<PAGE>
[LOGO OF TRAINER, WORTHAM FUNDS APPEARS HERE]
January 29, 1997
Dear Fellow Shareholder:
As we begin a new year, we are pleased to present you with the combined
semi-annual report for the Trainer, Wortham First Mutual Funds. You will notice
the report contains financial information for First Mutual Fund as well as our
two new Funds: Trainer, Wortham Emerging Growth Fund and Trainer, Wortham Total
Return Bond Fund.
The average annualized total returns for First Mutual Fund for the 1, 3, 5
and "since inception" period ended December 31, 1996 were 21.36%, 14.56%,
12.09%, 14.53%, respectively. The net asset value at the calendar year end was
$11.30 taking into account a distribution of $2.30 per share which was paid to
shareholders of record on December 26, 1996. Performance information for the
new Funds will be presented in our audited, annual report which will be dated
June 30,1997. A distribution of $0.13 was paid to shareholders of the Trainer,
Wortham Total Return Bond Fund on December 26,1996. The current yield for the
Total Return Bond Fund is 5.8%.
We remain optimistic about the long-term opportunities the markets will
offer us as portfolio managers of your Funds. As we begin 1997, it is clear
that the economy is healthy; however, it does not appear so healthy to make the
threat of renewed inflationary pressures a serious one. We expect the U.S.
business climate for 1997 to be one of moderate growth, stable demand, low
inventory levels and modestly rising corporate earnings.
By all standards, the stock market's direction and magnitude of advance has
surpassed the consensus levels outlined by investment and economic
professionals. While we believe the trend of the market will continue upward,
further advances may not be as sharp and volatility could become more
commonplace as investors react to news and economic events this year. In this
environment, we believe investors will emphasize companies that offer
consistent and visible earnings growth that are selling at reasonable
valuations. Companies that offer some yield will also be of interest to secure
additional rates of return and provide a buffer for potential drops in the
market.
If we are correct and interest rates remain stable, financial stocks should
do well in 1997, while the bond markets should offer a reasonable yield and
conservative return. An aging population and the increasing need to save and
invest should improve the fundamentals for the financial services arena,
allowing additional growth in this sector. Similarly, the healthcare sector
should benefit from our aging population and the overall need to develop and
deliver medical care at a reasonable cost. We are currently looking to the
energy area for companies that have good prospects for growth from oil and gas
production, as well as the oil field service companies that continue to benefit
from increased capital spending in exploration and production. While the
technology sector has been and will continue to be quite volatile, we continue
to see long-term opportunity in select areas that benefit from corporate and
consumer spending both here and abroad. Broadcasting issues continue to offer
attractive returns as the businesses are high margin operations that generate
substantial cash flow. Finally, select conglomerates offer potential as
restructuring to increase shareholder value continues to be a major theme for
those companies.
At Trainer, Wortham we are committed to finding investments in companies
that will prosper regardless of economic and market conditions and create value
for our shareholders.
Respectfully,
/s/ David P. Como
David P. Como, President
Trainer, Wortham Funds,
Manager, First Mutual Fund
/s/ Robert R Douglass, Jr. /s/ John D. Knox
Robert R Douglass, Jr., Vice-President John D. Knox, Vice-President
Trainer, Wortham Emerging Growth Fund Trainer, Wortham Total Return Bond Fund
<PAGE>
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------- -----------
<C> <S> <C>
COMMON STOCKS - 97.17%
BEVERAGES - 2.86%
30,200 PepsiCo, Inc. .......................................... $ 883,350
-----------
CHEMICALS-DIVERSIFIED - 3.37%
45,000 ChemFirst, Inc.*........................................ 1,040,625
-----------
COMPUTER-NETWORKING PRODUCTS - 1.22%
5,900 Cisco Systems, Inc.*.................................... 375,388
-----------
COMPUTER SOFTWARE - 6.01%
23,000 Computer Associates International, Inc. ................ 1,144,250
35,000 Wang Laboratories, Inc.*................................ 708,750
-----------
1,853,000
-----------
CONSUMER PRODUCTS-MISCELLANEOUS - 2.45%
38,500 Gibson Greetings, Inc.*................................. 755,562
-----------
DIVERSIFIED OPERATIONS - 5.20%
5,000 AlliedSignal, Inc. ..................................... 335,000
10,000 American Brands, Inc. .................................. 496,250
18,750 Thermo Electron Corp.*.................................. 773,437
-----------
1,604,687
-----------
ELECTRICAL-CIRCUIT BOARDS - 0.76%
21,700 Continental Circuits Corp.*............................. 233,275
-----------
FERTILIZERS - 1.17%
15,030 Mississippi Chemical Corp. ............................. 360,729
-----------
FINANCIAL INSTITUTIONS - 10.27%
19,375 Bank of Boston Corp. ................................... 1,244,844
69,500 Insignia Financial Group, Inc., Cl. A*.................. 1,563,750
20,000 ISB Financial Corp. .................................... 360,000
-----------
3,168,594
-----------
LEISURE-HOTELS/MOTELS - 2.52%
13,000 HFS, Inc.*.............................................. 776,750
-----------
MACHINERY-VISION - 5.38%
22,500 Medar, Inc.*............................................ 126,562
44,800 Perceptron, Inc.*....................................... 1,534,400
-----------
1,660,962
-----------
MEDIA-RADIO/TV - 9.73%
36,500 American Radio Systems Corp.*........................... 994,625
52,000 Sinclair Broadcast Group, Inc., Cl. A*.................. 1,352,000
33,000 Westinghouse Electric Corp. ............................ 655,875
-----------
3,002,500
-----------
MEDICAL-DRUGS - 4.73%
20,000 Lilly (Eli) & Co. ...................................... 1,460,000
-----------
MEDICAL-PRODUCTS/SUPPLIES - 6.77%
60,000 First New England Dental Centers, Inc.* (Note 4)........ 510,000
20,000 Johnson & Johnson....................................... 995,000
90,000 LaserSight, Inc.*....................................... 585,000
-----------
2,090,000
-----------
</TABLE>
<PAGE>
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
OFFICE SUPPLIES-FORMS - 2.93%
40,000 American Pad & Paper Co.*............................ $ 905,000
-----------
OIL & GAS-EXPLORATION & PRODUCTION - 10.46%
45,000 Abacan Resource Corp.*............................... 390,938
24,800 Belden & Blake Corp.*................................ 632,400
47,100 Cairn Energy USA, Inc.*.............................. 471,000
30,000 Oryx Energy Co.*..................................... 742,500
50,000 Queen Sand Resources, Inc.* (Note 4)................. 200,000
80,000 Ranger Oil, Ltd. .................................... 790,000
-----------
3,226,838
-----------
OIL SERVICES-MACHINERY & EQUIPMENT - 3.02%
27,000 Baker Hughes, Inc. .................................. 931,500
-----------
PAPER AND RELATED PRODUCTS - 1.40%
15,000 Westvaco Corp. ...................................... 431,250
-----------
PUBLISHING-NEWS - 2.25%
25,000 Harte-Hanks Communications........................... 693,750
-----------
RETAIL - 7.11%
22,500 CUC International, Inc.*............................. 534,375
56,000 Warnaco Group, Inc., Cl. A .......................... 1,659,000
-----------
2,193,375
-----------
RETIREMENT-AGED CARE - 1.63%
33,000 Assisted Living Concepts, Inc.*...................... 503,250
-----------
SCIENTIFIC INSTRUMENTS - 2.14%
16,000 Millipore Corp. ..................................... 662,000
-----------
SECURITY SERVICES - 3.41%
39,000 Pittston Brink's Group............................... 1,053,000
-----------
TELECOMMUNICATIONS - 0.38%
26,500 ProNet, Inc.*........................................ 115,937
-----------
TOTAL COMMON STOCKS (COST $26,187,649) - 97.17%...... 29,981,322
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<C> <S> <C>
CONVERTIBLE BONDS - 2.63%
$500,000 American Body Armor & Equipment, 5.00%, 04/30/01
(Cost $500,000)..................................... 812,500
-----------
TOTAL INVESTMENTS (COST $26,687,649**) - 99.80%...... 30,793,822
OTHER ASSETS LESS OTHER LIABILITIES - 0.20%.......... 60,392
-----------
NET ASSETS - 100.00%................................. $30,854,214
===========
* Non-income producing security
** Cost for Federal income tax purposes is $26,687,649 and net unrealized
appreciation consists of:
Gross unrealized appreciation........................ $ 6,139,422
Gross unrealized depreciation........................ (2,033,249)
-----------
Net unrealized appreciation.......................... $ 4,106,173
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE>
TRAINER, WORTHAM EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<C> <S> <C>
COMMON STOCKS - 97.38%
AEROSPACE/DEFENSE - 2.19%
1,750 Orbital Sciences Corp.*.................................... $ 30,188
----------
BIOTECHNOLOGY/PHARMACEUTICALS - 11.91%
900 BioChem Pharma, Inc.*...................................... 45,225
2,400 Cryolife, Inc.*............................................ 30,000
600 Human Genome Sciences, Inc.*............................... 24,450
1,250 Liposome Co., Inc.*........................................ 23,906
3,000 Magainin Pharmaceuticals, Inc.*............................ 28,875
500 OXiGENE, Inc.*............................................. 11,750
----------
164,206
----------
BROADCASTING-RADIO/TV - 3.91%
500 American Radio Systems Corp.*.............................. 13,625
1,550 Sinclair Broadcast Group, Inc., Cl. A*..................... 40,300
----------
53,925
----------
CHEMICALS - 3.23%
4,000 Spartech Corp. ............................................ 44,500
----------
COMMERCIAL SERVICES-SCHOOLS - 6.10%
1,250 Corrections Corp. of America*.............................. 38,281
3,000 Youth Services International, Inc.*........................ 45,750
----------
84,031
----------
COMPUTER SOFTWARE & SERVICES - 15.67%
2,000 ACE*COMM Corp.*............................................ 30,000
750 Cybercash, Inc.*........................................... 17,250
750 Data Dimensions, Inc.*..................................... 26,625
1,750 Integrated Systems, Inc.*.................................. 45,500
1,000 Rational Software Corp.*................................... 39,562
400 Red Brick Systems, Inc.*................................... 9,200
1,750 Versant Object Technology Corp.*........................... 32,594
1,000 Visigenic Software Inc.*................................... 15,250
----------
215,981
----------
CONSUMER PRODUCTS-MISCELLANEOUS - 1.42%
1,000 Gibson Greetings, Inc.*.................................... 19,625
----------
CONSUMER SERVICES - 1.92%
750 Signature Resorts, Inc.*................................... 26,437
----------
FINANCIAL SERVICES/REAL ESTATE - 7.58%
1,000 Executive Risk, Inc. ...................................... 37,000
3,000 Insignia Financial Group, Inc., Cl. A*..................... 67,500
----------
104,500
----------
HOME FURNISHINGS - 2.57%
1,000 Bush Industries, Inc., Cl. A............................... 19,250
1,250 Conso Products Co.*........................................ 16,094
----------
35,344
----------
</TABLE>
<PAGE>
TRAINER, WORTHAM EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ----------
<C> <S> <C>
MEDICAL & RELATED PRODUCTS/SERVICES - 11.55%
2,500 Apache Medical Systems, Inc.*............................. $ 26,719
3,500 Assisted Living Concepts, Inc.*........................... 53,375
1,500 Collaborative Clinical Research, Inc.*.................... 16,125
6,000 LaserSight, Inc.*......................................... 39,000
1,525 Thermolase Corp.*......................................... 24,019
----------
159,238
----------
METAL PROCESSING & FABRICATIONS - 1.80%
1,250 Chase Brass Industries, Inc.*............................. 24,844
----------
OIL & GAS EXPLORATION & PRODUCTION - 3.58%
2,000 Abacan Resource Corp.*.................................... 17,375
3,200 Cairn Energy USA, Inc.*................................... 32,000
----------
49,375
----------
RETAIL-APPAREL - 6.96%
2,500 Harold's Stores, Inc.*.................................... 35,938
1,250 Tommy Hilfiger Corp.*..................................... 60,000
----------
95,938
----------
TECHNOLOGY/ELECTRONICS/EQUIPMENT - 15.39%
450 C-Cube Microsystems, Inc.*................................ 16,622
1,500 Continental Circuits Corp.*............................... 16,125
750 KLA Instruments Corp.*.................................... 26,625
1,500 NetVantage, Inc., Cl. A*.................................. 13,500
1,100 Perceptron, Inc.*......................................... 37,675
1,500 Silicon Valley Group, Inc.*............................... 30,187
1,950 Stratasys, Inc.*.......................................... 38,756
1,800 Thermedics, Inc.*......................................... 32,625
----------
212,115
----------
TELECOMMUNICATIONS - 1.60%
1,250 ICG Communications, Inc.*................................. 22,031
----------
TOTAL COMMON STOCKS (COST $1,341,245**) - 97.38%.......... 1,342,278
OTHER ASSETS LESS OTHER LIABILITIES - 2.62%............... 36,087
----------
NET ASSETS - 100.00%...................................... $1,378,365
==========
* Non-income producing security
** Cost for Federal income tax purposes is $1,341,245 and net unrealized
appreciation consists of:
Gross unrealized appreciation............................. $ 84,325
Gross unrealized depreciation............................. (83,292)
----------
Net unrealized appreciation............................... $ 1,033
==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE>
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
<C> <S> <C>
FIXED INCOME - 98.92%
U.S. GOVERNMENT TREASURY - 35.75%
$530,000 U.S. Treasury Notes, 5.875%, 08/15/98 ............... $ 530,562
300,000 U.S. Treasury Notes, 7.500%, 11/15/01 ............... 316,014
250,000 U.S. Treasury Notes, 6.375%, 08/15/02 ............... 251,907
500,000 U.S. Treasury Notes, 7.250%, 05/15/04 ............... 526,405
350,000 U.S. Treasury Notes, 6.250%, 08/15/23 ............... 328,468
-----------
TOTAL U.S. GOVERNMENT TREASURY (COST $1,954,721)..... 1,953,356
-----------
U.S. GOVERNMENT AGENCY - 30.58%
Federal Home Loan Mortgage Corp. Gold Pool #E65534,
496,907 6.500%, 10/01/11 ................................... 488,366
Government National Mortgage Association Pool
224,608 #431971, 6.500%, 05/15/26 .......................... 214,291
Federal Home Loan Mortgage Corp. Gold Pool #072664,
771,353 7.000%, 07/01/26 ................................... 757,132
Federal Home Loan Mortgage Corp. Gold Pool #C80442,
215,078 7.000%, 10/01/26 ................................... 211,112
-----------
TOTAL U.S. GOVERNMENT AGENCY (COST $1,656,726)....... 1,670,901
-----------
ASSET BACKED - 1.77%
Daimler-Benz Vehicle Trust, 5.850%, 07/20/03 (COST
95,907 $95,890) ............................................ 96,696
-----------
CORPORATE BONDS - 30.82%
Associates Corp. of North America, 6.740%, 08/13/99
150,000 ..................................................... 151,500
110,000 General Motors Acceptance Corp., 8.400%, 10/15/99 ... 115,775
200,000 Banco LatinoAmericano, 6.690%, 12/23/99 ............. 200,000
160,000 Ford Motor Credit Corp., 7.020%, 10/10/00 ........... 162,200
200,000 Sears Roebuck Acceptance Corp., 5.870%, 01/08/01 .... 194,500
200,000 Comdisco, Inc., 5.750%, 02/15/01 .................... 193,500
150,000 Morgan Stanley Group, Inc., 9.375%, 06/15/01 ........ 165,562
200,000 Scholastic Corp., 7.000%, 12/15/03 .................. 199,750
200,000 Smith Barney Holdings, 7.125%, 10/01/06 ............. 200,250
100,000 Union Pacific Resources Corp., 7.000%, 10/15/06 ..... 100,875
-----------
TOTAL CORPORATE BONDS (COST $1,685,760).............. 1,683,912
-----------
TOTAL INVESTMENTS (COST $5,393,097**) - 98.92%....... 5,404,865
OTHER ASSETS LESS OTHER LIABILITIES - 1.08%.......... 58,954
-----------
NET ASSETS - 100.00%................................. $ 5,463,819
===========
** Cost for Federal income tax purposes is $5,393,097 and net unrealized
appreciation consists of:
Gross unrealized appreciation........................ $ 22,981
Gross unrealized depreciation........................ (11,213)
-----------
Net unrealized appreciation.......................... $ 11,768
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST EMERGING TOTAL RETURN
MUTUAL GROWTH BOND
----------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Investments in securities at market
value (identified cost $26,687,649,
$1,341,245 and $5,393,097,
respectively) (Notes 1 and 4).......... $30,793,822 $1,342,278 $5,404,865
Cash.................................... 0 26,543 0
Receivables:
Dividends and interest................. 31,427 384 63,141
Investment securities sold............. 1,049,479 0 0
Capital stock sold..................... 23,155 250 0
Deferred organizational cost (Note 1)... 0 11,402 11,409
Other assets............................ 45 10,082 10,119
----------- ---------- ----------
TOTAL ASSETS........................... 31,897,928 1,390,939 5,489,534
----------- ---------- ----------
LIABILITIES
Payable for securities purchased........ 680,319 2,813 0
Payable to Advisor...................... 18,201 9,761 15,950
Other liabilities....................... 345,194 0 9,765
----------- ---------- ----------
TOTAL LIABILITIES...................... 1,043,714 12,574 25,715
----------- ---------- ----------
NET ASSETS
(applicable to outstanding shares of
2,729,934,138,824 and 541,326,
respectively; unlimited shares of
$0.001 par value authorized)........... $30,854,214 $1,378,365 $5,463,819
=========== ========== ==========
Net asset value, offering and redemption
price per share........................ $ 11.30 $ 9.93 $ 10.09
=========== ========== ==========
SOURCE OF NET ASSETS
Paid-in capital......................... $23,843,820 $1,374,352 $5,430,512
Undistributed net investment loss....... (132,450) (348) (355)
Accumulated net realized gain on
investments............................ 3,036,671 3,328 21,894
Net unrealized appreciation of
investments............................ 4,106,173 1,033 11,768
----------- ---------- ----------
NET ASSETS............................. $30,854,214 $1,378,365 $5,463,819
=========== ========== ==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE>
STATEMENTS OF OPERATIONS
DECEMBER 31, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST EMERGING TOTAL RETURN
MUTUAL GROWTH /1/ BOND /1/
----------- ---------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 81,537 $ 235 $ 0
Interest................................. 47,523 2,961 77,031
----------- -------- --------
TOTAL INCOME............................ 129,060 3,196 77,031
----------- -------- --------
EXPENSES
Advisory fees (Note 3)................... 116,295 3,544 5,380
Distribution expense (Note 3)............ 38,765 1,417 0
Administrator expense.................... 26,480 2,000 2,000
Transfer agent fees...................... 16,937 4,001 4,004
Bookkeeping and pricing.................. 12,098 4,000 4,000
Insurance expense........................ 8,199 0 0
Custodian fees........................... 9,721 2,860 1,345
Legal expense............................ 6,050 0 0
Registration expense..................... 11,184 4,265 4,742
Organization expense (Note 1)............ 0 598 591
Independent accountants.................. 5,546 0 0
Other.................................... 4,972 613 1,607
Trustees' fees and expenses.............. 3,247 0 0
Reports to shareholders.................. 2,016 35 159
----------- -------- --------
TOTAL EXPENSES.......................... 261,510 23,333 23,828
Expenses waived and reimbursed.......... 0 (19,789) (14,861)
----------- -------- --------
NET EXPENSES............................ 261,510 3,544 8,967
----------- -------- --------
NET INVESTMENT INCOME (LOSS)............ (132,450) (348) 68,064
----------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain from security
transactions............................ 4,042,760 3,328 23,714
Net change in unrealized appreciation
(depreciation) of investments........... (4,360,620) 1,033 11,768
----------- -------- --------
Net realized and unrealized gain (loss)
on investments.......................... (317,860) 4,361 35,482
----------- -------- --------
Net increase (decrease) in net assets
resulting from operations............... $ (450,310) $ 4,013 $103,546
=========== ======== ========
</TABLE>
- ---------------------------------
/1/ The Emerging Growth Fund and Total Return Bond Fund commenced operations on
October 1, 1996.
The notes to financial statements are an integral part of these statements.
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING TOTAL RETURN
FIRST MUTUAL GROWTH BOND
------------------------- ------------ ------------
SIX MONTHS PERIOD PERIOD
ENDED YEAR ENDED ENDED
DECEMBER 31, ENDED DECEMBER 31, DECEMBER 31,
1996 JUNE 30, 1996 /1/ 1996 /1/
(UNAUDITED) 1996 (UNAUDITED) (UNAUDITED)
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income
(loss)................... $ (132,450) $ (208,863) $ (348) $ 68,064
Net realized gain on
investments.............. 4,042,760 5,869,876 3,328 23,714
Net change in unrealized
appreciation
(depreciation) of
investments.............. (4,360,620) 4,618,568 1,033 11,768
----------- ----------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations............... (450,310) 10,279,581 4,013 103,546
----------- ----------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS
Distributions from net
investment income........ 0 0 0 (68,419)
Distributions from
realized gains on
investments.............. (5,294,899) (1,927,263) 0 (1,820)
----------- ----------- ---------- ----------
Total Distributions...... (5,294,899) (1,927,263) 0 (70,239)
----------- ----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold.. 1,455,009 3,039,765 1,374,352 5,369,994
Receipt from shares issued
on reinvestment of
distributions............ 4,864,142 1,720,464 0 60,518
Shares redeemed........... (1,866,864) (1,246,789) 0 0
----------- ----------- ---------- ----------
Net increase in net assets
resulting from capital
share transactions (a)... 4,452,287 3,513,440 1,374,352 5,430,512
----------- ----------- ---------- ----------
Total increase (decrease)
in net assets........... (1,292,922) 11,865,758 1,378,365 5,463,819
NET ASSETS
Beginning of period....... 32,147,136 20,281,378 0 0
----------- ----------- ---------- ----------
End of period............. $30,854,214 $32,147,136 $1,378,365 $5,463,819
=========== =========== ========== ==========
(a)Transactions in capital
stock were:
Shares sold.............. 111,968 259,258 138,824 535,358
Shares issued on
reinvestment of
distributions........... 431,218 154,718 0 5,968
Shares redeemed.......... (140,355) (109,829) 0 0
----------- ----------- ---------- ----------
Net increase............. 402,831 304,147 138,824 541,326
Beginning balance........ 2,327,103 2,022,956 0 0
----------- ----------- ---------- ----------
Ending balance........... 2,729,934 2,327,103 138,824 541,326
=========== =========== ========== ==========
</TABLE>
- ---------------------------------
/1/ The Emerging Growth Fund and Total Return Bond Fund commenced operations on
October 1, 1996.
The notes to financial statements are an integral part of these statements.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
FIRST MUTUAL
---------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
1996 -------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD............. $13.81 $10.03 $8.21 $9.29 $8.49 $9.24
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (loss).... (0.05) (0.09) (0.09) (0.09) (0.06) 0.01
Net gains (losses) on securities
(both realized and unrealized).. (0.16) 4.79 2.10 (0.13) 1.09 (0.09)
------- ------- ------- ------- ------- -------
Total from investment
operations.................... (0.21) 4.70 2.01 (0.22) 1.03 (0.08)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends
(from net investment income)... 0.00 0.00 0.00 0.00 0.00 (0.02)
Distributions
(from capital gains)........... (2.30) (0.92) (0.19) (0.86) (0.23) (0.65)
------- ------- ------- ------- ------- -------
Total distributions............ (2.30) (0.92) (0.19) (0.86) (0.23) (0.67)
------- ------- ------- ------- ------- -------
NET ASSET VALUE,
END OF PERIOD................... $11.30 $13.81 $10.03 $8.21 $9.29 $8.49
======= ======= ======= ======= ======= =======
TOTAL RETURN..................... (2.95%)* 49.12% 25.04% (3.91%) 12.17% (1.01%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in 000's)..................... $30,854 $32,147 $20,281 $21,446 $19,093 $18,143
Ratio of expenses to average net
assets **...................... 1.69% * 1.74% 2.16% 1.97% 1.99% 1.87%
Ratio of net investment income
(loss) to average net assets
**............................. (0.85%) * (0.82%) (0.77%) (0.97%) (0.61%) 0.08%
Portfolio turnover rate......... 107% * 107% 198% 178% 172% 175%
Average commission rate paid.... $0.0533 $0.0683 N/A N/A N/A N/A
</TABLE>
- ---------------------------------
* Annualized.
** Average net assets have been computed on the basis of the value of the net
assets at the end of the month.
The notes to financial statements are an integral part of these financial
statements.
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
EMERGING TOTAL RETURN
GROWTH BOND
------------ ------------
PERIOD PERIOD
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 /1/ 1996 /1/
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $10.00 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................... 0.00 0.25
Net losses on securities (both realized and
unrealized)........................................ (0.07) (0.03)
------- ------
Total from investment operations................... (0.07) 0.22
------- ------
LESS DISTRIBUTIONS
Dividends (from net investment income).............. 0.00 (0.13)
------- ------
Total distributions................................ 0.00 (0.13)
------- ------
NET ASSET VALUE, END OF PERIOD....................... $9.93 $10.09
======= ======
TOTAL RETURN......................................... (0.70%)+ 2.21% +
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)................ $1,378 $5,464
Ratio of expenses to average net assets **
before reimbursement of expenses by Advisor........ 8.23% * 1.99% *
after reimbursement of expenses by Advisor......... 1.25% * 0.75% *
Ratio of net investment income (loss) to average net
assets **
before reimbursement of expenses by Advisor........ (7.10%) * 4.45% *
after reimbursement of expenses by Advisor......... (0.12%) * 5.69% *
Portfolio turnover rate............................. 8% * 197% *
Average commission rate paid........................ $0.0833 N/A
</TABLE>
- ---------------------------------
/1/ The Emerging Growth Fund and Total Return Bond Fund commenced operations on
October 1, 1996.
+ Since inception, not annualized.
* Annualized.
** Average net assets have been computed on the basis of the value of the net
assets at the end of the month.
The notes to financial statements are an integral part of these financial
statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996
- -------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Trainer, Wortham First Mutual Funds (the "Trust") is an open-end management
investment company which currently offers shares of three series: First Mutual
Fund; Trainer, Wortham Emerging Growth Fund ("Emerging Growth Fund"); and
Trainer, Wortham Total Return Bond Fund ("Total Return Bond Fund"). Each
Series has distinct investment objectives and policies.
First Mutual Fund's primary investment objective is to seek capital
appreciation principally through investments in common stock. The Fund may
also invest in securities convertible into common stock such as convertible
bonds or preferred stock. Its secondary investment objective is to seek income
from dividends and interest. Emerging Growth Fund's investment objective is to
seek capital appreciation through investments in the common stock of emerging
growth companies. Emerging growth companies are defined by the Advisor as
companies that are achieving, or about to achieve, rapid earnings growth due
to a new product, a new industry, technological innovation, new management, or
a novel strategic corporate positioning, among other factors. The weighted
average market capitalization of holdings in the Fund will be approximately $1
billion. The Total Return Bond Fund seeks to maximize total return consistent
with preservation of capital. The Fund will invest in U.S. Government and
agency securities, investment grade corporate bonds and other fixed-income
securities. The Fund will seek to produce conservative, risk adjusted returns.
Due to the inherent risk in any investment program, no Fund can ensure that
its investment objectives will be realized. The following is a summary of
significant accounting policies consistently followed by the Trust in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles for investment companies.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last reported sales price on the last
business day of the period. Unlisted securities, or listed securities in which
there were no sales, are valued at the mean of the closing bid and ask prices.
Short-term obligations with remaining maturities of 60 days or less are valued
at cost plus accrued interest which approximates market value.
B. OTHER. As is common in the industry, security transactions are accounted
for on the date the securities are purchased or sold (trade date). Cost is
determined and gains and losses are based on the identified cost basis for
both financial statement and federal income tax purposes. Dividend income and
distributions to shareholders are reported on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. Those differences are primarily due to
different treatments for net operating losses.
C. NET ASSET VALUE PER SHARE. Net asset value per share of the capital stock
of a Fund is determined daily as of the close of trading on the New York Stock
Exchange by dividing the value of its net assets by the number of Fund shares
outstanding. The offering price and redemption price per share is the same as
the net asset value per share.
D. FEDERAL INCOME TAXES. It is the policy of each Fund to comply with
requirements of the Internal Revenue Code applicable to regulated investment
companies, if such qualification is in the
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996
- -------------------------------------------------------------------------------
best interest of its stockholders, and to make distributions of net investment
income and capital gains (after reduction for any amounts available for
federal income tax purposes as capital loss carryovers) sufficient to relieve
it from all, or substantially all, federal income taxes.
E. USE OF ESTIMATES IN FINANCIAL STATEMENTS. In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reporting period. Actual results may
differ from these estimates.
F. ORGANIZATION COSTS. Organization costs for Emerging Growth Fund and Total
Return Bond Fund are being amortized on a straight-line basis over five years,
commencing October 1, 1996.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, for the
six-month period ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
First Mutual Fund...................................... $17,316,031 $16,879,697
Emerging Growth Fund................................... 1,359,792 21,875
Total Return Bond Fund................................. 8,192,247 2,707,126
</TABLE>
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Trainer, Wortham & Co., Inc. (the "Advisor") is the investment advisor for the
Trust pursuant to three separate investment advisory agreements (the
"Agreements"). Under the terms of the Agreements, the Advisor receives an
annual fee, accrued daily and paid monthly, of 0.75% of the average daily net
assets of First Mutual Fund, 1.25% of the average daily net assets of Emerging
Growth Fund, and 0.45% of the average daily net assets of the Total Return
Bond Fund.
For the period ended December 31, 1996, the Trust paid the Advisor $116,295 in
advisory fees on behalf of First Mutual Fund, $3,544 on behalf of Emerging
Growth Fund and $5,380 on behalf of Total Return Bond Fund. The Advisor has
voluntarily elected to waive advisory fees to the extent total operating
expenses exceed 1.25% and 0.75%, respectively, for Emerging Growth Fund and
Total Return Bond Fund. For the period ended December 31, 1996, the Advisor
reimbursed Emerging Growth Fund $19,789 and Total Return Bond Fund $14,861.
The Trust has adopted Distribution Plans (the "Plans"), with respect to First
Mutual Fund and Emerging Growth Fund, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which permits the Funds to pay certain
expenses associated with the distribution of its shares. The Plan provides
that the Trust will reimburse FPS Broker Services, Inc. (the "Distributor"),
the Trust's sole Underwriter and Distributor, for actual distribution and
shareholder servicing expenses incurred by the Distributor not exceeding, on
an annual basis, 0.25% of the average daily net assets of First Mutual Fund
and 0.50% of the average daily net assets of Emerging Growth Fund. For the
period ended December 31, 1996, the Trust reimbursed the Distributor $38,765
and $1,417 on behalf of First Mutual Fund and Emerging Growth Fund,
respectively, for distribution costs incurred.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996
- -------------------------------------------------------------------------------
NOTE 4 - RESTRICTED SECURITIES
First Mutual Fund owns certain investment securities which are restricted as
to resale. Accordingly, these securities are valued at fair value in good
faith by or under the direction of the Trust's Board of Trustees, taking into
consideration such factors including recent private sales, market conditions
and the issuer's financial performance. At December 31, 1996, First Mutual
Fund owned the following securities which may not be sold without registration
under the Securities Act of 1933:
<TABLE>
<CAPTION>
ACQUISITION UNIT MARKET
SECURITY DATE SHARES PRICE VALUE %TNA COST
-------- ----------- ------ ----- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
First New England Dental
Centers, Inc................ 10/23/96 60,000 $8.50 $510,000 1.65% $510,000
Queen Sands Resources, Inc... 07/05/95 50,000 4.00 200,000 0.65 150,000
</TABLE>
NOTE 5 - ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Stockholders of First Mutual Fund was held on August 8,
1996 for purposes of considering and acting upon the matters set forth in the
Proxy Statement and summarized below. A quorum was represented at the Meeting
and the voting results are also set forth below.
A. Election of a Board of Trustees
<TABLE>
<CAPTION>
WITHHOLD WITHHOLD
FOR AUTHORITY FOR AUTHORITY
--- --------- --- ---------
<S> <C> <C> <C> <C> <C>
James F. Twaddell....... 1,581,341 0 David Elias............. 1,581,188 153
David P. Como........... 1,581,124 217 Robert S. Lazar......... 1,581,341 0
Robert H. Breslin, Jr. . 1,579,851 1,490 Martin S. Levine........ 1,581,311 30
Raymond Eisenberg....... 1,579,634 1,707 Theresa Thibadeau....... 1,581,319 22
</TABLE>
B. Selection by the Board of Trustees of Tait, Weller & Baker to audit the
accounts of the Trust for the fiscal year ending June 30, 1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
1,580,979 362 0
</TABLE>
C. Amendments to the Investment Advisory Agreement between the Trust and
Trainer, Wortham & Co., Inc. increasing the management fee payable by the
Trust.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
1,545,543 29,553 6,245
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996
- -------------------------------------------------------------------------------
Certain officers and trustees of the Trust are affiliated persons of the
Advisor.
TRAINER, WORTHAM FIRST MUTUAL FUNDS
845 Third Avenue, 6th Floor
New York, NY 10022
OFFICERS
David P. Como
President
Robert R. Douglass, Jr.
Vice President
H. Williamson Ghriskey, Jr.
Vice President/Treasurer
Charles H.G. Honey
Vice President
John D. Knox
Vice President
Debra L. Clark
Secretary
INVESTMENT ADVISOR
Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th floor
New York, NY 10022
AUDITORS
Tait, Weller & Baker
Two Penn Center Plaza, Suite 700
Philadelphia, PA 19102
CUSTODIAN
UMB Bank KC, NA
P.O. Box 412797
Kansas City, MO 64141-2797
FUND ADMINISTRATION
FPS Services, Inc.
3200 Horizon Drive
King of Prussia, PA 19406
This report is submitted for the general information of the shareholders of
the Trust. It is not authorized for distribution to prospective investors in
the Trust unless preceded or accompanied by an effective Prospectus which
includes details regarding the Trust's objectives, policies, expenses and
other information.
<PAGE>
TRUSTEES:
Robert H. Breslin, Jr.
David P. Como
Raymond Eisenberg
David Elias
Robert S. Lazar
Martin S. Levine
Theresa C. Thibadeau
James F. Twaddell
For more complete
information including
charges and expenses, you
may request a prospectus by
calling:
800.257.4414
[LOGO OF TRAINER, WORTHAM FUNDS APPEARS HERE]
845 Third Avenue/6th Floor, New York, New York 10022
800.257.4414 . Fax: 212.583.9348
SEMI-ANNUAL REPORT
DECEMBER 31, 1996
[LOGO OF TRAINER, WORTHAM FUNDS APPEARS HERE]
FIRST MUTUAL FUND
EMERGING GROWTH FUND
TOTAL RETURN BOND FUND
800.257.4414
