[LOGO]
Semi-Annual Report
June 30, 1998 (unaudited)
Firsthand 1998
Q2
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"We see those of experience succeeding more than those who have theory without
experience. The reason for this is that experience is knowledge of
particulars... and actions, and the effects produced, are all concerned with the
particular."
Aristotle
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Our Newest Fund:
The Technology Innovators Fund
Technology is an often volatile industry. Perhaps the most volatile area within
technology is comprised of those companies at the forefront, fighting to create
products which will dictate either the evolution of or a revolution within the
industry.
From these "innovators" will arise the next Microsoft or Intel. They will also
produce a large number of false starts and failed ventures. While poor security
selection in this segment is punished harshly, the potential upside is too great
to ignore.
Typical financial analysis alone will not ascertain whose technologies will be
accepted by the market, whose competitors will beat them to the punch and whose
endeavors are doomed to failure. That requires firsthand industry experience,
understanding of the underlying technology and frequent correspondence with
industry professionals positioned to evaluate the opportunity and likelihood of
success of each company.
ON MAY 20, 1998, WE OPENED THE TECHNOLOGY INNOVATORS FUND.
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Electronic
Technology Summary
It was the best of times, it was the worst of times. While the Internet was red
hot, Asia remained stone cold. Usually a mixed bag, the performances of
technology companies (and technology stocks) have diverged more sharply than
ever this year.
The second quarter showed a continuation of the trend established in Q1: strong
leadership from the large-cap names and astounding appreciation for the Internet
darlings.
As the table at right shows, the broad market averages were up modestly for the
quarter. Interestingly, the real story lies in the observation that a few large
cap stocks lifted those numbers higher in spite of the rest. On the NASDAQ, for
instance, the five leaders (Cisco, Dell, Intel, Microsoft and WorldCom) comprise
such a large percentage of total capitalization that they had the power to
propel the index to record highs while surprisingly many stocks lost money
during the quarter.
Although quite a bit has been written and said about Internet stocks recently,
this bears repeating: The recent run-up in Internet stocks has been amazing.
Technology stock valuations usually reflect a blend of optimism and skepticism,
but our read on current valuations is that they reflect much of the Internet's
promise, and very little fear.
Communications infrastructure, our favorite group, did relatively well. Although
these stocks have a much lower profile than the Internet darlings, we are much
more comfortable with the valuations, and observe that they are riding the same
wave.
The Asian financial crisis continued its chilling effect on several technology
markets, most notably Semiconductor Capital Equipment and Wireless
Communications. The general Semiconductor and PC markets were also hurt, though
less severely. Clearly, the contrast between winners and losers has never been
more vivid as its ever been.
Firsthand
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Performance Summary
(total returns as of 06/30/98)
Average annual total
Q2'98 YTD'98 1 year return since inception
(05/20/94--06/30/98)
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TVF -5.25% 9.52% -2.36% 38.15%
DJIA 2.14% 14.14% 18.71% 26.24%
S&P 500 3.30% 17.71% 30.16% 27.53%
NASDAQ
Composite 3.32% 20.91% 31.94% 26.71%
Cumulative total
Q2'98 YTD'98 1 year return since inception
(12/10/97--06/30/98)
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TLF 5.99% 28.30% n/a 29.20%
MSF -19.74% -15.61% n/a -14.60%
DJIA 2.14% 14.14% n/a 12.27%
S&P 500 3.30% 17.71% n/a 17.19%
NASDAQ
Composite 3.32% 20.91% n/a% 17.21%
Cumulative total
Q2'98 YTD'98 1 year return since inception
(05/20/97--06/30/98)
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TIF n/a n/a n/a 10.30%
DJIA n/a n/a n/a -0.93%
S&P 500 n/a n/a n/a 2.35%
NASDAQ
Composite n/a n/a n/a 2.70%
Returns assume reinvestment of dividends and distributions. Past performance is
no 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. Ghere are certain risks associated with investments in the technology and
medical industries, such as the risk that the product and services of companies
in those industries are subject to rapid obsolescence caused by scientific
developments and technological advances. Please read the prospectus carefully
before investing.
Semi-Annual Report | 2
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Medical
Technology Summary
Large-cap medical stocks continued to outperform the small-cap stocks in the
second quarter. The bright spots in the medical stock universe were all large,
well-established companies with dominant market positions: Guidant, Arterial
Vascular Engineering, Boston Scientific and Medtronic. Small-caps were punished,
in many cases, despite good progress. The disparity in valuations between
large-cap and small-cap stocks is now as large as we've ever seen. The market
now accords a high premium to current earnings, while earnings potential, no
matter how great, is heavily discounted.
With P/Es over 50 now common for the biggest companies in the medical device
industry, valuations have reached a level that can be sustained only with years
of strong earnings growth. Since the market seems to already be paying for
strong performance over the next several years, it seems to be an appropriate
time to be selling those stocks where strong corporate performance for the next
few years is not assured.
This is the main reason why the Technology Value Fund sold its entire position
in Medtronic during the second quarter. Although Medtronic is an extremely well
managed company, its P/E (trailing twelve-month) of 65 leaves management with
little room for error. Medtronic stock may still appreciate if management can
deliver strong earnings growth. However, Medtronic has grown increasingly
dependent on the pacemaker business, which it dominates. Efforts to expand into
cardiac surgical devices, stents and angioplasty catheters have been only
moderately successful. Medtronic is still a company that we may want to be
invested in over the long term. When the P/E ratio returns to a more reasonable
level, either through a price decline or an earnings increase, we will consider
reinvesting.
We don't believe the large-cap medical stocks will not continue to outperform
the small-cap stocks indefinitely. If the medical industry
Firsthand
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performs well, we believe the small-cap stocks will eventually be acknowledged
as the better values. If the industry weakens, the large-cap stocks seem more
vulnerable than the small-caps. In both scenarios, we think the small-cap stocks
hold the better risk/reward profile. A consequence of the rebalancing strategy
of selling high P/E large-cap medical stocks is that our turnover rates have
increased to a higher level than usual while we are repositioning the
portfolios.
This quarter has been particularly hard on companies that are not yet generating
significant earnings. Centocor, a stock in which we increased our holdings this
quarter, is a good example. Second quarter sales of Reopro, Centocor's primary
drug, grew 44% over the first quarter on the strength of clinical data which
showed that the drug could cut the mortality rate of angioplasty roughly in
half. During the quarter, Centocor also won an FDA advisory panel's unanimous
recommendation to approve a second drug. FDA approval of the new drug is
expected shortly, yet Centocor's stock price declined this quarter.
Stock prices of companies that do not yet generate significant earnings can be
as volatile as the market is fickle. But the market is usually quick to
recognize the value created at significant milestones. It is rare that a
positive FDA-panel recommendation and a strong sales increase do not drive the
stock price higher. That such positive results have not driven Centocor higher
reflects an unusually high degree of market pessimism. However, if sales
continue to grow at this quarter's pace, the company will start to report
significant earnings which the market, as previously noted, will now accord a
high premium.
The decision to reduce our holdings of large-cap medical stocks has hurt our
performance this quarter. At present, one could argue that we was a little early
in making this decision, but we hope you agree that it was the right decision
for the long term.
Semi-Annual Report | 4
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[GRAPHIC]
Firsthand
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Technology Value Fund
Medical Specialists Fund
Technology Leaders Fund
Technology Innovators Fund
Semi-Annual Report | 6
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Technology Value Fund
Performance & Portfolio Discussion
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By any measure, second quarter performance was poor. In a quarter when the
market indices were up 2-3%, and the average Science & Technology fund was up
2.4%, TVF lost 5.2%. Although the year-to-date performance of 9.5% appears
respectable, the Fund still under-performed the broad market indices and most of
its peer group.
In short, TVF posted an average Q1, followed by a poor Q2. And though a 9.5%
gain in six months can hardly be called disastrous, the Fund's performance is
clearly below everyone's expectations.
The accompanying pie chart shows the Fund's mid-year holdings. Note that we have
elected to break out the Fund's medical holdings in greater detail than in the
past.
The Semiconductor share remained essentially unchanged at 42.5%. Gains in
PMC-Sierra, Vitesse and Level One were off-set by losses in Celeritek and
Adaptec.
Relative Performance:
TVF vs. Market Indices
[GRAPHIC OMITTED]
Hypothetical $10,000 Investment at Inception
TVF DJIA NASDAQ S&P 500
05/20/94 - 05/31/94 $ 10,040 $ 10,004 $ 10,108 $ 10,013
06/01/94 - 06/30/94 $ 9,190 $ 9,666 $ 9,706 $ 9,768
07/01/94 - 07/30/94 $ 9,430 $ 10,045 $ 9,929 $ 10,088
08/01/94 - 08/30/94 $ 10,510 $ 10,489 $ 10,527 $ 10,502
09/01/94 - 09/30/94 $ 11,200 $ 10,320 $ 10,510 $ 10,246
10/01/94 - 10/30/94 $ 12,170 $ 10,504 $ 10,690 $ 10,475
11/01/94 - 11/30/94 $ 11,830 $ 10,094 $ 10,316 $ 10,094
12/01/94 - 12/30/94 $ 12,530 $ 10,372 $ 10,339 $ 10,244
01/01/95 - 01/30/95 $ 12,412 $ 10,407 $ 10,386 $ 10,509
02/01/95 - 02/28/95 $ 13,215 $ 10,905 $ 10,926 $ 10,919
03/01/95 - 03/30/95 $ 13,333 $ 11,325 $ 11,260 $ 11,241
04/01/95 - 04/30/95 $ 14,436 $ 11,778 $ 11,634 $ 11,572
05/01/95 - 05/30/95 $ 14,543 $ 12,217 $ 11,930 $ 12,034
06/01/95 - 06/30/95 $ 15,742 $ 12,487 $ 12,890 $ 12,314
07/01/95 - 07/30/95 $ 17,980 $ 12,913 $ 13,832 $ 12,722
08/01/95 - 08/30/95 $ 19,212 $ 12,691 $ 14,103 $ 12,754
09/01/95 - 09/30/95 $ 20,679 $ 13,206 $ 14,435 $ 13,293
10/01/95 - 10/30/95 $ 20,047 $ 13,122 $ 14,335 $ 13,245
11/01/95 - 11/30/95 $ 20,294 $ 14,053 $ 14,663 $ 13,827
12/01/95 - 12/30/95 $ 20,194 $ 14,194 $ 14,577 $ 14,093
01/01/96 - 01/30/96 $ 20,063 $ 14,976 $ 14,687 $ 14,573
02/01/96 - 02/29/96 $ 21,454 $ 15,274 $ 15,255 $ 14,708
03/01/96 - 03/30/96 $ 21,585 $ 15,581 $ 15,273 $ 14,849
04/01/96 - 04/30/96 $ 26,984 $ 15,539 $ 16,513 $ 15,068
05/01/96 - 05/30/96 $ 30,751 $ 15,801 $ 17,251 $ 15,457
06/01/96 - 06/30/96 $ 27,970 $ 15,855 $ 16,444 $ 15,516
07/01/96 - 07/30/96 $ 26,316 $ 15,519 $ 14,997 $ 14,830
08/01/96 - 08/30/96 $ 27,400 $ 15,817 $ 15,845 $ 15,143
09/01/96 - 09/30/96 $ 30,291 $ 16,594 $ 17,035 $ 15,996
10/01/96 - 10/30/96 $ 29,251 $ 17,023 $ 16,962 $ 16,437
11/01/96 - 11/30/96 $ 32,786 $ 18,470 $ 17,952 $ 17,679
12/01/96 - 12/30/96 $ 32,422 $ 18,293 $ 17,934 $ 17,329
01/01/97 - 01/30/97 $ 34,915 $ 19,337 $ 19,170 $ 18,411
02/01/97 - 02/28/97 $ 31,886 $ 19,579 $ 18,189 $ 18,556
03/01/97 - 03/30/97 $ 29,438 $ 18,771 $ 16,980 $ 17,793
04/01/97 - 04/30/97 $ 31,039 $ 19,998 $ 17,532 $ 18,856
05/01/97 - 05/30/97 $ 38,053 $ 20,972 $ 19,484 $ 20,004
06/01/97 - 06/30/97 $ 38,713 $ 21,974 $ 20,075 $ 20,900
07/01/97 - 07/30/97 $ 43,857 $ 23,565 $ 22,195 $ 22,563
08/01/97 - 08/30/97 $ 42,281 $ 21,898 $ 22,110 $ 21,299
09/01/97 - 09/30/97 $ 42,466 $ 22,855 $ 23,487 $ 22,465
10/01/97 - 10/30/97 $ 38,142 $ 21,418 $ 22,211 $ 21,715
11/01/97 - 11/30/97 $ 37,311 $ 22,576 $ 22,316 $ 22,720
12/01/97 - 12/30/97 $ 34,519 $ 22,854 $ 21,907 $ 23,110
01/01/98 - 01/30/98 $ 35,791 $ 22,857 $ 22,597 $ 23,366
02/01/98 - 02/28/98 $ 39,036 $ 24,769 $ 24,714 $ 25,051
03/01/98 - 03/31/98 $ 39,897 $ 25,538 $ 25,636 $ 26,334
04/01/98 - 04/30/98 $ 42,666 $ 26,314 $ 26,093 $ 26,599
05/01/98 - 05/31/98 $ 36,995 $ 25,902 $ 24,843 $ 26,142
06/01/98 - 06/30/98 $ 37,802 $ 26,085 $ 26,461 $ 27,204
Past performance is no guarantee of future results.
Firsthand
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Fund Holdings by Sector*
[GRAPHIC OMITTED]
Cash 2.1%
Semiconductors 42.5%
Semi. Cap. Equip. 5.4%
EDA 10.1%
Other Electronics 3.5%
Biotech 12.1%
Health Svcs. 5.8%
Card. Med. Devices 17.8%
Other Medical 0.7%
* Based on percentage of net assets as of June 30, 1998 (cash number net of
payables and receivables)
The Semiconductor Capital Equipment weighting fell from 7.4% to 5.4% as Cymer
and IPEC fell on news that the current industry slowdown was more severe than
previously thought.
We added Aspec to our Electronic Design Automation (EDA)_holdings, increasing
that sector's weighting from 6.8% to 10.1%.
The Biotech weighting was 12.1%. We increased our investment in Centocor and
added Medco Research to our portfolio.
Health Services comprised 5.8% of the Fund. HCIA returned to profitability this
quarter and Mariner Health Group announced a merger with Paragon Health (PGN).
We sold almost 40% of our position in Mariner following the announcement. We
also sold our position in Medcath after management announced their intention to
take the company private.
The Cardiac Medical Devices weighting was 17.8%. Arterial Vascular Engineering
and Guidant were added to the Fund (see the Medical Specialists discussion for
the reasons.) We closed out our positions in Medtronic and Heartport.
The Fund's 2.1% cash position is down slightly from last quarter's 2.6%.
Semi-Annual Report | 8
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Medical Specialists Fund
Performance & Portfolio Discussion
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The Medical Specialists Fund (MSF) had a terrible second quarter, losing 19.7%.
In the second quarter, small-cap stocks not only failed to keep up with their
large-cap siblings (as in the first quarter), they declined.
Given the poor performance this quarter, many of you have asked for more
information about the Fund's recent investments so you can decide whether you
are comfortable with the Fund's investment approach for the long-term. The
Fund's most significant decisions this quarter were to buy Arterial Vascular
Engineering (AVEI) and Medco Research (MRE) and to close out our positions in
Heartport (HRPT) and Neopath (NPTH).
AVEI, the stock with the single largest weighting in the portfolio, was added in
the second quarter. AVEI was the single largest position on the medical side of
the Technology Value Fund for most of 1997.
Relative Performance:
MSF vs. Market Indices
[GRAPHIC OMITTED]
Hypothetical $10,000 Investment at Inception
MSF DJIA NASDAQ S&P 500
$ 10,000 $ 10,000 $ 10,000 $ 10,000
12/10/97 12/31/97 $ 10,120 $ 9,836 $ 9,695 $ 9,955
01/01/98 01/31/98 $ 10,060 $ 9,837 $ 10,000 $ 10,065
02/01/98 02/28/98 $ 10,580 $ 10,660 $ 10,936 $ 10,791
03/01/98 03/31/98 $ 10,641 $ 10,991 $ 11,345 $ 11,344
04/01/98 04/30/98 $ 9,461 $ 11,326 $ 11,547 $ 11,458
05/01/98 05/31/98 $ 8,430 $ 11,148 $ 10,993 $ 11,261
06/01/98 06/30/98 $ 8,540 $ 11,227 $ 11,710 $ 11,718
Past performance is no guarantee of future results.
Firsthand
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Fund Holdings by Sector*
[GRAPHIC OMITTED]
Cash 7.1%
Biotech 31.2%
OB/GYN 4.9%
Health Services 5.1%
Card. Med. Devices 49.5%
Other Med. Devices 2.2%
* Based on percentage of net assets as of June 30, 1998 (cash number net of
payables and receivables)
We sold it at about $30 in the fourth quarter of 1997 when the P/E ratio
exceeded 70. In the first quarter of 1998 AVEI reported earnings per share of
$0.64 vs. $0.07 last year -- more than a 9-fold increase. On an annualized
basis, AVEI looked to be on track to earn $2.56 for the year, assuming no
additional growth in earnings. With the stock hovering around $35, it was
trading at an attractive run-rate P/E ratio of 14.
It is very rare for the market to price companies that grow earnings at 900% per
year at a run-rate P/E of 14. We started buying in the low $30s and kept buying
as the stock dipped into the high $20s. For the second quarter of 1998, AVEI
reported earnings of $0.90 per share. The stock is now trading in the high $30s.
MRE is an emerging pharmaceutical company focusing on Adenosine-based products.
The company earned $1.41 per share for the past 12 months and $0.48 for the
second quarter; it trades now at roughly $23. This gives it a trailing
twelve-month P/E of approximately 17 and a run-rate P/E of about 12. After
netting out the effect of some one-time licensing revenues, earnings for the
second quarter were $0.35 per share, 59% over last year.
Semi-Annual Report | 10
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By way of comparison, the bigger large-cap pharmaceutical companies (Warner
Lambert, Pfizer, Merck, and others) are trading at trailing twelve-month P/Es
ranging from 27 to 64. The Fund bought its initial position at about $21 and
recently increased its position at $23.
Heartport has been a heart-breaking stock. we initially thought that their
patents would protect them from competition and thereby provide a solid base of
value. However, the Heartport system has proven to be more difficult to train
physicians to use than anticipated.
Heartport is attacking the problem by providing intensive training, and by
making "ease of use" a priority in their next generation products. These are the
right things for the company to do, but neither is a quick solution. Even though
the stock has dropped significantly since we sold it, we would not consider
investing in it again until these basic problems are fixed.
Neopath got FDA approval to sell its automated pap-smear reader as a primary
scanner in the second quarter. This should greatly change the economics of their
business. Neopath's customers can now use the device to free up their human
technicians so they can concentrate their time on the more difficult cases
requiring judgement.
Even though Neopath reported a 92% increase in sales for the 2nd quarter 1998
over 1997, the company's net loss hardly improved and gross margins declined. In
my experience, companies that grow sales by cutting margins are generally not
strong businesses. We got out of Neopath at about $13; slightly less than we
paid for it. It now trades at under $7.
The pie chart on the previous page shows MSF's holdings by sector as of the
quarter end. The biggest change from last quarter is the increased weighting in
Cardiac Medical Devices, which now accounts for 49.5% of the Fund versus about
34% last quarter. The increase is almost all due to the purchase of AVEI.
TELL US YOUR FIRSTHAND EXPERIENCES.
We are currently looking at the physician practice management (PPM) industry.
For the first time in nearly 2 years, these companies may be priced
attractively. If you have firsthand experience in dealing with any of the
companies in the accompanying table, we would like to hear about it.
Firsthand
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Physician Practice Management Companies
---------------------------------------
Phycor PHYC
American Oncology Resources AORI
Pediatrix Medical Group PDX
Medpartners MDM
Orthodontic Centers of America OCA
Over the last decade, many of the reforms instituted to control medical costs
have had adverse consequences for physicians. For example, after the last
Medicare reform, reimbursement rates for many procedures were set so low that
physicians are literally "working for free" after deducting the full costs of
running their practices.
THE BASIC CONCEPT OF A PPM IS TO COMBINE ENOUGH PHYSICIANS TO:
1. Enable the group to negotiate better terms with the various healthcare payors
- - HMOs, Medicare, insurance companies, etc.
2. Reduce the overhead of running a medical practice through economies of scale
in purchasing, administrative and MIS services.
PPMs combine physicians by buying their practices. Physicians are paid a lump
sum in exchange for their practice's assets and the right to receive between 12%
- - 17% of net income (usually for 40 years).
The main issue for this industry is whether physicians feel that the PPMs have
earned their 12% - 17% of net income by negotiating better prices and terms with
the healthcare payors, and/or reducing the practice's overhead. If PPMs really
can improve the economics of a medical practice by more than enough to cover
their percentage of net income, then the industry is on solid ground and the
stocks are good values. If not, then the PPMs are creating a lot of justified
resentment among physicians, particularly with any doctors who did not share in
the proceeds from the original buyout.
Let us know which side of this debate your firsthand experience puts you by
sending an email to:
[email protected].
Semi-Annual Report | 12
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Technology Leaders Fund
Performance & Portfolio Discussion
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The Technology Leaders Fund (TLF) returned 6.0% in the second quarter,
outperforming the broad market indices (see performance summary table on page 2)
as well as the Micropal and Lipper Science & Technology indices. On a
year-to-date basis, the Fund is well ahead of the indices and has outperformed
most other Science & Technology mutual funds.
Second quarter performance was driven by the Software and Networking sectors.
The accompanying pie chart shows the Fund's mid-year holdings by sector. At
49.1% the Semiconductor sector remains the Fund's largest group of holdings.
Among our biggest positions are Vitesse, Altera and Texas Instruments.
Our investments in the Semiconductor Capital Equipment group have grown
modestly, from 2.3% to 7.1%. We have added on weakness, but remain skeptical of
a fast recovery for this group.
Relative Performance:
TLF vs. Market Indices
[GRAPHIC OMITTED]
Hypothetical $10,000 Investment at Inception
TLF DJIA NASDAQ S&P 500
$ 10,000 $ 10,000 $ 10,000 $ 10,000
12/10/97 12/30/97 $ 10,070 $ 9,836 $ 9,695 $ 9,955
01/01/98 01/31/98 $ 11,070 $ 9,837 $ 10,000 $ 10,065
02/01/98 02/28/98 $ 12,150 $ 10,660 $ 10,936 $ 10,791
03/01/98 03/31/98 $ 12,190 $ 10,991 $ 11,345 $ 11,344
04/01/98 04/30/98 $ 13,151 $ 11,326 $ 11,547 $ 11,458
05/01/98 05/31/98 $ 12,141 $ 11,148 $ 10,993 $ 11,261
06/01/98 06/30/98 $ 12,922 $ 11,227 $ 11,710 $ 11,718
Past performance is no guarantee of future results.
Firsthand
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Fund Holdings by Sector*
[GRAPHIC OMITTED]
Cash 12.7%
Semiconductors 49.1%
Networking 4.3%
Software 5.9%
Semi. Cap. Equip. 7.1%
Comm. Equip. 13.8%
Computers 7.1%
* Based on percentage of net assets as of June 30, 1998 (cash number net of
payables and receivables)
The Fund's weighting in Software expanded to 5.9%. This was our top performing
group, led by Microsoft and SAP AG. Our single networking stock, Cisco,
appreciated more than 34% and comprises 4.3% of the Fund's assets. The strong
just keep getting stronger.
After a strong Q1, our Communications Equipment holdings were up only slightly
during Q2. We held the same four stocks throughout the quarter. Growth in total
assets caused this weighting to decline from 15.0% to 13.8%.
Our investments in the Computer sector were up slightly, but declined to 7.1% of
net assets. Our two computer leaders remain Hewlett-Packard and IBM.
At 12.7%, the Fund's cash position is still unusually high. This should come
down considerably in the months ahead, as market volatility offers good entry
points for many of our favorite technology stocks.
Once again, it's still too early to read very much into this track record - but
it is very encouraging.
Semi-Annual Report | 14
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Technology Innovators Fund
Performance & Portfolio Discussion
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Just six weeks old, the Technology Innovators Fund (TIF) is off to a very good
start. For the "stub" period (May 20 through June 30) the Fund is up 10.3%, well
ahead of the market indices.
The top performers were CIENA, Inktomi and MMC Networks.
The accompanying pie chart shows the Fund's mid-year holdings. The Fund's 36.3%
weighting in Semiconductor stocks reflects our optimism over the rapid
innovation occurring in the silicon supplier base to the communications
industry.
First Virtual Corporation is our sole Networking stock, and makes up 5.8% of the
portfolio.
At 2.2%, the Semiconductor Capital Equipment industry is represented by
Integrated Process Equipment, an early leader in Chemical Mechanical
Planarization (CMP).
[GRAPHIC]
Firsthand
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- --------------------------------------------------------------------------------
Fund Holdings by Sector*
[GRAPHIC OMITTED]
Cash 32.9%
Semiconductors 36.3%
Networking 5.8%
Semi. Cap. Equip. 2.2%
EDA 3.8%
Comm. Equip. 17.1%
Computers 1.9%
* Based on percentage of net assets as of June 30, 1998 (cash number net of
payables and receivables)
CMP is an essential next-generation technology for semiconductor manufacturing.
Aspec Technology, our only EDA stock, comprises 3.8% of the portfolio. Aspec is
a pioneer in the commercialization of Silicon Intellectual Property (SIP), which
allows chip designers to take a building block approach to complex designs.
Communications Equipment stocks make up 17.1% of the portfolio. Opportunities in
this area include local loop upgrades, fiber-optic backbone technology and
wireless infrastructure.
We have classified our position in Inktomi (an internet search engine company)
as "Computer". It comprises 1.9% of the Fund.
The Fund is fairly cash heavy (32.9%), and holds just thirteen stocks. Clearly,
we are still early in the shopping process. We expect that in the coming months
this cash will be deployed in a steadily growing list of investments.
Semi-Annual Report | 16
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[GRAPHIC]
Firsthand
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Medical Perspective
Electronic Perspective
Semi-Annual Financials
(as of 6/30/98)
Semi-Annual Report | 18
<PAGE>
Medical Perspective
Regarding Indices
In every quarter where performance did not match the major indices, shareholders
have asked why. This time is no different. Shareholders who first invested in
our funds about a year ago, after reading in the press of the Technology Value
Fund's back to back annual returns of over 60% for 1995 and 1996, must be
wondering why we have lagged the broad market indices lately.
The short answer is that we are not running an index fund. We try very hard not
to buy stocks that are overvalued. If an index rises to a level that we feel is
unwarranted, we will not be anxious to invest in the stocks that make up that
index even if it means that our funds may underperform that index in the short
term. In the long term, we feel our shareholders are better served by investing
in stocks when they are relatively undervalued and selling them when they look
overvalued.
We are not trying to time the market, because we don't think it is possible to
do it consistently. Trying to predict when the market will move in our direction
is like trying to take a picture of lightning. If you wait until you see the
lightning to take the picture, you've already missed it. The only way to do it
is to keep your shutter open during a storm and hope that lightning strikes
within your camera's field of view.
Investing in stocks that are good values in an industry with strong long-term
fundamentals is the best way to benefit over time, not just when "lightning
strikes." Over the long term, the outlook for medical stocks continues to be
very favorable.
/s/ Kendrick W. Kam
Kendrick W. Kam
Portfolio Manager
Technology Value Fund
Medical Specialist Fund
Firsthand
<PAGE>
Electronic Perspective
Value.Com?
We are often asked about the "Value" in the Technology Value Fund. Our belief is
that we can invest in great companies at great prices by A) understanding them
well, and B) knowing what to pay for them. The current rage over Internet stocks
offers a good opportunity to illustrate this point.
QUESTION: HOW DO YOU VALUE AN INTERNET STOCK?
Most Internet stocks are trading at triple digit P/Es, if they are profitable at
all. When stocks trade at such valuations, it is tempting to conclude that the
normal rules no longer apply, that these stocks are somehow different and cannot
be valued the way other stocks are. Not so.
Let's return to Investments 101, and remember one of the first concepts taught:
Stocks trade at a rational multiple to anticipated future earnings. Period. So
when we see a stock trading at a P/E of 100+, our first observation should be
something like "Gee, I guess the market expects this company to make a lot more
money next year than it did last year."
Why? Because last year's numbers are history, and therefore irrelevant! A stock
actually has many different P/Es, commonly referred to as trailing twelve month
(ttm), current year, out-year and so on. The commonly reported P/E is nearly
always the trailing twelve month number, not because it is relevant, but because
it is the most current hard number.
This is a basic investment paradox: Stock prices are based on the future, but
the hard data comes from the past. (Not that historical data is worthless - it
can be useful to look at where a company has been to understand where it could
go.)
Semi-Annual Report | 20
<PAGE>
For example, let's consider Yahoo, which recently traded at $100 after posting
just $0.07 per share for the second quarter. What does that mean? If we can
figure out what expectations are associated with that price, then we're a step
closer to knowing whether or not we agree with the valuation.
Let's assume $100 is twenty times some future earnings per share (EPS). That
means the market price implies the expectation of $5 in earnings per share for
some future year, which means $1.25 EPS for some future quarter. This brings up
a few questions:
HOW DO WE EXPECT THE COMPANY TO DRIVE THE BOTTOM LINE FROM $0.07 TO $1.25?
This question goes to the business basics - issues of growth potential and
operating leverage. We may believe it's a great brand name with lots of loyal
eyeballs, but we must be able to envision some future Yahoo which is capable of
cashing in on these things.
HOW LONG WILL WE HAVE TO WAIT FOR THAT NUMBER?
Twenty times 2001 EPS may be reasonable, but is it a fair multiple for 2003 or
2004? Great investments can quickly become good, then average, then
disappointing, when the returns are stretched out over a longer period.
WHAT COULD POSSIBLY GO WRONG WHILE WE ARE WAITING FOR THE RESULTS TO ARRIVE?
Exciting markets can often be exciting in the worst way, as new competitors
enter in the middle of your five-year plan. The more interesting the business to
investors, the more likely it will also be interesting to
Firsthand
<PAGE>
new competitors. This is why we are hearing so much about Internet branding. If
new competitors are an inevitability, then customer loyalty and switching costs
must be built as quickly as possible.
SO IF FUTURE EARNINGS ARE WHAT REALLY MATTERS, HOW DO WE ESTIMATE THEM?
By focusing our research on current business trends. Each of these companies is
sailing into uncharted waters, and though the rewards could be rich, they are
also largely unknown. The only way to come close to the truth is to stay close
to the business. That's where firsthand experience and observation are critical.
It's in the everyday experience and observations of the people involved that we
gain our insights into the promise and the pitfalls of the companies involved --
no amount of historical number crunching can give you vision.
/s/ Kevin M. Landis
Kevin M. Landis
Portfolio Manager
Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
Semi-Annual Report | 22
<PAGE>
PORTFOLIO OF THE TECHNOLOGY VALUE FUND
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 97.9% $189,625,985
------------
(Cost $213,076,351)
BIOTECHNOLOGY 12.1% 23,417,112
------------
- --------------------------------------------------------------------------------
Affymetrix, Inc. * 153,800 3,700,812
- --------------------------------------------------------------------------------
Centocor, Inc. * 206,000 7,467,500
- --------------------------------------------------------------------------------
Immunex Corp. * 130,000 8,612,500
- --------------------------------------------------------------------------------
Medco Research, Inc. * 142,600 3,636,300
- --------------------------------------------------------------------------------
CARDIAC MEDICAL DEVICES 17.8% 34,578,614
------------
- --------------------------------------------------------------------------------
Arterial Vascular Engineering, Inc. * 165,650 5,921,988
- --------------------------------------------------------------------------------
Boston Scientific Corp. * 96,500 6,911,813
- --------------------------------------------------------------------------------
Cardima, Inc. * 43,300 127,194
- --------------------------------------------------------------------------------
CardioThoracic Systems, Inc. * 560,000 2,835,000
- --------------------------------------------------------------------------------
Cardiovascular Dynamics, Inc. (1) * 554,800 3,086,075
- --------------------------------------------------------------------------------
Endocardial Solutions, Inc. (1) * 515,400 5,411,700
- --------------------------------------------------------------------------------
EndoSonics Corp. * 740,000 4,440,000
- --------------------------------------------------------------------------------
Guidant Corp. 75,000 5,348,438
- --------------------------------------------------------------------------------
Novoste Corp. * 22,500 496,406
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT 1.8% 3,487,500
------------
- --------------------------------------------------------------------------------
PairGain Technologies, Inc. * 200,000 3,487,500
- --------------------------------------------------------------------------------
ELECTRONIC DESIGN AUTOMATION 10.1% 19,538,185
------------
- --------------------------------------------------------------------------------
Aspec Technology, Inc. * 571,000 3,711,500
- --------------------------------------------------------------------------------
Avant! Corp. * 639,462 15,826,685
- --------------------------------------------------------------------------------
HEALTH SERVICES 5.8% 11,146,312
------------
- --------------------------------------------------------------------------------
HCIA, Inc. * 460,000 5,922,500
- --------------------------------------------------------------------------------
Mariner Health Group, Inc. * 248,500 4,131,312
- --------------------------------------------------------------------------------
QuadraMed Corp. * 40,000 1,092,500
- --------------------------------------------------------------------------------
NETWORKING 1.4% 2,709,938
------------
- --------------------------------------------------------------------------------
First Virtual Corp. * 223,500 2,709,938
- --------------------------------------------------------------------------------
OB/GYN 0.6% 1,223,437
------------
- --------------------------------------------------------------------------------
Cytyc Corp. * 75,000 1,223,437
- --------------------------------------------------------------------------------
OTHER MEDICAL DEVICES 0.1% 217,375
------------
- --------------------------------------------------------------------------------
Medwave, Inc. * 23,500 217,375
- --------------------------------------------------------------------------------
PERIPHERAL 0.3% 546,050
------------
- --------------------------------------------------------------------------------
HMT Technology Corp. * 65,200 546,050
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF THE TECHNOLOGY VALUE FUND
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Non-income
continued producing % shares value
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT 5.4% 10,527,500
------------
- --------------------------------------------------------------------------------
Applied Science & Technology, Inc. * 97,500 780,000
- --------------------------------------------------------------------------------
Cymer, Inc. * 260,000 4,192,500
- --------------------------------------------------------------------------------
Intergrated Process Equipment Corp. * 470,000 5,287,500
- --------------------------------------------------------------------------------
Teradyne, Inc. * 10,000 267,500
- --------------------------------------------------------------------------------
SEMICONDUCTORS 42.5% 82,233,962
------------
- --------------------------------------------------------------------------------
Adaptec, Inc. * 760,000 10,877,500
- --------------------------------------------------------------------------------
Applied Micro Circuits Corp. * 626,500 16,210,687
- --------------------------------------------------------------------------------
Celeritek, Inc. (1) * 522,200 3,263,750
- --------------------------------------------------------------------------------
Level One Communications, Inc. * 401,000 9,423,500
- --------------------------------------------------------------------------------
PMC-Sierra, Inc. * 415,000 19,453,125
- --------------------------------------------------------------------------------
Quality Semiconductor, Inc. * 237,800 564,775
- --------------------------------------------------------------------------------
TranSwitch Corp. * 533,500 7,335,625
- --------------------------------------------------------------------------------
TriQuint Semiconductor, Inc. * 145,000 2,755,000
- --------------------------------------------------------------------------------
Vitesse Semiconductor Corp. * 400,000 12,350,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (2) 3.1% 6,083,000
------------
(Cost $6,083,000)
Star Bank, 5.45%, dated 6/30/98, due 7/01/98,
repurchase proceeds $6,083,921 6,083,000 6,083,000
TOTAL INVESTMENTS & REPURCHASE AGREEMENTS 101.0% $195,708,985
(Cost $219,159,351)
LIABILTIES IN EXCESS OF OTHER ASSETS (1.0%) (2,040,608)
------------
NET ASSETS 100.0% $193,668,377
============
(1) Denotes affiliated issuer (Note 4)
(2) Repurchase agreements are fully collateralized by U.S. Government
obligations.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Semi-Annual Report 24
<PAGE>
PORTFOLIO OF MEDICAL SPECIALISTS FUND
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 92.9% $ 3,084,712
------------
(Cost $3,599,663)
BIOTECHNOLOGY 31.2% 1,035,250
------------
- --------------------------------------------------------------------------------
Affymetrix, Inc. * 2,000 48,125
- --------------------------------------------------------------------------------
Alteon, Inc. * 20,000 70,000
- --------------------------------------------------------------------------------
Amylin Pharmaceuticals, Inc. * 20,000 75,625
- --------------------------------------------------------------------------------
Aurora Biosciences Corp. * 13,500 79,312
- --------------------------------------------------------------------------------
Cell Therapeutics, Inc. * 25,000 67,188
- --------------------------------------------------------------------------------
Centocor, Inc. * 12,000 435,000
- --------------------------------------------------------------------------------
Immunex Corp. * 2,000 132,500
- --------------------------------------------------------------------------------
Medco Research, Inc. * 5,000 127,500
- --------------------------------------------------------------------------------
CARDIAC MEDICAL DEVICES 49.5% 1,642,355
------------
- --------------------------------------------------------------------------------
Angeion Corp. * 10,000 21,250
- --------------------------------------------------------------------------------
Arterial Vascular Engineering, Inc. * 14,750 527,312
- --------------------------------------------------------------------------------
Cardima, Inc. * 6,700 19,681
- --------------------------------------------------------------------------------
CardioThoracic Systems, Inc. * 50,000 253,125
- --------------------------------------------------------------------------------
Endocardial Solutions, Inc. * 14,600 153,300
- --------------------------------------------------------------------------------
EndoSonics Corp. * 25,000 150,000
- --------------------------------------------------------------------------------
Guidant Corp. 2,000 142,625
- --------------------------------------------------------------------------------
Novoste Corp. * 17,000 375,062
- --------------------------------------------------------------------------------
HEALTH SERVICES 5.1% 171,238
------------
- --------------------------------------------------------------------------------
HCIA, Inc. * 13,300 171,238
- --------------------------------------------------------------------------------
OB/GYN 4.9% 161,494
------------
- --------------------------------------------------------------------------------
Cytyc Corp. * 9,900 161,494
- --------------------------------------------------------------------------------
OTHER MEDICAL DEVICES 2.2% 74,375
------------
- --------------------------------------------------------------------------------
Cyberonics, Inc. * 7,000 74,375
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 3.3% 110,163
------------
(Cost $110,163)
- --------------------------------------------------------------------------------
Star Treasury Fund 110,163 110,163
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 96.2% 3,194,875
(Cost $3,709,826)
OTHER ASSETS IN EXCESS OF LIABILTIES 3.8% 124,223
------------
NET ASSETS 100.0% $ 3,319,098
============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY LEADERS FUND
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Non-income
continued producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 87.3% $ 16,696,752
------------
(Cost $14,618,493)
COMMUNICATIONS EQUIPMENT 13.8% 2,632,141
------------
- --------------------------------------------------------------------------------
Lucent Technologies, Inc. 10,000 831,875
- --------------------------------------------------------------------------------
PairGain Technologies, Inc. * 45,750 797,766
- --------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson - ADR 10,000 286,250
- --------------------------------------------------------------------------------
Tellabs, Inc. * 10,000 716,250
- --------------------------------------------------------------------------------
COMPUTERS 7.1% 1,352,437
------------
- --------------------------------------------------------------------------------
Hewlett-Packard Co. 13,000 778,375
- --------------------------------------------------------------------------------
International Business Machines Corp. 5,000 574,062
- --------------------------------------------------------------------------------
NETWORKING 4.3% 828,563
------------
- --------------------------------------------------------------------------------
Cisco Systems, Inc. * 9,000 828,563
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT 7.1% 1,365,125
------------
- --------------------------------------------------------------------------------
Applied Materials, Inc. * 15,000 442,500
- --------------------------------------------------------------------------------
KLA-Tencor Corp. * 14,000 387,625
- --------------------------------------------------------------------------------
Teradyne, Inc. * 20,000 535,000
- --------------------------------------------------------------------------------
SEMICONDUCTORS 49.1% 9,387,375
------------
- --------------------------------------------------------------------------------
Altera Corp. * 60,000 1,773,750
- --------------------------------------------------------------------------------
Intel Corp. 20,000 1,482,500
- --------------------------------------------------------------------------------
Level One Communications, Inc. * 26,750 628,625
- --------------------------------------------------------------------------------
PMC-Sierra, Inc. * 30,000 1,406,250
- --------------------------------------------------------------------------------
Texas Instruments, Inc. 30,000 1,749,375
- --------------------------------------------------------------------------------
Vitesse Semiconductor Corp. * 65,000 2,006,875
- --------------------------------------------------------------------------------
Xilinx, Inc. * 10,000 340,000
- --------------------------------------------------------------------------------
SOFTWARE 5.9% 1,131,111
------------
- --------------------------------------------------------------------------------
Microsoft Corp. * 4,000 433,500
- --------------------------------------------------------------------------------
Oracle Corp. * 10,000 245,625
- --------------------------------------------------------------------------------
SAP AG - ADR * 2,000 451,986
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 23.8% 4,541,653
------------
(Cost $4,541,653)
- --------------------------------------------------------------------------------
Star Treasury Fund 4,541,653 4,541,653
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 111.1% 21,238,405
(Cost $19,160,146)
LIABILTIES IN EXCESS OF OTHER ASSETS (11.1%) (2,123,976)
------------
NET ASSETS 100.0% $ 19,114,429
============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Semi-Annual Report 26
<PAGE>
PORTFOLIO OF TECHNOLOGY INNOVATORS FUND
INVESTMENTS JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
Non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 67.1% $ 696,219
------------
(Cost $648,250)
COMMUNICATIONS EQUIPMENT 17.1% 177,219
------------
- --------------------------------------------------------------------------------
Advanced Fibre Communications, Inc. * 2,000 $ 80,125
- --------------------------------------------------------------------------------
CIENA Corp. * 1,000 69,625
- --------------------------------------------------------------------------------
P-Com, Inc. * 3,000 27,469
- --------------------------------------------------------------------------------
COMPUTERS 1.9% 19,875
------------
- --------------------------------------------------------------------------------
Inktomi Corp. * 500 19,875
- --------------------------------------------------------------------------------
ELECTRONIC DESIGN AUTOMATION 3.8% 39,000
------------
- --------------------------------------------------------------------------------
Aspec Technology, Inc. * 6,000 39,000
- --------------------------------------------------------------------------------
NETWORKING 5.8% 60,625
------------
- --------------------------------------------------------------------------------
First Virtual Corp. * 5,000 60,625
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT 2.2% 22,500
------------
- --------------------------------------------------------------------------------
Integrated Process Equipment Corp. * 2,000 22,500
- --------------------------------------------------------------------------------
SEMICONDUCTORS 36.3% 377,000
------------
- --------------------------------------------------------------------------------
Applied Micro Circuits Corp. * 6,000 155,250
- --------------------------------------------------------------------------------
Celeritek, Inc. * 2,000 12,500
- --------------------------------------------------------------------------------
Elantec Semiconductor, Inc. * 2,000 11,250
- --------------------------------------------------------------------------------
Galileo Technology Ltd. * 2,000 27,000
- --------------------------------------------------------------------------------
MMC Networks, Inc. * 4,000 127,500
- --------------------------------------------------------------------------------
RF Micro Devices, Inc. * 4,000 43,500
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 42.3% 438,975
------------
(Cost $438,975)
- --------------------------------------------------------------------------------
Star Treasury Fund 438,975 438,975
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 109.4% 1,135,194
(Cost $1,087,225)
LIABILTIES IN EXCESS OF OTHER ASSETS (9.4%) (97,146)
------------
NET ASSETS 100.0% $ 1,038,048
============
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
=================================================== ================================================================
TECHNOLOGY MEDICAL TECHNOLOGY TECHNOLOGY
VALUE SPECIALISTS LEADERS INNOVATORS
FUND FUND FUND FUND
=================================================== ================================================================
ASSETS
Investment securities:
<S> <C> <C> <C> <C>
At acquisition cost $ 213,076,351 $ 3,709,826 $ 19,160,146 $ 1,087,225
================================================================
At market value (Note 1) $ 189,625,985 $ 3,194,875 $ 21,238,405 $ 1,135,194
Investments in repurchase agreements (Note 1) 6,083,000 -- -- --
Interest and dividends receivable 926 640 1,742 60
Receivable for capital shares sold 92,776 8,510 96,710 15,000
Receivable for securities sold 489,984 183,843 -- --
Other assets 9,945 1,367 -- --
----------------------------------------------------------------
TOTAL ASSETS 196,302,616 3,389,235 21,336,857 1,150,254
----------------------------------------------------------------
LIABILITIES
Payable for capital shares redeemed 1,031,263 280 14,782 20
Payable for securities purchased 1,600,112 69,841 2,206,955 108,246
Other accrued expenses and liabilities 2,864 16 691 3,940
----------------------------------------------------------------
TOTAL LIABILITIES 2,634,239 70,137 2,222,428 112,206
----------------------------------------------------------------
NET ASSETS $ 193,668,377 $ 3,319,098 $ 19,114,429 $ 1,038,048
================================================================
Net assets consist of:
Paid-in capital $ 214,017,894 $ 3,960,327 $ 16,826,308 $ 959,534
Undistributed net investment income (loss) (1,919,874) (18,468) (43,686) 438
Accumulated net realized gains (losses)
from security transactions 5,020,723 (107,810) 253,548 30,107
Net unrealized appreciation (depreciation)
on investments (23,450,366) (514,951) 2,078,259 47,969
----------------------------------------------------------------
Net assets $ 193,668,377 $ 3,319,098 $ 19,114,429 $ 1,038,048
================================================================
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 6,785,124 388,701 1,479,379 94,149
================================================================
Net asset value, offering price and redemption
price per share (Note 1) $ 28.54 $ 8.54 $ 12.92 $ 11.03
================================================================
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Semi-Annual Report 28
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1998(A) (unaudited)
=========================================== ============================================================
TECHNOLOGY MEDICAL TECHNOLOGY TECHNOLOGY
VALUE SPECIALISTS LEADERS INNOVATORS
FUND FUND FUND FUND
=========================================== ============================================================
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Interest $ 123,130 $ 14,610 $ 70,812 $ 1,843
Dividends 17,628 25 7,832 --
------------------------------------------------------------
TOTAL INVESTMENT INCOME 140,758 14,635 78,644 1,843
------------------------------------------------------------
EXPENSES
Investment advisory fees (Note 3) 1,588,162 26,661 95,836 1,081
Administrative fees (Note 3) 472,470 7,999 28,751 324
------------------------------------------------------------
TOTAL EXPENSES 2,060,632 34,660 124,587 1,405
------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (1,919,874) (20,025) (45,943) 438
------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security 8,068,601 (107,810) 253,548 30,107
transactions
Net change in unrealized appreciation
(depreciation) on investments 12,617,037 (550,714) 2,055,289 47,969
------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS 20,685,638 (658,524) 2,308,837 78,076
------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS $ 18,765,764 $ (678,549) $ 2,262,894 $ 78,514
============================================================
</TABLE>
(A) Except for the Technology Innovators Fund which represents the period from
the commencement of operations (May 20, 1998) through June 30, 1998.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the Periods Ended June 30, 1998 and December 31, 1997
======================================================= ================================================================
TECHNOLOGY VALUE FUND MEDICAL SPECIALISTS FUND
--------------------- ------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED PERIOD
6/30/98 ENDED 6/30/98 ENDED
(UNAUDITED) 12/31/97 (UNAUDITED) 12/31/97(A)
======================================================= ================================================================
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ (1,919,874) $ (1,927,303) $ (20,025) $ 1,557
Net realized gains (losses) from security transactions 8,068,601 14,064,022 (107,810) --
Net change in unrealized appreciation
(depreciation) on investments 12,617,037 (38,292,641) (550,714) 35,763
----------------------------------------------------------------
Net increase (decrease) in net assets from operations 18,765,764 (26,155,922) (678,549) 37,320
----------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains -- (12,334,200) -- --
In excess of net realized gains -- (3,047,878) -- --
----------------------------------------------------------------
Decrease in net assets from distributions to shareholders -- (15,382,078) -- --
----------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 71,517,060 335,357,889 3,639,798 2,350,090
Net asset value of shares issued in
reinvestment of distributions to shareholders -- 13,072,987 -- --
Payments for shares redeemed (90,987,990) (147,623,435) (2,004,361) (25,200)
----------------------------------------------------------------
Net increase (decrease) in net assets from capital share
transactions (19,470,930) 200,807,441 1,635,437 2,324,890
----------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (705,166) 159,269,441 956,888 2,362,210
----------------------------------------------------------------
NET ASSETS:
Beginning of period 194,373,543 35,104,102 2,362,210 --
----------------------------------------------------------------
End of period $ 193,668,377 $ 194,373,543 $ 3,319,098 $ 2,362,210
================================================================
UNDISTRIBUTED NET INVESTMENT INCOME $ (1,919,874) $ -- $ (18,468) $ 1,557
================================================================
Capital Share Activity:
Shares sold 2,493,990 10,437,757 360,372 235,882
Shares issued in reinvestment of distributions
to shareholders -- 517,449 -- --
Shares redeemed (3,167,833) (4,812,871) (204,984) (2,569)
----------------------------------------------------------------
Net increase (decrease) in shares outstanding (673,843) 6,142,335 155,388 233,313
Shares outstanding, beginning of period 7,458,967 1,316,632 233,313 --
----------------------------------------------------------------
Shares outstanding, end of period 6,785,124 7,458,967 388,701 233,313
================================================================
</TABLE>
(A) Represents the period from the commencement of operaitons (December 10,
1997) through December 31, 1997.
Semi-Annual Report | 30
<PAGE>
<TABLE>
<CAPTION>
======================================================= ===============================================
INNOVATORS
TECHNOLOGY
LEADERS TECHNOLOGY FUND FUND
SIX MONTHS PERIOD
ENDED PERIOD ENDED
6/30/98 ENDED 6/30/98(B)
(UNAUDITED) 12/31/97(A) (UNAUDITED)
======================================================= ===============================================
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) $ (45,943) $ 2,257 $ 438
Net realized gains (losses) from security transactions 253,548 -- 30,107
Net change in unrealized appreciation
(depreciation) on investments 2,055,289 22,970 47,969
-----------------------------------------------
Net increase (decrease) in net assets from operations 2,262,894 25,227 78,514
-----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains -- -- --
In excess of net realized gains -- -- --
-----------------------------------------------
-- -- --
Decrease in net assets from distributions to shareholders -- -- --
-----------------------------------------------
-- -- --
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 17,885,761 3,716,034 961,521
Net asset value of shares issued in
reinvestment of distributions to shareholders -- -- --
Payments for shares redeemed (4,615,056) (160,431) (1,987)
-----------------------------------------------
Net increase (decrease) in net assets from capital share
transactions 13,270,705 3,555,603 959,534
-----------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 15,533,599 3,580,830 1,038,048
-----------------------------------------------
NET ASSETS:
Beginning of period 3,580,830 -- --
-----------------------------------------------
End of period $ 19,114,429 $ 3,580,830 $ 1,038,048
===============================================
UNDISTRIBUTED NET INVESTMENT INCOME $ (43,686) $ 2,257 $ 438
===============================================
Capital Share Activity:
Shares sold 1,502,614 371,478 94,348
Shares issued in reinvestment of distributions
to shareholders -- -- --
Shares redeemed (378,667) (16,046) (199)
-----------------------------------------------
Net increase (decrease) in shares outstanding 1,123,947 355,432 94,149
Shares outstanding, beginning of period 355,432 -- --
-----------------------------------------------
Shares outstanding, end of period 1,479,379 355,432 94,149
===============================================
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Represents the period from the commencement of operations (May 20, 1998)
through June 30, 1998.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY VALUE FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
==================================================== =============================================================
Six Months
Ended Year Year Year Period
6/30/98 Ended Ended Ended Ended
(Unaudited) 12/31/97 12/31/96 12/31/95 12/31/94(A)
==================================================== =============================================================
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 26.06 $ 26.66 $ 18.44 $ 11.70 $ 10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.28) (0.26) (0.08) (0.14) (0.03)
Net realized and unrealized gains (losses)
on investments 2.76 1.90 11.20 7.28 2.56
-------------------------------------------------------------
Total from investment operations 2.48 1.64 11.12 7.14 2.53
-------------------------------------------------------------
Less distributions:
Distributions from net realized gains -- (1.80) (2.90) (0.40) (0.83)
Distributions in excess of net realized gains -- (0.44) -- -- --
-------------------------------------------------------------
Total distributions -- (2.24) (2.90) (0.40) (0.83)
-------------------------------------------------------------
Net asset value at end of period $ 28.54 $ 26.06 $ 26.66 $ 18.44 $ 11.70
=============================================================
Total return 9.52%(B) 6.46% 60.55% 61.17% 25.30%(B)
=============================================================
Net assets at end of period (millions) $ 193.7 $ 194.4 $ 35.1 $ 2.7 $ 0.2
=============================================================
Ratio of expenses to average net assets 1.95%(C) 1.93% 1.81% 1.98% 1.96%(C)
Ratio of net investment loss to average net assets (1.81%)(C) (1.43%) (0.55%) (1.45%) (1.29%)(C)
Portfolio turnover rate 80% 101% 43% 45% 56%
Average commission paid per investment security traded $ 0.0343 $ 0.0330 $ 0.0426 N/A N/A
</TABLE>
(A) Represents the period from the commencement of operations (May 20, 1994)
through December 31, 1994.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Semi-Annual Report | 32
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - MEDICAL SPECIALISTS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
========================================================= ========================
Six Months
Ended Period
6/30/98 Ended
(Unaudited) 12/31/97(A)
========================================================= ========================
<S> <C> <C>
Net asset value at beginning of period $ 10.12 $ 10.00
------------------------
Income from investment operations:
Net investment income (loss) (0.05) 0.01
Net realized and unrealized gains (losses)
on investments (1.53) 0.11
------------------------
Total from investment operations (1.58) 0.12
------------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
------------------------
Total distributions -- --
------------------------
Net asset value at end of period $ 8.54 $ 10.12
========================
Total return (15.61)%(B) 1.20%(B)
========================
Net assets at end of period (millions) $ 3.3 $ 2.4
========================
Ratio of expenses to average net assets 1.95%(C) 1.81%(C)
Ratio of net investment income (loss) to average net assets (1.12%)(C) 1.75%(C)
Portfolio turnover rate 71% 0%
Average commission paid per investment security traded $ 0.0304 $ 0.0266
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
FINANCIAL HIGHLIGHTS - TECHNOLOGY LEADERS FUND
<TABLE>
<CAPTION>
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
========================================================= ========================
Six Months
Ended Period
6/30/98 Ended
(Unaudited) 12/31/97(A)
========================================================= ========================
<S> <C> <C>
Net asset value at beginning of period $ 10.07 $ 10.00
------------------------
Income from investment operations:
Net investment income (loss) (0.04) 0.01
Net realized and unrealized gains (losses)
on investments 2.89 0.06
------------------------
Total from investment operations 2.85 0.07
------------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
------------------------
Total distributions -- --
------------------------
Net asset value at end of period $ 12.92 $ 10.07
========================
Total return 28.30(B) 0.70(B)
========================
Net assets at end of period (millions) $ 19.1 $ 3.6
========================
Ratio of expenses to average net assets 1.94%(C) 1.80%(C)
Ratio of net investment income (loss) to average net assets (0.71%)(C) 1.77%(C)
Portfolio turnover rate 81% 0%
Average commission paid per investment security traded $ 0.0380 $ 0.0300
</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.
- --------------------------------------------------------------------------------
Semi-Annual Report | 34
<PAGE>
FINANCIAL HIGHLIGHTS - TECHNOLOGY INNOVATORS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
============================================================== ===========
Period
Ended
6/30/98(A)
(Unaudited)
============================================================== ===========
Net asset value at beginning of period $ 10.00
--------
Income from investment operations:
Net investment income (loss) --
Net realized and unrealized gains (losses) --
on investments 1.03
--------
Total from investment operations 1.03
--------
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
--------
Total distributions --
--------
Net asset value at end of period $ 11.03
========
Total return 10.30%(B)
========
Net assets at end of period (millions) $ 1.0
========
Ratio of expenses to average net assets 1.88%(C)
Ratio of net investment income to average net assets 0.58%(C)
Portfolio turnover rate 25%
Average commission paid per investment security traded $ 0.0300
(A) Represents the period from the commencement of operations (May 20, 1998)
through June 30, 1998.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Technology Value Fund, the Medical Specialists Fund, the Technology Leaders
Fund and the Technology Innovators Fund (the Funds) are each a non-diversified
series of Firsthand Funds (formerly Interactive Investments) (the Trust), an
open-end management investment company registered under the Investment Company
Act of 1940. The Trust was organized as a Delaware business trust on November 8,
1993. The Technology Value Fund commenced operations on May 20, 1994. The public
offering of shares of the Technology Value Fund commenced on January 3, 1995.
The public offering of shares of the Medical Specialists Fund and the Technology
Leaders Fund commenced on December 10, 1997. The public offering of shares of
the Technology Innovators Fund commenced on May 20, 1998.
Each Fund's investment objective is long-term capital appreciation.
The Technology Value Fund seeks to achieve its objective by investing primarily
in securities of companies in the electronic technology and medical technology
fields which Interactive Research Advisers, Inc. (the Adviser) considers to be
undervalued and have potential for capital appreciation.
The Medical Specialists Fund seeks to achieve its objective by investing
primarily in securities of companies in the health and biotechnology fields
which the Adviser considers to have a strong earnings growth outlook and
potential for capital appreciation.
The Technology Leaders Fund seeks to achieve its objective by investing
primarily in securities of companies in the high technology field which the
Adviser considers to have the strongest competitive position.
The Technology Innovators Fund seeks to achieve its objective by investing
primarily in securities of companies in the high technology field which the
Adviser considers to be best positioned to introduce successful new products.
The following is a summary of the Funds' significant accounting policies:
Securities valuation -- Each Fund's portfolio securities are valued as of the
close of the regular session of trading on the New York Stock Exchange,
currently 4:00 p.m., Eastern time. Securities which are traded on stock
exchanges or are quoted by NASDAQ are valued at the last reported sale price as
of the close of the regular session of trading on the New York Stock Exchange,
or, if not traded, at the most recent bid price. Securities which are traded in
the over-the-counter market, and which are not quoted by NASDAQ, are valued at
the most recent bid price, as obtained from one or more of the major market
makers for such securities. Securities for which market quotations are not
readily available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost which, together with accrued
interest, approximates market. At the time each Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times be equal to or exceed the face
amount of the repurchase agreement.
Semi-Annual Report 36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 1998 (UNAUDITED)
================================================================================
Share valuation -- The net asset value per share of each Fund is calculated
daily by dividing the total value of each Fund's assets, less liabilities, by
the number of shares outstanding, rounded to the nearest cent. The offering and
redemption price per share of each Fund is equal to the net asset value per
share.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
Distributions to shareholders -- Distributions to shareholders arising from net
investment income and net realized capital gains, if any, are distributed at
least once each year. Dividends from net investment income and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are valued on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon Federal income tax cost of portfolio
investments (excluding repurchase agreements) as of June 30, 1998.
<TABLE>
<CAPTION>
TECHNOLOGY MEDICAL TECHNOLOGY TECHNOLOGY
VALUE FUND SPECIALISTS FUND LEADERS FUND INNOVATORS FUND
<S> <C> <C> <C> <C>
Gross unrealized appreciation $ 22,078,097 $ 157,823 $ 2,505,338 $ 104,059
Gross unrealized depreciation (46,326,746) (672,774) (427,079) (56,090)
----------------------------------------------------------------
Net unrealized
appreciation (depreciation) $ (24,248,649) $ (514,951) $ 2,078,259 $ 47,969
================================================================
Federal income tax cost $ 213,874,634 $ 3,709,826 $ 19,160,146 $ 1,087,225
================================================================
</TABLE>
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 1998 (UNAUDITED)
================================================================================
The Technology Value Fund realized net capital losses of $2,167,536 during the
period from November 1, 1997 through December 31, 1997, which are treated for
federal income tax purposes as arising in the tax year ending December 31, 1998.
2. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the periods ended June 30, 1998.
<TABLE>
<CAPTION>
TECHNOLOGY MEDICAL TECHNOLOGY TECHNOLOGY
VALUE FUND SPECIALISTS FUND LEADERS FUND INNOVATORS FUND
<S> <C> <C> <C> <C>
Purchases of investment securities $167,957,573 $4,793,601 $21,129,778 $733,080
==============================================================
Proceeds from sales and maturities
of investment securities $190,355,080 $2,015,278 $ 8,519,170 $114,936
==============================================================
</TABLE>
3. TRANSACTIONS WITH RELATED PARTIES
Certain trustees and officers of the Trust are also officers of the Adviser, or
of Countrywide Fund Services, Inc., the administrative services agent,
shareholder servicing and transfer agent, and accounting services agent for the
Trust, or of CW Fund Distributors, Inc., which provides distribution services to
the Funds under the terms of an Underwriting Agreement.
INVESTMENT ADVISORY AGREEMENT
Each Fund's investments are managed by the Adviser pursuant to the terms of an
Investment Advisory Agreement (the Advisory Agreement). Under the Advisory
Agreement, the Adviser furnishes advice and recommendations with respect to each
Fund's portfolio of investments and provides persons satisfactory to the Trust's
Board of Trustees to act as officers and employees of the Trust responsible for
the overall management and administration of the Trust, subject to the
supervision of the Trust's Board of Trustees. The Adviser is responsible for (i)
the compensation of any of the Trust's trustees, officers and employees who are
directors, officers, employees or shareholders of the Adviser, (ii) compensation
of the Adviser's personnel and payment of other expenses in connection with the
provision of portfolio management services under the Advisory Agreement, and
(iii) expenses of printing and distributing each Fund's Prospectus and sales and
advertising materials to prospective clients.
For the services provided by the Adviser under the Advisory Agreement, the
Adviser receives from each Fund a management fee, computed and accrued daily and
paid monthly, equal to 1.50% per annum of each Fund's average daily net assets.
The Advisory Agreement requires the Adviser to waive its management fees and, if
necessary, reimburse expenses of the Funds to the extent necessary to limit each
Fund's total operating expenses to 1.95% of its average net assets up to $200
million, 1.90% of such assets from $200 million to $500 million, 1.85% of such
assets from $500 million to $1 billion, and 1.80% of such assets in excess of $1
billion. No fee waivers were required for the periods ended June 30, 1998.
Semi-Annual Report | 38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
JUNE 30, 1998 (UNAUDITED)
================================================================================
ADMINISTRATION AGREEMENT
The Trust has entered into a separate contract with the Adviser wherein the
Adviser is responsible for providing administrative and supervisory services to
each Fund (the Administration Agreement). Under the Administration Agreement,
the Adviser oversees the maintenance of all books and records with respect to
each Fund's securities transactions and each Fund's book of accounts in
accordance with all applicable federal and state laws and regulations. The
Adviser also arranges for the preservation of journals, ledgers, corporate
documents, brokerage account records and other records which are required to be
maintained pursuant to the 1940 Act.
Under the Administration Agreement, the Adviser is responsible for the
equipment, staff, office space and facilities necessary to perform its
obligations. The Adviser has also assumed responsibility for payment of all of
each Fund's operating expenses except for brokerage and commission expenses and
any extraordinary and non-recurring expenses.
For the services rendered by the Adviser under the Administration Agreement, the
Adviser receives a fee at the annual rate of 0.45% of each Fund's average daily
net assets up to $200 million, 0.40% of such assets from $200 million to $500
million, 0.35% of such assets from $500 million to $1 billion, and 0.30% of such
assets in excess of $1 billion.
The Adviser has retained Countrywide Fund Services, Inc. (the Transfer Agent) to
serve as each Fund's transfer agent, dividend paying agent and shareholder
service agent, to provide accounting and pricing services to each Fund, and to
assist the Adviser in providing executive, administrative and regulatory
services to each Fund. The Transfer Agent is an indirect wholly-owned subsidiary
of Countrywide Credit Industries, Inc., a New York Stock Exchange listed company
principally engaged in the business of residential mortgage lending. The Adviser
(not the Funds) pays the Transfer Agent's fees for these services.
4. INVESTMENTS IN AFFILIATES
Affiliated issuers, as defined by the Investment Company Act of 1940, are those
in which a Fund's holdings represent 5% or more of the outstanding voting
securities of the issuer. A summary of the Technology Value Fund `s investments
in affiliates for the six months ended June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Share Activity
-------------------------------------------- Market
Balance Balance Realized Value Acquisition
Affiliate 12/31/97 Purchases Sales 06/30/98 Loss 06/30/98 Cost
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cardiovascular Dynamics, Inc. 554,800 -- -- 554,800 -- $3,086,075 $4,912,292
Celeritek, Inc. -- 524,200 2,000 522,200 $ 8,750 3,263,750 6,035,926
Endocardial Solutions, Inc. 515,400 -- -- 515,400 -- 5,411,700 5,821,711
</TABLE>
Firsthand
<PAGE>
[LOGO] Firsthand
This report, and the financial statements contained in the report are provided
for the general information of the shareholders of the Firsthand Funds. This
report is not intended for distribution to prospective investors in the Funds,
unless preceded or accompanied by an effective prospectus. For more information
regarding any of the Funds, including charges and expenses, visit our website at
www.firsthandfunds, com or call 888.884.2675 for a free prospectus.
Please read it carefully before you invest or send money.
<PAGE>
[LOGO]
FIRSTHAND FUNDS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
BOARD OF TRUSTEES
Kevin M. Landis, Chairman
Kendrick W. Kam
Michael T. Lynch
Mark K. Toguchi
OFFICERS
Kevin M. Landis, President
Kendrick W. Kam, Secretary
Yakoub N. Billawala, Treasurer
INVESTMENT ADVISER
Interactive Research Advisers, Inc.
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
TRANSFER AGENT/ADMINISTRATOR
Countrywide Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201
(Toll-Free) 1-888-884-2675
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202
WEBSITE
www.firsthandfunds.com
Firsthand
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> FIRSTHAND FUNDS - THE TECHNOLOGY VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 219,159,351
<INVESTMENTS-AT-VALUE> 195,708,985
<RECEIVABLES> 583,686
<ASSETS-OTHER> 9,945
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 196,302,616
<PAYABLE-FOR-SECURITIES> 1,600,112
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,034,127
<TOTAL-LIABILITIES> 2,634,239
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214,017,894
<SHARES-COMMON-STOCK> 6,785,124
<SHARES-COMMON-PRIOR> 7,458,967
<ACCUMULATED-NII-CURRENT> (1,919,874)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,020,723
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23,450,366)
<NET-ASSETS> 193,668,377
<DIVIDEND-INCOME> 17,628
<INTEREST-INCOME> 123,130
<OTHER-INCOME> 0
<EXPENSES-NET> 2,060,632
<NET-INVESTMENT-INCOME> (1,919,874)
<REALIZED-GAINS-CURRENT> 8,068,601
<APPREC-INCREASE-CURRENT> 12,617,037
<NET-CHANGE-FROM-OPS> 18,765,764
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,493,990
<NUMBER-OF-SHARES-REDEEMED> 3,167,833
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (705,166)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,047,878
<GROSS-ADVISORY-FEES> 1,588,162
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,060,632
<AVERAGE-NET-ASSETS> 213,505,816
<PER-SHARE-NAV-BEGIN> 26.06
<PER-SHARE-NII> (.28)
<PER-SHARE-GAIN-APPREC> 2.76
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 28.54
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> FIRSTHAND FUNDS - THE MEDICAL SPECIALISTS FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 3,709,826
<INVESTMENTS-AT-VALUE> 3,194,875
<RECEIVABLES> 192,993
<ASSETS-OTHER> 1,367
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,389,235
<PAYABLE-FOR-SECURITIES> 69,841
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296
<TOTAL-LIABILITIES> 70,137
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,960,327
<SHARES-COMMON-STOCK> 388,701
<SHARES-COMMON-PRIOR> 233,313
<ACCUMULATED-NII-CURRENT> (18,468)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (107,810)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (514,951)
<NET-ASSETS> 3,319,098
<DIVIDEND-INCOME> 25
<INTEREST-INCOME> 14,610
<OTHER-INCOME> 0
<EXPENSES-NET> 34,660
<NET-INVESTMENT-INCOME> (20,025)
<REALIZED-GAINS-CURRENT> (107,810)
<APPREC-INCREASE-CURRENT> (550,714)
<NET-CHANGE-FROM-OPS> (678,549)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 360,372
<NUMBER-OF-SHARES-REDEEMED> 204,984
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 956,888
<ACCUMULATED-NII-PRIOR> 1,557
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,661
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 34,660
<AVERAGE-NET-ASSETS> 3,589,584
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> (1.53)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.54
<EXPENSE-RATIO> 1.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> FIRSTHAND FUNDS - THE TECHNOLOGY LEADERS FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 19,160,146
<INVESTMENTS-AT-VALUE> 21,238,405
<RECEIVABLES> 98,452
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 21,336,857
<PAYABLE-FOR-SECURITIES> 2,206,955
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,473
<TOTAL-LIABILITIES> 2,222,428
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,826,308
<SHARES-COMMON-STOCK> 1,479,379
<SHARES-COMMON-PRIOR> 355,432
<ACCUMULATED-NII-CURRENT> (43,686)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 253,548
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,078,259
<NET-ASSETS> 19,114,429
<DIVIDEND-INCOME> 7,832
<INTEREST-INCOME> 70,812
<OTHER-INCOME> 0
<EXPENSES-NET> 124,587
<NET-INVESTMENT-INCOME> (45,943)
<REALIZED-GAINS-CURRENT> 253,548
<APPREC-INCREASE-CURRENT> 2,055,289
<NET-CHANGE-FROM-OPS> 2,262,894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,502,614
<NUMBER-OF-SHARES-REDEEMED> 378,667
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,533,599
<ACCUMULATED-NII-PRIOR> 2,257
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,836
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 124,587
<AVERAGE-NET-ASSETS> 12,969,844
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 2.89
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.92
<EXPENSE-RATIO> 1.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> FIRSTHAND FUNDS - THE TECHNOLOGY INNOVATORS FUND
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,087,225
<INVESTMENTS-AT-VALUE> 1,135,194
<RECEIVABLES> 15,060
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,150,254
<PAYABLE-FOR-SECURITIES> 108,246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,960
<TOTAL-LIABILITIES> 112,206
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</TABLE>
