AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 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. 10
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 15
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
INTERACTIVE RESEARCH ADVISERS, INC.
101 PARK CENTER PLAZA, SUITE 1300, SAN JOSE, CALIFORNIA 95113
(Name and Address of Agent for Service)
Copies of all communications to:
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)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] 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.
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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 Communications Fund and The e-Commerce
Fund.
o Part B - Combined Statement of Additional Information for The
Communications Fund and The e-Commerce Fund.
o Part C - Other Information
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PART A
Prospectus
for
The Communications Fund
The e-Commerce Fund
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[LOGO] Firsthand
[PHOTO]
P R O S P E C T U S
THE COMMUNICATIONS FUND (TM)
THE e-COMMERCE FUND (TM)
September 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 insured or
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.
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This prospectus contains important information about the investment objectives,
strategies and risks of The e-Commerce Fund and The Communications Fund that
you should know because you invest in them. Each Fund is non-diversified and
has as its investment objective long-term growth of capital.
The initial minimum investment in each Fund is $10,000 unless the investment is
made by a Firsthand Funds Individual Retirement Account (" IRA "), in which case
the minimum initial investment is $2,000. IRA accounts which are not Firsthand
Funds IRA s are subject to the $10,000 minimum. 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.
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CONTENTS
THE COMMUNICATIONS FUND 2
THE e-COMMERCE FUND 6
ADDITIONAL INVESTMENT TECHNIQUES AND STRATEGIES 9
ADDITIONAL RISK CONSIDERATIONS 10
PORTFOLIO MANAGEMENT 12
OPERATION OF THE FUNDS 13
HOW TO PURCHASE SHARES 14
HOW TO REDEEM SHARES 16
SHAREHOLDER SERVICES 19
EXCHANGE PRIVILEGE 20
DIVIDENDS AND DISTRIBUTIONS 22
TAXES 22
CALCULATION OF SHARE PRICE 23
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THE COMMUNICATIONS FUND (TM)
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
Adviser considers to be best positioned to benefit significantly from their
involvement in or support of the communications industry. The Fund
considers eligible companies to be those 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; and emerging technologies combining
telephone, television and/ or computer systems.
The Investment Adviser's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Adviser believes that value exceeds the market price. In
assessing a company's potential, the Adviser 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 a
Fund's investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
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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 Adviser.
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 the communications industry
due to that industry's 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.
3
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EXPENSE
INFORMATION
The following table shows the fees and expenses you may pay if you buy and
hold shares of this Fund. The Adviser does not impose any front-end or
deferred sales loads on this Fund but may charge a redemption fee.
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. 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.
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
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[GRAPHIC OMITTED]
5
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THE e-COMMERCE FUND (TM)
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
Adviser considers to be best positioned to benefit significantly from their
involvement in or support of 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 Adviser's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Adviser believes that value exceeds the market price. In
assessing a company's potential, the Adviser 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 a
Fund's investments.
Please see "Additional Investment Techniques and Strategies" for further
information.
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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 Adviser.
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.
7
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EXPENSE
INFORMATION
The following table shows the fees and expenses you may pay if you buy and
hold shares of this Fund. The Adviser does not impose any front-end or
deferred sales loads on this Fund but may charge a redemption fee.
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 6 months. 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.
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
8
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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 Adviser's analysis of a potential investment will focus on
valuing an enterprise and purchasing securities of the enterprise when the
Investment Adviser believes that value exceeds the market price. The
Investment Adviser intends to focus on the fundamental worth of the
companies under consideration, where fundamental worth is defined as the
value of the basic businesses of the firm, including products,
technologies, customer relationships and other sustainable competitive
advantages. For purposes of the Investment Adviser's analysis, fundamental
worth is a reflection of the value of an enterprise's assets and its
earning power, and will be determined by use of price- earnings ratios and
comparison with sales of comparable assets to independent third party
buyers in arms' length transactions. Balance sheet strength, the ability to
generate earnings and a strong competitive position are the major factors
the Investment Adviser will use in appraising an investment. Applicable
price-earnings ratios depend on the earnings potential of an enterprise as
determined by the Investment Adviser. For example, an enterprise that is a
relatively high growth company would normally command a higher price-
earnings ratio than lower growth companies because expected future profits
would be higher.
Each Fund may purchase shares in initial public offerings ( IPO s). 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 IPO s,
the Adviser will often purchase IPO shares that would qualify as a
permissible investment for the Funds but will, instead, decide to allocate
those IPO purchases to other Funds
9
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the Adviser 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.
Following the commencement of operations, each Fund may temporarily hold
all or a portion of its assets in cash or money market instruments.
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
Adviser. Securities in a Fund's portfolio may not increase as much as the
market as a whole and some undervalued securities may continue to be
undervalued for long periods of time. Some securities may be inactively
traded, 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
diversification and competitive strengths of larger corporations. In
addition, in many instances, the securities of smaller companies are traded
only over-the-counter or on a regional securities exchange, and the
frequency and volume of their trading is substantially less than is typical
of larger companies. Therefore, the securities of smaller companies may be
subject to wider price fluctuations. When making large sales, a Fund may
have to sell portfolio holdings at discounts from quoted prices or may have
to make a series of small sales over an extended period of time.
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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
investment may be adversely affected by changes in currency rates and
exchange control regulations, future political and economic developments
and the possibility of seizure or nationalization of companies, or the
imposition of withholding taxes on income.
Temporary Defensive Measures
For defensive purposes, each Fund may temporarily hold all or a portion of
its assets in 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 Funds will invest primarily in technology companies and 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 technology companies include the risk that the economic
prospects, and the share prices, of such companies can fluctuate
dramatically due to changes in the regulatory or competitive environments.
Such investments are also subject to 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 include the risk that the new products will not meet
expectations or even reach the marketplace. Also, technology companies 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. An investment in one or more of the Funds does not
constitute a balanced investment program.
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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 and pricing and account services.
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
Adviser"), 101 Park Center Plaza, Suite 1300, San Jose, California 95113,
to manage the investments of each Fund. The Investment Adviser has been
advising mutual funds since 1994. The Investment Adviser is controlled by
Kevin M. Landis, who also serve as a Trustee of the Trust.
The portfolios of each Fund are managed by the Investment Adviser's
Technology Equities Team.
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OPERATION
OF THE FUNDS
The Investment Adviser 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 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.
The Trust has entered into a separate contract (the "Administration
Agreement") with the Investment Adviser wherein the Investment Adviser is
responsible for providing administrative and general supervisory services
to the Funds. Under the Administration Agreement, the Investment Adviser
oversees the maintenance of all books and records with respect to the
Funds' securities transactions and the Funds' book of accounts in
accordance with all applicable federal and state laws and regulations. The
Investment Adviser also arranges for the preservation of journals, ledgers,
corporate documents, brokerage account records and other records which are
required to be maintained pursuant to the 1940 Act. The Investment Adviser
is responsible for the equipment, staff, office space and facilities
necessary to perform its obligations. The Investment Adviser has also
assumed responsibility for payment of all of the Funds' operating expenses
except for brokerage and commission expenses and any extraordinary and
non-recurring expenses. For the services rendered by the Investment Adviser
under the Administration Agreement, the Investment Adviser 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.
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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.
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 (or $2,000 per Fund for Firsthand Funds IRA s).
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 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 4:00
p. m., eastern time, on any business day are confirmed at the net asset
value determined as of the close of the regular session of trading on the
New York Stock Exchange on that day. It is the responsibility of agents to
transmit properly completed orders promptly. Agents may charge a fee
(separately negotiated with their customers) for effecting purchase orders.
Direct purchase orders received by the Transfer Agent by 4:00 p. m.,
eastern time, are confirmed at that day's net asset value.
You may open an account and make an initial investment in the Funds through
selected brokerage firms or financial intermediaries or by sending a check
and a
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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.
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.
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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
1.888.884.2675). 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.
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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.
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.
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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.
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.
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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.
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 Keogh Plans for self-employed individuals
o Individual retirement account (IRA) plans for individuals and
their non- employed spouses, including Roth IRAs and Education
IRAs
o Qualified pension and profit-sharing plans for employees,
including those profit-sharing plans with a 401( k) provision
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 (the
"Code").
19
<PAGE>
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.
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 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 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.
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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 the
same 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.
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.
21
<PAGE>
DIVIDENDS
AND DISTRIBUTIONS
Each Fund expects to distribute substantially all of its net investment
income and net realized gains, if any, at least annually. Dividends and
distributions are automatically reinvested in additional shares of the
Funds (the Share Option) unless cash payments are specified on your
application or are otherwise requested by contacting the Transfer Agent.
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.
TAXES
Each Fund intends to qualify and to be treated as a "regulated investment
company" under Subchapter M of the Code by annually distributing
substantially all of its net investment company taxable income, net
tax-exempt income and net capital gains in dividends to its shareholders
and by satisfying certain other requirements related to the sources of its
income and the diversification of its assets. By so qualifying, a Fund will
not be subject to federal income tax or excise tax on that part of its
investment company taxable income and net realized short-term and long-term
capital gains which it distributes to its shareholders in accordance with
the Code's timing requirements.
Dividends and distributions paid to shareholders (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.
22
<PAGE>
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.
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.
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<PAGE>
Portfolio securities are valued as follows: (1) securities which are traded
on stock exchanges or are quoted by NASDAQ are valued at the last reported
sale price as of the close of the regular session of trading on the New
York Stock Exchange on the day the securities are being valued, or, if not
traded on a particular day, at the most recent bid price, (2) securities
traded in the over-the-counter market, and which are not quoted by NASDAQ,
are valued at the 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.
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[GRAPHIC OMITTED]
25
<PAGE>
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 available on the Commission's Internet site at http:// 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.
CONTACT US AT : 888.884.2675
www.FirsthandFunds.com
TFP-A-0999[1:17.5] File Nos. 33-73832, 811-8268
<PAGE>
- --------------------------------------------------------------------------------
PART B
Statement of Additional Information
for
The Communications Fund
The e-Commerce Fund
- --------------------------------------------------------------------------------
<PAGE>
FIRSTHAND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 30, 1999
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 September 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.......................10
INVESTMENT RESTRICTIONS.......................................................12
TRUSTEES AND OFFICERS.........................................................13
INVESTMENT ADVISORY AND OTHER SERVICES........................................14
THE UNDERWRITER...............................................................15
SECURITIES TRANSACTIONS.......................................................16
PORTFOLIO TURNOVER............................................................16
PURCHASE, REDEMPTION AND PRICING OF SHARES....................................17
TAXES.........................................................................18
HISTORICAL PERFORMANCE INFORMATION............................................21
CUSTODIAN.....................................................................23
LEGAL COUNSEL AND AUDITORS....................................................23
COUNTRYWIDE FUND SERVICES, INC................................................23
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<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
Communications Fund and The e-Commerce Fund (each a "Fund" and collectively the
"Funds"), each of which commenced operations on September 30, 1999. 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.
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-thirds or more of the outstanding shares
of the Trust (or the applicable Fund) present at a
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<PAGE>
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 issuer's parent company and the relationships which exist with
the issuer; and recognition by the
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<PAGE>
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
the coupon rate of the purchased security. At the time a Fund enters into a
repurchase
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<PAGE>
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, warrants do
not pay a fixed coupon or dividend. Investments in warrants involve certain
risks,
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<PAGE>
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. The Communications Fund and The e-Commerce 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 during the option period. A
covered call writer is
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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. The Communications Fund and The e-Commerce 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
occurred, the option could be exercised and the underlying security would then
be sold to the
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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 increase
more when its portfolio
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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 make short-term loans of its
portfolio securities to banks, brokers and dealers. Lending portfolio securities
exposes a Fund to the risk that the borrower may fail to return the loaned
securities or may not be able to provide additional collateral or that a Fund
may experience delays in recovery of the loaned securities or loss of rights in
the collateral if the borrower fails financially. To minimize these risks, the
borrower must agree to maintain collateral marked to market daily, in the form
of cash and/or U.S. Government obligations, with the Funds' Custodian in an
amount at least equal to the market value of the loaned securities. Each Fund
will limit the amount of its loans of its portfolio securities to no more than
30% of its total assets.
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 might also have to register such
restricted securities in order to dispose of them, resulting in
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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 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.
7. Purchase or sell puts and calls on securities, except that The Communications
Fund and The e-Commerce Fund may purchase and sell puts and calls on stocks and
stock indices.
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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 [37] Trustee $8,000
Mark K. Taguchi [43] Trustee $8,000
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.
The principal occupations of the Trustees and executive officers of the Trust
during the past five years are set forth below:
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.
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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.
MARK K. TAGUCHI, 526 Occidental Avenue, San Mateo, California 94402, is
currently Director of Business Development and Strategic Alliances at
Software.Com and a principal with Renaissance Management, a business development
firm. Prior to this he was strategic relations manager for the WebFORCE group at
Silicon Graphics, Inc.
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.
By its terms, the Advisory Agreement is valid for an initial two-year period
and, thereafter, 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
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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.
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 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.
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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.
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
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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.
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 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.
B-17
<PAGE>
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 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
B-18
<PAGE>
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 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
B-19
<PAGE>
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 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
B-20
<PAGE>
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
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.
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
B-21
<PAGE>
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.
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.
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
B-22
<PAGE>
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
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.
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 0.1% 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.
B-23
<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
(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
(j) Other Opinions: Consent of Independent Public Accountants
(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.
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.
<PAGE>
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: Atalanta/Sosnoff
Investment Trust, 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 4500 Park Granada Boulevard, Calabasas, California
91302.
<TABLE>
<CAPTION>
------------------------------ ------------------------------------------------------------ -------------------------
Name Position with Distributor Position with Registrant
------------------------------ ------------------------------------------------------------ -------------------------
<S> <C> <C>
*Angelo R. Mozilo Chairman of the Board, Director None
------------------------------ ------------------------------------------------------------ -------------------------
*Andrew S. Bielanski Director None
------------------------------ ------------------------------------------------------------ -------------------------
*Thomas H. Boone Director None
------------------------------ ------------------------------------------------------------ -------------------------
*Marshall M. Gates Director None
------------------------------ ------------------------------------------------------------ -------------------------
Robert H. Leshner President, Vice Chairman, Chief Executive Officer, Director None
------------------------------ ------------------------------------------------------------ -------------------------
Maryellen Peretzky Vice President, Secretary Assistant Secretary
------------------------------ ------------------------------------------------------------ -------------------------
Robert L. Bennett Vice President, Chief Operations Officer None
------------------------------ ------------------------------------------------------------ -------------------------
Terrie A. Wiedenheft Vice President, Chief Financial Officer, Treasurer None
------------------------------ ------------------------------------------------------------ -------------------------
</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 September, 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.
Mark Taguchi* Trustee September 29, 1999
- --------------------
Mark Taguchi
Mike Lynch* Trustee September 29, 1999
- --------------------
Mike Lynch
/s/ Kevin Landis Chairman of the September 29, 1999
- -------------------- Board of Trustees
Kevin Landis
*By: /s/ Kevin Landis
----------------
Kevin Landis, attorney-in-fact
pursuant to powers of attorney previously filed
- --------------------------------------------------------------------------------
Exhibit 23 (d)
Form of Investment Management Agreement
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT ADVISORY AGREEMENT
FIRSTHAND FUNDS
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement ("Agreement"), is made
and entered into as of September 30, 1999, by and between FIRSTHAND FUNDS, a
Delaware business trust (the "Trust") and FIRSTHAND CAPITAL MANAGEMENT, INC.,
(the "Adviser") each having its principal place of business at 101 Park Center
Plaza, Suite 1300, San Jose, California 95113.
WHEREAS, the Fund, an open-end, non-diversified investment company
registered under the Investment Company Act of 1940, as amended, (the "1940
Act"), wishes to retain the Adviser to provide investment advisory and
management services to ______________________ (the "Fund"); and
WHEREAS, the Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. The Trust hereby appoints the Adviser to manage the investment and
reinvestment of assets of the Fund for the period and on the terms set
forth in this Agreement. The Adviser accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. The Fund shall at all times inform the Adviser as to the securities owned
by it, the funds available or to become available for investment by it, and
generally as to the condition of its affairs. It shall furnish the Adviser
with such other documents and information with regard to its affairs as the
Adviser may from time to time reasonably request.
3. Subject to the direction and control of the Fund's Board of Trustees, the
Adviser shall regularly provide the Fund with investment research, advice,
management and supervision and shall furnish a continuous investment
program for the Fund's portfolio of securities consistent with the Fund's
investment objective, policies, and limitations as stated in the Fund's
current Prospectus and Statement of Additional Information. The Adviser
shall determine from time to time what securities will be purchased,
retained or sold by the Fund, and shall implement those decisions, all
subject to the provisions of the Fund's Declaration of Trust, the 1940 Act,
the applicable rules and regulations of the Securities and Exchange
Commission, and other applicable federal and state laws, as well as the
investment objectives, policies, and limitations of the Fund. In placing
orders for the Fund with brokers and dealers with respect to the execution
of the Fund's securities transactions, the Adviser shall attempt to obtain
the best net results. In doing so, the Adviser may consider such factors
which it deems relevant to the Fund's best interest, such as price, the
size of the transaction, the nature of the market for the security, the
<PAGE>
amount of the commission, the timing of the transaction, the reputation,
experience and financial stability of the broker-dealer involved and the
quality of service rendered by the broker-dealer in other transactions. The
Adviser shall have the discretionary authority to utilize certain
broker-dealers even though it may result in the payment by the Fund of an
amount of commission for effecting a securities transaction in excess of
the amount of commission another broker-dealer would have charged for
effecting that transaction, providing, however, that the Adviser had
determined that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by the broker-dealer
effecting the transaction. In no instance will portfolio securities be
purchased from or sold to the Adviser or any affiliated person thereof
except in accordance with the rules and regulations promulgated by the
Securities and Exchange Commission pursuant to the 1940 Act. The Adviser
shall also provide advice and recommendations with respect to other aspects
of the business and affairs of the Fund and shall perform such other
functions of management and supervision as may be directed by the Board of
Trustees of the Fund, provided that in no event shall the Adviser be
responsible for any expense occasioned by the performance of such
functions.
4. The Adviser is responsible for (1) compensation of any of the Fund's
trustees, officers and employees who are interested persons of the Adviser
and (2) compensation of the Adviser's personnel and other expenses incurred
in connection with the provisions of portfolio management services under
this Agreement. Other than as herein specifically indicated, the Adviser
shall not be responsible for the Fund's expenses. Specifically, the Adviser
will not be responsible, except to the extent of the reasonable
compensation of employees of the Fund whose services may be used by the
Adviser hereunder, for any of the following expenses of the Fund, which
expenses shall be borne by the Fund: legal and audit expenses, organization
expenses; interest; taxes; governmental fees; fees, voluntary assessments
and other expenses incurred in connection with membership in investment
company organizations; the cost (including brokerage commissions or
charges, if any) of securities purchased or sold by the Fund and any losses
incurred in connection therewith; fees of custodian, transfer agents,
registrars or other agents; distribution fees; expenses of preparing share
certificates; expenses relating to the redemption or purchase of the Fund's
shares; expenses of registering and qualifying Fund shares for sale under
applicable federal and state law and maintaining such registrations and
qualification; expenses of preparing, setting in print, printing and
distributing prospectuses, proxy statements, reports, notices and dividends
to Fund shareholders; cost of stationery; costs of shareholders and other
meetings of the Fund; compensation and expenses of the independent trustees
of the Fund; and the Fund's pro rata portion of premiums of any fidelity
bond and other insurance covering the Fund and its officers and trustees.
5. No trustee, officer or employee of the Fund shall receive from the Fund any
salary or other compensation as such trustee, officer or employee while he
is at the same time a director, officer or employee of the Adviser or any
affiliated company of the Adviser. This paragraph shall not apply to
trustees, executive committee members, consultants and other persons who
are not regular members of the Adviser's or any affiliated company's staff.
<PAGE>
6. As compensation for the services performed by the Adviser, the Fund shall
pay the Adviser, as promptly as possible after the last day of each month,
a fee, accrued each calendar day (including weekends and holidays) at the
rate of 1.5% per annum of the daily net assets of the Fund. The Adviser
shall reduce such fee or, if necessary, make expense reimbursements to the
Fund to the extent required to limit the total annual operating expenses of
the Fund to 1.95% of its average daily net assets up to $200 million; 1.90%
of such assets from $200 million to $500 million; 1.85% of such assets from
$500 million to $1 billion; and 1.80% of such assets in excess of $1
billion. The daily net assets of the Funds shall be computed as of the time
of the regular close of business of the New York Stock Exchange or such
other time as may be determined by the Board of Trustees of the Fund. Any
of such payments as to which the Adviser may so request shall be
accompanied by a report of the Fund prepared either by the Fund or by a
reputable firm of independent accountants which shall show the amount
properly payable to the Adviser under this Agreement and the detailed
computation thereof.
7. The Adviser assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith, and shall not be
responsible for any action of the Board of Trustees of the Fund in the
following or declining to follow any advice or recommendation of the
Adviser; provided that nothing in this Agreement shall protect the Adviser
against any liability to the Fund or its stockholders to which it would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
8. The Adviser shall be an independent contractor and shall have no authority
to act for or represent the Fund in its investment commitments unless
otherwise provided. No agreement, bid, offer, commitment, contract or other
engagement entered into by the Adviser whether on behalf of the Adviser or
whether purporting to have been entered unto on behalf of the Fund shall be
finding upon the Fund, and all acts authorized to be done by the Adviser
under this Agreement shall be done by it as an independent contractor and
not as an agent.
9. Nothing in this Agreement shall limit or restrict the right of any
director, officer, or employee of the Adviser who may also be a trustee,
officer, or employee of the Fund, to engage in any other business or to
devote his time and attention in part to the management or other aspects of
any other business, whether of a similar nature or a dissimilar nature, nor
to limit or restrict the right of the Adviser to engage in any other
business or to render services of any kind, including investment advisory
and management services, to any other corporation, firm, individual or
association.
10. As used in this Agreement, the terms "assignment," "interested person," and
"majority of the outstanding voting securities" shall have the meanings
given to them by Section 2(a) of the 1940 Act, subject to such exemptions
as may be granted by the Securities and Exchange Commission by any rule,
regulation or order.
<PAGE>
11. This Agreement shall terminate automatically in the event of its assignment
by the Adviser and shall not be assignable by the Fund without the consent
of the Adviser. This Agreement may also be terminated at any time, without
the payment of penalty, by the Fund or by the Adviser on sixty (60) days'
written notice addressed to the other party at its principal place of
business.
12. This Agreement shall become effective on the date hereof and shall continue
in effect for two years and from year to year thereafter only so long as
specifically approved annually, (1) by vote of a majority of the trustees
of the Fund who are not parties to this Agreement or interested persons of
such parties, cast in person at a meeting called for that purpose, and, (2)
either by vote of the holders of a majority of the outstanding voting
securities of the Fund or by a majority vote of the Fund's Board of
Trustees.
13. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination
is sought, and no materials amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the Fund's
outstanding voting securities.
14. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall
not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and sealed by their officers thereunto duly authorized on the day and year first
above written.
FIRSTHAND FUNDS
By___________________________
its President
FIRSTHAND CAPITAL MANAGEMENT, INC.
By___________________________
its President
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Exhibit 23 (i)
Opinion and Consent of Counsel
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<PAGE>
PAUL, HASTINGS, JANOFSKY & WALKER LLP
345 CALIFORNIA ST., 29TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE (415) 835-1600
FAX: (415) 217-5333
September 21, 1999
Firsthand Funds
101 Park Center Plaza, Suite 1300
San Jose, California 95113
Re: Firsthand e-Commerce Fund
Firsthand Communications Fund
Ladies and Gentlemen:
We have acted as counsel to Firsthand Funds, a Delaware business trust (the
"Trust"), in connection with Post-Effective Amendments Nos. 8 and 10 to the
Trust's Registration Statement on Form N-1A filed with the Securities and
Exchange Commission (the "Post-Effective Amendments") and relating to the
issuance by the Trust of an indefinite number of no-par value shares of
beneficial interest (the "Shares") of two series of the Trust: the e-Commerce
Fund and the Communications Fund (collectively, the "Funds").
In connection with this opinion, we have assumed the authenticity of all
records, documents and instruments submitted to us as originals, the genuineness
of all signatures, the legal capacity of all natural persons, and the conformity
to the originals of all records, documents, and instruments submitted to us as
copies. We have based our opinion on the following:
(a) the Trust's Declaration of Trust dated November 11, 1993, as amended on
December 18, 1993, and as further amended on February 14, 1998 (as amended,
the "Declaration of Trust"); and the Trust's Certificate of Trust as filed
with the Secretary of State of Delaware on November 8, 1993, as amended on
December 27, 1993, and as further amended on May 5, 1998 (as amended, the
"Certificate of Trust"), each as certified to us by an officer of the Trust
as being true and complete and in effect on the date hereof;
(b) the By-laws of the Trust, as amended on February 14, 1998, as certified to
us by an officer of the Trust as being true and complete and in effect on
the date hereof;
(c) resolutions of the Trustees of the Trust adopted a Board of Trustees
Meeting held on August 21, 1999, authorizing the establishment of the Funds
and the issuance of the Shares;
(d) the Post-Effective Amendments; and
<PAGE>
(e) a certificate of an officer of the Trust as to certain factual matters
relevant to this opinion.
Our opinion below is limited to the federal law of the United States of America
and the business trust law of the State of Delaware. We are not licensed to
practice law in the State of Delaware, and we have based our opinion below
solely on our review of Chapter 38 of Title 12 of the Delaware Code and the case
law interpreting such Chapter as reported in Delaware Laws Annotated (Aspen Law
& Business, 1999 Ed.). We have not undertaken a review of other Delaware law or
of any administrative or court decisions in connection with rendering this
opinion. We disclaim any opinion as to any law other than that of the United
States of America and the business trust law of the State of Delaware as
described above, and we disclaim any opinion as to any statute, rule,
regulation, ordinance, order or other promulgation of any regional or local
governmental authority.
Based on the foregoing and our examination of such questions of law as we have
deemed necessary and appropriate for the purpose of this opinion, and assuming
that (i) all of the Shares will be issued and sold for cash at the per-share
public offering price on the date of their issuance in accordance with
statements in the Trust's Prospectus included in the Post-Effective Amendments
and in accordance with the Declaration of Trust, (ii) all consideration for the
Shares will be actually received by the Trust, and (iii) all applicable
securities laws will be complied with, it is our opinion that, when issued and
sold by the Trust, the Shares will be legally issued, fully paid and
nonassessable.
This opinion is rendered to you in connection with the Post-Effective Amendments
and is solely for your benefit. This opinion may not be relied upon by you for
any other purpose or relied upon by any other person, firm, corporation or other
entity for any purpose, without our prior written consent. We disclaim any
obligation to advise you of any developments in areas covered by this opinion
that occur after the date of this opinion.
We hereby consent to (i) the reference to our firm as Legal Counsel in the
Prospectus and Statement of Additional Information included in the
Post-Effective Amendments, and (ii) the filing of this opinion as an exhibit to
Post-Effective Amendment No. 10.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
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Exhibit 23 (j)
Consent of Independent Accountants
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<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A of the Firsthand Funds.
/s/ Tait, Weller & Baker
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
September 29, 1999
