer and upon
surrender to Countrywide of certificates, if any, in proper form for transfer,
Countrywide shall approve such transfer and shall take all necessary steps to
effectuate the transfer as indicated in the transfer request. Upon approval of
the transfer, Countrywide shall notify the Trust in writing of each such
transaction and shall make appropriate entries on the shareholder records
maintained by Countrywide.
5. SHARE CERTIFICATES.
If the Trust authorizes the issuance of share certificates and
an investor requests a share certificate, Countrywide will countersign and mail,
by insured first class mail, a share certificate to the investor at his address
as set forth on the transfer books of the Trust, subject to any other
instructions for delivery of certificates representing newly purchased shares
and subject to the limitation that no
- 2 -
<PAGE>
certificates representing newly purchased shares shall be mailed to the investor
until the cash purchase price of such shares has been collected and credited to
the account of the Trust maintained by the Custodian. The Trust shall supply
Countrywide with a sufficient supply of blank share certificates and from time
to time shall renew such supply upon request of Countrywide. Such blank share
certificates shall be properly signed, manually or, if authorized by the Trust,
by facsimile; and notwithstanding the death, resignation or removal of any
officers of the Trust authorized to sign share certificates, Countrywide may
continue to countersign certificates which bear the manual or facsimile
signature of such officer until otherwise directed by the Trust. In case of the
alleged loss or destruction of any share certificate, no new certificates shall
be issued in lieu thereof, unless there shall first be furnished an appropriate
bond satisfactory to Countrywide and the Trust, and issued by a surety company
satisfactory to Countrywide and the Trust.
6. RECEIPT OF FUNDS.
Upon receipt of any check or other instrument drawn or
endorsed to it as agent for, or identified as being for the account of, the
Trust, Countrywide shall stamp the check or instrument with the date of receipt,
determine the amount thereof due the Trust and shall forthwith process the same
for collection. Upon receipt of notification of receipt of funds eligible for
share purchases in accordance with the Trust's then current prospectus and
statement of additional information, Countrywide shall notify the Trust, at the
close of each business day, in writing of the amount of said funds credited to
the Trust and deposited in its account with the Custodian.
7. PURCHASE ORDERS.
Upon receipt of an order for the purchase of shares of the
Trust, accompanied by sufficient information to enable Countrywide to establish
a shareholder account, Countrywide shall, as of the next determination of net
asset value after receipt of such order in accordance with the Trust's then
current prospectus and statement of additional information, compute the number
of shares due to the shareholder, credit the share account of the shareholder,
subject to collection of the funds, with the number of shares so purchased,
shall notify the Trust in writing or by computer report at the close of each
business day of such transactions and shall mail to the shareholder and/or
dealer of record a notice of such credit when requested to do so by the Trust.
8. RETURNED CHECKS.
In the event that Countrywide is notified by the Trust's
Custodian that any check or other order for the payment of money is returned
unpaid for any reason, Countrywide will:
- 3 -
<PAGE>
A. Give prompt notification to the Trust and the
Underwriter of the non-payment of said check;
B. In the absence of other instructions from the Trust,
take such steps as may be necessary to redeem any shares purchased on the basis
of such returned check and cause the proceeds of such redemption plus any
dividends declared with respect to such shares to be credited to the account
of the Trust and to request the Trust's Custodian to forward such returned
check to the person who originally submitted the check; and
C. Notify the Trust of such actions and correct the
Trust's records maintained by Countrywide pursuant to this
Agreement.
9. SALES CHARGE.
In computing the number of shares to credit to the account of
a shareholder, Countrywide will calculate the total of the applicable sales
charges, if any, with respect to each purchase as set forth in the Trust's
current prospectus and statement of additional information and in accordance
with any notification filed with respect to combined and accumulated purchases.
Countrywide will also determine the portion of each sales charge payable to the
dealer of record participating in the sale in accordance with such schedules as
are from time to time delivered by the Trust to Countrywide; provided, however,
Countrywide shall have no liability hereunder arising from the incorrect
selection by Countrywide of the gross rate of sales charges except that this
exculpation shall not apply in the event the rate is specified by the Trust and
Countrywide fails to select the rate specified.
10. DIVIDENDS AND DISTRIBUTIONS.
The Trust shall furnish Countrywide with appropriate evidence
of trustee action authorizing the declaration of dividends and other
distributions. Countrywide shall establish procedures in accordance with the
Trust's then current prospectus and statement of additional information and with
other authorized actions of the Trust's Board of Trustees under which it will
have available from the Custodian or the Trust any required information for each
dividend and other distribution. After deducting any amount required to be
withheld by any applicable laws, Countrywide shall, as agent for each
shareholder who so requests, invest the dividends and other distributions in
full and fractional shares in accordance with the Trust's then current
prospectus and statement of additional information. If a shareholder has elected
to receive dividends or other distributions in cash, then Countrywide shall
disburse dividends to shareholders of record in accordance with the Trust's then
current prospectus and statement of additional information.
- 4 -
<PAGE>
Countrywide shall, on or before the mailing date of such checks, notify the
Trust and the Custodian of the estimated amount of cash required to pay such
dividend or distribution, and the Trust shall instruct the Custodian to make
available sufficient funds therefor in the appropriate account of the Trust.
Countrywide shall mail to the shareholders periodic statements, as requested by
the Trust, showing the number of full and fractional shares and the net asset
value per share of shares so credited. When requested by the Trust, Countrywide
shall prepare and file with the Internal Revenue Service, and when required,
shall address and mail to shareholders, such returns and information relating to
dividends and distributions paid by the Trust as are required to be so prepared,
filed and mailed by applicable laws, rules and regulations.
11. UNCLAIMED DIVIDENDS AND UNCLAIMED REDEMPTION PROCEEDS.
Countrywide shall, at least annually, furnish in writing to
the Trust the names and addresses, as shown in the shareholder accounts
maintained by Countrywide, of all shareholders for which there are, as of the
end of the calendar year, dividends, distributions or redemption proceeds for
which checks or share certificates mailed in payment of distributions have been
returned. Countrywide shall use its best efforts to contact the shareholders
affected and to follow any other written instructions received from the Trust
concerning the disposition of any such unclaimed dividends, distributions or
redemption proceeds.
12. REDEMPTIONS AND EXCHANGES.
A. Countrywide shall process, in accordance with the Trust's
then current prospectus and statement of additional information, each order for
the redemption of shares accepted by Countrywide. Upon its approval of such
redemption transactions, Countrywide, if requested by the Trust, shall mail to
the shareholder and/or dealer of record a confirmation showing trade date,
number of full and fractional shares redeemed, the price per share and the total
redemption proceeds. For each such redemption, Countrywide shall either: (a)
prepare checks in the appropriate amounts for approval and verification by the
Trust and signature by an authorized officer of Countrywide and mail the checks
to the appropriate person, or (b) in the event redemption proceeds are to be
wired through the Federal Reserve Wire System or by bank wire, cause such
proceeds to be wired in federal funds to the bank account designated by the
shareholder, or (c) effectuate such other redemption procedures which are
authorized by the Trust's Board of Trustees or its then current prospectus and
statement of additional information. The requirements as to instruments of
transfer and other documentation, the applicable redemption price and the time
of payment shall be as provided in the then current prospectus and statement of
additional information, subject to such supplemental instructions as may be
furnished by the Trust and accepted by Countrywide. If Countrywide or the Trust
determines that a
- 5 -
<PAGE>
request for redemption does not comply with the requirements for redemptions,
Countrywide shall promptly notify the shareholder indicating the reason
therefor.
B. If shares of the Trust are eligible for exchange with
shares of any other investment company, Countrywide, in accordance with the then
current prospectus and statement of additional information and exchange rules of
the Trust and such other investment company, or such other investment company's
transfer agent, shall review and approve all exchange requests and shall, on
behalf of the Trust's shareholders, process such approved exchange requests.
C. Countrywide shall notify the Trust and the Custodian on
each business day of the amount of cash required to meet payments made pursuant
to the provisions of this Paragraph 12, and, on the basis of such notice, the
Trust shall instruct the Custodian to make available from time to time
sufficient funds therefor in the appropriate account of the Trust. Procedures
for effecting redemption orders accepted from shareholders or dealers of record
by telephone or other methods shall be established by mutual agreement between
Countrywide and the Trust consistent with the Trust's then current prospectus
and statement of additional information.
D. The authority of Countrywide to perform its
responsibilities under Paragraph 7, Paragraph 10, and this Paragraph 12 shall be
suspended with respect to any series of the Trust upon receipt of notification
by it of the suspension of the determination of such series' net asset value.
13. AUTOMATIC WITHDRAWAL PLANS.
Countrywide will process automatic withdrawal orders pursuant
to the provisions of the withdrawal plans duly executed by shareholders and the
current prospectus and statement of additional information of the Trust.
Payments upon such withdrawal order shall be made by Countrywide from the
appropriate account maintained by the Trust with the Custodian on approximately
the last business day of each month in which a payment has been requested, and
Countrywide will withdraw from a shareholder's account and present for
repurchase or redemption as many shares as shall be sufficient to make such
withdrawal payment pursuant to the provisions of the shareholder's withdrawal
plan and the current prospectus and statement of additional information of the
Trust. From time to time on new automatic withdrawal plans a check for payment
date already past may be issued upon request by the shareholder.
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14. LETTERS OF INTENT.
Countrywide will process such letters of intent for investing
in shares of the Trust as are provided for in the Trust's current prospectus and
statement of additional information.
15. WIRE-ORDER PURCHASES.
Countrywide will send written confirmations to the dealers of
record containing all details of the wire-order purchases placed by each such
dealer by the close of business on the business day following receipt of such
orders by Countrywide. Upon receipt of any check drawn or endorsed to the Trust
(or Countrywide, as agent) or otherwise identified as being payment of an
outstanding wire-order, Countrywide will stamp said check with the date of its
receipt and deposit the amount represented by such check to Countrywide's
deposit accounts maintained with the Custodian. Countrywide will compute the
respective portions of such deposit which represent the sales charge and the net
asset value of the shares so purchased, will cause the Custodian to transfer
federal funds in an amount equal to the net asset value of the shares so
purchased to the Trust's account with the Custodian, and will notify the Trust
and the Underwriter before noon of each business day of the total amount
deposited in the Trust's deposit accounts, and in the event that payment for a
purchase order is not received by Countrywide or the Custodian on the tenth
business day following receipt of the order, prepare an NASD "notice of failure
of dealer to make payment."
16. OTHER PLANS.
Countrywide will process such accumulation plans, group
programs and other plans or programs for investing in shares of the Trust as are
now provided for in the Trust's current prospectus and statement of additional
information and will act as plan agent for shareholders pursuant to the terms of
such plans and programs duly executed by such shareholders.
17. RECORDKEEPING AND OTHER INFORMATION.
Countrywide shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
contract with the Adviser or the Trust. All such records shall be the property
of the Trust at all times and shall be available for inspection and use by the
Trust. Where applicable, such records shall be maintained by Countrywide for the
periods and in
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<PAGE>
the places required by Rule 31a-2 under the 1940 Act. The retention of such
records shall be at the expense of the Adviser. Countrywide shall make available
during regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust, the
Adviser, or any regulatory agency having authority over the Trust.
18. SHAREHOLDER RECORDS.
Countrywide shall maintain records for each shareholder
account showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record, if any;
C. Number of shares held of each series;
D. Historical information regarding the account of each
shareholder, including dividends and distributions in
cash or invested in shares;
E. Information with respect to the source of all dividends
and distributions allocated among income, realized
short-term gains and realized long-term gains;
F. Any instructions from a shareholder including all forms
furnished by the Trust and executed by a shareholder
with respect to (i) dividend or distribution elections
and (ii) elections with respect to payment options in
connection with the redemption of shares;
G. Any correspondence relating to the current maintenance
of a shareholder's account;
H. Certificate numbers and denominations for any
shareholder holding certificates;
I. Any stop or restraining order placed against a
shareholder's account;
J. Information with respect to withholding in the case of
a foreign account or any other account for which
withholding is required by the Internal Revenue Code of
1986, as amended; and
K. Any information required in order for Countrywide to
perform the calculations contemplated under this
Agreement.
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<PAGE>
19. TAX RETURNS AND REPORTS.
Countrywide will prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies and, if required,
mail to shareholders of the Trust such returns for reporting dividends and
distributions paid by the Trust as are required to be so prepared, filed and
mailed and shall withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and regulations.
20. OTHER INFORMATION TO THE TRUST.
Subject to such instructions, verification and approval of the
Custodian and the Trust as shall be required by any agreement or applicable law,
Countrywide will also maintain such records as shall be necessary to furnish to
the Trust the following: annual shareholder meeting lists, proxy lists and
mailing materials, shareholder reports and confirmations and checks for
disbursing redemption proceeds, dividends and other distributions or expense
disbursements.
21. ACCESS TO SHAREHOLDER INFORMATION.
Upon request, Countrywide shall arrange for the Trust's
investment advisers to have direct access to shareholder information contained
in Countrywide's computer system, including account balances, performance
information and such other information which is available to Countrywide with
respect to shareholder accounts.
22. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
23. SHAREHOLDER SERVICE AND CORRESPONDENCE.
Countrywide will provide and maintain adequate personnel,
records and equipment to receive and answer all shareholder and dealer inquiries
relating to account status, share purchases, redemptions and exchanges and other
investment plans available to Trust shareholders. Countrywide will answer
written correspondence from shareholders relating to their share accounts and
such other written or oral inquiries as may from time to time be mutually agreed
upon, and Countrywide will notify the Trust of any correspondence or inquiries
which may require an answer from the Trust.
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<PAGE>
24. PROXIES.
Countrywide shall assist the Trust in the mailing of proxy
cards and other material in connection with shareholder meetings of the Trust,
shall receive, examine and tabulate returned proxies and shall, if requested by
the Trust, provide at least one inspector of election to attend and participate
as required by law in shareholder meetings of the Trust.
25. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
26. COMPENSATION.
For the performance of Countrywide's obligations under this
Agreement, the Adviser shall pay Countrywide, on the first business day
following the end of each month, a monthly fee in accordance with the schedule
attached hereto as Schedule A. The Adviser shall promptly reimburse Countrywide
for any out-of-pocket expenses and advances which are to be paid by the Adviser
in accordance with Paragraph 27.
27. EXPENSES.
Countrywide shall furnish, at its expense and without cost to
the Trust (i) the services of its personnel to the extent that such services are
required to carry out its obligations under this Agreement and (ii) use of data
processing equipment. All costs and expenses not expressly assumed by
Countrywide under this Paragraph 27 shall be paid by the Adviser, including, but
not limited to, costs and expenses of officers and employees of Countrywide in
attending meetings of the Board of Trustees and shareholders of the Trust, as
well as costs and expenses for postage, envelopes, checks, drafts, continuous
forms, reports, communications, statements and other materials, telephone,
telegraph and remote transmission lines, use of outside pricing services, use of
outside mailing firms, necessary outside record storage, media for storage of
records (e.g., microfilm, microfiche, computer tapes), printing, confirmations
and any other shareholder correspondence and any and all assessments, taxes or
levies assessed on Countrywide for services provided under this Agreement.
Postage for mailings of dividends, proxies, reports and other mailings to all
shareholders shall be advanced to Countrywide three business days prior to the
mailing date of such materials.
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<PAGE>
28. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require Countrywide to perform any
services for the Trust or the Adviser which services could cause Countrywide to
be deemed an "investment advisor" of the Trust within the meaning of Section
2(a)(20) of the 1940 Act or to supersede or contravene the Trust's prospectus or
statement of additional information or any provisions of the 1940 Act and the
rules thereunder. Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by Countrywide, the Trust assumes
full responsibility for complying with all applicable requirements of the 1940
Act, the Securities Act of 1933, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
29. REFERENCES TO COUNTRYWIDE.
The Trust or the Adviser shall not circulate any printed
matter which contains any reference to Countrywide without the prior written
approval of Countrywide, excepting solely such printed matter as merely
identifies Countrywide as Administrative Services Agent, Transfer, Shareholder
Servicing and Dividend Disbursing Agent and Accounting Services Agent. The Trust
or the Adviser will submit printed matter requiring approval to Countrywide in
draft form, allowing sufficient time for review by Countrywide and its counsel
prior to any deadline for printing.
30. EQUIPMENT FAILURES.
Countrywide shall take all steps necessary to minimize or
avoid service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. Countrywide
shall have no liability with respect to equipment failures beyond its control.
31. INDEMNIFICATION OF COUNTRYWIDE.
A. Countrywide may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust or the Adviser in connection with, any error of judgment, mistake of
law, any act or omission connected with or arising out of any services rendered
under or payments made pursuant to this Agreement or any other matter to which
this Agreement relates, except by reason of willful misfeasance, bad faith or
gross negligence on the part of any such persons in the
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<PAGE>
performance of the duties of Countrywide under this Agreement or by reason of
reckless disregard by any of such persons of the obligations and duties of
Countrywide under this Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust and
the Adviser shall each indemnify and hold harmless Countrywide, its directors,
officers, employees, shareholders, agents, control persons and affiliates from
and against any and all claims, demands, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which Countrywide may
sustain or incur or which may be asserted against Countrywide by any person by
reason of, or as a result of: (i) any action taken or omitted to be taken by
Countrywide in good faith in reliance upon any certificate, instrument, order or
share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action taken or omitted to be taken by Countrywide in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
32. TERMINATION
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by Countrywide, (2) by the Adviser, (3) by
vote, cast in person at a meeting called for the purpose, of a majority of the
Trust's trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, and (4) by vote of a majority of the
Trust's Board of Trustees or a majority of the Trust's outstanding voting
securities.
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<PAGE>
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor. Upon termination of this
Agreement, the Adviser shall pay to Countrywide such compensation as may be due
as of the date of such termination, and shall likewise reimburse Countrywide for
any out-of-pocket expenses and disbursements reasonably incurred by Countrywide
to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust or by the Adviser by written
notice to Countrywide, Countrywide shall, promptly upon such termination and at
the expense of the Adviser, transfer all records maintained by Countrywide under
this Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from Countrywide's
cognizant personnel in the establishment of books, records and other data by
such successor.
33. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
34. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
35. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
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<PAGE>
36. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the SEC issued pursuant to said 1940 Act. In addition, where the
effect of a requirement of the 1940 Act, reflected in any provision of this
Agreement, is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
37. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust Interactive Investments
or the Adviser: 101 Park Center Plaza, Suite 1300
San Jose, California 95113
Attention: Yakoub Billawala
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 37. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
38. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
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<PAGE>
39. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
40. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
41. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
42. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
INTERACTIVE INVESTMENTS
By:
Its: President
INTERACTIVE RESEARCH ADVISERS, INC.
By:
Its: President
COUNTRYWIDE FUND SERVICES, INC.
By:
Its: President
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<PAGE>
Schedule A
COMPENSATION
Services FEE
As Transfer Agent and Shareholder (Per Account)
Servicing Agent:
Technology Value Fund Payable monthly at
rate of $16.00/year;
subject to a minimum
of $1,500 per month
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ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated as of February 28, 1997 between Interactive
Investments, a Delaware business trust (the "Trust"), Interactive
Research Advisers, Inc. (the "Adviser"), a California
corporation, and Countrywide Fund Services, Inc. ("Countrywide"),
an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is responsible for retaining and compensating
agents to provide non-advisory services to the Trust pursuant to the terms of an
Administration Agreement; and
WHEREAS, the Adviser wishes to employ the services of
Countrywide to serve as the Trust's administrative services
agent; and
WHEREAS, Countrywide wishes to provide such services under
the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. APPOINTMENT.
Countrywide is hereby appointed as agent to perform those
services described in this Agreement for the Trust. Countrywide shall act under
such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. DOCUMENTATION.
The Trust will furnish from time to time the following
documents:
A. Each resolution of the Board of Trustees of the Trust
authorizing the original issue of its shares;
B. Each Registration Statement filed with the Securities
and Exchange Commission (the "SEC") and amendments
thereof;
C. A certified copy of each amendment to the Agreement and
Declaration of Trust and the Bylaws of the Trust;
D. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions to
Countrywide;
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<PAGE>
E. Specimens of all new forms of share certificates
accompanied by Board of Trustees' resolutions approving
such forms;
F. Such other certificates, documents or opinions which
Countrywide may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
G. Copies of all Underwriting and Dealer Agreements in
effect;
H. Copies of all Investment Advisory Agreements in effect;
and
I. Copies of all documents relating to special investment
or withdrawal plans which are offered or may be offered
in the future by the Trust and for which Countrywide is
to act as plan agent.
3. TRUST ADMINISTRATION.
Subject to the direction and control of the Adviser and the
Trust, Countrywide shall supervise the Trust's business affairs not otherwise
supervised by other agents of the Trust. To the extent not otherwise the primary
responsibility of, or provided by, other agents of the Adviser or the Trust,
Countrywide shall supply (i) office facilities, (ii) internal auditing and
regulatory services, and (iii) executive and administrative services.
Countrywide shall coordinate the preparation of (i) tax returns, (ii) reports to
shareholders of the Trust, (iii) reports to and filings with the SEC and state
securities authorities including preliminary and definitive proxy materials,
post-effective amendments to the Trust's registration statement, and the Trust's
Form N-SAR, and (iv) necessary materials for Board of Trustees' meetings unless
prepared by other parties under agreement with the Adviser or the Trust.
Countrywide shall provide personnel to serve as officers of the Trust if so
elected by the Board of Trustees; provided, however, that the Adviser shall
reimburse Countrywide for the reasonable out-of-pocket expenses incurred by such
personnel in attending Board of Trustees' meetings and shareholders' meetings of
the Trust.
4. RECORDKEEPING AND OTHER INFORMATION.
Countrywide shall create and maintain all records required by
applicable laws, rules and regulations, including but not limited to records
required by Section 31(a) of the 1940 Act and the rules thereunder, as the same
may be amended from time to time, pertaining to the various functions performed
by it and not otherwise created and maintained by another party pursuant to
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<PAGE>
contract with the Adviser or the Trust. All such records shall be the property
of the Trust at all times and shall be available for inspection and use by the
Trust. Where applicable, such records shall be maintained by Countrywide for the
periods and in the places required by Rule 31a-2 under the 1940 Act. The
retention of such records shall be at the expense of the Adviser. Countrywide
shall make available during regular business hours all records and other data
created and maintained pursuant to this Agreement for reasonable audit and
inspection by the Trust, the Adviser, or any regulatory agency having authority
over the Trust.
5. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
6. COMPENSATION.
For the performance of Countrywide's obligations under this
Agreement, the Adviser shall pay Countrywide, on the first business day
following the end of each month, a monthly fee with respect to each series of
the Trust at the annual rate of .1% of such series' average daily net assets up
to $100 million; .075% of such assets from $100 to $200 million; and .05% of
such assets in excess of $200 million; provided, however, that the minimum fee
shall be $1,000 per month for each series.
7. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require Countrywide to perform any
services for the Trust or the Adviser which services could cause Countrywide to
be deemed an "investment adviser" of the Trust within the meaning of Section
2(a)(20) of the 1940 Act or to supersede or contravene the Trust's prospectus or
statement of additional information or any provisions of the 1940 Act and the
rules thereunder. Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by Countrywide, the Trust assumes
full responsibility for complying with all applicable requirements of the 1940
Act, the Securities Act of 1933, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
8. REFERENCES TO COUNTRYWIDE.
The Trust or the Adviser shall not circulate any printed
matter which contains any reference to Countrywide without the prior written
approval of Countrywide, excepting solely such printed matter as merely
identifies Countrywide as
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<PAGE>
Administrative Services Agent, Transfer, Shareholder Servicing and Dividend
Disbursing Agent and Accounting Services Agent. The Trust or the Adviser will
submit printed matter requiring approval to Countrywide in draft form, allowing
sufficient time for review by Countrywide and its counsel prior to any deadline
for printing.
9. INDEMNIFICATION OF COUNTRYWIDE.
A. Countrywide may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust or the Adviser in connection with, any error of judgment, mistake of
law, any act or omission connected with or arising out of any services rendered
under or payments made pursuant to this Agreement or any other matter to which
this Agreement relates, except by reason of willful misfeasance, bad faith or
gross negligence on the part of any such persons in the performance of the
duties of Countrywide under this Agreement or by reason of reckless disregard by
any of such persons of the obligations and duties of Countrywide under this
Agreement.
B. Any person, even though also a director, officer, employee,
shareholder or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust and
the Adviser shall each indemnify and hold harmless Countrywide, its directors,
officers, employees, shareholders, agents, control persons and affiliates from
and against any and all claims, demands, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which Countrywide may
sustain or incur or which may be asserted against Countrywide by any person by
reason of, or as a result of: (i) any action taken or omitted to be taken by
Countrywide in good faith in reliance upon any certificate, instrument, order or
share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action
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<PAGE>
taken or omitted to be taken by Countrywide in connection with its appointment
in good faith in reliance upon any law, act, regulation or interpretation of the
same even though the same may thereafter have been altered, changed, amended or
repealed. However, indemnification under this subparagraph shall not apply to
actions or omissions of Countrywide or its directors, officers, employees,
shareholders or agents in cases of its or their own gross negligence, willful
misconduct, bad faith, or reckless disregard of its or their own duties
hereunder.
10. TERMINATION
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by Countrywide, (2) by the Adviser, (3) by
vote, cast in person at a meeting called for the purpose, of a majority of the
Trust's trustees who are not parties to this Agreement or interested persons (as
defined in the 1940 Act) of any such party, and (4) by vote of a majority of the
Trust's Board of Trustees or a majority of the Trust's outstanding voting
securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor. Upon termination of this
Agreement, the Adviser shall pay to Countrywide such compensation as may be due
as of the date of such termination, and shall likewise reimburse Countrywide for
any out-of-pocket expenses and disbursements reasonably incurred by Countrywide
to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust or by the Adviser by written
notice to Countrywide, Countrywide shall, promptly upon such termination and at
the expense of the Adviser, transfer all records maintained by Countrywide under
this Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from Countrywide's
cognizant personnel in the establishment of books, records and other data by
such successor.
11. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no
- 5 -
<PAGE>
activities which, in its judgment, will adversely affect the performance of its
obligations to the Trust under this Agreement.
12. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the Trust
hereunder shall not be binding upon any of the Trustees, shareholders, nominees,
officers, agents or employees of the Trust, personally, but bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees of the Trust and signed by an officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, but
shall bind only the trust property of the Trust.
13. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
14. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the SEC issued pursuant to said 1940 Act. In addition, where the
effect of a requirement of the 1940 Act, reflected in any provision of this
Agreement, is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
15. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
- 6 -
<PAGE>
To the Trust Interactive Investments
or the Adviser: 101 Park Center Plaza, Suite 1300
San Jose, California 95113
Attention: Yakoub Billawala
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
or to such other address as any party may designate by notice complying with the
terms of this Section 15. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
16. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
17. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
18. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages
- 7 -
<PAGE>
of suitable parts, materials, labor or transportation, such delay or
non-performance shall be excused and a reasonable time for performance in
connection with this Agreement shall be extended to include the period of such
delay or non-performance.
20. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
INTERACTIVE INVESTMENTS
By:
Its: President
INTERACTIVE RESEARCH ADVISERS, INC.
By:
Its: President
COUNTRYWIDE FUND SERVICES, INC.
By:
Its: President
- 8 -
ACCOUNTING SERVICES AGREEMENT
AGREEMENT dated as of February 28, 1997 between Interactive
Investments, a Delaware business trust (the "Trust"), Interactive
Research Advisers, Inc. (the "Adviser"), a California
corporation, and Countrywide Fund Services, Inc. ("Countrywide"),
an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is responsible for retaining and compensating
agents to provide non-advisory services to the Trust pursuant to the terms of an
Administration Agreement; and
WHEREAS, the Adviser wishes to employ the services of Countrywide to
provide the Trust with certain accounting and pricing services; and
WHEREAS, Countrywide wishes to provide such services under
the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the parties hereto agree as follows:
1. APPOINTMENT.
Countrywide is hereby appointed as agent to perform those
services described in this Agreement for the Trust. Countrywide shall act under
such appointment and perform the obligations thereof upon the terms and
conditions hereinafter set forth.
2. CALCULATION OF NET ASSET VALUE.
Countrywide will calculate the net asset value of each series
of the Trust and the per share net asset value of each series of the Trust, in
accordance with the Trust's current prospectus and statement of additional
information, once daily as of the time selected by the Trust's Board of
Trustees. Countrywide will prepare and maintain a daily valuation of all
securities and other assets of the Trust in accordance with instructions from a
designated officer of the Trust or the Adviser and in the manner set forth in
the Trust's current prospectus and statement of additional information. In
valuing securities of the Trust, Countrywide may contract with, and rely upon
market quotations provided by, outside services.
<PAGE>
3. BOOKS AND RECORDS.
Countrywide will maintain and keep current the general ledger
for each series of the Trust, recording all income and expenses, capital share
activity and security transactions of the Trust. Countrywide will maintain such
further books and records as are necessary to enable it to perform its duties
under this Agreement, and will periodically provide reports to the Trust and its
authorized agents regarding share purchases and redemptions and trial balances
of each series of the Trust. Countrywide will prepare and maintain complete,
accurate and current all records with respect to the Trust required to be
maintained by the Trust under the Internal Revenue Code of 1986, as amended, and
under the rules and regulations of the 1940 Act, and will preserve said records
in the manner and for the periods prescribed in the Code and the 1940 Act. The
retention of such records shall be at the expense of the Adviser.
All of the records prepared and maintained by Countrywide pursuant to
this Section 3 which are required to be maintained by the Trust under the Code
and the 1940 Act will be the property of the Trust. In the event this Agreement
is terminated, all such records shall be delivered to the Trust at the Adviser's
expense, and Countrywide shall be relieved of responsibility for the preparation
and maintenance of any such records delivered to the Trust.
4. PAYMENT OF TRUST EXPENSES.
Countrywide shall process each request received from the Trust
or its authorized agents for payment of the Trust's expenses. Upon receipt of
written instructions signed by an officer or other authorized agent of the
Trust, Countrywide shall prepare checks in the appropriate amounts which shall
be signed by an authorized officer of Countrywide and mailed to the appropriate
party.
5. FORM N-SAR.
Countrywide shall maintain such records within its control and
shall be requested by the Trust to assist the Trust in fulfilling the
requirements of Form N-SAR.
6. COOPERATION WITH ACCOUNTANTS.
Countrywide shall cooperate with the Trust's independent
public accountants and shall take all reasonable action in the performance of
its obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their unqualified
opinion where required for any document for the Trust.
- 2 -
<PAGE>
7. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
8. FEES.
For the performance of the services under this Agreement, the
Adviser shall pay Countrywide a monthly fee in accordance with the schedule
attached hereto as Schedule A. The fees with respect to any month shall be paid
to Countrywide on the last business day of such month. The Adviser shall also
promptly reimburse Countrywide for the cost of external pricing services
utilized by Countrywide.
9. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS.
The parties hereto acknowledge and agree that nothing
contained herein shall be construed to require Countrywide to perform any
services for the Trust or the Adviser which services could cause Countrywide to
be deemed an "investment adviser" of the Trust within the meaning of Section
2(a)(20) of the 1940 Act or to supersede or contravene the Trust's prospectus or
statement of additional information or any provisions of the 1940 Act and the
rules thereunder. Except as otherwise provided in this Agreement and except for
the accuracy of information furnished to it by Countrywide, the Trust assumes
full responsibility for complying with all applicable requirements of the 1940
Act, the Securities Act of 1933, as amended, and any other laws, rules and
regulations of governmental authorities having jurisdiction.
10. REFERENCES TO COUNTRYWIDE.
The Trust or the Adviser shall not circulate any printed
matter which contains any reference to Countrywide without the prior written
approval of Countrywide, excepting solely such printed matter as merely
identifies Countrywide as Administrative Services Agent, Transfer, Shareholder
Servicing and Dividend Disbursing Agent and Accounting Services Agent. The Trust
or the Adviser will submit printed matter requiring approval to Countrywide in
draft form, allowing sufficient time for review by Countrywide and its counsel
prior to any deadline for printing.
11. EQUIPMENT FAILURES.
Countrywide shall take all steps necessary to minimize or
avoid service interruptions, and has entered into one or more agreements making
provision for emergency use of electronic data processing equipment. Countrywide
shall have no liability with respect to equipment failures beyond its control.
- 3 -
<PAGE>
12. INDEMNIFICATION OF COUNTRYWIDE.
A. Countrywide may rely on information reasonably believed by it to be
accurate and reliable. Except as may otherwise be required by the 1940 Act and
the rules thereunder, neither Countrywide nor its shareholders, officers,
directors, employees, agents, control persons or affiliates of any thereof shall
be subject to any liability for, or any damages, expenses or losses incurred by
the Trust or the Adviser in connection with, any error of judgment, mistake of
law, any act or omission connected with or arising out of any services rendered
under or payments made pursuant to this Agreement or any other matter to which
this Agreement relates, except by reason of willful misfeasance, bad faith or
gross negligence on the part of any such persons in the performance of the
duties of Countrywide under this Agreement or by reason of reckless disregard by
any of such persons of the obligations and duties of Countrywide under this
Agreement.
B. Any person, even though also a director, officer, employee,
shareholder, or agent of Countrywide, or any of its affiliates, who may be or
become an officer, trustee, employee or agent of the Trust, shall be deemed,
when rendering services to the Trust or acting on any business of the Trust, to
be rendering such services to or acting solely as an officer, trustee, employee
or agent of the Trust and not as a director, officer, employee, shareholder or
agent of or one under the control or direction of Countrywide or any of its
affiliates, even though paid by one of those entities.
C. Notwithstanding any other provision of this Agreement, the Trust and
the Adviser shall each indemnify and hold harmless Countrywide, its directors,
officers, employees, shareholders, agents, control persons and affiliates from
and against any and all claims, demands, expenses and liabilities (whether with
or without basis in fact or law) of any and every nature which Countrywide may
sustain or incur or which may be asserted against Countrywide by any person by
reason of, or as a result of: (i) any action taken or omitted to be taken by
Countrywide in good faith in reliance upon any certificate, instrument, order or
share certificate reasonably believed by it to be genuine and to be signed,
countersigned or executed by any duly authorized person, upon the oral
instructions or written instructions of an authorized person of the Trust or
upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any
action taken or omitted to be taken by Countrywide in connection with its
appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Countrywide or its
directors, officers, employees, shareholders or agents in cases of its or
- 4 -
<PAGE>
their own gross negligence, willful misconduct, bad faith, or reckless disregard
of its or their own duties hereunder.
13. TERMINATION.
A. The provisions of this Agreement shall be effective on the
date first above written, shall continue in effect for two years from that date
and shall continue in force from year to year thereafter, but only so long as
such continuance is approved (1) by Countrywide, (2) the Adviser, (3) by vote,
cast in person at a meeting called for the purpose, of a majority of the Trust's
trustees who are not parties to this Agreement or interested persons (as defined
in the 1940 Act) of any such party, and (4) by vote of a majority of the Trust's
Board of Trustees or a majority of the Trust's outstanding voting securities.
B. Either party may terminate this Agreement on any date by
giving the other party at least sixty (60) days' prior written notice of such
termination specifying the date fixed therefor. Upon termination of this
Agreement, the Adviser shall pay to Countrywide such compensation as may be due
as of the date of such termination, and shall likewise reimburse Countrywide for
any out-of-pocket expenses and disbursements reasonably incurred by Countrywide
to such date.
C. In the event that in connection with the termination of
this Agreement a successor to any of Countrywide's duties or responsibilities
under this Agreement is designated by the Trust or by the Adviser by written
notice to Countrywide, Countrywide shall, promptly upon such termination and at
the expense of the Adviser, transfer all records maintained by Countrywide under
this Agreement and shall cooperate in the transfer of such duties and
responsibilities, including provision for assistance from Countrywide's
cognizant personnel in the establishment of books, records and other data by
such successor.
14. SERVICES FOR OTHERS.
Nothing in this Agreement shall prevent Countrywide or any
affiliated person (as defined in the 1940 Act) of Countrywide from providing
services for any other person, firm or corporation (including other investment
companies); provided, however, that Countrywide expressly represents that it
will undertake no activities which, in its judgment, will adversely affect the
performance of its obligations to the Trust under this Agreement.
15. LIMITATION OF LIABILITY.
It is expressly agreed that the obligations of the
Trust hereunder shall not be binding upon any of the Trustees,
- 5 -
<PAGE>
shareholders, nominees, officers, agents or employees of the Trust, personally,
but bind only the trust property of the Trust. The execution and delivery of
this Agreement have been authorized by the Trustees of the Trust and signed by
an officer of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust.
16. SEVERABILITY.
In the event any provision of this Agreement is determined to
be void or unenforceable, such determination shall not affect the remainder of
this Agreement, which shall continue to be in force.
17. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by the laws of the State of
Ohio. Any question of interpretation of any term or provision of this Agreement
having a counterpart in or otherwise derived from a term or provision of the
1940 Act shall be resolved by reference to such term or provision of the 1940
Act and to interpretations thereof, if any, by the United States Courts or in
the absence of any controlling decision of any such court, by rules, regulations
or orders of the Securities and Exchange Commission issued pursuant to said 1940
Act. In addition, where the effect of a requirement of the 1940 Act, reflected
in any provision of this Agreement, is revised by rule, regulation or order of
the Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
18. NOTICES.
All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
To the Trust Interactive Investments
or the Adviser: 101 Park Center Plaza, Suite 1300
San Jose, California 95113
Attention: Yakoub Billawala
To Countrywide: Countrywide Fund Services, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
Attention: Robert G. Dorsey
- 6 -
<PAGE>
or to such other address as any party may designate by notice complying with the
terms of this Section 18. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date telecommunicated if by
telegraph; (c) on the date of transmission with confirmed answer back if by
telex, telefax or other telegraphic method; and (d) on the date upon which the
return receipt is signed or delivery is refused or the notice is designated by
the postal authorities as not deliverable, as the case may be, if mailed.
19. AMENDMENT.
This Agreement may not be amended or modified except by a
written agreement executed by both parties.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that
he has the full power and authority to sign this Agreement on behalf of the
party indicated, and that his signature will operate to bind the party indicated
to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
22. FORCE MAJEURE.
If Countrywide shall be delayed in its performance of services
or prevented entirely or in part from performing services due to causes or
events beyond its control, including and without limitation, acts of God,
interruption of power or other utility, transportation or communication
services, acts of civil or military authority, sabotages, national emergencies,
explosion, flood, accident, earthquake or other catastrophe, fire, strike or
other labor problems, legal action, present or future law, governmental order,
rule or regulation, or shortages of suitable parts, materials, labor or
transportation, such delay or non-performance shall be excused and a reasonable
time for performance in connection with this Agreement shall be extended to
include the period of such delay or non-performance.
23. MISCELLANEOUS.
The captions in this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
INTERACTIVE INVESTMENTS
By:
Its: President
INTERACTIVE RESEARCH ADVISERS, INC.
By:
Its: President
COUNTRYWIDE FUND SERVICES, INC.
By:
Its: President
- 8 -
<PAGE>
Schedule A
COMPENSATION
The Adviser will pay Countrywide a monthly fee, according to the
average net assets of each series during such month, as follows:
TECHNOLOGY VALUE FUND:
Monthly Fee Average Net Assets During Month
$2,000 $0 - $ 50,000,000
$2,500 $50,000,000 - $100,000,000
$3,000 $100,000,000 - $200,000,000
$3,500 $200,000,000 - $300,000,000
$4,000 $300,000,000 - $400,000,000
$5,000 Over $400,000,000
- 9 -
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated January 15, 1997, accompanying the company's
financial statements as of December 31, 1996, and schedule incorporated by
reference of Interactive Investments (Technology Value Fund). We hereby
consent to the use of said report in this Registration Statements of
Interactive Investments (Technology Value Fund). On Form N-1A appearing in the
related Prospectus.
We also consent to the use of our name and reference to us under
the captions "Auditors" and "Miscellaneous Information."
/s/ Kevane Peterson Soto & Pasarell
San Juan, Puerto Rico
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000917124
<NAME> INTERACTIVE INVESTMENTS - TECHNOLOGY VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 32,863,373
<INVESTMENTS-AT-VALUE> 35,088,611
<RECEIVABLES> 15,433
<ASSETS-OTHER> 58
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,104,102
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 32,703,582
<SHARES-COMMON-STOCK> 1,316,632
<SHARES-COMMON-PRIOR> 145,438
<ACCUMULATED-NII-CURRENT> (125,410)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 300,692
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,225,238
<NET-ASSETS> 35,104,102
<DIVIDEND-INCOME> 114,196
<INTEREST-INCOME> 5,393
<OTHER-INCOME> 0
<EXPENSES-NET> 223,442
<NET-INVESTMENT-INCOME> (103,853)
<REALIZED-GAINS-CURRENT> 2,546,140
<APPREC-INCREASE-CURRENT> 1,675,722
<NET-CHANGE-FROM-OPS> 4,118,009
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,244,807
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,435,204
<NUMBER-OF-SHARES-REDEEMED> 307,952
<SHARES-REINVESTED> 43,942
<NET-CHANGE-IN-ASSETS> 32,423,108
<ACCUMULATED-NII-PRIOR> (21,557)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 641
<GROSS-ADVISORY-FEES> 122,185
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 223,442
<AVERAGE-NET-ASSETS> 12,315,000
<PER-SHARE-NAV-BEGIN> 18.44
<PER-SHARE-NII> (.08)
<PER-SHARE-GAIN-APPREC> 11.20
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.90
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.66
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
