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1998
Annual Report to Shareholders
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YOU COULD BE GETTING MORE
Investors often ask if there is a way that they can get more information more
frequently than quarterly in the Shareholder Reports. The answer is yes. There
is much more information and insight available on a regular basis from Firsthand
Funds via the Internet.
We make additional information available in two ways: our Firsthand Alert e-mail
system, and our site on the World Wide Web. The table below illustrates the
types of information and benefits available from each communication channel.
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QUARTERLY REPORT ALERT E-MAIL WEB SITE
Breaking News O X O
Monthly Market & News Updates O X O
Distribution Information Z X X
Performance Updates Z X X
Portfolio Manager Commentary Z X X
Performance Calculators O O X
Portfolio Holdings Z O X
O = Not available Z = Offered periodically X = Offered regularly
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FIRSTHAND ALERT E-MAIL
The Firsthand Alert e-mail program is a free service that provides market and
news updates at least monthly (more often when hot news breaks). To subscribe to
this service, simply send an e-mail with the phrase "subscribe alert" (without
the quotes) in the text of the message (not the subject line) to:
[email protected]
FirsthandFunds.com Web Site
The Firsthand Funds web site contains the most comprehensive set of information
available about Firsthand Funds. Just visit http://www.FirsthandFunds.com on the
Internet.
And let us know if there's anything else you'd like to see on the Firsthand
Funds web site or in the Alert e-mails. Your comments are welcome at:
[email protected]
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PERFORMANCE SUMMARY
(total returns as of 12/31/98)
Q4'98 1998 AVERAGE ANNUAL TOTAL RETURN SINCE:
05/20/94* 12/15/94* 12/10/97**
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TVF 60.64% 23.71% 36.93% 37.24% n/a*
TLF 58.90% 78.15% n/a** n/a** 73.54%
MSF 31.97% -4.55% n/a** n/a** -3.21%
DJIA 17.59% 18.13% 23.99% 27.28% 15.21%
S&P 500 21.30% 28.58% 26.59% 30.42% 26.22%
NASDAQ 29.45% 39.63% 27.39% 31.78% 33.05%
Composite
Q4'98 1998 CUMULATIVE TOTAL RETURN SINCE:
05/20/98***
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TIF 97.41% n/a 60.10%
DJIA 17.59% n/a 2.53%
S&P 500 21.30% n/a 19.74%
NASDAQ 29.45% n/a 32.06%
Composite
*TVF inception date is 05/20/94; TVF effectiveness date is 12/15/94.
**TLF/MSF inception date is 12/10/97.
***TIF inception date is 05/20/98.
Returns assume reinvestment of dividends and distributions. Past performance is
not a guarantee of future results. Investment returns will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Each Fund concentrates its investments in the technology industry. The Funds are
subject to greater risk because of their concentration of investments in a
single industry and within certain segments of the industry. In addition, each
Fund may, from time to time, invest a substantial portion of its assets in the
securities of small capitalization companies. The securities of smaller
companies often involve higher risks and may be subject to wider price
fluctuations than securities of larger companies. There are certain risks
associated with investments in the 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.
Firsthand
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ELECTRONIC
TECHNOLOGY SUMMARY
1998 was the year of the technology leaders and the Internet darlings. Funds
that focused in either of these categories were rewarded with exceptional
results, while the market was much less kind to most other technology funds. Our
funds showed large swings in value during the year, but all finished on a very
positive note. As the table at left shows, the Technology Leaders Fund (TLF)
solidly outperformed the broad market indices for the year. The Technology Value
Fund (TVF), without much contribution from technology leaders or Internet
stocks, lagged the NASDAQ and S&P 500 indices.
The year started out on a relatively positive note, with the technology sector
recovering from the setbacks posed by the Asian financial crisis of Q4'97.
Semiconductor equipment suppliers were some of the biggest beneficiaries of the
Q1 rally, having been severely beaten down in the prior quarter.
As we moved into Q2, the cold of the Asian financial crisis was once again in
the air. While the "Blue Chip" technology leaders continued to drive the market
indices in a positive direction, most other issues were negatively impacted by
the initial flight to quality, even in the technology sector.
The second half of the year will surely be remembered as one of the most
turbulent times in the history of the American markets. In Q3, a number of
international events including the Russian currency devaluation, slipping
economies in Brazil and Asia, and the unraveling of Long Term Capital
Management, conspired to drive the U.S. stock market down as investors expected
that the next domino to fall would be the U.S. economy. During that continued
flight to quality, large sums of money flowed out of stocks (particularly tech
stocks) and into "safer" bonds and money market issues. Technology stocks took a
beating.
1998 Annual Report to Shareholders | 3
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After Q3's tremendous downdraft, the markets made a spectacular recovery in Q4
as investors were reassured by solid corporate earnings reports and new fiscal
and monetary policy in the troubled economies of the world. As usual, technology
stocks were at the tip of the whip in terms of their relation to market
movements, with every movement (positive and negative) in the broad market being
magnified in the tech sector. As the table on page 2 shows, each of our funds
was up dramatically in Q4, handily beating the broad market indices.
The most talked about technology segment this year was certainly the Internet.
The run-up in the stocks of many Internet content providers has been astounding.
We continue to believe that the inflated valuations reflect much of the
Internet's promise and very little fear. Our investment strategy for the
Internet continues to be one of investing in companies providing the
infrastructure to enable Internet traffic, which is far more predictable than
who will be the leading on-line auctioneer, bookseller or portal.
The Technology Innovators Fund is our third fund to receive a ticker symbol:
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Technology Value Fund TVFQX
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Technology Leaders Fund TLFQX
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Technology Innovators Fund TIFQX
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The Medical Specialists Fund ($4.5 million in assets as of 12/31/98) will
receive symbol as soon as its assets reach $10 million.
Firsthand
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MEDICAL
TECHNOLOGY SUMMARY
HEALTHCARE FUNDS LAGGED
Normally, when the Micropal Health Index rises 18.75% for the year, it reflects
a good year for medical stocks. But not in 1998. When compared to the broader
market indices such as the NASDAQ composite, up 39.63%, and the S&P 500, up
28.58%, it becomes clear that healthcare funds lagged the market this year.
MICROPAL NASDAQ S&P
HEALTH INDEX COMPOSITE 500
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Q4`98 18.46% 29.45% 21.30%
1998 18.75% 39.63% 28.58%
SIZE MATTERED
Not all medical stocks were out of favor. Bigger was better in 1998. The
healthcare segment of the Russell 1000 Index (large-cap stocks) rose 42.55% in
1998, versus just 3.26% for the healthcare segment of the Russell 2000
(small-cap stocks). Despite a rebound in Q4, small-cap stocks continue to sell
at lower relative valuations than anytime during the last 20 years.
The disparity in performance between large and small-cap healthcare stocks
largely explains the difference in the performance of the medical side of the
Technology Value Fund (TVF) and the Medical Specialists Fund (MSF). MSF's
emphasis on small-cap stocks was a significant drag on performance last year.
MICROPAL TVF
HEALTH INDEX MEDICAL* MSF
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Q4`98 18.46% 45.32% 31.97%
1998 18.75% 22.48% -4.55%
* TVF-Medical performance numbers are estimates based on the adviser's own
portfolio attribution analysis.
1998 Annual Report to Shareholders | 5
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The medical portion of TVF outperformed the Micropal Health Index by a
significant amount in the fourth quarter and a smaller amount for the full year.
The Medical Specialists Fund also beat the Micropal Health Index in Q4, but
underperformed for the full year.
FUNDAMENTALS STILL STRONG
Although small-cap medical stocks did poorly in 1998, the companies continued to
perform well operationally. Many of the medical companies in our portfolios have
seen their revenues grow by more than 50% in the last 12 months. Several
achieved profitability for the first time. These stocks may be out of favor in
the near term, but eventually the market will recognize and reward the progress
these companies have made.
TECH VALUE:
ACCORDING TO PLAN?
If everything always worked according to plan, every investment we make would
double in two years producing a 41% annual return on investment. If you assume
that the portfolios are always 95% invested (5% held in reserve to meet
redemptions), then after all fees, the funds would return about 37% per year -
if everything worked according to plan.
In the real world, we know we're not perfect, so delivering 37% annually is an
unreasonable expectation. Yet since inception (for over four and a half years),
TVF has had an average annual return of 36.93% - seemingly according to plan.
However, these returns have been by no means con-stant - with 2-year returns
varying from -25% to 225%. And while we have hit our plan over the life of the
Fund, it is still unreasonable to expect it to continue.
Firsthand
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Of course, everyone would much prefer a steady 37% per year return. As
investors, we know that volatility can be troubling, causing upset stomach, loss
of sleep, sometimes even loss of hair. But we also know that at the end of our
investment horizon, what really matters is the total return on investment. We
would much prefer an annual average return of 37% delivered however erratically,
than a lower return delivered evenly.
When it's time to tap your investments, the total return will matter a lot. The
annual volatility of those returns will matter very little.
The change in market sentiment between Q3 and Q4 demonstrates that a stock's
price sometimes gets disconnected from the underlying company's prospects.
Trying to produce a steady return every quarter means trying to anticipate the
market's mood swings. We admit that we cannot do this.
Instead, we try to understand a company's prospects well enough to react
decisively whenever the market undervalues a stock to such a degree that there
is a decent chance of a double in two years. This investment style does not
deliver steady returns every year. But, looking back, it is gratifying to see
that it has worked fairly well for our long-term investors.
1998 Annual Report to Shareholders | 7
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Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
Medical Specialists Fund
1998 Annual Report to Shareholders | 9
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TECHNOLOGY VALUE FUND
PERFORMANCE & PORTFOLIO DISCUSSION
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The Technology Value Fund ("TVF", ticker symbol TVFQX) posted a strong Q4 gain
of 60.64%. Over the same period, the NASDAQ appreciated 29.45% and the S&P 500
grew 21.30%, while the Lipper Science and Technology Index gained 41.68%. On a
full-year basis, the Fund underperformed both its peer group and the broad
market indices, returning 23.71% for the year.
Nearly every sector held by the Fund showed strong growth this quarter with
Semiconductors leading the way, returning over 90% for the quarter. Only two
sectors, Communications Equipment and Health Services, posted negative returns.
The accompanying pie chart shows the Fund's holdings as of December 31.
Semiconductors remained the Fund's largest sector weighting, representing 39.2%
of the portfolio, down slightly from 42.1% at the end of Q3. Nearly all of our
semiconductor holdings, including the Fund's largest holdings, PMC-Sierra
(PMCS), Applied Micro Circuits Corp. (AMCC) and Level One (LEVL), showed very
strong growth in the quarter.
The Semiconductor Capital Equipment weighting fell from 5.1% to 3.3%. We
lightened some of our positions in this sector in anticipation of a slower
recovery period compared with those of our other holdings. FVC.COM (FVCX)
remained our single Networking holding, accounting for 2.0% of the Fund's assets
at quarter's end.
EDA holdings decreased from 8.4% to 4.2% as we trimmed our positions in Avant!
(AVNT) and Aspec (ASPCE). We also reduced our position in Adaptec (ADPT) during
the
RELATIVE PERFORMANCE:
TVF VS. MARKET INDICES
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S&P 500 NASDAQ DJIA TVF
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5/20/94 $10,000 $10,000 $10,000 $10,000
12/31/98 $29,715 $30,589 $26,997 $42,702
Past performance is not a guarantee of future results.
Firsthand
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TVF HOLDINGS BY SECTOR*
Semiconductors 39.2%
EDA 4.2%
Semi Equip 3.3%
Biotech 14.5%
Other Electronics** 16.6%
Cash 2.3%
Card Med Devices 18.9%
Health Services 1.0%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
** Consists of Communications Equipment (0.2%), Networking (2.0%), Periphals
(2.4%) and Software (1.3%) in addition to Other Electronics (10.7%)
quarter. This sole Peripherals holding accounted for 2.4% of the Fund's assets.
We established a new position in i2 Technologies (ITWO) in Q4. This Enterprise
Resource Planning vendor is our single Software holding and represented 1.3% of
the portfolio. The weighting for the Communications Equipment sector fell from
1.5% to 0.2% as we reduced our position in PairGain (PAIR), the single holding
in this segment.
The Fund established a position in Rockwell (ROK), a diversified supplier of
semiconduc-tors and communications equipment, during the quarter. It has been
included in Other Electronics, and represents 10.7% of assets.
The Cardiac Medical Devices weighting fell slightly from 19.7% to 18.9%. During
the quarter, Medtronic (MDT) offered to acquire Arterial Vascular Engineering
(AVEI) for $54 per share, a 67% premium over the pre-announcement price.
The Fund's Biotech holdings shrank from 16.9% to 14.5% of assets. The Fund
closed out its position in Affymetrix (AFFX) in the fourth quarter and added to
its investment in Centocor (CNTO).
Health Services declined from 2.7% to 1.0% of the Fund. We sold our position in
Mariner-Paragon (MPN). Medicare has reduced the price it will pay for skilled
nursing home services to a level that will probably turn out to be unprofitable
for most providers. At the same time, fear of lawsuits prevents the industry
from cutting expenses enough to restore profitability at the new lower prices.
The Fund ended the quarter with a net cash position of 2.3%, up slightly from
last quarter's 1.7%.
1998 Annual Report to Shareholders | 11
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TECHNOLOGY LEADERS FUND
PERFORMANCE & PORTFOLIO DISCUSSION
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The Technology Leaders Fund ("TLF", ticker symbol TLFQX) appreciated 58.90% in
the fourth quarter, outperforming the broad market indices (see performance
summary table on page 2) as well as the Lipper Science & Technology Index. This
was by far the largest quarterly gain in TLF's short history. On a full-year
basis, the Fund solidly beat the indices and outperformed nearly all other
Science & Technology mutual funds, returning 78.15%. It also ranked in the top
20 of all mutual funds.
While TLF achieved positive returns in nearly all sectors in Q4, our investments
in the Semiconductor Equipment sector performed the best, posting returns of
97.63%. The Semiconductor and Internet sectors also exhibited gains in excess of
80% for the quarter.
The accompanying pie chart shows the Fund's year-end holdings by sector. At
35.2%, the Semiconductor sector remains the Fund's largest weighting, although
it has declined as we have increased the weightings of other sectors. Among our
biggest positions are Level One (LEVL), PMC-Sierra (PMCS), Vitesse (VTSS), and
Intel (INTC).
Semiconductor Capital Equipment investments declined from 6.8% to 5.9%. The
business fundamentals in this sector have begun to stabilize and valuations are
beginning to increase again.
The Fund's weighting in the Computers sector has increased from 8.4% to 10.8%.
During the quarter, we established a position in Sun Microsystems (SUNW). Sun is
a leading supplier
RELATIVE PERFORMANCE:
TLF VS. MARKET INDICES
S&P 500 NASDAQ DJIA TLF
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12/10/97 $10,000 $10,000 $10,000 $10,000
12/31/98 $12,800 $13,537 $11,619 $17,940
Past performance is not a guarantee of future results.
Firsthand
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TLF HOLDINGS BY SECTOR*
Semiconductors 35.2%
Computers 10.8%
Comm Equip 8.9%
Networking 8.7%
Internet 3.7%
EDA 4.2%
Other Electronics 9.6%
Semi Equip 5.9%
Software 10.1%
Cash 2.9%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
of engineering workstations and Internet servers. Our single networking stock,
Cisco (CSCO), grew to 8.7% of assets as it continues to deliver outstanding
results.
During the quarter, the Fund increased its position in America Online (AOL) and
added Cadence Design Systems (CDN), represent-ing the only holdings in the
Internet and EDA segments, respectively. Internet makes up 3.7% of holdings,
while the EDA sector accounts for 4.2% of net assets. A position was also
established in Rockwell (ROK), a leading communications equipment and
semiconductor provider, which comprises the Other Electronics segment and 9.6%
of the Fund.
Software investments declined slightly from 11.0% to 10.1% of assets during the
quarter, as did the weighting for the Communications Equipment segment,
shrinking from 11.3% to 8.9% of Fund assets. The Fund's net cash position
increased slightly from 1.7% in Q3 to 2.9% at the end of Q4.
1998 Annual Report to Shareholders | 13
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TECHNOLOGY INNOVATORS FUND
PERFORMANCE & PORTFOLIO DISCUSSION
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After a disappointing third quarter, the Technology Innovators Fund ("TIF",
ticker symbol TIFQX) rebounded strongly in the fourth quarter, posting a
quarterly gain of 97.41% and a 60.10% return since the Fund's inception on May
20, 1998. The quarterly appreciation represents the largest single-quarter gain
in Firsthand Funds' history, handily outperforming the Micropal Technology and
Lipper Science & Technology indices. In fact, TIF was second-highest per-forming
fund in the U.S. in the fourth quarter. While TIF will not be recognized for its
annual return due to its May inception date, during the "stub" period from May
20 to Dec. 31, the Fund outperformed most other Science & Technology mutual
funds.
The Fund saw strong appreciation in most of its holdings during the quarter, led
by our Internet sector holdings, with gains of 86.67% for the quarter.
The accompanying pie chart shows TIF's holdings as of December 31.
Semiconductors remained the Fund's most heavily-weighted sector, at 54.2% of net
assets, reflecting our continued optimism in communication chip companies. Our
largest semiconductor hold-ings include MMC Networks (MMCN), Applied Micro
Circuits (AMCC), and TriQuint (TQNT).
Relative Performance:
TIF vs. Market Indices
S&P500 NASDAQ DJIA TIF
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5/20/98 $10,000 $10,000 $10,000 $10,000
12/31/98 $11,180 $11,879 $10,253 $16,010
Past performance is not a guarantee of future results.
Firsthand
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TIF Holdings by Sector*
EDA 0.1%
Cash 14.0%
Comm Equip 0.2%
Semi Equip 0.7%
Semiconductors 54.2%
Internet 4.0%
Networking 3.6%
Telecomm 2.3%
Photonics 5.1%
Software 15.8%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
During the quarter, we increased our weighting in Software from 11.6% to 15.8%,
adding new positions in Check Point Software (CHKPF) and Concur Technologies
(CNQR). The Fund also established its first positions in Internet companies,
with purchases of InfoSpace.com (INSP), Ticketmaster Online-CitySearch (TMCS),
and Xoom.com (XMCM). Internet stocks represented 4.0% of net assets at the end
of the quarter.
After divesting our positions in Advanced Fibre Communications (AFCI) and Cienna
(CIEN), P-Com (PCMS) was the sole Communications Equipment holding, representing
just 0.2% of net assets. The Networking sector, represented by FVC.COM (FVCX),
has fallen to 3.6% of the Fund's holdings.
Qwest (QWST) remained our single telecommunications holding, representing 2.3%
of net assets. The EDA sector also remained a modest 0.1% of the Fund's
holdings. Integrated Process Equipment (IPEC) represented 0.7% of our portfolio
as the only Semiconductor Equipment holding at the quarter's end.
Since September, we've established a position in SDL, Inc. (SDLI), accompanying
Uniphase (UNPH) in the Photonics sector, which represented 5.1% of Fund
holdings. SDLI is a manufacturer of components for fiber optic networks. The
Fund's net cash position was at 14.0% at the end of the fourth quarter. We
increased the number of positions from 19 to 22 during Q4, and we continue to
look for promising companies to add to the portfolio.
1998 Annual Report to Shareholders | 15
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Medical Specialists Fund
Performance & Portfolio Discussion
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Medical Specialists Fund ("MSF") returned 31.97% in Q4 outperforming the DJIA,
the S&P 500, the NASDAQ Composite, and the Micropal Health index. Q4's return,
however, was not enough to reverse the previous three quarters of
underperformance as MSF ended the year down 4.55%. Many of the portfolio
adjustments we made to take advantage of the bargains produced by the sell-off
in Q3 delivered a quick payoff in Q4.
Arterial Vascular Engineering (AVEI), which we loaded up on in the low $30's in
October, announced a deal to be acquired by Medtronic (MDT) for $54. At $30,
AVEI was trading at a P/E of 12 even though sales grew over 500% and earnings
grew more than 800% compared to last year. It is rare for a company in any
industry to experience such rapid revenue growth while also becoming more
profitable. It is surprising that the market accorded such a company a P/E of
12. For Medtronic, acquiring AVEI will provide an immediate boost to its
earnings per share, and help to maintain its own relatively high P/E.
We also doubled our position in Immunex (IMNX) in time to capture a good part of
its move from $55 to $126 during Q4. On November 2, 1998, Immunex received FDA
approval to market Enbrel as a treatment for rheumatoid arthritis. It's hard to
believe that after the approval was announced, Immunex's stock price actually
declined slightly, but it did. So far Enbrel sales are running ahead of
expectations and no adverse reactions have been reported.
Relative Performance:
MSF vs. Market Indices
S&P 500 NASDAQ DJIA MSF
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12/10/97 $10,000 $10,000 $10,000 $10,000
12/31/98 $12,800 $13,537 $11,619 $ 9,660
Past performance is not a guarantee of future results.
Firsthand
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MSF Holdings by Sector*
Card Med Devices 44.6%
Biotech 41.2%
Cash 9.8%
Other Med 0.7%
Health Services 3.7%
* Based on percentage of net assets as of December 31, 1998 (cash number net of
payables and receivables)
On the horizon, the only real competition for Enbrel will be Centocor's (CNTO)
Remicade. FDA approval for Remicade in rheumatoid arthritis is not anticipated
until Q4`99 so Enbrel should have the market to itself for most of 1999.
Two of our early stage biotech companies, Alteon (ALTN) and Amylin (AMLN)
announced poor phase III results for their respective drug candidates in Q4.
Although both companies are gathering additional data which may yet resurrect
their prospects, we have already reduced our ALTN holdings and closed our
position in AMLN. Recognizing these losses in 1998 helped to offset gains in
other stocks which otherwise would have resulted in a capital gain distribution
to shareholders.
In the near term, small-cap medical stocks continue to be somewhat out of favor
for reasons that have nothing to do with the underlying prospects for the
industry. However, due to their superior growth, and their historically low
relative valuations, I am confident that the long-term outlook for our medical
investments is very positive.
1998 Annual Report to Shareholders | 17
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Electronic Perspective
Medical Perspective
1998 Annual Report to Shareholders | 19
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ELECTRONIC PERSPECTIVE
UPDATING A FEW TRENDS
After the wild ride in 1998, the outlook for technology stocks is a curious
mixture of excitement over the great news that many companies are reporting, and
trepidation over sky high valuations. It's not unusual for investors to have
mixed feelings toward technology, but sorting through the unknowns seems much
harder these days. We believe it makes sense to examine what's going on in the
real world first, and to consider stock valuations second. Here is our take on
some important trends to watch in the coming year.
RESIDENTIAL BROADBAND:
Like 1997 and 1998, 1999 could finally be the year that the race to offer
residential broadband services actually gets exciting. Phone companies have been
pushing Digital Subscriber Line (DSL) services over existing phone lines, while
cable companies have sought to offer services over their Hybrid Fiber Coax (HFC)
networks. At times this has felt like a turtle race, as each camp has had
serious issues to overcome. The tele-phone companies, notorious for their
ponderous, bureaucratic pace, are counting on DSL to finesse high performance
out of old copper wire, which may not always be in the best condition. The cable
companies, on the other hand, have a cleaner pipeline into the home, but it's
been connected to what were largely one-way, broadcast style networks. They
still need to substantially upgrade these networks in order to cope with the
traffic they hope to generate.
Although broadband services certainly will not reach everyone this year, they
will reach more than ever before, as large scale service roll-outs reach the
mass market for the first time. It may be a painful process at times, but it's
an important one. A lot of money will be spent on the build-out, and that spells
opportunity for many companies. The technical hurdles must and will be overcome
- - the opportunity is simply too great to pass up. At least consumers and
investors can take heart in the
Firsthand
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urgency each side inspires in the other. Competition is a wonderful thing.
Companies to watch include Cisco Systems, Covad Communications and
Texas Instruments.
THE INTERNET:
No one seems to be debating the importance of the Internet any longer. The
phenomenon is real, it's the stock prices that seem unreal. Many investors are
afraid to own Internet stocks, while others seem afraid not to own them. Our
take is that the dot-com stocks are just the tip of the iceberg. As the most
visible and therefore obvious group, they tend to draw more than their fair
share of investor enthusiasm. We believe that there are safer ways to ride this
trend. For the last several years we have been investing in "bandwidth"
companies, whose products enable the build-out of communications networks. This
theme has served us well, and it's still just getting started. As traffic grows,
companies such as PMC-Sierra, Level One Communications and Vitesse Semiconductor
flourish by supplying the networking and telecommunications industries.
If you count bits, bandwidth leaps out as the obvious investment play, but if
you count dollars, then you can't help but be drawn to electronic commerce.
After the first e-Christmas, the clear consensus is that e-commerce is just
getting rolling. As usual, the obvious (though not necessarily correct) stocks
have already been bid skyward. But if the e-commerce model is so compelling,
then many non-technology companies will have to embrace it in a hurry. How will
they do that? Most companies cannot build their own technology platforms
in-house, as the Internet pioneers did, so they are likely to purchase the
capability. We look for rapid growth in the demand for systems, software and
consulting to support this migration. Companies to watch include not only the
established players, such as Microsoft, Oracle and IBM, but also suppliers of
key technologies, such as i2 Technologies and Check Point Software.
1998 Annual Report to Shareholders | 21
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In the meantime, we would not be at all surprised to see the Internet stock
hysteria end badly. After all, stock prices reflect expectations, and when the
bar is set ever higher, disappointment comes easily.
SEMICONDUCTORS:
We expect that this will be a rebound year for the semiconductor industry at
large. Demand should pick up in the important computer, consumer and
communications markets, led by high volume products such as low cost PC's, high
performance file servers, DVD players, digital cameras and faster networking
equipment.
Semiconductor capital equipment suppliers should see orders ramping nicely as
the industry overcomes its capacity imbalance. This should ben-efit the industry
leaders, such as Applied Materials and KLA-Tencor, as well as key technology
pioneers, such as IPEC, Cymer and Novellus.
For us, the tech stock roller-coaster of 1998 serves as an important reminder
that in any market it's being on the right side of the important trends that
ultimately matters. Our approach to investing in these and other trends remains
straightforward: 1.) Identify important trends that we believe in, 2.) Select
quality companies best positioned to ride those trends, and 3.) Decide what we
are willing to pay for them. It all comes down to homework and patience.
/s/ Kevin M. Landis
Kevin M. Landis
Portfolio Manager
Technology Value Fund
Technology Leaders Fund
Technology Innovators Fund
Firsthand
<PAGE>
MEDICAL PERSPECTIVE
THE NEXT "STENT"
Stents are tiny metal coils that cardiologists use to physically hold open a
coronary artery after angioplasty has been performed. Angioplasty is usually
performed to reopen a coronary artery that has become so clogged (stenosed) that
it can no longer deliver enough oxygenated blood to keep the heart's tissue
alive.
Without a stent, roughly 35% of angioplasty patients will experience a
restenosis (re-clogging) of their coronary arteries within 6 months. These
patients typically require either another angioplasty or bypass surgery. The
cost of performing these "redos" is tremendous. But the bigger impact is the
anxiety of the patients who, having already experienced one heart attack, know
they have a 1 in 3 chance of having a recurrence.
The use of a stent reduces the risk of restenosis to about 20%. It does not
totally relieve a patient's anxiety, but, if given a choice, patients will
choose a 1 in 5 chance of a recurrence over a 1 in 3 chance every time. The
stent also saves the healthcare system the cost of performing repeat procedures
on the 15% of patients who would otherwise have restenosed. Since cardiac stents
improve medical outcomes and reduce the overall cost of care, it is not
surprising that stents were quickly and widely adopted. Today, cardiac stents
are a $2 billion industry and are used in over 70% of angioplasty cases.
But is 20% the lowest we can drive the restenosis rate? It now appears that
radiation can be used to reduce the restenosis rate even further - possibly to
around 11%. Industry giants such as Guidant (GDT), Johnson & Johnson (JNJ), and
Boston Scientific (BSX) are developing radiation-based products to reduce
restenosis. Other companies to watch in this area are Novoste (NOVT), EndoSonics
(ESON) and Radiance Medical (RADX).
Over the next 24 months a lot of value is going to be created by the companies
in this area. If you have firsthand experience with any radiation-based products
to reduce restenosis, please let us know by sending an e-mail to:
[email protected]
/s/ Kendrick W. Kam
Kendrick W. Kam
Portfolio Manager
Technology Value Fund
Medical Specialists Fund
1998 Annual Report to Shareholders | 23
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
AUDITED FINANCIAL STATEMENTS
(as of 12/31/98)
Report of Independent
Certified Public Accountants
Portfolios of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
1998 Annual Report to Shareholders | 25
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
FIRSTHAND FUNDS
San Jose, California
We have audited the accompanying statements of assets and liabilities of the
Firsthand Funds comprising, respectively, the Technology Value Fund, Technology
Leaders Fund, Technology Innovators Fund and Medical Specialists Fund, including
the portfolios of investments as of December 31, 1998, 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 disclosure in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Firsthand Funds as of December 31, 1998, 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 18, 1999
1998 Annual Report to Shareholders | 27
<PAGE>
PORTFOLIO OF TECHNOLOGY VALUE FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 97.7% $ 174,059,786
(Cost $169,738,697) -------------
BIOTECHNOLOGY 14.5% 25,834,444
-------------
Centocor, Inc. * 204,000 9,205,500
Immunex Corp. * 99,500 12,518,344
Medco Research, Inc. * 158,100 4,110,600
CARDIAC MEDICAL DEVICES 18.9% 33,618,338
-------------
Arterial Vascular Engineering, Inc. * 124,400 6,531,000
Boston Scientific Corp. * 153,800 4,123,762
CardioThoracic Systems, Inc. * 553,000 3,836,438
Cardiovascular Dynamics, Inc. (1) * 554,800 1,699,075
Endocardial Solutions, Inc. (1) * 513,900 5,139,000
EndoSonics Corp. * 734,000 7,294,125
Guidant Corp. 39,000 4,299,750
Novoste Corp. * 24,500 695,188
COMMUNICATIONS EQUIPMENT 0.2% 422,812
-------------
PairGain Technologies, Inc. * 55,000 422,812
ELECTRONIC DESIGN AUTOMATION 4.2% 7,555,204
-------------
Aspec Technology, Inc. * 521,000 683,812
Avant! Corp. * 429,462 6,871,392
HEALTH SERVICES 1.0% 1,709,775
-------------
HCIA, Inc. * 402,300 1,709,775
-------------
NETWORKING 2.0% 3,520,125
-------------
FVC.COM, Inc. * 223,500 3,520,125
-------------
OTHER ELECTRONICS 10.7% 19,128,769
-------------
Rockwell International Corp. 393,900 19,128,769
PERIPHERALS 2.4% 4,215,000
-------------
Adaptec, Inc. * 240,000 4,215,000
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY VALUE FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
... continued ... producing % shares value
- --------------------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT 3.3% $ 5,958,750
-------------
Applied Science & Technology, Inc. * 97,500 999,375
Cymer, Inc. * 80,000 1,170,000
Integrated Process Equipment Corp. * 352,500 3,789,375
SEMICONDUCTORS 39.2% 69,818,444
-------------
Applied Micro Circuits Corp. * 489,000 16,610,719
Celeritek, Inc. (1) * 522,200 1,566,600
Galileo Technology Ltd. * 335,000 9,045,000
Level One Communications, Inc. * 404,000 4,342,000
PMC-Sierra, Inc. * 291,000 18,369,375
Quality Semiconductor, Inc. * 237,800 891,750
Stellar Semiconductor, Inc. (2) * 2,040,000 2,448,000
TriQuint Semiconductor, Inc. * 340,000 6,545,000
SOFTWARE 1.3% 2,278,125
-------------
i2 Technologies, Inc. * 75,000 2,278,125
TOTAL INVESTMENT SECURITIES 97.7% 174,059,786
(Cost $169,738,697)
OTHER ASSETS IN EXCESS OF LIABILITIES 2.3% 4,071,311
-------------
NET ASSETS 100.0% $ 178,131,097
=============
(1) Denotes affiliated issuer (Note 4).
(2) Restricted security (Note 4).
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 29
<PAGE>
PORTFOLIO OF TECHNOLOGY LEADERS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 97.1% $ 41,577,094
(Cost $30,460,368) -------------
COMMUNICATIONS EQUIPMENT 8.9% 3,810,625
-------------
Lucent Technologies, Inc. 20,000 2,200,000
Telefonaktiebolaget LM Ericsson - ADR 10,000 239,375
Tellabs, Inc. * 20,000 1,371,250
COMPUTERS 10.8% 4,632,813
-------------
Hewlett-Packard Co. 13,000 888,063
International Business Machines Corp. 11,000 2,032,250
Sun Microsystems, Inc. * 20,000 1,712,500
ELECTRONIC DESIGN AUTOMATION 4.2% 1,785,000
-------------
Cadence Design Systems, Inc. * 60,000 1,785,000
INTERNET 3.7% 1,600,000
-------------
America Online, Inc. * 10,000 1,600,000
NETWORKING 8.7% 3,712,500
-------------
Cisco Systems, Inc. * 40,000 3,712,500
OTHER ELECTRONICS 9.6% 4,127,812
-------------
Rockwell International Corp. 85,000 4,127,812
SEMICONDUCTOR EQUIPMENT 5.9% 2,518,812
-------------
Applied Materials, Inc. * 15,000 640,312
KLA-Tencor Corp. * 14,000 607,250
Teradyne, Inc. * 30,000 1,271,250
SEMICONDUCTORS 35.2% 15,080,094
-------------
Altera Corp. * 30,000 1,826,250
Intel Corp. 20,000 2,371,250
Level One Communications, Inc. * 101,750 3,612,125
PMC-Sierra, Inc. * 45,000 2,840,625
Texas Instruments, Inc. 17,500 1,497,344
Vitesse Semiconductor Corp. * 50,000 2,281,250
Xilinx, Inc. * 10,000 651,250
SOFTWARE 10.1% 4,309,438
-------------
Microsoft Corp. * 15,000 2,080,313
Oracle Corp. * 45,000 1,940,625
SAP AG - ADR 8,000 288,500
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY LEADERS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
... continued ... producing % shares value
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 20.3% $ 8,703,512
(Cost $8,703,512) -------------
Star Treasury Fund 8,703,512 8,703,512
TOTAL INVESTMENT SECURITIES 117.4% 50,280,606
(Cost $39,163,880)
LIABILITIES IN EXCESS OF OTHER ASSETS (17.4%) (7,445,885)
-------------
NET ASSETS 100.0% $ 42,834,721
=============
1998 Annual Report to Shareholders | 31
<PAGE>
PORTFOLIO OF TECHNOLOGY INNOVATORS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 86.0% $ 5,577,031
(Cost $4,613,985) -------------
COMMUNICATIONS EQUIPMENT 0.2% 11,953
-------------
P-Com, Inc. * 3,000 11,953
ELECTRONIC DESIGN AUTOMATION 0.1% 6,562
-------------
Aspec Technology, Inc. * 5,000 6,562
INTERNET 4.0% 261,563
-------------
InfoSpace.com, Inc. * 4,500 171,563
Ticketmaster Online - CitySearch, Inc. * 1,000 57,000
Xoom.com, Inc. * 1,000 33,000
NETWORKING 3.6% 236,250
-------------
FVC.COM, Inc. * 15,000 236,250
PHOTONICS 5.1% 327,000
-------------
SDL, Inc. * 3,000 118,875
Uniphase Corp. * 3,000 208,125
SEMICONDUCTOR EQUIPMENT 0.7% 43,000
-------------
Integrated Process Equipment Corp. * 4,000 43,000
SEMICONDUCTORS 54.2% 3,519,266
-------------
Applied Micro Circuits Corp. * 33,500 1,137,953
Elantec Semiconductor, Inc. * 2,000 7,500
Galileo Technology Ltd. * 14,000 378,000
Level One Communications, Inc. * 7,000 248,500
MMC Networks, Inc. * 62,500 828,125
RF Micro Devices, Inc. * 4,000 185,500
TranSwitch Corp. * 5,000 194,688
TriQuint Semiconductor * 28,000 539,000
SOFTWARE 15.8% 1,021,437
-------------
Check Point Software Technologies Ltd. * 5,000 205,000
Concur Technologies, Inc. * 5,000 152,500
i2 Technologies, Inc. * 15,000 455,625
PeopleSoft, Inc. * 11,000 208,312
TELECOMMUNICATIONS 2.3% 150,000
-------------
Qwest Communications Int'l, Inc. * 3,000 150,000
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
PORTFOLIO OF TECHNOLOGY INNOVATORS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
... continued ... producing % shares value
- --------------------------------------------------------------------------------
CASH EQUIVALENTS 28.1% $ 1,825,088
(Cost $1,825,088) -------------
Star Treasury Fund 1,825,088 1,825,088
TOTAL INVESTMENT SECURITIES 114.1% 7,402,119
(Cost $6,439,073)
LIABILITIES IN EXCESS OF OTHER ASSETS (14.1%) (913,020)
-------------
NET ASSETS 100.0% $ 6,489,099
=============
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 33
<PAGE>
PORTFOLIO OF MEDICAL SPECIALISTS FUND
INVESTMENTS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
non-income
producing % shares value
- --------------------------------------------------------------------------------
COMMON STOCKS 90.2% $ 4,049,582
(Cost $3,666,494) -------------
BIOTECHNOLOGY 41.2% 1,852,556
-------------
Alteon, Inc. * 20,000 15,625
Amgen, Inc. * 2,000 209,125
Aurora Biosciences Corp. * 13,500 86,906
Cell Therapeutics, Inc. * 25,000 75,000
Centocor, Inc. * 12,000 541,500
IGEN International, Inc. * 6,960 213,150
Immunex Corp. * 4,000 503,250
Medco Research, Inc. * 8,000 208,000
CARDIAC MEDICAL DEVICES 44.6% 2,002,650
-------------
Arterial Vascular Engineering, Inc. * 15,000 787,500
Boston Scientific Corp. * 7,700 206,456
CardioThoracic Systems, Inc. * 50,000 346,875
Cardiovascular Dynamics, Inc. (1) * 15,000 45,938
Endocardial Solutions, Inc. (1) * 13,600 136,000
EndoSonics Corp. * 21,500 213,656
Guidant Corp. 1,900 209,475
Novoste Corp. * 2,000 56,750
HEALTH SERVICES 3.7% 164,000
-------------
QuadraMed Corp. * 8,000 164,000
OTHER MEDICAL DEVICES 0.7% 30,376
-------------
Cyberonics, Inc. * 2,250 30,376
CASH EQUIVALENTS 9.3% 419,519
(Cost $419,519) -------------
Star Treasury Fund 419,519 419,519
TOTAL INVESTMENT SECURITIES 99.5% 4,469,101
(Cost $4,086,013)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5% 20,817
-------------
NET ASSETS 100.0% $ 4,489,918
=============
(1) Denotes affiliated issuer (Note 4).
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
=========================================================================================================================
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
=========================================================================================================================
ASSETS
Investment securities:
<S> <C> <C> <C> <C>
At acquisition cost $ 169,738,697 $ 39,163,880 $ 6,439,073 $ 4,086,013
=================================================================
At market value (Note 1) $ 174,059,786 $ 50,280,606 $ 7,402,119 $ 4,469,101
Dividends receivable -- 3,067 6,955 911
Receivable for capital shares sold 3,498,283 469,860 10,812 120,500
Receivable for securities sold 3,844,280 -- -- 319,792
-----------------------------------------------------------------
TOTAL ASSETS 181,402,349 50,753,533 7,419,886 4,910,304
-----------------------------------------------------------------
LIABILITIES
Bank overdraft 2,333,878 2,257 -- 6,298
Payable for capital shares redeemed 629,843 1,125,995 212,741 5,225
Payable for securities purchased 13,015 6,722,838 711,460 402,737
Payable to affiliates (Note 1) 294,516 67,722 6,586 6,126
-----------------------------------------------------------------
TOTAL LIABILITIES 3,271,252 7,918,812 930,787 420,386
-----------------------------------------------------------------
NET ASSETS $ 178,131,097 $ 42,834,721 $ 6,489,099 $ 4,489,918
=================================================================
Net assets consist of:
Paid-in-capital $ 177,982,982 $ 31,012,265 $ 5,381,596 $ 4,573,655
Accumulated net realized gains (losses) from
security transactions (4,172,974) 705,730 144,457 (466,825)
Net unrealized appreciation on investments 4,321,089 11,116,726 963,046 383,088
-----------------------------------------------------------------
Net assets $ 178,131,097 $ 42,834,721 $ 6,489,099 $ 4,489,918
=================================================================
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 5,524,987 2,387,362 405,301 465,004
=================================================================
Net asset value, offering price and redemption
price per share (Note 1) $ 32.24 $ 17.94 $ 16.01 $ 9.66
=================================================================
</TABLE>
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 35
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998(A)
==============================================================================================================
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
==============================================================================================================
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Interest $ 251,377 $ 151,801 $ 2,164 $ 13,417
Dividends 18,678 23,456 11,088 7,871
---------------------------------------------------------------
TOTAL INVESTMENT INCOME 270,055 175,257 13,252 21,288
---------------------------------------------------------------
EXPENSES
Investment advisory fees (Note 3) 2,734,532 286,734 14,782 51,357
Administrative fees (Note 3) 816,383 86,020 4,435 15,407
---------------------------------------------------------------
TOTAL EXPENSES 3,550,915 372,754 19,217 66,764
---------------------------------------------------------------
NET INVESTMENT LOSS (3,280,860) (197,497) (5,965) (45,476)
---------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) from security (1,125,096) 903,227 150,422 (466,825)
transactions
Net change in unrealized appreciation/
depreciation on investments 40,388,492 11,093,756 963,046 347,325
---------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS 39,263,396 11,996,983 1,113,468 (119,500)
---------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS $ 35,982,536 $ 11,799,486 $ 1,107,503 $ (164,976)
===============================================================
</TABLE>
(A) Except for the Technology Innovators Fund which represents the period from
the commencement of operations (May 20, 1998) through December 31, 1998.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED DECEMBER 31, 1998 AND 1997
==================================================================================================================================
TECHNOLOGY VALUE FUND TECHNOLOGY LEADERS FUND
--------------------- -----------------------
Year Year Year Period
Ended Ended Ended Ended
12/31/98 12/31/97 12/31/98 12/31/97(A)
==================================================================================================================================
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment income (loss) $ (3,280,860) $ (1,927,303) $ (197,497) $ 2,257
Net realized gains (losses) from security transactions (1,125,096) 14,064,022 903,227 --
Net change in unrealized appreciation/
depreciation on investments 40,388,492 (38,292,641) 11,093,756 22,970
-------------------------------------------------------------------
Net increase (decrease) In net assets from operations 35,982,536 (26,155,922) 11,799,486 25,227
-------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- (2,257) --
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) (2,257) --
-------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 149,553,020 335,357,889 53,787,109 3,716,034
Net asset value of shares issued in
reinvestment of distributions to shareholders -- 13,072,987 -- --
Payments for shares redeemed (201,778,002) (147,623,435) (26,330,447) (160,431)
-------------------------------------------------------------------
Net increase (decrease) in net assets from capital share
transactions (52,224,982) 200,807,441 27,456,662 3,555,603
-------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (16,242,446) 159,269,441 39,253,891 3,580,830
NET ASSETS:
Beginning of period 194,373,543 35,104,102 3,580,830 --
-------------------------------------------------------------------
End of period $ 178,131,097 $ 194,373,543 $ 42,834,721 $ 3,580,830
===================================================================
UNDISTRIBUTED NET INVESTMENT INCOME: $ -- $ -- $ -- $ 2,257
===================================================================
CAPITAL SHARE ACTIVITY:
Shares sold 5,313,423 10,437,757 3,830,812 371,478
Shares issued in reinvestment of distributions to
shareholders -- 517,449 -- --
Shares redeemed (7,247,403) (4,812,871) (1,798,882) (16,046)
-------------------------------------------------------------------
Net increase (decrease) in shares outstanding (1,933,980) 6,142,335 2,031,930 355,432
Shares outstanding, beginning of period 7,458,967 1,316,632 355,432 --
-------------------------------------------------------------------
Shares outstanding, end of period 5,524,987 7,458,967 2,387,362 355,432
===================================================================
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 37
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE PERIODS ENDED DECEMBER 31, 1998 AND 1997
===========================================================================================================
TECHNOLOGY INNOVATORS FUND MEDICAL SPECIALISTS FUND
-------------------------- ------------------------
Period Year Period
Ended Ended Ended
12/31/98(A) 12/31/98 12/31/97(B)
===========================================================================================================
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income (loss) $ (5,965) $ (45,476) $ 1,557
Net realized gains (losses) from security transactions 150,422 (466,825) --
Net change in unrealized appreciation/
depreciation on investments 963,046 347,325 35,763
----------------------------------------------
Net increase (decrease) in net assets from operations 1,107,503 (164,976) 37,320
----------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (1,557) --
From net realized gains -- -- --
In excess of net realized gains -- -- --
----------------------------------------------
Decrease in net assets from distributions to shareholders -- (1,557) --
----------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 8,790,653 5,205,850 2,350,090
Net asset value of shares issued in
reinvestment of distributions to shareholders -- -- --
Payments for shares redeemed (3,409,057) (2,911,609) (25,200)
----------------------------------------------
Net increase in net assets from capital share
transactions 5,381,596 2,294,241 2,324,890
----------------------------------------------
TOTAL INCREASE IN NET ASSETS 6,489,099 2,127,708 2,362,210
NET ASSETS:
Beginning of period -- 2,362,210 --
----------------------------------------------
End of period $ 6,489,099 $ 4,489,918 $ 2,362,210
==============================================
UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ -- $ 1,557
==============================================
CAPITAL SHARE ACTIVITY:
Shares sold 649,555 551,990 235,882
Shares issued in reinvestment of distributions to
shareholders -- -- --
Shares redeemed (244,254) (320,299) (2,569)
----------------------------------------------
Net increase in shares outstanding 405,301 231,691 233,313
Shares outstanding, beginning of period -- 233,313 --
----------------------------------------------
Shares outstanding, end of period 405,301 465,004 233,313
==============================================
</TABLE>
(A) Represents the period from the commencement of operations (May 20, 1998)
through December 31, 1998.
(B) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
- --------------------------------------------------------------------------------
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
======================================================================================================================
Year Year Year Year Period
Ended Ended Ended Ended Ended
12/31/98 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 loss (0.59) (0.26) (0.08) (0.14) (0.03)
Net realized and unrealized gains on investments 6.77 1.90 11.20 7.28 2.56
----------------------------------------------------------------
Total from investment operations 6.18 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 $ 32.24 $ 26.06 $ 26.66 $ 18.44 $ 11.70
================================================================
Total return 23.71% 6.46% 60.55% 61.17% 25.30%(B)
================================================================
Net assets at end of period (millions) $ 178.1 $ 194.4 $ 35.1 $ 2.7 $ 0.2
================================================================
Ratio of expenses to average net assets 1.95% 1.93% 1.81% 1.98% 1.96%(C)
Ratio of net investment loss to average net assets (1.80%) (1.43%) (0.55%) (1.45%) (1.29%)(C)
Portfolio turnover rate 126% 101% 43% 45% 56%
</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
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 39
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - TECHNOLOGY LEADERS FUND
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
=======================================================================================
Year Period
Ended Ended
12/31/98 12/31/97(A)
=======================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 10.07 $ 10.00
----------------------
Income from investment operations:
Net investment income (loss) (0.09) 0.01
Net realized and unrealized gains on investments 7.96 0.06
----------------------
Total from investment operations 7.87 0.07
----------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
----------------------
Total distributions -- --
----------------------
Net asset value at end of period $ 17.94 $ 10.07
======================
Total return 78.15% 0.70%(B)
======================
Net assets at end of period (millions) $ 42.8 $ 3.6
======================
Ratio of expenses to average net assets 1.94% 1.80%(C)
Ratio of net investment income (loss) to average net assets (1.03%) 1.77%(C)
Portfolio turnover rate 105% 0%
</TABLE>
(A) Represents the period from the commencement of operations (December 10,
1997) through December 31, 1997.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
Firsthand
<PAGE>
Financial Highlights - Technology Innovators Fund
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Period
================================================================================
Period
Ended
12/31/98(A)
================================================================================
Net asset value at beginning of period $ 10.00
--------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized gains on investments 6.02
--------
Total from investment operations 6.01
--------
Less distributions:
Dividends from net investment income --
Distributions from net realized gains --
--------
Total distributions --
--------
Net asset value at end of period $ 16.01
========
Total return 60.10%(B)
========
Net assets at end of period (millions) $ 6.5
========
Ratio of expenses to average net assets 1.92%(C)
Ratio of net investment loss to average net assets (0.59%)(C)
Portfolio turnover rate 188%
(A) Represents the period from the commencement of operations (May 20, 1998)
through December 31, 1998.
(B) Not annualized.
(C) Annualized.
- --------------------------------------------------------------------------------
see accompanying notes to financial statements
- --------------------------------------------------------------------------------
1998 Annual Report to Shareholders | 41
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights - Medical Specialists Fund
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
=====================================================================================
Year Period
Ended Ended
12/31/98 12/31/97(A)
=====================================================================================
<S> <C> <C>
Net asset value at beginning of period $ 10.12 $ 10.00
----------------------
Income from investment operations:
Net investment income (loss) (0.10) 0.01
Net realized and unrealized gains (losses)
on investments (0.36) 0.11
----------------------
Total from investment operations (0.46) 0.12
----------------------
Less distributions:
Dividends from net investment income -- --
Distributions from net realized gains -- --
----------------------
Total distributions -- --
----------------------
Net asset value at end of period $ 9.66 $ 10.12
======================
Total return (4.55%) 1.20%(B)
======================
Net assets at end of period (millions) $ 4.5 $ 2.4
======================
Ratio of expenses to average net assets 1.95% 1.81%(C)
Ratio of net investment income (loss) to average net assets (1.33%) 1.75%(C)
Portfolio turnover rate 160% 0%
</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>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
1. Significant Accounting Policies
The Technology Value Fund, the Technology Leaders Fund, the Technology
Innovators Fund and the Medical Specialists 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 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 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 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.
1998 Annual Report to Shareholders | 43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
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 December 31, 1998.
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Gross unrealized appreciation $ 40,892,041 $ 11,203,991 $ 1,053,819 $ 785,596
Gross unrealized depreciation (37,403,579) (243,604) (106,562) (476,621)
-------------------------------------------------------------------
Net unrealized appreciation $ 3,488,462 $ 10,960,387 $ 947,257 $ 308,975
===================================================================
Federal income tax cost $ 170,571,324 $ 39,320,219 $ 6,454,862 $ 4,160,126
===================================================================
</TABLE>
The difference between the acquisition cost and the federal income tax cost of
portfolio investments is due to certain timing differences in the recognition of
capital losses under generally accepted accounting principles and income tax
regulations.
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
As of December 31, 1998, the Technology Value Fund and the Medical Specialists
Fund had capital loss carryforwards for federal income tax purposes of
$2,393,785 and $392,711, respectively, which expire on December 31, 2006. In
addition, the Technology Value Fund realized net capital losses of $946,562
during the period from November 1, 1998 through December 31, 1998, which are
treated for federal income tax purposes as arising in the tax year ending
December 31, 1999.
2. Investment Transactions
Investment transactions (excluding short-term investments) were as follows for
the periods ended December 31, 1998.
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY MEDICAL
VALUE LEADERS INNOVATORS SPECIALISTS
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Purchases of investment securities $221,681,480 $ 45,169,922 $ 6,957,577 $ 7,861,936
============================================================
Proceeds from sales and maturities
of investment securities $278,222,943 $ 17,367,117 $ 2,494,014 $ 4,657,767
============================================================
</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
pro-vision 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.
1998 Annual Report to Shareholders | 45
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
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 preser-vation 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 and Restricted Securities
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 each Fund's investments in affiliates, if
any, for the year ended December 31, 1998 is as noted on the following page:
Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
================================================================================
<TABLE>
<CAPTION>
Share Activity
-------------------------------------------------- Market
Balance Balance Realized Value Acquisition
Affiliate 12/31/97 Purchases Sales 12/31/98 Gain (Loss) 12/31/98 Cost
- --------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY VALUE FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Cardiovascular Dynamics, Inc. 554,800 -- -- 554,800 $ -- $1,699,075 $4,912,292
Celeritek, Inc. -- 524,200 2,000 522,200 (8,750) 1,566,600 6,035,926
Endocardial Solutions, Inc. 515,400 -- 1,500 513,900 7,028 5,139,000 5,799,541
TECHNOLOGY INNOVATORS FUND
Celeritek, Inc. -- 2,000 2,000 -- (8,060) -- --
MEDICAL SPECIALISTS FUND
Cardiovascular Dynamics, Inc. 1,200 15,000 1,200 15,000 189 45,938 91,863
Endocardial Solutions, Inc. 3,500 11,100 1,000 13,600 (4,248) 136,000 166,215
</TABLE>
Restricted securities are securities which have not been registered under the
Securities Act of 1933, as amended, and are subject to restrictions on resale.
Investments in restricted securities are valued at 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. As of December 31, 1998,
the Technology Value Fund had a 2,040,000 share investment in Stellar
Semiconductor, Inc., valued at $2,448,000 and representing 1.37% of net assets,
which was acquired on November 16, 1998, at a cost of $2,448,000.
1998 Annual Report to Shareholders | 47
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
[LOGO] Firsthand
This report is 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 web site at www.FirsthandFunds.com or call
1.888.884.2675 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. Taguchi
OFFICERS
Kevin M. Landis, President
Kendrick W. Kam, Secretary
Yakoub N. Bellawala, 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) 1-888-884-2675
DISTRIBUTOR
CW Fund Distributors, Inc.
312 Walnut Street, 21st Floor
Cincinnati, OH 45202
Firsthand
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> FIRSTHAND FUNDS - THE TECHNOLOGY VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 169,738,697
<INVESTMENTS-AT-VALUE> 174,059,786
<RECEIVABLES> 7,342,563
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 181,402,349
<PAYABLE-FOR-SECURITIES> 13,015
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,258,237
<TOTAL-LIABILITIES> 3,271,252
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,982,982
<SHARES-COMMON-STOCK> 5,524,987
<SHARES-COMMON-PRIOR> 7,458,967
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,172,974)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,321,089
<NET-ASSETS> 178,131,097
<DIVIDEND-INCOME> 18,678
<INTEREST-INCOME> 251,377
<OTHER-INCOME> 0
<EXPENSES-NET> 3,550,915
<NET-INVESTMENT-INCOME> (3,280,860)
<REALIZED-GAINS-CURRENT> (1,125,096)
<APPREC-INCREASE-CURRENT> 40,388,492
<NET-CHANGE-FROM-OPS> 35,982,536
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,313,423
<NUMBER-OF-SHARES-REDEEMED> 7,247,403
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (16,242,446)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3,047,878
<GROSS-ADVISORY-FEES> 2,734,532
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,550,915
<AVERAGE-NET-ASSETS> 182,257,604
<PER-SHARE-NAV-BEGIN> 26.06
<PER-SHARE-NII> (.59)
<PER-SHARE-GAIN-APPREC> 6.77
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.24
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 4,086,013
<INVESTMENTS-AT-VALUE> 4,469,101
<RECEIVABLES> 441,203
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,910,304
<PAYABLE-FOR-SECURITIES> 402,737
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,649
<TOTAL-LIABILITIES> 420,386
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,573,655
<SHARES-COMMON-STOCK> 465,004
<SHARES-COMMON-PRIOR> 233,313
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (466,825)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 383,088
<NET-ASSETS> 4,489,918
<DIVIDEND-INCOME> 7,871
<INTEREST-INCOME> 13,417
<OTHER-INCOME> 0
<EXPENSES-NET> 66,764
<NET-INVESTMENT-INCOME> (45,476)
<REALIZED-GAINS-CURRENT> (466,825)
<APPREC-INCREASE-CURRENT> 347,325
<NET-CHANGE-FROM-OPS> (164,976)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,557
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 551,990
<NUMBER-OF-SHARES-REDEEMED> 320,299
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,127,708
<ACCUMULATED-NII-PRIOR> 1,557
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,357
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 66,764
<AVERAGE-NET-ASSETS> 3,429,605
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> (.10)
<PER-SHARE-GAIN-APPREC> (.36)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 39,163,880
<INVESTMENTS-AT-VALUE> 50,280,606
<RECEIVABLES> 472,927
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,753,533
<PAYABLE-FOR-SECURITIES> 6,722,838
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,195,974
<TOTAL-LIABILITIES> 7,918,812
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,012,265
<SHARES-COMMON-STOCK> 2,387,362
<SHARES-COMMON-PRIOR> 355,432
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 705,730
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,116,726
<NET-ASSETS> 42,834,721
<DIVIDEND-INCOME> 23,456
<INTEREST-INCOME> 151,801
<OTHER-INCOME> 0
<EXPENSES-NET> 372,754
<NET-INVESTMENT-INCOME> (197,497)
<REALIZED-GAINS-CURRENT> 903,227
<APPREC-INCREASE-CURRENT> 11,093,756
<NET-CHANGE-FROM-OPS> 11,799,486
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,257
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,830,812
<NUMBER-OF-SHARES-REDEEMED> 1,798,882
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 39,253,891
<ACCUMULATED-NII-PRIOR> 2,257
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 286,734
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 372,754
<AVERAGE-NET-ASSETS> 19,223,135
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> (.09)
<PER-SHARE-GAIN-APPREC> 7.96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.94
<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> 8-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 6,439,073
<INVESTMENTS-AT-VALUE> 7,402,119
<RECEIVABLES> 17,767
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,419,886
<PAYABLE-FOR-SECURITIES> 711,460
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 219,327
<TOTAL-LIABILITIES> 930,787
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,381,596
<SHARES-COMMON-STOCK> 405,301
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 144,457
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 963,046
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</TABLE>
