<PAGE> 1
TRAINER, WORTHAM FUNDS LOGO
August 4, 1997
Dear Fellow and Future Shareholders:
We are pleased to present you with the audited Financial Report for the
Trainer, Wortham Funds. Our views for the market and our investment outlook are
following in the context of this letter to our shareholders.
While we have had an optimistic outlook about the direction of the markets,
like many, we have been surprised by the overall strength in stock prices. This
strength has been fueled by better than expected corporate earnings reports,
stable interest rates, low inflation and a high level of cash flowing into
stocks.
We recognize that the market has been overvalued by most historical
measures for quite some time. As a result, we are seeing increased volatility in
stock prices, as there is little margin for disappointment if fundamentals do
not meet expectations or if management is not performing as expected. While some
investors remain negative about stock investing, we believe there is sound basis
for today's stock prices. Corporate America is becoming more efficient,
resulting in high levels of cash flow. This will lead to future dividend
increases, share buybacks and acquisitions that increase future value.
For the past two years, the rise in the market has been concentrated in
very few large cap companies. We believe that going forward, market
participation will broaden and while we continue our concentration in
traditional and emerging growth companies, the accelerating companies may offer
some of the best investment opportunities. As you know, we define accelerating
companies as those that are beginning to see positive earnings comparisons
resulting from economic cycle dynamics, refocused business strategies and
recovering fundamentals. Several of these companies are held in the First Mutual
Fund portfolio, including PepsiCo, Westinghouse and Federal Mogul.
Our Bond Fund remains fully invested in quality issues and is offering a
competitive yield to its shareholders. You may receive information on any of our
Funds by contacting us at the numbers provided.
At Trainer, Wortham we are committed to finding investments for our clients
in companies that will prosper regardless of economic and market conditions. We
continue our research efforts to understand the intrinsic value of the companies
we own, determine if market expectations are reasonable and apply the risk
adjusted profiles to allow reward for our Fund shareholders.
Respectfully,
/S/ David P. Como
David P. Como, President
Trainer, Wortham Funds,
Manager, First Mutual Fund
<TABLE>
<S> <C>
/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
</TABLE>
<PAGE> 2
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- -----------
<C> <S> <C>
COMMON STOCKS - 97.26%
AUTO PARTS - 4.16%
40,000 Federal-Mogul Corp. ............................................... $ 1,400,000
-----------
BEVERAGES - 3.37%
30,200 PepsiCo, Inc. ..................................................... 1,134,388
-----------
CHEMICALS-DIVERSIFIED - 5.24%
65,000 ChemFirst, Inc. ................................................... 1,763,125
-----------
COMPUTER-NETWORKING PRODUCTS - 2.00%
10,000 Cisco Systems, Inc.*............................................... 671,250
-----------
COMPUTER SOFTWARE - 3.81%
23,000 Computer Associates International, Inc. ........................... 1,280,812
-----------
DIVERSIFIED OPERATIONS - 6.29%
10,000 AlliedSignal, Inc. ................................................ 840,000
37,500 Thermo Electron Corp.*............................................. 1,275,000
-----------
2,115,000
-----------
FINANCIAL INSTITUTIONS - 7.35%
20,000 BankBoston Corp. .................................................. 1,441,250
57,000 Insignia Financial Group, Inc., Cl. A*............................. 1,033,125
-----------
2,474,375
-----------
FINANCIAL/MORTGAGE LOAN - 3.89%
30,000 Fannie Mae......................................................... 1,308,750
-----------
INSURANCE - 3.69%
15,000 Hartford Financial Services Group, Inc. ........................... 1,241,250
-----------
MACHINERY-VISION - 3.83%
47,500 Perceptron, Inc.*.................................................. 1,288,437
-----------
MEDIA-RADIO/TV - 13.87%
30,000 American Radio Systems Corp.*...................................... 1,196,250
60,000 Sinclair Broadcast Group, Inc., Cl. A*............................. 1,852,500
70,000 Westinghouse Electric Corp. ....................................... 1,618,750
-----------
4,667,500
-----------
MEDICAL-DRUGS - 8.67%
12,500 Lilly (Eli) & Co. ................................................. 1,366,406
15,000 Merck & Co., Inc. ................................................. 1,552,500
-----------
2,918,906
-----------
MEDICAL-PRODUCTS/SUPPLIES - 7.77%
60,000 First New England Dental Centers, Inc.* (Note 4)................... 510,000
20,000 Johnson & Johnson.................................................. 1,287,500
119,000 LaserSight, Inc.*.................................................. 818,125
-----------
2,615,625
-----------
</TABLE>
<PAGE> 3
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- -----------
<C> <S> <C>
OIL & GAS-EXPLORATION & PRODUCTION - 14.15%
65,000 Oryx Energy Co.*................................................... $ 1,373,125
101,000 Queen Sand Resources, Inc.*........................................ 404,000
16,000 Texaco, Inc. ...................................................... 1,740,000
50,000 Union Pacific Resources Group, Inc. ............................... 1,243,750
-----------
4,760,875
-----------
OIL SERVICES-MACHINERY & EQUIPMENT - 3.10%
27,000 Baker Hughes, Inc. ................................................ 1,044,563
-----------
RETAIL - 4.31%
45,500 Warnaco Group, Inc., Cl. A......................................... 1,450,313
-----------
TELECOMMUNICATION EQUIPMENT - 1.76%
15,000 Ascend Communications, Inc.*....................................... 590,625
-----------
TOTAL COMMON STOCKS (COST $28,542,208)............................. 32,725,794
-----------
SHORT TERM INVESTMENTS - 2.71%
912,440 UMB Bank, Money Market Fiduciary, 4.290% (Cost $912,440)........... 912,440
-----------
TOTAL INVESTMENTS (COST $29,454,648**) - 99.97%.................... 33,638,234
OTHER ASSETS LESS OTHER LIABILITIES - 0.03%........................ 10,507
-----------
NET ASSETS - 100.00%............................................... $33,648,741
===========
* Non-income producing security
** Cost for Federal income tax purposes is $29,454,648 and net unrealized appreciation consists
of:
Gross unrealized appreciation...................................... $ 4,818,066
Gross unrealized depreciation...................................... (634,480)
-----------
Net unrealized appreciation........................................ $ 4,183,586
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
TRAINER, WORTHAM EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- ----------
<C> <S> <C>
COMMON STOCKS - 91.00%
BIOTECHNOLOGY/PHARMACEUTICALS - 10.32%
1,800 BioChem Pharma, Inc.* .............................................. $ 40,050
2,950 Cryolife, Inc. *.................................................... 35,216
600 Human Genome Sciences, Inc.*........................................ 19,950
1,250 Liposome Co., Inc.*................................................. 11,172
1,500 OXiGENE, Inc.*...................................................... 52,125
-----------
158,513
-----------
CHEMICALS - 3.38%
4,000 Spartech Corp. ..................................................... 52,000
-----------
COMMERCIAL SERVICES - 5.59%
1,250 Corrections Corp. of America* ...................................... 49,687
1,250 First USA Paymentech, Inc.*......................................... 36,172
-----------
85,859
-----------
COMPUTER SOFTWARE & SERVICES - 18.85%
2,500 ACE*COMM Corp.*..................................................... 49,063
2,500 Data Dimensions, Inc.*.............................................. 55,000
1,750 Integrated Systems, Inc.*........................................... 20,562
1,000 Rational Software Corp.*............................................ 16,812
6,000 SEEC, Inc.*......................................................... 115,500
3,850 Visigenic Software, Inc.*........................................... 32,725
-----------
289,662
-----------
CONSUMER PRODUCTS-MISCELLANEOUS - 2.34%
1,600 Gibson Greetings, Inc.*............................................. 36,000
-----------
CONSUMER SERVICES - 1.69%
750 Signature Resorts, Inc.*............................................ 25,922
-----------
DATA PROCESSING - 4.49%
8,000 Object Design, Inc.*................................................ 69,000
-----------
FINANCIAL SERVICES/REAL ESTATE - 6.91%
1,100 Executive Risk, Inc. ............................................... 57,200
2,700 Insignia Financial Group, Inc., Cl. A*.............................. 48,938
-----------
106,138
-----------
HOME FURNISHINGS - 1.00%
1,250 Conso Products Co.*................................................. 15,313
-----------
HUMAN RESOURCES - 1.29%
2,000 ASI Solutions, Inc.*................................................ 19,750
-----------
MEDICAL & RELATED PRODUCTS/SERVICES - 11.03%
3,875 Assisted Living Concepts, Inc.*..................................... 107,047
1,800 Bio-Technology General Corp.*....................................... 24,300
2,500 Coast Dental Services, Inc.*........................................ 38,125
-----------
169,472
-----------
</TABLE>
<PAGE> 5
TRAINER, WORTHAM EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- ----------
<C> <S> <C>
METAL PROCESSING & FABRICATIONS - 2.46%
1,550 Chase Industries, Inc.*............................................. $ 37,781
-----------
MISCELLANEOUS DISTRIBUTORS - 1.71%
2,500 Valley National Gases, Inc.*........................................ 26,250
-----------
OIL & GAS EXPLORATION & PRODUCTION - 2.73%
3,200 Cairn Energy USA, Inc.*............................................. 42,000
-----------
RETAIL-APPAREL - 3.59%
2,500 Jim Hjelm's Private Collection, Ltd.*............................... 15,000
1,000 Tommy Hilfiger Corp.*............................................... 40,188
-----------
55,188
-----------
TECHNOLOGY/ELECTRONICS/EQUIPMENT - 13.62%
750 KLA-Tencor Corp.*................................................... 36,562
1,750 Perceptron, Inc.*................................................... 47,469
1,950 Silicon Valley Group, Inc.*......................................... 51,431
2,250 Stratasys, Inc.*.................................................... 36,281
6,250 Tegal Corp.*........................................................ 37,500
-----------
209,243
-----------
TOTAL COMMON STOCKS (COST $1,188,544)............................... 1,398,091
-----------
SHORT TERM INVESTMENTS - 7.24%
111,261 UMB Bank, Money Market Fiduciary, 4.290% (Cost $111,261)............ 111,261
-----------
TOTAL INVESTMENTS (COST $1,299,805**) - 98.24%...................... 1,509,352
OTHER ASSETS LESS OTHER LIABILITIES - 1.76%......................... 26,981
-----------
NET ASSETS - 100.00%................................................ $1,536,333
===========
* Non-income producing security
** Cost for Federal income tax purposes is $1,299,805 and net unrealized appreciation consists
of:
Gross unrealized appreciation....................................... $ 309,565
Gross unrealized depreciation....................................... (100,018)
-----------
Net unrealized appreciation......................................... $ 209,547
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
FIXED INCOME SECURITIES - 97.77%
U.S. GOVERNMENT TREASURY - 34.17%
$ 50,000 U.S. Treasury Notes, 8.625%, 08/15/97.............................. $ 50,195
200,000 U.S. Treasury Notes, 5.875%, 08/15/98.............................. 199,974
50,000 U.S. Treasury Notes, 8.000%, 08/15/99.............................. 51,845
50,000 U.S. Treasury Notes, 7.750%, 11/30/99.............................. 51,727
100,000 U.S. Treasury Notes, 6.375%, 01/15/00.............................. 100,540
400,000 U.S. Treasury Notes, 5.625%, 02/28/01.............................. 391,272
250,000 U.S. Treasury Notes, 6.625%, 07/31/01.............................. 252,418
200,000 U.S. Treasury Notes, 6.375%, 09/30/01.............................. 200,084
300,000 U.S. Treasury Notes, 7.500%, 11/15/01.............................. 312,711
250,000 U.S. Treasury Notes, 6.375%, 08/15/02.............................. 250,030
100,000 U.S. Treasury Notes, 7.250%, 05/15/04.............................. 104,314
750,000 U.S. Treasury Notes, 7.500%, 02/15/05.............................. 793,492
150,000 U.S. Treasury Notes, 6.250%, 08/15/23.............................. 138,937
-----------
TOTAL U.S. GOVERNMENT TREASURY (COST $2,885,042)................... 2,897,539
-----------
U.S. GOVERNMENT AGENCY - 28.45%
300,000 Federal Home Loan Bank 6.250%, 06/24/99............................ 299,442
476,014 Federal Home Loan Mortgage Corp. Gold, Pool #E65534, 6.500%,
10/01/11........................................................... 467,237
5,280 Federal National Mortgage Association, Pool #041474, 7.500%,
04/01/17........................................................... 5,295
10,980 Federal Home Loan Mortgage Corp., Pool #141248, 7.500%, 07/01/17... 11,028
3,750 Federal National Mortgage Association, Pool #134195, 7.500%,
10/01/21........................................................... 3,760
208,221 Federal National Mortgage Association, Series 1994-19, Cl. C,
5.000%, 01/25/24................................................... 192,800
758,722 Federal Home Loan Mortgage Corp. Gold, Pool #D72664, 7.000%,
07/01/26........................................................... 745,208
213,743 Federal Home Loan Mortgage Corp. Gold, Pool #C80442, 7.000%,
10/01/26........................................................... 209,936
498,997 Government National Mortgage Association, Pool #372399, 6.500%,
02/15/27........................................................... 477,634
-----------
TOTAL U.S. GOVERNMENT AGENCY (COST $2,383,475)..................... 2,412,340
-----------
CORPORATE BONDS - 35.15%
150,000 Associates Corp. of North America, 6.740%, 08/13/99................ 151,125
110,000 General Motors Acceptance Corp., 8.400%, 10/15/99.................. 114,675
200,000 Banco LatinoAmericano, 6.690%, 12/23/99 (Note 4)................... 200,250
160,000 Ford Motor Credit Corp., 7.020%, 10/10/00.......................... 162,000
200,000 Sears Roebuck Acceptance Corp., 5.870%, 01/08/01................... 195,000
150,000 Morgan Stanley Group, Inc., 9.375%, 06/15/01....................... 163,687
300,000 IMPSA, 9.500%, 05/31/02 (Note 4)................................... 300,375
200,000 Homeside Lending, Inc., 6.875%, 06/30/02........................... 199,500
200,000 Scholastic Corp., 7.000%, 12/15/03................................. 198,000
250,000 Hydro-Quebec, 6.720%, 03/16/05..................................... 244,688
</TABLE>
<PAGE> 7
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- --------- ----------
<C> <S> <C>
$ 200,000 Smith Barney Holdings, 7.125%, 10/01/06............................ $ 199,000
100,000 Union Pacific Resources Corp., 7.000%, 10/15/06.................... 99,625
300,000 Termoemcali Funding Corp., 10.125%, 12/15/14 (Note 4).............. 326,961
350,000 Poland-Global Registered, 3.250%, 10/27/24......................... 224,000
200,000 Empresa Nacional Electric, 7.875%, 02/01/27........................ 201,750
-----------
TOTAL CORPORATE BONDS (COST $2,971,309)............................ 2,980,636
-----------
TOTAL FIXED INCOME SECURITIES (COST $8,239,826).................... 8,290,515
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ---------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 3.14%
266,029 UMB Bank, Money Market Fiduciary, 4.290% (Cost $266,029)........... $ 266,029
-----------
TOTAL INVESTMENTS (COST $8,505,855**) - 100.91%.................... 8,556,544
OTHER LIABILITIES LESS OTHER ASSETS - (0.91)%...................... (77,141)
-----------
NET ASSETS - 100.00%............................................... $8,479,403
===========
** Cost for Federal income tax purposes is $8,505,855 and net unrealized appreciation consists
of:
Gross unrealized appreciation...................................... $ 65,726
Gross unrealized depreciation...................................... (15,037)
-----------
Net unrealized appreciation........................................ $ 50,689
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 8
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST EMERGING TOTAL RETURN
MUTUAL GROWTH BOND
----------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Investments in securities at market value
(identified cost $29,454,648, $1,299,805 and
$8,505,855, respectively) (Notes 1 and 4).... $33,638,234 $1,509,352 $8,556,544
Receivables:
Dividends and interest....................... 19,637 314 104,732
Investment securities sold................... 521,982 0 0
Reimbursement due from Advisor................. 0 27,554 15,343
Deferred organizational costs (Note 1)......... 0 10,213 10,219
Other assets................................... 7,594 3,790 4,933
----------- ---------- ----------
TOTAL ASSETS................................. 34,187,447 1,551,223 8,691,771
----------- ---------- ----------
LIABILITIES
Payable for securities purchased............... 418,839 5,531 199,934
Payable for capital stock redeemed............. 82,700 0 0
Distributions payable.......................... 0 0 6,207
Accrued expenses............................... 37,167 9,359 6,227
----------- ---------- ----------
TOTAL LIABILITIES............................ 538,706 14,890 212,368
----------- ---------- ----------
NET ASSETS
(applicable to outstanding shares of 2,723,741,
150,411 and 841,204, respectively; unlimited
shares of $0.001 par value authorized)....... $33,648,741 $1,536,333 $8,479,403
=========== ========== ==========
Net asset value, offering and redemption price
per share.................................... $ 12.35 $ 10.21 $ 10.08
=========== ========== ==========
SOURCE OF NET ASSETS
Paid-in capital................................ $23,801,317 $1,487,449 $8,437,368
Undistributed net investment income............ 0 0 5,774
Accumulated net realized gain (loss) on
investments.................................. 5,663,838 (160,663) (14,428)
Net unrealized appreciation of investments..... 4,183,586 209,547 50,689
----------- ---------- ----------
NET ASSETS................................... $33,648,741 $1,536,333 $8,479,403
=========== ========== ==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 9
STATEMENTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST EMERGING TOTAL RETURN
MUTUAL GROWTH(1) BOND(1)
----------- --------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $ 227,205 $ 766 $ 0
Interest....................................... 58,969 3,784 327,790
---------- --------- --------
TOTAL INCOME................................. 286,174 4,550 327,790
---------- --------- --------
EXPENSES
Advisory fees (Note 3)......................... 235,424 12,848 22,431
Distribution expense (Note 3).................. 78,475 5,140 0
Administrator expense.......................... 55,489 9,097 9,270
Transfer agent fees............................ 37,471 18,181 18,108
Bookkeeping and pricing........................ 29,738 18,000 20,129
Insurance expense.............................. 13,858 272 1,089
Custodian fees................................. 13,606 8,111 6,463
Legal expense.................................. 24,793 0 0
Registration expense........................... 27,976 12,409 13,540
Organizational expense (Note 1)................ 0 1,787 1,781
Independent accountants........................ 11,000 0 0
Other.......................................... 26,800 1,302 4,821
Trustees' fees and expenses.................... 23,662 76 362
Reports to shareholders........................ 10,264 1,738 2,339
---------- --------- --------
TOTAL EXPENSES............................... 588,556 88,961 100,333
Expenses waived and reimbursed............... 0 (76,113) (56,343)
---------- --------- --------
NET EXPENSES................................. 588,556 12,848 43,990
---------- --------- --------
NET INVESTMENT INCOME (LOSS)................. (302,382) (8,298) 283,800
---------- --------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) from security
transactions................................. 6,971,549 (160,663) (11,462)
Net change in unrealized appreciation
(depreciation) of investments................ (4,283,207) 209,547 50,689
---------- --------- --------
Net realized and unrealized gain on
investments.................................. 2,688,342 48,884 39,227
---------- --------- --------
Net increase in net assets resulting from
operations................................... $ 2,385,960 $ 40,586 $323,027
========== ========= ========
</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> 10
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EMERGING TOTAL RETURN
FIRST MUTUAL GROWTH BOND
------------------------- ---------- ------------
YEAR YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997(1) 1997(1)
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)....... $ (302,382) $ (208,863) $ (8,298) $ 283,800
Net realized gain (loss) on
investments...................... 6,971,549 5,869,876 (160,663) (11,462)
Net change in unrealized
appreciation (depreciation) of
investments...................... (4,283,207) 4,618,568 209,547 50,689
----------- ----------- ---------- -----------
Net increase in net assets
resulting from operations........ 2,385,960 10,279,581 40,586 323,027
----------- ----------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income........................... 0 0 0 (280,953)
Distributions from realized gains
on investments................... (5,294,139) (1,927,263) 0 0
Distributions in excess of realized
gains on investments............. 0 0 0 (1,820)
----------- ----------- ---------- -----------
Total Distributions.............. (5,294,139) (1,927,263) 0 (282,773)
----------- ----------- ---------- -----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold........... 2,803,809 3,039,765 1,595,918 9,697,178
Receipt from shares issued on
reinvestment of distributions.... 4,863,382 1,720,464 0 270,553
Shares redeemed.................... (3,257,407) (1,246,789) (100,171) (1,528,582)
----------- ----------- ---------- -----------
Net increase in net assets
resulting from capital share
transactions (a)................. 4,409,784 3,513,440 1,495,747 8,439,149
----------- ----------- ---------- -----------
Total increase in net assets..... 1,501,605 11,865,758 1,536,333 8,479,403
NET ASSETS
Beginning of period................ 32,147,136 20,281,378 0 0
----------- ----------- ---------- -----------
End of period...................... $33,648,741 $32,147,136 $1,536,333 $ 8,479,403
=========== =========== ========== ===========
(a) Transactions in capital stock
were:
Shares sold.................... 228,710 259,258 160,898 965,600
Shares issued on reinvestment
of distributions............ 431,151 154,718 0 26,973
Shares redeemed................ (263,223) (109,829) (10,487) (151,369)
----------- ----------- ---------- -----------
Net increase................... 396,638 304,147 150,411 841,204
Beginning balance.............. 2,327,103 2,022,956 0 0
----------- ----------- ---------- -----------
Ending balance................. 2,723,741 2,327,103 150,411 841,204
=========== =========== ========== ===========
</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> 11
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
FIRST MUTUAL
-----------------------------------------------
YEARS ENDED JUNE 30,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR........ $13.81 $10.03 $ 8.21 $ 9.29 $ 8.49
------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment loss..................... (0.11) (0.09) (0.09) (0.09) (0.06)
Net gains (losses) on securities (both
realized and unrealized).............. 0.95 4.79 2.10 (0.13) 1.09
------- ------- ------- ------- -------
Total from investment operations...... 0.84 4.70 2.01 (0.22) 1.03
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net investment income.... 0.00 0.00 0.00 0.00 0.00
Distributions from capital gains........ (2.30) (0.92) (0.19) (0.86) (0.23)
------- ------- ------- ------- -------
Total distributions................... (2.30) (0.92) (0.19) (0.86) (0.23)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR.............. $12.35 $13.81 $10.03 $ 8.21 $ 9.29
======= ======= ======= ======= =======
TOTAL RETURN.............................. 7.67% 49.12% 25.04% (3.91%) 12.17%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's)...... $33,649 $32,147 $20,281 $21,446 $19,093
Ratio of expenses to average net
assets**.............................. 1.87% 1.74% 2.16% 1.97% 1.99%
Ratio of net investment loss to average
net assets**.......................... (0.96%) (0.82%) (0.77%) (0.97%) (0.61%)
Portfolio turnover rate................. 109% 107% 198% 178% 172%
Average commission rate paid............ $0.0601 $0.0683 N/A N/A N/A
</TABLE>
- -------------------------------------------
** 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> 12
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set 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
JUNE 30, JUNE 30,
1997(1) 1997(1)
-------- ------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................. $10.00 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
Net investment income (loss).................................... (0.06) 0.41
Net gains on securities (both realized and unrealized).......... 0.27 0.08
------- ------
Total from investment operations.............................. 0.21 0.49
------- ------
LESS DISTRIBUTIONS
---------------------
Dividends from net investment income............................ 0.00 (0.40)
Distributions in excess of capital gains........................ 0.00 (0.01)
------- ------
Total distributions........................................... 0.00 (0.41)
------- ------
NET ASSET VALUE, END OF PERIOD.................................... $10.21 $10.08
======= ======
TOTAL RETURN...................................................... 2.10% + 4.90%+
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period (in 000's)............................ $1,536 $8,479
Ratio of expenses to average net assets**
before reimbursement of expenses by Advisor................... 8.65% * 2.01%*
after reimbursement of expenses by Advisor.................... 1.25% * 0.88%*
Ratio of net investment income (loss) to average net assets**
before reimbursement of expenses by Advisor................... (8.21% )* 4.53%*
after reimbursement of expenses by Advisor.................... (0.81% )* 5.66%*
Portfolio turnover rate......................................... 50% + 112%+
Average commission rate paid.................................... $0.0784 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> 13
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
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 amortized cost which approximates market value. All other securities are
valued at their fair value as determined in good faith by the Board of Trustees.
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. Discounts and premiums on
securities purchased are amortized over the life of the respective securities.
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 and post-October
capital 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
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
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 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. ORGANIZATIONAL COSTS. Organizational 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
year ended June 30, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
First Mutual Fund........................................... $33,226,733 $33,864,629
Emerging Growth Fund........................................ 1,939,781 590,574
Total Return Bond Fund...................................... 15,319,634 7,114,384
</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 year ended June 30, 1997, the Trust paid the Advisor $235,424 in
advisory fees on behalf of First Mutual Fund, $12,848 on behalf of Emerging
Growth Fund and $22,431 on behalf of Total Return Bond Fund. The Advisor has
voluntarily elected to waive advisory fees and reimburse other operating
expenses to the extent necessary to cause total operating expenses not to exceed
1.25% for the Emerging Growth Fund. For the period October 1, 1996 (commencement
of operations) through April 30, 1997, the Advisor voluntarily elected to waive
advisory fees and reimburse other operating expenses to the extent necessary to
cause total operating expenses not to exceed 0.75% for the Total Return Bond
Fund. Effective May 1, 1997, the waiver and
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
reimbursement was reduced on the Total Return Bond Fund to the extent that total
operating expenses do not exceed 1.20%. For the year ended June 30, 1997, the
Advisor waived and reimbursed expenses amounting to $76,113 for Emerging Growth
Fund and $56,343 for Total Return Bond Fund. 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 year ended June 30, 1997, the Trust reimbursed the
Distributor $78,475 and $5,140 on behalf of First Mutual Fund and Emerging
Growth Fund, respectively, for distribution costs incurred. Distribution costs
incurred by First Mutual Fund include $24,000 paid to an affiliate of the
investment advisor and $33,151 retained by FPS Broker Services, Inc. as
compensation for its distribution services.
NOTE 4 - RESTRICTED SECURITIES
First Mutual and Total Return Bond Funds own 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 June 30, 1997, First
Mutual and Total Return Bond Funds owned the following securities which may not
be sold without registration under the Securities Act of 1933:
FIRST MUTUAL FUND
<TABLE>
<CAPTION>
ACQUISITION UNIT MARKET
SECURITY DATE SHARES PRICE VALUE %TNA COST
- ----------------------------- ------------ ------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
First New England Dental
Centers.................... 10/23/96 60,000 $ 8.50 $510,000 1.52% $510,000
</TABLE>
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
ACQUISITION UNIT MARKET
SECURITY DATE PAR PRICE VALUE %TNA COST
- ----------------------------- ------------ ------- ------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Banco LatinoAmericano 6.690%,
12/23/99................... 12/19/96 200,000 $100.00 $200,250 2.36% $200,000
IMPSA 9.500%, 05/31/02....... 05/22/97 300,000 $99.512 $300,375 3.54% $298,536
Termoemcali Funding Corp.
10.125%, 12/15/14.......... 05/13/97 300,000 $105.50 $326,961 3.86% $316,500
</TABLE>
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1997
- --------------------------------------------------------------------------------
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
<TABLE>
<S> <C>
OFFICERS INVESTMENT ADVISOR
David P. Como Trainer, Wortham & Co., Inc.
President 845 Third Avenue, 6th floor
New York, NY 10022
Robert R. Douglass, Jr. AUDITORS
Vice President Briggs, Bunting & Dougherty, LLP
2121 Two Logan Square
Philadelphia, PA 19103
H. Williamson Ghriskey, Jr.
Vice President/Treasurer
Charles H.G. Honey CUSTODIAN
Vice President UMB Bank KC, NA
P.O. Box 412797
Kansas City, MO 64141
John D. Knox FUND ADMINISTRATION
Vice President FPS Services, Inc.
3200 Horizon Drive
Debra L. Clark King of Prussia, PA 19406
Secretary
</TABLE>
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> 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Trainer, Wortham First Mutual Funds
New York, New York
We have audited the statements of assets and liabilities of Trainer, Wortham
First Mutual Fund, Trainer, Wortham Emerging Growth Fund, and Trainer, Wortham
Total Return Bond Fund, each a series of shares of Trainer, Wortham First Mutual
Funds, including the schedules of investments, as of June 30,1997, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the indicated periods ended June 30, 1997. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The statement of changes in net assets
for the year ended June 30, 1996 and the financial highlights for each of the
four years ended June 30, 1996 of Trainer, Wortham First Mutual Fund were
audited by other auditors whose report dated July 11, 1996 expressed an
unqualified opinion thereon.
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 amount and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers. Where brokers did
not reply to our confirmation request, we carried out other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Trainer, Wortham First Mutual Fund, Trainer, Wortham Emerging Growth Fund, and
Trainer, Wortham Total Return Bond Fund as of June 30, 1997, and the results of
their operations, the changes in their net assets, and the financial highlights
for the indicated periods ended June 30, 1997 in conformity with generally
accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, PA
July 17, 1997
<PAGE> 18
ILLUSTRATION OF $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in the
Trainer, Wortham First Mutual Fund with the performance of the Standard & Poor's
500 Index. The values are as of June 30th for each of the last ten years. The
values and returns for the Trainer, Wortham First Mutual Fund include reinvested
dividends.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
- ----------------------------------
<S> <C> <C>
1 YEAR 5 YEAR 10 YEAR
7.67% 16.69% 10.37%
</TABLE>
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) FIRST MUTUAL FUND S&P 500 INDEX
<S> <C> <C>
1987 10000 10000
1988 8590 8997
1989 10181 10460
1990 12001 11777
1991 12522 12209
1992 12396 13426
1993 13904 14820
1994 13360 14614
1995 16705 17996
1996 24911 22060
1997 26822 29116
</TABLE>
DIVIDEND NOTICES
Note the following information is required by sections 852(b)(3)(c) and
854(b)(2) of the Internal Revenue Code and is based on the Trainer, Wortham
First Mutual Fund's tax year July 1, 1996 to June 30, 1997:
<TABLE>
<CAPTION>
ORDINARY INCOME
DISTRIBUTIONS PER SHARE PERCENTAGE
---------------------------- QUALIFYING
FROM 70% DIVIDENDS LONG TERM
INVESTMENT FROM RECEIVED DEDUCTION CAPITAL GAINS
DATE PAID INCOME CAPITAL GAINS FOR CORPORATIONS PER SHARE
- --------------------- ---------- ------------- ------------------ -------------
<S> <C> <C> <C> <C>
12/27/96 .000 1.437 14% .864
</TABLE>
Form 1099-DIV will be mailed to you in late January 1998, providing you with the
nature and dollar amounts of all distributions paid in calendar 1997 and should
be used to complete your 1997 tax return.
<PAGE> 19
ILLUSTRATION OF $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in the
Trainer, Wortham Emerging Growth Fund with the performance of the Russell 2000
Index. The values and returns for the Trainer, Wortham Emerging Growth Fund
include reinvested dividends.
AGGREGATE TOTAL RETURN
SINCE INCEPTION
- ----------------------
2.10%*
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) EMERGING GROWTH RUSSELL 2000 INDEX
<S> <C> <C>
10/1/96 10000 10000
12/31/96 9930 10500
3/31/97 8920 9920
6/30/97 10210 11478
</TABLE>
The graph below compares the increase in value of a $10,000 investment in the
Trainer, Wortham Total Return Bond Fund with the performance of the Lehman
Aggregate Index. The values and returns for the Trainer, Wortham Total Return
Bond Fund include reinvested dividends.
AGGREGATE TOTAL RETURN
SINCE INCEPTION
- ----------------------
4.90%*
<TABLE>
<CAPTION>
Measurement Period LEHMAN AGGREGATE
(Fiscal Year Covered) TOTAL RETURN BOND INDEX*
<S> <C> <C>
10/1/96 10000 10000
12/31/96 10221 10300
3/31/97 10146 10242
6/30/97 10490 10618
</TABLE>
* Not annualized.
<PAGE> 20
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
[TRAINER, WORTHAM FUNDS LOGO]
845 Third Avenue/6th Floor, New York, New York 10022
800.257.4414 - Fax: 415.288.1401
ANNUAL REPORT
JUNE 30, 1997
[TRAINER, WORTHAM FUNDS LOGO]
FIRST MUTUAL FUND
EMERGING GROWTH FUND
TOTAL RETURN BOND FUND
800.257.4414
