AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1999
FILE NOS. 33-73832
811-8268
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 11
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 16
FIRSTHAND FUNDS
(Exact name of Registrant as Specified in Charter)
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
(Address of Principal Executive Offices)
(408) 294-2200
Registrant's Telephone Number, including Area Code
KEVIN M. LANDIS
FIRSTHAND CAPITAL MANAGEMENT, INC.
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
(Name and Address of Agent for Service)
Copies of all communications to:
OMAR BILLAWALA
FIRSTHAND CAPITAL MANAGEMENT, INC.
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on 9/30/99 pursuant to paragraph (b) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on _______________ pursuant to paragraph (a)(2) of Rule 485
Registrant has 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, 1998, was
filed with the Commission on February 22, 1999.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement contains the following documents:
o Facing Sheet
o Contents of Registration Statement
o Part A - Combined Prospectus for the Technology Value Fund, the Technology
Leaders Fund, the Technology Innovators Fund, The Communications Fund(TM)
and The e-Commerce Fund(TM); supplement to Combined Prospectus.
o Part B - Combined Statement of Additional Information for the Technology
Value Fund, the Technology Leaders Fund, the Technology Innovators Fund,
The Communications Fund(TM) and The e-Commerce Fund(TM).
o Part C - Other Information
<PAGE>
- --------------------------------------------------------------------------------
PART A
Prospectus
for
Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
The Communications Fund
The e-Commerce Fund
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]Firsthand
[GRAPHIC OMITTED]
Prospectus
The Technology Value Fund
The Technology Leaders Fund
The Technology Innovators Fund*
The Communications FundTM
The e-Commerce FundTM
November 30, 1999
Firsthand Funds has registered each mutual fund offered in this prospectus with
the U.S. Securities and Exchange Commission (SEC). That registration does not
imply, however, that the SEC endorses the Funds.
An investment in the Funds is not a deposit of a bank and is not guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
* The Technology Innovators Fund is closed to new investors.
<PAGE>
This prospectus contains important information about the investment objectives,
strategies and risks of the Funds that you should know before you invest in
them. Please read it carefully and keep it with your investment records. Each
Fund is non-diversified and has as its investment objective long-term growth of
capital.
The initial minimum investment for each Fund is $10,000 except for certain
retirement accounts. For Individual Retirement Accounts (IRAs), Roth IRAs and
403(b) accounts, the initial minimum investment is $2,000. For Education IRAs,
the initial minimum investment is $500. For all other retirement accounts, the
initial minimum investment is $10,000. Lower minimums are available to investors
purchasing shares of the Funds through certain brokerage firms. Please see "How
to Purchase Shares" in this prospectus for additional information.
This prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
<PAGE>
CONTENTS
Technology Value Fund .......................................... 2
----------------------------------------------------------------------
Technology Leaders Fund ........................................ 6
----------------------------------------------------------------------
Technology Innovators Fund (closed to new investors) ........... 10
----------------------------------------------------------------------
The Communications Fund ........................................ 14
----------------------------------------------------------------------
The e-Commerce Fund ............................................ 18
----------------------------------------------------------------------
Additional Investment Techniques and Strategies ................ 22
----------------------------------------------------------------------
Additional Risk Considerations ................................. 23
----------------------------------------------------------------------
Portfolio Management ........................................... 26
----------------------------------------------------------------------
Operation of the Funds ......................................... 26
----------------------------------------------------------------------
How to Purchase Shares ......................................... 28
----------------------------------------------------------------------
How to Redeem Shares ........................................... 29
----------------------------------------------------------------------
Shareholder Services ........................................... 33
----------------------------------------------------------------------
Exchange Privilege ............................................. 34
----------------------------------------------------------------------
Dividends and Distributions .................................... 35
----------------------------------------------------------------------
Taxes .......................................................... 36
----------------------------------------------------------------------
Calculation of Share Price ..................................... 37
----------------------------------------------------------------------
Call toll-free 1.888.884.2675 Prospectus | 1
<PAGE>
TECHNOLOGY VALUE FUND (TVFQX)
OBJECTIVE
The Fund seeks long-term growth of capital.
STRATEGY
The Fund seeks to achieve its objective by investing at least 65% of its assets
in securities of companies in the electronic technology and medical technology
fields which the Investment Advisor considers to be undervalued and have
potential for capital appreciation.
The Investment Advisor's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Advisor believes the value exceeds the market price. In assessing a
company's potential, the Investment Advisor may consider a number of factors,
including technical vision, marketing acumen, proprietary technological
advantages and the company's ability to rapidly respond to changing market
conditions.
Although certain of the Fund's investments may produce dividends, interest or
other income, current income is not a consideration in selecting the Fund's
investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
RISKS
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Investment Advisor. As a result, there
is a risk that you could lose money by investing in the Fund.
2 | Firsthand www.FirsthandFunds.com
<PAGE>
Because the Fund invests in fewer issuers, it is subject to greater risk than a
more diversified fund. The Fund is also subject to greater risk because of its
concentration of investments in technology companies due to their high
volatility. The value of such investments can and often does fluctuate
dramatically and may expose you to greater than average financial and market
risk.
The Fund may also invest in smaller companies and initial public offerings which
typically have additional risks including more limited product lines, markets
and financial resources than larger, more seasoned companies and their
securities may trade less frequently and in more limited volume than those of
larger, more mature companies. The Fund's ability to invest in foreign companies
may expose shareholders to additional risks. Foreign stock markets tend to be
more volatile than the U.S. market due to greater economic and political
instability in some countries.
Please see "Additional Risk Considerations" for further information.
PAST FUND PERFORMANCE
The bar chart and performance table shown below provide an indication of the
risks of investing in the Fund by showing the changes in the performance of the
Fund from year to year since the Fund's inception and by showing how the average
annual returns of the Fund compare to those of broad-based market indices. How
the Fund has performed in the past cannot guarantee how the Fund will perform in
the future.
1995 1996 1997 1998
61.17% 60.55% 6.46% 23.71%
Call toll-free 1.888.884.2675 Prospectus | 3
<PAGE>
During the periods shown in the bar chart, the highest return for a quarter was
60.64% during the quarter ended December 31, 1998, and the lowest return for a
quarter was -29.68% during the quarter ended September 30, 1998.
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998
One Year Since Inception*
- --------------------------------------------------------------------------------
Technology Value Fund 23.71% 37.24%
Dow Jones Industrial Average(1) 18.13% 27.28%
Standard & Poor's 500 Index(2) 28.58% 30.42%
NASDAQ Composite Index(3) 39.63% 31.78%
* The public offering of shares of the Fund commenced on December 15, 1994.
(1) The Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely held stocks listed primarily on the New York Stock
Exchange.
(2) The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
(3) The NASDAQ Composite Index is an unmanaged index which averages the trading
prices of more than 3,000 domestic over-the-counter companies.
EXPENSE INFORMATION
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee None*
* A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is currently $8.
4 | Firsthand www.FirsthandFunds.com
<PAGE>
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
Management fee 1.50%
Distribution (12b-1) fee None
Other expenses 0.45%
Total annual fund operating expenses* 1.95%
* The Advisory Agreement limits the Fund's total annual operating expenses to
1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from
$500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year....$198 3 years.....$612 5 years.....$1,052 10 years.....$2,275
Call toll-free 1.888.884.2675 Prospectus | 5
<PAGE>
TECHNOLOGY LEADERS FUND (TLFQX)
OBJECTIVE
The Fund seeks long-term growth of capital.
STRATEGY
The Fund seeks to achieve its objective by investing at least 65% of its assets
in securities of companies in the high technology field which the Investment
Advisor considers to have the strongest competitive position. In assessing the
strength of a company's competitive position, the Investment Advisor may
consider such factors as technology leadership, market share, patents and other
intellectual property, strength of management, marketing prowess and product
development capabilities. The high technology field includes the semiconductor,
computer, computer peripheral, software, telecommunication and mass storage
device segments of the technology industry.
The Investment Advisor's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Advisor believes the value exceeds the market price. In assessing a
company's potential, the Investment Advisor may consider a number of factors,
including technical vision, marketing acumen, proprietary technological
advantages and the company's ability to rapidly respond to changing market
conditions.
Although certain of the Fund's investments may produce dividends, interest or
other income, current income is not a consideration in selecting the Fund's
investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
RISKS
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Investment Advisor. As a result, there
is a risk that you could lose money by investing in the Fund.
6 | Firsthand www.FirsthandFunds.com
<PAGE>
Because the Fund invests in fewer issuers, it is subject to greater risk than a
more diversified fund. The Fund is also subject to greater risk because of its
concentration of investments in technology companies due to their high
volatility. The value of such investments can and often does fluctuate
dramatically and may expose you to greater than average financial and market
risk.
The Fund may also invest in smaller companies and initial public offerings which
typically have additional risks including more limited product lines, markets
and financial resources than larger more seasoned companies and their securities
may trade less frequently and in more limited volume than those of larger, more
mature companies. The Fund's ability to invest in foreign companies may expose
shareholders to additional risks. Foreign stock markets tend to be more volatile
than the U.S. market due to greater economic and political instability in some
countries.
Please see "Additional Risk Considerations" for further information.
PAST FUND PERFORMANCE
The bar chart and performance table shown below provide an indication of the
risks of investing in the Fund by showing the changes in the performance of the
Fund from year to year since the Fund's inception and by showing how the average
annual returns of the Fund compare to those of broad-based market indices. How
the Fund has performed in the past cannot guarantee how the Fund will perform in
the future.
1998
78.15%
Call toll-free 1.888.884.2675 Prospectus | 7
<PAGE>
During the period shown in the bar chart, the highest return for a quarter was
58.90% during the quarter ended December 31, 1998, and the lowest return for a
quarter was -12.62% during the quarter ended September 30, 1998.
AVERAGE ANNUAL RETURNS FOR PERIODS ENDED DECEMBER 31, 1998
One Year Since Inception*
- --------------------------------------------------------------------------------
Technology Leaders Fund 78.15% 73.54%
Dow Jones Industrial Average(1) 18.13% 15.21%
Standard & Poor's 500 Index(2) 28.58% 26.22%
NASDAQ Composite Index(3) 39.63% 33.05%
* The public offering of shares of the Fund commenced on December 10, 1997.
(1) The Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely held stocks listed primarily on the New York Stock
Exchange.
(2) The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
(3) The NASDAQ Composite Index is an unmanaged index which averages the trading
prices of more than 3,000 domestic over-the-counter companies.
EXPENSE INFORMATION
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee None*
* A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is currently $8.
8 | Firsthand www.FirsthandFunds.com
<PAGE>
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
Management fee 1.50%
Distribution (12b-1) fee None
Other expenses 0.45%
Total annual fund operating expenses* 1.95%
* The Advisory Agreement limits the Fund's total annual operating expenses to
1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from
$500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year.....$198 3 years.....$612 5 years.....$1,052 10 years.....$2,275
Call toll-free 1.888.884.2675 Prospectus | 9
<PAGE>
TECHNOLOGY INNOVATORS FUND (TIFQX)
Currently closed to new investors.*
OBJECTIVE
The Fund seeks long-term growth of capital.
STRATEGY
The Fund seeks to achieve its objective by investing at least 65% of its assets
in securities of companies in the high technology field which the Investment
Advisor considers to be best positioned to introduce successful new products. In
assessing a company's capacity for innovation, the Investment Advisor may
consider a number of factors, including technical vision, marketing acumen,
proprietary technological advantages and a demonstrated ability to bring
products to market quickly. The high technology field includes the
semiconductor, computer, computer peripheral, software, telecom-munication and
mass storage device segments of the technology industry.
The Investment Advisor's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Advisor believes the value exceeds the market price. In assessing a
company's potential, the Investment Advisor may consider a number of factors,
including technical vision, marketing acumen, proprietary technological
advantages and the company's ability to rapidly respond to changing market
conditions.
Although certain of the Fund's investments may produce dividends, interest or
other income, current income is not a consideration in selecting the Fund's
investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
RISKS
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Investment Advisor. As a result, there
is a risk that you could lose money by investing in the Fund.
10 | Firsthand www.FirsthandFunds.com
<PAGE>
Because the Fund invests in fewer issuers, it is subject to greater risk than a
more diversified fund. The Fund is also subject to greater risk because of its
concentration of investments in technology companies due to their high
volatility. The value of such investments can and often does fluctuate
dramatically and may expose you to greater than average financial and market
risk.
The Fund may also invest in smaller companies and initial public offerings which
typically have additional risks including more limited product lines, markets
and financial resources than larger, more seasoned companies and their
securities may trade less frequently and in more limited volume than those of
larger, more mature companies. The Fund's ability to invest in foreign companies
may expose shareholders to additional risks. Foreign stock markets tend to be
more volatile than the U.S. market due to greater economic and political
instability in some countries.
Please see "Additional Risk Considerations" for further information.
* From time to time, the Fund may reopen and close to new investors at the
Investment Advisor's discretion. Current shareholders may make additional
investments into their existing accounts or may open new accounts. Please be
advised that if you redeem your total investment in the Fund, your account will
be closed and you will not be able to make additional investments into the Fund.
PAST FUND PERFORMANCE
The Fund was launched on May 20, 1998. Performance results have not been
provided because the Fund has not yet been in existence for a full calendar
year.
Call toll-free 1.888.884.2675 Prospectus | 11
<PAGE>
EXPENSE INFORMATION
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee None*
* A wire transfer fee is charged by the Fund's Custodian in the case of
redemptions made by wire. Such fee is currently $8.
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
Management fee 1.50%
Distribution (12b-1) fee None
Other expenses 0.45%
Total annual fund operating expenses* 1.95%
* The Advisory Agreement limits the Fund's total annual operating expenses to
1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from
$500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
12 | Firsthand www.FirsthandFunds.com
<PAGE>
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year.....$198 3 years.....$612 5 years.....$1,052 10 years.....$2,275
Call toll-free 1.888.884.2675 Prospectus | 13
<PAGE>
THE COMMUNICATIONS FUND (TM) (TCFQX)
OBJECTIVE
The Fund seeks long-term growth of capital.
STRATEGY
The Fund seeks to achieve its objective by investing at least 65% of its assets
in securities of companies, both domestic and foreign, that the Investment
Advisor considers to be best positioned to benefit significantly from their
involvement in or support of the communications industry. The Fund considers the
communications industry to include companies that engage in designing,
developing, operating, financing, manufacturing or providing the following
activities, products and services: communications equipment and service;
electronic components and equipment; broadcast; computer equipment; mobile
communications; electronic mail; local and wide area networking; publishing and
information systems; video; photonics; and emerging technologies combining
telephone, television and/or computer systems.
The Investment Advisor's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Advisor believes the value exceeds the market price. In assessing a
company's potential, the Investment Advisor may consider a number of factors,
including technical vision, marketing acumen, proprietary technological
advantages and the company's ability to rapidly respond to changing market
conditions.
Although certain of the Fund's investments may produce dividends, interest or
other income, current income is not a consideration in selecting the Fund's
investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
14 | Firsthand www.FirsthandFunds.com
<PAGE>
RISKS
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Investment Advisor. As a result, there
is a risk that you could lose money by investing in the Fund.
Because the Fund invests in fewer issuers, it is subject to greater risk than a
more diversified fund. The Fund is also subject to greater risk because of its
concentration of investments in technology companies due to their high
volatility. The value of such investments can and often does fluctuate
dramatically and may expose you to greater than average financial and market
risk.
The Fund may also invest in smaller companies and initial public offerings which
typically have additional risks including more limited product lines, markets
and financial resources than larger, more seasoned companies and their
securities may trade less frequently and in more limited volume than those of
larger, more mature companies. The Fund's ability to invest in foreign companies
may expose shareholders to additional risks. Foreign stock markets tend to be
more volatile than the U.S. market due to greater economic and political
instability in some countries.
Please see "Additional Risk Considerations" for further information.
PAST FUND PERFORMANCE
The Fund was launched on September 30, 1999. Performance results have not been
provided because the Fund has not yet been in existence for a full calendar
year.
Call toll-free 1.888.884.2675 Prospectus | 15
<PAGE>
EXPENSE INFORMATION
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee 2.00%*
* A redemption fee of 2.00% is charged on investments held for less than 180
days. Redemption fees collected will be paid to the Fund. A wire transfer
fee is charged by the Fund's Custodian in the case of redemptions made by
wire. Such fee is currently $8.
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
Management fee 1.50%
Distribution (12b-1) fee None
Other expenses 0.45%
Total annual fund operating expenses* 1.95%
* The Advisory Agreement limits the Fund's total annual operating expenses to
1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from
$500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
16 | Firsthand www.FirsthandFunds.com
<PAGE>
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year.....$198 3 years.....$612 5 years.....$1,052 10 years.....$2,275
Call toll-free 1.888.884.2675 Prospectus | 17
<PAGE>
THE E-COMMERCE FUND (TM) (TEFQX)
OBJECTIVE
The Fund seeks long-term growth of capital.
STRATEGY
The Fund seeks to achieve its objective by investing at least 65% of its assets
in securities of companies, both domestic and foreign, that the Investment
Advisor considers to be best positioned to benefit significantly from their
involvement in or support of electronic commerce (e-commerce). The Fund
considers eligible companies to be those that engage in designing, developing,
operating, financing, manufacturing or providing the following activities,
products and services: internet access, equipment and service; electronic
components and equipment; commerce infrastructure tools such as security and
payment systems; computers; software tools and utilities; electronic
communications; web presence/solution providers; local and wide area networking;
publishing and information systems; and emerging technologies combining
communications, commerce, media and/or computer systems.
The Investment Advisor's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Advisor believes the value exceeds the market price. In assessing a
company's potential, the Investment Advisor may consider a number of factors,
including technical vision, marketing acumen, proprietary technological
advantages and the company's ability to rapidly respond to changing market
conditions.
Although certain of the Fund's investments may produce dividends, interest or
other income, current income is not a consideration in selecting the Fund's
investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
18 | Firsthand www.FirsthandFunds.com
<PAGE>
RISKS
The return on and value of an investment in the Fund will fluctuate in response
to stock market movements. Stocks and other equity securities are subject to
market risks and fluctuations in value due to earnings, economic conditions and
other factors beyond the control of the Investment Advisor. As a result, there
is a risk that you could lose money by investing in the Fund.
Because the Fund invests in fewer issuers, it is subject to greater risk than a
more diversified fund. The Fund is also subject to greater risk because of its
concentration of investments in technology companies due to their high
volatility. The value of such investments can and often does fluctuate
dramatically and may expose you to greater than average financial and market
risk.
The Fund may also invest in smaller companies and initial public offerings which
typically have additional risks including more limited product lines, markets
and financial resources than larger, more seasoned companies and their
securities may trade less frequently and in more limited volume than those of
larger, more mature companies. The Fund's ability to invest in foreign companies
may expose shareholders to additional risks. Foreign stock markets tend to be
more volatile than the U.S. market due to greater economic and political
instability in some countries.
Please see "Additional Risk Considerations" for further information.
PAST FUND PERFORMANCE
The Fund was launched on September 30, 1999. Performance results have not been
provided because the Fund has not yet been in existence for a full calendar
year.
Call toll-free 1.888.884.2675 Prospectus | 19
<PAGE>
EXPENSE INFORMATION
The following table shows the fees and expenses you may pay if you buy and hold
shares of this Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
- --------------------------------------------------------------------------------
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee 2.00%*
* A redemption fee of 2.00% is charged on investments held for less than 180
days. Redemption fees collected will be paid to the Fund. A wire transfer
fee is charged by the Fund's Custodian in the case of redemptions made by
wire. Such fee is currently $8.
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------------------------------
Management fee 1.50%
Distribution (12b-1) fee None
Other expenses 0.45%
Total annual fund operating expenses* 1.95%
* The Advisory Agreement limits the Fund's total annual operating expenses to
1.95% of the Fund's average daily net assets up to $200 million, 1.90% of
such assets from $200 million to $500 million, 1.85% of such assets from
$500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
20 | Firsthand www.FirsthandFunds.com
<PAGE>
EXAMPLE
- --------------------------------------------------------------------------------
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes that you invest
$10,000 in the Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 year.....$198 3 years.....$612 5 years.....$1,052 10 years.....$2,275
Call toll-free 1.888.884.2675 Prospectus | 21
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ADDITIONAL INVESTMENT
TECHNIQUES AND STRATEGIES
The equity securities in which the Funds may invest include common stock,
convertible long-term corporate debt obligations, preferred stock, convertible
preferred stock and warrants. The securities selected will typically be traded
on a national securities exchange, the NASDAQ System or over-the-counter, and
may include securities of both large, well-known companies as well as smaller,
less well-known companies, including foreign securities listed on a foreign
securities exchange or traded in the United States. Although certain of the
Funds' investments may produce dividends, interest or other income, current
income is not a consideration in selecting a Fund's investments. Each Fund may
invest up to 15% of its net assets in illiquid securities.
The Investment Advisor's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Advisor believes that value exceeds the market price. The Investment
Advisor intends to focus on the fundamental worth of the companies under
consideration, where fundamental worth is defined as the value of the basic
businesses of the firm, including products, technologies, customer relationships
and other sustainable competitive advantages. For purposes of the Investment
Advisor's analysis, fundamental worth is a reflection of the value of an
enterprise's assets and its earning power, and will be determined by use of
price-earnings ratios and comparison with sales of comparable assets to
independent third party buyers in arms' length transactions. Balance sheet
strength, the ability to generate earnings and a strong competitive position are
the major factors the Investment Advisor will use in appraising an investment.
Applicable price-earnings ratios depend on the earnings potential of an
enterprise as determined by the Investment Advisor. For example, an enterprise
that is a relatively high growth company would normally command a higher
price-earnings ratio than lower growth companies because expected future profits
would be higher.
Each Fund may purchase shares in initial public offerings (IPOs). Due to the
typically small size of the IPO allocation available to the Funds and the nature
and market capitalization of the companies involved in IPOs, the Investment
Advisor will often purchase IPO shares that would qualify as a permissible
investment for a Fund but will, instead, decide to allocate
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those IPO purchases to other Funds the Investment Advisor advises. Because IPO
shares frequently are volatile in price, the Funds may hold IPO shares for a
very short period of time. This may increase the turnover of a Fund's portfolio
and may lead to increased expenses to a Fund, such as commissions and
transaction costs. By selling shares, a Fund may realize taxable capital gains
that it will subsequently distribute to shareholders.
ADDITIONAL
RISK CONSIDERATIONS
EQUITY SECURITIES. Each Fund invests primarily in equity securities, which by
definition entail risk of loss of capital. Investments in equity securities are
subject to inherent market risks and fluctuation in value due to earnings,
economic conditions and other factors beyond the control of the Investment
Advisor. Securities in a Fund's portfolio may not increase as much as the market
as a whole and some undervalued securities may continue to be undervalued for
long periods of time. Some securities may be inactively traded, and thus may not
be readily bought or sold. Although profits in some Fund holdings may be
realized quickly, it is not expected that most investments will appreciate
rapidly.
SMALL CAPITALIZATION COMPANIES. Each Fund may, from time to time, invest a
substantial portion of its assets in small capitalization companies. While
smaller companies generally have potential for rapid growth, they often involve
higher risks because they lack the management experience, financial resources,
product diversifi-cation and competitive strengths of larger corporations. In
addition, in many instances, the securities of smaller companies are traded only
over-the-counter or on a regional securities exchange, and the frequency and
volume of their trading is substantially less than is typical of larger
companies. Therefore, the securities of smaller companies may be subject to
wider price fluctuations. When making large sales, a Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time.
Call toll-free 1.888.884.2675 Prospectus | 23
<PAGE>
FOREIGN SECURITIES. Each Fund may purchase foreign securities that are listed on
a foreign securities exchange or over-the-counter market, or which are
represented by American Depository Receipts and are listed on a domestic
securities exchange or traded in the United States on over-the-counter markets.
Foreign investments may be subject to risks that are not typically associated
with investing in domestic companies. For example, such investments 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.
TEMPORARY DEFENSIVE MEASURES. For defensive purposes, each Fund may temporarily
hold all or a portion of its assets in cash or money market instruments. Such
action may help a Fund minimize or avoid losses during adverse market, economic
or political conditions. During such a period, a Fund may not achieve its
investment objective. For example, should the market advance during this period,
a Fund may not participate as much as it would have if it had been more fully
invested.
CONCENTRATION OF INVESTMENTS IN CERTAIN INDUSTRIES. The Technology Value Fund
will invest primarily in a combination of companies within the high technology
and medical technology segments, while each of the Technology Leaders Fund, the
Technology Innovators Fund, The Communications Fund and The e-Commerce Fund will
invest primarily in companies within the high technology segment. The Funds will
be subject to greater risk because of their concentration of investments in a
single industry and within certain segments of the industry. For example,
investments in the health and biotechnology segments include the risk that the
economic prospects, and the share prices, of health and biotechnology companies
can fluctuate dramatically due to changes in the regulatory or competitive
environments. Investments in the high technology segment include the risk that
certain high technology products and services are subject to competitive
pressures and aggressive pricing. Investments in companies that offer new
products in the high technology segment, such as investments in that area by the
Technology Innovators Fund, include the risk that the new products will not meet
expectations or even reach the marketplace.
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Additionally, health, biotechnology and high technology segment products and
services are subject to risk of rapid obsolescence caused by scientific
developments and technological advances. Also, the technology and medical
industries are generally more susceptible to effects caused by changes in the
economic climate, broad market swings, moves in a dominant industry stock or
regulatory changes.
Although the Investment Advisor currently believes that investments by the Funds
in certain health, biotechnology and technology companies may offer greater
opportunities for growth of capital than investments in other industries, such
investments may also expose investors to greater than average financial and
market risk. Accordingly, an investment in one or more of the Funds does not
constitute a balanced investment program.
The Technology Leaders Fund, the Technology Innovators Fund, The Communications
Fund and The e-Commerce Fund will invest primarily in the following high
technology segments. The Technology Value Fund will invest in both the following
high technology and health and biotechnology segments. At any point in time,
however, each Fund may invest more than 25% of its assets in any one industry
segment. This will further increase each Fund's risk and will make the Funds
more volatile.
HIGH TECHNOLOGY SEGMENTS HEALTH AND BIOTECHNOLOGY SEGMENTS
o Semiconductor o Cardiovascular Medical Device
o Computer o Minimally Invasive Surgical Tool
o Computer Peripheral o Pharmaceutical
o Software o Biotechnology
o Telecommunication o Managed Care Provider
o Mass Storage Device o Generic Drug
YEAR 2000 PROBLEM. The Funds and their service providers depend upon the smooth
functioning of their computer systems. Unfortunately, because of the way dates
are encoded and calculated, many computer systems in use today cannot recognize
the year 2000, but revert to 1900 or another incorrect date. Computer failures
due to the year 2000 problem could negatively impact the handling of securities
trades, account services and pricing of the Funds' shares.
Call toll-free 1.888.884.2675 Prospectus | 25
<PAGE>
The Funds' service providers have assured the Funds that they believe their
systems are year 2000 ready. There can be no guarantee, however, that year 2000
problems will not negatively affect the Funds. The Funds do not expect year 2000
conversion costs to be substantial for the Funds because those costs are borne
by the Funds' vendors and service providers and not directly by the Funds.
Brokers and other intermediaries that hold shareholder accounts may still
experience incompatibility problems. It is also important to keep in mind that
year 2000 issues may negatively impact the companies in which the Funds invest
and, by extension, the value of those companies' shares held by the Funds.
Foreign companies may be less prepared for the year 2000 problem, and therefore,
subject to greater risk.
PORTFOLIO MANAGEMENT
The Trust retains Firsthand Capital Management, Inc. (the "Investment Advisor"),
101 Park Center Plaza, Suite 1300, San Jose, California 95113, to manage the
investments of each Fund. The Investment Advisor is controlled by Kevin M.
Landis, who also serves as a Trustee of the Trust. Mr. Landis has been a
portfolio manager of the Technology Value Fund since the Fund's inception in
1994. Mr. Landis is the portfolio manager of the Technology Leaders Fund and the
Technology Innovators Fund. Prior to his association with the Investment
Advisor, Mr. Landis served as New Products Marketing Manager for S-MOS Systems,
Inc., a San Jose, California semiconductor firm.
The portfolios of The Communications Fund and The e-Commerce Fund are managed by
the Investment Advisor's Technology Equities Team.
OPERATION OF THE FUNDS
The Investment Advisor receives from each Fund a management fee at the annual
rate of 1.50% of its average daily net assets. The Advisory Agreement requires
the Investment Advisor to waive its management fees and, if necessary, reimburse
expenses of the Funds to the extent necessary to limit each Fund's total
operating expenses to
26 | Firsthand www.FirsthandFunds.com
<PAGE>
1.95% of its average net assets up to $200 million, 1.90% of such assets from
$200 million to $500 million, 1.85% of such assets from $500 million to $1
billion, and 1.80% of such assets in excess of $1 billion.
The Trust has entered into a separate contract (the "Administration Agreement")
with the Investment Advisor wherein the Investment Advisor is responsible for
providing administrative and general supervisory services to the Funds. Under
the Administration Agreement, the Investment Advisor oversees the maintenance of
all books and records with respect to the Funds' securities transactions and the
Funds' book of accounts in accordance with all applicable federal and state laws
and regulations. The Investment Advisor 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 Investment Company
Act of 1940. The Investment Advisor is responsible for the equipment, staff,
office space and facilities necessary to perform its obligations. The Investment
Advisor has also assumed responsibility for payment of all of the Funds'
operating expenses except for brokerage and commission expenses and any
extraordinary and non-recurring expenses. For the services rendered by the
Investment Advisor under the Administration Agreement, the Investment Advisor
receives a fee from each Fund at the annual rate of 0.45% of its average daily
net assets up to $200 million, 0.40% of such assets from $200 million to $500
million, 0.35% of such assets from $500 million to $1 billion, and 0.30% of such
assets in excess of $1 billion.
CW Fund Distributors, Inc. (the "Underwriter"), 312 Walnut Street, Cincinnati,
Ohio 45202, serves as principal underwriter for the Funds and as such, is the
exclusive agent for the distribution of shares of the Funds. The Underwriter 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.
Call toll-free 1.888.884.2675 Prospectus | 27
<PAGE>
HOW TO PURCHASE SHARES
You may purchase shares directly through the Funds' Transfer Agent or through a
brokerage firm or financial institution that has agreed to sell the Funds'
shares. Your initial investment in the Funds ordinarily must be at least $10,000
per Fund. For Individual Retirement Accounts (IRAs), Roth IRAs and 403(b)
accounts, the initial minimum investment is $2,000. For Education IRAs, the
initial minimum investment is $500. For all other retirement accounts, the
initial minimum investment is $10,000. Lower minimums are available to investors
purchasing shares of the Funds through certain brokerage firms. Shares of each
Fund are sold on a continuous basis at the net asset value next determined after
receipt of a purchase order by the Trust or an agent of the Trust. Any order
placed with such brokerage firm is treated as if it were placed directly with
the Trust. Your shares will be held in a pooled account in the broker's name,
and the broker will maintain your individual ownership information. In addition,
your brokerage firm may charge you a fee for handling your order. Your brokerage
firm is responsible for processing your order correctly and promptly, keeping
you advised of the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Trust's Prospectus.
Purchase orders received by such agents prior to the close of the regular
session of trading on the New York Stock Exchange (NYSE) on that day (the
cut-off time) are confirmed at the net asset value determined as of the close of
the regular session of trading on the NYSE on that day. It is the responsibility
of agents to transmit properly completed orders promptly. Agents may charge a
fee (separately negotiated with their customers) for effecting purchase orders.
Direct purchase orders received by the Transfer Agent before the cut-off time
are confirmed at that day's net asset value.
You may open an account and make an initial investment in the Funds through
selected brokerage firms or financial intermediaries or by sending a check and a
completed account application form to Firsthand Funds, P.O. Box 5354,
Cincinnati, Ohio 45201-5354. Checks should be made payable to "Firsthand Funds."
Third party checks will not be accepted.
The Transfer Agent (or your broker) mails you confirmations of all purchases or
redemptions of Fund shares. Certificates representing shares are not issued. The
Trust reserves the rights to limit the amount of investments and to refuse to
sell to any person.
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<PAGE>
If an order to purchase shares is cancelled because your check does not clear,
you will be responsible for any resulting losses or fees incurred by the Trust
or the Transfer Agent in the transaction.
Provided the Trust has received a completed account application form, you may
also purchase shares of the Funds by bank wire. Please telephone the Transfer
Agent (Nationwide call toll-free 1.888.884.2675) for instructions. You should be
prepared to give the name of the Fund in which you wish to purchase shares, the
name in which the account is to be established, the address, telephone number
and taxpayer identification number for the account, and the name of the bank
which will wire the money. Your investment will be made at the next determined
net asset value after your wire is received together with the account
information indicated above. If the Transfer Agent does not receive timely and
complete account information, there may be a delay in the investment of your
money and any accrual of dividends. To make your initial wire purchase, you must
mail a completed account application to the Transfer Agent. Your bank may impose
a charge for sending your wire. There is presently no fee for receipt of wired
funds, but the Transfer Agent reserves the right to charge shareholders for this
service upon thirty days' prior notice to shareholders.
You may purchase and add shares to your account ($50 minimum) by mail or by bank
wire. Checks should be sent to Firsthand Funds, P.O. Box 5354, Cincinnati, Ohio
45201-5354. Checks should be made payable to "Firsthand Funds." Bank wires
should be sent as outlined above. Each additional purchase request must contain
the account name and number to permit proper crediting.
The Technology Innovators Fund is presently closed to new investors. However,
from time to time, the Fund may reopen and close to new investors at the
Investment Advisor's discretion. Current shareholders may make additional
investments into their existing accounts or may open new accounts. Please be
advised that if you redeem your total investment in the Fund, your account will
be closed and you will not be able to make additional investments into the Fund.
Call toll-free 1.888.884.2675 Prospectus | 29
<PAGE>
HOW TO REDEEM SHARES
You may redeem shares of each Fund on each day that the Trust is open for
business. You will receive the net asset value per share next determined after
receipt by the Transfer Agent of your redemption request in the form described
below, less any applicable redemption fees. Payment is normally made within
three business days after tender in such form, provided that payment in
redemption of shares purchased by check will be effected only after the check
has been collected, which may take up to fifteen days from the purchase date. To
eliminate this delay, you may purchase shares of the Funds by certified check or
wire.
BY TELEPHONE. You may redeem shares having a value of less than $50,000 by
telephone. The proceeds will be sent by mail to the address designated on your
account or wired directly to your existing account in any commercial bank or
brokerage firm in the United States as designated on your application. To redeem
by telephone, call the Transfer Agent (Nationwide call toll-free 888-884-2675).
The redemption proceeds will normally be sent by mail or by wire within three
business days after receipt of your telephone instructions. IRA accounts are not
redeemable by telephone.
The telephone redemption privilege is automatically available to all new
accounts. If you do not want the telephone redemption privilege, you must
indicate this in the appropriate area on your account application or you must
write to the Transfer Agent and instruct them to remove this privilege from your
account.
You may change the bank or brokerage account which you have designated at any
time by writing to the Transfer Agent with your signature guaranteed by any
eligible guarantor institution (including banks, brokers and dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations). Contact the Transfer Agent to
obtain this form. Further documentation will be required to change the
designated account if shares are held by a corporation, fiduciary or other
organization.
The Transfer Agent reserves the right to suspend the telephone redemption
privilege with respect to any account if the name(s) or the address on the
account has been changed within the previous 30 days.
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Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine or for any loss, damage, cost or expenses in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
BY MAIL. You may redeem any number of shares from your account by sending a
written request to the Transfer Agent. The request must state the number of
shares or the dollar amount to be redeemed and your account number. The request
must be signed exactly as your name appears on the Trust's account records. If
the shares to be redeemed have a value of $50,000 or more, your signature must
be guaranteed by any of the eligible guarantor institutions outlined above. If
the name(s) or the address on your account has been changed within 30 days of
your redemption request, you will be required to request the redemption in
writing with your signature guaranteed, regardless of the value of the shares
being redeemed.
Written redemption requests may also direct that the proceeds be deposited
directly in a domestic bank or brokerage account designated on your account
application for telephone redemptions. Proceeds of redemptions requested by mail
are normally mailed within three business days following receipt of instructions
in proper form.
THROUGH BROKER DEALERS. You may also redeem shares of the Funds by placing a
wire redemption request through a securities broker or dealer. Unaffiliated
broker-dealers may charge you a fee for this service. You will receive the net
asset value per share next determined after receipt by the Trust or its agent of
your wire redemption request. It is the responsibility of broker-dealers to
promptly transmit wire redemption orders.
Call toll-free 1.888.884.2675 Prospectus | 31
<PAGE>
ADDITIONAL REDEMPTION INFORMATION. If your instructions request a redemption by
wire, the proceeds will be wired directly to your existing account in any
commercial bank or brokerage firm in the United States as designated on your
application and you will be charged an $8 processing fee by the Funds'
Custodian. The Trust reserves the right, upon thirty days' written notice, to
change the processing fee. All charges will be deducted from your account by
redemption of shares in your account. Your bank or brokerage firm may also
impose a charge for processing the wire. In the event that wire transfer of
funds is impossible or impractical, the redemption proceeds will be sent by mail
to the designated account.
Redemption requests may direct that the proceeds be deposited directly in your
account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
At the discretion of the Trust or the Transfer Agent, corporate investors and
other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account, other than an IRA account, if at any
time the value of your shares is less than $10,000 (based on actual amounts
invested, unaffected by market fluctuations), or such other minimum amount as
the Trust may determine from time to time. After notification to you of the
Trust's intention to close your account, you will be given sixty days to
increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to postpone
the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the
Funds may make payment for shares redeemed in portfolio securities of the Funds
taken at current value.
32 | Firsthand www.FirsthandFunds.com
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Any redemption fees will apply to exchanges and redemptions out of a Fund. The
redemption fees are intended to compensate the Funds for the increased expenses
to longer-term shareholders and the disruptive effect on the portfolios caused
by short-term investments. The redemption fee will be assessed on the net asset
value of the shares redeemed or exchanged and will be deducted from the
redemption proceeds otherwise payable to the shareholder. Each Fund will retain
the fee charged. The Funds reserve the right to waive the redemption fee under
certain circumstances.
SHAREHOLDER SERVICES
Contact the Transfer Agent (nationwide call toll-free 1.888.884.2675) for
additional information about the shareholder services described below.
TAX-DEFERRED RETIREMENT PLANS
Shares of each Fund are available for purchase in connection with the following
tax-deferred retirement plans:
o Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
o 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 of 1986 (the "Code")
DIRECT DEPOSIT PLANS
Shares of each Fund may be purchased through direct deposit plans offered by
certain employers and government agencies. These plans enable a shareholder to
have all or a portion of his or her payroll or Social Security checks
transferred automatically to purchase shares of the Funds.
Call toll-free 1.888.884.2675 Prospectus | 33
<PAGE>
AUTOMATIC INVESTMENT PLAN
By completing the Automatic Investment Plan section of the account application,
you may make automatic monthly investments in each Fund from your bank, savings
and loan or other depository institution account. The minimum investment must be
$50 under the plan; the applicable initial minimum investment still applies. The
Transfer Agent pays the costs associated with these transfers, but reserves the
right, upon thirty days' written notice, to make reasonable charges for this
service. Your depository institution may impose its own charge for debiting your
account which would reduce your return from an investment in the Funds. You may
change the amount of the investment or discontinue the plan at any time by
writing to the Transfer Agent.
EXCHANGE PRIVILEGE
Shares of the Funds may be exchanged for each other at net asset value. Shares
of any Fund may also be exchanged at net asset value for shares of the Short
Term Government Income Fund (the "Money Market Fund") (a series of Countrywide
Investment Trust), which invests in short-term U.S. Government obligations
backed by the "full faith and credit" of the United States Government and seeks
high current income, consistent with protection of capital. Shares of the Money
Market Fund acquired via exchange may be reexchanged for shares of any Fund at
net asset value. In order to exchange your Fund shares for shares of the Money
Market Fund, you must first read its prospectus and open a separate Money Market
Fund account. To obtain a prospectus and account application for the Money
Market Fund call 1.888.884.2675.
You may request an exchange by sending a written request to the Transfer Agent.
The request must be signed exactly as your name appears on the Trust's account
records. Exchanges may also be requested by telephone. An exchange will be
effected at the next determined net asset value after receipt of a request by
the Transfer Agent. Your request is subject to the Funds' cut-off time which is
normally 4:00 p.m. eastern time. Requests received by the Transfer Agent prior
to the cut-off time will receive that day's net asset value. Requests received
by the Transfer Agent after the cut-off time will be filled at the next day's
net asset value.
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The telephone exchange privilege is automatically available to all shareholders.
Neither the Trust, the Transfer Agent, nor their respective affiliates will be
liable for complying with telephone instructions they reasonably believe to be
genuine for any loss, damage, cost or expense in acting on such telephone
instructions. The affected shareholders will bear the risk of any such loss. The
Trust or the Transfer Agent, or both, will employ reasonable procedures to
determine that telephone instructions are genuine. If the Trust and/or the
Transfer Agent do not employ such procedures, they may be liable for losses due
to unauthorized or fraudulent instructions. These procedures may include, among
others, requiring forms of personal identification prior to acting upon
telephone instructions, providing written confirmation of the transactions
and/or tape recording telephone instructions.
Exchanges may only be made for shares of Funds then offered for sale in your
state of residence and are subject to the applicable minimum initial investment
requirements. The exchange privilege may be modified or terminated by the Board
of Trustees upon 60 days' prior notice to shareholders. Before making an
exchange for shares of the Short Term Government Income Fund, contact the
Transfer Agent to obtain a current prospectus and more information about
exchanges among the Funds.
Exchanges are considered redemptions for the purpose of assessing any applicable
redemption fee.
DIVIDENDS AND DISTRIBUTIONS
Each Fund expects to distribute substantially all of its net investment income
and net realized gains, if any, at least annually. Dividends and distributions
are automatically reinvested in additional shares of the Funds (the Share
Option) unless cash payments are specified on your application or are otherwise
requested by contacting the Transfer Agent. All distributions will be based on
the net asset value in effect on the payable date.
If you elect to receive dividends in cash and the U.S. Postal Service cannot
deliver your checks or if your checks remain uncashed for six months, your
dividends may be reinvested in your account at the then-current net asset value
and your account will be converted to the Share Option. No interest will accrue
on amounts represented by uncashed distribution checks.
Call toll-free 1.888.884.2675 Prospectus | 35
<PAGE>
TAXES
Each Fund has qualified in all prior years and intends to qualify and to be
treated as a "regulated investment company" under Subchapter Mof the Code by
annually distributing substantially all of its net investment company taxable
income, net tax-exempt income and net capital gains in dividends to its
shareholders and by satisfying certain other requirements related to the sources
of its income and the diversification of its assets. By so qualifying, a Fund
will not be subject to federal income tax or excise tax on that part of its
investment company taxable income and net realized short-term and long-term
capital gains which it distributes to its shareholders in accordance with the
Code's timing requirements.
Dividends and distributions paid to shareholders (whether received in cash or
reinvested in additional shares) are generally subject to federal income tax and
may be subject to state and local income tax. Dividends from net investment
income and distributions from any excess of net realized short-term capital
gains over net realized capital losses are taxable to shareholders (other than
tax-exempt entities that have not borrowed to purchase or carry their shares of
the Funds) as ordinary income.
Distributions of net capital gains (the excess of net long-term capital gains
over net short-term capital losses) by a Fund to its shareholders are taxable to
you as capital gains, without regard to the length of time you have held your
Fund shares. Capital gains distributions may be taxable at different rates
depending on the length of time a Fund holds its assets.
Redemptions of shares of the Funds are taxable events on which you may realize a
gain or loss. An exchange of a Fund's shares for shares of another Fund will be
treated as a sale of such shares and any gain on the transaction may be subject
to federal income tax.
The Trust will mail a statement to you annually indicating the amount and
federal income tax status of all distributions made during the year. The Funds'
distributions may be subject to federal income tax whether received in cash or
reinvested in additional shares. In addition to federal taxes, you may be
subject to state and local taxes on distributions.
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CALCULATION OF SHARE PRICE
On each day that the Trust is open for business, the share price (net asset
value) of the shares of each Fund is determined as of the close of the regular
session of trading on the New York Stock Exchange (normally 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 a
Fund's investments that its net asset value might be materially affected. The
net asset value per share of each Fund is calculated by dividing the sum of the
value of the securities held by the Fund plus cash or other assets minus all
liabilities (including estimated accrued expenses) by the total number of shares
outstanding of the Fund, rounded to the nearest cent. The price at which a
purchase or redemption of Fund shares is effected is based on the next
calculation of net asset value after the order is placed.
Portfolio securities are valued as follows: (1) securities 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
last sale price (or, if the last sale price is not readily available, at the
most recent bid price as quoted by brokers that make markets in the securities)
as of the close of the regular session of trading on the New York Stock Exchange
on the day the securities are being valued, (3) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (4) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.
Because each Fund may invest in foreign securities that are listed on foreign
exchanges that may trade on weekends or other days when the Fund does not price
its shares, the net asset value of each Fund's shares may change on days when
shareholders will not be able to purchase or redeem shares.
Call toll-free 1.888.884.2675 Prospectus | 37
<PAGE>
[LOGO]
FIRSTHAND FUNDS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
INVESTMENT ADVISER
Firsthand Capital Management, Inc.
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
UNDERWRITER
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, OH 45201
(Toll-Free) 1.888.884.2675
Additional information about the Funds is included in the Statement of
Additional Information ("SAI"), which is incorporated by reference in its
entirety.
To obtain a free copy of the SAI or other information about the Funds, or to
make shareholder inquiries about the Funds, please call 1.888.884.2675.
Information about the Funds (including the SAI) can be reviewed and copied at
the Securities and Exchange Commission's public reference room in Washington,
D.C. Information about the operation of the public reference room can be
obtained by calling the Commission at 1.800.SEC.0330. Reports and other
information about the Funds are avail-able on the Commission's Internet site at
www.sec.gov. Copies of information on the Commission's Internet site may be
obtained, upon payment of a duplicating fee, by writing to: Securities and
Exchange Commission, Public Reference Section, Washington, D.C. 20549-6009.
FFP.A.11 99
contact us at:
888.884.2675
www.firsthandfunds.com
File Nos. 33-73832, 811-8268
<PAGE>
Supplement dated November 30, 1999, to prospectus dated November 30, 1999.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance. Certain information reflects financial results for a
single Fund share. The total returns in the tables represent the rate that an
investor would have earned or lost on an investmaent in the Funds (assuming
reinvestment of all dividends and distributions). The information for the
periods ended December 31, 1994 through December 31, 1998 has been audited by
Tait, Weller & Baker, whose report, along with the Funds' financial statements,
are included in the Statement of Additional Informaiton, which is available upon
request.
Financial highlights for The Communications Fund and the e-Commerce Fund are not
available because they just commenced operations on September 30, 1999.
CW Fund Distributors, Inc. is a wholly owned subsidiary of Fort Washington
Investment Advisors, Inc.
Call toll-free 1.888.884.2675 Prospectus | 36a
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY VALUE FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Six Months Year Year Year Year Period
Ended Ended Ended Ended Ended Ended
6/30/99 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 (a)
================================================================================================================================
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 32.24 $ 26.06 $ 26.66 $ 18.44 $ 11.70 $ 10.00
----------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.27) (0.59) (0.26) (0.08) (0.14) (0.03)
----------------------------------------------------------------------------
Net realized and unrealized gains
on investments 21.82 6.77 1.90 11.20 7.28 2.56
----------------------------------------------------------------------------
Total from investment operations 21.55 6.18 1.64 11.12 7.14 2.53
----------------------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- -- (1.80) (2.90) (0.40) (0.83)
----------------------------------------------------------------------------
Distributions in excess of net realized gains -- -- (0.44) -- -- --
----------------------------------------------------------------------------
Total distributions -- -- (2.24) (2.90) (0.40) (0.83)
----------------------------------------------------------------------------
Net asset value at end of period $ 53.79 $ 32.24 $ 26.06 $ 26.66 $ 18.44 $ 11.70
============================================================================
Total return 66.84%(b) 23.71% 6.46% 60.55% 61.17% 25.30%(b)
============================================================================
Net assets at end of period (millions) $ 325.9 $ 178.1 $ 194.4 $ 35.1 $ 2.7 $ 0.2
============================================================================
Ratio of expenses to average net assets 1.94%(c) 1.95% 1.93% 1.81% 1.98% 1.96%(c)
----------------------------------------------------------------------------
Ratio of net investment loss to average
net assets (1.66%)(c) (1.80%) (1.43%) (0.55%) (1.45%) (1.29%)(c)
----------------------------------------------------------------------------
Portfolio turnover rate 57%(b) 126% 101% 43% 45% 56%(b)
----------------------------------------------------------------------------
</TABLE>
(a) Represents the period from the commencement of operations (May 20, 1994)
through December 31, 1994.
(b) Not annualized.
(c) Annualized.
36b | Firsthand www.FirsthandFunds.com
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY LEADERS FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Six Months Year Period
Ended Ended Ended
6/30/99 12/31/98 12/31/97(a)
(Unaudited)
===================================================================================
<S> <C> <C> <C>
Net asset value at beginning of period $ 17.94 $ 10.07 $ 10.00
---------------------------------------
Income from investment operations:
Net investment income (loss) (0.12) (0.09) 0.01
---------------------------------------
Net realized and unrealized gains
on investments 8.55 7.96 0.06
---------------------------------------
Total from investment operations 8.43 7.87 0.07
---------------------------------------
Less distributions:
Dividends from net investment income -- -- --
---------------------------------------
Distributions from net realized gains -- -- --
---------------------------------------
Total distributions -- -- --
---------------------------------------
Net asset value at end of period $ 26.37 $ 17.94 $ 10.07
=======================================
Total return 47.00%(b) 78.15% 0.70%(b)
=======================================
Net assets at end of period (millions) $ 96.3 $ 42.8 $ 3.6
=======================================
Ratio of expenses to average net assets 1.94%(c) 1.94% 1.80%(c)
---------------------------------------
Ratio of net investment income (loss)
to average net assets (1.49%)(c) (1.03%) 1.77%(c)
---------------------------------------
Portfolio turnover rate 29%(b) 105% 0%
---------------------------------------
</TABLE>
(a) Represents the period from the commencement of operations (May 20, 1997)
through December 31, 1997.
(b) Not annualized.
(c) Annualized.
Call toll-free 1.888.884.2675 Prospectus | 36c
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY INNOVATORS FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Six Months Period
Ended Ended
6/30/99 12/31/98(a)
(Unaudited)
================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 16.01 $ 10.00
-------------------------
Income from investment operations:
Net investment loss (0.04) (0.01)
-------------------------
Net realized and unrealized gains on investments 12.07 6.02
-------------------------
Total from investment operations 12.03 6.01
-------------------------
Less distributions:
Dividends from net investment income -- --
-------------------------
Distributions from net realized gains -- --
-------------------------
Total distributions -- --
-------------------------
Net asset value at end of period $ 28.04 $ 16.01
=========================
Total return 75.14%(b) 60.10%(b)
=========================
Net assets at end of period (millions) $ 50.2 $ 6.5
=========================
Ratio of expenses to average net assets 1.92%(c) 1.92%(c)
-------------------------
Ratio of net investment loss to average net assets (1.04%)(c) (0.59%)(c)
-------------------------
Portfolio turnover rate 80%(b) 188%(b)
-------------------------
</TABLE>
(a) Represents the period from the commencement of operations (May 20, 1998)
through December 31, 1998.
(b) Not annualized.
(c) Annualized.
36d | Firsthand www.FirsthandFunds.com
<PAGE>
- --------------------------------------------------------------------------------
PART B
Statement of Additional Information
for
Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
The Communications Fund
The e-Commerce Fund
- --------------------------------------------------------------------------------
<PAGE>
FIRSTHAND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 30, 1999
TECHNOLOGY VALUE FUND
TECHNOLOGY LEADERS FUND
TECHNOLOGY INNOVATORS FUND
THE COMMUNICATIONS FUND(TM)
THE E-COMMERCE FUND(TM)
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus for the Funds dated November 30, 1999, as may
be amended. A copy of the Prospectus can be obtained by writing to Firsthand
Funds at 101 Park Center Plaza, Suite 1300, San Jose, California 95113, or by
calling Firsthand Funds toll-free at 1.888.884.2675.
TABLE OF CONTENTS
THE TRUST......................................................................2
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..................................2
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS.......................11
INVESTMENT RESTRICTIONS.......................................................13
TRUSTEES AND OFFICERS.........................................................14
INVESTMENT ADVISORY AND OTHER SERVICES........................................15
THE UNDERWRITER...............................................................16
SECURITIES TRANSACTIONS.......................................................17
PORTFOLIO TURNOVER............................................................18
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................18
TAXES.........................................................................20
HISTORICAL PERFORMANCE INFORMATION............................................22
CUSTODIAN.....................................................................24
LEGAL COUNSEL AND AUDITORS....................................................24
COUNTRYWIDE FUND SERVICES, INC................................................25
B-1
<PAGE>
THE TRUST
Firsthand Funds (the "Trust"), an open-end management investment company, was
organized as a Delaware business trust on November 11, 1993, and offers several
series of shares. This Statement of Information ("SAI") pertains to the
Technology Value Fund, the Technology Leaders Fund, the Technology Innovators
Fund, The Communications Fund and The e-Commerce Fund (each a "Fund" and
collectively the "Funds"). Each Fund is a non-diversified series and has its own
investment objective and policies. Prior to May 1, 1998, the name of the Trust
was Interactive Investments Trust.
Shares of each Fund have equal voting rights and liquidation rights, and are
voted in the aggregate and not by Fund except in matters where a separate vote
is required by the Investment Company Act of 1940 (the "1940 Act") or when the
matter affects only the interest of a particular Fund. When matters are
submitted to shareholders for a vote, each shareholder is entitled to one vote
for each full share owned and fractional votes for fractional shares owned. The
Trust does not normally hold annual meetings of shareholders. The Trustees shall
promptly call and give notice of a meeting of shareholders for the purpose of
voting upon removal of any Trustee when requested to do so in writing by
shareholders holding 10% or more of the Trust's outstanding shares. The Trust
will comply with the provisions of Section 16(c) of the 1940 Act in order to
facilitate communications among shareholders.
Each share of a Fund represents an equal proportionate interest in the assets
and liabilities belonging to that Fund with each other share of that Fund and is
entitled to such dividends and distributions out of the income belonging to the
Fund as are declared by the Trustees. The shares do not have cumulative voting
rights or any preemptive or conversion rights, and the Trustees have the
authority from time to time to divide or combine the shares of any Fund into a
greater or lesser number of shares of that Fund so long as the proportionate
beneficial interests in the assets belonging to that Fund and the rights of
shares of any other Fund are in no way affected. In case of any liquidation of a
Fund, the holders of shares of the Fund being liquidated will be entitled to
receive as a class a distribution out of the assets, net of the liabilities,
belonging to that Fund. Expenses attributable to any Fund are borne by that
Fund. Any general expenses of the Trust not readily identifiable as belonging to
a particular Fund are allocated by or under the direction of the Trustees in
such manner as the Trustees allocate such expenses on the basis of relative net
assets or number of shareholders. No shareholder is liable to further calls or
to assessment by the Trust without his 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, Investment Strategies
and Risk Considerations") appears below:
MAJORITY. As used in the Prospectus and this Statement of Additional
Information, the term "majority" of the outstanding shares of the Trust (or of
any Fund) means the lesser of (1) two-
B-2
<PAGE>
thirds or more of the outstanding shares of the Trust (or the applicable Fund)
present at a meeting, if the holders of more than 50% of the outstanding shares
of the Trust (or the applicable Fund) are present or represented at such meeting
or (2) more than 50% of the outstanding shares of the Trust (or the applicable
Fund).
DEBT SECURITIES. Each Fund may invest in debt obligations of corporate issuers,
the U.S. Government, states, municipalities or state or municipal government
agencies that in the opinion of the Investment Adviser offer long-term capital
appreciation possibilities because of the timing of such investments. Each Fund
intends that no more than 35% of its total assets will be comprised of such debt
securities. Investments in such debt obligations may result in long-term capital
appreciation because the value of debt obligations varies inversely with
prevailing interest rates. Thus, an investment in debt obligations that is sold
at a time when prevailing interest rates are lower than they were at the time of
investment will typically result in capital appreciation. However, the reverse
is also true, so that if an investment in debt obligations is sold at a time
when prevailing interest rates are higher than they were at the time of
investment, a capital loss will typically be realized. Accordingly, if a Fund
invests in the debt obligations described above, such investments will generally
be made when the Investment Adviser expects that prevailing interest rates will
be falling, and will generally be sold when the Investment Adviser expects
interest rates to rise.
Each Fund's investments in this area will consist solely of investment grade
securities (rated BBB or higher by Standard & Poor's Ratings Group or Baa or
higher by Moody's Investors Service, Inc., or unrated securities determined by
the Investment Adviser to be of comparable quality). While securities in these
categories are generally accepted as being of investment grade, securities rated
BBB or Baa have speculative characteristics and changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to pay
principal and interest than is the case with higher grade securities. In the
event a security's rating is reduced below a Fund's minimum requirements, the
Fund will sell the security, subject to market conditions and the Investment
Adviser's assessment of the most opportune time for sale.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from one to
270) unsecured promissory notes issued by corporations in order to finance their
current operations. Each Fund will only invest in commercial paper rated A-1 by
Standard & Poor's Ratings Group ("Standard & Poor's") or Prime-1 by Moody's
Investors Service, Inc. ("Moody's") or unrated paper of issuers who have
outstanding unsecured debt rated AA or better by Standard & Poor's or Aa or
better by Moody's. Certain notes may have floating or variable rates. Variable
and floating rate notes with a demand notice period exceeding seven days will be
subject to each Fund's policy with respect to illiquid investments unless, in
the judgment of the Investment Adviser, such note is liquid.
The rating of Prime-1 is the highest commercial paper rating assigned by
Moody's. Among the factors considered by Moody's in assigning ratings are the
following: valuation of the management of the issuer; economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks which
may be inherent in certain areas; evaluation of the issuer's products in
relation to competition and customer acceptance; liquidity; amount and quality
of long-term debt; trend of earnings over a period of 10 years; financial
strength of the
B-3
<PAGE>
issuer's parent company and the relationships which exist with the issuer; and
recognition by the management of obligations which may be present or may arise
as a result of public interest questions and preparations to meet such
obligations. These factors are all considered in determining whether the
commercial paper is rated Prime-1. Issuers of commercial paper rated A (highest
quality) by Standard & Poor's have the following characteristics: liquidity
ratios are adequate to meet cash requirements; long-term senior debt is rated
"A" or better, although in some cases "BBB" credits may be allowed; the issuer
has access to at least two additional channels of borrowing; basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances;
typically, the issuer's industry is well established and the issuer has a strong
position within the industry; and the reliability and quality of management are
unquestioned. The relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1.
BANK DEBT INSTRUMENTS. Bank debt instruments in which the Funds may invest
consist of certificates of deposit, bankers' acceptances and time deposits
issued by national banks and state banks, trust companies and mutual savings
banks, or by banks or institutions the accounts of which are insured by the
Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation. Certificates of deposit are negotiable certificates evidencing the
indebtedness of a commercial bank to repay funds deposited with it for a
definite period of time (usually from 14 days to one year) at a stated or
variable interest rate. Bankers' acceptances are credit instruments evidencing
the obligation of a bank to pay a draft which has been drawn on it by a
customer, which instruments reflect the obligation both of the bank and of the
drawer to pay the face amount of the instrument upon maturity. Time deposits are
non-negotiable deposits maintained in a banking institution for a specified
period of time at a stated interest rate. Each Fund will not invest in time
deposits maturing in more than seven days if, as a result thereof, more than 15%
of the value of its net assets would be invested in such securities and other
illiquid securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a Fund
purchases a security and simultaneously commits to resell that security to the
seller at an agreed upon time and price, thereby determining the yield during
the term of the agreement. In the event of a bankruptcy or other default by the
seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear maturities
exceeding one year, settlement for the repurchase would never be more than one
year after the Fund's acquisition of the securities and normally would be within
a shorter period of time. The resale price will be in excess of the purchase
price, reflecting an agreed upon market rate effective for the period of time
the Fund's money will be invested in the securities, and will not be related to
B-4
<PAGE>
the coupon rate of the purchased security. At the time a Fund enters into a
repurchase agreement, the value of the underlying security, including accrued
interest, will equal or exceed the value of the repurchase agreement, and, in
the case of a repurchase agreement exceeding one day, the seller will agree that
the value of the underlying security, including accrued interest, will at all
times equal or exceed the value of the repurchase agreement. The collateral
securing the seller's obligation must be of a credit quality at least equal to a
Fund's investment criteria for portfolio securities and will be held by the
Custodian or in the Federal Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a loan from
a Fund to the seller subject to the repurchase agreement and is therefore
subject to a Fund's investment restriction applicable to loans. It is not clear
whether a court would consider the securities purchased by a Fund subject to a
repurchase agreement as being owned by that Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the securities before
repurchase of the security under a repurchase agreement, a Fund may encounter
delay and incur costs before being able to sell the security. Delays may involve
loss of interest or decline in price of the security. If a court characterized
the transaction as a loan and a Fund has not perfected a security interest in
the security, that Fund may be required to return the security to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, a Fund would be at the risk of losing some or all of the principal and
income involved in the transaction. As with any unsecured debt obligation
purchased for a Fund, the Investment Adviser seeks to minimize the risk of loss
through repurchase agreements by analyzing the creditworthiness of the obligor,
in this case, the seller. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security, in which case a Fund may incur a loss if the proceeds to that Fund of
the sale of the security to a third party are less than the repurchase price.
However, if the market value of the securities subject to the repurchase
agreement becomes less than the repurchase price (including interest), the Fund
involved will direct the seller of the security to deliver additional securities
so that the market value of all securities subject to the repurchase agreement
will equal or exceed the repurchase price. It is possible that a Fund will be
unsuccessful in seeking to enforce the seller's contractual obligation to
deliver additional securities.
MONEY MARKET FUNDS. Each Fund may under certain circumstances invest a portion
of its assets in money market investment companies. The 1940 Act prohibits a
Fund from investing more than 5% of the value of its total assets in any one
investment company, or more than 10% of the value of its total assets in
investment companies in the aggregate, and also restricts its investment in any
investment company to 3% of the voting securities of such investment company.
Investment in a money market investment company involves payment of such
company's pro rata share of advisory and administrative fees charged by such
company, in addition to those paid by the Funds.
WARRANTS. Each Fund may invest a portion of its assets in warrants, but only to
the extent that such investments do not exceed 5% of a Fund's net assets at the
time of purchase. A warrant gives the holder a right to purchase at any time
during a specified period a predetermined number of shares of common stock at a
fixed price. Unlike convertible debt securities or preferred stock,
B-5
<PAGE>
warrants do not pay a fixed coupon or dividend. Investments in warrants involve
certain risks, including the possible lack of a liquid market for resale of the
warrants, potential price fluctuations as a result of speculation or other
factors, and failure of the price of the underlying security to reach or have
reasonable prospects of reaching a level at which the warrant can be prudently
exercised (in which event the warrant may expire without being exercised,
resulting in a loss of a Fund's entire investment therein).
FOREIGN SECURITIES. Subject to each Fund's investment policies and quality
standards, the Funds may invest in the securities of foreign issuers. Because
the Funds may invest in foreign securities, an investment in the Funds involve
risks that are different in some respects from an investment in a fund which
invests only in securities of U.S. domestic issuers. Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There may be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies. There may be less
governmental supervision of securities markets, brokers and issuers of
securities. Securities of some foreign companies are less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Settlement
practices may include delays and may differ from those customary in United
States markets. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political
or economic developments, expropriation or nationalization of assets,
restrictions on foreign investment and repatriation of capital, imposition of
withholding taxes on dividend or interest payments, currency blockage (which
would prevent cash from being brought back to the United States), and difficulty
in enforcing legal rights outside the United States.
NON-DIVERSIFICATION OF INVESTMENTS. Each Fund is operated as a "non-diversified"
portfolio. As non-diversified investment companies, the Funds may be subject to
greater risks than diversified companies because of the possible fluctuation in
the values of securities of fewer issuers. However, at the close of each fiscal
quarter at least 50% of the value of each Fund's total assets will be
represented by one or more of the following: (i) cash and cash items, including
receivables; (ii) U.S. Government securities; (iii) securities of other
regulated investment companies; and (iv) securities (other than U.S. Government
securities and securities of other regulated investment companies) of any one or
more issuers which meet the following limitations: (a) the Fund will not invest
more than 5% of its total assets in the securities of any such issuer and (b)
the entire amount of the securities of such issuer owned by the Fund will not
represent more than 10% of the outstanding voting securities of such issuer.
Additionally, not more than 25% of the value of a Fund's total assets may be
invested in the securities of any one issuer.
WRITING COVERED CALL OPTIONS. Each Fund may write covered call options on equity
securities or futures contracts to earn premium income, to assure a definite
price for a security that those Funds have considered selling, or to close out
options previously purchased. A call option gives the holder (buyer) the right
to purchase a security or futures contract at a specified price (the exercise
price) at any time until a certain date (the expiration date). A call option is
"covered" if a Fund owns the underlying security subject to the call option at
all times
B-6
<PAGE>
during the option period. A covered call writer is required to deposit in escrow
the underlying security in accordance with the rules of the exchanges on which
the option is traded and the appropriate clearing agency.
The writing of covered call options is a conservative investment technique which
the Investment Adviser believes involves relatively little risk. However, there
is no assurance that a closing transaction can be effected at a favorable price.
During the option period, the covered call writer has, in return for the premium
received, given up the opportunity for capital appreciation above the exercise
price should the market price of the underlying security increase, but has
retained the risk of loss should the price of the underlying security decline.
Writing covered call options is not a principal investment strategy of the
Funds.
WRITING COVERED PUT OPTIONS. Each Fund may write covered put options on equity
securities and futures contracts to assure a definite price for a security if
they are considering acquiring the security at a lower price than the current
market price or to close out options previously purchased. A put option gives
the holder of the option the right to sell, and the writer has the obligation to
buy, the underlying security at the exercise price at any time during the option
period. The operation of put options in other respects is substantially
identical to that of call options. When a Fund writes a covered put option, it
maintains in a segregated account with its Custodian cash or liquid securities
in an amount not less than the exercise price at all times while the put option
is outstanding.
The risks involved in writing put options include the risk that a closing
transaction cannot be effected at a favorable price and the possibility that the
price of the underlying security may fall below the exercise price, in which
case a Fund may be required to purchase the underlying security at a higher
price than the market price of the security at the time the option is exercised.
Writing covered put options is not a principal investment strategy of the Funds.
OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Funds may
engage involve the specific risks described above as well as the following
risks: the writer of an option may be assigned an exercise at any time during
the option period; disruptions in the markets for underlying instruments could
result in losses for options investors; imperfect or no correlation between the
option and the securities being hedged; the insolvency of a broker could present
risks for the broker's customers; and market imposed restrictions may prohibit
the exercise of certain options. In addition, the option activities of a Fund
may affect its portfolio turnover rate and the amount of brokerage commissions
paid by a Fund. The success of a Fund in using the option strategies described
above depends, among other things, on the Investment Adviser's ability to
predict the direction and volatility of price movements in the options, futures
contracts and securities markets and the Investment Adviser's ability to select
the proper time, type and duration of the options.
By writing options, a Fund forgoes the opportunity to profit from an increase in
the market price of the underlying security or stock index above the exercise
price except insofar as the premium represents such a profit. Each Fund may also
seek to earn additional income through receipt of premiums by writing covered
put options. The risk involved in writing such options is that there could be a
decrease in the market value of the underlying security or stock index. If this
B-7
<PAGE>
occurred, the option could be exercised and the underlying security would then
be sold to the Fund at a higher price than its then current market value. The
Funds may purchase put and call options to attempt to provide protection against
adverse price effects from anticipated changes in prevailing prices of
securities or stock indices. The purchase of a put option generally protects the
value of portfolio holdings in a falling market, while the purchase of a call
option generally protects cash reserves from a failure to participate in a
rising market. In purchasing a call option, a Fund would be in a position to
realize a gain if, during the option period, the price of the security or stock
index increased by an amount greater than the premium paid. A Fund would realize
a loss if the price of the security or stock index decreased or remained the
same or did not increase during the period by more than the amount of the
premium. If a put or call option purchased by a Fund were permitted to expire
without being sold or exercised, its premium would represent a realized loss to
the Fund. When writing put options a Fund will be required to segregate cash
and/or liquid securities to meet its obligations. When writing call options a
Fund will be required to own the underlying financial instrument or segregate
with its Custodian cash and/or liquid securities to meet its obligations under
written calls. By so doing, a Fund's ability to meet current obligations, to
honor redemptions or to achieve its investment objective may be impaired. The
staff of the Securities and Exchange Commission has taken the position that
over-the-counter options and the assets used as "cover" for over-the-counter
options are illiquid securities.
The imperfect correlation in price movement between an option and the underlying
financial instrument and/or the costs of implementing such an option may limit
the effectiveness of the strategy. A Fund's ability to establish and close out
options positions will be subject to the existence of a liquid secondary market.
Although the Funds generally will purchase or sell only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option or
at any particular time. If an option purchased by a Fund expires unexercised,
the Fund will lose the premium it paid. In addition, a Fund could suffer a loss
if the premium paid by the Fund in a closing transaction exceeds the premium
income it received. When a Fund writes a call option, its ability to participate
in the capital appreciation of the underlying obligation is limited.
It is the present intention of the Adviser not to commit greater than 30% of a
Fund's net assets to option strategies.
BORROWING. Each Fund may borrow from banks for temporary or emergency purposes
in an aggregate amount not to exceed 25% of its total assets. Borrowing
magnifies the potential for gain or loss on the portfolio securities of a Fund
and, therefore, if employed, increases the possibility of fluctuation in the
Fund's net asset value. This is the speculative factor known as leverage. To
reduce the risks of borrowing, each Fund will limit its borrowings as described
above. Each Fund may pledge its assets in connection with borrowings. While a
Fund's borrowings exceed 5% of its total assets, it will not purchase portfolio
securities.
The use of borrowing by the Funds involves special risk considerations that may
not be associated with other funds having similar policies. Since substantially
all of a Fund's assets fluctuate in value, whereas the interest obligation
resulting from a borrowing will be fixed by the terms of the Fund's agreement
with their lender, the asset value per share of the Fund will tend to
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increase more when its portfolio securities increase in value and decrease more
when its portfolio securities decrease in value than would otherwise be the case
if the Fund did not borrow funds. In addition, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, a
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
LOANS OF PORTFOLIO SECURITIES. Each Fund may lend its portfolio securities to
banks, brokers and dealers. Lending portfolio securities exposes a Fund to the
risk that the borrower may fail to return the loaned securities or may not be
able to provide additional collateral or that a Fund may experience delays in
recovery of the loaned securities or loss of rights in the collateral if the
borrower fails financially. To minimize these risks, the borrower must agree to
maintain collateral marked to market daily, in the form of cash and/or U.S.
Government obligations, with the Funds' Custodian in an amount at least equal to
the market value of the loaned securities. Each Fund will limit the amount of
its loans of its portfolio securities to no more than 30% of its total assets.
Under applicable regulatory requirements (which are subject to change), the loan
collateral must, on each business day, at least equal the value of the loaned
securities. To be acceptable as collateral, letters of credit must obligate a
bank to pay amounts demanded by a Fund if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Fund. The
Funds receive amounts equal to the dividends or interest on loaned securities
and also receive one or more of (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such collateral; either type of interest may be shared with the
borrower. The Funds may also pay fees to placing brokers as well as custodian
and administrative fees in connection with loans. Fees may only be paid to a
placing broker provided that the Trustees determine that the fee paid to the
placing broker is reasonable and based solely upon services rendered, that the
Trustees separately consider the propriety of any fee shared by the placing
broker with the borrower, and that the fees are not used to compensate the
Adviser or any affiliated person of the Trust or an affiliated person of the
Adviser or other affiliated person. The terms of the Funds' loans must meet
applicable tests under the Internal Revenue Code and permit the Funds to
reacquire loaned securities on five days' notice or in time to vote on any
important matter. Loans of portfolio securities are not a principal investment
strategy of the Funds.
ILLIQUID SECURITIES. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933 (the "Securities Act"),
securities which are otherwise not readily marketable and securities such as
repurchase agreements having a maturity of longer than seven days. Securities
which have not been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased directly from the
issuer or in the secondary market. Mutual funds do not typically hold a
significant amount of these restricted or other illiquid securities because of
the potential for delays on resale and uncertainty in valuation. Limitations on
resale may have an adverse effect on the marketability of portfolio securities
and a mutual fund might be unable to dispose of restricted securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption requirements. A mutual fund
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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.
QUALITY RATINGS OF CORPORATE BONDS AND PREFERRED STOCKS
THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR CORPORATE BONDS IN WHICH THE
FUNDS MAY INVEST ARE AS FOLLOWS:
MOODY'S
- -------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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STANDARD & POOR'S
- -----------------
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
THE RATINGS OF MOODY'S AND STANDARD & POOR'S FOR PREFERRED STOCKS IN WHICH THE
FUNDS MAY INVEST ARE AS FOLLOWS:
MOODY'S
- -------
aaa - An issue which is rated aaa is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa - An issue which is rated aa is considered a high-grade preferred stock. This
rating indicates that there is reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.
a - An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classifications, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
baa - An issue which is rated baa is considered to be medium grade, neither
highly protected nor poorly secured. Earnings and asset protection appear
adequate at present but may be questionable over any great length of time.
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.
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A - An issue rated A is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the diverse effects of
changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT RESTRICTIONS
The Trust has adopted certain fundamental investment restrictions designed to
reduce the risk of an investment in the Funds. These restrictions may not be
changed with respect to any Fund without the affirmative vote of a majority of
the outstanding voting securities of that Fund. Each Fund may not:
1. Underwrite the securities of other issuers, except that the Fund may, as
indicated in the Prospectus, acquire restricted securities under circumstances
where, if such securities are sold, the Fund might be deemed to be an
underwriter for purposes of the Securities Act of 1933.
2. Purchase or sell real estate or interests in real estate, but the Fund may
purchase marketable securities of companies holding real estate or interests in
real estate.
3. Purchase or sell commodities or commodity contracts, including futures
contracts, except that the Technology Leaders Fund, the Technology Innovators
Fund, The Communications Fund and The e-Commerce Fund may purchase and sell
futures contracts to the extent authorized by the Board of Trustees.
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.
5. Purchase securities on margin, but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
6. Borrow money from banks except for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests that might otherwise
require the untimely disposition of securities, in an aggregate amount not
exceeding 25% of the value of the Fund's total assets at the time any borrowing
is made. While the Fund's borrowings are in excess of 5% of its total assets,
the Fund will not purchase portfolio securities.
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7. Purchase or sell puts and calls on securities, except that the Technology
Leaders Fund, the Technology Innovators Fund, The Communications Fund and The
e-Commerce Fund may purchase and sell puts and calls on stocks and stock
indices.
8. Make short sales of securities.
9. Participate on a joint or joint and several basis in any securities trading
account.
10. Purchase the securities of any other investment company except in compliance
with the 1940 Act.
With respect to the percentages adopted by the Trust as maximum limitations on a
Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.
TRUSTEES AND OFFICERS
The business of the Trust is managed under the direction of the Board of
Trustees in accordance with the Declaration of Trust of the Trust, which
Declaration of Trust has been filed with the Securities and Exchange Commission
and is available upon request. Pursuant to the Declaration of Trust, the
Trustees shall elect officers including a president, secretary and treasurer.
The Board of Trustees retains the power to conduct, operate and carry on the
business of the Trust and has the power to incur and pay any expenses which, in
the opinion of the Board of Trustees, are necessary or incidental to carry out
any of the Trust's purposes. The Trustees, officers, employees and agents of the
Trust, when acting in such capacities, shall not be subject to any personal
liability except for his or her own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duties. Following is a list of
the Trustees and executive officers of the Trust and their compensation from the
Trust for the fiscal year ended December 31, 1998.
NAME AGE POSITION HELD TOTAL COMPENSATION**
*Kevin M. Landis [38] Trustee/President N/A
Michael T. Lynch [38] Trustee $8,000
Jerry Wong [48] Trustee N/A***
Yakoub Bellawala [34] Treasurer N/A
* Kevin M. Landis is an affiliated person of Firsthand Capital Management, Inc.,
the Funds' investment adviser, and is an "interested person" of the Trust within
the meaning of Section 2(a)(19) of the 1940 Act.
** The Trust does not maintain pension or retirement plans.
*** Jerry Wong became a Trustee on 11/27/99
The principal occupations of the Trustees and executive officers of the Trust
during the past five years are set forth below:
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KEVIN M. LANDIS, 101 Park Center Plaza, Suite 1300, San Jose, California 95113
is President of Firsthand Capital Management, Inc., and has been a portfolio
manager with Firsthand Capital Management since 1994.
MICHAEL T. LYNCH, 400 North 34th St. Suite 300, Seattle, WA 98103 is currently a
Vice President of Sales and Business Development of Digital Intelligence, Inc.
Mr. Lynch served as a Product Manager for Iomega Corp. from 1995 through 1999.
Mr. Lynch served as a Product Manager for Adaptec, Inc. during 1995. He served
as Product Line Manager for Calera Recognition Systems, Inc., a manufacturer of
Optical Character Recognition Software, from 1990 to 1995.
JERRY WONG, 2620 Somerset Drive, Belmont, CA 94002 is currently Vice President
of Finance of Poet Software Corporation. Mr. Wong served as a Corporate
Controller for Blyth Software Inc. from 1993 through July 1995 and has been with
Poet since 1995. Mr. Wong served as Corporate Controller and Secretary of
Corporation for Protocol Engines Inc. from 1991 to 1993.
YAKOUB BELLAWALA, 101 Park Center Plaza, Suite 1300, San Jose, California 95113,
is Vice President of Business Development of Firsthand Capital Management. He
was previously the Database Marketing Manager for Silicon Graphics, Inc.
(1995-1996); the Director of Product Management and Product Marketing for
Starbase Corporation (1994-1995); and a Senior Product Manager for Oracle
Corporation (1989-1994).
INVESTMENT ADVISORY AND OTHER SERVICES
Firsthand Capital Management, Inc. (the "Investment Adviser"), 101 Park Center
Plaza, Suite 1300, San Jose, California 95113, is registered as an investment
adviser with the Securities and Exchange Commission under the Investment
Advisers Act of 1940. The Investment Adviser is controlled by Kevin M. Landis.
Prior to September 1999 the Investment Adviser was named Interactive Research
Advisers, Inc.
Under the terms of the Investment Advisory and Management Agreement (the
"Advisory Agreement") between the Trust and the Investment Adviser, the
Investment Adviser (i) manages the investment operations of each Fund and the
composition of its portfolio, including the purchase, retention and disposition
of securities in accordance with each Fund's investment objective, (ii) provides
all statistical, economic and financial information reasonably required by the
Funds and reasonably available to the Investment Adviser, (iii) provides the
Custodian of the Funds' 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.
Pursuant to the Advisory Agreement, each Fund pays to the Investment Adviser, on
a monthly basis, an advisory fee at an annual rate of 1.50% of its average daily
net assets. The Advisory Agreement requires the Investment Adviser to waive its
management fees and, if necessary, reimburse expenses of the Funds to the extent
necessary to limit each Fund's total operating expenses to 1.95% of its average
net assets up to $200 million, 1.90% of such assets from $200 million to $500
million, 1.85% of such assets from $500 million to $1 billion, and 1.80% of such
assets in excess of $1 billion. For the fiscal years ended December 31, 1998,
1997 and 1996, the Technology Value Fund paid advisory fees of $2,734,532,
$1,830,251 and $122,185, respectively. For the fiscal year and period ended
December 31, 1998 and 1997, the Technology Leaders Fund paid advisory fees of
$286,734 and $1,769, respectively. For the fiscal period ended December 31,
1998, the Technology Innovators Fund paid advisory fees of $14,782.
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<PAGE>
By its terms, the Advisory Agreement remains in force from year to year, subject
to annual approval by (a) the Board of Trustees or (b) a vote of the majority of
a Fund's outstanding voting securities; provided that in either event
continuance is also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a meeting called
for the purpose of voting such approval. The Advisory Agreement may be
terminated at any time, on 60 days' written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of a Fund's
outstanding voting securities, or by the Investment Adviser. The Advisory
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.
The Board of Trustees of the Trust has approved an Administration Agreement with
the Investment Adviser wherein the Investment Adviser is responsible for the
provision of administrative and supervisory services to the Funds. The
Investment Adviser, at its expense, shall supply the Trustees and the officers
of the Trust with all statistical information and reports reasonably required by
it and reasonably available to the Investment Adviser. The Investment Adviser
shall oversee the maintenance of all books and records with respect to the
Funds' security transactions and the Funds' books of account in accordance with
all applicable federal and state laws and regulations. The Investment Adviser
will arrange for the preservation of the records required to be maintained by
the 1940 Act.
Pursuant to the Administration Agreement, each Fund will pay to the Investment
Adviser, on a monthly basis, a fee equal to 0.45% per annum of its average daily
net assets up to $200 million, 0.40% of such assets from $200 million to $500
million, 0.35% of such assets from $500 million to $1 billion, and 0.30% of such
assets in excess of $1 billion.
For the fiscal years ended December 31, 1998, 1997 and 1996, the Technology
Value Fund paid administrative fees of $816,383, $778,503 and $101,257,
respectively. For the fiscal year and period ended December 31, 1998 and 1997,
the Technology Leaders Fund paid administrative fees of $86,020 and $531,
respectively. For the fiscal period ended December 31, 1998, the Technology
Innovators Fund paid administrative fees of$4,435.
The Administration Agreement may be terminated by the Trust at any time, on 60
days' notice to the Investment Adviser, without penalty either (a) by vote of
the Board of Trustees of the Trust, or (b) by vote of a majority of the
outstanding voting securities of a Fund. It may be terminated at any time by the
Investment Adviser on 60 days' written notice to the Trust.
THE UNDERWRITER
CW Fund Distributors, Inc. (the "Underwriter"), 312 Walnut Street, 21st Floor,
Cincinnati, Ohio 45202, serves as principal underwriter for the Trust pursuant
to an Underwriting Agreement. Shares are sold on a continuous basis by the
Underwriter. The Underwriter has agreed to use its best efforts to solicit
orders for the sale of Trust shares, but it is not obliged to sell any
particular amount of shares. The Underwriting Agreement provides that, unless
sooner terminated, it will continue in effect from year to year, subject to
annual approval by (a) the Board of Trustees or a vote of a majority of the
outstanding shares, and (b) by a majority of the Trustees who are not
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interested persons of the Trust or of the Underwriter by vote cast in person at
a meeting called for the purpose of voting on such approval.
The Underwriting Agreement may be terminated by the Trust at any time, without
the payment of any penalty, by vote of a majority of the entire Board of
Trustees of the Trust or by vote of a majority of the outstanding shares of the
Funds on 60 days' written notice to the Underwriter, or by the Underwriter at
any time, without the payment of any penalty, on 60 days' written notice to the
Trust. The Underwriting Agreement will automatically terminate in the event of
its assignment.
SECURITIES TRANSACTIONS
The Investment Adviser furnishes advice and recommendations with respect to the
Funds' portfolio decisions and, subject to the supervision of the Board of
Trustees of the Trust, determines the broker to be used in each specific
transaction. In executing the Funds' portfolio transactions, the Investment
Adviser seeks to obtain the best net results for the Funds, taking into account
such factors as the overall net economic result to the Funds (involving both
price paid or received and any commissions and other costs paid), the efficiency
with which the specific transaction is effected, the ability to effect the
transaction where a large block is involved, the known practices of brokers and
the availability to execute possibly difficult transactions in the future and
the financial strength and stability of the broker. While the Investment Adviser
generally seeks reasonably competitive commission rates, the Funds do not
necessarily pay the lowest commission or spread available.
The Investment Adviser may direct the Funds' portfolio transactions to persons
or firms because of research and investment services provided by such persons or
firms if the amount of commissions in effecting the transactions is reasonable
in relationship to the value of the investment information provided by those
persons or firms. Such research and investment services are those which
brokerage houses customarily provide to institutional investors and include
statistical and economic data and research reports on particular companies and
industries. These services may be used by the Investment Adviser in connection
with all of its investment activities, and some of the services obtained in
connection with the execution of transactions for the Funds may be used in
managing the Investment Adviser's other investment accounts.
The Funds may deal in some instances in securities which are not listed on a
national securities exchange but are traded in the over-the-counter market. The
Funds may also purchase listed securities through the "third market" (i.e.,
otherwise than on the exchanges on which the securities are listed). When
transactions are executed in the over-the-counter market or the third market,
the Investment Adviser will seek to deal with primary market makers and to
execute transactions on the Funds' own behalf, except in those circumstances
where, in the opinion of the Investment Adviser, better prices and executions
may be available elsewhere. The Funds do not allocate brokerage business in
return for sales of the Funds' shares.
Neither the Investment Adviser nor any affiliated person thereof will
participate in commissions paid by the Funds to brokers or dealers or will
receive any reciprocal business, directly or indirectly, as a result of such
commissions.
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The Technology Value Fund paid brokerage commissions of $110,003, $275,303 and
$57,050 during the fiscal years ended December 31, 1998, 1997 and 1996,
respectively. The Technology Leaders Fund paid brokerage commissions of $19,440
and $876 during the fiscal year and period ended December 31, 1998 and 1997,
respectively. The Technology Innovators Fund paid brokerage commissions of
$1,050 during the fiscal period ended December 31, 1998.
The Board of Trustees reviews periodically the allocation of brokerage orders to
monitor the operation of these policies.
PORTFOLIO TURNOVER
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. A 100% turnover rate would occur if all of a Fund's portfolio securities
were replaced once within a one year period.
Generally, each Fund intends to invest for long-term purposes. However, the rate
of portfolio turnover will depend upon market and other conditions, and it will
not be a limiting factor when the Adviser believes that portfolio changes are
appropriate. It is expected that the turnover for The Communications Fund and
The e-Commerce Fund will be between 100% and 200% annually. For the fiscal years
ended December 31, 1998 and 1997, The Technology Value Fund's portfolio turnover
rate was 126% and 101%, respectively. For the fiscal year ended December 31,
1998, the portfolio turnover rate of the Technology Leaders Fund was 105%. For
the fiscal period ended December 31, 1998, the portfolio turnover rate for the
Technology Innovators Fund was 188%.
PURCHASE, REDEMPTION AND PRICING OF SHARES
CALCULATION OF SHARE PRICE
The share price (net asset value) of the shares of each Fund is determined as of
the close of the regular session of trading on the New York Stock Exchange
(currently 4:00 p.m., eastern time), on each day the Trust is open for business.
The Trust is open for business on every day except Saturdays, Sundays and the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. The Trust may also be open for business on other days in which there
is sufficient trading in a Fund's portfolio securities that its net asset value
might be materially affected. For a description of the methods used to determine
the share price, see "Calculation of Share Price" in the Prospectus.
In valuing a Fund's assets for the purpose of determining net asset value,
readily marketable portfolio securities listed on a national securities exchange
are valued at the last sale price on
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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 last sale price, if available,
otherwise at the most recent bid price. If no bid price is quoted on such day,
then the security is valued by such method as the Investment Adviser under the
supervision of the Board of Trustees determines in good faith to reflect its
fair value. All other assets of the Funds, including restricted securities and
securities that are not readily marketable, are valued in such manner as the
Investment Adviser under the supervision of the Board of Trustees in good faith
deems appropriate to reflect their fair value.
PURCHASE OF SHARES
Orders for shares received by the Trust in proper form prior to the close of
business on the New York Stock Exchange (the "Exchange") on each day during such
periods that the Exchange is open for trading are priced at net asset value per
share computed as of the close of the regular session of trading on the
Exchange. Orders received in proper form after the close of the Exchange, or on
a day it is not open for trading, are priced at the close of such Exchange on
the next day on which it is open for trading at the next determined net asset
value per share.
REDEMPTION OF SHARES
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven calendar days after a shareholder's
redemption request made in accordance with the procedures set forth in the
Prospectus, except for any period during which the Exchange is closed (other
than customary weekend and holiday closing) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by a Fund of securities owned
by it is not reasonably practicable or as a result of which it is not reasonably
practicable for a Fund to fairly determine the value of its net assets, or for
such other period as the Securities and Exchange Commission may by order permit
for the protection of security holders of the Funds.
The Trust will redeem all or any portion of a shareholder's shares of the Funds
when requested in accordance with the procedures set forth in the "How to Redeem
Shares" section of the Prospectus.
REDEMPTION IN KIND
Payment of the net redemption proceeds may be made either in cash or in
portfolio securities (selected in the discretion of the Investment Adviser under
supervision of the Board of Trustees and taken at their value used in
determining the net asset value), or partly in cash and partly in portfolio
securities. However, payments will be made wholly in cash unless the Board of
Trustees believes that economic conditions exist which would make such a
practice detrimental to the best interests of a Fund. If payment for shares
redeemed is made wholly or partly in
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portfolio securities, brokerage costs may be incurred by the investor in
converting the securities to cash. The Trust has filed an election with the
Securities and Exchange Commission pursuant to which a Fund will effect a
redemption in portfolio securities only if the particular shareholder of record
is redeeming more than $250,000 or 1% of net assets, whichever is less, during
any 90-day period. The Trust expects, however, that the amount of a redemption
request would have to be significantly greater than $250,000 or 1% of net assets
before a redemption wholly or partly in portfolio securities would be made.
TAXES
Each Fund has elected, and intends to qualify annually, for the special tax
treatment afforded regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify as a
regulated investment company, a Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividend, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures and forward contracts) derived with
respect to their business of investing in such stock, securities or currencies;
(b) diversify its holdings so that, at the end of each quarter of the taxable
year, (i) at least 50% of the market value of the Fund's assets are represented
by cash, U.S. Government securities, the securities of other regulated
investment companies, and other securities, with such other securities of any
one issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Fund's total assets or 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets are invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment companies)
or in two or more issuers which the Funds control and which are engaged in the
same or similar trades or businesses; and (c) distribute at least 90% of its
investment company taxable income (which includes dividends, interest and net
short-term capital gains in excess of any net long-term capital losses) each
taxable year.
As regulated investment companies, each Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (any
long-term capital gains in excess of the sum of net short-term capital losses
and capital loss carryovers available from the eight prior years), if any, that
it distributes to shareholders. Each Fund intends to distribute annually to its
shareholders substantially all of its investment company taxable income and any
net capital gains. In addition, amounts not distributed by a Fund on a timely
basis in accordance with a calendar year distribution requirement are subject to
a nondeductible 4% excise tax. To avoid the tax, a Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of its
ordinary income (with adjustment) for the calendar year and (2) at least 98% of
its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the 12 month period ending on October 31 of the calendar
year, and (3) all ordinary income and capital gains for previous years that were
not distributed during such years. In order to avoid application of the excise
tax, each Fund intends to make distributions in accordance with these
distribution requirements.
In view of each Fund's investment policies, it is expected that dividends
received from domestic and certain foreign corporations will be part of each
Fund's gross income. Distributions by the
B-19
<PAGE>
Funds of such dividends to corporate shareholders may be eligible for the "70%
dividends received" deduction, subject to the holding period and debt-financing
limitations of the Code. However, the portion of each Fund's gross income
attributable to dividends received from qualifying corporations is largely
dependent on its investment activities for a particular year and therefore
cannot be predicted with certainty. In addition, for purposes of the dividends
received deduction available to corporations, a capital gain dividend received
from a regulated investment company is not treated as a dividend. Corporate
shareholders should be aware that availability of the dividends received
deduction is subject to certain restrictions. For example, the deduction is not
available if Fund shares are deemed to have been held for less than 46 days
(within the 90-day period that begins 45 days before the ex-dividend date and
ends 45 days after the ex-dividend date) and is reduced to the extent such
shares are treated as debt-financed under the Code. Dividends, including the
portions thereof qualifying for the dividends received deduction, are includable
in the tax base on which the federal alternative minimum tax is computed.
Dividends of sufficient aggregate amount received during a prescribed period of
time and qualifying for the dividends received deduction may be treated as
"extraordinary dividends" under the Code, resulting in a reduction in a
corporate shareholder's federal tax basis in its Fund shares.
Each Fund may invest as much as 15% of its net assets in securities of foreign
companies and may therefore be liable for foreign withholding and other taxes,
which will reduce the amount available for distribution to shareholders. Tax
conventions between the United States and various other countries may reduce or
eliminate such taxes. A foreign tax credit or deduction is generally allowed for
foreign taxes paid or deemed to be paid. A regulated investment company may
elect to have the foreign tax credit or deduction claimed by the shareholders
rather than the company if certain requirements are met, including the
requirement that more than 50% of the value of the company's total assets at the
end of the taxable year consist of securities in foreign corporations. Because
the Funds do not anticipate investment in securities of foreign corporations to
this extent, the Funds will likely not be able to make this election and foreign
tax credits will be allowed only to reduce a Fund's tax liability, if any.
Under the Code, upon disposition of certain securities denominated in a foreign
currency, gains or losses attributable to fluctuations in the value of the
foreign currency between the date of acquisition of the securities and the date
of disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income.
Any dividend or distribution received shortly after a share purchase will have
the effect of reducing the net asset value of such shares by the amount of such
dividend or distribution. Such dividend or distribution is fully taxable.
Accordingly, prior to purchasing shares of the Funds, an investor should
carefully consider the amount of dividends or capital gains distributions which
are expected to be or have been announced.
Generally, the Code's rules regarding the determination and character of gain or
loss on the sale of a capital asset apply to a sale, redemption or repurchase of
shares of the Funds that are held by the shareholder as capital assets. However,
if a shareholder sells shares of the Funds which he has held for less than six
months and on which he has received distributions of capital gains, any
B-20
<PAGE>
loss on the sale or exchange of such shares must be treated as long-term capital
loss to the extent of such distributions. Any loss realized on the sale of
shares of the Funds will be disallowed by the "wash sale" rules to the extent
the shares sold are replaced (including through the receipt of additional shares
through reinvested dividends) within a period of time beginning 30 days before
and ending 30 days after the shares are sold. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.
The Trust is required to withhold and remit to the U.S. Treasury a portion (31%)
of dividend income on any account unless the shareholder provides a taxpayer
identification number and certifies that such number is correct and that the
shareholder is not subject to backup withholding.
Provided that a Fund qualifies as a regulated investment company under the Code,
it will not be liable for California corporate taxes, other than a minimum
franchise tax, if all of its income is distributed to shareholders for each
taxable year. Shareholders, however, may be liable for state and local income
taxes on distributions from the Funds.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Funds. The law firm of Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Nonresident aliens and foreign
persons are subject to different tax rules, and may be subject to withholding of
up to 30% on certain payments received from the Funds. Shareholders are advised
to consult with their own tax advisors concerning the application of foreign,
federal, state and local taxes to an investment in the Funds.
HISTORICAL PERFORMANCE INFORMATION
A Fund's total returns are based on the overall dollar or percentage change in
value of a hypothetical investment in the Fund, assuming all dividends and
distributions are reinvested. Average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative total return if the Fund's performance had been constant over the
entire period presented. Because average annual total returns tend to smooth out
variations in the Fund's returns, investors should recognize that they are not
the same as actual year-by-year returns.
For the purposes of quoting and comparing the performance of the Funds to that
of other mutual funds and to other relevant market indices in advertisements,
performance will be stated in terms of average annual total return. Under
regulations adopted by the Securities and Exchange Commission, funds that intend
to advertise performance must include average annual total return quotations
calculated according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
B-21
<PAGE>
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 a Fund's existence or shorter periods dating from the
commencement of the Fund's operations. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the Prospectus on the reinvestment
dates during the period. Additionally, redemption of shares is assumed to occur
at the end of each applicable time period.
The foregoing information should be considered in light of a Fund's investment
objectives and policies, as well as the risks incurred in the Fund's investment
practices. Future results will be affected by the future composition of a Fund's
portfolio, as well as by changes in the general level of interest rates, and
general economic and other market conditions.
The average annual total returns of the Funds for the periods ended December 31,
1998 are as follows:
Technology Value Fund:
1-Year 23.71%
Since inception (May 20, 1994) 36.93%
Since SEC effective date (December 15, 1994) 37.24%
Technology Leaders Fund:
1-Year 78.15%
Since inception (December 10, 1997) 73.54%
Technology Innovators Fund:
Since inception (May 20, 1998) (not annualized) 60.10%
Each Fund may also advertise total return (a "nonstandardized quotation") which
is calculated differently from average annual total return. A nonstandardized
quotation of total return may be a cumulative return which measures the
percentage change in the value of an account between the beginning and end of a
period, assuming no activity in the account other than reinvestment of dividends
and capital gains distributions.
The Technology Value Fund's total returns as calculated in this manner for each
of its past four fiscal years are as follows:
B-22
<PAGE>
Period Ended
------------
December 31, 1995 61.17%
December 31, 1996 60.55%
December 31, 1997 6.46%
December 31, 1998 23.71%
The Technology Leaders Fund's total returns as calculated in this manner for its
past fiscal years is as follows:
Period Ended
------------
December 31, 1998 78.15%
A nonstandardized quotation may also indicate average annual compounded rates of
return over periods other than those specified for average annual total return.
A nonstandardized quotation of total return will always be accompanied by a
Fund's average annual total return as described above.
The performance quotations described above are based on historical earnings and
are not intended to indicate future performance of the Funds.
To help investors better evaluate how an investment in the Funds might satisfy
their investment objective, advertisements regarding each Fund may discuss
various measures of Fund performance, including current performance ratings
and/or rankings appearing in financial magazines, newspapers and publications
which track mutual fund performance. Advertisements may also compare performance
(using the calculation methods set forth in the Prospectus) to performance as
reported by other investments, indices and averages. When advertising current
ratings or rankings, the Funds may use the following publications or indices to
discuss or compare Fund performance:
Both Morningstar Principia Pro and Lipper Mutual Fund Performance Analysis
measure total return and average current yield for the mutual fund industry and
ranks individual mutual fund performance over specified time periods assuming
reinvestment of all distributions, exclusive of sales loads. The Funds may
provide comparative performance information appearing in any appropriate
category published by Morngingstar, Inc., or by Lipper Analytical Services, Inc.
In addition, the Funds may use comparative performance information of relevant
indices, including the S&P 500 Index, the Dow Jones Industrial Average, the
Russell 2000 Index, the NASDAQ Composite Index and the Value Line Composite
Index. The S&P 500 Index is an unmanaged index of 500 stocks, the purpose of
which is to portray the pattern of common stock price movement. The Dow Jones
Industrial Average is a measurement of general market price movement for 30
widely held stocks listed on the New York Stock Exchange. The Russell 2000
Index, representing approximately 11% of the U.S. equity market, is an unmanaged
index comprised of the 2,000 smallest U.S. domiciled publicly-traded common
stocks in the Russell 3000 Index (an unmanaged index of the 3,000 largest U.S.
domiciled publicly-traded common stocks by market capitalization representing
approximately 98% of the U.S. publicly-traded equity market). The NASDAQ
Composite Index is an unmanaged index which averages the trading prices of more
than 3,000 domestic over-the-counter companies. The Value Line Composite Index
is an unmanaged index comprised of approximately 1,700 stocks, the purpose of
which is to portray the pattern of common stock price movement.
B-23
<PAGE>
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Funds' portfolios, that the averages are generally
unmanaged and that the items included in the calculations of such averages may
not be identical to the formula used by the Funds to calculate their
performance. In addition, there can be no assurance that the Funds will continue
this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
As of November 26, 1999 the following persons owned of record 5% or more of the
shares of the Funds:
THE TECHNOLOGY VALUE FUND:
NAME SHARES % OWNERSHIP
Charles Schwab & Co 4,803,209 40.79%
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corp. 2,472,444 20.99%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
National Investors Services Corp. 1,289,718 10.95%
55 Water Street 32nd Floor
New York, New York 10041
THE TECHNOLOGY LEADERS FUND:
NAME SHARES % OWNERSHIP
Charles Schwab & Co. 2,978,337 39.70%
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corp. 2,560,397 27.41%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
National Investors Services Corp. 622,391 8.29%
55 Water Street 32nd Floor
New York, New York 10041
B-24
<PAGE>
THE TECHNOLOGY INNOVATORS FUND:
NAME SHARES % OWNERSHIP
Charles Schwab & Co. 4,276,576 40.85%
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corp. 2,482,372 23.71%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
National Investors Services Corp. 1,202,059 11.48%
55 Water Street 32nd Floor
New York, New York 10041
Charles Schwab & Co., a corporation organized in California, may be deemed to
control The Technology Value Fund, The Technology Leaders Fund and The
Technology Innovators Fund. National Financial Services Corp., a corporation
organized in New York, may be deemed to control The Technology Leaders Fund. For
purposes of voting on matters submitted to shareholders, any person who owns
more than 50% of the outstanding shares of a Fund generally would be able to
cast the deciding vote.
As of November 26, 1999, the Trustees and officers of the Trust owned of record
or beneficially less than 1% of each Fund's outstanding shares.
CUSTODIAN
Firstar, N.A., 425 Walnut Street, Cincinnati, Ohio 45201, has been retained to
act as Custodian for each Fund's investments. Firstar, N.A. acts as each Fund's
depository, safekeeps its portfolio securities, collects all income and other
payments with respect thereto, disburses funds as instructed and maintains
records in connection with its duties.
LEGAL COUNSEL AND AUDITORS
The law firm of Paul, Hastings, Janofsky & Walker LLP, 345 California Street,
29th Floor, San Francisco, California 94104, acts as legal counsel for the Trust
and the Trust's independent Trustees.
B-25
<PAGE>
The firm of Tait, Weller & Baker, 8 Penn Center Plaza, Philadelphia,
Pennsylvania 19103, has been selected as independent auditors for the Trust for
the fiscal year ending December 31, 1999. Tait, Weller & Baker performs an
annual audit of the Trust's financial statements and will advise the Trust as to
certain accounting matters.
COUNTRYWIDE FUND SERVICES, INC.
Countrywide Fund Services, Inc. ("Countrywide"), 312 Walnut Street, Cincinnati,
Ohio 45202, is retained by the Investment Adviser to maintain the records of
each shareholder's account, process purchases and redemptions of the Funds'
shares and act as dividend and distribution disbursing agent. Countrywide also
provides administrative services to the Funds, calculates daily net asset value
per share and maintains such books and records as are necessary to enable
Countrywide to perform its duties. For the performance of these services, the
Investment Adviser (not the Funds) pays Countrywide (1) a fee for administrative
services at the annual rate of 0.10% of the average value of each Fund's daily
net assets up to $100,000,000, 0.075% of such assets from $100,000,000 to
$200,000,000 and 0.05% of such assets in excess of $200,000,000; (2) a fee for
transfer agency and shareholder services at the annual rate of $16 per
shareholder account of the Funds; and (3) a monthly fee for accounting and
pricing services which will vary according to each Fund's average net assets
during such month. In addition, the Investment Adviser reimburses Countrywide
for out-of-pocket expenses, including but not limited to, postage, stationery,
checks, drafts, forms, reports, record storage, communication lines and the
costs of external pricing services. Countrywide is an affiliate of the
Underwriter by reason of common ownership.
FINANCIAL STATEMENTS
Audited financial statements for the relevant periods ended December 31, 1998,
for each Fund as contained in the Annual Report to Shareholders of the Funds for
the fiscal year or period ended December 31, 1998, are incorporated herein by
this reference.
B-26
<PAGE>
- --------------------------------------------------------------------------------
PART C
Other Information
- --------------------------------------------------------------------------------
<PAGE>
FIRSTHAND FUNDS
FORM N-1A
Part C
Item 23. EXHIBITS
(a) Declaration of Trust
(i) Declaration of Trust--Incorporated by reference to Post-Effective
Amendment No. 7 to the Registration Statement as filed with the
Commission on May 11, 1999 ("Post-Effective Amendment No. 7").
(ii) Amendments to Declaration of Trust as adopted on February 14,
1998--Incorporated by reference to Post-Effective Amendment No. 7.
(b) Bylaws
(i) By-Laws--1998--Incorporated by reference to Post-Effective Amendment
No. 7.
(ii) Amendments to By-Laws as adopted on February 14, 1998-- Incorporated
by reference to Post-Effective Amendment No. 7.
(c) Instruments Defining Rights of Security Holders - Incorporated by reference
to the Declaration of Trust and Bylaws
(d) Form of Investment Advisory Agreement--Incorporated by reference to
Post-Effective Amendment No. 10 to the Registration Statement as filed with
the Commission on September 30, 1999 ("Post-Effective Amendment No. 10").
(e) Underwriting Agreement with CW Fund Distributors, Inc.*
(f) Bonus or Profit Sharing Contracts - Not Applicable
(g) Custody Agreement with Firstar, N.A.*
(h) Other Material Contracts
(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.*
(i) Opinion and Consent of Counsel relating to Issuance of Shares--Incorporated
by reference to Post-Effective Amendment No. 10.
(j) Other Opinions - Not Applicable
(k) Omitted Financial Statements - Not Applicable
(l) Agreement Relating to Initial Capital*
(m) Rule 12b-1 Plan - Not Applicable
(n) Rule 18f-3 Plan - Not Applicable
* Incorporated by reference to Registration Statement on Form N-1A.
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 25. Indemnification.
Under section 3817(a) of the Delaware Business Trust Act, a Delaware
business trust has the power to indemnify and hold harmless any
trustee, beneficial owner or other person from and against any and all
claims and demands whatsoever. Reference is made to sections 5.1 and
5.2 of the Declaration of Trust of Interactive Investments (the
"Trust") pursuant to which no trustee, officer, employee or agent of
the Trust shall be subject to any personal liability, when acting in
his or her individual capacity, except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her
duties. The Trust shall indemnify each of its trustees, officers,
employees and agents against all liabilities and expenses reasonably
incurred 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 Advisory Agreement, the
Administration Agreement and the Underwriting Agreement which are
substantially identical to those in the Declaration of Trust noted
above.
The Trust maintains a standard mutual fund and investment advisory
professional and directors and officers liability policy. The policy
provides coverage to the Trust, its Trustees and officers, and its
Investment Adviser. Coverage under the policy includes losses by
reason of any act, error, omission, misstatement, misleading
statement, neglect or breach of duty.
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser
(a) Inapplicable
(b) Inapplicable
Item 27. Principal Underwriters.
(a) CW Fund Distributors, Inc. also acts as underwriter for the
following open-end investment companies: Brundage, Story and Rose
Investment Trust, The Caldwell & Orkin Funds, Inc., Profit Funds
Investment Trust, the Lake Shore Family of Funds, UC Investment
Trust, The Winter Harbor Fund and The James Advantage Funds.
(b) The following list sets forth the directors and executive
officers of the Distributor. Unless otherwise noted with an
asterisk(*), the address of the persons named below is 312 Walnut
Street, Cincinnati, Ohio 45202.
* The address is 400 Broadway, Cincinnati, Ohio 45202.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Name Position with Distributor Position with Registrant
------------------------------------------------------------------------------------------------
<S> <C> <C>
*William F. Ledwin Director None
------------------------------------------------------------------------------------------------
*Jill T. McGruder Director None
------------------------------------------------------------------------------------------------
Robert H. Leshner President, Vice Chairman, Chief None
Executive Officer, Director
------------------------------------------------------------------------------------------------
Maryellen Peretzky Vice President, Secretary Assistant Secretary
------------------------------------------------------------------------------------------------
Robert L. Bennett Vice President, Chief Operations Officer None
------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Vice President, Chief Financial None
Officer, Treasurer
------------------------------------------------------------------------------------------------
</TABLE>
(c) Inapplicable
Item 28. 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
ocated at 312 Walnut Street, Cincinnati, Ohio 45202.
Item 29. Management Services Not Discussed in Parts A and B.
Inapplicable
Item 30. Undertakings.
Inapplicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Jose and the State of California on the 29th
of November, 1999.
FIRSTHAND FUNDS
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.
Mike Lynch* Trustee November 29, 1999
- -----------------------------
Mike Lynch
/s/ Kevin Landis Chairman of the November 29, 1999
- ----------------------------- Board of Trustees
Kevin Landis
*By: /s/ Kevin Landis
----------------
Kevin Landis, attorney-in-fact pursuant
to powers of attorney previously filed
