<PAGE> 1
PORTFOLIO STRUCTURE AND OUR COMPANIES
Dear Fellow and Future Shareholders:
We are pleased to present for your review the semi-annual report for the
Trainer, Wortham Funds. Contained herein are our views on investment
opportunities and our general market outlook.
We continue to concentrate our investments for First Mutual Fund in the
Broadcasting, Pharmaceutical and Financial sectors of the market. These
three groups continue to offer high returns on invested capital, increased
cash flow and are selling below their intrinsic values.
The "Asian" flu, as it is now referred to, has created many investment
opportunities. We have been buying both Schlumberger and Texaco as we enter
the new year. These two world class companies are leaders in the energy
sector and have little or no exposure to Asia. Energy demand worldwide
continues to increase and oil supplies are being depleted and are becoming
costly to find. Schlumberger, the world leader in oil well services, is
currently selling at only a 14% premium to the market multiple compared to
115% ten years ago when oil supplies were greater than today. Texaco has
become an oil production company by selling its chemical operation and
spinning off its refining operations. The company should sell at a higher
multiple of invested capital since it is now only operating a high margin
business.
In the financial sector, Citicorp is a company offering 20% returns on
invested capital yet is currently selling at a discount multiple versus
other banks. The Company has operated in Asia since 1902 and weathered many
other financial problems in this part of the world. If one looks at the
Mexican crisis in 1994 - 1995, Citicorp had 20% of its earnings exposed to
Latin America. During the crisis the Company actually gained market share
and reported earnings up 12% in 1995. The stock declined 11% during the
crisis while it rose 62% in 1996.
Our portfolios should continue to benefit from the long term positive
trend of the markets. We view the trading range of the Dow Jones as 7500 to
8500. Although there may be some consolidation along the way, we look for
good earnings for our companies, continued growth and stable to lower
interest rates as we enter the new year. The Total Return Bond Fund remains
fully invested in quality issues and is offering a competitive yield to its
shareholders.
THE MARKETS & ECONOMY
As we formulate our expectations for 1998, we can't help think that the
general consensus of doom and gloom for financial markets - due to slow
growth for profits and continued "Asian" flu is again off base. While we may
experience some added volatility as investors and institutions sort out the
impact of the Asian situation we should remember that:
"THE MARKET CLIMBS A WALL OF WORRY"
In an environment of low inflation and declining interest rates,
financial assets grow in value. Much has been said this past year about
Market volatility. Remember, the most volatile markets in history were
realized during 1973 - 1974 and 1987 - 1988 when the economic and financial
landscape was not at all similar to what we have today. We continue our
pursuit of finding those companies that offer high return on capital, where
market expectations are unreasonable and therefore the companies will offer
greater reward and lower risk profiles.
Respectfully,
/s/ DAVID P. COMO
DAVID P. COMO, President
Trainer, Wortham Funds
/s/ JOHN D. KNOX
JOHN D. KNOX, Vice President
Trainer, Wortham Funds
February 3, 1998
<PAGE> 2
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- -----------
<C> <S> <C>
COMMON STOCKS - 99.07%
CONSUMER PRODUCTS - 4.71%
20,000 Blyth Industries, Inc.*............................................ $ 598,750
30,200 PepsiCo, Inc....................................................... 1,100,412
-----------
1,699,162
-----------
DIVERSIFIED OPERATIONS - 12.24%
55,000 ChemFirst, Inc. ................................................... 1,553,750
35,000 Federal-Mogul Corp................................................. 1,417,500
32,500 Thermo Electron Corp.*............................................. 1,446,250
-----------
4,417,500
-----------
FINANCIAL - 17.39%
30,000 Banc One Corp. .................................................... 1,629,375
17,500 BankBoston Corp. .................................................. 1,643,906
28,000 Fannie Mae......................................................... 1,597,750
15,000 Hartford Financial Services Group, Inc. ........................... 1,403,438
-----------
6,274,469
-----------
MEDIA - RADIO/TV - 10.07%
60,000 CBS Corp. ......................................................... 1,766,250
40,000 Sinclair Broadcast Group, Inc., Cl. A*............................. 1,865,000
-----------
3,631,250
-----------
MEDICAL - PHARMACEUTICAL - 18.67%
32,500 Amgen, Inc......................................................... 1,759,063
60,000 First New England Dental Centers, Inc.* (Note 4)................... 510,000
22,500 Johnson & Johnson.................................................. 1,482,188
20,000 Lilly (Eli) & Co. ................................................. 1,392,500
15,000 Merck & Co., Inc. ................................................. 1,593,750
-----------
6,737,501
-----------
OIL & GAS SERVICES - 16.60%
27,000 Baker Hughes, Inc. ................................................ 1,177,875
220,000 Queen Sand Resources, Inc.*........................................ 1,368,114
22,500 Schlumberger, Ltd. ................................................ 1,811,250
30,000 Texaco, Inc........................................................ 1,631,250
-----------
5,988,489
-----------
RETAIL - 7.68%
35,000 Cendant Corp.*..................................................... 1,203,125
50,000 Warnaco Group, Inc., Cl. A......................................... 1,568,750
-----------
2,771,875
-----------
</TABLE>
<PAGE> 3
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- -----------
<C> <S> <C>
TECHNOLOGY & COMPUTERS - 11.71%%
22,500 Cisco Systems, Inc.*............................................... $ 1,254,375
22,500 Computer Associates International, Inc. ........................... 1,189,687
12,500 Intel Corp. ....................................................... 878,125
25,000 National Data Corp. ............................................... 903,125
-----------
4,225,312
-----------
TOTAL COMMON STOCKS (COST $28,511,549)......................... 35,745,558
-----------
SHORT TERM INVESTMENTS - 2.56%
924,346 UMB Bank, Money Market Fiduciary, 4.438%
(Cost $924,346).................................................... 924,346
-----------
TOTAL INVESTMENTS (COST $29,435,895**) - 101.63%............... 36,669,904
OTHER LIABILITIES LESS OTHER ASSETS - (1.63)%.................. (590,596)
-----------
NET ASSETS - 100.00%............................................... $36,079,308
============
* Non-income producing security
** Cost for Federal income tax purposes is $29,435,895 and net unrealized
appreciation consists of:
Gross unrealized appreciation...................................... $ 7,648,822
Gross unrealized depreciation...................................... (414,813)
-----------
Net unrealized appreciation.................................... $ 7,234,009
============
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------- -----------
<C> <S> <C>
FIXED INCOME SECURITIES - 93.04%
U.S. GOVERNMENT TREASURY - 22.77%
$ 50,000 U.S. Treasury Notes, 8.000%, 08/15/99............................. $ 51,781
50,000 U.S. Treasury Notes, 7.750%, 11/30/99............................. 51,873
500,000 U.S. Treasury Notes, 6.375%, 09/30/01............................. 510,505
650,000 U.S. Treasury Notes, 6.375%, 08/15/02............................. 667,017
350,000 U.S. Treasury Notes, 7.250%, 05/15/04............................. 377,828
500,000 U.S. Treasury Notes, 6.500%, 10/15/06............................. 523,770
150,000 U S. Treasury Notes, 6.250%, 08/15/23............................. 154,464
-----------
TOTAL U.S. GOVERNMENT TREASURY (COST $2,295,218).............. 2,337,238
-----------
U.S. GOVERNMENT AGENCY - 23.61%
464,555 Federal Home Loan Mortgage Corp. Gold, Pool #E65534, 6.500%,
10/01/11.......................................................... 465,716
4,927 Federal National Mortgage Association Pool #041474, 7.500%,
04/01/17.......................................................... 5,044
10,885 Federal Home Loan Mortgage Corp., Pool #141248, 7.500%,
07/01/17.......................................................... 11,140
3,715 Federal National Mortgage Association, Pool #134195, 7.500%,
10/01/21.......................................................... 3,803
738,304 Federal Home Loan Mortgage Corp. Gold, Pool #D72664, 7.000%,
07/01/26.......................................................... 745,456
208,884 Federal Home Loan Mortgage Corp. Gold, Pool #C80442, 7.000%,
10/01/26.......................................................... 210,908
496,396 Government National Mortgage Association, Pool #372399, 6.500%,
02/15/27.......................................................... 491,587
494,155 Government National Mortgage Association, Pool #407955, 6.500%,
10/15/27.......................................................... 489,368
-----------
TOTAL U.S. GOVERNMENT AGENCY (COST $2,344,695)................ 2,423,022
-----------
CORPORATE BONDS - 46.66%
150,000 Associates Corp. of North America, 6.740%, 08/13/99............... 151,688
110,000 General Motors Acceptance Corp., 8.400%, 10/15/99................. 114,263
200,000 Banco LatinoAmericano, 6.690%, 12/23/99 (Note 4).................. 199,000
250,000 WFS Financial Owner Trust, 1997-D A2, 6.200%, 09/20/00............ 250,125
160,000 Ford Motor Credit Co., 7.020%,10/10/00............................ 163,800
200,000 Sears Roebuck Acceptance Corp., 5.870%, 01/08/01.................. 198,500
150,000 Morgan Stanley Group, Inc., 9.375%, 06/15/01...................... 164,625
200,000 WFS Financial Owner Trust, 1997-B A3, 6.300%, 07/20/01............ 201,319
500,000 Olympic Automobile Receivables Trust, 1997-A A3, 6.400%,
09/15/01.......................................................... 501,437
200,000 Homeside Lending, Inc., 6.875%, 06/30/02.......................... 204,000
200,000 Scholastic Corp., 7.000%, 12/15/03................................ 204,250
289,286 Province Of Tucuman, 9.450%, 08/01/04 (Note 4).................... 283,500
250,000 Hydro-Quebec, 6.720%, 03/16/05.................................... 254,063
350,000 Lehman Large Loan, 1997-LLI A2, 6.840%, 09/12/06.................. 358,531
200,000 Salomon Smith Barney Holdings Inc., 7.125%, 10/01/06.............. 208,500
100,000 Union Pacific Resources Corp., 7.000%, 10/15/06................... 104,250
</TABLE>
<PAGE> 5
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- -------- -----------
<C> <S> <C>
$500,000 Comp De Desarollo Aeropu, 10.190%, 05/31/11 (Note 4).............. $ 534,675
350,000 Poland-Global Registered, 3.750%, 10/27/24........................ 238,000
200,000 Empresa Nacional Electric, 7.875%, 02/01/27....................... 206,500
246,113 BA Mortgage Securities, Inc.,1997-2 1A3, 7.400%, 10/25/27......... 248,784
-----------
TOTAL CORPORATE BONDS (COST $4,756,709)....................... 4,789,810
-----------
TOTAL FIXED INCOME SECURITIES (COST $9,396,622)............... 9,550,070
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- ---------
<C> <S> <C>
SHORT TERM INVESTMENTS - 5.91%
607,089 UMB Bank, Money Market Fiduciary, 4.438% (Cost $607,089).......... 607,089
-----------
TOTAL INVESTMENTS (COST $10,003,711**) - 98.95%............... 10,157,159
OTHER ASSETS LESS OTHER LIABILITIES - 1.05%................... 107,307
-----------
NET ASSETS - 100.00% $10,264,466
===========
** Cost for Federal income tax purposes is $10,003,711 and net unrealized
appreciation consists of:
Gross unrealized appreciation..................................... $ 182,724
Gross unrealized depreciation..................................... (29,276)
-----------
Net unrealized appreciation................................... $ 153,448
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
FIRST RETURN
MUTUAL BOND
----------- -----------
<S> <C> <C>
ASSETS
Investments in securities at market value (identified cost
$29,435,895 and $10,003,711, respectively)
(Notes 1 and 4)......................................... $36,669,904 $10,157,159
Cash...................................................... 0 1,563
Receivables:
Dividends and interest.................................. 35,617 97,865
Capital stock sold...................................... 56,611 0
Reimbursement due from Advisor............................ 0 4,718
Deferred organizational costs (Note 1).................... 0 9,011
----------- -----------
TOTAL ASSETS............................................ 36,762,132 10,270,316
----------- -----------
LIABILITIES
Payables:
Investment securities purchased......................... 569,194 0
Capital stock redeemed.................................. 36,359 0
Accrued expenses.......................................... 77,271 5,850
----------- -----------
TOTAL LIABILITIES....................................... 682,824 5,850
----------- -----------
NET ASSETS
(applicable to outstanding shares of 3,220,990 and
1,004,814, respectively; unlimited shares of $0.001 par
value authorized)....................................... $36,079,308 $10,264,466
=========== ===========
Net asset value, offering and redemption price per
share................................................... $ 11.20 $ 10.22
=========== ===========
SOURCE OF NET ASSETS
Paid-in capital........................................... $28,756,149 $10,125,814
Undistributed net investment loss......................... (128,793) (2,144)
Accumulated net realized gain (loss) on investments....... 217,943 (12,652)
Net unrealized appreciation of investments................ 7,234,009 153,448
----------- -----------
NET ASSETS.............................................. $36,079,308 $10,264,466
=========== ===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 7
STATEMENTS OF OPERATIONS
DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
FIRST RETURN
MUTUAL BOND
---------- --------
<S> <C> <C>
INVESTMENT INCOME
Dividends..................................................... $ 180,775 $ 0
Interest...................................................... 13,297 309,827
---------- --------
TOTAL INCOME................................................ 194,072 309,827
---------- --------
EXPENSES
Advisory fees (Note 3)........................................ 133,603 20,753
Distribution expense (Note 3)................................. 44,534 0
Administrator expense......................................... 27,999 6,027
Transfer agent fees........................................... 15,745 11,052
Bookkeeping and pricing....................................... 17,218 13,775
Insurance expense............................................. 7,596 1,474
Custodian fees................................................ 4,364 4,059
Legal expense................................................. 14,066 1,352
Registration expense.......................................... 16,794 14,758
Organizational expense (Note 1)............................... 0 1,209
Independent accountants....................................... 5,544 2,252
Other......................................................... 15,820 2,929
Trustees' fees and expenses................................... 12,007 2,299
Reports to shareholders....................................... 7,575 1,352
---------- --------
TOTAL EXPENSES.............................................. 322,865 83,291
Expenses waived and reimbursed.............................. 0 (27,949)
---------- --------
NET EXPENSES................................................ 322,865 55,342
---------- --------
NET INVESTMENT INCOME (LOSS)................................ (128,793) 254,485
---------- --------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions.................. 1,272,278 72,540
Net change in unrealized appreciation of investments.......... 3,050,423 102,759
---------- --------
Net realized and unrealized gain on investments............... 4,322,701 175,299
---------- --------
Net increase in net assets resulting from operations.......... $4,193,908 $429,784
========== ========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 8
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST MUTUAL TOTAL RETURN BOND
-------------------------- --------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED PERIOD
DECEMBER 31, ENDED DECEMBER 31, ENDED
1997 JUNE 30, 1997 JUNE 30,
(UNAUDITED) 1997 (UNAUDITED) 1997(1)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)....... $ (128,793) $ (302,382) $ 254,485 $ 283,800
Net realized gain (loss) on
investments...................... 1,272,278 6,971,549 72,540 (11,462)
Net change in unrealized
appreciation (depreciation) of
investments...................... 3,050,423 (4,283,207) 102,759 50,689
----------- ----------- ----------- ----------
Net increase in net assets
resulting from operations........ 4,193,908 2,385,960 429,784 323,027
----------- ----------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income........................... 0 0 (262,403) (280,953)
Distributions from realized gains
on investments................... (6,718,173) (5,294,139) (70,764) 0
Distributions in excess of realized
gains on investments............. 0 0 0 (1,820)
----------- ----------- ----------- ----------
Total Distributions.............. (6,718,173) (5,294,139) (333,167) (282,773)
----------- ----------- ----------- ----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold........... 3,354,757 2,803,809 2,375,262 9,697,178
Receipt from shares issued on
reinvestment of distributions.... 6,279,709 4,863,382 311,886 270,553
Shares redeemed.................... (4,679,634) (3,257,407) (998,702) (1,528,582)
----------- ----------- ----------- ----------
Net increase in net assets
resulting from capital share
transactions(a).................. 4,954,832 4,409,784 1,688,446 8,439,149
----------- ----------- ----------- ----------
Total increase in net assets..... 2,430,567 1,501,605 1,785,063 8,479,403
NET ASSETS
Beginning of period................ 33,648,741 32,147,136 8,479,403 0
----------- ----------- ----------- ----------
End of period...................... $36,079,308 $33,648,741 $10,264,466 $ 8,479,403
=========== =========== =========== ==========
(a) Transactions in capital stock
were:
Shares sold.................... 267,857 228,710 230,772 965,600
Shares issued on reinvestment
of distributions............ 600,354 431,151 30,542 26,973
Shares redeemed................ (370,962) (263,223) (97,704) (151,369)
----------- ----------- ----------- ----------
Net increase................... 497,249 396,638 163,610 841,204
Beginning balance.............. 2,723,741 2,327,103 841,204 0
----------- ----------- ----------- ----------
Ending balance................. 3,220,990 2,723,741 1,004,814 841,204
=========== =========== =========== ==========
</TABLE>
- -------------------------------------------
(1) The Total Return Bond Fund commenced operations on October 1, 1996.
The notes to financial statements are an integral part of these statements.
<PAGE> 9
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,
1997 ------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $12.35 $13.81 $10.03 $ 8.21 $ 9.29 $ 8.49
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
--------------------------
OPERATIONS
-----------
Net investment loss....... (0.04) (0.11) (0.09) (0.09) (0.09) (0.06)
Net gains (losses) on
securities (both
realized and
unrealized)............. 1.42 0.95 4.79 2.10 (0.13) 1.09
------- ------- ------- ------- ------- -------
Total from investment
operations............ 1.38 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 0.00
Distributions from capital
gains .................. (2.53) (2.30) (0.92) (0.19) (0.86) (0.23)
------- ------- ------- ------- ------- -------
Total distributions..... (2.53) (2.30) (0.92) (0.19) (0.86) (0.23)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD.................... $11.20 $12.35 $13.81 $10.03 $ 8.21 $ 9.29
======= ======= ======= ======= ======= =======
TOTAL RETURN................ 25.06%* 7.67% 49.12% 25.04% (3.91%) 12.17%
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period
(in 000's).............. $36,079 $33,649 $32,147 $20,281 $21,446 $19,093
Ratio of expenses to
average net assets...... 1.81%* 1.87% 1.74% 2.16% 1.97% 1.99%
Ratio of net investment
loss to average net
assets.................. (0.72%)* (0.96%) (0.82%) (0.77%) (0.97%) (0.61%)
Portfolio turnover rate... 77%* 109% 107% 198% 178% 172%
Average commission rate
paid.................... $ 0.0675 $0.0601 $0.0683 N/A N/A N/A
</TABLE>
- -------------------------------------------
* Annualized
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 10
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
TOTAL RETURN
BOND
-----------------------
SIX MONTHS
ENDED PERIOD
DECEMBER 31, ENDED
1997 JUNE 30,
(UNAUDITED) 1997(1)
------------ --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................. $10.08 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
Net investment income........................................... 0.27 0.41
Net gains on securities (both realized and unrealized).......... 0.22 0.08
------- ------
Total from investment operations.............................. 0.49 0.49
------- ------
LESS DISTRIBUTIONS
---------------------
Dividends from net investment income............................ (0.28) (0.40)
Distributions from capital gains................................ (0.07) 0.00
Distributions in excess of capital gains........................ 0.00 (0.01)
------- ------
Total distributions........................................... (0.35) (0.41)
------- ------
NET ASSET VALUE, END OF PERIOD.................................... $10.22 $10.08
======= ======
TOTAL RETURN...................................................... 9.66%* 4.90%+
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period (in 000's)............................ $10,264 $8,479
Ratio of expenses to average net assets
before reimbursement of expenses by Advisor................... 1.81%* 2.01%*
after reimbursement of expenses by Advisor.................... 1.20%* 0.88%*
Ratio of net investment income to average net assets
before reimbursement of expenses by Advisor................... 4.91%* 4.53%*
after reimbursement of expenses by Advisor.................... 5.52%* 5.66%*
Portfolio turnover rate......................................... 103%* 112%+
Average commission rate paid.................................... N/A N/A
</TABLE>
- -------------------------------------------
(1) The Total Return Bond Fund commenced operations on October 1, 1996.
+ Since inception, not annualized.
* Annualized.
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 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 Total Return Bond Fund ("Total Return Bond Fund"); and
Trainer, Wortham Emerging Growth Fund ("Emerging Growth Fund"), which furnishes
a separate report. 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. 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 Funds 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 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
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
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 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, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
First Mutual Fund........................................... $14,325,414 $15,881,477
Total Return Bond Fund...................................... 6,118,836 4,926,130
</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 two 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 and 0.45% of the average daily net assets of the Total Return
Bond Fund.
For the six months ended December 31, 1997, the Trust paid the Advisor $133,603
in advisory fees on behalf of First Mutual Fund and $20,753 on behalf of Total
Return Bond 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 reimbursement was reduced on the Total Return Bond
Fund to the extent that total operating expenses do not exceed 1.20%. For the
six months ended December 31, 1997, the Advisor waived and reimbursed expenses
amounting to $27,949 for Total Return Bond Fund. The Trust has adopted a
Distribution Plan (the "Plan"), with respect to First Mutual Fund, pursuant to
Rule 12b-1 under the Investment Company Act of 1940, which permits the Fund 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. For the six months ended December 31, 1997, the Trust reimbursed
the Distributor $44,534 on behalf of First Mutual Fund for distribution
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
costs incurred. Distribution costs incurred by First Mutual include $12,000 paid
to an affiliate of the investment advisor and $15,177 retained by FPS Broker
Services, Inc. as compensation for their 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 December 31, 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, Inc. ........... 10/23/96 60,000 $ 8.50 $ 510,000 1.41% $ 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 $ 199,000 1.94% $ 200,000
Province of Tucuman
9.450%, 08/01/04......... 08/15/97 300,000 100.00 283,500 2.76% 300,000
Comp De Desarollo Aeropu
10.190%, 05/31/11........ 07/16/97 500,000 111.36 534,675 5.21% 556,800
---------- ----- ----------
$1,017,175 9.91% $1,056,800
========== ===== ==========
</TABLE>
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Certain officers and trustees of the Trust are affiliated persons of the
Advisor.
TRAINER, WORTHAM FUNDS
845 Third Avenue, 6th Floor
New York, NY 10022
<TABLE>
<S> <C>
OFFICERS AUDITORS
David P. Como Briggs, Bunting & Dougherty, LLP
President 2121 Two Logan Square
H. Williamson Ghriskey, Jr. Philadelphia, PA 19103
Vice President/Treasurer CUSTODIAN
UMB Bank KC, NA
John D. Knox P.O. Box 412797
Vice President Kansas City, MO 64141
Debra L. Clark FUND ADMINISTRATION
Secretary FPS Services, Inc.
3200 Horizon Drive
INVESTMENT ADVISOR King of Prussia, PA 19406
Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
</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> 15
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
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
[TRAINER, WORTHAM FUNDS LOGO]
FIRST MUTUAL FUND
TOTAL RETURN BOND FUND
800.257.4414
