<PAGE> 1
EMERGING GROWTH FUND
SEMI-ANNUAL REPORT
December 31, 1997
TRAINER, WORTHAM FUNDS
845 Third Avenue, 6th Floor
New York, NY 10022
OFFICERS TRUSTEES
David P. Como Robert H. Breslin, Jr.
President David P. Como
Raymond Eisenberg
H. Williamson Ghriskey, Jr. David Elias
Vice President/Treasurer Robert S. Lazar
Martin S. Levine
John D. Knox Theresa C. Thibadeau
Vice President James F. Twaddell
Debra L. Clark
Secretary
INVESTMENT ADVISOR CUSTODIAN
Trainer, Wortham & Co., Inc. UMB Bank KC, NA
845 Third Avenue, 6th Floor P.O. Box 412797
New York, NY 10022 Kansas City, MO 64141
AUDITORS FUND ADMINISTRATION
Briggs, Bunting & Dougherty, LLP FPS Services, Inc.
2121 Two Logan Square 3200 Horizon Drive
Philadelphia, PA 19103 King of Prussia, PA 19406
For more complete information including charges and
expenses, you may request a prospectus by calling:
800.257.4414
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> 2
TRAINER, WORTHAM EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------------ --------------
<S> <C> <C>
COMMON STOCKS - 32.08%
BIOTECHNOLOGY / PHARMACEUTICALS - 4.93%
12,450 OXiGENE, Inc.* $ 217,875
--------------
CHEMICALS - 2.74%
8,000 Spartech Corp. 121,000
--------------
COMPUTER SOFTWARE & SERVICES - 4.63%
10,000 SEEC, Inc.* 161,875
4,500 TSI International Software, Ltd.* 42,750
--------------
204,625
--------------
CONSUMER PRODUCTS - MISCELLANEOUS - 7.45%
11,000 Blyth Industries, Inc.* 329,312
--------------
FINANCIAL SERVICES / REAL ESTATE - 1.73%
1,100 Executive Risk, Inc. 76,794
--------------
METAL PROCESSING & FABRICATIONS - 0.89%
1,550 Chase Industries, Inc.* 39,525
--------------
MISCELLANEOUS DISTRIBUTORS - 3.08%
12,500 Valley National Gases, Inc.* 136,328
--------------
TECHNOLOGY/ELECTRONICS/EQUIPMENT - 6.63%
1,500 Petroleum Geo-Services A/S, ADS* 97,125
20,000 Tegal Corp.* 96,562
4,000 Transcrypt International, Inc.* 99,500
--------------
293,187
--------------
TOTAL COMMON STOCKS (COST $1,466,807)
1,418,646
--------------
SHORT TERM INVESTMENTS - 30.65%
UMB Bank, Money Market Fiduciary, 4.438%
1,355,329 (Cost $1,355,329) 1,355,329
--------------
TOTAL INVESTMENTS (COST $2,822,136**) - 62.73% 2,773,975
OTHER ASSETS LESS OTHER LIABILITIES - 37.27% 1,647,936
--------------
NET ASSETS - 100.00% $ 4,421,911
==============
</TABLE>
* Non-income producing security
** Cost for Federal income tax purposes is $ 2,822,136 and net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 135,180
Gross unrealized depreciation (183,341)
==============
Net unrealized depreciation $ (48,161)
==============
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 3
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
EMERGING
GROWTH
--------------
<S> <C>
ASSETS
Investments in securities at market value
(identified cost $2,822,136 ) (Note 1) .................................. $ 2,773,975
Receivables:
Dividends and interest ................................................. 2,776
Investment securities sold ............................................. 1,690,786
Reimbursement due from Advisor ............................................ 12,133
Deferred organizational costs (Note 1) .................................... 9,004
--------------
TOTAL ASSETS .......................................................... 4,488,674
--------------
LIABILITIES
Payables:
Capital stock redeemed ................................................. 60,836
Accrued expenses .......................................................... 5,927
--------------
TOTAL LIABILITIES ..................................................... 66,763
--------------
NET ASSETS
(applicable to outstanding shares of 422,237;
unlimited shares of $0.001 par value authorized) ...................... $ 4,421,911
==============
Net asset value, offering and redemption price per share .................. $ 10.47
==============
SOURCE OF NET ASSETS
Paid-in capital ........................................................... $ 4,817,186
Undistributed net investment loss ......................................... (8,855)
Accumulated net realized loss on investments .............................. (338,259)
Net unrealized depreciation of investments ................................ (48,161)
--------------
NET ASSETS ............................................................ $ 4,421,911
==============
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
STATEMENT OF OPERATIONS
DECEMBER 31 , 1997 (UNAUDITED)
<TABLE>
<CAPTION>
EMERGING
GROWTH
---------------
<S> <C>
INVESTMENT INCOME
Dividends ............................................... $ 724
Interest ................................................ 10,207
---------------
TOTAL INCOME ......................................... 10,931
---------------
EXPENSES
Advisory fees (Note 3) .................................. 19,786
Distribution expense (Note 3) ........................... 7,915
Administrator expense ................................... 5,538
Transfer agent fees ..................................... 11,079
Bookkeeping and pricing ................................. 10,874
Insurance expense ....................................... 368
Custodian fees .......................................... 4,029
Legal expense ........................................... 1,352
Registration expense .................................... 12,435
Organizational expense (Note 1) ......................... 1,209
Independent accountants ................................. 2,252
Other ................................................... 901
Trustees' fees and expenses ............................. 423
Reports to shareholders ................................. 1,352
---------------
TOTAL EXPENSES ....................................... 79,513
Expenses waived and reimbursed ....................... (59,727)
---------------
NET EXPENSES ......................................... 19,786
---------------
NET INVESTMENT LOSS .................................. (8,855)
---------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from security transactions ............ (177,596)
Net change in unrealized depreciation of investments .... (257,708)
---------------
Net realized and unrealized loss on investments ......... (435,304)
---------------
Net decrease in net assets resulting from operations .... $ (444,159)
===============
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 5
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING GROWTH
-------------------------------------
SIX MONTHS
ENDED PERIOD
DECEMBER 31, ENDED
1997 JUNE 30,
(UNAUDITED) 1997 (1)
---------------- --------------
<S> <C> <C>
OPERATIONS
Net investment loss ................................................ $ (8,855) $ (8,298)
Net realized loss on investments ................................... (177,596) (160,663)
Net change in unrealized appreciation
(depreciation) of investments .................................... (257,708) 209,547
---------------- --------------
Net increase (decrease) in net assets resulting from operations .... (444,159) 40,586
---------------- --------------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold ........................................... 4,133,617 1,595,918
Shares redeemed .................................................... (803,880) (100,171)
---------------- --------------
Net increase in net assets resulting from capital share
transactions (a) ............................................... 3,329,737 1,495,747
---------------- --------------
Total increase in net assets ................................... 2,885,578 1,536,333
NET ASSETS
Beginning of period ................................................ 1,536,333 0
---------------- --------------
End of period ...................................................... $ 4,421,911 $ 1,536,333
================ ==============
(a) Transactions in capital stock were:
Shares sold ............................................... 349,409 160,898
Shares issued on reinvestment of distributions ............ 0 0
Shares redeemed ........................................... (77,583) (10,487)
---------------- --------------
Net increase .............................................. 271,826 150,411
Beginning balance ......................................... 150,411 0
---------------- --------------
Ending balance ............................................ 422,237 150,411
================ ==============
</TABLE>
(1) The Fund commenced operations on October 1, 1996.
The notes to financial statements are an integral part of these statements.
<PAGE> 6
FINANCIAL HIGHLIGHTS
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
EMERGING
GROWTH
-------------------------------
SIX MONTHS
ENDED PERIOD
DECEMBER 31, ENDED
1997 JUNE 30,
(UNAUDITED) 1997(1)
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............................ $ 10.21 $ 10.00
----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss .......................................... (0.02) (0.06)
Net gains on securities (both
realized and unrealized) ................................... 0.28 0.27
----------- -----------
Total from investment operations ......................... 0.26 0.21
----------- -----------
NET ASSET VALUE, END OF PERIOD .................................. $ 10.47 $ 10.21
=========== ===========
TOTAL RETURN .................................................... 5.05%* 2.10%+
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ......................... $ 4,422 $ 1,536
Ratio of expenses to average net assets
before reimbursement of expenses by Advisor ................ 5.01% * 8.65%*
after reimbursement of expenses by Advisor ................. 1.25% * 1.25%*
Ratio of net investment income (loss) to average net assets
before reimbursement of expenses by Advisor ................ (4.32%)* (8.21%)*
after reimbursement of expenses by Advisor ................. (0.56%)* (0.81%)*
Portfolio turnover rate ...................................... 177% 50%+
Average commission rate paid ................................. $ 0.0693 $ 0.0784
</TABLE>
- ----------------------------------------
(1) The 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> 7
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 and Trainer, Wortham Total Return Bond Fund, which furnish a separate
report; and Trainer, Wortham Emerging Growth Fund (the "Fund").
The Fund's primary 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.
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 Fund 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
the 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 the 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 the Fund are being amortized
on a straight-line basis from October 1, 1996 to February 27, 1998.
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1997
- --------------------------------------------------------------------------------
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities of the Fund, other than short-term
investments, for the six-month period ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
$4,644,760 $4,188,900
</TABLE>
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Trainer, Wortham & Co., Inc. (the "Advisor") is the investment advisor for the
Fund pursuant to a separate investment advisory agreement (the "Agreement").
Under the terms of the Agreement, the Advisor receives an annual fee, accrued
daily and paid monthly of 1.25% of the average daily net assets of the Fund.
For the six months ended December 31, 1997, the Fund paid the Advisor fees
totaling $19,786. 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 Fund. For the six months ended
December 31, 1997, the Advisor waived and reimbursed expenses amounting to
$59,727 for the Fund. The Fund has adopted a Distribution Plan (the "Plan"),
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 Fund will reimburse FPS Broker Services, Inc. (the
"Distributor"), the Fund's sole Underwriter and Distributor, for actual
distribution and shareholder servicing expenses incurred by the Distributor not
exceeding, on an annual basis, 0.50% of the average daily net assets of the
Fund. For the six months ended December 31, 1997, the Fund reimbursed the
Distributor $7,915, for distribution costs incurred.
Certain officers and trustees of the Fund are affiliated persons of the Advisor.
NOTE 4 - SUBSEQUENT EVENT
On January 10, 1998, the Board of Trustees voted to liquidate the Fund as of
February 27, 1998.
