Medical Specialists Fund
Annual Report
1999
Discovery follows discovery, each rising and answering questions, each ending a
long search, and each providing the new instruments for a new search.
J. ROBERT OPPENHEIMER
"PROSPECTUS IN THE ARTS AND SCIENCES"
FIFTY GREAT ESSAYS (1964)
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
- ------------------------------- ------------------ ------------------- ------------------ --------------------
AAR2 since Cumulative since
Q4'99 FYE'991 Inception Inception
- ------------------------------- ------------------ ------------------- ------------------ --------------------
<S> <C> <C> <C> <C>
MSF 21.56% 52.13% 20.57% 47.01%
Market Indices
DJIA 11.60% 27.18% 21.36% 49.09%
S&P 500 14.88% 21.04% 24.01% 55.88%
NASDAQ 22.01% 85.87% 57.84% 156.40%
Healthcare Indices
Russell 10003 3.53% -9.49% 13.62% 30.09%
Russell 20004 34.39% 25.54% 13.48% 29.75%
Russell 30005 4.93% -7.96% 12.41% 27.25%
</TABLE>
1 Fiscal Year Ending 12/31/99.
2 Average Annual Returns. MSF inception date is 12/10/97.
3 The Russell 1000 Index is comprised of 69 healthcare stocks in the Russell
1000 (large-cap) Index.
4 The Russell 2000 Index is comprised of 186 healthcare stocks in the Russell
2000 (small-cap) Index.
5 The Russell 3000 Index is comprised of 255 healthcare stocks in the Russell
3000 (large & small cap) Index.
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.
The Fund concentrates its investments in the medical industry. The Fund is
subject to a greater risk because of its concentration of investments in a
single industry and within certain segments of the industry. In addition, the
Fund may, from time to time, invest a substantial portion of its assets in the
securities of smaller-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 medical industry, such as the risk that the
products and services of companies in those industries are subject to rapid
obsolescence caused by scientific development and technological advances. Please
read the prospectus carefully before investing. To obtain a prospectus, call us
at 888.884.8482.
PERFORMANCE & PORTFOLIO DISCUSSION
Healthcare stocks continued to lag the broad market indices during Q4. The
Russell 3000 Healthcare index, the broadest measure for healthcare stock, grew
4.93% in Q4, but still ended down 7.96% for the year. In contrast, the three
broad market indices (the Dow Jones Industrial Average, the S&P 500, and the
NASDAQ Composite) all outperformed the Russell 3000 Healthcare index by wide
margins.
Within the healthcare sector, small cap stocks did much better than their large
cap cousins. For 1999, the Russell 2000 Healthcare index (small caps) delivered
a solid 25.54% return versus a loss of 9.49% for the Russell 1000 Healthcare
Index (large caps).
I am pleased to report that the Medical Specialists Fund (MSF) returned 21.56%
in Q4, for a total return of 52.13% in calendar year 1999. We believe that these
results show that a focus on strong company fundamentals can deliver good
investment returns even when market sentiment is negative.
RELATIVE PERFORMANCE: MSF VS. MARKET INDICES.
<TABLE>
<CAPTION>
VALUE OF $10,000 12/10/97 1/1/98 2/1/98 3/1/98 4/1/98
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DJIA
Monthly Return -1.6360% 0.0104% 8.3648% 3.1055% 3.0409%
Balance $10,000 $9,836 $9,837 $10,660 $10,991 $11,326
- -----------------------------------------------------------------------------------------
NASDAQ
Monthly Return -3.0550% 3.1210% 9.3339% 3.6809% 1.8156%
Balance $10,000 $9,695 $9,997 $10,930 $11,333 $11,538
- -----------------------------------------------------------------------------------------
S&P 500
Monthly Return -0.4475% 1.1059% 7.2126% 5.1209% 1.0061%
Balance $10,000 $9,955 $10,065 $10,791 $11,344 $11,458
- -----------------------------------------------------------------------------------------
MSF
Monthly Return 1.2000% -0.5900% 5.1700% 0.5700% -11.0900%
Balance $10,000 $10,120 $10,060 $10,580 $10,641 $9,461
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
5/1/98 6/1/98 7/1/98 8/1/98 9/1/98 10/1/98 11/1/98 12/1/98 1/1/99 2/1/99 3/1/99
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-1.5690% 0.7096% -0.7208% -14.9083% 4.1864% 9.6132% 6.3761% 0.8446% 1.9666% -0.3145% 5.2985%
$11,148 $11,227 $11,146 $9,484 $9,881 $10,831 $11,522 $11,619 $11,848 $11,811 $12,436
- --------------------------------------------------------------------------------------------------------------------------
-4.7636% 6.5538% -1.1525% -19.9028% 13.0280% 4.6062% 10.0895% 12.5192% 14.2933% -8.6686% 7.6233%
$10,989 $11,709 $11,574 $9,270 $10,478 $10,961 $12,067 $13,577 $15,518 $14,173 $15,253
- --------------------------------------------------------------------------------------------------------------------------
-1.7190% 4.0617% -1.0648% -14.4579% 6.4064% 8.1342% 6.0608% 5.7626% 4.1817% -3.1078% 4.0009%
$11,261 $11,718 $11,594 $9,918 $10,553 $11,411 $12,103 $12,800 $13,336 $12,921 $13,438
- --------------------------------------------------------------------------------------------------------------------------
-10.8900% 1.3000% 0.9400% -23.0900% 10.4100% 0.1366% 12.4147% 17.2700% 13.6646% -5.2823% 3.0769%
$8,430 $8,540 $8,620 $6,630 $7,320 $7,330 $8,240 $9,663 $10,983 $10,403 $10,723
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
4/1/99 5/1/99 6/1/99 7/1/99 8/1/99 9/1/99 10/1/99 11/1/99 12/1/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
10.2880% -1.9020% 4.0162% -2.8244% 1.8721% -4.4246% 3.8500% 1.5700% 5.8100%
$13,716 $13,455 $13,995 $13,600 $13,855 $13,242 $13,751 $13,967 $14,779
- ---------------------------------------------------------------------------------------------------------
3.3294% -2.8177% 8.7621% -1.7528% 3.8463% 0.2729% 8.0300% 12.4900% 22.0100%
$15,761 $15,317 $16,659 $16,367 $16,996 $17,043 $18,411 $20,711 $25,269
- ---------------------------------------------------------------------------------------------------------
3.8727% -2.3614% 5.5460% -3.1225% -0.4978% -2.7416% 6.3300% 2.0300% 5.8900%
$13,959 $13,629 $14,385 $13,936 $13,866 $13,486 $14,340 $14,631 $15,493
- ---------------------------------------------------------------------------------------------------------
2.3321% 9.7539% -0.3322% 5.5833% 1.1050% -5.6206% -0.9100% 7.8700% 13.7200%
$10,973 $12,044 $12,004 $12,674 $12,814 $12,094 $11,984 $12,927 $14,695
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VALUE OF $10,000 12/10/97 12/1/98 1/1/99 2/1/99 3/1/99
INCLUDES distributions 12/9/97 12/31/97 12/31/98 1/31/99 2/28/99 3/31/99
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RUSSELL 2000 HEALTHCARE
Monthly Return 0.1100% 3.2400% 0.0886% -10.5503% -0.6367%
Balance $10,000 $10,011 $10,335 $10,345 $9,253 $9,194
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
4/1/99 5/1/99 6/1/99 7/1/99 8/1/99 9/1/99 10/1/99 11/1/99 12/1/99
4/30/99 5/31/99 6/30/99 7/31/99 8/1/99 9/30/99 10/31/99 11/30/99 12/31/99
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.4591% 3.7297% 4.4876% 2.2598% -3.4607% -2.3064% -4.3007% 12.8664% 24.4226%
$9,236 $9,581 $10,011 $10,237 $9,883 $9,655 $9,240 $10,428 $12,975
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Past performance is no guarantee of future results.
PERFORMANCE & PORTFOLIO DISCUSSION
Fund Holdings by Sector*
Drugs/Medical Supplies 17.4%
Health Services 5.8%
Cash 7.9%
Biotechnology 44.8%
Cardiac Medical Devices 24.1%
*Based on a percentage of net assets as of December 31, 1999 (cash number net of
payables and receivables)
As we enter the year 2000, the fund is 44.8% invested in Biotechnology. This is
an unusually high weighting for this sector, but I think justified by the
impending completion of the Human Genome Project. Until now, since our knowledge
of the underlying causes of many diseases is limited, scientists tested millions
of chemical compounds looking for the ones that showed some activity. This is
like looking for a needle in a haystack. The companies that win this game are
the ones that have the resources to test the most compounds.
When the Genome Project is completed, scientists will be able to use the data to
guide their research and thereby discover drugs more quickly than has ever been
possible in the past. Instead of a search for a needle in the haystack, the drug
discovery process will more closely resemble a treasure hunt. In this new game,
the companies with the best maps are likely to be the winners.
Companies that attempt to maintain their positions by devoting more resources to
finding the needle in the haystack will lose to the companies with the maps.
During the fourth quarter, we increased our investments in the companies that
have the maps.
PERFORMANCE & PORTFOLIO DISCUSSION
The 24.1% weighting in Cardiac Medical Devices is somewhat lighter than usual.
The growth of the cardiac stent market, which drove this sector for the past two
years, has slowed. Cardiac stents are now used in almost every angioplasty.
Future stent sales should grow at about the same rate as angioplasty procedures
overall. This will mean a slower rate of sales growth than we have seen in the
past two years.
The next major advance in the Cardiac Medical device segment appears to be the
use of radiation to prevent restenosis. Although definitive clinical trial
results have not been released, the preliminary data looks good. Important data
will be released in March at the American College of Cardiology Conference and
in November at the American Heart Association Meeting. If the definitive results
are as good as the preliminary data, radiation could power the next wave of
growth in this segment.
As always, if you have firsthand experience with a new medical product that is
dramatically better than existing products, please let me know by sending an
email message to [email protected].
FUND HOLDINGS BY MARKET CAP
Large Cap 44.6%
Mid Cap 25.6%
Net Cash 7.8%
Small Cap 7.3%
Micro Cap 14.7%
Large Cap > $9B Small Cap $300M - $2.1B
Mid Cap $2.2B - $8.9B Micro Cap < $300M
TRANSITION UPDATE Last September, I formed Ingenuity Capital Management LLC
(Ingenuity) to be able to offer MSF shareholders the option to continue with the
same portfolio manager after last year's reorganization at Firsthand Capital
Management. After consulting with the Trustees of the Firsthand Funds and the
Securities and Exchange Commission, it was determined that MSF's shareholders
would have to vote yes on two separate proposals in order to effect a tax-free
exchange into the newly formed Ingenuity Medical Specialists Fund.
The first proposal was to approve a management contract between the Firsthand
Medical Specialists Fund and Ingenuity. It is my pleasure to report that on
October 10, 1999, the Fund's shareholders voted overwhelmingly to approve this
proposal. More than 98% of the shares voted at the meeting were cast in favor of
the proposal.
The second proposal needed to complete the restructuring is to approve the
transition from the Firsthand Medical Specialists Fund to the Ingenuity Medical
Specialists Fund. Proxy materials explaining this proposal were sent to
shareholders of record on January 14, 200O. The shareholder meeting is scheduled
for March 5, 200O.
With any luck, this transition will be completed by the time I sit down to write
the report for Ql of 2000.
/s/ Kendrick W. Kam
Kendrick W. Kam
Portfolio Manager
[PICTURE OMITTED]
Portfolio of Investments
Statements of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Certified Public Accountants
PORTFOLIO OF INVESTMENTS
December 31,1999
<TABLE>
<CAPTION>
Non-income producing % shares value
<S> <C> <C> <C> <C>
COMMON STOCKS
(Cost $12,467,238) 92.1% $ 15,251,285
----------
BIOTECHNOLOGY 44.8% 7,424,847
---------
Affymetrix, Inc. * 5,500 933,281
Amgenm, Inc. * 13,200 792,825
Biogen, Inc. * 8,000 676,000
Celera Genomics * 3,000 447,000
IGEN International, Inc. * 20,460 608,685
Immunex Corp. * 8,000 876,000
Incyte Pharmaceuticals, Inc. * 3,000 180,000
Medco Rescearch, Inc. * 5,300 159,331
Medimmune, Inc. * 8,000 1,327,000
Millennium Pharmaceuticals, Inc. * 6,800 829,600
Sepracor, Inc. * 6,000 595,125
CARDIAC MEDICAL DEVICES 24.1% 3,988,078
---------
Boston Scientific Corp. * 31,700 693,438
Cambridge Heart Inc. * 130,000 446,875
Cardima, Inc. * 150,000 271,875
Endosonics Corp. * 50,000 225,000
Guidant Corp. * 27,466 1,290,902
Medtronic, Inc. 14,600 531,988
Novoste Corp. * 32,000 528,000
DRUGS/MEDICAL SUPPLIES 17.4% 2,879,298
---------
ALZA Corp. * 5,500 190,437
C.R. Bard, Inc. 11,000 583,000
Johnson & Johnson 7,029 654,576
Merck & Co. 8,000 536,500
MiniMed, Inc * 9,000 659,250
Pathogenisis Corp. * 11,920 255,535
HEALTH SERVICES 5.8% 959,062
-------
Quadramed Corp. * 110,000 959,062
CASH EQUIVALENTS 2,737,593
---------
(Cost $ 2,737,593) 16.5%
Firstar Stellar Treasury Fund 2,737,593 2,737,593
TOTAL INVESTMENT SECURITIES
(Cost $15,204,831)
108% 17,988,878
LIABILITIES IN EXCESS OF OTHER ASSETS
(8.6%) (1,431,111)
-----------
NET ASSETS 100.0% $16,557,767
----------
</TABLE>
See accompanying notes to financial statements
Statement of Assets and Liabilities
December 31, 1999
ASSETS
Investment securities:
At acquisition cost $ 15,204,831
At market value (Note 1) $ 17,988,878
Interest receivable 7,482
Receivable for capital shares sold 493,654
TOTAL ASSETS 18,490,014
LIABILIIES
Payable for capital shares redeemed 3,657
Payable for securities purchased 1,894,975
Accrued expenses and other liabilities 33,615
TOTAL LIABILITIES 1,932,247
NET ASSETS $16,557,767
Net assets consist of:
Paid-in-capital $13,796,578
Accumulated net realized losses from security transactions (22,858)
Net unrealized appreciation of investments 2,784,047
Net assets $ 16,557,767
Shares of beneficial interest outstanding (unlimited number of shares
authorized, no par value) 1,168,765
Net asset value, offering price and
redemption price per share (Note 1) $14.17
See accompanying notes to financial statements
Statement of Operations
For the Year Ended December 31, 1999
INVESTMENT INCOME
Interest $ 61,882
Dividends 3,911
TOTAL INVESTMENT INCOME 65,793
EXPENSES
Investment advisory fees ( Note 4) 100,573
Administrative fees (Note 4) 33,956
TOTAL EXPENSES 134,529
NET INVESTMENT LOSS (68,736)
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 888,866
Net change in unrealized appreciation of investments 2,400,960
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 3,289,826
NET INCREASE IN NET ASSETS FROM OPERATIONS 3,221,090
see accompanying notes to financial statements
Statement of Changes in Net Assets
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Year Ended Year Ended
12/31/99 12/31/98
<S> <C> <C>
FROM OPERATIONS:
Net investment loss $ (68,736) $ (45,476)
Net realized gains (losses) from security transactions
888,866 (466,825)
Net change in unrealized appreciation of investments
2,400,960 347,325
--------- -------
Net increase (decrease) in net assets from operations
3,221,090 (164,976)
DISTTRIBUTION TO SHAREHOLDERS:
From net investment income -- (1,557)
From realized gains (444,569) --
Decrease in net assets from distributions to shareholders
(444,569) (1,557)
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 18,496,753 5,205,850
Net asset value of shares issued to shareholders in
reinvestment of distributions 433,294 --
Payment for shares redeemed (9,638,719) (2,911,609)
Net increase in net assets from capital share transactions
9,291,328 (2,294,241)
TOTAL INCREASE IN NET ASSETS 12,067,849 2,127,708
NET ASSETS:
Beginning of year 4,489,918 2,362,210
--------- ---------
End of year $ 16,557,767 $4,489,918
------------ ----------
CAPITAL SHARE ACTIVITY:
Shares sold 1,525,063 551,990
Shares issued in reinvestment of distributions to
shareholders 33,715 --
Shares redeemed (855,017) (320,299)
--------- ---------
Net increase in shares outstanding 703,761 231,691
Shares outstanding, beginning of period 465,004 233,313
------- -------
Shares outstanding, end or period 1,168,765 465,004
--------- -------
</TABLE>
See accompanying notes to financial statements
Financial Highlights
<TABLE>
<CAPTION>
Selected Per Share Data and Ratios for a Share Year Ended Year Ended Period Ended
Outstanding Throughout Each Period 12/31/99 12/31/98 12/31/97(A)
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.66 $ 10.12 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.06) (0.10) 0.01
Net realized gain and unrealized appreciation 5.05 (0.36) (0.11)
Total from investment operations 4.99 (0.46) 0.12
LESS DISTRIBUTIONS:
Dividends from net investment income --- --- ---
Distributions from net realized gains (0.48) --- ---
Total distributions (0.48) --- ---
NET ASSET VALUE AT END OF PERIOD $ 14.17 $ 9.66 $ 10.12
TOTAL RETURN 52.13% (4.55%) 1.20% (B)
Net assets at end of period (millions) $ 16.6 $ 4.5 $ 2.4
Ratio of expenses to average net assets (Note 4) 1.77% 1.95% 1.81% (C)
Ratio of net investment income (loss) to average net
assets (0.91%) (1.33%) 1.75% (C)
Portfolio turnover rate 71% 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
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Medical Specialists Fund (the "Fund") was organized as a
Delaware business trust on November 8, 1993 as a non-diversified series of
Firsthand Funds and is registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), as an open-end management investment company. The Fund
commenced operations on December 10, 1997. The Fund's investment objective is
long-term capital appreciation. The 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,
2 .SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies employed by the
Fund in preparing its financial statements:
USE OF 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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT VALUATION
Common stocks and other equity-type securities that are listed on a securities
exchange are valued at the last quoted sales price on the day the valuation is
made. Price information, on listed stocks, is taken from the exchange where the
security is primarily traded. Securities which are listed on an exchange but
which are not traded on the valuation date are valued at the average of the most
recent bid price. Unlisted securities for which market quotations are readily
available are valued at the latest quoted bid price. Other assets and securities
for which no quotations are readily available are valued at fair value as
determined in good faith under the supervision of the Board of Trustees of the
Trust.
SHARE VALUATION
The net asset value per share is calculated daily by dividing the total value of
the Fund's assets, less liabilities, by the number of shares outstanding,
rounded to the nearst cent. The offering and redemption price per share is equal
to the net asset value per share.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and distributions of net realized capital
gains, if any, will be declared and paid at least annually. 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.
FEDERAL INCOME TAXES
The Fund has elected to be taxed as a "regulated investment company" and intends
to distribute substantially all taxable income to its shareholders and otherwise
comply with the provisions of the Internal Revenue Code applicable to regulated
investment companies. Therefore, a provision for federal income taxes or excise
taxes has not been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the 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.
OTHER
Investment and shareholder transactions are recorded on the trade date. The Fund
determines the gain or loss realized from the investment transactions by
comparing the original cost of the security lot sold with the net sales
proceeds. Dividend income is recognized on the ex-dividend date and interest
income is recognized on an accrual basis. Reclassifications are made within the
net asset accounts for amounts related to permanent differences in the character
of certain income and expense items for income tax and financial reporting
purposes.
3. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, by the Fund for the period ended December 31, 1999, were as
follows:
PURCHASES SALES
U.S. Government $ - $ -
------------------- -----------------
Other $12,616,110 $4,704,231
At December 31, 1999, gross unrealized appreciation and depreciation of
investments for tax purposes were as follows:
Appreciation $3,145,066
(Depreciation) (383,877)
Net appreciation of investments $2,761,189
----------------
At December 31, 1999, the cost of investments for federal income tax purposes
was $15,227,689.
4. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
The 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 the
Fund's portfolio of investments and provides persons satisfactory to the Trust's
Board of Trustees to be 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 (1) the compensation of any of the
Trust's trustees, officers and employees who are directors, officers, employees
or shareholders of the Adviser, (2) compensation of the Adviser's personnel and
payment of other expenses in connection with the provision of portfolio
management services under the Advisory Agreement, and (3) expenses of printing
and distributing the Fund's Prospectus and sales and advertising materials to
prospective clients.
For the services provided by the Adviser under the Advisory Agreement, the
Adviser received from the Fund a management fee, computed and accrued daily and
paid monthly, equal to 1.50% per annum of the Fund's average daily net assets.
The Advisory Agreement requires the 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, 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.
An advisory fee was not collected for the time period of September 9, 1999
through October 10, 1999 due to the conversion of the Adviser from Interactive
Research Advisors, Inc. to Ingenuity Capital Management.
The Trust has entered into a separate contract with the Adviser wherein the
Adviser is responsible for providing administrative and supervisory services to
the Fund (the Administration Agreement). Under the Administration Agreement, the
Adviser oversees the maintenance of all books and records with respect to the
Fund's securities transactions and the Fund's book of accounts in accordance
with all applicable federal and state laws and regulations. The Adviser also
arranges for the preservation of journals, ledgers, corporate documents,
brokerage account records and other records, which are 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
the 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 the 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 Firstar Mutual Funds Services, LLC (the Transfer Agent)
to serve as the Fund's transfer agent, dividend paying agent and shareholder
service agent, to provide accounting and pricing services to the Fund, and to
assist the Adviser in providing executive, administrative and regulatory
services to the Fund. The Adviser (not the Fund) pays the Transfer Agent's fees
for these services.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
MEDICAL SPECIALISTS FUND
LOS ALTOS, CALIFORNIA
We have audited the accompanying statements of assets and
liabilities of the Medical Specialists Fund, a series of shares of the Firsthand
Funds, including the portfolio of investments as of December 31, 1999, and the
related statements of operations for the period then ended, changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the two years in the year then ended and the period from
December 10, 1997 to December 31, 1997. 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.
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, 1999, 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
Medical Specialists Fund as of December 31, 1999, the results of operations for
the period then ended, the changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the two years in
the year then ended and the period from December l0, 1997 to December 31, 1997,
and are in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
February 9, 200O
Medical Specialists Fund
This report, and the financial statements contained in the report are provided
for the general information of the shareholders of the Medical Specialists Fund.
This report is not intended for distribution to prospective investors in the
Fund, unless preceded or accompanied by an effective prospectus. For more
information regarding the Fund, including charges and expenses, visit our
website at www.ingenuitycapital.com or call 1.888.884.8482 for a free
prospectus.
Please read it carefully before you invest or send money.
INVESTMENT ADVISER
Ingenuity Capital Management LLC
26888 Almaden Court
Los Altos, CA 94022
TRANSFER AGENT/ADMINISTRATOR
Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 5320 l-0701
(Toll-Free) l-888-884-8482
DISTRIBUTOR
Rafferty Capital Markets, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
