--------------------------------------------------------------------------------
SEPTEMBER 30, 2000
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H&Q IPO & Emerging
Company Fund
ANNUAL REPORT
[CHASE LOGO:
THE RIGHT RELATIONSHIP IS EVERYTHING.-Registered Trademark-]
H&QIPO-2-1100
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Contents
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President's Letter 1
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H&Q IPO & Emerging Company Fund
Fund Commentary 2
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Portfolio of Investments 5
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Fund Financial Statements 9
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Highlights
- Attention shifted away from the IPO market towards the end of the period due
to investor nervousness.
- Technology companies moved out of the spotlight resulting from disappointing
financials and analysts lowering earnings and sales estimates.
- While up 25.0% for the reporting period, the Fund was volatile, falling 9.0%
during the month of September.
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NOT FDIC INSURED May lose value / No bank guarantee
---------------------------------------------------------------
H&Q IPO & Emerging Company Fund (the "Fund") is distributed by
Chase Securities Inc. ("CSI").
CSI or its affiliates may act as an underwriter, market maker or broker
for, or maintain an investment in, the securities held by the Fund.
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H&Q IPO & EMERGING COMPANY FUND
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Letter to Shareholders
November 1, 2000
Dear Shareholder:
I am pleased to present the first annual report for the H&Q IPO & Emerging
Company Fund. This report, which covers the period from the Fund's inception on
October 29, 1999 through September 30, 2000, provides information to assist you
in understanding how the Fund performed and the strategies your Fund manager
pursued during the period within the context of the overall market.
A Reversal of Sentiment
One year ago, the market generally believed that investors could not err with
Internet, networking or optical stocks. The attitude of today's investor appears
to be the antithesis of the confidence and sheer conviction of that earlier
period in time. October, long known to be a bearish month, rang true as
investors sold their technology positions, spooked by a multitude of events.
Conflict in the Middle East, continuing macroeconomic news indicating
expectations of an inflationary economy, and announcements of financial
deterioration by technology industry leaders added to the wave that pulled
investor interest away from the New Economy. Numerous dot-com companies are in a
financial slowdown, as business based on net advertising, for example, are far
from sustaining profitability. Wall Street once paid up for conceptual, novel
business models, but now demands fiscal responsibility and a track record.
The IPO Market in Perspective
What has transpired over the past year was a love-hate relationship with the New
Economy, which has turned the playing field into a competitive one, utilizing
technology as a weapon. Advancing technology with higher-yielding products or
services should produce profitable growing businesses. Furthermore, earnings
growth should generate capital appreciation. The Fund was created to find such
companies, and to participate with them from their IPO.
All of us at Chase thank you for your investment and look forward to helping you
reach your financial goals for many years to come.
Sincerely yours,
/s/ Xxxxx X. Xxxxx
Xxxxx X. Xxxxx
President, Chase Mutual Funds Corp.
1
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H&Q IPO & EMERGING COMPANY FUND
As of September 30, 2000 (Unaudited)
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How the Fund Performed
H&Q IPO & Emerging Company Fund had a total return of 25.12% (Class A shares,
without load) from its inception on October 29, 1999, to the end of the annual
reporting period on September 30, 2000. This compares to the 35.38% return from
the Nasdaq 100, an unmanaged index of the largest Nasdaq stocks, and the 22.89%
return for the Xxxxxxx 2000 Index of smaller company stocks.
How the Fund Was Managed
During the period, the Fund endured a tumultuous roller-coaster ride of highs
and lows. Towards the end of the period, investors fled the market, with
technology sell-offs leading the way. The unfavorable sentiment for tech stocks
was fueled by a number of forces, including announcements of unsustainable sales
or earnings growth targets by industry leaders, such as Lucent and Dell.
Further, Wall Street analysts have been guiding down earnings and sales
estimates for the hottest industries, including telecom and data communications.
Consequently, the Fund's hefty exposure there limited performance. Stocks such
as Paradyne Networks and XxxXxx.Xxxxx Inc. lost ground. Conversely, Nvidia Corp.
and Extreme Networks, Inc. were winners.
Despite the volatile market, management was still able to identify and invest in
attractive offerings believed to possess strong growth potential. In the
meantime, as the market continues its bumpy ride, the Fund will maintain its
strategy of positioning the portfolio with companies that are executing their
business plans, growing revenues and profits, as well as establishing themselves
as industry leaders or creators. Equally important are analyst ratings and
underwriters, which are critical factors to consider when investing in IPOs, as
well as quantitative factors such as the IPO pipeline, fund inflows and
outflows, and liquidity. Much of the Fund is currently positioned towards the
hard-equipment providers in the telecom/datacom and semiconductor industries.
Looking Ahead
The Fund will continue to rigorously research potential holdings and monitor
them to help ensure that they meet our expectations. While the management team
anticipates that market volatility could cause continued contraction in the
number of companies coming to market, it has also been able to find many
attractive opportunities in cutting-edge companies with tremendous potential.
Past performance is not indicative of future returns. IPO and emerging company
shares involve a higher degree of risk not normally associated with offerings of
more seasoned companies.
2
H&Q IPO & EMERGING COMPANY FUND
As of September 30, 2000 (Unaudited)
Percentage of Total Portfolio Investments
[Graphic representation of a pie chart]
Top Ten Equity Holdings of the Portfolio
1. Redback Networks, Inc. (4.2%)
A leading provider of advanced networking systems that enable carriers, cable
operators and service providers to rapidly deploy high-speed access to the
Internet and corporate networks.
2. Extreme Networks, Inc. (3.9%)
A leading provider of a next generation of switching solutions that meet the
increasing needs of enterprise local area networks, Internet service providers
and content providers.
3. Turnstone Systems (3.7%)
Provides hardware and software products that allow local exchange carriers to
rapidly deploy and efficiently maintain Digital Subscriber Line (DSL) services.
4. GlobeSpan, Inc. (2.5%)
GlobeSpan helps data along the DSL trail. Its integrated circuits--incorporated
into modem-related digital subscriber line equipment--speed data transmissions
over existing copper wire telephone networks.
5. TIBCO Software, Inc. (2.4%)
A provider of e-business infrastructure software products which enable
business-to-business, business-to-consumer and business-to-employee solutions.
6. Embarcadero Technologies, Inc. (2.3%)
The company sells software used to build, deploy, and manage the enterprise and
e-commerce databases of large corporations. Its primary product, DBArtisan,
works with software from a variety of database vendors and across multiple
operating and hardware systems.
7. Intersil Holding Corp. (2.1%)
Makes discrete semiconductors and integrated circuits (ICs) for the automotive,
communications, computing, industrial, and space and defense markets. Products
include analog and linear ICs, microcontrollers and switches.
8. Next Level Communication, Inc. (1.9%)
Technology leader in ATM/IP optical transport, networking and interactive DSL
broadband systems for the delivery of voice, data and video services for
communications companies.
9. Virata Corp. (1.7%)
The company makes chips for digital subscriber line equipment, which enables
phone companies to offer high-speed networking over copper phone lines. Its ATOM
family of application-specific standard products and its Proton line of
application-specific integrated circuits are used in such networking devices as
PC and cable modems, gateways and routers.
10. Brocade Communications Systems, Inc. (1.7%)
Provides fiber channel switching solutions for storage area networks, which
apply the benefits of a networked approach to the connection of computer storage
systems and servers.
Top 10 equity holdings comprised 26.4% of the Portfolio's market value of
investments. Portfolio holdings are subject to change at any time. Portfolio
descriptions are derived from xxx.xxxxxxx.xxx and have not been verified by the
Fund.
3
H&Q IPO & EMERGING COMPANY FUND
As of September 30, 2000 (Unaudited)
Total Returns
Since
Inception
(10/29/99)
--------------------------------------------
Class A Shares
without sales charge 25.12%
with sales charge 18.26%
--------------------------------------------
Class B Shares
without sales charge 24.31%
--------------------------------------------
Common Shares 25.01%
--------------------------------------------
Maximum front-end sales charge for Class A Shares: 5.5%, maximum contingent
deferred sales charge for Class B Shares: 5%, for the period since inception.
Class A Shares are also subject to a deferred sales charge.
Growth of a $10,000 investment (10/29/99 to 9/30/00)
[Graphic representation of a mountain chart]
Source: Lipper Analytical Services. Past performance, particularly short-term
performance, is not indicative of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
Chart illustrates comparative performance of $10,000 (Class A), assumes
reinvestment of all distributions and includes a 5.5% sales charge. Performance
of the unmanaged indices does not include sales charges, but includes
reinvestment of all distributions. The Xxxxxxx 2000 Index tracks the shares of
2000 small-capitalization companies. The NASDAQ 100 Index includes 100 stocks of
the largest companies traded in the NASDAQ Stock Market.
4
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H&Q IPO & EMERGING COMPANY FUND
Portfolio of Investments
-----------------------------------------------------------------------
As of September 30, 2000
Value
Shares Description (in Thousands)
-----------------------------------------------------------------------
Long-Term Investments
-----------------------------------------------------------------------
Common Stock -- 90.00%
----------------------
Aerospace/Defense -- 0.46%
125,800 Innovative Solutions and Support, Inc. $ 2,154
Applications Software -- 2.96%
205,000 Embarcadero Technologies, Inc. 10,634
51,200 Quest Software, Inc. 3,178
------
13,812
Banks -- 0.08%
75,000 American Home Mortgage Holdings, Inc. 394
Biotechnology -- 1.61%
70,000 Xxxxxxx River Laboratories, Inc. 2,380
50,100 Diversa Corp. 1,346
18,500 Maxygen, Inc. 960
67,100 Sequenom, Inc. 2,818
------
7,504
Cellular Telecommunication -- 0.77%
170,600 GoAmerica, Inc. 1,509
220,000 US Unwired, Inc. 2,090
------
3,599
Chemicals -- 0.43%
46,200 Symyx Technologies 2,004
Commercial Services -- 1.34%
248,600 Convergent Group Corp. 1,181
132,500 I-many, Inc. 2,642
41,900 Wireless Facilities, Inc. 2,414
------
6,237
Computer Aided Design -- 0.50%
80,200 Numerical Technologies, Inc. 2,306
Computer Data Security -- 1.15%
189,200 SonicWALL, Inc. 5,392
Computer Graphics -- 1.20%
68,300 NVIDIA Corp. 5,588
Computer Peripheral Equipment -- 1.03%
192,500 Mobility Electronics, Inc. 1,745
212,700 SmartDisk Corp. 3,058
------
4,803
Computer Services -- 0.81%
75,200 Cognizant Technology Solutions Corp. 2,933
131,700 PEC Solutions, Inc. 856
------
3,789
Computers-Integrated Systems -- 5.88%
33,300 Brocade Communications Systems, Inc. 7,863
118,400 Redback Networks, Inc. 19,499
------
27,362
Computers-Mini -- 1.30%
113,916 Palm, Inc. 6,030
Electric -- 0.27%
40,000 Southern Energy, Inc. 1,255
Electronic Components -- 19.79%
231,300 Axcelis Technologies, Inc. 2,703
See notes to financial statements.
5
H&Q IPO & EMERGING COMPANY FUND
Portfolio of Investments (Continued)
As of September 30, 2000
Value
Shares Description (in Thousands)
---------------------------------------------------------------------------
Long-Term Investments -- Continued
---------------------------------------------------------------------------
Electronic Components -- (Continued)
57,800 Exar Corp. $ 6,994
195,900 Xxxxxxxxx Semiconductor International Corp. 5,510
94,300 GlobeSpan, Inc. 11,505
290,600 inSilicon Corp. 4,214
180,800 Integrated Circuit System 3,345
192,000 Intersil Holding Corp. 9,576
64,700 OmniVision Technologies, Inc. 2,341
282,700 ON Semiconductor Corp. 3,057
34,881 PMC-Sierra, Inc. 7,508
375,000 QuickLogic Corp. 6,164
167,900 Xxxxxxx Technologies, Inc. 5,614
181,800 Sage, Inc. 1,602
161,800 Silicon Image, Inc. 4,005
166,300 Three-Five Systems, Inc. 4,864
125,000 TTM Technologies, Inc. 2,906
128,200 Tvia, Inc. 2,292
120,300 Virata Corp. 7,955
------
92,155
Fiber Optics -- 3.93%
46,600 Avanex Corp. 5,007
31,100 Corvis Corp. 1,911
113,500 Finisar Corp. 5,483
19,200 New Focus, Inc. 1,517
40,700 Sycamore Networks, Inc. 4,385
------
18,303
Health Care -- 0.26%
96,300 Aspect Medical Systems, Inc. 1,192
Instruments-Controls -- 1.17%
189,200 Therma-Wave, Inc. 5,439
Insurance -- 2.07%
172,000 Xxxx Xxxxxxx Financial Services, Inc. 4,622
191,100 Metlife, Inc. 5,004
------
9,626
Internet Content -- 0.61%
41,900 NetCreations, Inc. 448
146,600 ScreamingMedia, Inc. 1,374
45,000 Vastera, Inc. 996
------
2,818
Internet Software -- 12.88%
40,400 ARIBA, Inc. 5,787
2,500 @Road, Inc. 18
87,300 C-Bridge Internet Solutions 1,659
48,400 CacheFlo, Inc. 6,921
100,000 CareScience, Inc. 287
42,400 Centillium Communication, Inc. 4,060
50,800 Clarent Corp. 1,997
66,100 Digex, Inc. 3,098
37,800 Exodus Communications, Inc. 1,869
142,000 F5 Networks, Inc. 4,828
248,400 Integrated Information Systems, Inc. 1,110
63,600 Internap Network Services Corp. 2,051
176,286 Internet Pictures Corp. 959
See notes to financial statements.
6
H&Q IPO & EMERGING COMPANY FUND
Portfolio of Investments (Continued)
As of September 30, 2000
Value
Shares Description (in Thousands)
---------------------------------------------------------------------------
Long-Term Investments -- Continued
---------------------------------------------------------------------------
Internet Software -- (Continued)
65,200 Niku Corp. $ 1,585
28,300 RealNetworks, Inc. 1,125
130,200 TIBCO Software, Inc. 10,986
67,000 ValueClick, Inc. 435
131,700 Versata, Inc. 3,457
80,000 VIA XXX.XXXXX, Inc. 770
67,200 Vitria Technology, Inc. 3,133
64,200 Watchguard Technologies, Inc. 3,848
------
59,983
Miscellaneous Manufacturing -- 0.41%
50,000 CoorsTek, Inc. 1,900
Network Software -- 6.05%
157,700 Extreme Networks, Inc. 18,057
29,800 OPNET Technologies, Inc. 1,132
200,300 Packeteer, Inc. 7,599
73,400 Talarian Corp. 1,404
------
28,192
Networking Products -- 8.01%
34,900 Juniper Networks, Inc. 7,643
347,800 Lantronix, Inc. 3,304
88,300 Network Engines, Inc. 3,615
15,400 ONI Systems Corp. 1,329
30,000 Paradyne Networks, Inc. 161
120,700 Stratos Lightwave, Inc. 3,908
376,100 Turnstone Systems, Inc. 17,348
------
37,308
Oil & Gas Producers -- 0.34%
73,000 Chilies Offshore, Inc. 1,579
Oil & Gas Services -- 0.75%
402,000 Natco Group, Inc. - A 3,492
Packaging & Containers -- 0.51%
216,600 Packaging Corp. of America 2,396
Pharmaceuticals -- 1.20%
46,600 First Horizon Pharmaceutical Corp. 833
41,700 Inspire Pharmaceuticals, Inc. 1,248
21,300 Ista Pharmaceuticals, Inc. 306
165,300 OraPharma, Inc. 2,128
55,000 Pain Therapeutics, Inc. 1,086
------
5,601
Printers & Related Products -- 0.42%
221,500 T/R Systems, Inc. 1,952
Retail -- 0.62%
103,100 California Pizza Kitchen, Inc. 2,880
Superconductor Products & Systems -- 0.12%
11,000 American Superconductor Corp. 542
See notes to financial statements.
7
H&Q IPO & EMERGING COMPANY FUND
Portfolio of Investments (Continued)
As of September 30, 2000
Value
Shares Description (in Thousands)
---------------------------------------------------------------------------
Long-Term Investments -- Continued
---------------------------------------------------------------------------
Telecommunication Equipment -- 6.38%
25,000 Accelerated Networks, Inc. $ 419
82,300 Advanced Fibre Communications, Inc. 3,122
25,100 Efficient Networks, Inc. 940
135,300 Next Level Communications, Inc. 8,947
100,000 Peco II, Inc. 4,613
14,800 Sonus Networks, Inc. 1,870
61,000 Stanford Microdevices, Inc. 3,271
89,700 Sunrise Telecom, Inc. 2,579
20,000 Tollgrade Communications, Inc. 2,775
13,500 Tut Systems, Inc. 1,164
--------
29,700
Telecommunication Services -- 2.74%
23,900 Copper Mountain Networks, Inc. 899
219,900 IBASIS, Inc. 3,505
101,000 Inet Technologies, Inc. 2,916
62,700 LCC International, Inc. 909
58,000 Lexent, Inc. 1,740
62,500 o2wireless Solutions, Inc. 1,207
218,400 Z-Tel Technologies, Inc. 1,583
--------
12,759
Transportation -- 1.04%
85,500 United Parcel Service, Inc.* 4,820
Wireless Equipment -- 0.91%
115,900 SpectraLink Corp. 1,094
89,300 Triton Network Systems, Inc. 1,178
65,000 Vyyo, Inc. 1,950
--------
4,222
---------------------------------------------------------------------------
Total Long-Term Investments
(Cost $410,546) 419,088
---------------------------------------------------------------------------
Short-Term Investments -- 10.00%
---------------------------------------------------------------------------
Money Market Funds -- 7.88%
---------------------------
18,349,543 Provident Institutional Funds --
Temp Cash Fund* 18,350
18,349,543 Provident Institutional Funds --
Temp Fund* 18,350
--------
36,700
Principal
Amount
U.S. Treasury Bills -- 2.12%
----------------------------
$10,000,000 U.S. Treasury Bills 5.905% 12/14/00* 9,879
-------------------------------------------------------------------------------
Total Short-Term Investments 46,579
(Cost $46,576)
-------------------------------------------------------------------------------
Total Investments -- 100.00% $465,667
(Cost $457,122)
-------------------------------------------------------------------------------
* All securities were non-income producing except those noted
See notes to financial statements.
8
-------------------------------------------------------------------------
H&Q IPO & EMERGING COMPANY FUND
STATEMENT OF ASSETS AND LIABILITIES September 30, 2000
-------------------------------------------------------------------------
(Amounts in Thousands, Except Per Share Amounts)
-------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $457,122) (Note 1)......... $465,667
Other Assets .......................................... 27
Receivables:
Investments sold ..................................... 8,418
Fund shares sold ..................................... 414
Dividends ............................................ 198
-------------------------------------------------------------------------
Total Assets ...................................... 474,724
-------------------------------------------------------------------------
LIABILITIES:
Payables:
Fund shares redeemed ................................. 2,310
Investments Purchased ................................ 7,274
Accrued liabilities: (Note 2)
Investment Advisory fees ............................. 255
Distribution fees .................................... 179
Shareholder Servicing fees ........................... 34
Other ................................................ 230
-------------------------------------------------------------------------
Total Liabilities ................................. 10,282
-------------------------------------------------------------------------
NET ASSETS:
Paid in capital ...................................... 456,095
Accumulated net realized loss on investments and
futures transactions ................................ (198)
Net unrealized appreciation on investments ........... 8,545
-------------------------------------------------------------------------
Total Net Assets .................................. $464,442
-------------------------------------------------------------------------
Shares of beneficial Interest
outstanding ($.001 par value;
unlimited number of shares
authorized)
Class A Shares ....................................... 2,668
Class B Shares ....................................... 1,999
Common Shares ........................................ 32,487
NET ASSET VALUE
Class A Shares (and redemption price)* ............... $ 12.51
Class B Shares* ...................................... $ 12.43
Common Shares (and redemption price) ................. $ 12.50
Class A Maximum Public
Offering Price Per Share
(net asset value per share/94.50%) .................... $ 13.24
-------------------------------------------------------------------------
* Redemption price may be reduced by contingent deferred sales charge
See notes to financial statements.
9
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H&Q IPO EMERGING COMPANY FUND
STATEMENT OF OPERATIONS October 29, 1999* through September 30, 2000
- -------------------------------------------------------------------------
(Amounts in Thousands)
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends ............................................ $1,309
Interest ............................................. 1,109
-------------------------------------------------------------------------
Total investment income ........................... 2,418
-------------------------------------------------------------------------
EXPENSES: (NOTE 2)
Investment advisory fees ............................. 3,236
Distribution fees
Class A Shares ...................................... 93
Class B Shares ...................................... 238
Common Shares ....................................... 1,116
Transfer agency fees ................................. 248
Shareholder servicing fees ........................... 443
Custodian fees ....................................... 80
Administration and accounting ........................ 450
Professional fees .................................... 71
Registration fees .................................... 182
Trustees' fees and expenses .......................... 18
Printing and postage ................................. 15
Other expenses ....................................... 50
-------------------------------------------------------------------------
Total expenses .................................... 6,240
-------------------------------------------------------------------------
Less: Expenses waived ................................ (26)
Net expenses ......................................... 6,214
-------------------------------------------------------------------------
Net investment loss ............................... (3,796)
-------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments ......................................... (6,350)
Futures transactions ................................ 7,981
Change in net unrealized appreciation/depreciation
of investments ....................................... 8,545
-------------------------------------------------------------------------
Net realized and unrealized gain on investments ...... 10,176
-------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...... $6,380
-------------------------------------------------------------------------
* Commencement of operations
See notes to financial statements.
10
-------------------------------------------------------------------------
H&Q IPO EMERGING COMPANY FUND
STATEMENT OF CHANGES IN NET ASSETS
October 29, 1999* through September 30, 2000
-------------------------------------------------------------------------
(Amounts in Thousands)
-------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment loss ................................. $ (3,796)
Net realized gain on investments .................... 1,631
Change in net unrealized appreciation of investments 8,545
-------------------------------------------------------------------------
Increase in net assets resulting from operations .. 6,380
-------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME:
Class A ............................................. (2)
Class B ............................................. --
Common shares ....................................... (7)
DISTRIBUTIONS TO SHAREHOLDERS FROM NET REALIZED GAINS ON
INVESTMENT TRANSACTIONS:
Class A ............................................. (3)
Class B ............................................. (2)
Common shares ....................................... (37)
-------------------------------------------------------------------------
Total distributions to shareholders ............... (51)
-------------------------------------------------------------------------
Increase from capital share transactions (Note 4) ..... 458,013
-------------------------------------------------------------------------
Total increase in net assets ........................ 464,342
NET ASSETS
Beginning of period .................................. 100
-------------------------------------------------------------------------
End of period ........................................ $464,442
-------------------------------------------------------------------------
* Commencement of operations
See notes to financial statements.
11
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H&Q IPO & EMERGING COMPANY FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Organization and Significant Accounting Policies
Xxxxxxxxx & Xxxxx Fund Trust (the "Trust") was organized as a Delaware Business
Trust, and is registered under the Investment Company Act of 1940, as amended,
(the "1940 Act") as an open-end management investment company. The H&Q IPO &
Emerging Company Fund (the "Fund") is a separate series of the Trust. The Fund
offers three classes of shares, Class A shares are sold with a front end sales
charge, Class A and Class B shares may be subject to a contingent deferred sales
charge and Common shares are offered without any sales charges. All classes of
shares have equal rights to earnings, assets, and voting privileges except that
each class may bear different distribution fees and each class has exclusive
voting rights with respect to its distribution plan.
The following is a summary of significant accounting policies followed by the
Fund:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. Valuation of investments -- Equity securities are valued at the last
quoted sales price on the exchange on which such securities are principally
traded, if a sale price is not available the securities are valued at the
mean between the most recent bid and ask prices. Securities traded in the
over the counter market are valued at the last bid price. Exchange traded
futures contracts are valued at the closing settlement price on the exchange
on which they are primarily traded; in the absence of such a price the most
recent bid price is used or the last available closing settlement price if no
bid price is available that day. Short term debt securities with 61 days or
more to maturity at the time of purchase are valued, through the 61st day
prior to maturity, at market value based upon quotations obtained from market
makers or other appropriate sources; thereafter, the value on the 61st day is
amortized on a straight-line basis over the remaining number of days to
maturity. Short-term investments with 60 days or less to maturity at the time
of purchase are valued at amortized cost which approximates market. Portfolio
securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the
Trustees.
B. Repurchase Agreements -- It is the Fund's policy that repurchase
agreements are fully collateralized by U.S. Treasury and Government Agency
securities. All collateral is held by the Fund's custodian bank, or a bank
with which the custodian bank has entered into a subcustodian agreement, or
is segregated in the Federal Reserve Book Entry System. In connection with
transactions in repurchase agreements, if the seller defaults and the value
of the collateral declines, or if the seller enters an insolvency proceeding,
realization of the collateral by the Fund may be delayed or limited.
12
H&Q IPO & EMERGING COMPANY FUND
C. Futures contracts -- When the Fund enters into a futures contract, it
makes an initial margin deposit in a segregated account, either in cash or
liquid securities. Thereafter, the futures contract is marked to market and
the Fund makes (or receives) additional cash payments daily to (or from) the
broker. Changes in the value of the contract are recorded as unrealized
appreciation/depreciation until the contract is closed or settled.
When the Fund is not fully invested in the securities market, it may enter
into "long" positions in futures contracts in order to gain rapid market
exposure that may in part or entirely offset increases in the cost of
securities intended for purchase.
Use of long futures contracts subjects the Fund to risk of loss in excess of
amounts shown on the Statement of Assets and Liabilities up to the amount of
the notional value of the futures contracts.
The Fund may enter into futures contracts only on exchanges or boards of
trade. The exchange or board of trade acts as the counterparty to each
futures transaction, therefore, the Fund's credit risk is limited to failure
of the exchange or board of trade.
At September 30, 2000, the Fund had no outstanding futures contracts.
D. Security transactions and investment income -- Investment transactions are
accounted for on the trade date (the date the order to buy or sell is
executed). Securities gains and losses are calculated on the identified cost
basis. Interest income is determined on the basis of coupon interest accrued
adjusted for amortization of premiums and accretion of discounts. Dividend
income is recorded on the ex-dividend date.
E. Federal income taxes -- The Fund is treated as a separate taxable entity
for Federal income tax purposes. The Fund's policy is to comply with the
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute to shareholders all of its distributable net
investment income, and net realized gain on investments. In addition, the
Fund intends to make distributions as required to avoid excise taxes.
Accordingly, no provision for Federal income or excise tax is necessary.
F. Distributions to shareholders -- Dividends and distributions paid to
shareholders are recorded on the ex-dividend date. The amount of dividends
and distributions from net investment income and net realized capital gains
is determined in accordance with Federal income tax regulations, which may
differ from generally accepted accounting principles. To the extent these
"book/tax" differences are permanent in nature (i.e., that they result from
other than timing of recognition--"temporary differences"), such amounts are
reclassified within the capital accounts based on their Federal tax-basis
treatment.
13
H&Q IPO & EMERGING COMPANY FUND
The following amounts were reclassified within the capital accounts (in
thousands):
Accumulated
undistributed/ Accumulated
(overdistributed) net realized
Paid-in net investment gain (loss)
capital income on investments
---------------------------------------------------------------
$(2,018) $3,805 $(1,787)
The reclassifications primarily relate to the character for tax purposes of
current year net operating losses and non-deductible expenses.
G. Expenses -- In calculating net asset value per share of each class,
investment income, realized and unrealized gains and losses and expenses
other than class specific expenses, are allocated daily to each class of
shares based upon the proportion of net assets of each class at the beginning
of each day.
2. Fees and Other Transactions with Affiliates
A. Investment advisory fee -- Pursuant to a separate investment advisory
agreement, Xxxxxxxxx & Xxxxx Fund Management, LLC ("HQFM") acts as the
Investment Advisor to the Funds. HQFM is an indirect wholly-owned subsidiary
of The Chase Manhattan Corporation ("Chase"). As Investment Advisor, HQFM
supervises the investments of the Fund and for such services is paid a fee.
The fee is computed daily and paid monthly at an annual rate equal to 0.65%
of the average daily net assets.
Symphony Asset Management, LLC. ("Symphony"), a registered investment
advisor, is the investment sub-advisor to the Fund, pursuant to an
investment sub-advisory agreement between Symphony and HQFM. Symphony is
entitled to receive a fee, payable by HQFM at an annual rate equal to 0.35%
of the Fund's average daily net assets not in excess of $100 million and
0.375% of such assets in excess of $100 million.
B. Distribution fees -- Pursuant to a Distribution Agreement, Chase Securities
Inc. ("CSI"), a wholly owned subsidiary of Chase, is the Fund's distributor
and promotes and arranges for the sale of the Fund's shares. The Trustees
have adopted distribution plans for share Classes A, B and Common of the
Fund in accordance with Rule 12b-1 under the 1940 Act. The distribution plan
provides that the Fund shall pay distribution fees at an annual rate not to
exceed .30%, 1.00% and .25% for share Class A, B and Common, respectively,
of the average daily net assets of each class of shares.
Distributors received net commissions from sales of the Fund's shares and
received contingent deferred sales charges of $70 and $196, respectively (in
thousands).
14
H&Q IPO & EMERGING COMPANY FUND
C. Shareholder servicing fees--The Trust on behalf of the Common Class of the
Fund may obtain services of one or more sub transfer agents. For their
services, the sub transfer agents receive a fee that is computed daily and
paid monthly at an annual rate up to .10% of the average daily net assets of
the common shares of the Fund.
D. Other--Certain officers of the Trust are officers of Chase or of its
subsidiaries.
X. Xxxxxx fees--For the year ended September 30, 2000, the Fund's Transfer
Agent voluntarily waived $26 (in thousands).
3. Investment Transactions
For the period October 29, 1999 (commencement of operations) to September 30,
2000, purchases and sales of investments (excluding short-term investments) were
as follows (in thousands):
Purchases ................... $1,106,754
Proceeds from sales......... $ 689,916
4. Capital Share Transactions
Transactions in capital shares for the period October 29, 1999 (commencement of
operations) to September 30, 2000 were as follows (in thousands):
Shares Dollars
--------------------------------------------------------------------------------
Class A Shares
Sold .............................................. 3,087 $ 39,191
Reinvested ........................................ -- 4
Redeemed .......................................... 429 5,816
--------------------------------------------------------------------------------
Net Increase .................................. 2,658 $ 33,379
--------------------------------------------------------------------------------
Class B Shares
Sold .............................................. 2,324 $ 28,201
Reinvested ........................................ -- 2
Redeemed .......................................... 325 4,059
--------------------------------------------------------------------------------
Net Increase .................................. 1,999 $ 24,144
--------------------------------------------------------------------------------
Common Shares
Sold .............................................. 51,794 $659,648
Reinvested ........................................ 3 44
Redeemed .......................................... 19,310 259,202
--------------------------------------------------------------------------------
Net Increase .................................. 32,487 $400,490
--------------------------------------------------------------------------------
Total increase in capital share transactions......... 37,144 $458,013
====== ========
Prior to the commencement of operations on October 29, 1999 the Fund sold 10,000
Class A shares to Xxxxxxxxx & Xxxxx California, the parent company of Xxxxxxxxx
& Xxxxx Fund Management, LLC (the "Adviser").
15
H&Q IPO & EMERGING COMPANY FUND
5. Federal Income Tax Matters
For Federal income tax purposes, the cost and unrealized appreciation
(depreciation) in value of the investment securities at September 30, 2000 are
as follows (in thousands):
Gross Gross
unrealized unrealized Net unrealized
Aggregate Cost appreciation depreciation appreciation
--------------------------------------------------------------------------
$462,057 $96,895 $(93,285) $3,610
--------------------------------------------------------------------------
6. At September 30, 2000, substantially all of the Fund's net assets consist of
securities of issuers which have been initially offered to the public
("IPOs") or have been initiated within the last 18 months ("Emerging Company
Shares"). Stock prices of IPOs and Emerging Company Shares can be highly
volatile, due to the absence of a prior public market, the final number of
shares available for trading, or political or economic news regarding the
company.
16
-------------------------------------------------------------------------------
H&Q IPO & EMERGING COMPANY FUND
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Common
Class A Class B Shares
----------------------------------------------------------------------------------------------------
10/29/99** 10/29/99** 10/29/99**
Through Through Through
Per share operating performance 9/30/00 9/30/00 9/30/00
----------------------------------------------------------------------------------------------------
Net asset value--beginning of period .......... $ 10.00 $ 10.00 $ 10.00
----------------------------------------------------------------------------------------------------
Income from Investment Operations
Net investment loss ........................... (.09) (.17) (.10)
Realized and unrealized gain on
investments--net ............................ 2.60 2.60 2.60
----------------------------------------------------------------------------------------------------
Total from investment operations ............ 2.51 2.43 2.50
----------------------------------------------------------------------------------------------------
Less distributions (*)
Distributions from net investment
income ...................................... -- -- --
Distributions from capital gains ............. -- -- --
----------------------------------------------------------------------------------------------------
Total distributions ......................... -- -- --
----------------------------------------------------------------------------------------------------
Net asset value, end of period ................ $ 12.51 $ 12.43 $ 12.50
----------------------------------------------------------------------------------------------------
Total Return(1) ............................... 25.12% 24.31% 25.01%
Ratios/supplemental data:
Ratios to average net assets:#
Expenses--net ................................. 1.16% 1.86% 1.21%
Expenses before waiver ........................ 1.20% 1.91% 1.21%
Investment loss--net .......................... (.68%) (1.38%) (.73%)
Portfolio turnover rate ....................... 146.63% 146.63% 146.63%
Net Assets, end of the period (000's) ......... $33,375 $24,854 $406,213
----------------------------------------------------------------------------------------------------
** Commencement of operations
(1) Total return figures do not include the effect of any front end sales load
(not annualized)
# Annualized
* Amounts are less than $.01 per share
17
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustees and Shareholders of
H&Q IPO & Emerging Company Fund
In our opinion, the accompanying statements of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of H&Q IPO
& Emerging Company Fund (the "Fund") at September 30, 2000, and the results
of its operations, the changes in its net assets and the financial
highlights for the period October 29, 1999 (commencement of operations)
through September 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit, which included confirmation of securities at
September 30, 2000 by correspondence with the custodian and brokers,
provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx
00000 November 3, 2000
18
--------------------------------------------------------------------------------
H&Q IPO & EMERGING COMPANY FUND ANNUAL REPORT
--------------------------------------------------------------------------------
Investment Adviser H&Q IPO & Emerging Company
Fund is distributed by Chase Securities
Xxxxxxxxx & Xxxxx Fund Inc., which is an indirect, wholly-owned
Management, LLC, a subsidiary of subsidiary of The Chase Manhattan
The Chase Manhattan Corporation Corporation. Chase and its respective
affiliates receive compensation from the
Investment Sub-Adviser Fund for providing
investment advisory and other services.
Symphony Asset Management, LLC
This report is submitted for the general
Distributor information of the shareholders of
the Fund. It is not authorized for
Chase Securities Inc. distribution to prospective investors
in the Fund unless preceded or
Administrator and Transfer Agent accompanied by a prospectus.
PFPC, Inc. To obtain a prospectus call
0-000-000-0000. The prospectus
Custodian contains more complete information,
including charges and expenses.
PFPC Trust Company Please read it carefully
before you invest or send money.
Legal Counsel
Xxxxxx, Xxxx, Nemerovski, Xxxxxx,
Xxxx & Xxxxxx
Independent Accountants
PricewaterhouseCoopers LLP
