The Medical Specialists Fund
Prospectus
August 31, 1999
as amended November 4, 1999
Firsthand Funds has registered each mutual fund offered in this
prospectus with the U.S. Securities and Exchange Commission (SEC). That
registration does not imply, however, that the SEC endorses the Funds.
The SEC has not approved or disapproved these securities or passed upon
the adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
The Medical Specialists Fund
A No-Load Fund
Firsthand Funds (the "Trust") currently offers series of shares to investors,
including The Medical Specialists Fund (the "Fund"). The Fund is non-diversified
and has as its investment objective long-term growth of capital. Although
certain of the Fund's investments may produce dividends, interest or other
income, current income is not a consideration in selecting the Fund's
investments.
This Prospectus has information you should know before you invest. Please read
it carefully and keep it with your investment records.
Contents
Risk/Return Summary 4
Expense Information 6
Additional Investment Strategies
and Risk Considerations 7
Operation of the Fund 11
How to Purchase Shares 13
How to Redeem Shares 15
Shareholder Services 18
Dividends and Distributions 19
Taxes 20
Calculation of Share Price 21
Financial Highlights 22
FOR INFORMATION OR ASSISTANCE IN OPENING AN ACCOUNT, PLEASE CALL:
Nationwide (Toll-Free): 1.888.884.8482
Risk/Return Summary
What is the Fund's investment objective?
The Fund's investment objective is long-term growth of capital.
What are the Fund's principal investment strategies?
The 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.
What are the principal risks of investing in the Fund?
The return on and value of an investment in the Fund will fluctuate
in response to stock market movements. Stocks and other equity
securities are subject to market risks and fluctuations in value due
to earnings, economic conditions and other factors beyond the control
of the Investment Adviser. As a result, there is a risk that you could
lose money by investing in the Fund.
The Fund will be subject to greater risk because of its 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 Fund 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 does
fluctuate dramatically and may expose you to greater than average
financial and market risk.
The 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 chart and performance table shown below provide an indication
of the risks of investing in the Fund by showing the changes in the
performance of the Fund since the Fund's inception and by showing how
the average annual returns of the Fund compare to those of broad-based
securities market indices. How the Fund has performed in the past is
not necessarily an indication of how the Fund will perform in the
future.
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.
Medical Specialists Fund *
1998 -4.55%
* MSF inception is 12/10/97
Average Annual Total Returns for Periods Ended December 31, 1998
One Year Since Inception*
-------- ----------------
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 Medical Specialists Fund
commenced on December 10, 1997.
(1)The Dow Jones Industrial Average is a measurement of general
market price movement for 30 widely held stocks listed 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 Fund.
Shareholder Fees (fees paid directly from your investment):
Sales load imposed on purchases None
Sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee None*
* A wire transfer fee is charged by the 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."
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
Management Fees 1.50%
Distribution (12b-1) Fees None
Other Expenses .45%
Total Annual Fund Operating Expenses(A) 1.95%
(A)The Advisory Agreement limits the Fund's total annual operating
expenses to 1.95% of the Fund's average daily net assets up to
$200 million, 1.90% of such assets from $200 million to $500
million, 1.85% of such assets from $500 million to $1 billion,
and 1.80% of such assets in excess of $1 billion.
Example:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The Example
also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs
would be:
1 Year $ 198
3 Years 612
5 Years 1,052
10 Years 2,275
Additional Principal Investment Strategies and Risk Considerations
Investment Techniques and Strategies
The equity securities in which the Fund 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 Fund's
investments may produce dividends, interest or other income, current
income is not a consideration in selecting the 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.
The Fund may purchase shares in initial public offerings (IPOs).
Because IPO shares frequently are volatile in price, the Fund may hold
IPO shares for a very short period of time. This may increase the
turnover of the Fund's portfolio and may lead to increased expenses to
the Fund, such as commissions and transaction costs. By selling shares,
the Fund may realize taxable capital gains that it will subsequently
distribute to shareholders.
Risk Considerations
Equity Securities
The Fund invests primarily in equity securities, which by definition
entail risk of loss of capital. Investments in equity securities are
subject to inherent market risks and fluctuation in value due to
earnings, economic conditions and other factors beyond the control of
the Investment Adviser. Securities in the Fund's portfolio may not
increase as much as the market as a whole and some undervalued
securities may continue to be undervalued for long periods of time.
Some securities may be inactively traded, and thus may not be readily
bought or sold. Although profits in some Fund holdings may be realized
quickly, it is not expected that most investments will appreciate
rapidly. The Fund may invest up to 15% of its net assets in illiquid
securities.
Small Capitalization Companies
The Fund may, from time to time, invest a substantial portion of its
assets in small capitalization companies. While smaller companies
generally have potential for rapid growth, they often involve higher
risks because they lack the management experience, financial resources,
product diversification and competitive strengths of larger
corporations. In addition, in many instances the securities of smaller
companies are traded only over-the-counter or on a regional securities
exchange, and the frequency and volume of their trading is
substantially less than is typical of larger companies. Therefore, the
securities of smaller companies may be subject to wider price
fluctuations. When making large sales, the Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make
a series of small sales over an extended period of time.
Foreign Securities
The Fund may purchase foreign securities that are listed on a foreign
securities exchange or over-the-counter market, or which are
represented by American Depository Receipts and are listed on a
domestic securities exchange or traded in the United States on
over-the-counter markets. 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, the Fund may temporarily hold all or a portion
of its assets in money market instruments. Such action may help the
Fund minimize or avoid losses during adverse market, economic or
political conditions. During such a period, the Fund may not achieve
its investment objective. For example, should the market advance
during this period, the Fund may not participate as much as it would
have if it had been more fully invested.
Concentration of Investments in Medical Industries
The Fund will invest primarily in companies within the health and
biotechnology segments. The Fund will be subject to greater risk
because of its 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. Additionally, health and biotechnology
segment products and services are subject to risk of rapid obsolescence
caused by scientific developments and technological advances. Also, the
medical industry is 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 Fund in certain health and biotechnology 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 the
Fund does not constitute a balanced investment program.
The Fund intends to invest primarily in the following health and
biotechnology segments. At any point in time, however, the 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 Fund more
volatile.
Health and Biotechnology Segments
o Cardiovascular Medical Device
o Minimally Invasive Surgical Tool
o Pharmaceutical
o Biotechnology
o Managed Care Provider
o Generic Drug
Year 2000 Problem
The Fund and its 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 Fund's software vendors and service providers have assured the Fund
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 Fund does not expect year
2000 conversion costs to be substantial for the Fund because those
costs are borne by the Fund's vendors and service providers and not
directly by the Fund.
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 Fund invests and, by extension, the value of those companies'
shares held by the Fund.
Operation of the Fund
The Board of Trustees of the Firsthand Funds agreed that as of
September 9, 1999, Ingenuity Capital Managment LLC, (the "Investment
Adviser"), 26888 Almaden Court, Los Altos, CA, 94022, should manage the
investments of the Fund. Kendrick Kam, the portfolio manager of the
Fund, is the President and 100 percent owner of the Investment Adviser.
Mr. Kam has been the portfolio manager of the Fund since its inception
on December 10, 1997. Part of that time, he was with the Fund's
previous investment adviser, Interactive Research Advisers, Inc.
("Interactive"). Mr. Kam co-founded Interactive and served as a
portfolio manager since 1994. Prior to 1994, Mr. Kam was co-founder and
Vice President of Marketing and Finance for Novoste Puerto Rico, Inc.,
a medical device company headquartered in Aguadilla, Puerto Rico.
After receiving shareholder approval on October 10, 1999, the
Investment Adviser began receiving 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 Fund to the extent necessary to
limit the Fund's total operating expenses to 1.95% of its average net
assets up to $200 million, 1.90% of such assets from $200 million to
$500 million, 1.85% of such assets from $500 million to $1 billion, and
1.80% of such assets in excess of $1 billion.
The Adviser will seek shareholder approval to reorganize the Fund in a
tax-free reorganization, out of Firsthand Funds and into Ingenuity
Capital Trust in the near future. The Independent Trustees of the
Firstand Funds have approved this future reorganization of the Fund,
subject to shareholder approval. The fees charged to shareholders of
the Fund will not change.
The Fund has 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
Fund. Under the Administration Agreement, the Investment Adviser
oversees the maintenance of all books and records with respect to the
Fund's securities transactions and the Fund's books 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 Fund's operating expenses except for brokerage and commission
expenses and any extraordinary and non-recurring expenses. For the
services rendered by the Investment Adviser under the Administration
Agreement, the Investment Adviser receives a fee from the 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. Following the closing of the restructuring of the
Adviser, the Trustees have agreed to enter into an administration
agreement with the New Adviser.
Rafferty Capital Markets, Inc. (the "Underwriter"), 1311 Mamaroneck
Avenue, White Plains, NY 10605, serves as principal underwriter for
the Fund and as such, is the exclusive agent for the distribution of
shares of the Fund.
How to Purchase Shares
You may purchase shares directly through the Fund's Transfer Agent or
through a brokerage firm or financial institution that has agreed to
sell the Fund's shares. Your initial investment in the Fund ordinarily
must be at least $10,000 (or $2,000 for Firsthand Funds IRAs). Lower
minimums are available to investors purchasing shares of the Fund
through certain brokerage firms. Shares of the Fund are sold on a
continuous basis at the net asset value next determined after receipt
of a purchase order by the Trust or an authorized agent of the Trust.
Any order placed with such brokerage firm is treated as if it were
placed directly with the Trust. Your shares will be held in a pooled
account in the broker's name, and the broker will maintain your
individual ownership information. In addition, your brokerage firm may
charge you a fee for handling your order. Your brokerage firm is
responsible for processing your order correctly and promptly, keeping
you advised of the status of your individual account, confirming your
transactions and ensuring that you receive copies of the Trust's
Prospectus. Purchase orders received by such agents prior to 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 Fund
through selected brokerage firms or financial intermediaries or by
sending a check and a completed account application form to Medical
Specialists fund, c/o Firstar Mutual Fund Services, LLC, P.O. Box 701,
Milwaukee, WI 53201-0701. 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 1.888.884.8482)
for instructions. You should be prepared to give the name of the Fund
in which you wish to purchase shares, the name in which the account is
to be established, the address, telephone number and taxpayer
identification number for the account, and the name of the bank which
will wire the money. Your investment will be made at the next
determined net asset value after your wire is received together with
the account information indicated above. If the Transfer Agent does not
receive timely and complete account information, there may be a delay
in the investment of your money and any accrual of dividends. To make
your initial wire purchase, you must mail a completed account
application to the Transfer Agent. Your bank may impose a charge for
sending your wire. There is presently no fee for receipt of wired
funds, but the Transfer Agent reserves the right to charge shareholders
for this service upon thirty days' prior notice to shareholders.
You may purchase and add shares to your account ($50 minimum) by mail
or by bank wire. Checks should be sent to Medical Specialists fund, c/o
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, WI
53201-0701. 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 the 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
Fund by certified check or wire.
By Telephone
You may redeem shares having a value of less than $50,000 by telephone.
The proceeds will be sent by mail to the address designated on your
account or wired directly to your existing account in any commercial
bank or brokerage firm in the United States as designated on your
application. To redeem by telephone, call the Transfer Agent
(Nationwide call toll-free 1.888.884.8482). 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.
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 Fund by placing a wire redemption
request through a securities broker or dealer. Unaffiliated
broker-dealers may charge you a fee for this service. You will receive
the net asset value per share next determined after receipt by the
Trust or its agent of your wire redemption request. It is the
responsibility of broker-dealers to promptly transmit wire redemption
orders.
Additional Redemption Information
If your instructions request a redemption by wire, the proceeds will be
wired directly to your existing account in any commercial bank or
brokerage firm in the United States as designated on your application
and you will be charged an $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 Fund may make payment for shares redeemed in
portfolio securities of the Fund taken at current value.
Shareholder Services
Contact the Transfer Agent (nationwide call toll-free 1.888.884.8482)
for additional information about the shareholder services described
below.
Tax-Deferred Retirement Plans
Shares of the Fund are available for purchase in connection with the
following tax-deferred retirement plans:
o Keogh Plans for self-employed individuals
o Individual retirement account (IRA) plans for individuals and
their non-employed spouses, including Roth IRAs and Education IRAs
o Qualified pension and profit-sharing plans for employees,
including those profit-sharing plans with a 401(k) provision
o 403(b)(7) custodial accounts for employees of public school
systems, hospitals, colleges and other non-profit organizations
meeting certain requirements of the Internal Revenue Code
(the "Code")
Direct Deposit Plans
Shares of the Fund may be purchased through direct deposit plans
offered by certain employers and government agencies. These plans
enable a shareholder to have all or a portion of his or her payroll or
Social Security checks transferred automatically to purchase shares of
the Fund.
Automatic Investment Plan
By completing the Automatic Investment Plan section of the account
application, you may make automatic monthly investments in the 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 Fund. You may change the amount of the
investment or discontinue the plan at any time by writing to the
Transfer Agent.
Dividends and Distributions
The 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
Fund (the Share Option) unless cash payments are specified on your
application or are otherwise requested by contacting the Transfer
Agent. All distributions will be based on the net asset value in effect
on the payable date. If you elect to receive dividends in cash and the
U.S. Postal Service cannot deliver your checks or if your checks remain
uncashed for six months, your dividends may be reinvested in your
account at the then-current net asset value and your account will be
converted to the Share Option. No interest will accrue on amounts
represented by uncashed distribution checks.
Taxes
The Fund has qualified in all prior years and intends to continue 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, the Fund will not be
subject to federal income tax or excise tax on that part of its
investment company taxable income and net realized short-term and
long-term capital gains which it distributes to its shareholders in
accordance with the Code's timing requirements.
Dividends and distributions paid to shareholders (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 Fund) as
ordinary income.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses) by the 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 the Fund holds its assets. Redemptions of shares of the Fund
are taxable events on which you may realize a gain or loss.
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
The share price (net asset value) of the shares of the Fund is
determined as of the close of the regular session of trading on the New
York Stock Exchange (normally 4:00 p.m., eastern time) on each day the
New York Stock Exchange is open for business and may also be determined
on any other day when there is sufficient trading in the Fund's
investments that its net asset value might be materially affected. The
net asset value per share of the Fund is calculated by dividing the sum
of the value of the securities held by the Fund plus cash or other
assets minus all liabilities (including estimated accrued expenses) by
the total number of shares outstanding of the Fund, rounded to the
nearest cent. 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.
Financial Highlights
The financial highlights table on the following page is intended to
help you understand the Fund's 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 Fund (assuming reinvestment
of all dividends and distributions). This information has been audited
by Tait, Weller & Baker, whose report, along with the Fund's financial
statements, are included in the Statement of Additional Information,
which is available upon request.
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)
-------- -----------
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%
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not Annualized.
(C) Annualized.
Firsthand Funds
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
Investment Adviser
Ingenuity Capital Managment LLC
26888 Almaden Court
Los Altos, CA 94022
Underwriter
Rafferty Capital Markets, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
Transfer Agent
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
(Toll-free) 1.888.884.8482
Additional information about the Fund is included in the Statement of Additional
Information ("SAI"), which is incorporated by reference in its entirety.
Additional information about the Fund's investments is available in the Fund's
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 Fund's performance during its last fiscal year.
To obtain a free copy of the SAI, the annual and semiannual reports or other
information about the Fund, or to make shareholder inquiries about the Fund,
please call
1.888.884.8482
Information about the Fund (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 Fund 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.
