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FIRSTHAND FUNDS
1999 Report to Shareholders
[GRAPHIC OMITTED]
<PAGE>
CONTENTS
Performance Summary four
1999: Year in Review five
The Technology Value Fund six
The Technology Leaders Fund eight
The Technology Innovators Fund ten
The Communications FundTM twelve
The e-Commerce FundTM fourteen
Technology Outlook: 2000 and Beyond sixteen
Report of Independent Certified Public Accountants nineteen
Portfolios of Investments twenty
Statements of Assets and Liabilities twenty-eight
Statements of Operations twenty-nine
Statements of Changes in Net Assets thirty
Financial Highlights thirty-two
Notes to Financial Statements thirty-five
<PAGE>
PERFORMANCE SUMMARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Performance Summary Average annual total Cumulative total
return since return since
Q4'99 1999 5-Year TVF TLF TIF TCF/TEF
(Total returns as of total total total inception inception inception inception
12/31/99) (5/20/94*) (12/10/97) (5/20/98) (9/30/99)
===================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TVF The Technology 52.88% 190.40% 58.15% 56.53% o o o
Value Fund
TLF The Technology 53.97% 152.58% o o 108.22% o o
Leaders Fund
TIF The Technology 54.79% 212.34% o o o 170.21% o
Innovators Fund
TCF The 46.50% o o o o o 46.50%
Communications
Fund(TM)
TEF The e-Commerce 48.60% o o o o o 48.60%
Fund(TM)
DJIA The Dow Jones 11.60% 27.01% 26.79% 24.55% 20.88% 17.83% 11.60%
Industrial
Average
S&P 500 The Standard & 14.86% 20.89% 28.24% 25.58% 23.68% 20.54% 14.86%
Poors 500 Index
NASDAQ The NASDAQ 48.26% 85.95% 40.63% 36.35% 56.83% 63.47% 48.26%
Composite Index
</TABLE>
* TVF inception date is 5/20/94; TVF effectiveness date is 12/15/94. TVF
average annual total return since effectiveness is 59.23%
The DJIA, S&P 500, and NASDAQ Composite are unmanaged indices representative of
a broad basket of stocks. They are typically used as a proxy of overall market
performance.
Returns assume reinvestment of dividends and distributions. Past performance
cannot guarantee 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 industry, 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.
<PAGE>
1999: YEAR IN REVIEW
1999 was a record-breaking year for Firsthand Funds. All of the funds posted
record performance as well as record asset level gains for the year. The table
on page 4 shows each fund's fourth quarter and full-year performance. The table
also illustrates that each of the funds beat the major market indices for the 12
months ended December 31, 1999.
The year's performance will be remembered as one of the greatest in stock market
history. Despite high volatility, particularly in the first half of the year,
all of the major market indices posted all-time record highs, led by a
tremendous surge in technology issues.
The year began in the wake of the market recovery seen in the fourth quarter of
1998, with many investors still jittery from the massive correction that
occurred in the summer before. As the economy continued to charge along and as
the Fed assumed a "neutral" interest rate bias, the summer swoon that many
predicted never materialized. The floodgates opened in September, and the market
for technology stocks had one of its most impressive quarters in history, with
the NASDAQ Composite Index appreciating more than 48% during the quarter.
Most of the technology sub-sectors we focus on had stellar returns. The
semiconductor industry showed tremendous growth, particularly in the areas of
components for wireless communications and data networking equipment. More
broadly, worldwide supply and demand came into balance for the first time in
several quarters, which enabled prices of commodity products like DRAMs to
solidify. This balance was upset late in the year by the series of earthquakes
in Taiwan, which forced several key manufacturing facilities to shut down for a
brief period. While some of the companies in the portfolios were affected, the
damage proved to be slight.
As the chip industry rebounded this year, the market for semiconductor
manufacturing equipment also showed strong growth for the first time in years.
This traditionally cyclical market had endured a spending dry spell during
several quarters of worldwide over capacity. With strong demand growth as well
as a shift to new manufacturing technologies underway, most industry players
experienced strong revenue growth and soaring stock prices.
Internet-related industries, such as data communications and networking
equipment, continued their boom, with industry giant Cisco (CSCO) continuing to
lead the way. Following the first e-Christmas in 1998, e-commerce became firmly
established as a powerful trend reshaping the business landscape in the U.S. In
the second half of 1999, corporate information technology managers were forced
to stop worrying about Y2K preparations and start worrying about their
companies' e-commerce infrastructure. The buzzword of the moment became B2B,
meaning business-to-business e-commerce, which promises to be larger in dollar
terms than business-to-consumer e-commerce. Our belief in the tremendous
potential of e-commerce drove our decision to open The e-Commerce Fund(TM) in
September 1999. This new fund invests primarily in the enablers and
beneficiaries of electronic commerce, including software providers, consulting
firms, and providers of Internet and communications services.
The telecommunications sector, while enduring tremendous consolidation, is also
showing signs of becoming even more competitive. Led by pioneers such as Qwest
Communications (Q), the industry is being transformed from a copper wire-based
industry carrying telephone calls to a fiber optic-based industry carrying
"packetized" digital data. Growing demand for wireless communications services
has also created new industry giants such as Qualcomm (QCOM) and Nokia (NOK).
With strong growth forecasted across this industry for years to come, we opened
another new fund in September of 1999, The Communications Fund(TM), which
primarily focuses its investments in the areas of next-generation communications
networks and wireless technologies.
The year closed with Y2K fears being replaced by a quiet confidence in worldwide
technology infrastructure growth. The anticipated December panic sell-off never
came and the New Year passed without major incident. Looking forward, there is
only one thing we can predict with certainty: technology stocks will continue to
be volatile. There is no doubt in our minds that technology will continue to be
a driving growth force in the world's economies.
1999 Annual Report to Shareholders 5
<PAGE>
PERFORMANCE AND PORTFOLIO DISCUSSION:
TECHNOLOGY VALUE FUND
The Technology Value Fund ("TVF", ticker symbol TVFQX) posted the strongest year
in its history in 1999 with a return of 190.40%. Over the same period, the
NASDAQ Composite Index appreciated 85.95% and the S&P 500 Index grew 20.89%,
while the Lipper Science & Technology (mutual fund) Index gained 113.92%. In the
fourth quarter of 1999, TVF gained 52.88%, outpacing the NASDAQ Composite Index
(48.26%), the S&P 500 (14.86%), and the DJIA (11.60%).
Holdings by Sector
Technology Value Fund
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Net Cash 14.5%
Software 6.5%
Services 2.7%
Comm Equip 17.7%
Photonics 1.6%
Telecom 4.2%
Medical 10.4%
Peripherals 0.6%
Networking 4.3%
Semiconductors 32.9%
EDA 0.5%
Semi Equip 4.1%
Relative Performance:
TVF vs. Market Indices
[GRAPHIC OMITTED]
S&P
DATE TVF DJIA NASDAQ 500
---- --- ---- ------ ---
5/20/94 $ 10,000 $ 10,000 $ 10,000 $ 10,000
(inception)
12/31/99 $ 124,009 $ 34,341 $ 57,105 $ 35,966
<PAGE>
WE ARE PROUD TO SAY that TVF finished 1999 as the top-performing mutual fund (#1
out of 5,387 tracked by Morningstar Principia Pro) over the past five years,
based on total return. This marks the third consecutive quarter in which TVF
earned this honor.
Semiconductors remained the Fund's most heavily weighted sector at the end of
the year, representing 32.9% of net assets. During the fourth quarter, the Fund
added several new semiconductor companies to the portfolio, including TranSwitch
(TXCC), Atmel (ATML), and Silicon Image (SIMG). Silicon Image is an exciting
young company that produces chips used as the interface between digital CRTs and
LCD monitors and personal computers. We continue to hold large positions in
communications chip companies, including Applied Micro Circuits (AMCC),
PMC-Sierra (PMCS), and TriQuint (TQNT).
We expect very strong growth ahead for the communications industry, most
particularly in the areas of wireless and fiber optic communications. For this
reason, we continue to increase the Fund's weighting in the Communications
Equipment sector, which has now grown to 17.7% of net assets. Our investments in
this area are led by cellular phone giant Nokia (NOK), which was the number five
holding of the Fund at the end of the year. The Fund has also taken a large
position in Digital Microwave (DMIC), a manufacturer of microwave radios used in
high-bandwidth wireless communications networks. Ciena, another top 10 holding,
specializes in Dense Wavelength Division Multiplexing (DWDM) equipment for fiber
optic networks, which we believe are going to be among the highest-growth
segments of the communications industry over the next several years.
Another trend we are tracking closely is the rapid growth of electronic
commerce. Many of the Fund's investments in the Software sector share a similar
characteristic: enabling technology for electronic commerce. TVF's weighting in
software stocks grew to 6.5% at the end of the year. One of our largest software
holdings is Concord Communications (CCRD), a manufacturer of diagnostic software
for troubleshooting and optimizing the performance of data networks. The Fund
recently added Legato Systems (LGTO), which produces software to manage large
network storage systems, and Macromedia (MACR), a supplier of software tools,
including Developer and FLASH, for developing multimedia web sites.
TVF's weighting in the Networking sector fell to 4.3% of net assets from 8.0% at
the end of Q3. The holdings in this sector changed little in the second half of
1999, although the Fund established a position in Packeteer (PKTR), a maker of
data packet processing equipment, during the third quarter. The weighting of the
Telecom sector has increased slightly to 4.2% from 3.3% at the end of Q3, with
AT&T (T) remaining as the sole holding in this sector.
Globix (GBIX) continues to be the Fund's only holding in the Services sector.
Globix is an application service (web hosting, co-location) provider. This
market has become more crowded in recent months, with data centers from Globix
and several others springing up here in Silicon Valley like daisies. We believe
that strong growth in demand will provide ample opportunities for several
companies.
In response to the current boom in fiber optic communications that we alluded to
earlier, TVF established new positions in the Photonics sector during Q4. The
Fund's investments in this new sector include Finisar (FNSR), a leading supplier
of fiber optic transceivers and other components. Photonics holdings now
represent 1.6% of net assets.
Adaptec (ADPT) continues to be the Fund's only holding in the Peripherals
sector, which has fallen to just 0.6% of net assets. Another sector without any
new positions is the EDA sector, as we believe that this market segment has
slipped behind the semiconductor industry and is likely to suffer until new
products better satisfy the demands of leading-edge chip designers. EDA now
represents just 0.5% of net assets.
The Fund maintains a 10.4% weighting in the Medical sector, as the medical
technology industry continues to lag electronics in terms of earnings growth and
stock performance. TVF's most notable recent addition in this sector is Johnson
& Johnson (JNJ), which the Fund first purchased in Q4. Immunex (IMNX) was a
stellar performer for the Fund this year, appreciating 2.5 times in the fourth
quarter alone.
The Technology Value Fund finished the year with a net cash position
representing 14.5% of net assets. Since this number is higher than our target of
a low single-digit cash balance, we are working hard to bring the Fund to full
investment. Our philosophy, however, is that it is wiser to focus on putting the
cash to work as quickly as practical, rather than as quickly as possible.
1999 Annual Report to Shareholders 7
<PAGE>
PERFORMANCE & PORTFOLIO DISCUSSION:
TECHNOLOGY LEADERS FUND
The Technology Leaders Fund ("TLF", ticker symbol TLFQX) continued to build on
its impressive record, posting a gain of 152.58% during 1999, its best year so
far. The Fund outperformed the broad market indices (see performance summary
table on page 4) as well as the Lipper Science & Technology Index, which gained
113.92% for the year. This performance also placed TLF among the top 1% of all
mutual funds for the year according to Morningstar Principia Pro. For the fourth
quarter, the Fund posted a 53.97% gain vs. 48.26% for NASDAQ, 14.86% for the S&P
500, and 11.60% for the DJIA.
Holdings by Sector
Technology Leaders Fund
[GRAPHIC OMITTED]
Net Cash 16.4%
Computer 8.1%
Software 10.2%
Internet 2.7%
Networking 3.2%
EDA 1.0%
Semiconductors 17.4%
Semi Equip 9.6%
Other Electronics 2.7%
Comm Equip 24.2%
Telecom 4.5%
Relative Performance:
TLF vs. Market Indices
[GRAPHIC OMITTED}
DATE TLF DJIA NASDAQ S&P 500
---- --- ---- ------ -------
12/10/97 $ 10,000 $ 10,000 $ 10,000 $ 10,000
(inception)
12/31/99 $ 45,314 $ 14,780 $ 25,271 $ 15,493
<PAGE>
A MAJOR INVESTMENT THEME across all of our funds this year was communications
technology. One of the most outstanding performers for the Fund (and the market)
in 1999 was QUALCOMM (QCOM), the leading provider of technology and components
for CDMA networks. In the fourth quarter alone, the Fund's number one holding
posted a gain of over 250%. Qualcomm leads the Fund's holdings in the
Communications Equipment sector, which now ranks as TLF's largest sector, at
24.2% of net assets. During the fourth quarter, the Fund established a new
position in Nokia (NOK), the leading manufacturer of wireless phone handsets in
the world. We have been impressed by the company's strong product design skills
and its willingness to embrace new technologies quickly.
The Fund's weighting in the Semiconductor sector has fallen to 17.4%, from 32.8%
at the end of Q3. While some of this drop is attributable to the unparalleled
growth in the Communications Equipment sector, much can be blamed on an increase
in the size of the Fund's net cash position, which rose to 16.4% during the
quarter due to rapid cash inflows at the end of the year.
The Software sector remained a relatively steady 10.2% of net assets at the end
of '99, up slightly from 9.5% at the end of Q3. During the fourth quarter, the
Fund added a new position in Wind River Systems (WIND), a company that we
believe is the leading developer of operating systems for embedded computer
systems. An embedded computer system is a computer that resides inside a larger
piece of equipment, rather than being a standalone PC.
The Semiconductor Equipment sector enjoyed a very successful year in 1999 as the
worldwide semiconductor industry came out of its recent slump and began
investment in new capital equipment. At the end of Q4, the sector represented
9.6% of the net assets of TLF. Teradyne (TER), a manufacturer of semiconductor
test equipment, anchors the holdings in this sector, which also include Applied
Materials (AMAT) and KLA-Tencor (KLAC).
In addition to Nokia and Wind River Systems, the Fund established a new position
in Agilent (A) during the fourth quarter. Agilent is a recent spin-out of
Hewlett-Packard (HWP) and represents what used to be Hewlett-Packard's test &
measurement product groups. It is the sole holding in the "Other Electronics"
category, which represents 2.7% of net assets. Agilent is the dominant player in
many of the markets it serves.
We also believe that we will see some value unlocked in the company as a result
of the spin-out and subsequent restructuring. We expect to see the company shed
unnecessary costs and improve margins over the next several quarters.
Hewlett-Packard also remains in the Fund's Computer sector, along with IBM (IBM)
and Sun Microsystems (SUNW). At the end of the year, this sector represented
8.1% of TLF's net assets. AT&T (T) and Cisco Systems (CSCO) are the only
holdings in the Telecom and Networking sectors, respectively.
America Online (AOL), the Fund's only Internet holding, remains one of the
leaders of the Internet sector, which now represents 2.7% of net assets, down
from 4.6% of net assets at the end of Q3. Early in 2000, AOL announced a
"merger" with Time-Warner. While many shareholders perceive this deal to be a
drag on AOL's future earnings, we believe it is an excellent strategic move for
AOL, which receives broadband access to customers as well as a wealth of
multimedia content from the deal.
1999 Annual Report to Shareholders 9
<PAGE>
PERFORMANCE & PORTFOLIO DISCUSSION:
TECHNOLOGY INNOVATORS FUND
The Technology Innovators Fund ("TIF", ticker symbol TIFQX) finished 1999 with
the best one-year performance of any fund in Firsthand Funds' history. With a
total return of 212.34%, TIF was among the top mutual funds in the country,
handily beating the broad market indices as well as the Lipper Science &
Technology Index. TIF appreciated 54.79% in the fourth quarter, also the best
quarterly performance of any of our funds.
Holdings by Sector
Technology Innovators Fund
[GRAPHIC OMITTED]
Net Cash 17.9%
Internet 0.8%
Peripherals 0.1%
Computers 0.1%
Software 19.3%
Telecom 1.5%
Services 13.1%
Comm Equip 14.0%
Other 4.0%
Networking 2.9%
Semi Equip 1.7%
Photonics 4.5%
Semiconductors 20.1%
Relative Performance:
TIF vs. Market Indices
[GRAPHIC OMITTED]
DATE TIF DJIA NASDAQ S&P500
---- --- ---- ------ ------
5/20/98 $ 10,000 $ 10,000 $ 10,000 $ 10,000
(inception)
12/31/99 $ 50,005 $ 13,043 $ 22,162 $ 13,532
<PAGE>
TIF experienced tremendous asset growth during the year, prompting its closure
to new investors. The Fund was closed to ensure that the Portfolio Manager could
continue the identification of and investment in small and mid-capitalization
companies, and allocate positions sizes that could contribute meaningfully to
the portfolio.
The Semiconductor sector continues to be the largest weighting in the Fund
(20.1% of net assets). The largest semiconductor holdings include Silicon Image
(SIMG), TranSwitch (TXCC), Sage (SAGI), and Zoran (ZRAN). In our opinion,
Silicon Image and Sage represent a powerful trend: the transition from CRT
monitors for personal computers to flat panel displays. Prices for flat panel
displays are beginning to approach those of CRTs. With their inherent power and
physical space advantages, we expect to see flat panel displays rapidly displace
CRTs as the choice for computer users.
The Fund's investment in the Software sector has increased in the second half of
1999, (19.3%). Many of the largest software holdings are tied to e-commerce.
TIF's largest software holding, Vignette (VIGN), produces customer relationship
management (CRM) software for use by e-commerce businesses. Another large
holding is Verisign (VRSN), a leading provider of security and authentication
software for on-line transaction environments.
The Communications Equipment sector also continues to hold a relatively large,
(14.0%), weighting in the Fund. The Fund's investments in this sector include
several wireless and fiber optic technology companies, including P-Com (PCMS),
Digital Microwave (DMIC), Lucent (LU), CIENA (CIEN), and Osicom Technologies
(FIBR). TIF has also invested in a number of Photonics companies, (4.5%). These
companies include JDS/Uniphase (JDSU) and Finisar (FNSR).
The Services sector includes holdings in several application service providers,
including Globix (GBIX), Exodus (EXDS), and Navisite (NAVI); the 13.1% weighting
is up from the end of third quarter 1999. The Internet sector (0.8%) has become
an ever-shrinking portion of net assets.
At the end of 1999, the Networking sector allocation (2.9%) was down from its
11.6% allocation at the end of third quarter 1999. The Fund's largest networking
holdings include Newbridge Networks (NN), F5 Networks (FFIV), and Packeteer
(PKTR).
The Telecom sector represented a small allocation (1.5%) at the end of the
fourth quarter, and included DSL provider Concentric Network (CNCX) and Qwest
(Q), which is in the process of completing its nationwide fiber optic network.
The weighting of the Semiconductor Equipment sector remained relatively stable
(1.7%) at the end of the year, virtually unchanged since the end of third
quarter 1999. While the Fund continues to hold companies such as Novellus (NVLS)
and Cymer (CYMR), we believe that there is higher potential for capital
appreciation in other sectors of technology.
With strong cash inflows in the month of December, the Fund finished the year
with a healthy cash position (17.9%), which is higher than our low single-digit
target. Because the Fund invests largely in small- and mid-cap stocks, it can
often take several days or weeks to build a sizeable position in a company.
Therefore, new cash cannot always be immediately put to use in a prudent and
timely manner.
1999 Annual Report to Shareholders 11
<PAGE>
PERFORMANCE & PORTFOLIO DISCUSSION:
THE COMMUNICATIONS FUND(TM)
The Communications Fund ("TCF", ticker symbol TCFQX) finished its first quarter
of operations with a net asset value (NAV) of $14.65, representing a 46.50% gain
since its inception on September 30, 1999. The Fund's performance enabled it to
beat the performance of the NASDAQ Composite Index and the S&P 500 Index. This
new fund is off to a very fast start and we are excited about its great
potential, given the tremendous growth we anticipate in the communications
industry over the next several years.
Holdings by Sector
The Communications Fund
[GRAPHIC OMITTED]
Net Cash 20.1%
Telecom 33.2%
Comm Equip 27.1%
Services 18.6%
Photonics 1.0%
Relative Performance:
TCF vs. Market Indices
[GRAPHIC OMITTED]
DATE TCF DJIA NASDAQ S&P 500
---- --- ---- ------ -------
9/30/99 $ 10,000 $ 10,000 $ 10,000 $ 10,000
(inception)
Dec-99 $ 14,650 $ 11,162 $ 14,828 $ 11,488
<PAGE>
THE PORTFOLIO MANAGEMENT TEAM'S strategy thus far has been to invest in three
primary segments of the industry: Telecommunications (Telecom) Services,
Communications Equipment, and Internet Services. At the end of the fourth
quarter, the Telecom sector held the Fund's largest weighting, representing
33.2% of net assets. Most of the Fund's holdings in this sector can be
characterized as next-generation communications network suppliers. The largest
holding in this sector was Concentric Network Corp. (CNCX), a leading provider
of digital subscriber line (DSL) services. Another major holding is Winstar
Communications (WCII), which provides broadband wireless communications services
to businesses in metropolitan areas by installing antennas on rooftops.
Metromedia Fiber Networks (MFNX) is also targeting metropolitan areas with its
fiber optic networks. Metromedia's business involves installing the network
equipment and then selling access to local communications providers. Qwest
Communications (Q) is building a nationwide fiber optic network in order to
provide high-bandwidth services to business and residential customers in the
future.
The Communications Equipment sector represented 27.1% of net assets at the end
of the year. The holdings in this sector are generally providers of leading-edge
technology solutions, including fiber optics, wireless, and broadband networks.
The largest holding in this sector was Osicom Technologies (FIBR), a promising
manufacturer of Dense Wavelength Division Multiplexing (DWDM) equipment. DWDM is
a technology used to increase the capacity of fiber optic networks. A second key
holding is CIENA Corporation (CIEN), a leading manufacturer of DWDM equipment.
The Fund has also established positions in leading wireless technology
providers, including Nokia (NOK), P-Com (PCMS), and QUALCOMM (QCOM).
The Services sector includes companies that provide services to companies
requiring web hosting, network access, and security services. This sector
represented 18.6% of net assets at the end of Q4. The top holding in this sector
was Verio (VRIO), a provider of Internet access and web hosting services. The
Fund has several other investments in application service providers, including
Navisite (NAVI), Globix (GBIX), and Exodus (EXDS). We are witnessing extremely
strong growth in this sector of the communications industry as companies
struggle with the challenge of developing and maintaining a 24-hour presence on
the web in the face of ever growing customer demand for bandwidth.
The Fund also made a small investment in the Photonics sector during the
quarter. The Fund purchased shares of Finisar (FNSR), a promising provider of
fiber optic transceivers and subsystems. As the sole holding in this sector,
Finisar represented 1.0% of net assets at the end of the year. The Fund's cash
position was at 20.1% at the end of the year, which is higher than the low
single-digit target. It has been a challenge to invest the new cash wisely in an
environment of rising prices.
1999 Annual Report to Shareholders 13
<PAGE>
PERFORMANCE & PORTFOLIO DISCUSSION:
THE e-COMMERCE FUND(TM)
The end of Q4'99 marked the close of the first quarter of operations for The
e-Commerce Fund(TM) ("TEF", ticker symbol TEFQX). Started on September 30, the
Fund is off to a great start, returning 48.60% between its inception and
December 31. TEF ourperformed the NASDAQ Composite and S&P 500 Indices, as well
as the Lipper Science & Technology Index for the quarter.
Holdings by Sector
The e-Commerce Fund
[GRAPHIC OMITTED]
Net Cash 19.8%
Services 12.5%
Software 51.8%
Computer 10.8%
Networking 3.6%
Internet 1.5%
Relative Performance:
TEF vs. Market Indices
[GRAPHIC OMITTED]
DATE TEF DJIA NASDAQ S&P 500
---- --- ---- ------ -------
9/30/99 $ 10,000 $ 10,000 $ 10,000 $ 10,000
(inception)
12/31/99 $ 14,860 $ 11,162 $ 14,828 $ 11,488
<PAGE>
THIS FUND'S STRATEGY is to invest primarily in companies which we believe will
benefit from strong growth of Internet-based commerce. Rather than invest in a
large number of on-line businesses, the team has chosen to invest in enablers of
electronic commerce, such as software providers, consulting firms, application
service providers, and computer manufacturers.
Not surprisingly, the Software sector represents the largest weighting for this
new fund, comprising 51.8% of net assets at the end of the quarter. The majority
of the Fund's software holdings are providers of web development tools.
Companies such as Allaire (ALLR), Silknet (SILK), Macromedia (MACR), and Calico
Commerce (CLIC) market the software that is used by web developers to design and
implement e-commerce web sites. While no clearly dominant players have emerged
yet in this young industry, we have invested in what we believe are the early
front-runners. The Fund has also taken significant positions in a couple of
other major technology enablers: Oracle (ORCL) and Verisign (VRSN). Oracle is
the world's leading provider of database software, used as the backbone of many
e-commerce installations. We believe that Verisign is the leader in Public Key
Infrastructure (PKI) solutions for securing on-line transactions.
The Services sector includes web development consulting firms as well as
providers of other Internet services such as web hosting. This fast-growing
sector represented 12.5% of net assets as of December 31. The Fund's major
holdings in this sector include web hosting firms Exodus (EXDS), Navisite
(NAVI), and Globix (GBIX). The Fund has also made investments in web consulting
firms USWeb/CKS (USWB) and Cysive (CYSV).
In the Computer sector, TEF has invested in IBM (IBM) and Sun Microsystems
(SUNW) which, combined, represent 10.8% of net assets. In addition to being the
world's largest computer manufacturer, IBM is also one of the leaders in
providing end-to-end e-commerce solutions, including hardware and software
components. Sun is a leading manufacturer of computer servers, from which
e-commerce applications are run. We believe that the combination of Sun servers
and Cisco (CSCO) routers are the most popular configurations for such hardware
among online businesses. Cisco is the sole holding in the Networking segment,
which accounts for 3.6% of net assets of the Fund.
The Fund's largest holding in the Internet sector was iManage (IMAN), a producer
of web-based content management software. Overall, the Internet sector
represented 1.5% of net assets at the end of Q4. TEF's cash position was 19.8%
at the end of the year, which is higher than the Portfolio Management Team would
ideally like to see, but strong cash inflows along with rising prices have made
it especially challenging for the Fund to remain fully invested.
1999 Annual Report to Shareholders 15
<PAGE>
TECHNOLOGY OUTLOOK: 2000 AND BEYOND
Noting the technology sector's stunning stock market performance in 1999,
shareholders have wisely asked, "Can this continue?" One way to try and answer a
question like this is to discuss the major trends driving the investment
strategies of our five funds. We believe that each of the five technology trends
illustrated below offer compelling investment opportunities.
WIRELESS COMMUNICATIONS: Wireless communications technology had the investment
world buzzing in 1999. QUALCOMM (QCOM), one of the industry leaders in mobile
phone technology, was one of the most significant stock market stories of the
year. Wireless (cellular) phones have become commonplace in the U.S. and in many
industrialized nations. Mobile phones are just part of the story. We are also
following the increased demand for "fixed" wireless technology for Internet
access. A number of Internet Service Providers (ISPs) have found that installing
window- or roof-mounted antennas is a fast, inexpensive way of providing
"last-mile" broadband access to business and residential customers, particularly
in metropolitan areas. These wireless connections can carry voice and Internet
data at speeds up to and including that of a T-1. Companies to watch in this
arena include P-Com (PCMS), Winstar (WCII), Digital Microwave (DMIC) and
Teligent (TGNT).
Another major trend in the application of wireless technology is the build-out
of telecommunications services in underdeveloped nations. While laying copper
cable in the ground was a great way to build a telephone network 50 years ago,
it is not an efficient, economical way to architect new networks in the 21st
Century. Much of the new communications infrastructure in underdeveloped
countries will be based on wireless technologies. Companies such as Cisco
(CSCO), Lucent (LU), Motorola (MOT), and QUALCOMM could be major beneficiaries
of this trend.
PHOTONICS: We first mentioned photonics in our first quarter 1999 Quarterly
Report to Shareholders. Photonics involves the transmission of light (photons)
across fiber optic cable, which is analogous to the transmission of electrons on
copper wire in electronics. To date, the use of photonics (commonly referred to
as "fiber optics") has been largely limited to the long-haul backbone of the
major telecommunications networks. As demand for bandwidth continues to increase
across all points in the network, we expect photonics to steadily replace
electronics as the technology of choice for more and more applications.
Photonics technology has already begun to make its way into the Local Area
Network (LAN) switching products. Companies such as Cisco and Lucent will
continue to incorporate photonics because of the high speed and long reach
characteristics inherent to this technology. Although widespread implementation
of photonics technology still faces several hurdles, companies to watch in this
exciting arena, including JDS/Uniphase (JDSU), Corning (GLW), and Finisar
(FNSR).
INTERNET INFRASTRUCTURE: Those who have been closely following Firsthand Funds
will know that a favorite theme of ours has been the increasing demand for
Internet bandwidth and infrastructure build-out. With a seemingly endless stream
of new Internet applications, demand for bandwidth has increased at an
exponential rate. Companies that supply parts to this expansion include
PMC-Sierra (PMCS), Applied Micro Circuits (AMCC), Cisco, and Lucent. The good
news for these and other companies like them is that we see no immediate slow
down in the explosive demand for their products. Fueled by business and
consumers' insatiable appetites for richer content, faster and more reliable
access, these providers of Internet infrastructure components, products and
services continue to face a bright future.
<PAGE>
e-COMMERCE: A key driver of future demand for Internet infrastructure is
electronic commerce, or e-commerce. Once thought to be no more than the ability
to purchase books on-line from Amazon.com, e-commerce is changing the way that
consumers and businesses purchase goods and services. The business-to-consumer
opportunities that have shaped people's perception of e-commerce pale in
comparison to the tremendous opportunities available in the business-to-business
marketplace. From an investment perspective, we believe that the major
opportunities in e-commerce will come from at least three types of companies:
application, consulting and software service providers. The investments in The
e-Commerce Fund reflects this approach. Although it is still early, some of the
companies to watch include Calico Commerce (CLIC), Vignette (VIGN), and Globix
(GBIX).
CONSUMER ELECTRONICS: While consumer electronics devices are often the most
visible applications of new technologies, it is not always easy to find great
investment ideas in this sector. Many investors fail to see past the highly
visible brand names like Sony and Panasonic. We approach this part of the market
as we do any other: by identifying the major trends in the market and then doing
the homework to find the gems hidden beneath the surface. Often this means
looking at the manufacturers who supply the components to the well-known
consumer device manufacturers.
The major consumer electronics trends we are following today include digital
photography, DVD, and flat-panel displays. Digital photography is beginning to
enter the mainstream as an acceptable alternative to traditional film-based
photography. At the same time, DVD is becoming the de facto standard for the
next-generation video technology in the home. Both of these trends rely upon
core technologies such as image and video compression for their future success.
We are investing in companies providing such underlying technologies, including
Zoran (ZRAN), which markets semiconductors and intellectual property used in
both of these applications.
Over the next few years, we expect to see a major shift in consumer demand from
cathode ray tubes (CRTs) to digital and flat-panel displays for use as computer
monitors. Flat-panel displays offer benefits: lower power, less physical space,
and lower radiation emissions than CRTs. While these new monitors are slightly
more expensive today, prices are falling fast, driving additional demand. A
couple of the key beneficiaries of this trend include chip companies such as
Sage (SAGI) and Silicon Image (SIMG).
LOOKING AHEAD: Although there are many technology trends driving our investments
today, these are an illustration of the types of investment opportunities we are
evaluating. There are always others on the horizon, and we will share details on
those trends as they make their way into the portfolios.
1999 Annual Report to Shareholders 17
<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, The
Technology Leaders Fund, The Technology Innovators Fund, The Communications
Fund, and The e-Commerce Fund, including the portfolios of investments as of
December 31, 1999, and the related statements of operations, changes in net
assets and the financial highlights for the periods indicated thereon. 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 audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of the
Firsthand Funds as of December 31, 1999, the results of their operations, the
changes in their net assets, and the financial highlights for the periods
indicated thereon, in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 21, 2000
1999 Annual Report to Shareholders 19
<PAGE>
PORTFOLIO OF INVESTMENTS - Technology Value Fund
December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
non-income % shares value
producing
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 85.5% $1,159,299,609
-------------------------------------
(Cost $663,377,084)
COMMUNICATIONS EQUIPMENT 17.7% 239,699,094
-------------------------------------
ADC Telecommunications, Inc. * 220,000 15,963,750
CIENA Corp. * 659,000 37,892,500
Digital Microwave Corp. * 1,949,000 45,679,687
General Instrument Corp. * 59,500 5,057,500
Motorola, Inc. 167,500 24,664,375
Nokia Corp.-- ADR 300,000 57,000,000
Oak Industries, Inc. * 275,000 29,184,375
Osicom Technologies, Inc. * 136,250 6,182,344
P-Com, Inc. * 70,000 619,063
Tekelec, Inc. * 775,800 17,455,500
ELECTRONIC DESIGN AUTOMATION 0.5% 6,441,930
-------------------------------------
Avanti Technologies, Inc. * 429,462 6,441,930
MEDICAL 10.4% 141,263,373
-------------------------------------
Amgen, Inc. * 358,400 21,526,400
Biogen, Inc. * 4,000 338,000
Boston Scientific Corp. * 146,800 3,211,250
C. R. Bard, Inc. 19,000 1,007,000
Cambridge Heart, Inc. * 332,500 1,142,969
Cardima, Inc. * 470,000 851,875
Endocardial Solutions, Inc. * 279,100 2,442,125
EndoSonics Corp. * 635,700 2,860,650
Guidant Corp. * 312,629 14,693,563
IGEN International, Inc. * 5,000 148,750
Immunex Corp. * 394,000 43,069,125
Johnson & Johnson 115,020 10,711,237
Maxygen, Inc. * 1,000 71,000
Medicalogic, Inc. * 202,500 4,252,500
MedImmune, Inc. * 6,500 1,078,188
Medtronic, Inc. 268,906 9,798,262
Merck & Co., Inc. 212,000 14,217,250
Novoste Corp. * 73,200 1,207,800
PathoGenesis Corp. * 2,500 53,594
QuadraMed Corp. * 658,500 5,741,297
Radiance Medical Systems, Inc. * 484,900 2,394,194
Sepracor, Inc. * 4,500 446,344
NETWORKING 4.3% 57,989,406
-------------------------------------
Cabletron Systems, Inc. * 1,110,000 28,860,000
FVC.COM, Inc. * 223,500 2,612,156
Newbridge Networks Corp. * 896,000 20,216,000
Packeteer, Inc. * 88,750 6,301,250
PERIPHERALS 0.6% 7,730,625
-------------------------------------
Adaptec, Inc. * 155,000 7,730,625
PHOTONICS 1.6% 22,122,781
-------------------------------------
Finisar Corp. * 22,750 2,044,656
Methode Electronics, Inc. 625,000 20,078,125
SEMICONDUCTOR EQUIPMENT 4.1% 56,167,785
-------------------------------------
Applied Science & Technology, Inc. * 97,500 3,240,352
Asyst Technologies, Inc. * 399,000 26,159,437
See Accompanying Notes to Financial Statements
20 Firsthand
<PAGE>
PORTFOLIO OF INVESTMENTS - Technology Value Fund
December 31, 1999
- ----------------------------------------------------------------------------------------
.. continued .. non-income % shares value
producing
- ----------------------------------------------------------------------------------------
Cymer, Inc. * 196,000 9,016,000
Rudolph Technologies, Inc. * 35,000 1,172,500
SpeedFam-IPEC, Inc. * 250,275 3,237,933
Veeco Instruments, Inc. * 285,000 13,341,563
SEMICONDUCTORS 32.9% 446,929,896
-------------------------------------
Applied Micro Circuits Corp. * 511,000 65,024,750
Atmel Corp. * 1,600,000 47,300,000
Celeritek, Inc. (1) * 522,200 10,084,988
Chartered Semiconductor, Ltd. * 25,000 1,825,000
Conexant Systems, Inc. * 287,900 19,109,362
EPCOS AG-Spon ADR * 370,000 27,634,375
Galileo Technology, Ltd. * 69,000 1,664,625
Genesis Microchip, Inc. * 97,500 2,059,687
GlobeSpan, Inc. * 109,500 7,131,187
NETsilicon, Inc. * 349,250 7,006,828
PMC-Sierra, Inc. * 397,900 63,788,344
Sage, Inc. * 100,000 1,937,500
Silicon Image, Inc. * 200,000 14,012,500
Stellar Semiconductor, Inc.
Series "B" (2) * 2,040,000 6,630,000
Stellar Semiconductor, Inc.
Series "C" (2) * 1,200,000 2,916,000
TranSwitch Corp. * 744,000 53,986,500
TriQuint Semiconductor, Inc. * 550,000 61,187,500
Vitesse Semiconductor Corp. * 320,000 16,780,000
Zoran Corp. (1) * 661,000 36,850,750
SERVICES 2.7% 36,390,000
-------------------------------------
Globix Corp. * 606,500 36,390,000
SOFTWARE 6.5% 87,470,969
-------------------------------------
BindView Development Corp. * 328,000 16,297,500
Concord Communications, Inc. * 669,000 29,686,875
i2 Technologies, Inc. * 37,000 7,215,000
Legato Systems, Inc. * 39,000 2,683,688
Macromedia, Inc. * 20,000 1,462,500
Pervasive Software, Inc. * 281,500 4,767,906
Wind River Systems * 690,000 25,357,500
TELECOMMUNICATION 4.2% 57,093,750
-------------------------------------
AT&T Corp. 1,125,000 57,093,750
CASH EQUIVALENTS 16.3% 220,471,026
-------------------------------------
(Cost $218,703,957)
Firstar Stellar Treasury Fund 7,591,530 7,591,530
U.S. T-Bill due 4/6/00 214,000,000 212,879,496
TOTAL INVESTMENT SECURITIES 101.8% 1,379,770,635
-------------------------------------
(Cost $882,081,041)
LIABILITIES IN EXCESS OF OTHER ASSETS (1.8%) (24,151,403)
-------------------------------------
NET ASSETS 100.0% $1,355,619,232
=====================================
</TABLE>
(1) Affiliated issuer (Note 4).
(2) Restricted security (Note 4).
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 21
<PAGE>
PORTFOLIO OF INVESTMENTS - Technology Leaders Fund
December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
non-income % shares value
producing
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 83.6% $330,736,774
-------------------------------------
(Cost $180,614,955)
COMMUNICATIONS EQUIPMENT 24.2% 95,866,263
-------------------------------------
General Instrument Corp. * 99,500 8,457,500
Lucent Technologies, Inc. 122,000 9,127,125
Nokia Corp.-- ADR 100,000 19,000,000
QUALCOMM, Inc. * 278,400 49,033,200
Scientific-Atlanta, Inc. 40,000 2,225,000
Tellabs, Inc. * 125,000 8,023,438
COMPUTERS 8.1% 31,954,687
-------------------------------------
Hewlett-Packard Co. 33,000 3,759,937
International Business Machines Corp. 132,000 14,256,000
Sun Microsystems, Inc. * 180,000 13,938,750
ELECTRONIC DESIGN AUTOMATION 1.0% 3,840,000
-------------------------------------
Cadence Design Systems, Inc. * 160,000 3,840,000
INTERNET 2.7% 10,561,250
-------------------------------------
America Online, Inc. * 140,000 10,561,250
NETWORKING 3.2% 12,855,000
-------------------------------------
Cisco Systems, Inc. * 120,000 12,855,000
OTHER ELECTRONICS 2.7% 10,831,481
-------------------------------------
Agilent Technologies, Inc. * 140,100 10,831,481
SEMICONDUCTOR EQUIPMENT 9.6% 37,874,719
-------------------------------------
Applied Materials, Inc. * 82,500 10,451,719
KLA-Tencor Corp. * 104,000 11,583,000
Teradyne, Inc. * 240,000 15,840,000
SEMICONDUCTORS 17.4% 68,890,030
-------------------------------------
Altera Corp. * 220,000 10,903,750
Conexant Systems, Inc. * 155,000 10,288,125
Intel Corp. 127,705 10,511,718
PMC-Sierra, Inc. * 80,000 12,825,000
Texas Instruments, Inc. 64,500 6,248,437
Vitesse Semiconductor Corp. * 172,000 9,019,250
Xilinx, Inc. * 200,000 9,093,750
SOFTWARE 10.2% 40,300,844
-------------------------------------
Microsoft Corp. * 73,500 8,581,125
Oracle Corp. * 127,500 14,287,969
SAP AG-- ADR 8,000 416,500
Wind River Systems * 463,000 17,015,250
TELECOMMUNICATIONS 4.5% 17,762,500
-------------------------------------
AT&T Corp. 350,000 17,762,500
See Accompanying Notes to Financial Statements
22 Firsthand
<PAGE>
PORTFOLIO OF INVESTMENTS - Technology Leaders Fund
December 31, 1999
- ----------------------------------------------------------------------------------------
.. continued .. non-income % shares value
producing
- ----------------------------------------------------------------------------------------
CASH EQUIVALENTS 15.6% 61,708,243
-------------------------------------
(Cost $61,706,197)
Firstar Stellar Treasury Fund 3,320,781 3,320,781
U.S. T-Bill due 3/16/00 59,000,000 58,387,462
TOTAL INVESTMENT SECURITIES 99.2% 392,445,017
-------------------------------------
(Cost $242,321,152)
OTHER ASSETS IN EXCESS OF LIABILITIES 0.8% 3,143,655
-------------------------------------
NET ASSETS 100.0% $395,588,672
=====================================
</TABLE>
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 23
<PAGE>
PORTFOLIO OF INVESTMENTS - Technology Innovators Fund
December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
non-income % shares value
producing
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 82.1% $496,106,020
-------------------------------------
(Cost $313,367,800)
COMMUNICATIONS EQUIPMENT 14.0% 84,375,307
-------------------------------------
Adaptive Broadband Corp. * 65,000 4,797,812
Advanced Fibre Communications, Inc. * 80,000 3,575,000
Aware, Inc. * 10,000 363,750
Charter Communications * 1,000 21,875
Cielo Communications, Inc. (2) * 842,857 2,950,000
CIENA Corp. * 279,500 16,071,250
Digital Microwave Corp. * 1,206,500 28,277,343
Lucent Technologies, Inc. 10,992 822,339
Osicom Technologies, Inc. * 160,250 7,271,344
P-Com, Inc. * 681,000 6,022,594
Tekelec, Inc. * 631,200 14,202,000
COMPUTERS 0.1% 262,000
-------------------------------------
Predictive Systems, Inc. * 4,000 262,000
INTERNET 0.8% 4,985,375
-------------------------------------
At Home Corp. * 6,000 257,250
InfoSpace.com, Inc. * 22,000 4,708,000
SonicWALL, Inc. * 500 20,125
NETWORKING 2.9% 17,681,187
-------------------------------------
Cobalt Networks, Inc. * 500 54,187
Extreme Networks * 1,000 83,500
F5 Networks, Inc. * 35,000 3,990,000
FVC.COM, Inc. * 15,000 175,312
Juniper Networks, Inc. * 500 170,000
Newbridge Networks Corp. * 291,000 6,565,688
Packeteer, Inc. * 88,750 6,301,250
Vixel Corp. * 20,000 341,250
OTHER ELECTRONICS 4.0% 23,905,000
-------------------------------------
Cree Research, Inc. * 280,000 23,905,000
PERIPHERALS 0.1% 54,375
-------------------------------------
iGo Corp. * 6,000 54,375
PHOTONICS 4.5% 27,148,731
-------------------------------------
Finisar Corp. * 205,150 18,437,856
JDS Uniphase Corp. * 54,000 8,710,875
SEMICONDUCTOR EQUIPMENT 1.7% 10,615,463
-------------------------------------
Cymer, Inc. * 15,000 690,000
Novellus Systems, Inc. * 26,000 3,185,813
Rudolph Technologies, Inc. * 35,000 1,172,500
SpeedFam-IPEC, Inc. * 14,200 183,712
Veeco Instruments, Inc. * 115,000 5,383,438
SEMICONDUCTORS 20.1% 121,444,027
-------------------------------------
Applied Micro Circuits Corp. * 10,000 1,272,500
Galileo Technology Ltd. * 1,600 38,600
Genesis Microchip, Inc. * 554,500 11,713,812
GlobeSpan, Inc. * 63,500 4,135,438
Hi/fn, Inc. * 50,000 1,937,500
MMC Networks, Inc. * 7,500 257,813
See Accompanying Notes to Financial Statements
24 Firsthand
<PAGE>
PORTFOLIO OF INVESTMENTS - Technology Innovators Fund
December 31, 1999
- ----------------------------------------------------------------------------------------
.. continued .. non-income % shares value
producing
- ----------------------------------------------------------------------------------------
NETsilicon, Inc. * 576,750 11,571,047
QuickLogic Corp. * 8,00 132,000
Sage, Inc. (1) * 765,000 14,821,875
Silicon Image, Inc. * 319,000 22,349,938
TranSwitch Corp. * 491,450 35,660,841
TriQuint Semiconductor, Inc. * 80,350 8,938,938
V3 Semiconductors, Inc. * 47,200 613,600
Zoran Corp. * 143,500 8,000,125
SERVICES 13.1% 79,625,343
-------------------------------------
Aether Systems, Inc. * 144,350 10,339,068
Critical Path, Inc. * 5,000 471,875
Exodus Communications, Inc. * 102,400 9,094,400
Globix Corp. * 349,500 20,970,000
Navisite, Inc. * 387,500 38,750,000
SOFTWARE 19.3% 116,656,381
-------------------------------------
Allaire Corp. * 50,000 7,250,000
BindView Development Corp. * 225,000 11,179,687
Calico Commerce, Inc. * 60,000 3,180,000
Check Point Software Technologies, Ltd. * 13,000 2,583,750
Concord Communications, Inc. * 334,500 14,843,437
Concur Technologies, Inc. * 9,900 287,100
Digimarc Corp. * 5,000 250,000
Hyperion Solutions Corp. * 50,000 2,175,000
Intraware, Inc. * 45,000 3,555,000
Legato Systems, Inc. * 221,400 15,235,088
Macromedia, Inc. * 110,000 8,043,750
Pervasive Software, Inc. * 428,500 7,257,719
Red Hat, Inc. * 500 105,625
Silknet Software, Inc. * 5,000 828,750
Sterling Commerce, Inc. * 20,000 681,250
VeriSign, Inc. * 86,300 16,461,725
Vignette Corp. * 139,500 22,738,500
TELECOMMUNICATIONS 1.5% 9,352,831
-------------------------------------
Concentric Network Corp. * 158,500 4,883,781
Open TV Corp. * 5,000 401,250
Qwest Communications International, Inc. * 94,600 4,067,800
CASH EQUIVALENTS 19.9% 120,122,859
-------------------------------------
(Cost $120,131,908)
Firstar Stellar Treasury Fund 4,127,421 4,127,421
U.S. T-Bill due 2/3/00 116,500,000 115,995,438
TOTAL INVESTMENT SECURITIES 102.0% 616,228,879
-------------------------------------
(Cost $433,499,708)
LIABILITIES IN EXCESS OF OTHER ASSETS (2.0%) (12,292,861)
-------------------------------------
NET ASSETS 100.0% $603,936,018
=====================================
</TABLE>
(1) Affiliated issuer (Note 4).
(2) Restricted security (Note 4).
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 25
<PAGE>
PORTFOLIO OF INVESTMENTS - The Communications Fund
December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
non-income % shares value
producing
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 79.9% $145,481,256
-------------------------------------
(Cost $113,052,347)
COMMUNICATIONS EQUIPMENT 27.1% 49,336,921
-------------------------------------
Adaptive Broadband Corp. * 29,000 2,140,562
CIENA Corp. * 145,000 8,337,500
Digital Microwave Corp. * 138,000 3,234,375
Motorola, Inc. 30,000 4,417,500
Nokia Corp.-- ADR 30,000 5,700,000
Osicom Technologies, Inc. * 216,000 9,801,000
P-Com, Inc. * 470,500 4,160,984
QUALCOMM, Inc. * 40,000 7,045,000
Tekelec, Inc. * 200,000 4,500,000
PHOTONICS 1.0% 1,797,500
-------------------------------------
Finisar Corp. * 20,000 1,797,500
SERVICES 18.6% 33,829,353
-------------------------------------
Aether Systems, Inc. * 83,550 5,984,269
Exodus Communications, Inc. * 50,000 4,440,625
Globix Corp. * 93,000 5,580,000
Interliant, Inc. * 186,100 4,838,600
Navisite, Inc. * 60,000 6,000,000
Verio, Inc. * 151,250 6,985,859
TELECOMMUNICATIONS 33.2% 60,517,482
-------------------------------------
AT&T Corp. 75,000 3,806,250
Concentric Network Corp. * 291,500 8,981,844
Covad Communications Co. * 90,000 5,034,375
Global Crossing, Ltd. * 100,000 5,000,000
Intermedia Communications, Inc. * 100,000 3,881,250
Level 3 Communications, Inc. * 55,100 4,511,312
Management Network Group, Inc. * 2,500 81,563
Metromedia Fiber Network-A * 115,600 5,541,575
Next Level Communication, Inc. * 500 37,438
Qwest Communications International, Inc. * 150,000 6,450,000
RCN Corp. * 40,000 1,940,000
Teligent, Inc. * 55,000 3,396,250
Williams Communications, Inc. * 182,000 5,266,625
Winstar Communications, Inc. * 88,000 6,589,000
CASH EQUIVALENTS 24.2% 44,138,007
-------------------------------------
(Cost $43,871,378)
Firstar Stellar Treasury Fund 2,645,601 2,645,601
U.S. T-Bill due 3/16/00 9,510,000 9,411,267
U.S. T-Bill due 4/6/00 32,250,000 32,081,139
TOTAL INVESTMENT SECURITIES 104.1% 189,619,263
--------------------------------------
(Cost $156,923,725)
LIABILITIES IN EXCESS OF OTHER ASSETS (4.1%) (7,463,919)
-------------------------------------
NET ASSETS 100.0% $182,155,344
=====================================
</TABLE>
See Accompanying Notes to Financial Statements
26 Firsthand
<PAGE>
PORTFOLIO OF INVESTMENTS - The e-Commerce Fund
December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
non-income % shares value
producing
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS 80.2% 239,464,972
-------------------------------------
(Cost $187,852,755)
COMPUTERS 10.8% 32,298,750
-------------------------------------
International Business Machines Corp. 170,000 18,360,000
Sun Microsystems, Inc. * 180,000 13,938,750
INTERNET 1.5% 4,477,781
-------------------------------------
Agency.com, Ltd. * 2,000 102,000
C-Bridge Internet Solutions, Inc. * 5,000 243,125
Ebenx, Inc. * 6,000 271,500
Freemarkets, Inc. * 500 170,656
iManage, Inc. * 104,000 3,341,000
McAfee.com Corp. * 2,000 90,000
Preview Systems, Inc. * 4,000 259,500
NETWORKING 3.6% 10,712,500
-------------------------------------
Cisco Systems, Inc. * 100,000 10,712,500
SERVICES 12.5% 37,170,597
-------------------------------------
Cysive, Inc. * 12,400 893,575
Exodus Communications, Inc. * 50,000 4,440,625
Globix Corp. * 109,000 6,540,000
Interliant, Inc. * 156,600 4,071,600
Navisite, Inc. * 72,500 7,250,000
USWeb Corp. * 150,000 6,665,625
Verio, Inc. * 158,250 7,309,172
SOFTWARE 51.8% 154,805,344
-------------------------------------
Acrue Software * 10,000 541,250
Allaire Corp. * 70,000 10,150,000
Art Technology Group, Inc. * 60,000 7,800,000
BindView Development Corp. * 188,000 9,341,250
Bluestone Software, Inc. * 59,000 6,785,000
CacheFlow, Inc. * 1,000 130,687
Calico Commerce, Inc. * 206,000 10,918,000
eGain Communications Corp. * 211,000 7,965,250
InterWorld Corp. * 10,000 853,750
Interwoven, Inc. * 114,900 13,974,713
Intraware, Inc. * 50,000 3,950,000
Macromedia, Inc. * 199,500 14,588,438
OnDisplay, Inc. * 180,000 16,357,500
Oracle Corp. * 160,000 17,930,000
Pervasive Software, Inc. * 117,500 1,990,156
Silknet Software, Inc. * 82,500 13,674,375
Verisign, Inc. * 50,300 9,594,725
Vignette Corp. * 50,500 8,231,500
Xpedior, Inc. * 1,000 28,750
CASH EQUIVALENTS 22.1% 66,144,754
-------------------------------------
(Cost $66,142,536)
Firstar Stellar Treasury Fund 2,809,202 2,809,202
U.S. T-Bill due 3/16/00 64,000,000 63,335,552
TOTAL INVESTMENT SECURITIES 102.3% 305,609,726
--------------------------------------
(Cost $253,995,291)
LIABILITIES IN EXCESS OF OTHER ASSETS (2.3%) (6,924,168)
--------------------------------------
NET ASSETS 100.0% $298,685,558
=====================================
</TABLE>
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 27
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY THE THE
VALUE LEADERS INNOVATORS COMMUNICATIONS e-COMMERCE
FUND FUND FUND FUND FUND
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
ASSETS
Investment securities:
At amortized cost $ 882,081,041 $ 242,321,152 $ 433,499,708 $ 156,923,725 $ 253,995,291
============== ============== ============== ============== ==============
At market value
(Note 1) $1,379,770,635 $ 392,445,017 $ 616,228,879 $ 189,619,263 $ 305,609,726
Receivable for capital
shares sold 18,547,686 4,627,271 3,286,375 4,397,856 5,951,614
Dividends receivable 822,094 230,446 546,109 109,187 272,906
-------------- -------------- -------------- -------------- --------------
TOTAL ASSETS 1,399,140,415 397,302,734 620,061,363 194,126,306 311,834,246
-------------- -------------- -------------- -------------- --------------
LIABILITIES
Payable for capital
shares redeemed 3,833,783 244,348 5,873,937 386,837 397,233
Payable for securities
purchased 37,933,418 942,188 9,414,404 11,381,420 12,415,060
Payable to affiliates (Note 3) 1,753,982 527,526 837,004 202,705 336,395
-------------- -------------- -------------- -------------- --------------
TOTAL LIABILITIES 43,521,183 1,714,062 16,125,345 11,970,962 13,148,688
-------------- -------------- -------------- -------------- --------------
NET ASSETS $1,355,619,232 $ 395,588,672 $ 603,936,018 $ 182,155,344 $ 298,685,558
============== ============== ============== ============== ==============
Net assets consist of:
Paid-in-capital $ 860,735,376 $ 245,461,128 $ 420,139,716 $ 149,459,806 $ 246,957,080
Accumulated net
investment income -- -- -- -- 14,610
Distributions in excess of
net realized capital gains (2,805,738) -- -- -- --
Accumulated net realized
gains from security
transactions -- 3,679 1,067,131 -- 99,433
Net unrealized appreciation
on investments 497,689,594 150,123,865 182,729,171 32,695,538 51,614,435
-------------- -------------- -------------- -------------- --------------
Net assets $1,355,619,232 $ 395,588,672 $ 603,936,018 $ 182,155,344 $ 298,685,558
============== ============== ============== ============== ==============
Shares of beneficial interest
outstanding (unlimited number of
shares authorized, no par value)
(Note 5) 14,976,482 8,853,454 12,236,166 12,436,188 20,094,408
============== ============== ============== ============== ==============
Net asset value, redemption price
and offering price per share
(Note 1) $ 90.52 $ 44.68 $ 49.36 $ 14.65 $ 14.86
============== ============== ============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
28 Firsthand
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999 (A)
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY THE THE
VALUE LEADERS INNOVATORS COMMUNICATIONS e-COMMERCE
FUND FUND FUND FUND FUND
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 417,926 $ 181,755 $ 19,136 $ 5,853 $ 8,889
Dividends 2,193,047 607,145 1,547,387 265,040 530,477
------------- ------------- ------------- ------------- -------------
TOTAL INVESTMENT
INCOME 2,610,973 788,900 1,566,523 270,893 539,366
------------- ------------- ------------- ------------- -------------
EXPENSES
Investment advisory fees 6,202,423 1,769,767 1,751,713 248,417 404,384
Administrative fees 1,703,732 524,251 505,227 74,525 120,372
------------- ------------- ------------- ------------- -------------
TOTAL EXPENSES
(Note 3) 7,906,155 2,294,018 2,256,940 322,942 524,756
------------- ------------- ------------- ------------- -------------
NET INVESTMENT INCOME
(LOSS) (5,295,182) (1,505,118) (690,417) (52,049) 14,610
------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains from
security transactions 41,940,680 3,962,276 7,882,318 49,150 99,433
Net change in unrealized
appreciation on
investments 493,368,505 139,007,139 181,766,125 32,695,538 51,614,435
------------- ------------- ------------- ------------- -------------
NET REALIZED AND
UNREALIZED GAINS
ON INVESTMENTS 535,309,185 142,969,415 189,648,443 32,744,688 51,713,868
------------- ------------- ------------- ------------- -------------
NET INCREASE IN NET
ASSETS FROM
OPERATIONS $ 530,014,003 $ 141,464,297 $ 188,958,026 $ 32,692,639 $ 51,728,478
============= ============= ============= ============= =============
</TABLE>
(A) Except for The Communications Fund and The e-Commerce Fund, which represent
the period from the initial public offering of shares (September 30, 1999)
through December 31, 1999.
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 29
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1988
<TABLE>
<CAPTION>
TECHNOLOGY VALUE FUND TECHNOLOGY LEADERS FUND
Year Year Year Year
Ended Ended Ended Ended
12/31/99 12/31/98 12/31/99 12/31/98
==========================================================================================================================
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment loss $ (5,295,182) $ (3,280,860) $ (1,505,118) $ (197,497)
Net realized gains (losses) from security
transactions 41,940,680 (1,125,096) 3,962,276 903,227
Net change in unrealized appreciation on
investments 493,368,505 40,388,492 139,007,139 11,093,756
--------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 530,014,003 35,982,536 141,464,297 11,799,486
--------------- --------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- (2,257)
From net realized gains (34,321,277) -- (3,159,208) --
In excess of net realized gains (956,985) -- -- --
--------------- --------------- --------------- ---------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS
TO SHAREHOLDERS (35,278,262) -- (3,159,208) (2,257)
--------------- --------------- --------------- ---------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 1,269,166,926 149,553,020 366,724,426 53,787,109
Net asset value of shares issued in
reinvestment of distributions to
shareholders 33,194,946 -- 2,977,658 --
Payments for shares redeemed (619,609,478) (201,778,002) (155,253,222) (26,330,447)
--------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CAPITAL SHARE TRANSACTIONS 682,752,394 (52,224,982) 214,448,862 27,456,662
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS 1,177,488,135 (16,242,446) 352,753,951 39,253,891
NET ASSETS:
Beginning of year 178,131,097 194,373,543 42,834,721 3,580,830
--------------- --------------- --------------- ---------------
End of year $ 1,355,619,232 $ 178,131,097 $ 395,588,672 $ 42,834,721
=============== =============== =============== ===============
UNDISTRIBUTED NET INVESTMENT
INCOME: $ -- $ -- $ -- $ --
=============== =============== =============== ===============
CAPITAL SHARE ACTIVITY:
Shares sold 20,384,168 5,313,423 11,728,243 3,830,812
Shares issued in reinvestment of distributions
to shareholders 417,809 -- 83,240 --
Shares redeemed (11,350,482) (7,247,403) (5,345,391) (1,798,882)
--------------- --------------- --------------- ---------------
Net increase (decrease) in shares outstanding 9,451,495 (1,933,980) 6,466,092 2,031,930
Shares outstanding, beginning of year 5,524,987 7,458,967 2,387,362 355,432
--------------- --------------- --------------- ---------------
Shares outstanding, end of year 14,976,482 5,524,987 8,853,454 2,387,362
=============== =============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
30 Firsthand
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Periods Ended December 31, 1999 and 1988
<TABLE>
<CAPTION>
THE THE
TECHNOLOGY INNOVATORS COMMUNICATIONS e-COMMERCE
FUND FUND FUND
Year Period Period Period
Ended Ended Ended Ended
12/31/99 12/31/98(A) 12/31/99(B) 12/31/99(B)
====================================================================================================================
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ (690,417) $ (5,965) $ (52,049) $ 14,610
Net realized gains from security transactions 7,882,318 150,422 49,150 99,433
Net change in unrealized appreciation on
investments 181,766,125 963,046 32,695,538 51,614,435
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS FROM OPERATIONS 188,958,026 1,107,503 32,692,639 51,728,478
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- -- -- --
From net realized gains (6,269,227) -- -- --
------------- ------------- ------------- -------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS
TO SHAREHOLDERS (6,269,227) -- -- --
------------- ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 637,596,098 8,790,653 158,460,884 259,447,141
Net asset value of shares issued in reinvestment
of distributions to shareholders 5,909,870 -- -- --
Payments for shares redeemed (228,747,848) (3,409,057) (8,998,179) (12,490,061)
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS FROM
CAPITAL SHARE TRANSACTIONS 414,758,120 5,381,596 149,462,705 246,957,080
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS: 597,446,919 6,489,099 182,155,344 298,685,558
NET ASSETS:
Beginning of period 6,489,099 -- -- --
------------- ------------- ------------- -------------
End of period $ 603,936,018 $ 6,489,099 $ 182,155,344 $ 298,685,558
============= ============= ============= =============
UNDISTRIBUTED NET INVESTMENT
INCOME: $ -- $ -- $ -- $ 14,610
============= ============= ============= =============
CAPITAL SHARE ACTIVITY:
Shares sold 18,978,792 649,555 13,146,370 21,095,022
Shares issued in reinvestment of
distributions to shareholders 134,657 -- -- --
Shares redeemed (7,282,584) (244,254) (710,182) (1,000,614)
------------- ------------- ------------- -------------
Net increase in shares outstanding 11,830,865 405,301 12,436,188 20,094,408
Shares outstanding, beginning of period 405,301 -- -- --
------------- ------------- ------------- -------------
Shares outstanding, end of period 12,236,166 405,301 12,436,188 20,094,408
============= ============= ============= =============
</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 (September 30,
1999) through December 31, 1999.
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 31
<PAGE>
FINANCIAL HIGHLIGHTS
Technology Value Fund
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
===================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of year $ 32.24 $ 26.06 $ 26.66 $ 18.44 $ 11.70
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment loss (0.35) (0.59) (0.26) (0.08) (0.14)
Net realized and unrealized gains
on investments 61.36 6.77 1.90 11.20 7.28
---------- ---------- ---------- ---------- ----------
Total from investment operations 61.01 6.18 1.64 11.12 7.14
---------- ---------- ---------- ---------- ----------
Less distributions:
Distributions from net realized
gains (2.71) -- (1.80) (2.90) (0.40)
Distributions in excess of net
realized gains (0.02) -- (0.44) -- --
---------- ---------- ---------- ---------- ----------
Total distributions (2.73) -- (2.24) (2.90) (0.40)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 90.52 $ 32.24 $ 26.06 $ 26.66 $ 18.44
========== ========== ========== ========== ==========
Total return 190.40% 23.71% 6.46% 60.55% 61.17%
========== ========== ========== ========== ==========
Net assets at end of year (millions) $ 1,355.6 $ 178.1 $ 194.4 $ 35.1 $ 2.7
========== ========== ========== ========== ==========
Ratio of expenses to average
net assets 1.91% 1.95% 1.93% 1.81% 1.98%
Ratio of net investment loss to
average net assets (1.27%) (1.80%) (1.43%) (0.55%) (1.45%)
Portfolio turnover rate 41% 126% 101% 43% 45%
</TABLE>
See Accompanying Notes to Financial Statements
32 Firsthand
<PAGE>
FINANCIAL HIGHLIGHTS
Technology Leaders Fund
<TABLE>
<CAPTION>
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Year Year Period
Ended Ended Ended
12/31/99 12/31/98 12/31/97(A)
========================================================================================
<S> <C> <C> <C>
Net asset value at beginning of period $ 17.94 $ 10.07 $ 10.00
---------- ---------- ---------
Income from investment operations:
Net investment income (loss) (0.17) (0.09) 0.01
Net realized and unrealized gains on investments 27.40 7.96 0.06
---------- ---------- ---------
Total from investment operations 27.23 7.87 0.07
---------- ---------- ---------
Less distributions:
Dividends from net investment income -- -- --
Distributions from net realized gains (0.49) -- --
---------- ---------- ---------
Total Distributions (0.49) -- --
---------- ---------- ---------
Net asset value at end of period $ 44.68 $ 17.94 $ 10.07
========== ========== =========
Total return 152.58% 78.15% 0.70% (B)
========== ========== =========
Net assets at end of period (millions) $ 395.6 $ 42.8 $ 3.6
========== ========== =========
Ratio of expenses to average net assets 1.94% 1.94% 1.80% (C)
Ratio of net investment income (loss) to
average net assets (1.27%) (1.03%) 1.77% (C)
Portfolio turnover rate 16% 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
1999 Annual Report to Shareholders 33
<PAGE>
FINANCIAL HIGHLIGHTS
Technology Innovators Fund
The Communications Fund
The e-Commerce Fund
<TABLE>
<CAPTION>
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
THE THE
TECHNOLOGY INNOVATORS COMMUNICATIONS e-COMMERCE
FUND FUND FUND
Year Period Period Period
Ended Ended Ended Ended
12/31/99 12/31/98(A) 12/31/99(B) 12/31/99(B)
==========================================================================================================
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 16.01 $ 10.00 $ 10.00 $ 10.00
---------- ---------- ---------- ----------
Income from investment operations:
Net investment income (loss) (0.06) (0.01) (0.00) 0.00
Net realized and unrealized gains on investments 33.98 6.02 4.65 4.86
---------- ---------- ---------- ----------
Total from investment operations 33.92 6.01 4.65 4.86
---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gains (0.57) -- -- --
---------- ---------- ---------- ----------
Total distributions (0.57) -- -- --
---------- ---------- ---------- ----------
Net asset value at end of period $ 49.36 $ 16.01 $ 14.65 $ 14.86
========== ========== ========== ==========
Total return 212.34% 60.10%(C) 46.5%(C) 48.6%(C)
========== ========== ========== ==========
Net assets at end of period (millions) $ 603.9 $ 6.5 $ 182.2 $ 298.7
========== ========== ========== ==========
Ratio of expenses to average net assets 1.93% 1.92%(D) 1.95%(D) 1.95%(D)
Ratio of net investment income (loss) to average
net assets (0.59%) (0.59%)(D) (0.30%)(D) 0.05%(D)
Portfolio turnover rate 44% 188% 0% 0%
</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 (September 30,
1999) through December 31, 1999.
(C) Not annualized.
(D) Annualized.
See Accompanying Notes to Financial Statements
34 Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
The Technology Value Fund, The Technology Leaders Fund, The Technology
Innovators Fund, The Communications Fund and The e-Commerce 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
Technology Leaders Fund commenced on December 10, 1997. The public offering of
shares of The Technology Innovators Fund commenced on May 20, 1998. The public
offering of shares of The Communications Fund and The e-Commerce Fund commenced
on September 30, 1999.
Each Fund's investment objective is long-term growth of capital.
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 Firsthand Captial Management, Inc. (formerly 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 Communications 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 benefit from the increasing demand for communications
services worldwide.
The e-Commerce 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 benefit from the growth of electronic commerce
worldwide.
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.
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.
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999
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, 1999.
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY THE THE
VALUE LEADERS INNOVATORS COMMUNICATIONS e-COMMERCE
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Gross unrealized appreciation $ 526,673,807 $ 152,121,454 $ 194,605,465 $ 33,720,934 $ 56,561,396
Gross unrealized depreciation (29,897,249) (2,018,791) (12,187,805) (1,025,397) $ (4,946,960)
------------- ------------- ------------- ------------- -------------
Net unrealized appreciation $ 496,776,558 $ 150,102,663 $ 182,417,660 $ 32,695,537 $ 51,614,436
============= ============= ============= ============= =============
Federal income tax cost $ 882,994,076 $ 242,342,354 $ 433,811,220 $ 156,923,726 $ 253,995,290
============= ============= ============= ============= =============
</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. The Technology Value Fund realized net capital losses of $1,893,364
during the period from November 1, 1999 through December 31, 1999 which are
treated for federal income tax purposes as arising in the tax year ending
December 31, 2000.
2. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) were as follows for
the periods ended December 31, 1999.
<TABLE>
<CAPTION>
TECHNOLOGY TECHNOLOGY TECHNOLOGY THE THE
VALUE LEADERS INNOVATORS COMMUNICATIONS e-COMMERCE
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
Purchases of investment securities $610,169,918 $163,952,958 $344,556,546 $113,100,348 $188,006,755
============ ============ ============ ============ ============
Proceeds from sales and maturities
of investment securities $158,482,143 $ 17,761,365 $ 43,687,972 $ 97,151 $ 253,433
============ ============ ============ ============ ============
</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
See Accompanying Notes to Financial Statements
36 Firsthand
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999
investments and provides persons satisfactory to the Trust's Board of Trustees
to act as officers and employees of the Trust responsible for the overall
management and administration of the Trust, subject to the supervision of the
Trust's Board of Trustees. The Adviser is responsible for (i) the compensation
of any of the Trust's trustees, officers and employees who are directors,
officers, employees or shareholders of the Adviser, (ii) compensation of the
Adviser's personnel and payment of other expenses in connection with the
provision of portfolio management services under the Advisory Agreement, and
(iii) expenses of printing and distributing each Fund's Prospectus and sales and
advertising materials to prospective clients.
For the services provided by the Adviser under the Advisory Agreement, the
Adviser receives from each Fund a management fee, computed and accrued daily and
paid monthly, equal to 1.50% per annum of each Fund's average daily net assets.
The Advisory Agreement requires the Adviser to waive its management fees and, if
necessary, reimburse expenses of the Funds to the extent necessary to limit each
Fund's total operating expenses to 1.95% of its average net assets up to $200
million, 1.90% of such assets from $200 million to $500 million, 1.85% of such
assets from $500 million to $1 billion, and 1.80% of such assets in excess of $1
billion.
ADMINISTRATION AGREEMENT
The Trust has entered into a separate contract with the Adviser wherein the
Adviser is responsible for providing administrative and supervisory services to
each Fund (the Administration Agreement). Under the Administration Agreement,
the Adviser oversees the maintenance of all books and records with respect to
each Fund's securities transactions and each Fund's book of accounts in
accordance with all applicable federal and state laws and regulations. The
Adviser also arranges for the preservation of journals, ledgers, corporate
documents, brokerage account records and other records which are required to be
maintained pursuant to the 1940 Act.
Under the Administration Agreement, the Adviser is responsible for the
equipment, staff, office space and facilities necessary to perform its
obligations. The Adviser has also assumed responsibility for payment of all of
each Fund's operating expenses except for brokerage and commission expenses and
any extraordinary and non-recurring expenses.
For the services rendered by the Adviser under the Administration Agreement, the
Adviser receives a fee at the annual rate of 0.45% of each Fund's average daily
net assets up to $200 million, 0.40% of such assets from $200 million to $500
million, 0.35% of such assets from $500 million to $1 billion, and 0.30% of such
assets in excess of $1 billion.
The Adviser has retained Countrywide Fund Services, Inc. (the Transfer Agent) to
serve as each Fund's transfer agent, dividend paying agent and shareholder
service agent, to provide accounting and pricing services to each Fund, and to
assist the Adviser in providing executive, administrative and regulatory
services to each Fund. The Transfer Agent is a wholly-owned subsidiary of Fort
Washington Investment Advisors, Inc. 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, 1999 is as noted below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SHARE ACTIVITY
==============================================
MARKET
AFFILIATE BALANCE PURCHASES SALES BALANCE REALIZED VALUE ACQUISITION
(12/31/98) (12/31/99) GAIN(LOSS) (12/31/99) COST
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
TECHNOLOGY VALUE FUND
Celeritek, Inc. 522,200 o o 522,200 $ o $10,084,988 $ 5,035,926
Zoran Corp. o 661,000 o 661,000 o 36,850,750 10,182,001
TECHNOLOGY INNOVATORS FUND
Sage, Inc. o 765,000 o 765,000 o 14,821,875 17,598,599
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
1999 Annual Report to Shareholders 37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1999
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, 1999,
The Technology Value Fund had a 2,040,000 share investment in Stellar
Semiconductor, Inc.-Class B, valued at $6,630,000 and representing 0.49% of net
assets, which was acquired on November 16, 1998, at a cost of $2,448,000 and a
1,200,000 share investment in Stellar Semiconductor, Inc.-Class C, valued at
$2,916,000 and representing 0.22% of net assets, which was acquired on June 22,
1999, at a cost of $1,500,000. As of December 31, 1999, The Technology
Innovators Fund had a 842,857 share investment in Cielo Communications,
Inc.-Class C, valued at $2,950,000 and representing 0.49% of net assets, of
which $1,999,998 was acquired on November 16, 1999 and $950,002 on December 22,
1999, for a total cost of $2,950,000.
5. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On September 15, 1999, The Technology Leaders Fund declared and paid a
short-term capital gain distribution of $0.1916 per share and The Technology
Innovators Fund declared and paid a short-term capital gain distribution of
$0.0369 per share. Additionally, on December 15, 1999, The Technology Value Fund
declared and paid a long-term capital gain distribution of $0.8824 per share and
a short-term capital gain distribution of $1.8434 per share, The Technology
Leaders Fund declared and paid a long-term capital gain distribution of $0.0269
per share and a short-term capital gain distribution of $0.2702 per share, and
The Technology Innovators Fund declared and paid a long-term capital gain
distribution of $0.0317 per share and a short-term capital gain distribution of
$0.4972 per share. In January of 2000, shareholders were provided with Form
1099-DIV which reports the amount and tax status of the capital gains
distributions paid during calendar year 1999.
See Accompanying Notes to Financial Statements
38 Firsthand
<PAGE>
[LOGO] FIRSTHAND FUNDS
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
1.888.883.3863 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
Michael T. Lynch
Jerry Wong
OFFICERS
Kevin M. Landis, President
Yakoub N. Bellawala, Treasurer
INVESTMENT ADVISER
Firsthand Capital Management, 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 St., 21st floor
Cincinnati, OH 45202
WEBSITE
www.FirsthandFunds.com
AR.DOC.1999
FIRSTHAND
