FILE NO. 33-73832
811-8268
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No.
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Post-Effective Amendment No. 7
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 12
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(Check appropriate box or boxes.)
FIRSTHAND FUNDS
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(Exact name of Registrant as Specified in Charter)
101 Park Center Plaza, Suite 1300, San Jose, California 95113
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (408) 294-2200
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Kevin M. Landis
Interactive Research Advisers, Inc.
101 Park Center Plaza, Suite 1300, San Jose, California 95113
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(Name and Address of Agent for Service)
Copies of all communications to:
Julie Allecta, Esq.
Paul, Hastings, Janofsky & Walker
345 California Street, 29th Floor
San Francisco, CA 94104
It is proposed that this filing will become effective (check appropriate box)
/X/ immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / days after filing pursuant to paragraph (a)
/ / on May 1, 1999 pursuant to paragraph (a) of Rule 485
Registrant has registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940.
Registrant's Rule 24f-2 Notice for the fiscal year ended December 31, 1998 was
filed with the Commission on February 22, 1999.
<PAGE>
FIRSTHAND FUNDS
Cross Reference Sheet
Pursuant to Rule 481(a)
Under the Securities Act of 1933
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PART A
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Item No. Registration Statement Caption Caption in Prospectus
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1. Front and Back Cover Pages Cover Pages
2. Risk/Return Summary: Risk/Return Summary
Investments, Risks, and Performance
3. Risk/Return Summary: Fee Table Expense Information
4. Investment Objectives, Principal Additional Investment
Investment Strategies, and Related Strategies and Risk
Risks Considerations
5. Management's Discussion of Management Discussion
Fund Performance and Analysis (Annual
Report)
6. Management, Organization, and Operation of the Fund
Capital Structure
7. Shareholder Information How to Purchase Shares;
How to Redeem Shares
Shareholder Services;
Exchange Privilege;
Dividends and
Distributions; Taxes;
Calculation of Share
Price
8. Distribution Arrangements Not Applicable
9. Financial Highlights Information Financial Highlights
<PAGE>
PART B
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Item No. Registration Statement Caption Caption in Prospectus
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10. Cover Page and Table of Contents Cover Page; Table of
Contents
11. Fund History The Trust
12. Description of the Fund and Definitions, Policies and
Its Investment and Risks Risk Considerations;
Quality Ratings of
Corporate Bonds and
Preferred Stocks;
Investment Restrictions;
Securities Transactions;
Portfolio Turnover
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Principal Security
Holders of Securities Holders
15. Investment Advisory and Other Investment Advisory and
Services Other Services;
Securities Transactions;
Custodian; Legal Counsel
and Auditors; Countrywide
Fund Services, Inc.
16. Brokerage Allocation and Other Securities Transactions
Practices
17. Capital Stock and Other Securities The Trust; Trustees and
Officers
18. Purchase, Redemption and Pricing Purchase, Redemption and
of Shares and Pricing of Shares
19. Taxation of the Fund Taxes
20. Underwriters The Underwriter
21. Calculation of Performance Data Historical Performance
Information
22. Financial Statements Annual Report
PART C
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The information to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
May 11, 1999
Firsthand Funds (the "Trust") currently offers four series of shares to
investors, The Technology Value Fund, The Medical Specialists Fund, The
Technology Leaders Fund, and The Technology Innovators Fund (individually, a
"Fund," and collectively, the "Funds"). Each Fund is non-diversified and has as
its investment objective long-term growth of capital. Although certain of the
Funds' investments may produce dividends, interest or other income, current
income is not a consideration in selecting a Fund's investments.
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 IRAs 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.
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
TABLE OF CONTENTS
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Risk/Return Summary.....................................................
Expense Information ....................................................
Additional Investment Strategies
and Risk Considerations..............................................
Operation of the Funds..................................................
How to Purchase Shares..................................................
How to Redeem Shares....................................................
Shareholder Services....................................................
Exchange Privilege......................................................
Dividends and Distributions.............................................
Taxes...................................................................
Calculation of Share Price..............................................
Financial Highlights....................................................
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FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
Nationwide (Toll-Free):1.888.884.2675
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<PAGE>
RISK/RETURN SUMMARY
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
Each Fund's investment objective is long-term growth of capital.
WHAT ARE THE FUNDS' PRINCIPAL INVESTMENT STRATEGIES?
THE TECHNOLOGY VALUE FUND seeks to achieve its objective by investing at
least 65% of its assets in securities of companies in the electronic technology
and medical technology fields which the Investment Adviser considers to be
undervalued and have potential for capital appreciation.
THE MEDICAL SPECIALISTS FUND seeks to achieve its objective by investing at
least 65% of its assets in securities of companies in the health and
biotechnology fields which the Investment Adviser considers to have a strong
earnings growth outlook and potential for capital appreciation. The health and
biotechnology fields include the cardiovascular medical device, minimally
invasive surgical tool, pharmaceutical, biotechnology, managed care provider and
generic drug segments of the technology industry.
THE TECHNOLOGY LEADERS FUND seeks to achieve its objective by investing at
least 65% of its assets in securities of companies in the high technology field
which the Investment Adviser considers to have the strongest competitive
position. In assessing the strength of a company's competitive position, the
Investment Adviser may consider such factors as technology leadership, market
share, patents and other intellectual property, strength of management,
marketing prowess and product development capabilities. The high technology
field includes the semiconductor, computer, computer peripheral, software,
telecommunication and mass storage device segments of the technology industry.
THE TECHNOLOGY INNOVATORS FUND seeks to achieve its objective by investing
at least 65% of its assets in securities of companies in the high technology
field which the Investment Adviser considers to be best positioned to introduce
successful new products. In assessing a company's capacity for innovation, the
Investment Adviser may consider a number of factors, including technical vision,
marketing acumen, proprietary technological advantages and a demonstrated
ability to bring products to market quickly. The high technology field includes
the semiconductor, computer, computer peripheral, software, telecommunication
and mass storage device segments of the technology industry.
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<PAGE>
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
The return on and value of an investment in the Funds 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 Funds.
The Funds will be subject to greater risk because of their concentration of
investments in the technology industry and within certain segments of the
technology industry. Although the Investment Adviser currently believes that
investments by the Funds in the technology industry may offer greater
opportunity for growth of capital than investments in other industries, the
value of such investments can and often do fluctuate dramatically and may expose
you to greater than average financial and market risk.
Each Fund may also invest a portion of its assets in securities that entail
certain risks, such as foreign securities and securities of small companies and
unseasoned issuers (including companies offering shares in initial public
offerings). Please see "Additional Investment Strategies and Risk
Considerations" in this Prospectus for additional information.
PERFORMANCE SUMMARY
The bar charts and performance tables shown below provide an indication of
the risks of investing in the Funds by showing the changes in the performance of
the Funds from year to year since the Funds' inception and by showing how the
average annual returns of the Funds compare to those of broad-based securities
market indices. No performance information is presented for The Technology
Innovators Fund, as that Fund has less than one full year of operating history
as of the date of this Prospectus. How the Funds have performed in the past is
not necessarily an indication of how the Funds will perform in the future.
THE TECHNOLOGY VALUE FUND
61.17% 60.55% 6.46% 23.71%
[bar charts]
1995 1996 1997 1998
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<PAGE>
During the period shown in the bar chart, the highest return for a quarter was
60.64% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -29.68% during the quarter ended September 30, 1998.
THE TECHNOLOGY LEADERS FUND
78.15%
[bar charts]
1998
During the period shown in the bar chart, the highest return for a quarter was
58.90% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -12.62% during the quarter ended September 30, 1998.
THE MEDICAL SPECIALISTS FUND
- -4.55%
[bar charts]
1998
During the period shown in the bar chart, the highest return for a quarter was
31.97% during the quarter ended December 31, 1998 and the lowest return for a
quarter was -19.74% during the quarter ended June 30, 1998.
Average Annual Total Returns for Periods Ended December 31, 1998
One Year Since Inception*
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The Technology Value Fund 23.71% 37.24%
Dow Jones Industrial Average(1) 18.13% 27.28%
Standard & Poor's 500 Index(2) 28.58% 30.42%
NASDAQ Composite Index(3) 39.63% 31.78%
The Technology Leaders Fund 78.15% 73.54%
Dow Jones Industrial Average(1) 18.13% 15.21%
Standard & Poor's 500 Index(2) 28.58% 26.22%
NASDAQ Composite Index(3) 39.63% 33.05%
The Medical Specialists Fund -4.55% -3.21%
Dow Jones Industrial Average(1) 18.13% 15.21%
Standard & Poor's 500 Index(2) 28.58% 26.22%
NASDAQ Composite Index(3) 39.63% 33.05%
* The public offering of shares of The Technology Value Fund commenced on
December 15, 1994 and the public offering of shares of The Technology
Leaders Fund and The Medical Specialists Fund commenced on December 10,
1997.
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<PAGE>
(1) 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.
(2) The Standard & Poor's 500 Index is a widely recognized, unmanaged index of
common stock prices.
(3) The NASDAQ Composite Index is an unmanaged index which averages the trading
prices of more than 3,000 domestic over-the-counter companies.
EXPENSE INFORMATION
THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU WILL PAY IF YOU BUY AND
HOLD SHARES OF THE FUNDS.
SHAREHOLDER FEES (fees paid directly from your investment):
<TABLE>
<CAPTION>
The Medical The Technology
The Technology Specialists The Technology Innovators
Value Fund Fund Leaders Fund Fund
---------- ---- ------------ ----
<S> <C> <C> <C> <C>
Sales load
imposed on purchases None None None None
Sales load
imposed on reinvested dividends None None None None
Deferred sales load None None None None
Exchange fee None None None None
Redemption fee None* None* None* None*
</TABLE>
* A wire transfer fee is charged by the Funds' Custodian in the case of
redemptions made by wire. Such fee is subject to change and is currently $9. See
"How to Redeem Shares."
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets):
<S> <C> <C> <C> <C>
Management Fees 1.50% 1.50% 1.50% 1.50%
Distribution (12b-1) Fees None None None None
Other Expenses .45% .45% .45% .45%
----- ----- ----- -----
Total Annual Fund Operating Expenses(A) 1.95% 1.95% 1.95% 1.95%
===== ===== ===== =====
</TABLE>
(A) The Advisory Agreement limits each Fund's total annual operating expenses
to 1.95% of the Fund's average daily net assets up to $200 million, 1.90%
of such assets from $200 million to $500 million, 1.85% of such assets from
$500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
EXAMPLE:
This Example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds. It assumes that you
invest $10,000 in a 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 a Fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
The Medical The Technology
The Technology Specialists The Technology Innovators
Value Fund Fund Leaders Fund Fund
---------- ---- ------------ ----
<S> <C> <C> <C> <C>
1 Year .................... $ 198 $ 198 $ 198 $ 198
3 Years.................... 612 612 612 612
5 Years.................... 1,052 1,052 1,052
10 Years.................... 2,275 2,275 2,275
</TABLE>
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<PAGE>
ADDITIONAL PRINCIPAL INVESTMENT STRATEGIES
AND RISK CONSIDERATIONS
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.
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 an initial public offering (IPOs). Due to
the typically small size of the IPO allocation available to the Funds and the
nature and market capitalization of the companies involved in IPOs, most of the
shares are purchased by The Technology Innovators Fund and The Medical
Specialists Fund. 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.
-5-
<PAGE>
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. Each Fund may invest up to 15% of its net assets in illiquid
securities.
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.
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.
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<PAGE>
CONCENTRATION OF INVESTMENTS IN THE TECHNOLOGY AND MEDICAL INDUSTRIES. The
Technology Value Fund will invest primarily in a combination of companies within
the electronic and medical technology segments, while The Medical Specialists
Fund will invest primarily in companies within the health and biotechnology
segments and each of The Technology Leaders Fund and The Technology Innovators
Fund will invest primarily in companies within the high technology segment. The
Funds will be subject to greater risk because of their concentration of
investments in a single industry and within certain segments of the industry.
For example, investments in the health and biotechnology segments include the
risk that the economic prospects, and the share prices, of health and
biotechnology companies can fluctuate dramatically due to changes in the
regulatory or competitive environments. Investments in the high technology
segment include the risk that certain high technology products and services are
subject to competitive pressures and aggressive pricing. Investments in
companies that offer new products in the high technology segment, such as
investments in that area by The Technology Innovators Fund, include the risk
that the new products will not meet expectations or even reach the marketplace.
Additionally, health, biotechnology and high technology segment products and
services are subject to risk of rapid obsolescence caused by scientific
developments and technological advances. Also, the technology and medical
industries are generally more susceptible to effects caused by changes in the
economic climate, broad market swings, moves in a dominant industry stock or
regulatory changes.
Although the Investment Adviser currently believes that investments by the
Funds in certain health, biotechnology and technology companies may offer
greater opportunities for growth of capital than investments in other
industries, such investments may also expose investors to greater than average
financial and market risk. Accordingly, an investment in one or more of the
Funds does not constitute a balanced investment program.
The Funds intend to invest primarily in the following industry segments.
The Technology Leaders Fund and The Technology Innovators Fund will invest
primarily in the following High Technology segments. The Medical Specialists
Fund will invest primarily in the following Health and Biotechnology segments.
The Technology Value Fund will invest in both areas. At any point in time,
however, each Fund may invest more than 25% of its assets in any one industry
segment. This will further increase the Fund's risk and will make the Funds more
volatile.
High Technology Segments Health and Biotechnology Segments
------------------------ ---------------------------------
o Semiconductor o Cardiovascular Medical Device
o Computer o Minimally Invasive Surgical Tool
o Computer Peripheral o Pharmaceutical
o Software o Biotechnology
o Telecommunication o Managed Care Provider
o Mass Storage Device o Generic Drug
-7-
<PAGE>
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' software vendors and service providers have assured the Funds
that their systems will be adapted in sufficient time to avoid serious problems.
There can be no guarantee, however, that all of their computer systems will be
adapted in time. 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.
OPERATION OF THE FUNDS
The Trust retains Interactive Research Advisers, Inc. (the "Investment
Adviser"), 101 Park Center Plaza, Suite 1300, San Jose, California 95113, to
manage the investments of each Fund. The Investment Adviser is controlled by
Kendrick W. Kam and Kevin M. Landis, who also serve as Trustees of the Trust.
Mr. Kam and Mr. Landis have served as co-portfolio managers of The Technology
Value Fund since the Fund's inception in 1994. Mr. Kam is the portfolio manager
of The Medical Specialists Fund and Mr. Landis is the portfolio manager of The
Technology Leaders Fund and The Technology Innovators Fund. Prior to his
association with the Investment Adviser, Mr. Kam was co-founder and Vice
President of Marketing and Finance for Novoste Corporation, a medical device
company headquartered in Aguadilla, Puerto Rico. Prior to his association with
the Investment Adviser, Mr. Landis served as New Products Marketing Manager for
S-MOS Systems, Inc., a San Jose, California-based semiconductor firm.
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,
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<PAGE>
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 .45% of its average daily
net assets up to $200 million, .40% of such assets from $200 million to $500
million, .35% of such assets from $500 million to $1 billion, and .30% of such
assets in excess of $1 billion.
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 IRAs). 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
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<PAGE>
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
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. An account application is included with
this Prospectus.
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
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<PAGE>
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.
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. Payment is normally made within three business days after tender in such
form, provided that payment in redemption of shares purchased by check will be
effected only after the check has been collected, which may take up to fifteen
days from the purchase date. To eliminate this delay, you may purchase shares of
the Funds by certified check or wire.
BY TELEPHONE. You may redeem shares having a value of less than $50,000 by
telephone. The proceeds will be sent by mail to the address designated on your
account or wired directly to your existing account in any commercial bank or
brokerage firm in the United States as designated on your application. To redeem
by telephone, call the Transfer Agent (Nationwide call toll-free 888-884-2675).
The redemption proceeds will normally be sent by mail or by wire within three
business days after receipt of your telephone instructions. IRA accounts are not
redeemable by telephone.
The telephone redemption privilege is automatically available to all new
accounts. If you do not want the telephone redemption privilege, you must
indicate this in the appropriate area on your account application or you must
write to the Transfer Agent and instruct them to remove this privilege from your
account.
You may change the bank or brokerage account which you have designated at
any time by writing to the Transfer Agent with your signature guaranteed by any
eligible guarantor institution (including banks, brokers and dealers, credit
unions, national securities exchanges, registered securities associations,
clearing agencies and savings associations) or by completing a supplemental
telephone redemption authorization form. 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.
-11-
<PAGE>
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.
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
-12-
<PAGE>
in the United States as designated on your application and you will be charged
an $9 processing fee by the Funds' Custodian. The Trust reserves the right, upon
thirty days' written notice, to change the processing fee. All charges will be
deducted from your account by redemption of shares in your account. Your bank or
brokerage firm may also impose a charge for processing the wire. In the event
that wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
Redemption requests may direct that the proceeds be deposited directly in
your account with a commercial bank or other depository institution by way of an
Automated Clearing House (ACH) transaction. There is currently no charge for ACH
transactions. Contact the Transfer Agent for more information about ACH
transactions.
At the discretion of the Trust or the Transfer Agent, corporate investors
and other associations may be required to furnish an appropriate certification
authorizing redemptions to ensure proper authorization. The Trust reserves the
right to require you to close your account, other than an IRA account, if at any
time the value of your shares is less than $10,000 (based on actual amounts
invested, unaffected by market fluctuations), or such other minimum amount as
the Trust may determine from time to time. After notification to you of the
Trust's intention to close your account, you will be given sixty days to
increase the value of your account to the minimum amount.
The Trust reserves the right to suspend the right of redemption or to
postpone the date of payment for more than three business days under unusual
circumstances as determined by the Securities and Exchange Commission. Under
unusual circumstances, when the Board of Trustees deems it appropriate, the
Funds may make payment for shares redeemed in portfolio securities of the Funds
taken at current value.
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:
-- Keogh Plans for self-employed individuals
-- Individual retirement account (IRA) plans for individuals and their
non-employed spouses, including Roth IRAs and Education IRAs
-13-
<PAGE>
-- Qualified pension and profit-sharing plans for employees, including
those profit-sharing plans with a 401(k) provision
-- 403(b)(7) custodial accounts for employees of public school systems,
hospitals, colleges and other non-profit organizations meeting certain
requirements of the Internal Revenue Code (the "Code")
Direct Deposit Plans
- --------------------
Shares of each Fund may be purchased through direct deposit plans offered
by certain employers and government agencies. These plans enable a shareholder
to have all or a portion of his or her payroll or Social Security checks
transferred automatically to purchase shares of the Funds.
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 (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 Short Term Government Income Fund
acquired via exchange may be reexchanged for shares of any Fund at net asset
value.
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 Fund's cut-off
-14-
<PAGE>
times 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 have
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.
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.
-15-
<PAGE>
TAXES
Each Fund has qualified in all prior years and intends to qualify and to be
treated as a "regulated investment company" under Subchapter 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.
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
-16-
<PAGE>
open for business on each day the New York Stock Exchange is open for business
and on any other day when there is sufficient trading in a Fund's investments
that its net asset value might be materially affected. The net asset value per
share of each Fund is calculated by dividing the sum of the value of the
securities held by the Fund plus cash or other assets minus all liabilities
(including estimated accrued expenses) by the total number of shares outstanding
of the Fund, rounded to the nearest cent. The price at which a purchase or
redemption of Fund shares is effected is based on the next calculation of net
asset value after the order is placed.
Portfolio securities are valued as follows: (1) securities which are traded
on stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the New York Stock
Exchange on the day the securities are being valued, or, if not traded on a
particular day, at the most recent bid price, (2) securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
last sale price (or, if the last sale price is not readily available, at the
most recent bid price as quoted by brokers that make markets in the securities)
as of the close of the regular session of trading on the New York Stock Exchange
on the day the securities are being valued, (3) securities which are traded both
in the over-the-counter market and on a stock exchange are valued according to
the broadest and most representative market, and (4) securities (and other
assets) for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees. The net asset value per share of each Fund will fluctuate with the
value of the securities it holds.
-17-
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Funds' financial performance. Certain information reflects financial results for
a single Fund share. The total returns in the table represent the rate that an
investor would have earned or lost on an investment in the Funds (assuming
reinvestment of all dividends and distributions). This information has been
audited by Tait, Weller & Baker, whose report, along with the Funds' financial
statements, are included in the Statement of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
TECHNOLOGY VALUE FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
======================================================================================================================
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94(A)
======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 26.06 $ 26.66 $ 18.44 $ 11.70 $ 10.00
----------------------------------------------------------------
Income from investment operations:
Net investment loss (0.59) (0.26) (0.08) (0.14) (0.03)
Net realized and unrealized gains on investments 6.77 1.90 11.20 7.28 2.56
----------------------------------------------------------------
Total from investment operations 6.18 1.64 11.12 7.14 2.53
----------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- (1.80) (2.90) (0.40) (0.83)
Distributions in excess of net realized gains -- (0.44) -- -- --
----------------------------------------------------------------
Total distributions -- (2.24) (2.90) (0.40) (0.83)
----------------------------------------------------------------
Net asset value at end of period $ 32.24 $ 26.06 $ 26.66 $ 18.44 $ 11.70
================================================================
Total return 23.71% 6.46% 60.55% 61.17% 25.30%(B)
================================================================
Net assets at end of period (millions) $ 178.1 $ 194.4 $ 35.1 $ 2.7 $ 0.2
================================================================
Ratio of expenses to average net assets 1.95% 1.93% 1.81% 1.98% 1.96%(C)
Ratio of net investment loss to average net assets (1.80%) (1.43%) (0.55%) (1.45%) (1.29%)(C)
Portfolio turnover rate 126% 101% 43% 45% 56%
</TABLE>
(A) Represents the period from the commencement of operations (May 20, 1994)
through December 31, 1994.
(B) Not annualized.
(C) Annualized.
-18-
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY LEADERS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=======================================================================================
Year Period
Ended Ended
12/31/98 12/31/97(A)
=======================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 10.07 $ 10.00
----------------------
Income from investment operations:
Net investment income (loss) (0.09) 0.01
Net realized and unrealized gains on investments 7.96 0.06
----------------------
Total from investment operations 7.87 0.07
----------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
----------------------
Total distributions -- --
----------------------
Net asset value at end of period $ 17.94 $ 10.07
======================
Total return 78.15% 0.70%(B)
======================
Net assets at end of period (millions) $ 42.8 $ 3.6
======================
Ratio of expenses to average net assets 1.94% 1.80%(C)
Ratio of net investment income (loss) to average net assets (1.03%) 1.77%(C)
Portfolio turnover rate 105% 0%
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
-19-
<PAGE>
<TABLE>
<CAPTION>
MEDICAL SPECIALISTS FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
=====================================================================================
Year Period
Ended Ended
12/31/98 12/31/97(A)
=====================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 10.12 $ 10.00
----------------------
Income from investment operations:
Net investment income (loss) (0.10) 0.01
Net realized and unrealized gains (losses)
on investments (0.36) 0.11
----------------------
Total from investment operations (0.46) 0.12
----------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
----------------------
Total distributions -- --
----------------------
Net asset value at end of period $ 9.66 $ 10.12
======================
Total return (4.55%) 1.20%(B)
======================
Net assets at end of period (millions) $ 4.5 $ 2.4
======================
Ratio of expenses to average net assets 1.95% 1.81%(C)
Ratio of net investment income (loss) to average net assets (1.33%) 1.75%(C)
Portfolio turnover rate 160% 0%
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
-20-
<PAGE>
TECHNOLOGY INNOVATORS FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Period
================================================================================
Period
Ended
12/31/98(A)
================================================================================
Net asset value at beginning of period $ 10.00
--------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gains on investments 6.02
--------
Total from investment operations 6.01
--------
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
--------
Total distributions --
--------
Net asset value at end of period $ 16.01
========
Total return 60.10%(B)
========
Net assets at end of period (millions) $ 6.5
========
Ratio of expenses to average net assets 1.92%(C)
Ratio of net investment loss to average net assets (0.59%)(C)
Portfolio turnover rate 188%
(A) Represents the period from the commencement of operations (May 20, 1998)
through December 31, 1998.
(B) Not annualized.
(C) Annualized.
-21-
<PAGE>
FIRSTHAND FUNDS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
BOARD OF TRUSTEES
Kevin M. Landis, Chairman
Kendrick W. Kam
Michael T. Lynch
Mark K. Taguchi
OFFICERS
Kevin M. Landis, President
Kendrick W. Kam, Secretary
Yakoub Bellawala, Treasurer
INVESTMENT ADVISER
Interactive Research Advisers, Inc.
101 Park Center Plaza, Suite 1300
San Jose, CA 95113
UNDERWRITER
CW Fund Distributors, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
TRANSFER AGENT
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 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. Additional information about the Funds' investments is available in
the Funds' annual and semiannual reports to shareholders. In the Funds' annual
report, you will find a discussion of the market conditions and strategies that
significantly affected the Funds' performance during their last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports 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.
File No. 811-8268
-22-
<PAGE>
FIRSTHAND FUNDS
STATEMENT OF ADDITIONAL INFORMATION
May 11, 1999
THE TECHNOLOGY VALUE FUND
THE MEDICAL SPECIALISTS FUND
THE TECHNOLOGY LEADERS FUND
THE TECHNOLOGY INNOVATORS FUND
This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus of Firsthand Funds dated May 11, 1999. A copy
of the Prospectus can be obtained by writing the Trust at 101 Park Center Plaza,
Suite 1300, San Jose, California 95113, or by calling the Trust toll-free at
1.888.884.2675.
TABLE OF CONTENTS
-----------------
The Trust......................................................................2
Definitions, Policies and Risk Considerations..................................3
Quality Ratings of Corporate Bonds and
Preferred Stocks............................................................13
Investment Restrictions.......................................................15
Trustees and Officers .......................................................17
Investment Advisory and Other Services........................................18
The Underwriter...............................................................20
Securities Transactions.......................................................20
Portfolio Turnover............................................................22
Purchase, Redemption and Pricing of Shares....................................22
Taxes.........................................................................24
Historical Performance Information............................................27
Principal Security Holders....................................................30
Custodian.....................................................................32
Legal Counsel and Auditors....................................................32
Countrywide Fund Services, Inc................................................32
Annual Report.................................................................33
<PAGE>
THE TRUST
---------
Firsthand Funds (the "Trust"), an open-end management investment company,
was organized as a Delaware business trust on November 11, 1993. The Trust
currently offers four series of shares to investors, The Technology Value Fund,
The Medical Specialists Fund, The Technology Leaders Fund, and The Technology
Innovators Fund (referred individually as a "Fund" and collectively as the
"Funds"). Each Fund is a non-diversified series and has its own investment
objective and policies. Prior to May 1, 1998, the name of the Trust was
Interactive Investments.
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.
2
<PAGE>
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 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.
3
<PAGE>
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 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
4
<PAGE>
certificates evidencing the indebtedness of a commercial bank to repay funds
deposited with it for a definite period of time (usually from 14 days to one
year) at a stated or variable interest rate. Bankers' acceptances are credit
instruments evidencing the obligation of a bank to pay a draft which has been
drawn on it by a customer, which instruments reflect the obligation both of the
bank and of the drawer to pay the face amount of the instrument upon maturity.
Time deposits are non-negotiable deposits maintained in a banking institution
for a specified period of time at a stated interest rate. Each Fund will not
invest in time deposits maturing in more than seven days if, as a result
thereof, more than 15% of the value of its net assets would be invested in such
securities and other illiquid securities.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a
Fund purchases a security and simultaneously commits to resell that security to
the seller at an agreed upon time and price, thereby determining the yield
during the term of the agreement. In the event of a bankruptcy or other default
by the seller of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying security and losses. To minimize these possibilities,
each Fund intends to enter into repurchase agreements only with its Custodian,
with banks having assets in excess of $10 billion and with broker-dealers who
are recognized as primary dealers in U.S. Government obligations by the Federal
Reserve Bank of New York. Collateral for repurchase agreements is held in
safekeeping in the customer-only account of the Funds' Custodian at the Federal
Reserve Bank. A Fund will not enter into a repurchase agreement not terminable
within seven days if, as a result thereof, more than 15% of the value of its net
assets would be invested in such securities and other illiquid securities.
Although the securities subject to a repurchase agreement might bear
maturities exceeding one year, settlement for the repurchase would never be more
than one year after the Fund's acquisition of the securities and normally would
be within a shorter period of time. The resale price will be in excess of the
purchase price, reflecting an agreed upon market rate effective for the period
of time the Fund's money will be invested in the securities, and will not be
related to the coupon rate of the purchased security. At the time a Fund enters
into a repurchase agreement, the value of the underlying security, including
accrued interest, will equal or exceed the value of the repurchase agreement,
and, in the case of a repurchase agreement exceeding one day, the seller will
agree that the value of the underlying security, including accrued interest,
will at all times equal or exceed the value of the repurchase agreement. The
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<PAGE>
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.
6
<PAGE>
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, 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.
7
<PAGE>
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 MEDICAL SPECIALISTS FUND, THE TECHNOLOGY
LEADERS FUND, AND THE TECHNOLOGY INNOVATORS FUND ONLY). The Medical Specialists
Fund, The Technology Leaders Fund, and The Technology Innovators 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 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.
8
<PAGE>
WRITING COVERED PUT OPTIONS (THE MEDICAL SPECIALISTS FUND, THE TECHNOLOGY
LEADERS FUND, AND THE TECHNOLOGY INNOVATORS FUND ONLY). The Medical Specialists
Fund, The Technology Leaders Fund, and The Technology Innovators Fund may write
covered put options on equity securities and futures contracts to assure a
definite price for a security if they are considering acquiring the security at
a lower price than the current market price or to close out options previously
purchased. A put option gives the holder of the option the right to sell, and
the writer has the obligation to buy, the underlying security at the exercise
price at any time during the option period. The operation of put options in
other respects is substantially identical to that of call options. When a Fund
writes a covered put option, it maintains in a segregated account with its
Custodian cash or liquid securities in an amount not less than the exercise
price at all times while the put option is outstanding.
The risks involved in writing put options include the risk that a closing
transaction cannot be effected at a favorable price and the possibility that the
price of the underlying security may fall below the exercise price, in which
case a Fund may be required to purchase the underlying security at a higher
price than the market price of the security at the time the option is exercised.
OPTIONS TRANSACTIONS GENERALLY. Option transactions in which the Funds may
engage involve the specific risks described above as well as the following
risks: the writer of an option may be assigned an exercise at any time during
the option period; disruptions in the markets for underlying instruments could
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
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<PAGE>
could be exercised and the underlying security would then be sold to the Fund at
a higher price than its then current market value. The Funds may purchase put
and call options to attempt to provide protection against adverse price effects
from anticipated changes in prevailing prices of securities or stock indices.
The purchase of a put option generally protects the value of portfolio holdings
in a falling market, while the purchase of a call option generally protects cash
reserves from a failure to participate in a rising market. In purchasing a call
option, a Fund would be in a position to realize a gain if, during the option
period, the price of the security or stock index increased by an amount greater
than the premium paid. A Fund would realize a loss if the price of the security
or stock index decreased or remained the same or did not increase during the
period by more than the amount of the premium. If a put or call option purchased
by a Fund were permitted to expire without being sold or exercised, its premium
would represent a realized loss to the Fund. When writing put options a Fund
will be required to segregate cash and/or liquid securities to meet its
obligations. When writing call options a Fund will be required to own the
underlying financial instrument or segregate with its Custodian cash and/or
liquid securities to meet its obligations under written calls. By so doing, a
Fund's ability to meet current obligations, to honor redemptions or to achieve
its investment objective may be impaired. The staff of the Securities and
Exchange Commission has taken the position that over-the-counter options and the
assets used as "cover" for over-the-counter options are illiquid securities.
The imperfect correlation in price movement between an option and the
underlying financial instrument and/or the costs of implementing such an option
may limit the effectiveness of the strategy. A Fund's ability to establish and
close out options positions will be subject to the existence of a liquid
secondary market. Although the Funds generally will purchase or sell only those
options for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular option or at any particular time. If an option purchased by a Fund
expires unexercised, the Fund will lose the premium it paid. In addition, a Fund
could suffer a loss if the premium paid by the Fund in a closing transaction
exceeds the premium income it received. When a Fund writes a call option, its
ability to participate in the capital appreciation of the underlying obligation
is limited.
It is the present intention of the Adviser not to commit greater than 30%
of a Fund's net assets to option strategies.
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<PAGE>
BORROWING. Each Fund may borrow from banks for temporary or emergency
purposes in an aggregate amount not to exceed 25% of its total assets. Borrowing
magnifies the potential for gain or loss on the portfolio securities of a Fund
and, therefore, if employed, increases the possibility of fluctuation in the
Fund's net asset value. This is the speculative factor known as leverage. To
reduce the risks of borrowing, each Fund will limit its borrowings as described
above. Each Fund may pledge its assets in connection with borrowings. While a
Fund's borrowings exceed 5% of its total assets, it will not purchase additional
portfolio securities.
The use of borrowing by the Funds involves special risk considerations that
may not be associated with other funds having similar policies. Since
substantially all of a Fund's assets fluctuate in value, whereas the interest
obligation resulting from a borrowing will be fixed by the terms of the Fund's
agreement with their lender, the asset value per share of the Fund will tend to
increase more when its portfolio securities increase in value and decrease more
when its portfolio securities decrease in value than would otherwise be the case
if the Fund did not borrow funds. In addition, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, a
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
LOANS OF PORTFOLIO SECURITIES. Each Fund may 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
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<PAGE>
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.
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 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
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<PAGE>
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.
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<PAGE>
Standard & Poor's
-----------------
AAA - This is the highest rating that may be assigned by Standard & Poor's
to a preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA - A preferred stock issue rated AA also qualifies as a high-quality
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A - An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the diverse
effects of changes in circumstances and economic conditions.
BBB - An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the A category.
INVESTMENT RESTRICTIONS
-----------------------
The 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 Medical Specialists Fund, The Technology
Leaders Fund and The Technology Innovators Fund may purchase and sell
futures contracts to the extent authorized by the Board of Trustees.
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<PAGE>
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 Medical
Specialists Fund, The Technology Leaders Fund and The Technology
Innovators Fund may purchase and sell puts and calls on stocks and
stock indices.
8. Make short sales of securities.
9. Participate on a joint or joint and several basis in any securities
trading account.
10. Purchase the securities of any other investment company except in
compliance with the 1940 Act.
With respect to the percentages adopted by the Trust as maximum limitations
on a Fund's investment policies and restrictions, an excess above the fixed
percentage (except for the percentage limitations relative to the borrowing of
money) will not be a violation of the policy or restriction unless the excess
results immediately and directly from the acquisition of any security or the
action taken.
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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 AGGREGATE COMPENSATION**
- ---- --- ------------- ------------------------
*Kevin M. Landis 38 Trustee/President $ 0
*Kendrick W. Kam 38 Trustee/Secretary 0
Michael T. Lynch 37 Trustee 8,000
Mark K. Taguchi 43 Trustee 8,000
Yakoub Bellawala 33 Treasurer 0
* Kevin M. Landis and Kendrick W. Kam, as affiliated persons of Interactive
Research Advisers, Inc., the Funds' investment adviser, are "interested
persons" 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:
KENDRICK W. KAM, 101 Park Center Plaza, Suite 1300, San Jose, California
95113, has been President of Interactive Research Advisers, Inc. since its
founding in August 1993.
KEVIN M. LANDIS, 101 Park Center Plaza, Suite 1300, San Jose, California
95113, has been Vice President and Secretary of Interactive Research Advisers,
Inc. since its founding in August 1993.
MICHAEL T. LYNCH, 2345 Clover Basin, Longmont, Colorado 80503, is currently
a Product Manager for Iomega Corp. Mr. Lynch served as a Product Manager for
Adaptec, Inc. during 1995. He served as Product Line Manager for Calera
Recognition Systems, Inc., a manufacturer of Optical Character Recognition
Software, from 1990 to 1995.
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MARK K. TAGUCHI, 526 Occidental Avenue, San Mateo, California 94402, is
currently strategic relations manager for the WebFORCE group at Silicon
Graphics, Inc. Mr. Taguchi is also a principal with Renaissance Management, a
business development firm.
YAKOUB BELLAWALA, 101 Park Center Plaza, Suite 1300, San Jose, California
95113, is Chief Operating Officer of Interactive Research Advisers, Inc. He was
previously the Database Marketing Manager for Silicon Graphics, Inc.
(1995-1996); the Director of Product Management and Product Marketing for
Starbase Corporation (1994-1995); and a Senior Product Manager for Oracle
Corporation (1989-1994).
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------
Interactive Research Advisers, 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
Kendrick W. Kam and Kevin M. Landis.
Under the terms of the Investment Advisory and Management Agreement (the
"Advisory Agreement") between the Trust and the Investment Adviser, the
Investment Adviser (i) manages the investment operations of each Fund and the
composition of its portfolio, including the purchase, retention and disposition
of securities in accordance with each Fund's investment objective, (ii) provides
all statistical, economic and financial information reasonably required by the
Funds and reasonably available to the Investment Adviser, (iii) provides the
Custodian of the Funds' securities on each business day with a list of trades
for that day, and (iv) provides persons satisfactory to the Trust's Board of
Trustees to act as officers and employees of the Trust.
Pursuant to the Advisory Agreement, each Fund pays to the Investment
Adviser, on a monthly basis, an advisory fee at an annual rate of 1.50% of its
average daily net assets. The Advisory Agreement requires the Investment Adviser
to waive its management fees and, if necessary, reimburse expenses of the Funds
to the extent necessary to limit each Fund's total operating expenses to 1.95%
of its average net assets up to $200 million, 1.90% of such assets from $200
million to $500 million, 1.85% of such assets from $500 million to $1 billion,
and 1.80% of such assets in excess of $1 billion. For the fiscal years ended
December 31, 1998, 1997 and 1996, The Technology Value Fund paid advisory fees
of $2,734,532, $1,830,251 and $122,185, respectively. For the fiscal years ended
December 31, 1998 and
18
<PAGE>
1997, The Medical Specialists Fund paid advisory fees of $51,357 and $1,238,
respectively. For the fiscal years ended December 31, 1998 and 1997, The
Technology Leaders Fund paid advisory fees of $286,734 and $1,769, respectively.
For the fiscal year ended December 31, 1998, The Technology Innovators Fund paid
advisory fees of $14,782.
By its terms, the Advisory Agreement remains in force from year to year,
subject to annual approval by (a) the Board of Trustees or (b) a vote of the
majority of a Fund's outstanding voting securities; provided that in either
event continuance is also approved by a majority of the Trustees who are not
interested persons of the Trust, by a vote cast in person at a meeting called
for the purpose of voting such approval. The Advisory Agreement may be
terminated at any time, on 60 days' written notice, without the payment of any
penalty, by the Board of Trustees, by a vote of the majority of a Fund's
outstanding voting securities, or by the Investment Adviser. The Advisory
Agreement automatically terminates in the event of its assignment, as defined by
the 1940 Act and the rules thereunder.
The Board of Trustees of the Trust has approved an Administration Agreement
with the Investment Adviser wherein the Investment Adviser is responsible for
the provision of administrative and supervisory services to the Funds. The
Investment Adviser, at its expense, shall supply the Trustees and the officers
of the Trust with all statistical information and reports reasonably required by
it and reasonably available to the Investment Adviser. The Investment Adviser
shall oversee the maintenance of all books and records with respect to the
Funds' security transactions and the Funds' books of account in accordance with
all applicable federal and state laws and regulations. The Investment Adviser
will arrange for the preservation of the records required to be maintained by
the 1940 Act.
Pursuant to the Administration Agreement, each Fund will pay to the
Investment Adviser, on a monthly basis, a fee equal to .45% per annum of its
average daily net assets up to $200 million, .40% of such assets from $200
million to $500 million, .35% of such assets from $500 million to $1 billion,
and .30% of such assets in excess of $1 billion. For the fiscal years ended
December 31, 1998, 1997 and 1996, The Technology Value Fund paid administrative
fees of $816,383, $778,503 and $101,257, respectively. For the fiscal years
ended December 31, 1998 and 1997, The Medical Specialists Fund paid
administrative fees of $15,407 and $371, respectively. For the fiscal years
ended December 31, 1998 and 1997, The Technology Leaders Fund paid
administrative fees of $86,020 and $531, respectively. For the fiscal year ended
December 31, 1998, The Technology Innovators Fund paid administrative fees of
$4,435.
19
<PAGE>
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.
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.
20
<PAGE>
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 Technology Value Fund paid brokerage commissions of $110,003, $275,303
and $57,050 during the fiscal years ended December 31, 1998, 1997 and 1996,
respectively. The Medical Specialists Fund paid brokerage commissions of $11,239
and $994 during the fiscal years ended December 31, 1998 and 1997, respectively.
The Technology Leaders Fund paid brokerage commissions of $19,440 and $876
during the fiscal years ended December 31, 1998 and 1997, respectively. The
Technology Innovators Fund paid brokerage commissions of $1,050 during the
fiscal year ended December 31, 1998.
The Board of Trustees reviews periodically the allocation of brokerage
orders to monitor the operation of these policies.
21
<PAGE>
PORTFOLIO TURNOVER
------------------
A Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for the fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
fiscal year. High portfolio turnover involves correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Funds. A 100% turnover rate would occur if all of a Fund's portfolio securities
were replaced once within a one year period.
Generally, each Fund intends to invest for long-term purposes. However, the
rate of portfolio turnover will depend upon market and other conditions, and it
will not be a limiting factor when the Adviser believes that portfolio changes
are appropriate. For the fiscal years ended December 31, 1998 and 1997, The
Technology Value Fund's portfolio turnover rate was 126% and 101%, respectively.
For the fiscal year ended December 31, 1998, the portfolio turnover rates of The
Medical Specialists Fund and The Technology Leaders Fund were 160% and 105%,
respectively.
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
22
<PAGE>
Adviser under the supervision of the Board of Trustees determines in good faith
to reflect its fair value. Readily marketable securities traded only in the
over-the-counter market are valued at the last sale price, if available,
otherwise at the most recent bid price. If no bid price is quoted on such day,
then the security is valued by such method as the Investment Adviser under the
supervision of the Board of Trustees determines in good faith to reflect its
fair value. All other assets of the Funds, including restricted securities and
securities that are not readily marketable, are valued in such manner as the
Investment Adviser under the supervision of the Board of Trustees in good faith
deems appropriate to reflect their fair value.
PURCHASE OF SHARES
Orders for shares received by the Trust in proper form prior to the close
of business on the New York Stock Exchange (the "Exchange") on each day during
such periods that the Exchange is open for trading are priced at net asset value
per share computed as of the close of the regular session of trading on the
Exchange. Orders received in proper form after the close of the Exchange, or on
a day it is not open for trading, are priced at the close of such Exchange on
the next day on which it is open for trading at the next determined net asset
value per share.
REDEMPTION OF SHARES
The right of redemption may not be suspended or the date of payment upon
redemption postponed for more than seven calendar days after a shareholder's
redemption request made in accordance with the procedures set forth in the
Prospectus, except for any period during which the Exchange is closed (other
than customary weekend and holiday closing) or during which the Securities and
Exchange Commission determines that trading thereon is restricted, or for any
period during which an emergency (as determined by the Securities and Exchange
Commission) exists as a result of which disposal by a Fund of securities owned
by it is not reasonably practicable or as a result of which it is not reasonably
practicable for a Fund to fairly determine the value of its net assets, or for
such other period as the Securities and Exchange Commission may by order permit
for the protection of security holders of the Funds.
The Trust will redeem all or any portion of a shareholder's shares of the
Funds when requested in accordance with the procedures set forth in the "How to
Redeem Shares" section of the Prospectus.
23
<PAGE>
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 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.
24
<PAGE>
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.
25
<PAGE>
Each Fund may invest as much as 15% of its net assets in securities of
foreign companies and may therefore be liable for foreign withholding and other
taxes, which will reduce the amount available for distribution to shareholders.
Tax conventions between the United States and various other countries may reduce
or eliminate such taxes. A foreign tax credit or deduction is generally allowed
for foreign taxes paid or deemed to be paid. A regulated investment company may
elect to have the foreign tax credit or deduction claimed by the shareholders
rather than the company if certain requirements are met, including the
requirement that more than 50% of the value of the company's total assets at the
end of the taxable year consist of securities in foreign corporations. Because
the Funds do not anticipate investment in securities of foreign corporations to
this extent, the Funds will likely not be able to make this election and foreign
tax credits will be allowed only to reduce a Fund's tax liability, if any.
Under the Code, upon disposition of certain securities denominated in a
foreign currency, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the securities and the
date of disposition are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income.
Any dividend or distribution received shortly after a share purchase will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Such dividend or distribution is fully taxable.
Accordingly, prior to purchasing shares of the Funds, an investor should
carefully consider the amount of dividends or capital gains distributions which
are expected to be or have been announced.
Generally, the Code's rules regarding the determination and character of
gain or loss on the sale of a capital asset apply to a sale, redemption or
repurchase of shares of the Funds that are held by the shareholder as capital
assets. However, if a shareholder sells shares of the Funds which he has held
for less than six months and on which he has received distributions of capital
gains, any 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.
26
<PAGE>
The Trust is required to withhold and remit to the U.S. Treasury a portion
(31%) of dividend income on any account unless the shareholder provides a
taxpayer identification number and certifies that such number is correct and
that the shareholder is not subject to backup withholding.
Provided that a Fund qualifies as a regulated investment company under the
Code, it will not be liable for California corporate taxes, other than a minimum
franchise tax, if all of its income is distributed to shareholders for each
taxable year. Shareholders, however, may be liable for state and local income
taxes on distributions from the Funds.
The above discussion and the related discussion in the Prospectus are not
intended to be complete discussions of all applicable federal tax consequences
of an investment in the Funds. The law firm of Paul, Hastings, Janofsky & Walker
LLP has expressed no opinion in respect thereof. Nonresident aliens and foreign
persons are subject to different tax rules, and may be subject to withholding of
up to 30% on certain payments received from the Funds. Shareholders are advised
to consult with their own tax advisors concerning the application of foreign,
federal, state and local taxes to an investment in the Funds.
HISTORICAL PERFORMANCE INFORMATION
----------------------------------
A Fund's total returns are based on the overall dollar or percentage change
in value of a hypothetical investment in the Fund, assuming all dividends and
distributions are reinvested. Average annual total return reflects the
hypothetical annually compounded return that would have produced the same
cumulative total return if the Fund's performance had been constant over the
entire period presented. Because average annual total returns tend to smooth out
variations in the Fund's returns, investors should recognize that they are not
the same as actual year-by-year returns.
For the purposes of quoting and comparing the performance of the Funds to
that of other mutual funds and to other relevant market indices in
advertisements, performance will be stated in terms of average annual total
return. Under regulations adopted by the Securities and Exchange Commission,
funds that intend to advertise performance must include average annual total
return quotations calculated according to the following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
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).
27
<PAGE>
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
1, 5, and 10 year periods of a Fund's existence or shorter periods dating from
the commencement of the Fund's operations. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the Prospectus on the reinvestment
dates during the period. Additionally, redemption of shares is assumed to occur
at the end of each applicable time period.
The foregoing information should be considered in light of a Fund's
investment objectives and policies, as well as the risks incurred in the Fund's
investment practices. Future results will be affected by the future composition
of a Fund's portfolio, as well as by changes in the general level of interest
rates, and general economic and other market conditions.
The average annual total returns of the Funds for the periods ended
December 31, 1998 are as follows:
Technology Value Fund:
1-Year 23.71%
Since inception (May 20, 1994) 36.93%
Since SEC effective date (December 15, 1994) 37.24%
Medical Specialists Fund:
1-Year -4.55%
Since inception (December 10, 1997) -3.21%
Technology Leaders Fund:
1-Year 78.15%
Since inception (December 10, 1997) 73.54%
Each Fund may also advertise total return (a "nonstandardized quotation")
which is calculated differently from average annual total return. A
nonstandardized quotation of total return may be a cumulative return which
measures the percentage change in the value of an account between the beginning
and end of a period, assuming no activity in the account other than reinvestment
of dividends and capital gains distributions. The Technology Value Fund's total
returns as calculated in this manner for each of its past four fiscal years are
as follows:
Period Ended
------------
December 31, 1995 61.17%
December 31, 1996 60.55%
December 31, 1997 6.46%
December 31, 1998 23.71%
28
<PAGE>
A nonstandardized quotation may also indicate average annual compounded rates of
return over periods other than those specified for average annual total return.
A nonstandardized quotation of total return will always be accompanied by 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:
Lipper Mutual Fund Performance Analysis measures total return and average
current yield for the mutual fund industry and ranks individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales loads. The Funds may provide comparative
performance information appearing in any appropriate category published by
Lipper Analytical Services, Inc. In addition, the Funds may use comparative
performance information of relevant indices, including the S&P 500 Index, the
Dow Jones Industrial Average, the Russell 2000 Index, the NASDAQ Composite Index
and the Value Line Composite Index. The S&P 500 Index is an unmanaged index of
500 stocks, the purpose of which is to portray the pattern of common stock price
movement. The Dow Jones Industrial Average is a measurement of general market
price movement for 30 widely held stocks listed on the New York Stock Exchange.
The Russell 2000 Index, representing approximately 11% of the U.S. equity
market, is an unmanaged index comprised of the 2,000 smallest U.S. domiciled
publicly-traded common stocks in the Russell 3000 Index (an unmanaged index of
the 3,000 largest U.S. domiciled publicly-traded common stocks by market
capitalization representing approximately 98% of the U.S. publicly-traded equity
market). The NASDAQ Composite Index is an unmanaged index which averages the
trading prices of more than 3,000 domestic over-the-counter companies. The Value
Line Composite Index is an unmanaged index comprised of approximately 1,700
stocks, the purpose of which is to portray the pattern of common stock price
movement.
29
<PAGE>
In assessing such comparisons of performance an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the Funds' portfolios, that the averages are
generally unmanaged and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their performance. In addition, there can be no assurance that the Funds will
continue this performance as compared to such other averages.
PRINCIPAL SECURITY HOLDERS
--------------------------
As of April 30, 1999 the following persons owned of record 5% or more of
the shares of the Funds:
The Technology Value Fund:
- --------------------------
Name Shares % Ownership
- ---- ------ -----------
Charles Schwab & Co. 1,653,245.365 37.45%
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corp. 775,196.881 17.56%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
National Investors Services Corp. 649,345.959 14.71%
55 Water Street 32nd Floor
New York, New York 10041
The Medical Specialists Fund:
- -----------------------------
Name Shares % Ownership
- ---- ------ -----------
Charles Schwab & Co. 141,956.544 33.08%
101 Montgomery Street
San Francisco, California 94104
Donaldson, Lufkin & 36,996.190 8.62%
Jenrette Securities Corp.
P.O. Box 2052
Jersey City, New Jersey 07303
National Financial Services Corp. 54,168.635 12.62%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
30
<PAGE>
National Investors Services Corp. 35,235.898 8.21%
55 Water Street 32nd Floor
New York, New York 10041
Banque Pasche SA 24,636.561 5.74%
10 Rue De Hollande
PO Box 5760
1211 Geneva 11
Switzerland
The Technology Leaders Fund:
- ----------------------------
Name Shares % Ownership
- ---- ------ -----------
Charles Schwab & Co. 999,828.457 35.86%
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corp. 883,025.378 31.67%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
National Investors Services Corp. 218,887.189 7.85%
55 Water Street 32nd Floor
New York, New York 10041
The Technology Innovators Fund:
- -------------------------------
Name Shares % Ownership
- ---- ------ -----------
Charles Schwab & Co. 196,929.158 24.74%
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corp. 259,462.437 32.59%
One World Financial Center
200 Liberty Street, 5th Floor
New York, New York 10281
National Investors Services Corp. 86,340.042 10.85%
55 Water Street 32nd Floor
New York, New York 10041
FTC & Co 102,719.989 12.90%
PO Box 173736
Denver, Colorado 80217
Charles Schwab & Co., a corporation organized in California, may be deemed
to control The Technology Value Fund and The Technology Leaders Fund. National
Financial Services Corp., a corporation organized in New York, may be deemed to
control The Technology Leaders Fund and The Technology Innovators Fund. For
purposes of voting on matters submitted to shareholders, any person who owns
more than 50% of the outstanding shares of a Fund generally would be able to
cast the deciding vote.
As of April 30, 1999, the Trustees and officers of the Trust owned of
record or beneficially less than 1% of each Fund's outstanding shares.
31
<PAGE>
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 .1% of the average value of each Fund's daily net
assets up to $100,000,000, .075% of such assets from $100,000,000 to
$200,000,000 and .05% of such assets in excess of $200,000,000; (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.
32
<PAGE>
Countrywide is an indirect wholly-owned subsidiary of Countrywide Credit
Industries, Inc., a New York Stock Exchange listed company principally engaged
in the business of residential mortgage lending. Countrywide is an affiliate of
the Underwriter by reason of common ownership.
ANNUAL REPORT
-------------
The Funds' financial statements as of December 31, 1998 appear in the
Trust's annual report which is attached to this Statement of Additional
Information.
33
<PAGE>
[LOGO]
1998
Annual Report to Shareholders
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
DO YOU LIKE THESE REPORTS?
YOU COULD BE GETTING MORE
Investors often ask if there is a way that they can get more information more
frequently than quarterly in the Shareholder Reports. The answer is yes. There
is much more information and insight available on a regular basis from Firsthand
Funds via the Internet.
We make additional information available in two ways: our Firsthand Alert e-mail
system, and our site on the World Wide Web. The table below illustrates the
types of information and benefits available from each communication channel.
- --------------------------------------------------------------------------------
QUARTERLY REPORT ALERT E-MAIL WEB SITE
Breaking News O X O
Monthly Market & News Updates O X O
Distribution Information Z X X
Performance Updates Z X X
Portfolio Manager Commentary Z X X
Performance Calculators O O X
Portfolio Holdings Z O X
O = Not available Z = Offered periodically X = Offered regularly
- --------------------------------------------------------------------------------
FIRSTHAND ALERT E-MAIL
The Firsthand Alert e-mail program is a free service that provides market and
news updates at least monthly (more often when hot news breaks). To subscribe to
this service, simply send an e-mail with the phrase "subscribe alert" (without
the quotes) in the text of the message (not the subject line) to:
[email protected]
FirsthandFunds.com Web Site
The Firsthand Funds web site contains the most comprehensive set of information
available about Firsthand Funds. Just visit http://www.FirsthandFunds.com on the
Internet.
And let us know if there's anything else you'd like to see on the Firsthand
Funds web site or in the Alert e-mails. Your comments are welcome at:
[email protected]
<PAGE>
PERFORMANCE SUMMARY
(total returns as of 12/31/98)
Q4'98 1998 AVERAGE ANNUAL TOTAL RETURN SINCE:
05/20/94* 12/15/94* 12/10/97**
- --------------------------------------------------------------------------------
TVF 60.64% 23.71% 36.93% 37.24% n/a*
TLF 58.90% 78.15% n/a** n/a** 73.54%
MSF 31.97% -4.55% n/a** n/a** -3.21%
DJIA 17.59% 18.13% 23.99% 27.28% 15.21%
S&P 500 21.30% 28.58% 26.59% 30.42% 26.22%
NASDAQ 29.45% 39.63% 27.39% 31.78% 33.05%
Composite
Q4'98 1998 CUMULATIVE TOTAL RETURN SINCE:
05/20/98***
- --------------------------------------------------------------------------------
TIF 97.41% n/a 60.10%
DJIA 17.59% n/a 2.53%
S&P 500 21.30% n/a 19.74%
NASDAQ 29.45% n/a 32.06%
Composite
*TVF inception date is 05/20/94; TVF effectiveness date is 12/15/94.
**TLF/MSF inception date is 12/10/97.
***TIF inception date is 05/20/98.
Returns assume reinvestment of dividends and distributions. Past performance is
not a guarantee of future results. Investment returns will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Each Fund concentrates its investments in the technology industry. The Funds are
subject to greater risk because of their concentration of investments in a
single industry and within certain segments of the industry. In addition, each
Fund may, from time to time, invest a substantial portion of its assets in the
securities of small capitalization companies. The securities of smaller
companies often involve higher risks and may be subject to wider price
fluctuations than securities of larger companies. There are certain risks
associated with investments in the technology and medical industries, such as
the risk that the product and services of companies in those industries are
subject to rapid obsolescence caused by scientific developments and
technological advances.
Please read the prospectus carefully before investing.
Firsthand
<PAGE>
ELECTRONIC
TECHNOLOGY SUMMARY
1998 was the year of the technology leaders and the Internet darlings. Funds
that focused in either of these categories were rewarded with exceptional
results, while the market was much less kind to most other technology funds. Our
funds showed large swings in value during the year, but all finished on a very
positive note. As the table at left shows, the Technology Leaders Fund (TLF)
solidly outperformed the broad market indices for the year. The Technology Value
Fund (TVF), without much contribution from technology leaders or Internet
stocks, lagged the NASDAQ and S&P 500 indices.
The year started out on a relatively positive note, with the technology sector
recovering from the setbacks posed by the Asian financial crisis of Q4'97.
Semiconductor equipment suppliers were some of the biggest beneficiaries of the
Q1 rally, having been severely beaten down in the prior quarter.
As we moved into Q2, the cold of the Asian financial crisis was once again in
the air. While the "Blue Chip" technology leaders continued to drive the market
indices in a positive direction, most other issues were negatively impacted by
the initial flight to quality, even in the technology sector.
The second half of the year will surely be remembered as one of the most
turbulent times in the history of the American markets. In Q3, a number of
international events including the Russian currency devaluation, slipping
economies in Brazil and Asia, and the unraveling of Long Term Capital
Management, conspired to drive the U.S. stock market down as investors expected
that the next domino to fall would be the U.S. economy. During that continued
flight to quality, large sums of money flowed out of stocks (particularly tech
stocks) and into "safer" bonds and money market issues. Technology stocks took a
beating.
1998 Annual Report to Shareholders | 3
<PAGE>
After Q3's tremendous downdraft, the markets made a spectacular recovery in Q4
as investors were reassured by solid corporate earnings reports and new fiscal
and monetary policy in the troubled economies of the world. As usual, technology
stocks were at the tip of the whip in terms of their relation to market
movements, with every movement (positive and negative) in the broad market being
magnified in the tech sector. As the table on page 2 shows, each of our funds
was up dramatically in Q4, handily beating the broad market indices.
The most talked about technology segment this year was certainly the Internet.
The run-up in the stocks of many Internet content providers has been astounding.
We continue to believe that the inflated valuations reflect much of the
Internet's promise and very little fear. Our investment strategy for the
Internet continues to be one of investing in companies providing the
infrastructure to enable Internet traffic, which is far more predictable than
who will be the leading on-line auctioneer, bookseller or portal.
The Technology Innovators Fund is our third fund to receive a ticker symbol:
- --------------------------------------------------------------------------------
Technology Value Fund TVFQX
- --------------------------------------------------------------------------------
Technology Leaders Fund TLFQX
- --------------------------------------------------------------------------------
Technology Innovators Fund TIFQX
- --------------------------------------------------------------------------------
The Medical Specialists Fund ($4.5 million in assets as of 12/31/98) will
receive symbol as soon as its assets reach $10 million.
Firsthand
<PAGE>
MEDICAL
TECHNOLOGY SUMMARY
HEALTHCARE FUNDS LAGGED
Normally, when the Micropal Health Index rises 18.75% for the year, it reflects
a good year for medical stocks. But not in 1998. When compared to the broader
market indices such as the NASDAQ composite, up 39.63%, and the S&P 500, up
28.58%, it becomes clear that healthcare funds lagged the market this year.
MICROPAL NASDAQ S&P
HEALTH INDEX COMPOSITE 500
- --------------------------------------------------------------------------------
Q4`98 18.46% 29.45% 21.30%
1998 18.75% 39.63% 28.58%
SIZE MATTERED
Not all medical stocks were out of favor. Bigger was better in 1998. The
healthcare segment of the Russell 1000 Index (large-cap stocks) rose 42.55% in
1998, versus just 3.26% for the healthcare segment of the Russell 2000
(small-cap stocks). Despite a rebound in Q4, small-cap stocks continue to sell
at lower relative valuations than anytime during the last 20 years.
The disparity in performance between large and small-cap healthcare stocks
largely explains the difference in the performance of the medical side of the
Technology Value Fund (TVF) and the Medical Specialists Fund (MSF). MSF's
emphasis on small-cap stocks was a significant drag on performance last year.
MICROPAL TVF
HEALTH INDEX MEDICAL* MSF
- --------------------------------------------------------------------------------
Q4`98 18.46% 45.32% 31.97%
1998 18.75% 22.48% -4.55%
* TVF-Medical performance numbers are estimates based on the adviser's own
portfolio attribution analysis.
1998 Annual Report to Shareholders | 5
<PAGE>
The medical portion of TVF outperformed the Micropal Health Index by a
significant amount in the fourth quarter and a smaller amount for the full year.
The Medical Specialists Fund also beat the Micropal Health Index in Q4, but
underperformed for the full year.
FUNDAMENTALS STILL STRONG
Although small-cap medical stocks did poorly in 1998, the companies continued to
perform well operationally. Many of the medical companies in our portfolios have
seen their revenues grow by more than 50% in the last 12 months. Several
achieved profitability for the first time. These stocks may be out of favor in
the near term, but eventually the market will recognize and reward the progress
these companies have made.
TECH VALUE:
ACCORDING TO PLAN?
If everything always worked according to plan, every investment we make would
double in two years producing a 41% annual return on investment. If you assume
that the portfolios are always 95% invested (5% held in reserve to meet
redemptions), then after all fees, the funds would return about 37% per year -
if everything worked according to plan.
In the real world, we know we're not perfect, so delivering 37% annually is an
unreasonable expectation. Yet since inception (for over four and a half years),
TVF has had an average annual return of 36.93% - seemingly according to plan.
However, these returns have been by no means con-stant - with 2-year returns
varying from -25% to 225%. And while we have hit our plan over the life of the
Fund, it is still unreasonable to expect it to continue.
Firsthand
<PAGE>
Of course, everyone would much prefer a steady 37% per year return. As
investors, we know that volatility can be troubling, causing upset stomach, loss
of sleep, sometimes even loss of hair. But we also know that at the end of our
investment horizon, what really matters is the total return on investment. We
would much prefer an annual average return of 37% delivered however erratically,
than a lower return delivered evenly.
When it's time to tap your investments, the total return will matter a lot. The
annual volatility of those returns will matter very little.
The change in market sentiment between Q3 and Q4 demonstrates that a stock's
price sometimes gets disconnected from the underlying company's prospects.
Trying to produce a steady return every quarter means trying to anticipate the
market's mood swings. We admit that we cannot do this.
Instead, we try to understand a company's prospects well enough to react
decisively whenever the market undervalues a stock to such a degree that there
is a decent chance of a double in two years. This investment style does not
deliver steady returns every year. But, looking back, it is gratifying to see
that it has worked fairly well for our long-term investors.
1998 Annual Report to Shareholders | 7
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
Medical Specialists Fund
1998 Annual Report to Shareholders | 9
<PAGE>
TECHNOLOGY VALUE FUND
PERFORMANCE & PORTFOLIO DISCUSSION
- --------------------------------------------------------------------------------
The Technology Value Fund ("TVF", ticker symbol TVFQX) posted a strong Q4 gain
of 60.64%. Over the same period, the NASDAQ appreciated 29.45% and the S&P 500
grew 21.30%, while the Lipper Science and Technology Index gained 41.68%. On a
full-year basis, the Fund underperformed both its peer group and the broad
market indices, returning 23.71% for the year.
Nearly every sector held by the Fund showed strong growth this quarter with
Semiconductors leading the way, returning over 90% for the quarter. Only two
sectors, Communications Equipment and Health Services, posted negative returns.
The accompanying pie chart shows the Fund's holdings as of December 31.
Semiconductors remained the Fund's largest sector weighting, representing 39.2%
of the portfolio, down slightly from 42.1% at the end of Q3. Nearly all of our
semiconductor holdings, including the Fund's largest holdings, PMC-Sierra
(PMCS), Applied Micro Circuits Corp. (AMCC) and Level One (LEVL), showed very
strong growth in the quarter.
The Semiconductor Capital Equipment weighting fell from 5.1% to 3.3%. We
lightened some of our positions in this sector in anticipation of a slower
recovery period compared with those of our other holdings. FVC.COM (FVCX)
remained our single Networking holding, accounting for 2.0% of the Fund's assets
at quarter's end.
EDA holdings decreased from 8.4% to 4.2% as we trimmed our positions in Avant!
(AVNT) and Aspec (ASPCE). We also reduced our position in Adaptec (ADPT) during
the
RELATIVE PERFORMANCE:
TVF VS. MARKET INDICES
[GRAPHIC OMITTED]
S&P 500 NASDAQ DJIA TVF
------- ------ ---- ---
5/20/94 $10,000 $10,000 $10,000 $10,000
12/31/98 $29,715 $30,589 $26,997 $42,702
Past performance is not a guarantee of future results.
Firsthand
<PAGE>
- --------------------------------------------------------------------------------
TVF HOLDINGS BY SECTOR*
Semiconductors 39.2%
EDA 4.2%
Semi Equip 3.3%
Biotech 14.5%
Other Electronics** 16.6%
Cash 2.3%
Card Med Devices 18.9%
Health Services 1.0%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
** Consists of Communications Equipment (0.2%), Networking (2.0%), Periphals
(2.4%) and Software (1.3%) in addition to Other Electronics (10.7%)
quarter. This sole Peripherals holding accounted for 2.4% of the Fund's assets.
We established a new position in i2 Technologies (ITWO) in Q4. This Enterprise
Resource Planning vendor is our single Software holding and represented 1.3% of
the portfolio. The weighting for the Communications Equipment sector fell from
1.5% to 0.2% as we reduced our position in PairGain (PAIR), the single holding
in this segment.
The Fund established a position in Rockwell (ROK), a diversified supplier of
semiconduc-tors and communications equipment, during the quarter. It has been
included in Other Electronics, and represents 10.7% of assets.
The Cardiac Medical Devices weighting fell slightly from 19.7% to 18.9%. During
the quarter, Medtronic (MDT) offered to acquire Arterial Vascular Engineering
(AVEI) for $54 per share, a 67% premium over the pre-announcement price.
The Fund's Biotech holdings shrank from 16.9% to 14.5% of assets. The Fund
closed out its position in Affymetrix (AFFX) in the fourth quarter and added to
its investment in Centocor (CNTO).
Health Services declined from 2.7% to 1.0% of the Fund. We sold our position in
Mariner-Paragon (MPN). Medicare has reduced the price it will pay for skilled
nursing home services to a level that will probably turn out to be unprofitable
for most providers. At the same time, fear of lawsuits prevents the industry
from cutting expenses enough to restore profitability at the new lower prices.
The Fund ended the quarter with a net cash position of 2.3%, up slightly from
last quarter's 1.7%.
1998 Annual Report to Shareholders | 11
<PAGE>
TECHNOLOGY LEADERS FUND
PERFORMANCE & PORTFOLIO DISCUSSION
- --------------------------------------------------------------------------------
The Technology Leaders Fund ("TLF", ticker symbol TLFQX) appreciated 58.90% in
the fourth quarter, outperforming the broad market indices (see performance
summary table on page 2) as well as the Lipper Science & Technology Index. This
was by far the largest quarterly gain in TLF's short history. On a full-year
basis, the Fund solidly beat the indices and outperformed nearly all other
Science & Technology mutual funds, returning 78.15%. It also ranked in the top
20 of all mutual funds.
While TLF achieved positive returns in nearly all sectors in Q4, our investments
in the Semiconductor Equipment sector performed the best, posting returns of
97.63%. The Semiconductor and Internet sectors also exhibited gains in excess of
80% for the quarter.
The accompanying pie chart shows the Fund's year-end holdings by sector. At
35.2%, the Semiconductor sector remains the Fund's largest weighting, although
it has declined as we have increased the weightings of other sectors. Among our
biggest positions are Level One (LEVL), PMC-Sierra (PMCS), Vitesse (VTSS), and
Intel (INTC).
Semiconductor Capital Equipment investments declined from 6.8% to 5.9%. The
business fundamentals in this sector have begun to stabilize and valuations are
beginning to increase again.
The Fund's weighting in the Computers sector has increased from 8.4% to 10.8%.
During the quarter, we established a position in Sun Microsystems (SUNW). Sun is
a leading supplier
RELATIVE PERFORMANCE:
TLF VS. MARKET INDICES
S&P 500 NASDAQ DJIA TLF
------- ------ ---- ---
12/10/97 $10,000 $10,000 $10,000 $10,000
12/31/98 $12,800 $13,537 $11,619 $17,940
Past performance is not a guarantee of future results.
Firsthand
<PAGE>
- --------------------------------------------------------------------------------
TLF HOLDINGS BY SECTOR*
Semiconductors 35.2%
Computers 10.8%
Comm Equip 8.9%
Networking 8.7%
Internet 3.7%
EDA 4.2%
Other Electronics 9.6%
Semi Equip 5.9%
Software 10.1%
Cash 2.9%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
of engineering workstations and Internet servers. Our single networking stock,
Cisco (CSCO), grew to 8.7% of assets as it continues to deliver outstanding
results.
During the quarter, the Fund increased its position in America Online (AOL) and
added Cadence Design Systems (CDN), represent-ing the only holdings in the
Internet and EDA segments, respectively. Internet makes up 3.7% of holdings,
while the EDA sector accounts for 4.2% of net assets. A position was also
established in Rockwell (ROK), a leading communications equipment and
semiconductor provider, which comprises the Other Electronics segment and 9.6%
of the Fund.
Software investments declined slightly from 11.0% to 10.1% of assets during the
quarter, as did the weighting for the Communications Equipment segment,
shrinking from 11.3% to 8.9% of Fund assets. The Fund's net cash position
increased slightly from 1.7% in Q3 to 2.9% at the end of Q4.
1998 Annual Report to Shareholders | 13
<PAGE>
TECHNOLOGY INNOVATORS FUND
PERFORMANCE & PORTFOLIO DISCUSSION
- --------------------------------------------------------------------------------
After a disappointing third quarter, the Technology Innovators Fund ("TIF",
ticker symbol TIFQX) rebounded strongly in the fourth quarter, posting a
quarterly gain of 97.41% and a 60.10% return since the Fund's inception on May
20, 1998. The quarterly appreciation represents the largest single-quarter gain
in Firsthand Funds' history, handily outperforming the Micropal Technology and
Lipper Science & Technology indices. In fact, TIF was second-highest per-forming
fund in the U.S. in the fourth quarter. While TIF will not be recognized for its
annual return due to its May inception date, during the "stub" period from May
20 to Dec. 31, the Fund outperformed most other Science & Technology mutual
funds.
The Fund saw strong appreciation in most of its holdings during the quarter, led
by our Internet sector holdings, with gains of 86.67% for the quarter.
The accompanying pie chart shows TIF's holdings as of December 31.
Semiconductors remained the Fund's most heavily-weighted sector, at 54.2% of net
assets, reflecting our continued optimism in communication chip companies. Our
largest semiconductor hold-ings include MMC Networks (MMCN), Applied Micro
Circuits (AMCC), and TriQuint (TQNT).
Relative Performance:
TIF vs. Market Indices
S&P500 NASDAQ DJIA TIF
------ ------ ---- ---
5/20/98 $10,000 $10,000 $10,000 $10,000
12/31/98 $11,180 $11,879 $10,253 $16,010
Past performance is not a guarantee of future results.
Firsthand
<PAGE>
- --------------------------------------------------------------------------------
TIF Holdings by Sector*
EDA 0.1%
Cash 14.0%
Comm Equip 0.2%
Semi Equip 0.7%
Semiconductors 54.2%
Internet 4.0%
Networking 3.6%
Telecomm 2.3%
Photonics 5.1%
Software 15.8%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
During the quarter, we increased our weighting in Software from 11.6% to 15.8%,
adding new positions in Check Point Software (CHKPF) and Concur Technologies
(CNQR). The Fund also established its first positions in Internet companies,
with purchases of InfoSpace.com (INSP), Ticketmaster Online-CitySearch (TMCS),
and Xoom.com (XMCM). Internet stocks represented 4.0% of net assets at the end
of the quarter.
After divesting our positions in Advanced Fibre Communications (AFCI) and Cienna
(CIEN), P-Com (PCMS) was the sole Communications Equipment holding, representing
just 0.2% of net assets. The Networking sector, represented by FVC.COM (FVCX),
has fallen to 3.6% of the Fund's holdings.
Qwest (QWST) remained our single telecommunications holding, representing 2.3%
of net assets. The EDA sector also remained a modest 0.1% of the Fund's
holdings. Integrated Process Equipment (IPEC) represented 0.7% of our portfolio
as the only Semiconductor Equipment holding at the quarter's end.
Since September, we've established a position in SDL, Inc. (SDLI), accompanying
Uniphase (UNPH) in the Photonics sector, which represented 5.1% of Fund
holdings. SDLI is a manufacturer of components for fiber optic networks. The
Fund's net cash position was at 14.0% at the end of the fourth quarter. We
increased the number of positions from 19 to 22 during Q4, and we continue to
look for promising companies to add to the portfolio.
1998 Annual Report to Shareholders | 15
<PAGE>
Medical Specialists Fund
Performance & Portfolio Discussion
- --------------------------------------------------------------------------------
Medical Specialists Fund ("MSF") returned 31.97% in Q4 outperforming the DJIA,
the S&P 500, the NASDAQ Composite, and the Micropal Health index. Q4's return,
however, was not enough to reverse the previous three quarters of
underperformance as MSF ended the year down 4.55%. Many of the portfolio
adjustments we made to take advantage of the bargains produced by the sell-off
in Q3 delivered a quick payoff in Q4.
Arterial Vascular Engineering (AVEI), which we loaded up on in the low $30's in
October, announced a deal to be acquired by Medtronic (MDT) for $54. At $30,
AVEI was trading at a P/E of 12 even though sales grew over 500% and earnings
grew more than 800% compared to last year. It is rare for a company in any
industry to experience such rapid revenue growth while also becoming more
profitable. It is surprising that the market accorded such a company a P/E of
12. For Medtronic, acquiring AVEI will provide an immediate boost to its
earnings per share, and help to maintain its own relatively high P/E.
We also doubled our position in Immunex (IMNX) in time to capture a good part of
its move from $55 to $126 during Q4. On November 2, 1998, Immunex received FDA
approval to market Enbrel as a treatment for rheumatoid arthritis. It's hard to
believe that after the approval was announced, Immunex's stock price actually
declined slightly, but it did. So far Enbrel sales are running ahead of
expectations and no adverse reactions have been reported.
Relative Performance:
MSF vs. Market Indices
S&P 500 NASDAQ DJIA MSF
------- ------ ---- ---
12/10/97 $10,000 $10,000 $10,000 $10,000
12/31/98 $12,800 $13,537 $11,619 $ 9,660
Past performance is not a guarantee of future results.
Firsthand
<PAGE>
- --------------------------------------------------------------------------------
MSF Holdings by Sector*
Card Med Devices 44.6%
Biotech 41.2%
Cash 9.8%
Other Med 0.7%
Health Services 3.7%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
On the horizon, the only real competition for Enbrel will be Centocor's (CNTO)
Remicade. FDA approval for Remicade in rheumatoid arthritis is not anticipated
until Q4`99 so Enbrel should have the market to itself for most of 1999.
Two of our early stage biotech companies, Alteon (ALTN) and Amylin (AMLN)
announced poor phase III results for their respective drug candidates in Q4.
Although both companies are gathering additional data which may yet resurrect
their prospects, we have already reduced our ALTN holdings and closed our
position in AMLN. Recognizing these losses in 1998 helped to offset gains in
other stocks which otherwise would have resulted in a capital gain distribution
to shareholders.
In the near term, small-cap medical stocks continue to be somewhat out of favor
for reasons that have nothing to do with the underlying prospects for the
industry. However, due to their superior growth, and their historically low
relative valuations, I am confident that the long-term outlook for our medical
investments is very positive.
1998 Annual Report to Shareholders | 17
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
Electronic Perspective
Medical Perspective
1998 Annual Report to Shareholders | 19
<PAGE>
ELECTRONIC PERSPECTIVE
UPDATING A FEW TRENDS
After the wild ride in 1998, the outlook for technology stocks is a curious
mixture of excitement over the great news that many companies are reporting, and
trepidation over sky high valuations. It's not unusual for investors to have
mixed feelings toward technology, but sorting through the unknowns seems much
harder these days. We believe it makes sense to examine what's going on in the
real world first, and to consider stock valuations second. Here is our take on
some important trends to watch in the coming year.
RESIDENTIAL BROADBAND:
Like 1997 and 1998, 1999 could finally be the year that the race to offer
residential broadband services actually gets exciting. Phone companies have been
pushing Digital Subscriber Line (DSL) services over existing phone lines, while
cable companies have sought to offer services over their Hybrid Fiber Coax (HFC)
networks. At times this has felt like a turtle race, as each camp has had
serious issues to overcome. The tele-phone companies, notorious for their
ponderous, bureaucratic pace, are counting on DSL to finesse high performance
out of old copper wire, which may not always be in the best condition. The cable
companies, on the other hand, have a cleaner pipeline into the home, but it's
been connected to what were largely one-way, broadcast style networks. They
still need to substantially upgrade these networks in order to cope with the
traffic they hope to generate.
Although broadband services certainly will not reach everyone this year, they
will reach more than ever before, as large scale service roll-outs reach the
mass market for the first time. It may be a painful process at times, but it's
an important one. A lot of money will be spent on the build-out, and that spells
opportunity for many companies. The technical hurdles must and will be overcome
- - the opportunity is simply too great to pass up. At least consumers and
investors can take heart in the
Firsthand
<PAGE>
urgency each side inspires in the other. Competition is a wonderful thing.
Companies to watch include Cisco Systems, Covad Communications and
Texas Instruments.
THE INTERNET:
No one seems to be debating the importance of the Internet any longer. The
phenomenon is real, it's the stock prices that seem unreal. Many investors are
afraid to own Internet stocks, while others seem afraid not to own them. Our
take is that the dot-com stocks are just the tip of the iceberg. As the most
visible and therefore obvious group, they tend to draw more than their fair
share of investor enthusiasm. We believe that there are safer ways to ride this
trend. For the last several years we have been investing in "bandwidth"
companies, whose products enable the build-out of communications networks. This
theme has served us well, and it's still just getting started. As traffic grows,
companies such as PMC-Sierra, Level One Communications and Vitesse Semiconductor
flourish by supplying the networking and telecommunications industries.
If you count bits, bandwidth leaps out as the obvious investment play, but if
you count dollars, then you can't help but be drawn to electronic commerce.
After the first e-Christmas, the clear consensus is that e-commerce is just
getting rolling. As usual, the obvious (though not necessarily correct) stocks
have already been bid skyward. But if the e-commerce model is so compelling,
then many non-technology companies will have to embrace it in a hurry. How will
they do that? Most companies cannot build their own technology platforms
in-house, as the Internet pioneers did, so they are likely to purchase the
capability. We look for rapid growth in the demand for systems, software and
consulting to support this migration. Companies to watch include not only the
established players, such as Microsoft, Oracle and IBM, but also suppliers of
key technologies, such as i2 Technologies and Check Point Software.
1998 Annual Report to Shareholders | 21
<PAGE>
In the meantime, we would not be at all surprised to see the Internet stock
hysteria end badly. After all, stock prices reflect expectations, and when the
bar is set ever higher, disappointment comes easily.
SEMICONDUCTORS:
We expect that this will be a rebound year for the semiconductor industry at
large. Demand should pick up in the important computer, consumer and
communications markets, led by high volume products such as low cost PC's, high
performance file servers, DVD players, digital cameras and faster networking
equipment.
Semiconductor capital equipment suppliers should see orders ramping nicely as
the industry overcomes its capacity imbalance. This should ben-efit the industry
leaders, such as Applied Materials and KLA-Tencor, as well as key technology
pioneers, such as IPEC, Cymer and Novellus.
For us, the tech stock roller-coaster of 1998 serves as an important reminder
that in any market it's being on the right side of the important trends that
ultimately matters. Our approach to investing in these and other trends remains
straightforward: 1.) Identify important trends that we believe in, 2.) Select
quality companies best positioned to ride those trends, and 3.) Decide what we
are willing to pay for them. It all comes down to homework and patience.
/s/ Kevin M. Landis
Kevin M. Landis
Portfolio Manager
Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
Firsthand
<PAGE>
MEDICAL PERSPECTIVE
THE NEXT "STENT"
Stents are tiny metal coils that cardiologists use to physically hold open a
coronary artery after angioplasty has been performed. Angioplasty is usually
performed to reopen a coronary artery that has become so clogged (stenosed) that
it can no longer deliver enough oxygenated blood to keep the heart's tissue
alive.
Without a stent, roughly 35% of angioplasty patients will experience a
restenosis (re-clogging) of their coronary arteries within 6 months. These
patients typically require either another angioplasty or bypass surgery. The
cost of performing these "redos" is tremendous. But the bigger impact is the
anxiety of the patients who, having already experienced one heart attack, know
they have a 1 in 3 chance of having a recurrence.
The use of a stent reduces the risk of restenosis to about 20%. It does not
totally relieve a patient's anxiety, but, if given a choice, patients will
choose a 1 in 5 chance of a recurrence over a 1 in 3 chance every time. The
stent also saves the healthcare system the cost of performing repeat procedures
on the 15% of patients who would otherwise have restenosed. Since cardiac stents
improve medical outcomes and reduce the overall cost of care, it is not
surprising that stents were quickly and widely adopted. Today, cardiac stents
are a $2 billion industry and are used in over 70% of angioplasty cases.
But is 20% the lowest we can drive the restenosis rate? It now appears that
radiation can be used to reduce the restenosis rate even further - possibly to
around 11%. Industry giants such as Guidant (GDT), Johnson & Johnson (JNJ), and
Boston Scientific (BSX) are developing radiation-based products to reduce
restenosis. Other companies to watch in this area are Novoste (NOVT), EndoSonics
(ESON) and Radiance Medical (RADX).
Over the next 24 months a lot of value is going to be created by the companies
in this area. If you have firsthand experience with any radiation-based products
to reduce restenosis, please let us know by sending an e-mail to:
[email protected]
/s/ Kendrick W. Kam
Kendrick W. Kam
Portfolio Manager
Technology Value Fund
Medical Specialists Fund
1998 Annual Report to Shareholders | 23
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
AUDITED FINANCIAL STATEMENTS
(as of 12/31/98)
Report of Independent
Certified Public Accountants
Portfolios of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
1998 Annual Report to Shareholders | 25
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
FIRSTHAND FUNDS
San Jose, California
We have audited the accompanying statements of assets and liabilities of the
Firsthand Funds comprising, respectively, the Technology Value Fund, Technology
Leaders Fund, Technology Innovators Fund and Medical Specialists Fund, including
the portfolios of investments as of December 31, 1998, and the related
statements of operations, changes in net assets and the financial highlights for
the periods then ended. These financial statements and financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits. The financial statements and financial highlights for the year ended
December 31, 1996 and prior for the Technology Value Fund were audited by other
auditors whose report dated January 15, 1997 expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Firsthand Funds as of December 31, 1998, the results of operations, the changes
in net assets, and the financial highlights for the periods then ended, in
conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 18, 1999
1998 Annual Report to Shareholders | 27
<PAGE>
PORTFOLIO OF TECHNOLOGY VALUE FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 97.7% $ 174,059,786
(Cost $169,738,697) -------------
BIOTECHNOLOGY 14.5% 25,834,444
-------------
Centocor, Inc. * 204,000 9,205,500
Immunex Corp. * 99,500 12,518,344
Medco Research, Inc. * 158,100 4,110,600
CARDIAC MEDICAL DEVICES 18.9% 33,618,338
-------------
Arterial Vascular Engineering, Inc. * 124,400 6,531,000
Boston Scientific Corp. * 153,800 4,123,762
CardioThoracic Systems, Inc. * 553,000 3,836,438
Cardiovascular Dynamics, Inc. (1) * 554,800 1,699,075
Endocardial Solutions, Inc. (1) * 513,900 5,139,000
EndoSonics Corp. * 734,000 7,294,125
Guidant Corp. 39,000 4,299,750
Novoste Corp. * 24,500 695,188
COMMUNICATIONS EQUIPMENT 0.2% 422,812
-------------
PairGain Technologies, Inc. * 55,000 422,812
ELECTRONIC DESIGN AUTOMATION 4.2% 7,555,204
-------------
Aspec Technology, Inc. * 521,000 683,812
Avant! Corp. * 429,462 6,871,392
HEALTH SERVICES 1.0% 1,709,775
-------------
HCIA, Inc. * 402,300 1,709,775
-------------
NETWORKING 2.0% 3,520,125
-------------
FVC.COM, Inc. * 223,500 3,520,125
-------------
OTHER ELECTRONICS 10.7% 19,128,769
-------------
Rockwell International Corp. 393,900 19,128,769
PERIPHERALS 2.4% 4,215,000
-------------
Adaptec, Inc. * 240,000 4,215,000
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY VALUE FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
... continued ... producing % shares value
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT 3.3% $ 5,958,750
-------------
Applied Science & Technology, Inc. * 97,500 999,375
Cymer, Inc. * 80,000 1,170,000
Integrated Process Equipment Corp. * 352,500 3,789,375
SEMICONDUCTORS 39.2% 69,818,444
-------------
Applied Micro Circuits Corp. * 489,000 16,610,719
Celeritek, Inc. (1) * 522,200 1,566,600
Galileo Technology Ltd. * 335,000 9,045,000
Level One Communications, Inc. * 404,000 4,342,000
PMC-Sierra, Inc. * 291,000 18,369,375
Quality Semiconductor, Inc. * 237,800 891,750
Stellar Semiconductor, Inc. (2) * 2,040,000 2,448,000
TriQuint Semiconductor, Inc. * 340,000 6,545,000
SOFTWARE 1.3% 2,278,125
-------------
i2 Technologies, Inc. * 75,000 2,278,125
TOTAL INVESTMENT SECURITIES 97.7% 174,059,786
(Cost $169,738,697)
OTHER ASSETS IN EXCESS OF LIABILITIES 2.3% 4,071,311
-------------
NET ASSETS 100.0% $ 178,131,097
=============
(1) Denotes affiliated issuer (Note 4).
(2) Restricted security (Note 4).
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 29
<PAGE>
PORTFOLIO OF TECHNOLOGY LEADERS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 97.1% $ 41,577,094
(Cost $30,460,368) -------------
COMMUNICATIONS EQUIPMENT 8.9% 3,810,625
-------------
Lucent Technologies, Inc. 20,000 2,200,000
Telefonaktiebolaget LM Ericsson - ADR 10,000 239,375
Tellabs, Inc. * 20,000 1,371,250
COMPUTERS 10.8% 4,632,813
-------------
Hewlett-Packard Co. 13,000 888,063
International Business Machines Corp. 11,000 2,032,250
Sun Microsystems, Inc. * 20,000 1,712,500
ELECTRONIC DESIGN AUTOMATION 4.2% 1,785,000
-------------
Cadence Design Systems, Inc. * 60,000 1,785,000
INTERNET 3.7% 1,600,000
-------------
America Online, Inc. * 10,000 1,600,000
NETWORKING 8.7% 3,712,500
-------------
Cisco Systems, Inc. * 40,000 3,712,500
OTHER ELECTRONICS 9.6% 4,127,812
-------------
Rockwell International Corp. 85,000 4,127,812
SEMICONDUCTOR EQUIPMENT 5.9% 2,518,812
-------------
Applied Materials, Inc. * 15,000 640,312
KLA-Tencor Corp. * 14,000 607,250
Teradyne, Inc. * 30,000 1,271,250
SEMICONDUCTORS 35.2% 15,080,094
-------------
Altera Corp. * 30,000 1,826,250
Intel Corp. 20,000 2,371,250
Level One Communications, Inc. * 101,750 3,612,125
PMC-Sierra, Inc. * 45,000 2,840,625
Texas Instruments, Inc. 17,500 1,497,344
Vitesse Semiconductor Corp. * 50,000 2,281,250
Xilinx, Inc. * 10,000 651,250
SOFTWARE 10.1% 4,309,438
-------------
Microsoft Corp. * 15,000 2,080,313
Oracle Corp. * 45,000 1,940,625
SAP AG - ADR 8,000 288,500
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY LEADERS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
... continued ... producing % shares value
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 20.3% $ 8,703,512
(Cost $8,703,512) -------------
Star Treasury Fund 8,703,512 8,703,512
TOTAL INVESTMENT SECURITIES 117.4% 50,280,606
(Cost $39,163,880)
LIABILITIES IN EXCESS OF OTHER ASSETS (17.4%) (7,445,885)
-------------
NET ASSETS 100.0% $ 42,834,721
=============
1998 Annual Report to Shareholders | 31
<PAGE>
PORTFOLIO OF TECHNOLOGY INNOVATORS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 86.0% $ 5,577,031
(Cost $4,613,985) -------------
COMMUNICATIONS EQUIPMENT 0.2% 11,953
-------------
P-Com, Inc. * 3,000 11,953
ELECTRONIC DESIGN AUTOMATION 0.1% 6,562
-------------
Aspec Technology, Inc. * 5,000 6,562
INTERNET 4.0% 261,563
-------------
InfoSpace.com, Inc. * 4,500 171,563
Ticketmaster Online - CitySearch, Inc. * 1,000 57,000
Xoom.com, Inc. * 1,000 33,000
NETWORKING 3.6% 236,250
-------------
FVC.COM, Inc. * 15,000 236,250
PHOTONICS 5.1% 327,000
-------------
SDL, Inc. * 3,000 118,875
Uniphase Corp. * 3,000 208,125
SEMICONDUCTOR EQUIPMENT 0.7% 43,000
-------------
Integrated Process Equipment Corp. * 4,000 43,000
SEMICONDUCTORS 54.2% 3,519,266
-------------
Applied Micro Circuits Corp. * 33,500 1,137,953
Elantec Semiconductor, Inc. * 2,000 7,500
Galileo Technology Ltd. * 14,000 378,000
Level One Communications, Inc. * 7,000 248,500
MMC Networks, Inc. * 62,500 828,125
RF Micro Devices, Inc. * 4,000 185,500
TranSwitch Corp. * 5,000 194,688
TriQuint Semiconductor * 28,000 539,000
SOFTWARE 15.8% 1,021,437
-------------
Check Point Software Technologies Ltd. * 5,000 205,000
Concur Technologies, Inc. * 5,000 152,500
i2 Technologies, Inc. * 15,000 455,625
PeopleSoft, Inc. * 11,000 208,312
TELECOMMUNICATIONS 2.3% 150,000
-------------
Qwest Communications Int'l, Inc. * 3,000 150,000
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY INNOVATORS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
... continued ... producing % shares value
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 28.1% $ 1,825,088
(Cost $1,825,088) -------------
Star Treasury Fund 1,825,088 1,825,088
TOTAL INVESTMENT SECURITIES 114.1% 7,402,119
(Cost $6,439,073)
LIABILITIES IN EXCESS OF OTHER ASSETS (14.1%) (913,020)
-------------
NET ASSETS 100.0% $ 6,489,099
=============
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 33
<PAGE>
PORTFOLIO OF MEDICAL SPECIALISTS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 90.2% $ 4,049,582
(Cost $3,666,494) -------------
BIOTECHNOLOGY 41.2% 1,852,556
-------------
Alteon, Inc. * 20,000 15,625
Amgen, Inc. * 2,000 209,125
Aurora Biosciences Corp. * 13,500 86,906
Cell Therapeutics, Inc. * 25,000 75,000
Centocor, Inc. * 12,000 541,500
IGEN International, Inc. * 6,960 213,150
Immunex Corp. * 4,000 503,250
Medco Research, Inc. * 8,000 208,000
CARDIAC MEDICAL DEVICES 44.6% 2,002,650
-------------
Arterial Vascular Engineering, Inc. * 15,000 787,500
Boston Scientific Corp. * 7,700 206,456
CardioThoracic Systems, Inc. * 50,000 346,875
Cardiovascular Dynamics, Inc. (1) * 15,000 45,938
Endocardial Solutions, Inc. (1) * 13,600 136,000
EndoSonics Corp. * 21,500 213,656
Guidant Corp. 1,900 209,475
Novoste Corp. * 2,000 56,750
HEALTH SERVICES 3.7% 164,000
-------------
QuadraMed Corp. * 8,000 164,000
OTHER MEDICAL DEVICES 0.7% 30,376
-------------
Cyberonics, Inc. * 2,250 30,376
CASH EQUIVALENTS 9.3% 419,519
(Cost $419,519) -------------
Star Treasury Fund 419,519 419,519
TOTAL INVESTMENT SECURITIES 99.5% 4,469,101
(Cost $4,086,013)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5% 20,817
-------------
NET ASSETS 100.0% $ 4,489,918
=============
(1) Denotes affiliated issuer (Note 4).
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
=========================================================================================================================
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
=========================================================================================================================
ASSETS
Investment securities:
<S> <C> <C> <C> <C>
At acquisition cost $ 169,738,697 $ 39,163,880 $ 6,439,073 $ 4,086,013
=================================================================
At market value (Note 1) $ 174,059,786 $ 50,280,606 $ 7,402,119 $ 4,469,101
Dividends receivable -- 3,067 6,955 911
Receivable for capital shares sold 3,498,283 469,860 10,812 120,500
Receivable for securities sold 3,844,280 -- -- 319,792
-----------------------------------------------------------------
TOTAL ASSETS 181,402,349 50,753,533 7,419,886 4,910,304
-----------------------------------------------------------------
LIABILITIES
Bank overdraft 2,333,878 2,257 -- 6,298
Payable for capital shares redeemed 629,843 1,125,995 212,741 5,225
Payable for securities purchased 13,015 6,722,838 711,460 402,737
Payable to affiliates (Note 1) 294,516 67,722 6,586 6,126
-----------------------------------------------------------------
TOTAL LIABILITIES 3,271,252 7,918,812 930,787 420,386
-----------------------------------------------------------------
NET ASSETS $ 178,131,097 $ 42,834,721 $ 6,489,099 $ 4,489,918
=================================================================
Net assets consist of:
Paid-in-capital $ 177,982,982 $ 31,012,265 $ 5,381,596 $ 4,573,655
Accumulated net realized gains (losses) from
security transactions (4,172,974) 705,730 144,457 (466,825)
Net unrealized appreciation on investments 4,321,089 11,116,726 963,046 383,088
-----------------------------------------------------------------
Net assets $ 178,131,097 $ 42,834,721 $ 6,489,099 $ 4,489,918
=================================================================
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 5,524,987 2,387,362 405,301 465,004
=================================================================
Net asset value, offering price and redemption
price per share (Note 1) $ 32.24 $ 17.94 $ 16.01 $ 9.66
=================================================================
</TABLE>
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 35
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998(A)
==============================================================================================================
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
==============================================================================================================
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Interest $ 251,377 $ 151,801 $ 2,164 $ 13,417
Dividends 18,678 23,456 11,088 7,871
---------------------------------------------------------------
TOTAL INVESTMENT INCOME 270,055 175,257 13,252 21,288
---------------------------------------------------------------
EXPENSES
Investment advisory fees (Note 3) 2,734,532 286,734 14,782 51,357
Administrative fees (Note 3) 816,383 86,020 4,435 15,407
---------------------------------------------------------------
TOTAL EXPENSES 3,550,915 372,754 19,217 66,764
---------------------------------------------------------------
NET INVESTMENT LOSS (3,280,860) (197,497) (5,965) (45,476)
---------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security (1,125,096) 903,227 150,422 (466,825)
transactions
Net change in unrealized appreciation/
depreciation on investments 40,388,492 11,093,756 963,046 347,325
---------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS 39,263,396 11,996,983 1,113,468 (119,500)
---------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS $ 35,982,536 $ 11,799,486 $ 1,107,503 $ (164,976)
===============================================================
</TABLE>
(A) Except for the Technology Innovators Fund which represents the period from
the commencement of operations (May 20, 1998) through December 31, 1998.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED DECEMBER 31, 1998 AND 1997
==================================================================================================================================
TECHNOLOGY VALUE FUND TECHNOLOGY LEADERS FUND
--------------------- -----------------------
Year Year Year Period
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97(A)
==================================================================================================================================
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ (3,280,860) $ (1,927,303) $ (197,497) $ 2,257
Net realized gains (losses) from security transactions (1,125,096) 14,064,022 903,227 --
Net change in unrealized appreciation/
depreciation on investments 40,388,492 (38,292,641) 11,093,756 22,970
-------------------------------------------------------------------
Net increase (decrease) In net assets from operations 35,982,536 (26,155,922) 11,799,486 25,227
-------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- (2,257) --
From net realized gains -- (12,334,200) -- --
In excess of net realized gains -- (3,047,878) -- --
-------------------------------------------------------------------
Decrease in net assets from distributions to shareholders -- (15,382,078) (2,257) --
-------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 149,553,020 335,357,889 53,787,109 3,716,034
Net asset value of shares issued in
reinvestment of distributions to shareholders -- 13,072,987 -- --
Payments for shares redeemed (201,778,002) (147,623,435) (26,330,447) (160,431)
-------------------------------------------------------------------
Net increase (decrease) in net assets from capital share
transactions (52,224,982) 200,807,441 27,456,662 3,555,603
-------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (16,242,446) 159,269,441 39,253,891 3,580,830
NET ASSETS:
Beginning of period 194,373,543 35,104,102 3,580,830 --
-------------------------------------------------------------------
End of period $ 178,131,097 $ 194,373,543 $ 42,834,721 $ 3,580,830
===================================================================
UNDISTRIBUTED NET INVESTMENT INCOME: $ -- $ -- $ -- $ 2,257
===================================================================
CAPITAL SHARE ACTIVITY:
Shares sold 5,313,423 10,437,757 3,830,812 371,478
Shares issued in reinvestment of distributions to
shareholders -- 517,449 -- --
Shares redeemed (7,247,403) (4,812,871) (1,798,882) (16,046)
-------------------------------------------------------------------
Net increase (decrease) in shares outstanding (1,933,980) 6,142,335 2,031,930 355,432
Shares outstanding, beginning of period 7,458,967 1,316,632 355,432 --
-------------------------------------------------------------------
Shares outstanding, end of period 5,524,987 7,458,967 2,387,362 355,432
===================================================================
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 37
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIODS ENDED DECEMBER 31, 1998 AND 1997
===========================================================================================================
TECHNOLOGY INNOVATORS FUND MEDICAL SPECIALISTS FUND
-------------------------- ------------------------
Period Year Period
Ended Ended Ended
12/31/98(A) 12/31/98 12/31/97(B)
===========================================================================================================
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) $ (5,965) $ (45,476) $ 1,557
Net realized gains (losses) from security transactions 150,422 (466,825) --
Net change in unrealized appreciation/
depreciation on investments 963,046 347,325 35,763
----------------------------------------------
Net increase (decrease) in net assets from operations 1,107,503 (164,976) 37,320
----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (1,557) --
From net realized gains -- -- --
In excess of net realized gains -- -- --
----------------------------------------------
Decrease in net assets from distributions to shareholders -- (1,557) --
----------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 8,790,653 5,205,850 2,350,090
Net asset value of shares issued in
reinvestment of distributions to shareholders -- -- --
Payments for shares redeemed (3,409,057) (2,911,609) (25,200)
----------------------------------------------
Net increase in net assets from capital share
transactions 5,381,596 2,294,241 2,324,890
----------------------------------------------
TOTAL INCREASE IN NET ASSETS 6,489,099 2,127,708 2,362,210
NET ASSETS:
Beginning of period -- 2,362,210 --
----------------------------------------------
End of period $ 6,489,099 $ 4,489,918 $ 2,362,210
==============================================
UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ -- $ 1,557
==============================================
CAPITAL SHARE ACTIVITY:
Shares sold 649,555 551,990 235,882
Shares issued in reinvestment of distributions to
shareholders -- -- --
Shares redeemed (244,254) (320,299) (2,569)
----------------------------------------------
Net increase in shares outstanding 405,301 231,691 233,313
Shares outstanding, beginning of period -- 233,313 --
----------------------------------------------
Shares outstanding, end of period 405,301 465,004 233,313
==============================================
</TABLE>
(A) Represents the period from the commencement of operations (May 20, 1998)
through December 31, 1998.
(B) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY VALUE FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
======================================================================================================================
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94(A)
======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 26.06 $ 26.66 $ 18.44 $ 11.70 $ 10.00
----------------------------------------------------------------
Income from investment operations:
Net investment loss (0.59) (0.26) (0.08) (0.14) (0.03)
Net realized and unrealized gains on investments 6.77 1.90 11.20 7.28 2.56
----------------------------------------------------------------
Total from investment operations 6.18 1.64 11.12 7.14 2.53
----------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- (1.80) (2.90) (0.40) (0.83)
Distributions in excess of net realized gains -- (0.44) -- -- --
----------------------------------------------------------------
Total distributions -- (2.24) (2.90) (0.40) (0.83)
----------------------------------------------------------------
Net asset value at end of period $ 32.24 $ 26.06 $ 26.66 $ 18.44 $ 11.70
================================================================
Total return 23.71% 6.46% 60.55% 61.17% 25.30%(B)
================================================================
Net assets at end of period (millions) $ 178.1 $ 194.4 $ 35.1 $ 2.7 $ 0.2
================================================================
Ratio of expenses to average net assets 1.95% 1.93% 1.81% 1.98% 1.96%(C)
Ratio of net investment loss to average net assets (1.80%) (1.43%) (0.55%) (1.45%) (1.29%)(C)
Portfolio turnover rate 126% 101% 43% 45% 56%
</TABLE>
(A) Represents the period from the commencement of operations (May 20, 1994)
through December 31, 1994.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 39
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY LEADERS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=======================================================================================
Year Period
Ended Ended
12/31/98 12/31/97(A)
=======================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 10.07 $ 10.00
----------------------
Income from investment operations:
Net investment income (loss) (0.09) 0.01
Net realized and unrealized gains on investments 7.96 0.06
----------------------
Total from investment operations 7.87 0.07
----------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
----------------------
Total distributions -- --
----------------------
Net asset value at end of period $ 17.94 $ 10.07
======================
Total return 78.15% 0.70%(B)
======================
Net assets at end of period (millions) $ 42.8 $ 3.6
======================
Ratio of expenses to average net assets 1.94% 1.80%(C)
Ratio of net investment income (loss) to average net assets (1.03%) 1.77%(C)
Portfolio turnover rate 105% 0%
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
FINANCIAL HIGHLIGHTS - TECHNOLOGY INNOVATORS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
================================================================================
Period
Ended
12/31/98(A)
================================================================================
Net asset value at beginning of period $ 10.00
--------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gains on investments 6.02
--------
Total from investment operations 6.01
--------
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
--------
Total distributions --
--------
Net asset value at end of period $ 16.01
========
Total return 60.10%(B)
========
Net assets at end of period (millions) $ 6.5
========
Ratio of expenses to average net assets 1.92%(C)
Ratio of net investment loss to average net assets (0.59%)(C)
Portfolio turnover rate 188%
(A) Represents the period from the commencement of operations (May 20, 1998)
through December 31, 1998.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 41
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - MEDICAL SPECIALISTS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=====================================================================================
Year Period
Ended Ended
12/31/98 12/31/97(A)
=====================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 10.12 $ 10.00
----------------------
Income from investment operations:
Net investment income (loss) (0.10) 0.01
Net realized and unrealized gains (losses)
on investments (0.36) 0.11
----------------------
Total from investment operations (0.46) 0.12
----------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
----------------------
Total distributions -- --
----------------------
Net asset value at end of period $ 9.66 $ 10.12
======================
Total return (4.55%) 1.20%(B)
======================
Net assets at end of period (millions) $ 4.5 $ 2.4
======================
Ratio of expenses to average net assets 1.95% 1.81%(C)
Ratio of net investment income (loss) to average net assets (1.33%) 1.75%(C)
Portfolio turnover rate 160% 0%
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
1. Significant Accounting Policies
The Technology Value Fund, the Technology Leaders Fund, the Technology
Innovators Fund and the Medical Specialists Fund (the Funds) are each a
non-diversified series of Firsthand Funds (formerly Interactive Investments)
(the Trust), an open-end management investment company registered under the
Investment Company Act of 1940. The Trust was organized as a Delaware business
trust on November 8, 1993. The Technology Value Fund commenced operations on May
20, 1994. The public offering of shares of the Technology Value Fund commenced
on January 3, 1995. The public offering of shares of the Medical Specialists
Fund and the Technology Leaders Fund commenced on December 10, 1997. The public
offering of shares of the Technology Innovators Fund commenced on May 20, 1998.
Each Fund's investment objective is long-term capital appreciation.
The Technology Value Fund seeks to achieve its objective by investing primarily
in securities of companies in the electronic technology and medical technology
fields which Interactive Research Advisers, Inc. (the Adviser) considers to be
undervalued and have potential for capital appreciation.
The Technology Leaders Fund seeks to achieve its objective by investing
primarily in securities of companies in the high technology field which the
Adviser considers to have the strongest competitive position.
The Technology Innovators Fund seeks to achieve its objective by investing
primarily in securities of companies in the high technology field which the
Adviser considers to be best positioned to introduce successful new products.
The Medical Specialists Fund seeks to achieve its objective by investing
primarily in securities of companies in the health and biotechnology fields
which the Adviser considers to have a strong earnings growth outlook and
potential for capital appreciation.
The following is a summary of the Funds' significant accounting policies:
Securities valuation -- Each Fund's portfolio securities are valued as of the
close of the regular session of trading on the New York Stock Exchange,
currently 4:00 p.m., Eastern time. 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,
or, if not traded, at the most recent bid price. Securities which are traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the most recent bid price, as obtained from one or more of the major market
makers for such securities. Securities 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.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time each Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement.
1998 Annual Report to Shareholders | 43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities, by
the number of shares outstanding, rounded to the nearest cent. The offering and
redemption price per share of each Fund is equal to the net asset value per
share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
Distributions to shareholders -- Distributions to shareholders arising from net
investment income and net realized capital gains, if any, are distributed at
least once each year. Dividends from net investment income and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon federal income tax cost of portfolio
investments (excluding repurchase agreements) as of December 31, 1998.
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Gross unrealized appreciation $ 40,892,041 $ 11,203,991 $ 1,053,819 $ 785,596
Gross unrealized depreciation (37,403,579) (243,604) (106,562) (476,621)
-------------------------------------------------------------------
Net unrealized appreciation $ 3,488,462 $ 10,960,387 $ 947,257 $ 308,975
===================================================================
Federal income tax cost $ 170,571,324 $ 39,320,219 $ 6,454,862 $ 4,160,126
===================================================================
</TABLE>
The difference between the acquisition cost and the federal income tax cost of
portfolio investments is due to certain timing differences in the recognition of
capital losses under generally accepted accounting principles and income tax
regulations.
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
As of December 31, 1998, the Technology Value Fund and the Medical Specialists
Fund had capital loss carryforwards for federal income tax purposes of
$2,393,785 and $392,711, respectively, which expire on December 31, 2006. In
addition, the Technology Value Fund realized net capital losses of $946,562
during the period from November 1, 1998 through December 31, 1998, which are
treated for federal income tax purposes as arising in the tax year ending
December 31, 1999.
2. Investment Transactions
Investment transactions (excluding short-term investments) were as follows for
the periods ended December 31, 1998.
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Purchases of investment securities $221,681,480 $ 45,169,922 $ 6,957,577 $ 7,861,936
============================================================
Proceeds from sales and maturities
of investment securities $278,222,943 $ 17,367,117 $ 2,494,014 $ 4,657,767
============================================================
</TABLE>
3. Transactions with Related Parties
Certain trustees and officers of the Trust are also officers of the Adviser, or
of Countrywide Fund Services, Inc., the administrative services agent,
shareholder servicing and transfer agent, and accounting services agent for the
Trust, or of CW Fund Distributors, Inc., which provides distribution services to
the Funds under the terms of an Underwriting Agreement.
INVESTMENT ADVISORY AGREEMENT
Each Fund's investments are managed by the Adviser pursuant to the terms of an
Investment Advisory Agreement (the Advisory Agreement). Under the Advisory
Agreement, the Adviser furnishes advice and recommendations with respect to each
Fund's portfolio of investments and provides persons satisfactory to the Trust's
Board of Trustees to act as officers and employees of the Trust responsible for
the overall management and administration of the Trust, subject to the
supervision of the Trust's Board of Trustees. The Adviser is responsible for (i)
the compensation of any of the Trust's trustees, officers and employees who are
directors, officers, employees or shareholders of the Adviser, (ii) compensation
of the Adviser's personnel and payment of other expenses in connection with the
pro-vision of portfolio management services under the Advisory Agreement, and
(iii) expenses of printing and distributing each Fund's Prospectus and sales and
advertising materials to prospective clients.
For the services provided by the Adviser under the Advisory Agreement, the
Adviser receives from each Fund a management fee, computed and accrued daily and
paid monthly, equal to 1.50% per annum of each Fund's average daily net assets.
The Advisory Agreement requires the 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.
1998 Annual Report to Shareholders | 45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
ADMINISTRATION AGREEMENT
The Trust has entered into a separate contract with the Adviser wherein the
Adviser is responsible for providing administrative and supervisory services to
each Fund (the Administration Agreement). Under the Administration Agreement,
the Adviser oversees the maintenance of all books and records with respect to
each Fund's securities transactions and each Fund's book of accounts in
accordance with all applicable federal and state laws and regulations. The
Adviser also arranges for the preser-vation of journals, ledgers, corporate
documents, brokerage account records and other records which are required to be
maintained pursuant to the 1940 Act.
Under the Administration Agreement, the Adviser is responsible for the
equipment, staff, office space and facilities necessary to perform its
obligations. The Adviser has also assumed responsibility for payment of all of
each Fund's operating expenses except for brokerage and commission expenses and
any extraordinary and non-recurring expenses.
For the services rendered by the Adviser under the Administration Agreement, the
Adviser receives a fee at the annual rate of 0.45% of each Fund's 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 Adviser has retained Countrywide Fund Services, Inc. (the Transfer Agent) to
serve as each Fund's transfer agent, dividend paying agent and shareholder
service agent, to provide accounting and pricing services to each Fund, and to
assist the Adviser in providing executive, administrative and regulatory
services to each Fund. The Transfer Agent is an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending. The Adviser
(not the Funds) pays the Transfer Agent's fees for these services.
4. Investments in Affiliates and Restricted Securities
Affiliated issuers, as defined by the Investment Company Act of 1940, are those
in which a Fund's holdings represent 5% or more of the outstanding voting
securities of the issuer. A summary of each Fund's investments in affiliates, if
any, for the year ended December 31, 1998 is as noted on the following page:
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Share Activity
-------------------------------------------------- Market
Balance Balance Realized Value Acquisition
Affiliate 12/31/97 Purchases Sales 12/31/98 Gain (Loss) 12/31/98 Cost
- --------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY VALUE FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Cardiovascular Dynamics, Inc. 554,800 -- -- 554,800 $ -- $1,699,075 $4,912,292
Celeritek, Inc. -- 524,200 2,000 522,200 (8,750) 1,566,600 6,035,926
Endocardial Solutions, Inc. 515,400 -- 1,500 513,900 7,028 5,139,000 5,799,541
TECHNOLOGY INNOVATORS FUND
Celeritek, Inc. -- 2,000 2,000 -- (8,060) -- --
MEDICAL SPECIALISTS FUND
Cardiovascular Dynamics, Inc. 1,200 15,000 1,200 15,000 189 45,938 91,863
Endocardial Solutions, Inc. 3,500 11,100 1,000 13,600 (4,248) 136,000 166,215
</TABLE>
Restricted securities are securities which have not been registered under the
Securities Act of 1933, as amended, and are subject to restrictions on resale.
Investments in restricted securities are valued at 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. As of December 31, 1998,
the Technology Value Fund had a 2,040,000 share investment in Stellar
Semiconductor, Inc., valued at $2,448,000 and representing 1.37% of net assets,
which was acquired on November 16, 1998, at a cost of $2,448,000.
1998 Annual Report to Shareholders | 47
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
[LOGO] Firsthand
This report is provided for the general information of the shareholders of the
Firsthand Funds. This report is not intended for distribution to prospective
investors in the Funds, unless preceded or accompanied by an effective
prospectus. For more information regarding any of the Funds, including charges
and expenses, visit our web site at www.FirsthandFunds.com or call
1.888.884.2675 for a free prospectus.
Please read it carefully before you invest or send money.
<PAGE>
[LOGO]
FIRSTHAND FUNDS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
BOARD OF TRUSTEES
Kevin M. Landis, Chairman
Kendrick W. Kam
Michael T. Lynch
Mark K. Taguchi
OFFICERS
Kevin M. Landis, President
Kendrick W. Kam, Secretary
Yakoub N. Bellawala, Treasurer
INVESTMENT ADVISER
Interactive Research Advisers, Inc.
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
TRANSFER AGENT/ADMINISTRATOR
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, OH 45201
(Toll-Free) 1-888-884-2675
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street, 21st Floor
Cincinnati, OH 45202
Firsthand
<PAGE>
FIRSTHAND FUNDS
---------------
Part C. OTHER INFORMATION
- ------- -----------------
Item 23. EXHIBITS
- -------- --------
(a) Declaration of Trust
(i) Declaration of Trust--Filed herewith
(ii) Amendments to Declaration of Trust as adopted on February
14, 1998--Filed herewith
(b) Bylaws
(i) By-Laws--Filed herewith
(ii) Amendments to By-Laws as adopted on February 14, 1998--Filed
herewith
(c) Incorporated by reference to Declaration of Trust and Bylaws
(d) Advisory Agreement for The Technology Value Fund with
Interactive Research Advisers, Inc. -- Filed herewith
(Pursuant to Rule 8b-31, the Advisory Agreement for The
Medical Specialist Fund, The Technology Leaders Fund and The
Technology Innovators Fund has been omitted due to the fact
they are substantially similar except for date of execution
and parties thereto. These agreements are available by
request.)
(e) Underwriting Agreement with CW Fund Distributors, Inc.*
(f) Inapplicable
(g) Custody Agreement with Firstar, N.A.*
(h)(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) Consent of Independent Public Accountants
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
<PAGE>
(m) Inapplicable
(n) Financial Data Schedules*
(o) Inapplicable
* 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.
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
<PAGE>
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.
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.
<PAGE>
Position Position
with with
Name Distributor Registrant
---- ----------- ----------
*Angelo R. Mozilo Chairman of None
the Board/
Director
*Andrew S. Bielanski Director None
*Thomas H. Boone Director None
*Marshall M. Gates Director None
Robert H. Leshner President/ None
Vice Chairman/
Chief Executive
Officer/Director
Maryellen Peretzky Vice President, Assistant
Secretary Secretary
Robert L. Bennett Vice President, None
Chief Operations
Officer
Terrie A. Wiedenheft Vice President, None
Chief Financial
Officer, Treasurer
(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
located 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 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Registration Statement to be signed below on its behalf by the undersigned,
thereunto duly authorized, in the City of San Jose and the State of California
on the 11th of May, 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.
Signature Title Date
- --------- ----- ----
/s/ Kevin M. Landis President and May 11, 1999
- ----------------------------- Trustee
Kevin M. Landis
/s/ Yakoub Bellawala Treasurer May 11, 1999
- -----------------------------
Yakoub Bellawala
/s/ Kendrick W. Kam Trustee May 11, 1999
- -----------------------------
Kendrick W. Kam
- ----------------------------- Trustee By: /s/ Kevin M. Landis
Michael T. Lynch* -------------------
Kevin M. Landis
Attorney-in-Fact*
- ----------------------------- Trustee May 11, 1999
Mark K. Taguchi*
<PAGE>
INDEX TO EXHIBITS
-----------------
(a) Declaration of Trust
(i) Declaration of Trust -- Filed herewith
(ii) Amendments to Declaration of Trust as adopted on February 14,
1998 -- Filed herewith
(b) Bylaws
(i) By-Laws -- Filed herewith
(ii) Amendments to By-Laws as adopted on February 14, 1998--Filed herewith
(c) Incorporated by reference to Declaration of Trust and Bylaws
(d) Advisory Agreement for The Technology Value Fund with Interactive
Research Advisers, Inc. -- Filed herewith (Pursuant to Rule 8b-31, the
Advisory Agreement for The Medical Specialist Fund, The Technology
Leaders Fund and The Technology Innovators Fund has been omitted due
to the fact they are substantially similar except for date of
execution and parties thereto. These agreements are available by
request.)
(e) Underwriting Agreement with CW Fund Distributors, Inc.*
(f) Inapplicable
(g) Custody Agreement with Firstar, N.A.*
(h)(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) Consent of Independent Public Accountants
(k) Inapplicable
(l) Agreement Relating to Initial Capital*
(m) Inapplicable
(n) Financial Data Schedules*
(o) Inapplicable
*Incorporated by reference to Registration Statement on Form N-1A.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. THE TRUST 1
Section 1.1 Name 1
Section 1.2 Trust Purpose 1
Section 1.3 Definitions 2
ARTICLE II. TRUSTEES 3
Section 2.1 Number and Qualification 3
Section 2.2 Term and Election 4
Section 2.3 Resignation and Removal 4
Section 2.4 Vacancies 4
Section 2.5 Meetings 5
Section 2.6 Officers; Chairman of the Board 6
Section 2.7 By-Laws 6
ARTICLE III. POWERS OF TRUSTEES 6
Section 3.1 General 6
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Sale of Interests 7
Section 3.5 Borrow Money 7
Section 3.6 Delegation; Committees 8
Section 3.7 Collection and Payment 8
Section 3.8 Expenses 8
Section 3.9 Miscellaneous Powers 8
Section 3.10 Further Powers 8
ARTICLE IV. INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS 9
Section 4.1 Investment Advisory and Other Arrangements 9
Section 4.2 Parties to Contract 9
ARTICLE V. LIMITATIONS OF LIABILITY 10
Section 5.1 No Personal Liability of Trustees,
Officers, Employees, Agents 10
Section 5.2 Indemnification of Trustees,
Officers, Employees, Agents 10
Section 5.3 Liability of Holders; Indemnification 11
Section 5.4 No Bond Required of Trustees 11
Section 5.5 No Duty of Investigation; Notice
in Trust Instruments, Etc 11
Section 5.6 Reliance on Experts, Etc 11
Section 5.7 Assent To Declaration 12
ARTICLE VI. INTERESTS IN THE TRUST 12
Section 6.1 Interests 12
Section 6.2 Rights of Holders 12
Section 6.3 Register of Interests 12
Section 6.4 Notices 12
Section 6.5 No Pre-emptive Rights; Derivative Suits 12
Section 6.6 No Appraisal Rights 13
ARTICLE VII. PURCHASES AND REDEMPTIONS 13
Section 7.1 Purchases 13
Section 7.2 Redemption by Holder 13
Section 7.3 Redemption by Trust 13
Section 7.4 Net Asset Value 14
ARTICLE VIII. HOLDERS 14
Section 8.1 Meetings of Holder=s 14
Section 8.2 Notice of Meetings 14
Section 8.3 Record Date for Meetings 15
Section 8.4 Proxies, Etc 15
Section 8.5 Reports 15
Section 8.6 Inspection of Records 16
Section 8.7 Voting Powers 16
Section 8.8 Series of Interests 16
Section 8.9 Holder Action by Written Consent 18
Section 8.10 Holder Communications 19
ARTICLE IX. DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC 19
Section 9.1 Duration 19
Section 9.2 Termination of Trust 19
Section 9.3 Amendment Procedure 20
Section 9.4 Merger, Consolidation and Sale of Assets 21
Section 9.5 Incorporation 21
ARTICLE X. MISCELLANEOUS 22
Section 10.1 Certificate of Designation; Agent
for Service of Process 22
Section 10.2 Governing Law 22
Section 10.3 Counterparts 22
Section 10.4 Reliance by Third Parties 22
Section 10.5 Provisions in Conflict With Law or Regulations 23
Section 10.6 Trust Only 23
Section 10.7 Withholding 23
Section 10.8 Headings and Construction 23
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DECLARATION OF TRUST OF INTERACTIVE INVESTMENTS
This DECLARATION OF TRUST of INTERACTIVE INVESTMENTS is made on this
eleventh day of November, 1993 by the parties signatory hereto, as trustees.
WHEREAS, the Trustee desires to form a business trust under the law of
Delaware for the investment and reinvestment of its assets; and
WHEREAS, it is proposed that the Trust assets be composed of cash,
securities and other Assets contributed to the Trust by the holders of interests
in the Trust entitled to ownership rights in the Trust,
NOW, THEREFORE, the Trustee hereby declares that the Trustees will hold in
trust all cash, securities and other assets which they may from time to time
acquire in any manner as Trustees hereunder, and manage and dispose of the same
for the benefit of the holders of interests in the Trust and subject to the
following terms and conditions.
ARTICLE I. THE TRUST
SECTION I.1 NAME. The name of the trust created hereby (the "Trust") shall
be "Interactive Investments", and so far as may be practicable the Trustees
shall conduct the Trust=s activities, execute all documents and sue or be sued
under that name, which name (and the word "Trust" wherever hereinafter used)
shall not refer to the Trustees in their individual capacities or to the
officers, agents, employees or holders of interest in the Trust. However, should
the Trustees determine that the use of the name of the Trust is not advisable,
they may select such other name for the Trust as they deem proper and the Trust
may hold its property and conduct its activities under such other name. Any name
change shall become effective upon the execution by a majority of the then
Trustees of an instrument setting forth the new name and the filing of a
certificate of amendment pursuant to Section 3810(b) of Title 12 of the Delaware
Code (the "DBTA"). Any such instrument shall not require the approval of the
holders of interests in the Trust, but shall have the status of an amendment to
this Declaration.
SECTION I.2 TRUST PURPOSE. The purpose of the Trust is to conduct, operate
and carry on the business of an open-end management investment company
registered under the 1940 Act. In furtherance of the foregoing, it shall be the
purpose of the Trust to do everything necessary, suitable, convenient or proper
for the conduct, promotion and attainment of any businesses and purposes which
at any time may be incidental or may appear conducive or expedient for the
accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA and in connection therewith the Trust shall have
and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.
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SECTION I.3 DEFINITIONS. As used in this Declaration, the following terms
shall have the following meanings:
(a) "1940 Act" shall mean the Investment Company Act of 1940, as
amended from time to time, and the rules and regulations thereunder, as adopted
or amended from time to time.
(b) "Affiliated Person", "Assignment" and "Interested Person" shall
have the meanings given them in the 1940 Act.
(c) "Administrator" shall mean any party furnishing services to the
Trust pursuant to any administrative services contract described in Section 4.1
hereof.
(d) "By-Laws" shall mean the By-Laws of the Trust as amended from time
to time.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations thereunder, as adopted or
amended from time to time.
(f) "Commission" shall mean the Securities and Exchange Commission.
(g) "Declaration" shall mean this Declaration of Trust as amended from
time to time. References in this Declaration to "Declaration", "hereof",
"herein", and "hereunder" shall be deemed to refer to the Declaration rather
than the article or section in which such words appear. This Declaration shall,
together with the By-Laws, constitute the governing instrument of the Trust
under the DBTA.
(h) "DBTA" shall mean the Delaware Business Trust Act, Delaware Code
Annotated title 12, Sections 3801 et seq., as amended from time to time.
(i) "Fiscal Year" shall mean an annual period as determined by the
Trustees unless otherwise provided by the Code or applicable regulations.
(j) "Holders" shall mean as of any particular time any or all holders
of record of Interests in the Trust or in Trust Property, as the case may be, at
such time.
(k) "Interest" shall mean a Holder=s units of interest into which the
beneficial interest in the Trust and each series of the Trust shall be divided
from time to time.
(l) "Investment Adviser" shall mean any party furnishing services to
the Trust pursuant to any investment advisory contract described in Section 4.1
hereof.
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(m) "Majority Interests Vote" shall mean the vote, at a meeting of the
Holders of interests, of the lesser of , (A) 67% or more of the Interests
present or represented at such meeting, provided the Holders of more than 50% of
the Interests are present or represented by proxy or (B) more than 50% of the
interest.
(n) "Person" shall mean and include an individual, corporation,
partnership, trust, association, joint venture and other entity, whether or not
a legal entity, and a government and agencies and political subdivisions
thereof.
(o) "Registration Statement" as of any particular time shall mean the
Registration Statement of the Trust which is effective at such time under the
1940 Act.
(p) "Trust Property" shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is owned
or held by or for the account of the Trust or the Trustees. The Trustees may
authorize the division of Trust Property into two or more series, in accordance
with the provisions of Section 8.8 hereof, in which case all references in this
Declaration to the Trust, Trust Property, Interests therein or Holders thereof
shall be deemed to refer to each such series, as the case may be, except as the
context otherwise requires. Any series of Trust Property shall be established
and designated, and the variations in the relative rights and preferences as
between the different series shall be fixed and determined, by the Trustees.
(q) "Trustees" shall mean such persons who are indemnified as trustees
of the Trust on the signature page of this Declaration, so long as they shall
continue in office in accordance with the terms of this Declaration of Trust,
and all other persons who at the time in question have been duly elected or
appointed as trustees in accordance with the provisions of this Declaration of
Trust and are then in office, in their capacity as trustees hereunder.
ARTICLE II. TRUSTEES
SECTION II.1 NUMBER AND QUALIFICATION. The number of Trustees shall
initially be two and shall thereafter be fixed from time to time by written
instrument signed by majority of the Trustees so fixed then in office, provided,
however, that the number of Trustees shall in no event be less than one. A
Trustee shall be an individual at least 21 years of age who is not under legal
disability.
(a) Any vacancy created by an increase in Trustees shall be filled by
the appointment or election of an individual having the qualifications described
in this Article as provided in Section 2.4. Any such appointment shall not
become effective, however, until the individual appointed or elected shall have
accepted in writing such appointment or election and agreed in writing to be
bound by the terms of the Declaration. No reduction in the number of Trustees
shall have the effect of removing any Trustee from office.
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(b) Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in Section 2.4 hereof, the Trustees in
office, regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by this
Declaration.
SECTION II.2 TERM AND ELECTION. Each Trustee named herein, or elected or
appointed prior to the first meeting of the Holders, shall (except in the event
of resignations or removals or vacancies pursuant to Section 2.3 or 2.4 hereof)
hold office until his or her successor has been elected at such meeting and has
qualified to serve as Trustee. Beginning with the Trustees elected at the first
meeting of Holders, each Trustee shall hold office during the lifetime of this
Trust and until its termination as hereinafter provided unless such Trustee
resigns or is removed as provided in Section 2.3 below.
SECTION II.3 RESIGNATION AND REMOVAL. Any Trustee may resign (without need
for prior or subsequent accounting by an instrument in writing signed by him or
her and delivered or mailed to the Chairman, if any, the President or the
Secretary and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument.
(a) Any of the Trustees may be removed with or without cause by the
affirmative vote of the Holders of two-thirds (2/3) of the Interests or
(provided the aggregate number of Trustees, after such removal and after giving
effect to any appointment made to fill the vacancy created by such removal,
shall not be less than the number required by Section 2.1 hereof) with cause, by
the action of two-thirds (2/3) of the remaining Trustees. Removal with cause
shall include, but not be limited to, the removal of a Trustee due to physical
or mental incapacity.
(b) Upon the resignation or removal of a Trustee, or his or her
otherwise ceasing to be a Trustee, he or she shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the death of any Trustee or upon removal
or resignation due to any Trustee=s incapacity to serve as trustee, his or her
legal representative shall execute and deliver on his or her behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
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SECTION II.4 VACANCIES. The term of office of a Trustee shall terminate and
a vacancy shall occur in the event of the death, resignation, adjudicated
incompetence or other incapacity to perform the duties of the office, or
removal, of a Trustee. A vacancy shall also occur in the event of an increase in
the number of trustees as provided in Section 2.1. No such vacancy shall operate
to annul this Declaration or to revoke any existing trust created pursuant to
the terms of this Declaration. In the case of a vacancy, the Holders of at least
a majority of the Interests entitled to vote, acting at any meeting of the
Holders held in accordance with Section 8.1 hereof, or, to the extent permitted
by the 1940 Act, a majority vote of the Trustees continuing in office acting by
written instrument or instruments, may fill such vacancy, and any Trustee so
elected by the Trustees or the Holders shall hold office as provided in this
Declaration. There shall be no cumulative voting by the Holders in the election
of Trustees.
SECTION II.5 MEETINGS. Meetings of the Trustees shall be held from time to
time within or without the State of Delaware upon the call of the Chairman, if
any, the President, the Chief Operating Officer, the Secretary, an Assistant
Secretary or any two Trustees.
(a) Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given not later than 72 hours
preceding the meeting by United States mail or by electronic transmission to
each Trustee at his business address as set forth in the records of the Trust or
otherwise given personally not less than 24 hours before the meeting but may be
waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees shall be one-third of
the total number of Trustees, but (except at such time as there is only one
Trustee) no less than two Trustees. Unless provided otherwise in this
Declaration, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a meeting
by written consent of a majority of the Trustees, which written consent shall be
filed with the minutes of proceedings of the Trustees or any such committee. If
there be less than a quorum present at any meeting of the Trustees, a majority
of those present may adjourn the meeting until a quorum shall have been
obtained.
(c) Any committee of the Trustees, including an executive committee,
if any, may act with or without a meeting. A quorum for all meetings of any such
committee shall be two or more of the members thereof, unless the Board shall
provide otherwise. Unless provided otherwise in this Declaration, any action of
any such committee may be taken at a meeting by vote of a majority of the
members present (a quorum being present) or without a meeting by written consent
of a majority of the members, which written consent shall be filed with the
minutes of proceedings of the Trustees or any such committee.
(d) With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust or are otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
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(e) All or any one or more Trustees may participate in a meeting of
the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting,
unless the 1940 Act specifically requires the Trustees to act "in person" in
which case such term shall be construed consistent with Commission or staff
releases or interpretations.
SECTION II.6 OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall, from time
to time, elect officers of the Trust, including a President, a Secretary and a
Treasurer. The Trustees shall elect or appoint, from time to time, a Trustee to
act as Chairman of the Board who shall preside at all meetings of the Trustees
and carry out such other duties as the Trustees shall designate. The Trustees
may elect or appoint or authorize the President to appoint such other officers
or agents with such powers as the Trustees may deem to be advisable. The
President, Secretary and Treasurer may, but need not, be a Trustee. The Chairman
of the Board and such officers of the Trust shall serve in such capacity for
such time and with such authority as the Trustees may, in their discretion, so
designate or as provided by in the By-Laws.
SECTION II.7 BY-LAWS. The Trustees may adopt and, from time to time, amend
or repeal the By-Laws for the conduct of the business of the Trust not
inconsistent with this Declaration and such By-Laws are hereby incorporated in
this Declaration by reference thereto.
ARTICLE III. POWERS OF TRUSTEES
SECTION III.1 GENERAL. The Trustees shall have exclusive and absolute
control over management of the business and affairs of the Trust, but with such
powers of delegation as may be permitted by this Declaration and the DBTA. The
Trustees may perform such acts as in their sole discretion are proper for
conducting the business and affairs of the Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid power.
Such powers of the Trustee may be exercised without order of or recourse to any
court.
SECTION III.2 INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an investment
company;
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(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or nonnegotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or
international instrumentalities, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States or under foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of every kind and description, including, without limitation, the right to
consent and otherwise act with respect thereto, with power to designate one or
more persons, firms, associations, or corporations to exercise any of said
rights, powers and privileges in respect of any of said instruments; and the
Trustees shall be deemed to have the foregoing powers with respect to any
additional securities in which the Trustees may determine to invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
SECTION III.3 LEGAL TITLE. Legal title to all the Trust Property shall be
vested in the Trust as a separate legal entity under the DBTA, except that the
Trustees shall have the power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees or in the name of any
other Person on behalf of the Trust on such terms as the Trustees may determine.
In the event that title to any part of the Trust Property is vested in
one or more Trustees, the right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his or her due election and qualification. Upon the resignation,
removal or death of a Trustee he or she shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. To the extent permitted by law, such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
executed and delivered.
SECTION III.4 SALE OF INTERESTS. Subject to the more detailed provisions
set forth in Article VII, the Trustees shall have the power to permit persons to
purchase Interests and to add or reduce, in whole or in part, their Interest in
the Trust.
SECTION III.5 BORROW MONEY. The Trustees shall have power to borrow money
or otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee or undertake the performance
of any obligation, contract or engagement of any other person, firm, association
or corporation.
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SECTION III.6 DELEGATION; COMMITTEES. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments, either in the name of the Trust or the
names of the Trustees or otherwise, as the Trustees may deem expedient.
SECTION III.7 COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owned to the Trust;
and to enter into releases, agreements and other instruments.
SECTION III.8 EXPENSES. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
brokerage services, as they in good faith may deem reasonable (subject to any
limitations in the 1940 Act), and reimbursement for expenses reasonably incurred
by themselves on behalf of the Trust.
SECTION III.9 MISCELLANEOUS POWERS. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies (including, but not
limited to, fidelity bonding and errors and omission policies) insuring the
Investment Adviser, Administrator, Distributor, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such person in such capacity, whether or not the Trust would
have the power to indemnify such Person against liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
all Trustees, officers, employees and agents of the Trust; (e) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, Distributor, Holders, Trustees,
officers, employees, agents or independent contractors of the Trust, to such
extent as the Trustees shall determine; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal Year of
the Trust and the method by which its accounts shall be kept; and (h) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
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SECTION III.10 FURTHER POWERS. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices, whether within or without the State of Delaware, in any
and all states of the United States of America, in the District of Columbia, in
any foreign countries, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign countries, and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive and shall be
binding upon the Trust and the Holders, past, present and future. In construing
the provisions of this Declaration, the presumption shall be in favor of a grant
of power to the Trustees. The Trustees shall not be required to obtain any court
order to deal with Trust Property.
ARTICLE IV. INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES AND PLACEMENT AGENT
ARRANGEMENTS
SECTION IV.1 INVESTMENT ADVISORY AND OTHER ARRANGEMENTS. The Trustees may
in their discretion, from time to time, enter into contracts or agreements for
investment advisory services, administrative services (including transfer and
dividend disbursing agency services), distribution services, fiduciary
(including custodian) services, placement agent services, Holder servicing and
distribution services or other services, whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, the
Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such Investment
Adviser (all without further action by the Trustees). Any such purchases, sales,
loans and exchanges shall be binding upon the Trust.
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SECTION IV.2 PARTIES TO CONTRACT. Any contract or agreement of the
character described in Section 4.1 of this Article IV or in the By-Laws of the
Trust may be entered into with any Person, although one or more of the Trustees
or officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract or agreement when entered into was reasonable and fair and not
inconsistent with the provisions of this Article IV or the By-Laws. Any Trustee
or officer of the Trust or any Holder may be the other party to contracts or
agreements entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any Trustee or officer of the Trust or any Holder may be financially
interested or otherwise affiliated with Persons who are parties to any or all of
the contracts or agreements mentioned in this Section 4.2.
ARTICLE V. LIMITATIONS OF LIABILITY
SECTION V.1 NO PERSONAL LIABILITY OF TRUSTEES, OFFICERS, EMPLOYEES, AGENTS.
No Trustee, officer, employee or agent of the Trust when acting in such capacity
shall be subject to any personal liability whatsoever, in his or her individual
capacity, to any Person, other than the Trust or its Holders, in connection with
Trust Property or the affairs of the Trust; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature against a
Trustee, officer, employee or agent of the Trust arising in connection with the
affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall
be liable to the Trust, Holders of Interests therein, or to any Trustee,
officer, employee, or agent thereof for any action or failure to act (including,
without limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his or her own bad faith,
willful misfeasance, gross negligence or reckless disregard of his or her
duties.
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SECTION V.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES, AGENTS. The
Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or trustees
of another organization in which it has an interest, as a shareholder, creditor
or otherwise) against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as counsel
fees) reasonably incurred by him or her in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he or she may be involved or with which he or she may be threatened,
while in office or thereafter, by reason of his or her being or having been such
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 bad faith, willful
misfeasance, gross negligence or reckless disregard of his or her duties;
provided, however, that as to any matter disposed of by a compromise payment by
such Person, pursuant to a consent decree or otherwise, no indemnification
either for said payment or for any other expenses shall be provided unless there
has been a determination that such Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office by the court or other body approving the settlement
or other disposition or by a reasonable determination, based upon review of
readily available facts (as opposed to a full trial-type inquiry), that he or
she did not engage in such conduct by written opinion from independent legal
counsel approved by the Trustees. The rights accruing to any Person under these
provisions shall not exclude any other right to which he or she may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he or she may be
otherwise entitled except out of the Trust Property. The Trustees may make
advance payments in connection with indemnification under this Section 5.2,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he or she is
not entitled to such indemnification.
SECTION V.3 LIABILITY OF HOLDERS; INDEMNIFICATION. The Trust shall
indemnify and hold each Holder harmless from and against any claim or liability
to which such Holder may become subject solely by reason of his or her being or
having been a Holder and not because of such Holder=s acts or omissions or for
some other reason, and shall reimburse such Holder for all legal and other
expenses reasonably incurred by him or her in connection with any such claim or
liability (upon proper and timely request by the Holder); provided, however,
that no Holder shall be entitled to indemnification by any series established in
accordance with Section 8.8 unless such Holder is a Holder of Interests of such
series. The rights accruing to a Holder under this Section 5.3 shall not exclude
any other right to which such Holder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Holder in any appropriate situation even though not specifically
provided herein.
SECTION V.4 NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of his or her duties hereunder.
SECTION V.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender, or other Person dealing with the Trustees or any officer,
employee or agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or property
paid, loaned, or delivered to or on the order of the Trustees or of said
officer, employee or agent. Every obligation, contract, instrument, certificate
or other interest or undertaking of the Trust, and every other act or thing
whatsoever executed in connection with the Trust, shall be conclusively taken to
have been executed or done by the executors thereof only in their capacity as
Trustees, officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the Trust
made by the Trustees or by any officer, employee or agent of the Trust, in his
or her capacity as such, shall contain an appropriate recital to the effect that
the Trustee, officer, employee and agent of the Trust shall not personally be
bound by or liable thereunder, nor shall resort be had to their private property
or the private property of the Holders for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, Holders, Trustees, officers, employees and agents in such amount as
the Trustees shall deem advisable.
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SECTION V.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee
of the Trust shall, in the performance of his or her duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its. officers or employees or by any Investment Adviser, Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
SECTION V.7 ASSENT TO DECLARATION. Every Holder, by virtue of having become
a Holder in accordance with the terms of this Declaration, shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto.
ARTICLE VI. INTERESTS IN THE TRUST
SECTION VI.1 INTERESTS. The beneficial interests in the property of the
Trust shall consist of an unlimited number of Interests. No certificates
certifying the ownership of Interests need be issued except as the Trustees may
otherwise determine from time to time.
SECTION VI.2 RIGHTS OF HOLDERS. The ownership of the Trust Property of
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trust or the Trustees, and the Holders shall have
no right or title therein other than the beneficial interest conferred by their
Interests and they shall have no right to call for any partition or division of
any property, profits or rights of the Trust. The Interests shall be personal
property giving only the rights specifically set forth in this Declaration.
SECTION VI.3 REGISTER OF INTERESTS. A register shall be kept by the Trust
under the direction of the Trustees which shall contain the names and addresses
of the Holders and Interests held by each Holder. Each such register shall be
conclusive as to the identity of the Holders of the Trust and the Persons who
shall be entitled to payments of distributions or otherwise to exercise or enjoy
the rights of Holders. No Holder shall be entitled to receive payment of any
distribution, nor to have notice given to it as herein provided, until it has
given its address to such officer or agent of the Trustees as shall keep the
said register for entry thereon.
SECTION VI.4 NOTICES. Any and all notices to which any Holder hereunder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Holder of record at its last known
address as recorded on the register of the Trust.
SECTION VI.5 NO PRE-EMPTIVE RIGHTS; DERIVATIVE SUITS. Holders shall have no
preemptive or other right to subscribe to any additional Interests or other
securities issued by the Trust or any series thereof. No action may be brought
by a Holder on behalf of the Trust unless Holders owning no less than 10% of the
then outstanding Interests join in the bringing of such action.
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SECTION VI.6 NO APPRAISAL RIGHTS. Holders shall have no right to demand
payment for their Interests or to any other rights of dissenting Holders in the
event the Trust participates in any transaction which would give rise to
appraisal or dissenters= rights by a holder of a corporation organized under the
General Corporation Law of Delaware, or otherwise.
ARTICLE VII. PURCHASES AND REDEMPTIONS
SECTION VII.1 PURCHASES. The Trustees, in their discretion, may, from time
to time, without a vote of the Holders, permit the purchase of Interests by such
party or parties (or increase in the interests of a Holder) and for such type of
consideration, including, without limitation, cash or property, at such time or
times (including, without limitation each business day), and on such terms as
the Trustees may deem best, and may in such manner acquire other assets
(including, without limitation, the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses.
SECTION VII.2 REDEMPTION BY HOLDER. Each Holder of Interests of the Trust
or any series thereof shall have the right at such times as may be permitted by
the Trust to require the Trust to redeem all or any part of his or her Interests
of the Trust or series thereof at a redemption price equal to the net asset
value per Interest of the Trust or series thereof next determined in accordance
with Section 7.4 hereof after the Interests are properly tendered for
redemption, subject to any contingent deferred sales charge in effect at the
time of redemption. Payment of the redemption price shall be in cash; provided,
however, that if the Trustees determine, which determination shall be
conclusive, that conditions exist which make payment wholly in cash unwise or
undesirable, the Trust may, subject to the requirements of the 1940 Act, make
payment wholly or partly in securities or other assets belonging to the Trust or
series thereof of which the Interests being redeemed are part of the value of
such securities or assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the Holders of Interests of the
Trust or series thereof to require the Trust to redeem Shares of the Trust of
series during any period or at any time when and to the extent permissible under
the 1940 Act.
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SECTION VII.3 REDEMPTION BY TRUST. Each Interest of the Trust or series
thereof that has been established and designated is subject to redemption by the
Trust at the redemption price which would be applicable if such Interest was
then being redeemed by the Holder pursuant to Section 7.2 hereof: (i) at any
time, if the Trustees determine in their sole discretion and by majority vote
that failure to so redeem may have materially adverse consequences to the Trust
or any series or to the Holders of the Interests of the Trust or any series
thereof, or (ii) upon such other conditions as may from time to time be
determined by the Trustees and set forth in the then current Prospectus of the
Trust with respect to maintenance of Holder accounts of a minimum amount. Upon
such redemption the Holders of the Interests so redeemed shall have no further
right with respect thereto other than to receive payment of such redemption
price.
SECTION VII.4 NET ASSET VALUE. The net asset value per Interest of any
series shall be (i) in the case of a series whose Interests are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
series (being the value of the assets belonging to that series less the
liabilities belonging to that series) by the total number of Interests of that
series outstanding, and (ii) in the case of a class of Interests of a series
whose Interests are divided into classes, the quotient obtained by dividing the
value of the net assets of that series allocable to such class (being the value
of the assets belonging to that series allocable to such class less the
liabilities belonging to such class) by the total number of Interests of such
class outstanding; all determined in accordance with the methods and procedures,
including without limitation those with respect to rounding, established by the
Trustees from time to time.
The Trustees may determine to maintain the net asset value per Interest of
any series at a designated constant dollar amount and in connection therewith
may adopt procedures consistent with the 1940 Act for continuing declarations of
income attributable to that series as dividends payable in additional Interests
of that series at the designated constant dollar amount and for the handling of
any losses attributable to that series.
ARTICLE VIII. HOLDERS
SECTION VIII.1 MEETINGS OF HOLDERS. Meetings of the Holders may be called
at any time by a majority of the Trustees and shall be called by any Trustee
upon written request of Holders holding, in the aggregate, not less than 10% of
the Interests, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
State of Delaware on such day and at such time as the Trustees shall designate.
Holders of one-third of the Interests in the Trust, present in person or by
proxy, shall constitute a quorum for the transaction of any business, except as
may otherwise be required by the 1940 Act or other applicable law or by this
Declaration or the By-Laws of the Trust. If a quorum is present at a meeting, an
affirmative vote by the Holders present, in person or by proxy, holding more
than 50% of the total Interests of the Holders present, either in person or by
proxy, at such meeting constitutes the action of the Holders, unless the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust requires
a greater number of affirmative votes.
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SECTION VIII.2 NOTICE OF MEETINGS. Written or printed notice of all
meetings of the Holders, stating the time, place and purposes of the meeting,
shall be given by the Trustees either by presenting it personally to a Holder,
leaving it at his or her residence or usual place of business, or by sending it
via United States mail or by electronic transmission to a Holder, at his or her
registered address, at least 10 business days and not more than 90 business days
before the meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail addressed to the Holder at his or her
address as it is registered with the Trust, with postage thereon prepaid. At any
such meeting, any business properly before the meeting may be considered whether
or not stated in the notice of the meeting. Any adjourned meeting may be held as
adjourned without further notice.
SECTION VIII.3 RECORD DATE FOR MEETINGS. For the purpose of determining the
Holders who are entitled to notice of any meeting and to vote at any meeting, or
to participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time fix a date, not more than 90 calendar days prior
to the date of any meeting of the Holders or payment of distributions or other
action, as the case may be, as a record date for the determination of the
persons to be treated as holders of record for such purposes. If the Trustees
shall divide the Trust Property into two or more series in accordance with
Section 8.8 herein, nothing in this Section 8.3 shall be construed as precluding
the Trustees from setting different record dates for different series.
SECTION VIII.4 PROXIES, ETC. At any meeting of Holders, any Holder entitled
to vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken.
(a) Pursuant to a resolution of a majority of the Trustees, proxies
may be solicited in the name of one or more Trustees or one or more of the
officers of the Trust. Only Holders of record shall be entitled to vote. Each
Holder shall be entitled to a vote proportionate to its Interest in the Trust.
(b) When Interests are held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such Interest,
but if more than one of them shall be present at such meeting in person or by
proxy, and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Interest.
(c) A proxy purporting to be executed by or on behalf of a Holder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. If the Holder is a
minor or a person of unsound mind, and subject to guardianship or to the legal
control of any other person regarding the charge or management of its Interest,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy.
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SECTION VIII.5 REPORTS. The Trustees shall cause to be prepared, at least
annually, a report of operations containing a balance sheet and statement of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually interim reports containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current Fiscal
Year to the end of such period.
SECTION VIII.6 INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Holders during normal business hours and for any purpose
not harmful to the Trust.
SECTION VIII.7 VOTING POWERS. The Holders shall have power to vote only (a)
for the election of Trustees as contemplated by Section 2.2 hereof, (b) with
respect to any investment advisory contract as contemplated by Section 4.1
hereof, (c) with respect to termination of the Trust as provided in Section 9.2
hereof, (d) with respect to any merger, consolidation or sale of assets as
provided in Section 9.4 hereof, (e) with respect to incorporation of the Trust
to the extent and as provided in Section 9.5 hereof, (f) with respect to such
additional matters relating to the Trust as may be required by the 1940 Act,
DBTA, or any other applicable law, the Declaration, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as and when the Trustees may consider necessary or desirable.
Each Holder shall be entitled to vote based on the ratio its Interest bears
to the Interests of all Holders entitled to vote. Until Interests are issued,
the Trustees may exercise all rights of Holders and may take any action required
by law, the Declaration or the By-Laws to be taken by Holders, The By-Laws may
include further provisions for Holders= votes and meetings and related matters
not inconsistent with this Declaration.
SECTION VIII.8 SERIES OF INTERESTS. The Trustees shall have the power to
divide the Trust Property into two or more series. The following provisions
shall be applicable to such series and any further series that may from time to
time be established and designated by the Trustees:
(a) All consideration received by the Trust for the issue or sale of
Interests of a particular series together with all Trust Property in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there is any Trust Property, or any income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more of the series established and designated from time to
time in such manner and on such basis as they, in their sole discretion, deem
fair and equitable. Each such allocation by the Trustees shall be conclusive and
binding upon the Holders of all Interests for all purposes.
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(b) The Trust Property belonging to each particular series shall be
charged with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Holders of all interests for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital, and each such determination and allocation shall be conclusive and
binding upon the Holders. Without limitation of the foregoing provisions of this
Section, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular series shall be
enforceable against the assets of such series only, and not against the assets
of any other series. Notice of this limitation on inter-series liabilities may,
in the Trustees= sole discretion, be set forth in the certificate of trust of
the Trust (whether originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of the State of Delaware pursuant to the DBTA,
and upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the DBTA relating to limitations on interseries
liabilities (and the statutory effect under Section 3804 of setting forth such
notice in the certificate of trust) shall become applicable to the Trust and
each series. Every note, bond, contract or other undertaking issued by or on
behalf of a particular series shall include a recitation limiting the obligation
represented thereby to that series and its assets.
(c) Dividends and distributions on Interests of a particular series
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise, pursuant to a standing resolution or resolution adopted only
once or with such frequency as the Trustees may determine, to the Holders of
Interests in that series, from such of the income and capital gains, accrued or
realized, from the Trust Property belonging to that series as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
series. All dividends and distributions on Interests in a particular series
shall be distributed pro rata to the Holders of Interests in that series in
proportion to the total outstanding Interests in that series held by such
Holders at the date and time of record establishment for the payment of such
dividends or distribution.
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(d) The Interests in a series of the Trust shall represent beneficial
interests in the Trust Property belonging to such series. Each Holder of
Interests in a series shall be entitled to receive its pro rata share of
distributions of income and capital gains made with respect to such series. Upon
reduction or withdrawal of its Interests or indemnification for liabilities
incurred by reason of being or having been a Holder of Interests in a series,
such Holder shall be paid solely out of the funds and property of such series of
the Trust. Upon liquidation or termination of a series of the Trust, Holders of
Interests in such series shall be entitled to receive a pro rata share of the
Trust Property belonging to such series. A Holder of Interests in a particular
series of the Trust shall not be entitled to participate in a derivative or
class action lawsuit on behalf of any other series or the Holders of Interests
in any other series of the Trust.
(e) Notwithstanding any other provision hereof, if the Trust Property
has been divided into two or more series, then on any matter submitted to a vote
of Holders of Interests in the Trust, all Interests then entitled to vote shall
be voted by individual series, except that (1) when required by the 1940 Act,
Interests shall be voted in the aggregate and not by individual series, and (2)
when the Trustees have determined that the matter affects only the interests of
Holders of Interests in a limited number of series, then only the Holders of
Interests in such series shall be entitled to vote thereon. Except as otherwise
provided in this Article VIII, the Trustees shall have the power to determine
the designations, preferences, privileges, limitations and rights, including
voting and dividend rights, of each series of Interests.
(f) The establishment and designation of any series of Interests other
than those set forth above shall be effective upon the execution by a majority
of the then Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such series, or as
otherwise provided in such instrument. At any time that there are no Interests
outstanding of any particular series previously established and designated, the
Trustees may by an instrument executed by a majority of their number abolish
that series and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
(g) If the Trust Property has been divided into two or more series,
then Section 9.2 of this Agreement shall apply also with respect to each such
series as if such series were a separate trust.
(h) The Trustees shall be authorized to issue an unlimited number of
Interests of each series.
(i) Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that Holders of Interests of any
series shall have the right to convert said Interests into one or more other
series in accordance with such requirements and procedures as may be established
by the Trustees.
SECTION VIII.9 HOLDER ACTION BY WRITTEN CONSENT. Any action which may be
taken by Holders may be taken without notice and without a meeting if Holders
holding more than 50% of the total Interests entitled to vote (or such larger
proportion thereof as shall be required by any express provision of this
Declaration) shall consent to the action in writing and the written consents
shall be filed with the records of the meetings of Holders. Such consents shall
be treated for all purposes as votes taken at a meeting of Holders.
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SECTION VIII.10 HOLDER COMMUNICATIONS. Whenever ten or more Holders who
have been such for at least six months preceding the date of application, and
who hold in the aggregate at least 1% of the total Interests, shall apply to the
Trustees in writing, stating that they wish to communicate with other Holders
with a view to obtaining signatures to a request for a meeting of Holders and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either (1) afford to such applicants access to a list of the names and addresses
of all Holders as recorded on the books of the Trust; or (2) inform such
applicants as to the approximate number of Holders, and the approximate cost of
transmitting to them the proposed communication and form of request.
If the Trustees elect to follow the course specified in clause (2) above,
the Trustees, upon the written request of such applicants, accompanied by a
tender of the material to be transmitted and of the reasonable expenses of
transmission, shall, with reasonable promptness, transmit, by United States mail
or by electronic transmission, such material to all Holders at their addresses
as recorded on the books, unless within five business days after such tender the
Trustees shall transmit, by United States mail or by electronic transmission, to
such applicants and file with the Commission, together with a copy of the
material to be transmitted, a written statement signed by at least a majority of
the Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. The Trustees shall
thereafter comply with any order entered by the Commission and the requirements
of the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE IX. DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC.
SECTION IX.1 DURATION. Subject to possible termination in accordance with
the provisions of Section 9.2, the Trust created hereby shall continue
perpetually pursuant to Section 3808 of DBTA.
SECTION IX.2 TERMINATION OF TRUST.
(a) The Trust may be terminated (i) by the affirmative vote of the
Holders of not less than two-thirds of the Interests in the Trust at any meeting
of the Holders, or (ii) by an instrument in writing, without a meeting, signed
by a majority of the Trustees and consented to by the Holders of not less than
two-thirds of such Interests, or (iii) by the Trustees by written notice to the
Holders.
Upon any such termination:
(i) The Trust shall carry on no business except for the purpose
of winding up its affairs.
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(ii) The Trustees shall proceed to wind up the affairs of the
Trust and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust, collect its assets,
sell, convey, assign, exchange, or otherwise dispose of all or any part of the
remaining Trust Property to one or more Persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay its liabilities, and do all other acts
appropriate to liquidate its business; provided that any sale, conveyance,
assignment, exchange, or other disposition of all or substantially all of the
Trust Property shall require approval of the principal terms of the transaction
and the nature and amount of the consideration by the Holders by a Majority
Interests Vote.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property, in cash or in kind or partly each,
among the Holders according to their respective rights.
(b) Upon termination of the Trust and distribution to the Holders as
herein provided, a majority of the Trustees shall execute and lodge among the
records of the Trust an instrument in writing setting forth the fact of such
termination and file a certificate of cancellation in accordance with Section
3810 of the DBTA. Upon termination of the Trust, the Trustees shall thereon be
discharged from all further liabilities and duties hereunder, and the rights and
interests of all Holders shall thereupon cease.
SECTION IX.3 AMENDMENT PROCEDURE.
(a) All rights granted to the Holders under this Declaration of Trust
are granted subject to the reservation of the right of the Trustees to amend
this Declaration of Trust as herein provided, except as set forth herein to the
contrary. Subject to the foregoing, the provisions of this Declaration of Trust
(whether or not related to the rights of Holders) may be amended at any time, so
long as such amendment is not in contravention of applicable law, including the
1940 Act, by an instrument in writing signed by a majority of the then Trustees
(or by an officer of the Trust pursuant to the vote of a majority of such
Trustees). Any such amendment shall be effective as provided in the instrument
containing the terms of such amendment or, if there is no provision therein with
respect to effectiveness, upon the execution of such instrument and of a
certificate (which may be a part of such instrument) executed by a Trustee or
officer of the Trust to the effect that such amendment has been duly adopted.
(b) No amendment may be made, under Section 9.4 (a) above, which would
change any rights with respect to any Interest in the Trust by reducing the
amount payable thereon upon liquidation of the Trust, by repealing the
limitations on personal liability of any Holder or Trustee, or by diminishing or
eliminating any voting rights pertaining thereto, except with a Majority
Interests Vote.
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(c) A certification signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Holders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
SECTION IX.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust, or any
series thereof, may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of its property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by no less than a
majority of the Trustees and by a Majority Interests Vote of the Trust or such
series, as the case may be, or by an instrument or instruments in writing
without a meeting, consented to by the Holders of not less than 50% of the total
Interests of the Trust or such series, as the case may be, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of Delaware.
In accordance with Section 3815(f) of DBTA, an agreement of merger or
consolidation may effect any amendment to the Declaration or By-Laws or effect
the adoption of a new declaration of trust or by-laws of the trust if the Trust
is the surviving or resulting business trust. A certificate of merger or
consolidation of the Trust shall be signed by a majority of the Trustees.
SECTION IX.5 INCORPORATION. Upon a Majority Interests Vote, the Trustees
may cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the equity interests thereof or
otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of the Holders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organizations or entities.
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ARTICLE X. MISCELLANEOUS
SECTION X.1 CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF PROCESS. The
Trust shall file, in accordance with Section 3812 of DBTA, in the office of the
Secretary of State of Delaware, a certificate of trust, in the form and with
such information required by Section 3810 by DBTA and executed in the manner
specified in Section 3811 of DBTA. In the event the Trust does not have at least
one Trustee qualified under Section 3807(a) of DBTA, then the Trust shall comply
with Section 3807(b) of DBTA by having and maintaining a registered office in
Delaware and by designating a registered agent for service of process on the
Trust, which agent shall have the same business office as the Trust=s registered
office. The failure to file any such certificate, to maintain a registered
office, to designate a registered agent for service of process, or to include
such other information shall not affect the validity of the establishment of the
Trust, the Declaration, the By-Laws or any action taken by the Trustees, the
Trust officers or any other Person with respect to the Trust except insofar as a
provision of the DBTA would have governed, in which case the Delaware common law
governs.
SECTION X.2 GOVERNING LAW. This Declaration is executed by all of the
Trustees and delivered with reference to DBTA and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of Section 3540 of Title 12 of
the Delaware Code or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
SECTION X.3 COUNTERPARTS. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
SECTION X.4 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust or of any recording office
in which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to (a) the number or identity of Trustees or Holders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of any
vote passed at a meeting of Trustees or Holders, (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adapted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
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SECTION X.5 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the DBTA, or with other applicable
laws and regulations, the conflicting provisions shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
SECTION X.6 TRUST ONLY. It is the intention of the Trustees to create only
a business trust under DBTA with the relationship of Trustee and beneficiary
between the Trustees and each Holder from time to time. It is not the intention
of the Trustees to create a general partnership, limited partnership, joint
stock association, corporation, bailment, or any form of legal relationship
other than a Delaware business trust except to the extent such trust is deemed
to constitute a corporation under the Code and applicable state tax laws.
Nothing in this Declaration of Trust shall be construed to make the Holders,
either by themselves or with the Trustees, partners or members of a joint stock
association.
SECTION X.7 WITHHOLDING. Should any Holder be subject to withholding
pursuant to the Code or any other provision of law, the Trust shall withhold all
amounts otherwise distributable to such Holder as shall be required by law and
any amounts so withheld shall be deemed to have been distributed to such Holder
under this Declaration of Trust. If any sums are withheld pursuant to this
provision, the Trust shall remit the sums so withheld to and file the required
forms with the Internal Revenue Service, or other applicable government agency.
SECTION X.8 HEADINGS AND CONSTRUCTION. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. Whenever the
singular number is used herein, the same shall include the plural; and the
neuter, masculine and feminine genders shall include each other, as applicable.
IN WITNESS WHEREOF the undersigned has caused this Declaration of Trust to
be executed as of the day and year first above written.
____________________________ ____________, 1993
Kendrick Kam, Trustee
____________________________ ____________, 1993
Kevin Landis, Trustee
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AMENDMENT TO DECLARATION OF TRUST
---------------------------------
The name of the Trust is hereby amended to be FIRSTHAND FUNDS. In addition,
the Declaration of Trust is further amended as follows:
1. The Caption is amended to read:
DECLARATION OF TRUST OF FIRSTHAND FUNDS
2. The adopting resolution under the Caption is amended to read:
This DECLARATION OF TRUST of FIRSTHAND FUNDS is made on this eleventh day
of November, 1993 by the parties signatory hereto, as trustees.
3. Article I Section 1.1, is amended as follows:
Section 1.1. Name. The name of the trust created hereby (the "Trust"),
shall be "Firsthand Funds," and so far as may be practicable, the Trustees
shall conduct the Trust's activities, execute all documents, and sue or be
sued under that name. This name (and the word "Trust" as used hereinafter)
shall not refer to the Trustees in their individual capacities, or to the
officers, agents, employees, or holders of interest in the Trust.
Effective: February 14, 1998.
TABLE OF CONTENTS
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Page
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ARTICLE I. MEETINGS OF HOLDERS 1
Section 1.1 Annual Meeting 1
Section 1.2 Chairman 1
Section 1.4 Fixing Record Dates 1
Section 1.6 Records of Meetings of Holders 2
ARTICLE II. TRUSTEES 2
Section 2.1 Annual and Regular Meetings 2
Section 2.2 Special Meetings 2
Section 2.3 Notice 2
Section 2.4 Chairman; Records 3
Section 2.5 Audit Committee 3
Section 2.6 Nominating Committee of Trustees 3
Section 2.7 Executive Committee 3
Section 2.8 Other Committees 4
Section 2.9 Committee Procedures 4
ARTICLE III. OFFICERS 4
Section 3.1 Officers of the Trust: Compensation 4
Section 3.3 Removal of Officers 4
Section 3.4 Bonds and Surety 5
Section 3.5 President and Vice-Presidents 5
Section 3.6 Secretary 5
Section 3.7 Treasurer 6
Section 3.8 Other Officers and Duties 6
ARTICLE IV. CUSTODIAN 6
Section 4.1 Appointment and Duties 6
Section 4.2 Central Certificate System 7
ARTICLE V. MISCELLANEOUS 7
Section 5.1 Depositories 7
Section 5.2 Signatures 7
Section 5.3 Fiscal Year 7
ARTICLE VI. INTERESTS 7
Section 6.1 Interests 7
Section 6.2 Regulations 8
Section 6.3 Distribution Disbursing Agents and the Like 8
ARTICLE VII. AMENDMENT OF BY-LAWS 8
Section 7.1 Amendment and Repeal of By-Laws 8
Section 7.2 No Personal Liability 8
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INTERACTIVE FUND: BY-LAWS
These By-Laws are made as of the eleventh day of November, 1993 and adopted
pursuant to Section 2.7 of the Declaration of Trust establishing Interactive
Fund dated November 11, 1993, as from time to time amended (hereinafter called
the ADeclaration@). All words and terms capitalized in these By-Laws shall have
the meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I. MEETINGS OF HOLDERS
SECTION I.1 ANNUAL MEETING. An annual meeting of the Holders of Interests
in the Trust, which may be held on such date and at such hour as may from time
to time be designated by the Board of Trustees and stated in the notice of such
meeting, is not required to be held unless certain actions must be taken by the
Holders as set forth in Section 8.7 of the Declaration, or except when the
Trustees consider it necessary or desirable.
SECTION I.2 CHAIRMAN. The President or, in his or her absence, the Chief
Operating Officer shall act as chairman at all meetings of the Holders and, in
the absence of both of them, the Trustee or Trustees present at the meeting may
elect a temporary chairman for the meeting, who may be one of themselves or an
officer of the Trust.
SECTION I.3 PROXIES; VOTING. Holders may vote either in person or by duly
executed proxy and each Holder shall be entitled to a vote proportionate to his
or her Interest in the Trust, all as provided in Article VIII of the
Declaration. No proxy shall be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly stated in such proxy.
SECTION I.4 FIXING RECORD DATES. For the purpose of determining the Holders
who are entitled to notice of or to vote or act at a meeting, including any
adjournment thereof, or who are entitled to participate in any distributions, or
for any other proper purpose, the Trustees may from time to time fix a record
date in the manner provided in Section 8.3 of the Declaration. If the Trustees
do not, prior to any meeting of the Holders, so fix a record date, then the date
of mailing notice of the meeting shall be the record date.
SECTION I.5 INSPECTORS OF ELECTION. In advance of any meeting of the
Holders, the Trustees may appoint Inspectors of Election to act at the meeting
or any adjournment thereof. If Inspectors of Election are not so appointed, the
chairman, if any, of any meeting of the Holders may, and on the request of any
Holder or his or her proxy shall, appoint Inspectors of Election of the meeting.
The number of Inspectors shall be either one or three. If appointed at the
meeting on the request of one or more Holders or proxies, a Majority Interests
Vote shall determine whether one or three Inspectors are to be appointed, but
failure to allow such determination by
<PAGE>
By-laws the Holders shall not affect the validity of the appointment of
Inspectors of Election. In (case any person appointed as Inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Trustees in advance of the convening of the meeting or at the meeting by
the person acting as chairman. The Inspectors of Election shall determine the
Interests owned by Holders, the Interests represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies, shall
receive votes, ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote, shall count
and tabulate all votes or consents, determine the results, and do such other
acts as may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. On request of the chairman, if any, of the meeting, or of
any Holder or his or her proxy, the Inspectors of Election shall make a report
in writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
SECTION I.6 RECORDS OF MEETINGS OF HOLDERS. At each meeting of the Holders
there shall be open for inspection the minutes of the last previous meeting of
Holders of the Trust and a list of the Holders of the Trust, certified to be
true and correct by the Secretary or other proper agent of the Trust, as of the
record date of the meeting. Such list of Holders shall contain the name of each
Holder in alphabetical order, the Holder=s address and Interests owned by such
Holder. Holders shall have the right to inspect books and records of the Trust
during normal business hours for any purpose not harmful to the Trust.
ARTICLE II. TRUSTEES
SECTION II.1 ANNUAL AND REGULAR MEETINGS. The Trustees shall hold an Annual
Meeting of the Trustees for the election of officers and the transaction of
other business which may come before such meeting. Regular meetings of the
Trustees may be held without call or notice at such place or places and times as
the Trustees may by resolution provide from time to time.
SECTION II.2 SPECIAL MEETINGS. Special Meetings of the Trustees shall be
held upon the call of the chairman, if any, the President, the Secretary, or any
two Trustees, at such time, on such day and at such Place, as shall be
designated in the notice of the meeting.
2
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SECTION II.3 NOTICE. Notice of a meeting shall be given by mail (which term
shall include overnight mail) or by telegram (which term shall include a
cablegram or telephone facsimile) or delivered personally (which tern shall
include notice by telephone). If notice is given by mail, it shall be mailed not
later than 72 hours preceding the meeting and if given by telegram or
personally, such notice shall be delivered not later than 24 hours preceding the
meeting. Notice of a meeting of Trustees may be waived before or after any
meeting by signed written waiver. Neither the business to be transacted at, nor
the purpose of, any meeting of the Board of Trustees need be stated in the
notice or waiver of notice of such meeting, and no notice need be given of
action proposed to be taken by written consent. The attendance of a Trustee at a
meeting shall constitute a waiver of notice of such meeting except where a
Trustee attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the ground
that the meeting has not been lawfully called or convened.
SECTION II.4 CHAIRMAN; RECORDS. The Trustees shall appoint a Chairman of
the Board from among their number. Such Chairman of the Board shall act as
chairman at all meetings of the Trustees; in his or her absence the President
shall act as chairman; and, in the absence of all of them, the Trustees present
shall elect one of their number to act as temporary chairman. The results of all
actions taken at a meeting of the Trustees, or by written consent of the
Trustees, shall be recorded by the Secretary.
SECTION II.5 AUDIT COMMITTEE. The Board of Trustees may, by the affirmative
vote of a majority of the entire Board, appoint from its members an Audit
Committee composed of two or more Trustees who are not Ainterested persons@ of
the Trust as defined in the Investment Company Act of 1940 (the A1940 Act@), as
the Board may from time to time determine. The Audit Committee shall (a)
recommend independent public accountants for selection by the Board, (b) review
the scope of audit, accounting and financial internal controls and the quality
and adequacy of the Trust=s accounting staff with the independent public
accountants and such other persons as may be deemed appropriate, (c) review with
the accounting staff and the independent public accountants the compliance of
transactions of the Trust with its investment adviser, administrator or any
other service provider with the financial terms of applicable contracts or
agreements, (d) review reports of the independent public accountants and comment
to the Board when warranted, (e) report to the Board at least once each year and
at such other times as the committee deems desirable, and (f) be directly
available at all times to independent public accountants and responsible
officers of the Trust for consultation on audit, accounting and related
financial matters.
SECTION II.6 NOMINATING COMMITTEE OF TRUSTEES. The Board of Trustees may,
by the affirmative vote of a majority of the entire Board, appoint from its
members a Trustee Nominating Committee composed of two or more Trustees. The
Trustee Nominating Committee shall recommend to the Board a slate of persons to
be nominated for election as Trustees by the Holders at a meeting of the Holders
and a person to be elected to fill any vacancy occurring for any reason in the
Board. Notwithstanding anything in this Section to the contrary, if the Trust
has a plan in effect pursuant to Rule 12b-1 under the 1940 Act, the selection
and nomination of those Trustees who are not Ainterested persons@ shall be
committed to the discretion of such Disinterested Trustees.
3
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SECTION II.7 EXECUTIVE COMMITTEE. The Board of Trustees may appoint from
its members an Executive Committee composed of those Trustees as the Board may
from time to time determine, of which committee the Chairman of the Board shall
be a member. In the intervals between meetings of the Board, the Executive
Committee shall have the power of the Board to (a) determine the value of
securities and assets owned by the Trust, (b) elect or appoint officers of the
Trust to serve until the next meeting of the Board, and (c) take such action as
may be necessary to manage the portfolio security loan business of the Trust.
All action by the Executive Committee shall be recorded and reported to the
Board at its next meeting succeeding such action.
SECTION II.8 OTHER COMMITTEES. The Board of Trustees may appoint from among
its members other committees composed of two or more of its Trustees which shall
have such powers as may be delegated or authorized by the resolution appointing
them.
SECTION II.9 COMMITTEE PROCEDURES. The Board of Trustees may at any time
change the members of any committee, fill vacancies or discharge any committee.
In the absence of any member of any committee, the member or members thereof
present at any meeting, whether or not they constitute a quorum, may unanimously
appoint to act in the place of such absent member a member of the Board who,
except in the case of the Executive Committee, is not an interested person of
the Trust as the Board may from time to time determine. Each committee may fix
its own rules of procedure and may meet as, and when, provided by those rules.
Copies of the minutes of all meetings of committees other than the Nominating
Committee and the Executive Committee shall be distributed to the Board unless
the Board shall otherwise provide.
ARTICLE III. OFFICERS
SECTION III.1 OFFICERS OF THE TRUST: COMPENSATION. The officers of the
Trust shall consist of the Chairman of the Board of Trustees, a President, a
Secretary, a Treasurer and such other officers or assistant officers, including
Vice-Presidents, as may, be elected by the Trustees. Any two or more of the
offices may be held by the same person. The Trustees may designate a
Vice-President as an Executive Vice-President and may designate the order in
which the other Vice-Presidents may act. The Chairman shall be a Trustee, but no
other officer of the Trust need be a Trustee. The Board of Trustees may
determine what, if any, compensation shall be paid to the officers of the Trust.
SECTION III.2 ELECTION AND TENURE. At the initial organization meeting and
thereafter at each annual meeting of the Trustees, the Trustees shall elect the
Chairman, President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. Such officers shall hold office until the next annual meeting of
the Trustees and until their successors have been duly elected and qualified.
The Trustees may fill any vacant office or add any additional officers at any
time.
4
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SECTION III.3 REMOVAL OF OFFICERS. Any officer may be removed at any time
with or without cause, by action of a majority of the Trustees. This provision
shall not prevent the making of a contract of employment for a definite term
with any officer and shall have no effect upon any cause of action which any
officer may have as a result of removal in breach of a contract of employment.
Any officer may resign at any time by notice in writing signed by such officer
and delivered or mailed to the President or Secretary, and such resignation
shall take effect immediately, or at a later date according to the terms of such
notice in writing.
SECTION III.4 BONDS AND SURETY. Any officer may be required by the Trustees
to be bonded for the faithful performance of his or her duties in such amount
and with such sureties as the Trustees may determine.
SECTION III.5 PRESIDENT AND VICE-PRESIDENTS. The President shall be the
chief executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the business
of the Trust and of its employees and shall exercise such general powers of
management as are usually vested in the office of president of a corporation.
The President shall preside at all meetings of the Holders and, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Trustees. The President shall be, ex officio, a member of all standing
committees. Subject to direction of the Trustees, the President shall have the
power, in the name and on behalf of the Trust, to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the President shall have full authority and
power, on behalf of all of the Trustees, to attend and to act and to vote, on
behalf of the Trust at any meetings of business organizations in which the Trust
holds an interest, or to confer such powers upon any other persons, by executing
any proxies duly authorizing such persons. The President shall have such further
authorities and duties as the Trustees shall from time to time determine. In the
absence or disability of the President, the Vice-Presidents in order of their
rank or the Vice-President designated by the Trustees, shall perform all of the
duties of President, and when so acting shall have all the powers of and be
subject to all of the restrictions upon the President. Subject to the direction
of the President, the Treasurer and each Vice-President shall have the power in
the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and,
in addition, shall have such other duties and powers as shall be designated from
time to time by the Trustees, the Chairman, or the President.
SECTION III.6 SECRETARY. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Holders, Trustees and any committees of
Trustees, provided that, in the absence or disability of the Secretary, the
Holders or Trustees or committee may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the signature
or signatures of the officer or officers executing any instrument on behalf of
the Trust. The Secretary shall also perform any other duties commonly incident
to such office in a Delaware corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
5
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SECTION III.7 TREASURER. Except as otherwise directed by the Trustees, the
Treasurer shall have the general supervision of the monies, funds, securities,
notes receivable and other valuable papers and documents of the Trust, and shall
have and exercise under the supervision of the Trustees and of the Chairman and
the President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust as
may be ordered by the Trustees, the Chairman or the President. He shall keep
accurate account of the books of the Trust=s transactions which shall be the
property of the Trust and which, together with all other property of the Trust
in his possession, shall be subject at all times to the inspection and control
of the Trustees. Unless the Trustees shall otherwise determine, the Treasurer
shall be the principal accounting officer of the Trust and shall also be the
principal financial officer of the Trust. He shall have such other duties and
authorities as the Trustees shall from time to time determine. Notwithstanding
anything to the contrary herein contained, the Trustees may authorize any
adviser or administrator to maintain bank accounts and deposit and disburse
funds on behalf of the Trust.
SECTION III.8 OTHER OFFICERS AND DUTIES. The Trustees may elect such other
officers and assistant officers as they shall from time to time determine to be
necessary or desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon his by the Trustees or delegated to him by the President.
ARTICLE IV. CUSTODIAN
SECTION IV.1 APPOINTMENT AND DUTIES. The Trustees shall at all times employ
a custodian or custodians with authority as its agent, but subject to such
restrictions, limitations and other requirements, if any, as may be contained in
these By-Laws:
(1) to hold the securities owned by the Trust and deliver the same upon
written order;
(2) to receive and receipt for any moneys due to the Trust and deposit the
same in its own banking department or elsewhere as the Trustees may
direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of the
Trust and furnish clerical and accounting services; and
6
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(5) if authorized to do so by the Trustees, to compute the net income and
net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more subcustodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such subcustodian and approved by the Trustee.
SECTION IV.2 CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations
and orders as the Commission may adapt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, any such other person or entity with which the
Trustees may authorize deposit in accordance with the 1940 Act, pursuant to
which system all securities of any particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred or
pledged by bookkeeping entry without physical delivery of such securities. All
such deposits shall be subject to withdrawal only upon the order of the Trust.
ARTICLE V. MISCELLANEOUS
SECTION V.1 DEPOSITORIES. In accordance with Article IV of these By-Laws,
the funds of the Trust shall be deposited in such depositories as the Trustees
shall designate and shall be drawn out on checks, drafts or other orders signed
by such officer, officers, agent or agents (including any adviser or
administrator), as the Trustees may from time to time authorize.
SECTION V.2 SIGNATURES. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
or authorization provide.
SECTION V.3 FISCAL YEAR. The fiscal year of the Trust shall end on December
31 of each year, subject, however, to change from time to time by the Board of
Trustees.
ARTICLE VI. INTERESTS
SECTION VI.1 INTERESTS. Except as otherwise provided by law, the Trust
shall be entitled to recognize the exclusive right of a person in whose name
interests stand on the record of Holders as the owners of such Interests for all
purposes, including, without limitation, the rights to receive distributions,
and to vote as such owner, and the Trust shall not be bound to recognize any
equitable or legal claim to or interest in any such Interests on the part of any
other person.
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SECTION VI.2 REGULATIONS. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
SECTION VI.3 DISTRIBUTION DISBURSING AGENTS AND THE LIKE. The Trustees
shall have the power to employ and compensate such distribution disbursing
agents, warrant its agents and agents for the reinvestment of distributions as
they shall deem necessary or desirable. Any of such agents shall have such power
and authority as is delegated to any of them by the Trustees.
ARTICLE VII. AMENDMENT OF BY-LAWS
SECTION VII.1 AMENDMENT AND REPEAL OF BY-LAWS. In accordance with Section
2.7 of the Declaration, the Trustees shall have the power to alter, amend or
repeal the By-Laws or adopt new By-Laws at any time. The Trustees shall in no
event adopt By-Laws which are in conflict with the Declaration, Title 12 of the
Delaware Code (Section 3801, et. seq.), the 1940 Act or applicable federal
securities laws.
SECTION VII.2 NO PERSONAL LIABILITY. The Declaration establishing
Interactive Fund provides that the name Interactive Fund does not refer to the
Trustees as individuals or personally; and no Trustee, officer, employee or
agent of, or Holder of Interest in, Interactive Fund shall be held to any
personal liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of Interactive Fund (except to the extent of a Holder=s Interest in the
Trust).
AMENDMENTS TO THE BY-LAWS.
--------------------------
The name of the Trust is hereby amended to be FIRSTHAND FUNDS pursuant to
Article I Section 1.1, Article II Section 2.7, and Article III Section 3.1 of
the Declaration of Trust as adopted on November 11, 1993 (the "Declaration");
and Article VII Section 7.1 of the By-Laws as adopted on November 11, 1993 (the
"By-Laws"). In addition, the By-Laws are further amended as follows:
1. The Caption is amended to read:
FIRSTHAND FUNDS: BY-LAWS
2. The Preamble is amended to read:
These By-Laws are made as of the eleventh day of November, 1993, and
adopted pursuant to Article II Section 2.7 of the Declaration dated
November 11, 1993, as amended from time to time. All words and terms
capitalized in these By-Laws shall have the meaning or meanings set forth
for such words or terms in the Declaration.
3. Article VII Section 7.2, is amended to read:
No Personal Liability. The Declaration establishing Firsthand Funds
provides that the name Firsthand Funds does not refer to the Trustees,
individually or personally, outside of their relationship to the Trust as
Trustees; and no Trustee, officer, employee, agent, or Holder of Interest,
of Firsthand Funds shall be held personally liable for the satisfaction of
any obligation or claim with respect to Firsthand Funds, nor shall resort
be had to their private property for the satisfaction of any obligation,
claim, or otherwise, in connection with the affairs of Firsthand Funds
(except to the extent of a Holder's Interest in the Trust).
Effective: February 14, 1998.
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
This Investment Advisory and Management Agreement ("Agreement"), is made
and entered into as of July 21, 1997 by and between INTERACTIVE INVESTMENTS, a
Delaware business trust (the "Fund") and INTERACTIVE RESEARCH ADVISERS, INC.,
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 (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 Fund hereby appoints the Adviser to manage the investment and
reinvestment of assets of the Technology Value Fund and any other portfolio on
the Fund which may be hereafter designated as a separate series 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,
<PAGE>
the nature of the market for the security, the 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.
- 2 -
<PAGE>
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.
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.
- 3 -
<PAGE>
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.
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.
- 4 -
<PAGE>
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.
Attest: INTERACTIVE INVESTMENTS
By: /s/ John F. Splain By: /s/ Kevin M. Landis
---------------------- ----------------------
Kevin M. Landis
Its: President
Attest: INTERACTIVE RESEARCH ADVISERS, INC.
By: By: /s/ Kendrick W. Kam
---------------------- ----------------------
Kendrick W. Kam
Its: President
- 5 -
PAUL, HASTINGS, JANOFSKY & WALKER LLP
345 CALIFORNIA ST., 29TH FLOOR
SAN FRANCISCO, CALIFORNIA 94104
TELEPHONE (415) 835-1600
FAX: (415) 217-5333
May 11, 1999
Firsthand Funds
101 Park Center Plaza, Suite 1300
San Jose, California 95113
Re: The Technology Value Fund
The Medical Specialists Fund
The Technology Leaders Fund
The Technology Innovators Fund
Ladies and Gentlemen:
We have acted as counsel to Firsthand Funds, a Delaware business trust
(the "Trust"), in connection with Post-Effective Amendment No. 7 to the Trust's
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (the "Post-Effective Amendment") and relating to the issuance by the
Trust of an indefinite number of no-par value shares of beneficial interest (the
"Shares") of four series of the Trust: The Technology Value Fund, The Medical
Specialists Fund, The Technology Leaders Fund, and The Technology Innovators
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, (the
"Declaration of Trust") as amended on February 14, 1998, 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, 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 ;
<PAGE>
Firsthand Funds
May 11, 1999
Page 2
(c) resolutions of the Trustees of the Trust adopted at various
meetings of the Trust authorizing the establishment of the Funds and the
issuance of the Shares;
(d) the Post-Effective Amendment; and
(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.) as updated on Westlaw through April 6, 1999. 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 Amendment
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
Amendment 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 Amendment, (ii) the filing of this opinion as an exhibit to the
Post-Effective Amendment, and (iii) the continued use of our prior legal
opinions to the Trust.
Very truly yours,
/s/ Paul, Hastings, Janofsky & Walker LLP
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the references to our firm in Post-Effective Amendment
to the Registration Statement on Form N-1A of Firsthand Funds and to the use of
our reports on the financial statements and financial highlights of Technology
Value Fund, Technology Leaders Fund, Technology Innovators Fund and Medical
Specialists Fund, each a series of Firsthand Funds each dated January 18, 1999.
Such financial statements and financial highlights appear in the 1998 Annual
Reports to Shareholders, which is incorporated by reference in the Registration
Statement.
/s/ Tait, Weller and Baker
TAIT, WELLER AND BAKER
Philadelphia, Pennsylvania
May 11, 1999
