TECHNOLOGY VALUE FUND
TVFQX Performance as of December 31, 1997
(Average Annual Returns)
3-Year Return (12/31/94 - 12/31/97) + 40.18%
1-Year Return (12/31/96 - 12/31/97) + 6.46%
Since Inception Return (05/20/94 - 12/31/97) + 40.82%
Past performance is not a guarantee of future results. Investment return and
principal value will fluctuate so that any investor's shares, when redeemed,
maybe worth more or less than their original cost.
1997 RESULTS
1997 was a disappointing year for the Technology Value Fund (TVF). A return of
6.46% lagged not only the broad market indices (as shown in the table below),
but also our peer group, as measured by the Lipper Science & Technology Index,
which returned 7.84%.
Looking back, 1997 was a year of great peaks and valleys, with some important
lessons learned along the way.
Some highlights:
The Fund suffered a Q1 loss of 9.20%, due almost entirely to declines in our
networking investments. Q2 was one of our best ever, as the Fund gained 31.50%.
Performance was led by the Electronic Design Automation and Semiconductor
groups.
Third quarter gains of 9.69% were healthy, but lagged our peer group.
Performance was led by Peripherals, Semiconductors and Semiconductor Capital
Equipment.
The Fund stumbled badly during the fourth quarter (our worst quarter to date),
losing 18.72%. While the Fund lost money in every sector, the Semiconductor
Capital Equipment group bore the brunt of "Asian Contagion," and was clearly the
hardest hit. Although the recent sell-off hit technology mutual funds especially
hard, it is important to note that we underperformed not only the broad indices,
but our peer group as well.
Technology Value Fund Performance Chart
as of 12/31/97
Avg.Ann.
05/20/94 -
Q4 `97 1997 12/31/97
TVF -18.72% 6.46% 40.82%
DJIA 0.00% 24.93% 25.66%
S&P 500 2.87% 33.36% 26.04%
NASDAQ -6.73% 22.15% 24.20%
<PAGE>
Long Term Performance
The chart below shows the monthly performance of the Technology Value Fund
(since inception) versus the three most commonly referenced market indices: The
Dow Jones Industrial Average, the Standard & Poor's 500 index, and the NASDAQ
composite index. (Note: Each of these indices represent an unmanaged,
broad-based basket of stocks. They are typically used as a proxy for overall
market performance.)
<TABLE>
<CAPTION>
[LINE CHART]
Relative Performance
Technology Value Fund vs. Market Indices
TVF S&P 500 DJIA NASDAQ
<S> <C> <C> <C> <C>
May 10040 10013 10004 10108
Jun 9190 9768 9666 9706
9430 10088 10045 9929
10510 10502 10489 10527
Sep 11190 10246 10320 10510
12160 10475 10504 10690
11830 10094 10094 10316
Dec 12530 10244 10372 10339
12412 10509 10407 10386
13215 10919 10905 10926
Mar 13344 11241 11325 11260
14436 11572 11778 11634
14543 12034 12217 11930
Jun 15743 12314 12487 12890
17981 12722 12913 13832
19213 12754 12691 14103
Sep 20680 13293 13206 14435
20048 13245 13122 14335
20294 13827 14053 14663
Dec 20195 14093 14194 14577
20064 14573 14976 14687
21454 14708 15274 15255
Mar 21586 14849 15581 15273
26985 15068 15539 16513
30752 15457 15801 17251
Jun 27971 15516 15855 16444
26317 14830 15519 14997
27401 15143 15817 15845
Sep 30292 15996 16594 17035
29252 16437 17023 16962
32788 17679 18470 17922
Dec 32423 17329 18293 17934
34916 18411 19337 19170
31888 18556 19579 18189
Mar 29439 17793 18771 16980
31039 18856 19998 17532
38053 20004 20972 19484
Jun 38713 20075 21974 20075
43857 22563 23565 22195
42281 21299 21898 22110
Sep 42466 22465 22855 23487
38142 21715 21418 22211
37311 22720 22576 22316
Dec 34517 23110 22854 21907
</TABLE>
Note: The Fund's performance information assumes reinvestment of all dividends
and includes all fund expenses. Past performance does not guarantee future
results. Both the return from and the principal value of an investment in the
Fund will fluctuate so that any investor's shares, when redeemed, may be worth
more or less than their original cost.
<PAGE>
Portfolio Discussion
The pie chart below shows the Fund's holdings by sector as of year-end. For the
4th quarter, TVF's medical investments outperformed the overall fund by losing
less, but still underperformed the NASDAQ during the same period. Medical stocks
gained steadily throughout the first three quarters (including a very strong
spring) before declining in Q4. We steadily expanded our medical holdings from
12.44% to 34.82%. For the year, medical stocks trailed only Semiconductors as
the Fund's strongest group.
Our quarterly weighting in Semiconductors varied from 18.05% to 44.75%.
As a group, Semiconductors were our best performing stocks, so the heavy
weighting worked out well. At year-end the Fund had over 27% invested in
the group.
The Semiconductor Capital Equipment group was another story. Sector weighting
ranged from 0.76% to 7.07% at year end. Unfortunately, we were largely out
of the group early in the year (when they were doing well), and more heavily
weighted in Q4 (when they were falling dramatically).
Electronic Design Automation (EDA) stocks performed well in the spring, but lost
money in the second half. Our weighting began the year at 12.76% and declined
steadily to 3.69% by year-end.
Our investments in Peripherals performed almost as well as the Medical group,
however, our weighting was consistently light. Peripherals began the year
at 2.97% of the portfolio, crested at 6.65% at the end of Q3, and finished
the year at 5.27%.
We established new positions in the Communications Equipment sector
during Q3. These investments were marginally profitable, and ended the year
with a 7.92% weighting.
<TABLE>
<CAPTION>
[PIE CHART]
Technology Value Fund Portfolio by Sector*
as of 12/31/97
<S> <C>
Medical 34.82%
Semiconductors 27.17%
Networking 11.88%
Comm. Equip. 7.92%
Semi. Equip. 7.07%
Peripherals 5.27%
Elec. Design Automation 3.69%
Cash 2.18%
</TABLE>
*shown as a percentage of investments
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO SNAPSHOT
TECHNOLOGY VALUE FUND
December 31, 1997
Securities Shares Price Value
<S> <C> <C> <C>
3Com Corp. 171,250 34.9375 $5,983,047
Advanced Fibre Communications, Inc. 195,000 29.1250 5,679,375
Affymetrix, Inc. 163,800 31.1250 5,098,275
Altera Corp. 365,000 33.1250 12,090,625
ANADIGICS, Inc. 270,500 30.1250 8,148,813
Applied Micro Circuits Corp. 797,500 12.3750 9,869,062
Applied Science & Technology, Inc. 97,500 11.2500 1,096,875
Ascend Communications, Inc. 349,000 24.5000 8,550,500
Boston Scientific Corp. 140,000 45.8750 6,422,500
CardioThoracic Systems, Inc. 545,000 5.5000 2,997,500
Cardiovascular Dynamics, Inc. 554,800 5.5000 3,051,400
Centocor, Inc. 175,000 33.2500 5,818,750
Cisco Systems, Inc. 156,000 55.7500 8,697,000
Cymer, Inc. 335,000 15.0000 5,025,000
Endocardial Solutions, Inc. 515,400 10.1250 5,218,425
EndoSonics Corp. 695,000 10.7500 7,471,250
HCIA, Inc. 456,600 11.8750 5,422,125
Heartport, Inc. 54,000 20.3750 1,100,250
HMT Technology Corp. 506,200 13.0000 6,580,600
Immunex Corp. 130,000 54.0000 7,020,000
Integrated Process Equipment Corp. 490,000 15.7500 7,717,500
Intel Corp. 10,000 70.2500 702,500
Iomega Corp. 300,000 12.4375 3,731,250
Level One Communications, Inc. 82,700 28.2500 2,336,275
Mariner Health Group, Inc. 463,000 16.2500 7,523,750
MedCath, Inc. 29,100 15.1250 440,137
Medtronic, Inc. 135,000 52.3125 7,062,187
Medwave, Inc. 23,500 10.0000 235,000
PairGain Technologies, Inc. 179,250 19.3750 3,472,969
PMC-Sierra, Inc. 340,000 31.0000 10,540,000
Quality Semiconductor, Inc. 237,800 3.8750 921,475
Technology Modeling Associates, Inc. 678,900 10.6250 7,213,313
Tellabs, Inc. 120,000 52.8750 6,345,000
TranSwitch Corp. 15,000 7.5000 112,500
United States Surgical Corp. 110,000 29.3125 3,224,375
Vitesse Semiconductor Corp. 223,000 37.7500 8,418,250
- -Cash and cash equivalents- 4,271,801
- -------------------------------------------------------------------------------------------
TOTAL $195,609,654
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Our worst performing sector for 1997, Networking, is the clear culprit for the
Fund's poor performance. Not only was this the only sector to lose money in
three out of the four quarters, it was one of only two to show a negative return
for the entire year (EDA posted a small loss). Our weighting in Networking began
the year at 20.77%, but eventually declined to 11.88% by year-end.
The Fund's cash position ranged from the low single digits (2.18% at year-end)
to the low teens (12.99% at mid year). In general, we do not attempt to time the
market, so larger cash positions usually represent recent inflows which the
managers are selectively working into the portfolio.
Tech Outlook: Surviving the Asian Flu
The recent banking and capital markets crisis in the Far East sent a shudder
through world financial markets and raised a number of questions regarding
dependencies among various countries, industries and individual firms.
One connection which quickly affected the Fund was the interdependence of Asian
capital markets. Perfectly sound semiconductor manufacturers in Korea and Japan
(such as Samsung, Hyundai, NEC, Hitachi, Mitsubishi, etc.) draw their capital
from the same pool of bankers and bond holders as do companies in Indonesia and
Thailand.
Healthy or not, each of these companies has been forced to revisit its capital
spending plans, as the pool of available capital has dwindled rapidly. As a
direct result of this, semiconductor capital equipment companies (many of which
are based in the U.S.) have drastically cut their 1998 revenue forecasts.
Affected companies include such well known suppliers as Applied Materials, Lam
Research, Novellus, Teradyne and KLA/Tencor, as well as smaller players, such as
Cymer, IPEC and PRI Automation.
As a group, the semiconductor capital equipment stocks have suffered one of the
worst stock market routs in history. Fourth quarter declines of 50-70% were
common. The silver lining: The worldwide semiconductor industry still needs
these companies, and their 1999 and 2000 sales and profits should be quite
strong.
If Asian companies are likely to spend less on capital equipment, then what are
Asian consumers likely to shy away from? One answer seems to be cellular
telephones. In a similar, though less severe sell-off, the stocks of Ericsson,
Motorola and Nokia now reflect greatly reduced expectations. The sell-off has
also affected their suppliers, hitting component and infrastructure
manufacturers equally hard.
Like many complex phenomena, it's difficult to trace the cause and effect chain
beyond a few links -- the interdependencies quickly become too complex. Beyond a
direct examination of a firm's customer list, and their customers' customer
lists, most people give up on the bottoms-up (micro) approach, and rely on the
top-down (macro) view, which is currently very negative for the entire
technology sector.
Therein lies our opportunity.
In keeping with our long-standing philosophy of buying great companies at great
prices, we are emphasizing strong companies with little or no direct exposure to
Asian markets. While we realize that no company is totally unaffected, we
believe that there are many fine companies that are only mildly affected, yet
are steeply discounted at present.
The best way to identify these companies is through our usual firsthand company
analysis. As always, there is no substitute for doing your homework.
<PAGE>
Top 5 Stocks by $ Gain in Q4 1997
---------------------------------------------------------
Stock Symbol $ Gain % Gain
Applied Micro Circuits Corp. AMCC 2,111,559 27.22
PMC-Sierra PMCS 1,913,740 21.44
Cisco Systems CSCO 1,736,454 13.20
Medtronic MDT 1,066,575 8.70
Arterial Vascular AVEI 499,102 4.63
Bottom 5 Stocks by $ Loss in Q4 1997
---------------------------------------------------------
Stock Symbol $ Loss % Loss
Technology Modeling TMAI -3,123,870 -30.22
Texas Instruments TXN -3,832,458 -32.45
Cymer, Inc. CYMI -4,223,066 -45.66
Altera ALTR -4,535,216 -19.63
Int. Process Equip IPEC -7,785,437 -50.22
Medical Outlook
As previously discussed, the market was afflicted in the fourth quarter with
what the popular press has dubbed the "Asian Flu." Since October, the market has
sold-off the companies and sectors it anticipates will be adversely affected by
the financial instability of South Korea, Thailand, Indonesia, Hong Kong, and
even Japan.
Our results show that our medical investments did not escape the sell-off.
However, since most of our medical investments have very little operational
exposure to Asia, I am confident that they will be among the first to recover
when the "crisis" recedes. Our medical investments now account for about 35% of
TVF's assets.
<PAGE>
MEDICAL SPECIALISTS FUND
On December 10, 1997, the Medical Specialists Fund ("MSF") opened to the public
at an initial share price of $10.00. MSF ended the year at $10.12 up 1.20% while
the NASDAQ composite declined 3.10% over the same period.
Unlike the Technology Value Fund, MSF is a pure medical fund. Although MSF will
invest in many of the same stocks as the medical side of TVF, MSF will also
provide a home for the more aggressive medical investments that may take longer
than TVF's 2-year investment horizon to play out. This will open the possibility
of including more early stage medical device and biotech companies in the
portfolio.
The table below shows the Fund's holdings as of 12/31/97. Please note that the
portfolio is very young, and therefore has an unusually small number of
positions.
The valuations of these companies depend less on the traditional standards of
value such as sales and earnings, and more on other factors, such as clinical
effectiveness and managerial integrity, that are not as easily analyzed in a
spreadsheet. This is the segment where firsthand experience in the industry
counts the most and also where the market tends to be somewhat less "efficient"
if only because not many analysts feel confident here.
The Medical Specialists Fund is managed by Ken Kam.
PORTFOLIO SNAPSHOT
MEDICAL SPECIALISTS FUND
December 31, 1997
Securities Shares Price Value
Affymetrix, Inc. 3,000 31.1250 $ 93,375
Boston Scientific Corp. 2,000 45.8750 91,750
Cardiocvascular Dynamics, Inc. 1,200 5.5000 6,600
CardioThoracic Systems, Inc. 5,000 5.5000 27,500
Centocor, Inc. 5,000 33.2500 166,250
Cytyc Corp. 600 25.0000 15,000
Endocardial Solutions, Inc. 3,500 10.1250 35,438
EndoSonics Corp. 10,000 10.7500 107,500
Guidant Corp. 2,000 62.2500 124,500
Heartport, Inc. 6,000 20.3750 122,250
HCIA, Inc. 4,000 11.8750 47,500
Immunex Corp. 1,000 54.0000 54,000
MedCath, Inc. 2,000 15.1250 30,250
Novoste Corp. 2,000 21.5000 43,000
- -Cash and cash equivalents- 1,478,188
- ---------------------------------------------------------------------------
TOTAL $ 2,443,101
- ---------------------------------------------------------------------------
<PAGE>
TECHNOLOGY LEADERS FUND
On December 10, 1997, the Technology Leaders Fund ("TLF") opened to the public
at an initial share price of $10.00. TLF ended the year at $10.07 up 0.70% while
the NASDAQ composite declined 3.10% over the same period.
The Fund is comprised of companies which fit a very specific profile: leaders.
In order to qualify as a leader, a company must demonstrate a dominant
competitive advantage and a history of success, which usually results in clear
product and market share leadership.
The table below shows the Fund's holdings as of 12/31/97. Please note that the
portfolio is very young, and therefore has an unusually small number of
positions.
Although "high tech" is often thought of as a single industry, it is actually a
collection of interdependent industry segments: microprocessors, memory,
programmable logic, computer storage, networking, etc. Where possible, the
manager seeks to identify the dominant company in each of the most promising
segments for inclusion in the portfolio.
Although TLF is not explicitly defined as a "large-cap" fund, it is comprised of
established, successful companies, which tend to have larger market
capitalizations. We expect TLF to have the highest average market capitalization
of the three funds.
TLF tends towards a buy and hold philosophy, adding and dropping companies only
when the portfolio manager perceives a "changing of the guard" within an
industry sector, or a reduced attractiveness of a particular segment. We expect
TLF to have low portfolio turnover.
The Technology Leaders Fund is managed by Kevin Landis.
PORTFOLIO SNAPSHOT
TECHNOLOGY LEADERS FUND
December 31, 1997
Securities Shares Price Value
Altera Corp. 5,000 33.1250 $ 165,625
Applied Materials, Inc. 5,000 30.1250 150,625
Cisco Systems, Inc. 3,000 55.7500 167,250
Intel Corp. 4,000 70.2500 281,000
KLA-Tencor Corp. 4,000 38.6250 154,500
Lucent Technologies, Inc. 1,000 79.8750 79,875
PairGain Technologies, Inc. 20,750 19.3750 402,032
PMC-Sierra, Inc. 2,400 31.0000 74,400
Vitesse Semiconductor Corp. 8,000 37.7500 302,000
- -Cash and cash equivalents- 2,069,575
- ---------------------------------------------------------------------------
TOTAL $ 3,846,882
- ---------------------------------------------------------------------------
<PAGE>
OUTLOOK
While we are disappointed with our 1997 performance, we recognize that investing
in science and technology companies is an inherently volatile proposition. Our
recent poor performance and strong long term track record both illustrate the
value of a long time horizon in counterbalancing that volatility. We appreciate
our shareholders' confidence in us through a difficult year.
Looking forward, we will continue with our proven approach of applying firsthand
experience and industry inputs to basic company research.
/s/ Kevin Landis
Kevin Landis
Portfolio Manager, Electronic Technology
Technology Value Fund
Technology Leaders Fund
/s/ Kendrick Kam
Kendrick Kam
Portfolio Manager, Medical Technology
Technology Value Fund
Medical Specialists Fund
Important Legal Disclosures
This report is provided for the general information of TVF shareholders and is
not authorized for distribution to prospective investors in the Funds unless
preceded or accompanied by a current prospectus. Past performance is not a
guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Investing in high technology and medical technology
stocks entails certain risks, including increased volatility of share value.
Investors are encouraged to read the prospectus carefully. Copies of the most
recent prospectus are available on Interactive Investments' web site, or by
calling 1 (888) TVF-FUND. You may also request the most recent prospectus from
the following brokers: Charles Schwab's OneSource, Fidelity Investments, Jack
White & Co., and National Investors Service Corporation.
<PAGE>
STAYING CURRENT ON THE FUNDS
Web Site........................................ www.techfunds.com
TVF Newspaper Listing........................... Tech Value
TVF Ticker Symbol............................... TVFQX
Getting Info Via E-Mail......................... Send any e-mail message to:
General Info & Portfolio List.......... [email protected]
Prospectus............................. [email protected]
Getting Info Via U.S. Mail...................... 1-888-TVF-FUND
24-hour Share Price &
Direct Account Info............................. 1-888-884-2675
The Technology Leaders Fund and Medical Specialists Fund will soon have
newspaper listings and ticker symbols. In the meantime, information about these
new funds is available in our new prospectus and at our web site.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
Interactive Investments
San Jose, California
We have audited the accompanying statements of assets and liabilities
of Interactive Investments comprising, respectively, the Technology Value Fund,
Technology Leaders Fund and Medical Specialists Fund, including the portfolios
of investments as of December 31, 1997, and the related statements of
operations, changes in net assets and the financial highlights for the periods
then ended. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial statements and financial highlights for the year ended
December 31, 1996 and prior for the Technology Value Fund were audited by other
auditors whose report dated January 15, 1997 expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
positions of Interactive Investments as of December 31, 1997, the results of
operations, the changes in net assets, and the financial highlights for the
periods then ended, in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 23, 1998
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
Technology Medical Technology
Value Specialists Leaders
Fund Fund Fund
<S> <C> <C> <C>
ASSETS
Investments in securities:
At acquisition cost $227,405,256 $ 2,407,338 $ 3,823,912
============ ============ ============
At value (Note 1) $191,337,853 $ 2,443,101 $ 3,846,882
Investments in repurchase agreements (Note 1) 4,271,000 -- --
Cash 801 -- --
Receivable for securities sold 2,804,473 -- --
Receivable for capital shares sold 1,028,532 46,055 113,764
Interest and dividends receivable 682 368 544
Other assets 17,580 -- --
------------ ------------ ------------
TOTAL ASSETS 199,460,921 2,489,524 3,961,190
------------ ------------ ------------
LIABILITIES
Payable for securities purchased 3,337,439 127,314 380,120
Payable for capital shares redeemed 1,748,151 -- --
Other accrued expenses and liabilities 1,788 -- 240
------------ ------------ ------------
TOTAL LIABILITIES 5,087,378 127,314 380,360
------------ ------------ ------------
NET ASSETS $194,373,543 $ 2,362,210 $ 3,580,830
============ ============ ============
Net assets consist of:
Paid-in capital $233,488,824 $ 2,324,890 $ 3,555,603
Distribution in excess of realized gains
from security transactions (Note 1) (3,047,878) -- --
Undistributed net investment income -- 1,557 2,257
Net unrealized appreciation (depreciation)
on investments (36,067,403) 35,763 22,970
------------ ------------ ------------
Net assets $194,373,543 $ 2,362,210 $ 3,580,830
============ ============ ============
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) 7,458,967 233,313 355,432
============ ============ ============
Net asset value, offering price and
redemption price per share (Note 1) $ 26.06 $ 10.12 $ 10.07
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Year Ended December 31, 1997
Technology Medical Technology
Value Specialists Leaders
Fund Fund(A) Fund(A)
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 412,570 $ 2,798 $ 4,013
Dividends 268,881 368 544
------------ ------------ -----------
TOTAL INVESTMENT INCOME 681,451 3,166 4,557
------------ ------------ -----------
EXPENSES
Investment advisory fees (Note 3) 1,830,251 1,238 1,769
Administrative fees (Note 3) 778,503 371 531
------------ ------------ -----------
TOTAL EXPENSES 2,608,754 1,609 2,300
------------ ------------ -----------
NET INVESTMENT INCOME (LOSS) (1,927,303) 1,557 2,257
------------ ------------ -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains from security transactions 14,064,022 -- --
Net change in unrealized appreciation/
(depreciation) on investments (38,292,641) 35,763 22,970
------------ ------------ -----------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS (24,228,619) 35,763 22,970
------------ ------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $(26,155,922) $ 37,320 $ 25,227
============ ============ ============
<FN>
(A) Represents the period from the commencement of operations
(December 10, 1997) through December 31, 1997.
</FN>
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
Technology Medical Technology
Value Specialists Leaders
Fund Fund Fund
--------------------------- ------------------------
Year Year Period Period
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1997 1996 1997(A) 1997(A)
--------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ (1,927,303) $ (103,853) $ 1,557 $ 2,257
Net realized gains
from security transactions 14,064,022 2,546,140 -- --
Net change in unrealized appreciation/
(depreciation) on investments (38,292,641) 1,675,722 35,763 22,970
-------------- ------------ ---------- --------
Net increase (decrease) in net assets from operations (26,155,922) 4,118,009 37,320 25,227
-------------- ------------ ---------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains (12,334,200) (2,244,807) -- --
In excess of net realized gains (3,047,878) -- -- --
-------------- ------------ ---------- --------
Decrease in net assets from distributions
to shareholders (15,382,078) (2,244,807) -- --
-------------- ------------ ---------- --------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 335,357,889 35,670,929 2,350,090 3,716,034
Net asset value of shares issued in
reinvestment of distributions
to shareholders 13,072,987 1,153,485 -- --
Payments for shares redeemed (147,623,435) (6,274,508) (25,200) (160,431)
-------------- ------------ ---------- --------
Net increase in net assets from
capital share transactions 200,807,441 30,549,906 2,324,890 3,555,603
-------------- ------------ ---------- ----------
TOTAL INCREASE IN NET ASSETS 159,269,441 32,423,108 2,362,210 3,580,830
-------------- ------------ ---------- ----------
NET ASSETS:
Beginning of period 35,104,102 2,680,994 -- --
-------------- ------------ ---------- ----------
End of period $194,373,543 $ 35,104,102 $2,362,210 $ 3,580,830
============== ============ ========== ==========
UNDISTRIBUTED NET
INVESTMENT INCOME $ -- $ -- $ 1,557 $ 2,257
============== =========== ========== ============
Capital Share Activity:
Shares sold 10,437,757 1,435,204 235,882 371,478
Shares issued in reinvestment of
distributions to shareholders 517,449 43,942 -- --
Shares redeemed (4,812,871) (307,953) (2,569) (16,046)
-------------- ------------ ---------- ----------
Net increase in shares outstanding 6,142,335 1,171,193 233,313 355,432
Shares outstanding, beginning of period 1,316,632 145,439 -- --
-------------- ------------ ---------- -----------
Shares outstanding, end of period 7,458,967 1,316,632 233,313 355,432
============== ============ ========== ===========
<FN>
(A) Represents the period from the commencement of operations
(December 10, 1997) through December 31, 1997.
</FN>
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Year Year Year Period
Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94(A)
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 26.66 $ 18.44 $ 11.70 $ 10.00
------------ ------------ ---------- -----------
Income from investment operations:
Net investment loss (0.26) (0.08) (0.14) (0.03)
Net realized and unrealized
gains on investments 1.90 11.20 7.28 2.56
------------ ------------ ---------- -----------
Total from investment operations 1.64 11.12 7.14 2.53
------------ ------------ ---------- -----------
Less distributions:
From net realized gains (1.80) (2.90) (0.40) (0.83)
In excess of net realized gains (.44) -- -- --
------------ ------------ ---------- -----------
Total distributions (2.24) (2.90) (0.40) (0.83)
------------ ------------ ---------- -----------
Net asset value at end of period $ 26.06 $ 26.66 $ 18.44 $ 11.70
============ ============ ========== ===========
Total return 6.46% 60.55% 61.17% 25.30%(B)
============ ============ ========== ===========
Net assets at end of period (millions) $ 194.4 $ 35.1 $ 2.7 $ 0.2
============ ============ ========== ===========
Ratio of expenses to average net assets 1.93% 1.81% 1.98% 1.96%(C)
Ratio of net investment loss
to average net assets (1.43%) (0.55%) (1.45%) (1.29%)(C)
Portfolio turnover rate 101% 43% 45% 56%
Average commission paid
per investment security traded $ 0.033 $ 0.0426 N/A N/A
<FN>
(A) Represents the period from the commencement of operations
(May 20, 1994) to December 31, 1994.
(B) Not annualized
(C) Annualized
</FN>
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
MEDICAL SPECIALISTS FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Period
Ended
12/31/97(A)
<S> <C>
Net asset value at beginning of period $ 10.00
--------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized
gains on investments 0.11
--------------
Total from investment operations 0.12
--------------
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
--------------
Total distributions --
--------------
Net asset value at end of period $ 10.12
==============
Total Return(B) 1.20%
==============
Net assets at end of period (millions) $ 2.4
==============
Ratio of expenses to average net assets(C) 1.81%
Ratio of net investment income
to average net assets(C) 1.75%
Portfolio turnover rate 0%
Average commission paid per investment security traded $ 0.0266
<FN>
(A) Represents the period from commencement of operations
(December 10, 1997) to December 31, 1997.
(B) Not annualized.
(C) Annualized.
</FN>
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY LEADERS FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Period
Ended
12/31/97(A)
<S> <C>
Net asset value at beginning of period $ 10.00
--------------
Income from investment operations:
Net investment income 0.01
Net realized and unrealized
gains on investments 0.06
--------------
Total from investment operations 0.07
--------------
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
--------------
Total distributions --
--------------
Net asset value at end of period $ 10.07
==============
Total return(B) 0.70%
==============
Net assets at end of period (millions) $ 3.6
==============
Ratio of expenses to average net assets (C) 1.80%
Ratio of net investment income
to average net assets(C) 1.77%
Portfolio turnover rate 0%
Average commission paid per investment security traded $ 0.0300
<FN>
(A) Represents the period from commencement of operations
(December 10, 1997) to December 31, 1997.
(B) Not annualized.
(C) Annualized.
</FN>
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
Unrealized
Gain
Common Stocks Shares Cost Market Value (Loss)
<S> <C> <C> <C> <C>
COMMUNICATIONS EQUIPMENT -- 8.0%
Advanced Fibre Communications, Inc.* 195,000 $ 5,631,563 $ 5,679,375 $ 47,812
PairGain Technologies, Inc.* 179,250 3,758,901 3,472,969 (285,932)
Tellabs, Inc.* 120,000 6,999,065 6,345,000 (654,065)
---------- ----------- ----------- ---------
Total Communications Equipment 16,389,529 15,497,344 (892,185)
---------- ----------- ----------- ---------
ELECTRONIC DESIGN AUTOMATION -- 3.7%
Technology Modeling Associates. Inc. * 678,900 9,384,410 7,213,313 (2,171,097)
---------- ----------- ----------- ---------
Total Electronic Design Automation 9,384,410 7,213,313 (2,171,097)
---------- ----------- ----------- ---------
MEDICAL -- 35.0%
HCIA, Inc. * 456,600 7,341,451 5,422,125 (1,919,326)
Affymetrix, Inc. * 163,800 5,601,039 5,098,275 (502,764)
Boston Scientific Corp.* 140,000 8,862,534 6,422,500 (2,440,034)
Cardiovascular Dynamics, Inc.* 554,800 4,912,292 3,051,400 (1,860,892)
CardioThoracic Systems, Inc. * 545,000 6,806,383 2,997,500 (3,808,883)
Centocor, Inc. * 175,000 7,141,087 5,818,750 (1,322,337)
Endocardial Solutions, Inc. * 515,400 5,821,711 5,218,425 (603,286)
EndoSonics Corp. * 695,000 7,814,435 7,471,250 (343,185)
Heartport, Inc.* 54,000 1,202,752 1,100,250 (102,502)
Immunex Corp.* 130,000 8,520,188 7,020,000 (1,500,188)
Mariner Health Group, Inc. * 463,000 5,605,435 7,523,750 1,918,315
MedCath, Inc. * 29,100 498,980 440,137 (58,843)
Medtronic, Inc. 135,000 6,029,275 7,062,187 1,032,912
Medwave, Inc. * 23,500 263,956 235,000 (28,956)
United States Surgical Corp. 110,000 3,335,400 3,224,375 (111,025)
---------- ----------- ----------- ---------
Total Medical 79,756,918 68,105,924 (11,650,994)
---------- ----------- ----------- ---------
NETWORKING -- 12.0%
3Com Corp. * 171,250 6,909,326 5,983,047 (926,279)
Ascend Communications, Inc. * 349,000 18,784,597 8,550,500 (10,234,097)
Cisco Systems, Inc. * 156,000 7,456,250 8,697,000 1,240,750
---------- ----------- ----------- ---------
Total Networking 33,150,173 23,230,547 (9,919,626)
---------- ----------- ----------- ---------
PERIPHERAL -- 5.3%
HMT Technology Corp. * 506,200 7,274,399 6,580,600 (693,799)
Iomega Corp. * 300,000 3,280,968 3,731,250 450,282
---------- ----------- ----------- ---------
Total Peripheral 10,555,367 10,311,850 (243,517)
----------- ----------- ---------
<PAGE>
<CAPTION>
TECHNOLOGY VALUE FUND
PORTFOLIO OF INVESTMENTS
(continued)
Unrealized
Gain
Common Stocks Shares/Par Cost Market Value (Loss)
<S> <C> <C> <C> <C>
SEMICONDUCTOR EQUIPMENT -- 7.1%
Applied Science & Technology, Inc.* 97,500 1,323,200 1,096,875 (226,325)
Cymer, Inc.* 335,000 10,907,676 5,025,000 (5,882,676)
Intergrated Process Equipment Corp.* 490,000 13,758,816 7,717,500 (6,041,316)
------------- ------------ -------------
Total Semiconductor Equipment 25,989,692 13,839,375 (12,150,317)
------------- ------------ -------------
SEMICONDUCTORS -- 27.3%
Altera Corp.* 365,000 16,437,502 12,090,625 (4,346,877)
ANADIGICS, Inc.* 270,500 9,827,356 8,148,813 (1,678,543)
Applied Micro Circuits Corp.* 797,500 7,757,504 9,869,062 2,111,558
Intel Corp. 10,000 791,250 702,500 (88,750)
Level One Communications, Inc.* 82,700 1,370,405 2,336,275 965,870
PMC-Sierra, Inc.* 340,000 5,603,537 10,540,000 4,936,463
Quality Semiconductor, Inc.* 237,800 2,048,394 921,475 (1,126,919)
TranSwitch Corp.* 15,000 151,875 112,500 (39,375)
Vitesse Semiconductor Corp.* 223,000 8,191,344 8,418,250 226,906
------------- ------------ -------------
Total Semiconductors 52,179,167 53,139,500 960,333
------------- ------------ -------------
TOTAL COMMON STOCKS-- 98.4% 227,405,256 191,337,853 (36,067,403)
------------- ------------ -------------
REPURCHASE AGREEMENTS(1) -- 2.2%
Star Bank, 5.75%, dated 12/31/97,
due 1/02/98, repurchase proceeds $4,272,364 $ 4,271,000 4,271,000 4,271,000
------------- ------------
Total Investments and
Repurchase Agreements at Value-- 100.6% $231,676,256 $195,608,853 $(36,067,403)
============ ============
Liabilities in Excess of Other Assets-- (0.6%) (1,235,310)
------------
Net Assets-- 100.0% $194,373,543
============
<FN>
* Non-income producing security.
(1) Repurchase agreements are fully collateralized by
U.S. Government obligations.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
MEDICAL SPECIALISTS FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
Unrealized
Gain
Common Stocks Shares/Par Cost Market Value (Loss)
<S> <C> <C> <C> <C>
MEDICAL -- 40.8%
HCIA, Inc. * 4,000 $ 49,120 $ 47,500 $ (1,620)
Affymetrix, Inc. * 3,000 95,590 93,375 (2,215)
Boston Scientific Corp.* 2,000 83,185 91,750 8,565
Cardiovascular Dynamics, Inc.* 1,200 6,711 6,600 (111)
CardioThoracic Systems, Inc. * 5,000 24,400 27,500 3,100
Centocor, Inc. * 5,000 167,006 166,250 (756)
Cytyc Corp.* 600 14,643 15,000 357
Endocardial Solutions, Inc. * 3,500 36,168 35,438 (730)
EndoSonics Corp. * 10,000 103,750 107,500 3,750
Guidant Corp. 2,000 108,060 124,500 16,440
Heartport, Inc.* 6,000 119,617 122,250 2,633
Immunex Corp.* 1,000 49,530 54,000 4,470
MedCath, Inc. * 2,000 29,060 30,250 1,190
Novoste Corp.* 2,000 42,310 43,000 690
---------- ---------- ----------
Total Medical 929,150 964,913 35,763
---------- ---------- ----------
TOTAL COMMON STOCKS-- 40.8% 929,150 964,913 35,763
---------- ---------- ----------
CASH EQUIVALENTS -- 62.6%
Star Treasury Fund $1,478,188 1,478,188 1,478,188
---------- ----------
Total Investments and Cash Equivalents
at Value-- 103.4% $2,407,338 $2,443,101 $ 35,763
========== ==========
Liabilities in Excess of Other Assets-- (3.4%) (80,891)
----------
Net Assets-- 100.0% $2,362,210
==========
<FN>
* Non-income producing security.
</FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TECHNOLOGY LEADERS FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
Unrealized
Gain
Common Stocks Shares/Par Cost Market Value (Loss)
<S> <C> <C> <C> <C>
COMMUNICATIONS EQUIPMENT -- 13.5%
Lucent Technologies, Inc. 1,000 $ 77,030 $ 79,875 $ 2,845
PairGain Techn Inc.* 20,750 387,645 402,032 14,387
---------- ---------- ---------
Total Communications Equipment 464,675 481,907 17,232
---------- ---------- ---------
NETWORKING -- 4.6%
Cisco Systems, Inc. * 3,000 163,371 167,250 3,879
---------- ---------- ---------
Total Networking 163,371 167,250 3,879
---------- ---------- ---------
SEMICONDUCTOR EQUIPMENT -- 8.5%
Applied Materials, Inc.* 5,000 150,938 150,625 (313)
KLA-Tencor Corp.* 4,000 155,120 154,500 (620)
---------- ---------- ---------
Total Semiconductor Equipment 306,058 305,125 (933)
---------- ---------- ---------
SEMICONDUCTORS -- 23.0%
Altera Corp.* 5,000 179,900 165,625 (14,275)
Intel Corp. 4,000 284,870 281,000 (3,870)
PMC-Sierra, Inc.* 2,400 61,097 74,400 13,303
Vitesse Semiconductor Corp.* 8,000 294,366 302,000 7,634
---------- ---------- ---------
Total Semiconductors 820,233 823,025 2,792
---------- ---------- ---------
TOTAL COMMON STOCKS-- 49.6% 1,754,337 1,777,307 22,970
CASH EQUIVALENTS -- 57.8%
Star Treasury Fund $2,069,575 2,069,575 2,069,575
---------- ----------
Total Investments and Cash Equivalents
at Value-- 107.4% $3,823,912 $3,846,882 $ 22,970
---------- ---------
Liabilities in Excess of Other Assets-- (7.4%) (266,052)
----------
Net Assets-- 100.0% $3,580,830
==========
<FN>
* Non-income producing security.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Significant Accounting Policies
The Technology Value Fund, the Medical Specialists Fund and the Technology
Leaders Fund (the Funds) are each a non-diversified series of 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.
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 "Investment 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 field which
the Investment 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
Investment Adviser considers to have the strongest competitive position.
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 business of the regular session of trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time). Securities which are traded on a
national stock exchange or are quoted by NASDAQ are valued based upon 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 over-the-counter, and which are not quoted by NASDAQ, are
valued based on the most recent bid price as obtained from one or more of the
major market makers for such securities.
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.
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.
<PAGE>
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 revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Federal income tax -- It is each Fund's policy to comply with the special
provisions of the Internal Revenue Code (the Code) available to regulated
investment companies. As provided therein, in any fiscal year in which a Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is based upon Federal income tax cost of portfolio
investments (excluding repurchase agreements) as of December 31, 1997.
<TABLE>
<CAPTION>
Technology Medical Technology
Value Fund Specialists Fund Leaders Fund
<S> <C> <C> <C>
Gross unrealized appreciation $ 14,080,648 $ 46,093 $ 42,048
Gross unrealized depreciation (51,298,796) (10,330) (19,078)
--------------------- ------------------ -------------
Net unrealized appreciation (depreciation) $ (37,218,148) $ 35,763 $ 22,970
===================== ================== ==============
Federal income tax cost $ 228,556,001 $ 2,407,338 $ 3,823,912
===================== ================== ==============
</TABLE>
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.
Reclassification of capital accounts -- For the year ended of December 31, 1997,
the Technology Value Fund had a net investment loss of $1,927,303 which has been
reclassified to undistributed net realized gains from security transactions on
the Statement of Assets and Liabilities. The reclassification, a result of
permanent differences between financial statement and income tax reporting
requirements, has no effect on the Fund's net assets or net asset value per
share.
2. Investment Transactions
Investment transactions (excluding short-term investments) were as follows
for the periods ended December 31, 1997.
<TABLE>
<CAPTION>
Technology Medical Technology
Value Fund Specialists Fund Leaders Fund
<S> <C> <C> <C>
Purchases of investment securities $ 309,656,195 $ 929,150 $ 1,754,337
================= ============= ===============
Proceeds from sales and maturities
of investment securities $ 127,875,280 $ -- $ --
================= ============= ===============
</TABLE>
<PAGE>
3. Transactions with Affiliates
Certain trustees and officers of the Trust are also officers of Interactive
Research Advisers, Inc. (the Adviser) or of Countrywide Fund Services, Inc., the
administrative services agent, shareholder servicing and transfer agent, and
accounting services agent for the Trust.
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 securities and 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 Investment Adviser to waive its management
fees and, if necessary, reimburse expenses of the Funds to the extent necessary
to limit each Fund's total operating expenses to 1.95% of its average net assets
up to $200 million, 1.90% of such assets from $200 million to $500 million,
1.85% of such assets from $500 million to $1 billion, and 1.80% of such assets
in excess of $1 billion. There were no fee waivers for the periods ended
December 31, 1997.
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 .45% of each Fund's average daily
net assets up to $200 million, .40% of such assets from $200 million to $500
million, .35% of such assets from $500 million to $1 billion, .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.
<PAGE>
[LOGO]
INTERACTIVE INVESTMENTS
Annual Report to Shareholders
December 31, 1997
INTERACTIVE INVESTMENTS
101 Park Center Plaza
Suite 1300
San Jose, CA 95113
BOARD OF TRUSTEES
Kevin M. Landis, Chairman
Kendrick W. Kam
Michael T. Lynch
Mark K. Taguchi
OFFICERS
Kevin M. Landis, President
Kendrick W. Kam, Secretary
Yakoub 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, OH 45201
(Toll-Free) 888-884-2675
This report is authorized for distribution only when it is accompanied
or preceded by a current prospectus of Interactive Investments Trust.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> INTERACTIVE INVESTMENTS - THE TECHNOLOGY VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 231,676,256
<INVESTMENTS-AT-VALUE> 195,608,853
<RECEIVABLES> 3,833,687
<ASSETS-OTHER> 17,580
<OTHER-ITEMS-ASSETS> 801
<TOTAL-ASSETS> 199,460,921
<PAYABLE-FOR-SECURITIES> 3,337,439
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,749,939
<TOTAL-LIABILITIES> 5,087,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,488,824
<SHARES-COMMON-STOCK> 7,458,967
<SHARES-COMMON-PRIOR> 1,316,632
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3,047,878
<ACCUM-APPREC-OR-DEPREC> (36,067,403)
<NET-ASSETS> 194,373,543
<DIVIDEND-INCOME> 268,881
<INTEREST-INCOME> 412,570
<OTHER-INCOME> 0
<EXPENSES-NET> 2,608,754
<NET-INVESTMENT-INCOME> (1,927,303)
<REALIZED-GAINS-CURRENT> 14,064,022
<APPREC-INCREASE-CURRENT> (38,292,641)
<NET-CHANGE-FROM-OPS> (26,155,922)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 12,334,200
<DISTRIBUTIONS-OTHER> 3,047,878
<NUMBER-OF-SHARES-SOLD> 10,437,757
<NUMBER-OF-SHARES-REDEEMED> 4,812,871
<SHARES-REINVESTED> 517,449
<NET-CHANGE-IN-ASSETS> 159,269,441
<ACCUMULATED-NII-PRIOR> (125,410)
<ACCUMULATED-GAINS-PRIOR> 300,692
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,830,251
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,608,754
<AVERAGE-NET-ASSETS> 135,135,299
<PER-SHARE-NAV-BEGIN> 26.66
<PER-SHARE-NII> (.26)
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.80
<RETURNS-OF-CAPITAL> .44
<PER-SHARE-NAV-END> 26.06
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> INTERACTIVE INVESTMENTS - THE MEDICAL SPECIALISTS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,407,338
<INVESTMENTS-AT-VALUE> 2,443,101
<RECEIVABLES> 46,423
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,489,524
<PAYABLE-FOR-SECURITIES> 127,314
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 127,314
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,324,890
<SHARES-COMMON-STOCK> 233,313
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,557
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 35,763
<NET-ASSETS> 2,362,210
<DIVIDEND-INCOME> 368
<INTEREST-INCOME> 2,798
<OTHER-INCOME> 0
<EXPENSES-NET> 1,609
<NET-INVESTMENT-INCOME> 1,557
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 35,763
<NET-CHANGE-FROM-OPS> 37,320
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 235,882
<NUMBER-OF-SHARES-REDEEMED> 2,569
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,362,210
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,238
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,609
<AVERAGE-NET-ASSETS> 2,362,210
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .11
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> INTERACTIVE INVESTMENTS - THE TECHNOLOGY LEADERS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,823,912
<INVESTMENTS-AT-VALUE> 3,846,882
<RECEIVABLES> 114,308
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,961,190
<PAYABLE-FOR-SECURITIES> 380,120
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 240
<TOTAL-LIABILITIES> 380,360
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,555,603
<SHARES-COMMON-STOCK> 355,432
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,257
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,970
<NET-ASSETS> 3,580,830
<DIVIDEND-INCOME> 544
<INTEREST-INCOME> 4,013
<OTHER-INCOME> 0
<EXPENSES-NET> 2,300
<NET-INVESTMENT-INCOME> 2,257
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 22,970
<NET-CHANGE-FROM-OPS> 25,227
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 371,478
<NUMBER-OF-SHARES-REDEEMED> 16,046
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3,580,830
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,769
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,300
<AVERAGE-NET-ASSETS> 3,580,830
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.07
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
