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FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2 , 1999 FILE NO. 2-15037
------------------- FILE NO. 811-879
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 63
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 63
----
TRAINER WORTHAM FIRST MUTUAL FUNDS
----------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
845 Third Avenue, 6th Floor
New York, New York 10022 (212) 759-7755
- ------------------------ --------------
(Address of Principal Executive Offices) (Registrant's Telephone Number)
Patrick W. D. Turley, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, DC 20006-2401
-------------------------
(Name and Address of Agent for Service)
It is proposed that this filing become effective (check appropriate box):
immediately upon filing pursuant to Paragraph (b);
on_________________(date) pursuant to Paragraph (b);
[x] 60 days after filing pursuant to Paragraph (a)(1);
- -------------
on_________________(date) pursuant to Paragraph (a)(1);
75 days after filing pursuant to Paragraph (a)(2); or
on_________________(date) pursuant to paragraph (a) (2) of Rule 485.
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Page 1
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TRAINER, WORTHAM FIRST MUTUAL FUNDS
TRAINER, WORTHAM FIRST MUTUAL FUND
November 1, 1999
- --------------------------------------------------------------------------------
Investment Adviser
------------------
Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, New York 10022
Telephone: (800) 257-4450
Neither the Securities and Exchange Commission nor any other regulatory body has
approved the securities being offered by this prospectus or determined whether
this prospectus is accurate and complete. It is unlawful for anyone to make any
representation to the contrary.
<PAGE> 3
TRAINER, WORTHAM FIRST MUTUAL FUNDS
TRAINER, WORTHAM FIRST MUTUAL FUND
TABLE OF CONTENTS
-----------------
RISK/RETURN SUMMARY AND FUND EXPENSES
1 RISK/RETURN SUMMARY
3 ANNUAL FEES AND EXPENSES
CAREFULLY REVIEW THIS IMPORTANT SECTION FOR A SUMMARY OF THE FUND'S
INVESTMENTS, RISKS AND FEES.
INVESTMENT OBJECTIVE AND STRATEGIES
5 INVESTMENT OBJECTIVE
5 POLICIES AND STRATEGIES
6 INVESTMENT RISKS
THIS SECTION CONTAINS DETAILS ON THE FUND'S INVESTMENT STRATEGIES AND
RISKS.
SHAREHOLDER INFORMATION
7 PRICING OF FUND SHARES
7 PURCHASING AND ADDING TO YOUR SHARES
8 SELLING YOUR SHARES
11 EXCHANGING YOUR SHARES
12 DIVIDENDS, DISTRIBUTIONS AND TAXES
CONSULT THIS SECTION TO OBTAIN DETAILS ON HOW SHARES ARE VALUED, HOW TO
PURCHASE, SELL AND EXCHANGE SHARES, RELATED CHARGES AND PAYMENTS OF
DIVIDENDS AND DISTRIBUTIONS.
FUND MANAGEMENT
12 THE INVESTMENT ADVISER
13 PORTFOLIO MANAGER
13 THE DISTRIBUTOR AND ADMINISTRATOR
REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND ORGANIZATIONS WHO
OVERSEE THE FUND.
FINANCIAL HIGHLIGHTS
14 FINANCIAL HIGHLIGHTS
REVIEW THIS SECTION FOR DETAILS ON THE SELECTED FINANCIAL STATEMENTS OF
THE FUND.
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RISK/RETURN SUMMARY AND FUND EXPENSES
- -------------------------------------
TRAINER, WORTHAM FIRST MUTUAL FUND
INVESTMENT OBJECTIVE The Fund's primary investment objective
is to seek capital appreciation through
investments in common stock. The Fund's
secondary investment objective is to
seek income from dividends and interest.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in common
stock and in securities convertible into
common stock. The Fund's investment
strategy emphasizes investing in
companies that, in the opinion of the
Adviser, offer prospects for capital
growth and growth of earnings and
dividends.
PRINCIPAL INVESTMENT RISKS Because the Fund is subject to market
risk, the value of the Fund's
investments will fluctuate with market
conditions and the value of your
investment in the Fund will also vary.
You could lose money on your investment
in the Fund, or the Fund could
underperform other investments.
An investment in the Fund is not a
deposit of First Republic Bank, the
parent of the Fund's investment adviser,
and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or
any other government agency.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you
are:
- Investing for a period of time in
excess of 3 to 5 years
- Looking to add a growth component to
your portfolio
- Looking for a high-quality,
well-diversified, all-equity portfolio
that provides the potential for growth
of your investment
- Willing to accept higher risks of
investing in the stock market in
exchange for potentially higher long
term returns
This Fund will not be appropriate for
someone:
- Investing for a period of time less
than 3 to 5 years
- Not comfortable with market value
fluctuations
- Looking for current income
- Seeking safety of principal
1
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TRAINER, WORTHAM FIRST MUTUAL FUND (CONTINUED)
- ----------------------------------------------
The chart and table on this page show how the Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance for the past 10 years to demonstrate that the Fund has
both gained and lost value during its history. The table below it compares the
Fund's performance over time to that of its benchmark index the S&P 500
Index.(2)
PERFORMANCE BAR CHART AND TABLE(1)
Year-by-Year Total Returns as of 12/31/98
[GRAPH]
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.
- -----------------------------------------------------------------------
Best quarter:
- -----------------------------------------------------------------------
Worst quarter:
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)(3)
Past Year Past 5 Past 10 Since
Years Years Inception(4)
TRAINER, WORTHAM FIRST
MUTUAL FUND ____% ____% ____% ____%
S&P 500 INDEX ____% ____% ____% ____%
The table assumes that shareholders redeem all their fund shares at the end of
the period indicated.
- ----------------
1 Both charts assume reinvestment of dividends and distributions.
2 A widely recognized, unmanaged index of common stocks.
3 For the period January 1, 1999 through September 30, 1999, the
aggregate (non-annualized) total return for the Fund was ____% as
compared to the ____% total return for the S&P 500 Index during the
same period.
4 The Fund commenced operations on __________, 19__.
2
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TRAINER, WORTHAM FIRST MUTUAL FUND (CONTINUED)
- ----------------------------------------------
ANNUAL FEES AND EXPENSES
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This table describes the fees and Shareholder
expenses that you may pay if you buy Transaction
and hold shares of the Fund. Fees (fees
paid directly from
your investment)
Maximum Sales
Charge (load) None
on Purchases
---------------------------------------------------------
Maximum Deferred
Sales Charge (load) None
Annual Fund
Operating
Expenses
(expenses that are
deducted from
Fund assets)
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Management Fees 0.75%
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Distribution and
Service (12b-1) Fee 0.25%
---------------------------------------------------------
Other Expenses 0.64%
---------------------------------------------------------
Total Fund
Operating Expenses 1.64%
---------------------------------------------------------
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3
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TRAINER, WORTHAM FIRST
- ----------------------
MUTUAL FUND (CONTINUED)
- -----------------------
Expense Example
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
- reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
TRAINER, WORTHAM FIRST 1 3 5 10
-----------------------
MUTUAL FUND Year Years Years Years
-----------
-------------------------------------------------------------------
$--- $--- $--- $---
-------------------------------------------------------------------
4
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INVESTMENT OBJECTIVE AND STRATEGIES
TRAINER, WORTHAM FIRST MUTUAL FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The primary investment objective of the Fund is to seek
capital appreciation through investments in common stock. The Fund's secondary
investment objective is to seek income from dividends and interest.
POLICIES AND STRATEGIES
The Adviser invests in companies that it believes offer
prospects for capital growth and growth of earnings and dividends.
Consistent with the Fund's investment objective, the Fund:
- may invest in the following types of equity securities:
common stocks, preferred stocks, securities convertible
into common stocks, warrants and any rights to purchase
common stocks
- may invest up to 15% of its net assets in foreign
securities in the form of American Depository Receipts
("ADRs")
- may invest in fixed income securities consisting of
corporate notes, bonds and debentures that are rated
investment grade at the time of purchase
- may invest in obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government
- may engage in repurchase transactions
- may invest in other investment companies
Portfolio Turnover. The annual rate of portfolio turnover is
not expected to exceed 100%. In general, the Adviser will not consider the rate
of portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Fund's objective.
In the event that the Adviser determines that market
conditions are not suitable for the Fund's typical investments, the Adviser may,
for temporary defensive purposes during such unusual market conditions, invest
all or any portion of the Fund's assets in money market instruments.
5
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INVESTMENT RISKS
- --------------------------------------------------------------------------------
Any investment in the Fund is subject to investment risks,
including the possible loss of the principal amount invested.
Generally, the Fund will be subject to the following risks:
- - MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performance per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
- - CREDIT RISK: Credit risk refers to the risk related to the credit quality
of the issuer of a security held in the Fund's portfolio. The Fund could
lose money if the issuer of a security is unable to meet its financial
obligations.
- - YEAR 2000 RISK: Like other funds and business organizations around the
world, the Fund could be affected adversely if the computer systems used by
the Adviser and the Funds' other service providers do not properly process
and calculate date related information for the year 2000 and beyond. In
addition, Year 2000 issues may affect adversely companies in which the Fund
invests where, for example, such companies incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to do so
adequately, and in a timely manner. The Fund has been informed that the
Adviser and the Fund's other service providers have developed and are
implementing clearly defined and documented plans intended to minimize
risks associated with Year 2000 issues with regard to services critical to
the Fund's operations. In the event that any systems upon which the Funds
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur. While the
ultimate costs or consequences of incomplete or untimely resolution of Year
2000 issues by the Adviser or the Fund's service providers cannot be
assessed accurately at this time, the Fund currently has no reason to
believe that the Year 2000 plans of the Adviser and the Fund's service
providers will not be completed by December 31, 1999, or that the
anticipated costs associated with full implementation of their plans will
have a material adverse impact on either their business operations or the
financial condition of the Fund.
6
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SHAREHOLDER INFORMATION
-----------------------
PRICING OF FUND SHARES
- ----------------------
How NAV is Calculated
The NAV is calculated by adding the total value of the Fund's investments
and other assets, subtracting its liabilities and then dividing that
figure by the number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
The net asset value per share of the Fund is determined at the time
trading closes on the New York Stock Exchange ("NYSE") (currently 4:00
p.m., Eastern Standard Time, Monday through Friday), except on business
holidays when the NYSE is closed. The NYSE recognizes the following
holidays: New Year's Day, President's Day, Martin Luther King, Jr. Day,
Good Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day,
and Christmas Day. Any other holiday recognized by the NYSE will be
considered a business holiday on which the net asset value of the Fund
will not be calculated.
Your order for purchase, sale or exchange of shares is priced at the next
NAV calculated after your order is accepted by the Fund. This is what is
known as the offering price.
The Fund's securities are generally valued at current market prices. If
market quotations are not available, prices will be based on fair value as
determined by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
------------------------------------
You may purchase the Fund through the Distributor or through investment
representatives, who may charge additional fees and may require higher
minimum investments or impose other limitations on buying and selling
shares. If you purchase shares through an investment representative, that
party is responsible for transmitting orders by close of business and may
have an earlier cut-off time for purchase and sale requests. Consult your
investment representative for specific information.
The minimum initial investment in the Fund is $250. Subsequent investments
must be at least $50. First Data Distributors, Inc. (the "Distributor")
acts as Distributor of the Fund's shares. Shares of the Fund are offered
continuously for purchase at the net asset value per share of the Fund
next determined after a purchase order is received. Investors may purchase
shares of the Fund by check or wire, as described below.
All purchases must be in U.S. dollars. A fee will be charged for any
checks that do not clear. Third-party checks are not accepted without
prior approval by the Fund.
The Fund or the Adviser may waive its minimum purchase requirement, or the
Distributor may reject a purchase order, if it is deemed to be in the best
interest of the Fund and its shareholders.
7
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INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
By Regular Mail
Initial Investment:
1. Carefully read and complete the application.
2. Make check, certified check or money order payable to "Trainer, Wortham First
Mutual Fund."
3. Mail to: Trainer, Wortham First Mutual Funds, c/o First Data Investor
Services Group, P.O. Box 61503, King of Prussia, Pennsylvania, 19406.
Subsequent Investment:
1. Subsequent investments should be made by check payable to the Fund and mailed
to:
Trainer, Wortham First Mutual Funds
c/o First Data Investor Services Group
P. O. Box 61767
King of Prussia, PA 19406
By Wire Transfer
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment: Before wiring funds, you should call 1-800-441-6580 to
receive an account number. Follow the instructions below after receiving your
account number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Boston Safe Deposit & Trust
Routing Number: ABA #011001234
Account #000159
Name of the Fund
Shareholder Account #
Name on the Account
Mail a completed account application to First Data Investor Services Group at
the above address.
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund. Normally you will receive your
proceeds within 7 business days after your request is received. See section on
"General Policies on Selling Shares" below.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR
FUND INVESTMENT
- --------------------------------------------------------------------------------
A request for a withdrawal in cash from the Fund constitutes a redemption or
sale of shares for a mutual fund shareholder.
- --------------------------------------------------------------------------------
8
<PAGE> 12
INSTRUCTIONS FOR SELLING SHARES
By telephone (unless you have declined telephone sales privileges) By mail
By Wire transfer You must indicate this option on your application.
The Fund may charge a wire transfer fee of $9.00 per transaction. Note: Your
financial institution may also charge a separate fee.
1. Call 1-800-441-6580 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer).
Write a letter of instruction indicating:
- - your Fund and account number
- - amount you wish to redeem
- - address where your check should be sent
- - account owner signature(s)
Mail to: TRAINER WORTHAM FIRST MUTUAL FUNDS
c/o First Data Investor Services Group
P.O. Box 61503
King of Prussia, PA 19406
Call 1-800-441-6580 to request a wire transfer.
If you call by 4 p.m. Eastern Standard Time, your payment will normally be wired
to your bank on the next business day.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Circumstances under which redemption requests require a signature guarantee
include, but may not be limited to, each of the following:
- Redemptions over $10,000
- Your account registration or the name(s) on your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration
A signature guarantee can be obtained from a financial institution,
such as a bank, broker-dealer, credit union, clearing agency, or savings
association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders.
9
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REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(a redemption fee of more than 1% of the Fund's net assets). If the Fund deems
it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, the Fund may ask you to increase your balance.
If it is still below $250 after 60 days, the Fund may close your account and
send you the proceeds at the then current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund.
10
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EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in one Fund for shares of another Trainer Wortham
Fund. No transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by calling 1-800-441-6580. Please provide the following
information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
Please refer to "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
- - The registration and tax identification numbers of the two accounts
must be identical.
- - The Exchange Privilege (including automatic exchanges) may be changed
or eliminated at any time upon a 60-day notice to shareholders.
The following special services are available to shareholders. An investor may
change or stop these services at any time by written notice to the Fund.
AUTOMATIC INVESTMENT PLAN
The Fund has an Automatic Investment Plan which provides shareholders with a
convenient method by which investors may have amounts deducted directly from
their checking accounts for investment in the Fund. The minimum initial and
subsequent investments for the Fund also apply when using this method of
investing. To begin participating in this Plan, use the Automatic Investment
Plan Application found in the back of this Prospectus.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Fund has a Systematic Withdrawal Plan which provides for voluntary automatic
withdrawals of at least $50 monthly, quarterly, semi-annually or annually.
Shareholders who purchase or already own $5,000 or more of Fund shares valued at
the current public offering price, and who wish to receive periodic payments may
establish a Systematic Withdrawal Plan. In order to qualify for this option,
dividends and capital gains must be reinvested.
DISTRIBUTION AND SERVICE (12B-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of the Fund's shares and/or for providing shareholder services. 12b-1 fees are
paid from Fund assets on an ongoing basis, and over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges. The maximum amount that the Fund may pay in 12b-1 fees
under its 12b-1 plan is 0.25% of its average daily net assets.
11
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DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of dividends is paid out, less
expenses, to its shareholders. Income dividends and capital gains distributions
on the Fund are usually paid annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Dividends are taxable as ordinary income. Taxation on capital gains
distributions will vary with the length of time the Fund has held the security -
not how long the shareholder has been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement in the following year.
You will be notified in January of each year about the federal tax status of
distributions made by the Fund. Depending on your state of residence,
distributions also may be subject to state and local taxes, including
withholding taxes. There is a penalty on certain pre-retirement distributions
from retirement accounts. Consult your tax adviser about the federal, state and
local tax consequences in your particular circumstances.
Foreign shareholders may be subject to special withholding requirements.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Trainer, Wortham & Co., Inc., (the "Adviser"), with offices at 845 Third Avenue,
New York, NY 10022 and 111 Pine Street, San Francisco, CA 94111 is the Fund's
Investment Adviser and manager and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended.
The Adviser, organized in 1998, continues an investment counseling business
which began in 1924 as Trainer & Associates. The Adviser supervises
approximately $___billion in investment accounts and is a wholly owned
subsidiary of First Republic Bank. First Republic Bank is a commercial bank
headquartered at 111 Pine Street, San Francisco, California 94111, which is
engaged in general banking business and provides private banking services. First
Republic Bank has offices in California, Nevada and New York City and has
approximately $___ billion in assets as of October 31, 1999.
Pursuant to an Investment Advisory Agreement with the Trust on behalf of the
Fund, the Adviser receives an annual fee, accrued daily and paid monthly, of
0.75% of the Fund's average daily net assets.
12
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Subject to the general supervision of the Board of Trustees, and in accordance
with the Fund's investment objectives, policies, and restrictions, the Adviser
manages the Fund's investment portfolio, makes decisions with respect to and
places orders for all purchases and sales of the portfolio securities.
PORTFOLIO MANAGER
David P. Como serves as portfolio manager of the Fund and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Como has
been primarily responsible for the day-to-day investment management of the Fund
since 1982. Mr. Como has been a Managing Director of the Adviser and its
predecessor since 1988.
The Statement of Additional Information has more detailed information about the
Adviser.
THE DISTRIBUTOR AND ADMINISTRATOR
First Data Distributors, Inc., 4400 Computer Drive, Westborough, Massachusetts
01581, serves as principal underwriter to the Trust pursuant to an Underwriting
Agreement.
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly
owned subsidiary of First Data Corporation, serves as Administrator to the Trust
pursuant to an Administration Agreement. The principal business address of
Investor Services Group is 4400 Computer Drive, Westborough, MA 01581.
13
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). The information
for the fiscal years ended June 30, 1998 and June 30, 1999 has been audited by
Briggs, Bunting & Dougherty LLP, whose report on fiscal year 1999, along with
the Fund's financial statements, are included in the annual report of the Fund,
which is available upon request. Prior to the fiscal year ended June 30, 1997,
the Fund's financial statements were audited by the Fund's previous accountants.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............. $ 12.47 $ 12.35 $ 13.81 $ 10.03 $ 8.21
------- ------- ------- ------- -------
Income from investment operations
Net investment loss......................... (0.14) (0.07) (0.11) (0.09) (0.09)
Net gains on securities
(both realized and unrealized).............. 5.35 2.72 0.95 4.79 2.10
------- ------- ------- ------- ------
Total from investment operations............... 5.21 2.65 0.84 4.70 2.01
------- ------- ------- ------- ------
Less distributions
Dividends from net investment income........ 0.00 0.00 0.00 0.00 0.00
Distributions from capital gains............ (1.14) (2.53) (2.30) (0.92) (0.19)
------- ------- ------- ------- -------
Total distributions............................ (1.14) (2.53) (2.30) (0.92) (0.19)
------- ------- ------- ------- -------
Net asset value, end of year................... $ 16.54 $ 12.47 $ 12.35 $ 13.81 $ 10.03
======= ======= ======= ======= =======
Total return .................................. 43.53% 25.40% 7.67% 49.12% 25.04%
Ratios/supplemental data
Net assets, end of year (in 000s).............. $54,769 $39,211 $33,649 $32,147 $20,281
Ratio of expenses to average net assets........ 1.64% 1.66% 1.87% 1.74% 2.16%
Ratio of net investment loss to
average net assets.......................... (1.02%) (0.56%) (0.96%) (0.82%) (0.77%)
Portfolio turnover rate........................ 56% 81% 109% 107% 198%
</TABLE>
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For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION
AND DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING THE FUND AT:
TRAINER, WORTHAM FIRST MUTUAL FUNDS
C/O TRAINER WORTHAM
111 PINE STREET, 3RD FLOOR
SAN FRANCISCO, CA 94111
TELEPHONE: 1-800-257-4450
- --------------------------------------------------------------------------------
You can review the Funds' reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
- For a duplicating fee, by writing the Public Reference Section
of the Commission, Washington, D.C. 20549-6009 or calling
1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-879.
15
<PAGE> 19
TRAINER WORTHAM FUNDS
TRAINER WORTHAM FIRST MUTUAL FUND
THIS IS YOUR
INVESTMENT APPLICATION
Detach and mail to:
FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 61503
KING OF PRUSSIA, PA 19406-0903
<PAGE> 20
TRAINER WORTHAM FUNDS INVESTMENT APPLICATION
1. INITIAL FUND INVESTMENT
Please indicate the amount you are investing in the fund. The minimum initial
investment is $250 for the fund.
Trainer Wortham First Mutual Fund $
---------------
2. INITIAL INVESTMENT METHOD
[ ] Check (made payable to the fund)
[ ] Wire sent on (date) for credit to account no. *
------------ -------------
*Before making an initial investment by wire, you must be assigned an account
number by calling (800) 441-6580. Have your local bank wire fund to:
Boston Safe Deposit & Trust
ABA#011001234
Credit: Trainer Wortham First Mutual Fund
Act #000159
FBO (Insert Shareholder name & Account number)
-------------
3. REGISTRATION AND SOCIAL SECURITY NUMBER (PLEASE PRINT)
INDIVIDUAL OR JOINT ACCOUNT:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Owner's First Name Middle Initial Last Name Owner's Social Security #
- ------------------------------------------------------------------------------------------
Joint Owner's First Name Middle Initial Last Name Joint Owner's Social Security #
GIFT TO MINOR
- ------------------------------------------------------------------------------------------
Name of Custodian (one name only)
- ------------------------------------------------------------------------------------------
Name of Minor Minor's Social Security #
Under the _________________________ Uniform Gift/Transfer to
Minors Act State
CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS (Complete attached Corporate Resolution)
- ------------------------------------------------------------------------------------------
Name of Corporation, Partnership, Trust or Other
- ------------------------------------------------------------------------------------------
Name of Trustee(s) Date of Trust Tax Identification No.
4. MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S)
- ------------------------------------------------------------------------------------------
Street Address & Apt. No. City State Zip
( ) ( )
- ----------------------------------- -----------------------------------
Day Telephone Evening Telephone
</TABLE>
5. DISTRIBUTION OPTIONS (All distributions will be reinvested unless otherwise
indicated below.)
[ ] Reinvest (dividends and capital gains in additional shares)
[ ] Cash Dividends (dividends in cash, capital gains in additional shares)
[ ] All Cash (dividends and capital gains in cash)
<PAGE> 21
6. SYSTEMATIC WITHDRAWAL PLAN (minimum initial investment of $5,000 is required)
I wish to have the following amount(s) systematically withdrawn from:
<TABLE>
<S> <C>
Trainer Wortham First Mutual Fund $
---------------
</TABLE>
Please indicate the frequency of withdrawal, and if other than monthly, the
desired months. Liquidations take place on or about the 25th of the month.
[ ] Monthly
[ ] Quarterly _____________ , _____________ , _____________ and ___________
[ ] Semi annually _____________ and _______________
[ ] Annually
Unless indicated otherwise in Section 8, a check will be sent to your address
of record.
7. TELEPHONE PRIVILEGE
[ ] I (We) authorize First Data Investor Services Group, Inc. And/or Trainer
Wortham Funds to act upon instructions received by telephone from me (us)
to redeem shares or to exchange for shares of other Trainer Wortham Funds.
I (We) understand an exchange is made by redeeming shares of one fund and
using the proceeds to buy shares of another fund. Exchanges must be made
into identically registered accounts. Redemption proceeds will be sent as
indicated in this prospectus.
If not otherwise indicated below, only exchanges will be allowed.
[ ] Redemption [ ] Exchange [ ] Both
8. REDEMPTIONS
(Unless otherwise indicated below, all redemptions will be sent by check.)
[ ] All redemption proceeds should be executed by an ACH transaction unless
First Data Investor Services Group, Inc. is notified in writing. There is
no charge for ACH transactions.
Allow 3 business days.
[ ] All redemptions proceeds should be executed by FED wire transaction unless
First Data Investor Services Group, Inc. is notified in writing. There is
a $9 charge for FED wire transactions.
All FED wire and ACH transactions will be sent as indicated below. Please
allow one month for ACH instructions to become effective. Any changes in these
instructions must be made in writing with signature guarantees as described in
the prospectus.
*Please notify your bank of your intent to establish this option on your
account.
*ATTACH A VOIDED CHECK OR DEPOSIT SLIP.
- --------------------------------------------------------------------------------
Bank Name Branch Office
- --------------------------------------------------------------------------------
Bank Address
- --------------------------------------------------------------------------------
Bank Wire Routing Number Account Number
- --------------------------------------------------------------------------------
Name(s) on Bank Account
9. SIGNATURE AND CERTIFICATION
(Required by Federal tax law to avoid backup withholding.)
"By signing below, I certify under penalty of perjury that the social security
or tax payer identification number entered above is correct (or I am waiting
for a number to be issued to me), and that I have not been notified by the
IRS that I am subject to backup withholding unless I have checked the box."
If you have been notified by the IRS that you are subject to backup withhold,
check box. [ ]
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certificates required to avoid backup
withholding.
"I hereby acknowledge receipt of a current prospectus."
- --------------------------------------------------------------------------------
Signature [ ] Owner [ ] Custodian [ ] Trustee Date
- --------------------------------------------------------------------------------
Signature of Joint Owner (if applicable) Date
10. INVESTMENT DEALER INFORMATION
- --------------------------------------------------------------------------------
Name of Firm
- --------------------------------------------------------------------------------
Firm Address
- --------------------------------------------------------------------------------
Rep Name & Number
- --------------------------------------------------------------------------------
Signature
<PAGE> 22
THIS SECTION TO BE COMPLETED BY CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS
RESOLUTIONS
RESOLVED: That this corporation or organization become a shareholder of Trainer
Wortham First Mutual Funds (the "Trust") and that
- --------------------------------------------------------------------------------
(Name(s) of officers)
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and take any action for it as may be necessary
or appropriate with respect to its shareholder account(s) with the Trust, and it
is FURTHER RESOLVED: That any one of the above-noted officers is authorized to
sign any documents necessary or appropriate to appoint First Data Investor
Services Group, Inc. as redemption agent of the corporation or organization for
shares of the Trust, to establish or acknowledge terms and conditions governing
the redemption of said shares or to otherwise implement the privileges elected
on the application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
___________________________________________________________________incorporated
(Name of Corporation/Organization)
or formed under the laws of ____________________ and were adopted at a meeting
(State)
of the Board of Trustees of the corporation or organization duly called and
held on ______________________________ at which a quorum was present and acting
(Date)
throughout, and that the same are now in full force and effect.
I further certify that the following is (are) the duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title Name Title
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
Witness my hand and the seal of the corporation or organization this ____ day
of _________________, 19 ____.
- ------------------------------------ ---------------------------------------
*Secretary-Clerk Other Authorized Officer (if required)
*If the secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE> 23
TRAINER WORTHAM FUNDS
AUTOMATIC INVESTMENT PLAN APPLICATION
First Data Investor Services Group, Inc., P.O. Box 61503, King of Prussia, PA
19406-0903 (610) 239-4500
INSTRUCTIONS
HOW DOES IT WORK?
1. First Data Investor Services Group, Inc., through our bank, UMB Bank N.A.,
draws an Automatic Clearing House (ACH) debit electronically against your
personal checking/savings account each month, according to your instructions.
2. Choose any amount of $50.00 or more that you would like to invest regularly
and your debit for this amount will be processed by First Data Investor
Services Group, Inc., as if you had written a check yourself.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete both sides of this form, and the Investment Application form if you
do not have an existing account.
2. Include initial investment check of $250.00 or more if you are establishing a
new account.
3. If you are using a Credit Union, please have your financial institution
verify the bank information.
4. Mark one of your personal checks or deposit slips VOID, attach it to this
form and mail to First Data Investor Services Group, Inc. at the above
address.
5. As soon as your bank accepts your authorization, debits will be generated and
your Automatic Investment Plan started. In order for you to have Automatic
Clearing House (ACH) debits from your account, your bank must be able to
accept ACH transactions and/or be a member of an ACH association. Your bank
manager should be able to tell you your bank's capabilities. We cannot
guarantee acceptance by your bank.
6. Please allow one month for processing before the first debit occurs.
7. Returned items will result in a $20.00 fee being deducted from your account.
MONTHLY WITHDRAWAL AMOUNT AND DATE
Please indicate amount you would like invested monthly. The minimum amount for
monthly investment is $50.
[ ] Trainer Wortham First Mutual Fund $
---------------
Date of Withdrawal: (check only one) [ ] 10th [ ] 15th [ ] 20th
ACCOUNT INFORMATION
Indicate One: [ ] I am in the process of establishing a new account
[ ] I have an established account. My account number is:
---------
- --------------------------------------------------------------------------------
Registered Owner
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Day Time Phone Number Evening Phone Number
BANK INFORMATION
Complete the following or attach a voided check below. If you are using a Credit
Union account, please complete this section and have your financial institution
verify the information.
- --------------------------------------------------------------------------------
Bank Account Owner Joint Owner
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Bank Branch Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
ABA Number (9 digits) Account Number
Type of Account: [ ] Checking [ ] Savings
AUTHORIZATION AND SIGNATURE
I understand that my ACH debit will be dated on the day of each month I have
indicated on this form. I agree that if such a debit is not honored upon
presentation, First Data Investor Services Group, Inc. may discontinue this
service and any share purchase made upon deposit on such debit may be canceled.
I further agree that if the net asset value of the shares purchased with such
debit is less when said purchase is canceled than when the purchase was made,
First Data Investor Services Group, Inc. shall be authorized to liquidate other
shares or fractions thereof held in my account to make up the deficiency. This
Automatic Investment Plan may be discontinued by First Data Investor Services
Group, Inc. upon 30 days written notice or at any time by the investor by
written notice to First Data Investor Services Group, Inc. which is received no
later than five (5) business days prior to the above designated investment date.
- --------------------------------------------------------------------------------
SIGNATURE OF BANK ACCOUNT OWNER
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT BANK ACCOUNT OWNER
<PAGE> 24
- --------------------------------------------------------------------------------
TRAINER, WORTHAM FIRST MUTUAL FUNDS
TRAINER, WORTHAM TOTAL RETURN BOND FUND
November 1, 1999
- --------------------------------------------------------------------------------
Investment Adviser
------------------
Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, New York 10022
Telephone: (800) 257-4450
Neither the Securities and Exchange Commission nor any other regulatory body has
approved the securities being offered by this prospectus or determined whether
this prospectus is accurate and complete. It is unlawful for anyone to make any
representation to the contrary.
<PAGE> 25
TRAINER, WORTHAM FIRST MUTUAL FUNDS
TRAINER, WORTHAM TOTAL RETURN BOND FUND
TABLE OF CONTENTS
-----------------
RISK/RETURN SUMMARY AND FUND EXPENSES
1 RISK/RETURN SUMMARY
3 ANNUAL FEES AND EXPENSES
CAREFULLY REVIEW THIS IMPORTANT SECTION FOR A SUMMARY OF THE FUND'S
INVESTMENTS, RISKS AND FEES.
INVESTMENT OBJECTIVE AND STRATEGIES
5 INVESTMENT OBJECTIVE
5 POLICIES AND STRATEGIES
7 INVESTMENT RISKS
THIS SECTION CONTAINS DETAILS ON THE FUND'S INVESTMENT STRATEGIES AND
RISKS.
SHAREHOLDER INFORMATION
8 PRICING OF FUND SHARES
8 PURCHASING AND ADDING TO YOUR SHARES
9 SELLING YOUR SHARES
12 EXCHANGING YOUR SHARES
12 DIVIDENDS, DISTRIBUTIONS AND TAXES
CONSULT THIS SECTION TO OBTAIN DETAILS ON HOW SHARES ARE VALUED, HOW TO
PURCHASE, SELL AND EXCHANGE SHARES, RELATED CHARGES AND PAYMENTS OF
DIVIDENDS AND DISTRIBUTIONS.
FUND MANAGEMENT
13 THE INVESTMENT ADVISER
13 PORTFOLIO MANAGER
14 THE DISTRIBUTOR AND ADMINISTRATOR
REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND ORGANIZATIONS WHO
OVERSEE THE FUND.
FINANCIAL HIGHLIGHTS
15 FINANCIAL HIGHLIGHTS
REVIEW THIS SECTION FOR DETAILS ON THE SELECTED FINANCIAL STATEMENTS OF
THE FUND.
<PAGE> 26
RISK/RETURN SUMMARY AND FUND EXPENSES
- -------------------------------------
TRAINER, WORTHAM TOTAL RETURN BOND FUND
INVESTMENT OBJECTIVE The Fund's investment objective is to
seek to maximize total return,
consistent with the preservation of
capital.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in U.S.
Government and agency securities,
investment grade corporate bonds and
other fixed-income securities. The
Adviser seeks to produce conservative,
risk adjusted returns for the Fund. The
Adviser's securities selection process
involves strategic decision making which
considers portfolio sector composition,
maturity structure and duration. The
Adviser's management analyzes yield
ratios and implements a disciplined
process which is intended to preserve
principal, compound interest and produce
sustainable results over the course of a
full business cycle.
PRINCIPAL INVESTMENT RISKS The Fund is subject to both market risk
and interest rate risk. Therefore, the
value of the Fund's investments will
fluctuate with market conditions and
changes in interest rates and the value
of your investment in the Fund will also
vary. You could lose money on your
investment in the Fund, or the Fund
could underperform other investments. In
addition, the Fund may invest a portion
of its assets in foreign securities
which can carry additional risks such as
changes in currency exchange rates, a
lack of adequate company information and
political instability.
An investment in the Fund is not a
deposit of First Republic Bank, the
parent of the Fund's investment adviser,
and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or
any other government agency.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you
are:
- Looking to add an income component to
your portfolio
- Looking for a high-quality,
well-diversified, fixed-income
portfolio that provides the potential
for growth of your investment
- Willing to accept risks of price and
dividend fluctuations
This Fund will not be appropriate for
someone:
- Investing emergency reserves
- Seeking safety of principal
1
<PAGE> 27
TRAINER, WORTHAM FIRST MUTUAL FUND (CONTINUED)
- ----------------------------------------------
The chart and table on this page show how the Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance since its inception to demonstrate that the Fund has
both gained and lost value during its history. The table below it compares the
Fund's performance over time to that of its benchmark index the Lehman Brothers
Aggregate Bond Index.2
PERFORMANCE BAR CHART AND TABLE1
Year-by-Year Total Returns as of 12/31/98
[GRAPH]
The bar chart above does not reflect the impact of any applicable sales charges
or account fees which would reduce returns. Of course, past performance does not
indicate how the Fund will perform in the future.
- --------------------------------------------------------------------------------
Best quarter:
- --------------------------------------------------------------------------------
Worst quarter:
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1998)3
Past Year Since
Inception(4)
TRAINER, WORTHAM TOTAL
RETURN BOND FUND ____% ____%
LEHMAN BROTHERS ____% ____%
AGGREGATE BOND INDEX
The table assumes that shareholders redeem all their fund shares at the end of
the period indicated.
- ----------------
1 Both charts assume reinvestment of dividends and distributions.
2 A widely recognized, unmanaged index of bonds with maturities of at least one
year.
3 For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return for the Fund was ____% as compared to the ____%
total return for the Lehman Brothers Aggregate Bond Index during the same
period.
4 The Fund commenced operations on October 1, 1996.
2
<PAGE> 28
TRAINER, WORTHAM TOTAL RETURN BOND FUND (CONTINUED)
- ---------------------------------------------------
ANNUAL FEES AND EXPENSES
- ------------------------
<TABLE>
<CAPTION>
<S> <C>
This table describes the fees and Shareholder
expenses that you may pay if you buy Fees (fees
and hold shares of the Fund. paid directly from
your investment)
Maximum Sales
Charge (load)
on Purchases None
------------------------------------------------------------
Maximum Deferred
Sales Charge (load) None
Annual Fund
Operating
Expenses
(expenses that are
deducted from
Fund assets)
------------------------------------------------------------
Management Fees 0.45%
------------------------------------------------------------
Distribution and
Service (12b-1) Fee None
------------------------------------------------------------
Other Expenses 1.01%*
------------------------------------------------------------
Total Fund
Operating Expenses 1.46%*
------------------------------------------------------------
Fee Waiver and/or
Expense Reimbursement
0.26%*
------------------------------------------------------------
Net Expenses 1.20%*
------------------------------------------------------------
</TABLE>
* The Adviser has entered into an expense limitation agreement with the Fund
to limit the Total Fund Operating Expenses of the Fund to 1.20% of the
Fund's average daily net assets for its current fiscal year. Without this
expense limitation agreement, the Total Fund Operating Expenses for the
Fund would have been 1.46%.
3
<PAGE> 29
TRAINER, WORTHAM TOTAL RETURN BOND FUND (CONTINUED)
- ---------------------------------------------------
Expense Example
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
- reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
TRAINER, WORTHAM TOTAL 1 3 5 10
RETURN BOND FUND Year Years Years Years
---------------------------------------------------------------------
$--- $--- $--- $---
---------------------------------------------------------------------
4
<PAGE> 30
INVESTMENT OBJECTIVE AND STRATEGIES
TRAINER, WORTHAM TOTAL RETURN BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to maximize total
return, consistent with the preservation of capital.
POLICIES AND STRATEGIES
The Fund invests primarily in a wide variety of
investment-grade, U.S. dollar denominated fixed-income securities and in other
securities with debt-like characteristics of domestic and foreign issuers.
Consistent with the Fund's investment objective, the Fund:
- invests at least 65% of the value of its total assets in
fixed-income securities
- may invest in corporate notes, bonds and debentures that are
rated investment grade at the time of purchase
- may invest in U.S. Treasury securities including Treasury
bills, Treasury notes and Treasury bonds
- may invest in obligations issued or guaranteed by agencies
or instrumentalities of the U.S. Government
- may invest in mortgage-related securities including
securities issued by various U.S. Government agencies as
well as those issued by private issuers
- may invest in asset-backed securities
- may invest in municipal obligations issued by states,
territories and possessions of the U.S. and their political
subdivisions, agencies and instrumentalities
- may invest in zero coupon securities
- may invest in foreign government obligations and
supranational obligations
- may invest in U.S. dollar denominated obligations of foreign
corporate issuers
- may engage in repurchase transactions
- may invest in short-term money market instruments
The Fund maintains a non-fundamental investment policy
pursuant to which it limits its investments to those that are permitted for
purchase by national banks pursuant to applicable rules, regulations or
interpretations of the Comptroller of the Currency. In the event a security held
by the Fund is determined to no longer be a permissible investment for a
national bank, the Fund will dispose of the security.
5
<PAGE> 31
Portfolio Turnover. The annual rate of portfolio turnover is
not expected to exceed 100%. In general, the Adviser will not consider the rate
of portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Fund's objective.
In the event that the Adviser determines that market
conditions are not suitable for the Fund's typical investments, the Adviser may,
for temporary defensive purposes during such unusual market conditions, invest
all or any portion of the Fund's assets in money market instruments.
6
<PAGE> 32
INVESTMENT RISKS
- --------------------------------------------------------------------------------
Any investment in the Fund is subject to investment risks,
including the possible loss of the principal amount invested.
Generally, the Fund will be subject to the following risks:
- - MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performance per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
- - INTEREST RATE RISK: Interest rate risk refers to the risk that the value
of the Fund's fixed income securities can change in response to changes in
prevailing interest rates causing volatility and possible loss of value as
rates increase.
- - CREDIT RISK: Credit risk refers to the risk related to the credit quality
of the issuer of a security held in the Fund's portfolio. The Fund could
lose money if the issuer of a security is unable to meet its financial
obligations.
- - FOREIGN INVESTMENT RISK: The Fund may invest in foreign securities and
these foreign investments may have special risks not associated with
investments in U.S. issuers. These risks include international economic and
political developments, foreign government actions including restrictions
on payments to non-domestic persons such as the Fund, less regulation, less
information, currency fluctuations and interruptions in currency flow.
Investments in foreign issues may also entail additional and higher costs.
- - YEAR 2000 RISK: Like other funds and business organizations around the
world, the Fund could be affected adversely if the computer systems used by
the Adviser and the Fund's other service providers do not properly process
and calculate date related information for the year 2000 and beyond. In
addition, Year 2000 issues may adversely affect issuers in which the Fund
invests where, for example, such issuers incur substantial costs to address
Year 2000 issues or suffer losses caused by the failure to do so
adequately, and in a timely manner. The Fund has been informed that the
Adviser and the Fund's other service providers have developed and are
implementing clearly defined and documented plans intended to minimize
risks associated with Year 2000 issues with regard to services critical to
the Fund's operations. In the event that any systems upon which the Funds
are dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur. While the
ultimate costs or consequences of incomplete or untimely resolution of Year
2000 issues by the Adviser or the Fund's service providers cannot be
assessed accurately at this time, the Fund currently has no reason to
believe that the Year 2000 plans of the Adviser and the Fund's service
providers will not be completed by December 31, 1999, or that the
anticipated costs associated with full implementation of their plans will
have a material adverse impact on either their business operations or the
financial condition of the Fund.
7
<PAGE> 33
SHAREHOLDER INFORMATION
-----------------------
PRICING OF FUND SHARES
- ----------------------
How NAV is Calculated
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
The net asset value per share of the Fund is determined at the time trading
closes on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern
Standard Time, Monday through Friday), except on business holidays when the NYSE
is closed. The NYSE recognizes the following holidays: New Year's Day,
President's Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Fourth
of July, Labor Day, Thanksgiving Day, and Christmas Day. Any other holiday
recognized by the NYSE will be considered a business holiday on which the net
asset value of the Fund will not be calculated.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund. This is what is known as
the offering price.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
You may purchase the Fund through the Distributor or through investment
representatives, who may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If you
purchase shares through an investment representative, that party is responsible
for transmitting orders by close of business and may have an earlier cut-off
time for purchase and sale requests. Consult your investment representative for
specific information.
The minimum initial investment in the Fund is $250. Subsequent investments must
be at least $50. First Data Distributors, Inc. (the "Distributor") acts as
Distributor of the Fund's shares. Shares of the Fund are offered continuously
for purchase at the net asset value per share of the Fund next determined after
a purchase order is received. Investors may purchase shares of the Fund by check
or wire, as described below.
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted without prior approval by the
Fund.
The Fund or the Adviser may waive its minimum purchase requirement, or the
Distributor may reject a purchase order, if it is deemed to be in the best
interest of the Fund and its shareholders.
8
<PAGE> 34
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
By Regular Mail
Initial Investment:
1. Carefully read and complete the application.
2. Make check, certified check or money order payable to "Trainer, Wortham Total
Return Bond Fund."
3. Mail to: Trainer, Wortham First Mutual Funds, c/o First Data Investor
Services Group, P.O. Box 61503, King of Prussia, Pennsylvania, 19406.
Subsequent Investment:
1. Subsequent investments should be made by check payable to the Fund and mailed
to:
Trainer, Wortham First Mutual Funds
c/o First Data Investor Services Group
P. O. Box 61767
King of Prussia, PA 19406
By Wire Transfer
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment: Before wiring funds, you should call 1-800-441-6580 to
receive an account number. Follow the instructions below after receiving your
account number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Boston Safe Deposit & Trust
Routing Number: ABA #011001234
Account #000159
Name of the Fund
Shareholder Account #
Name on the Account
Mail a completed account application to First Data Investor Services Group at
the above address.
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund. Normally you will receive your
proceeds within 7 business days after your request is received. See section on
"General Policies on Selling Shares" below.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR
FUND INVESTMENT
A request for a withdrawal in cash from the Fund constitutes a redemption or
sale of shares for a mutual fund shareholder.
- --------------------------------------------------------------------------------
9
<PAGE> 35
INSTRUCTIONS FOR SELLING SHARES
By telephone (unless you have declined sales privileges) By mail
By Wire transfer You must indicate this option on your application.
The Fund may charge a wire transfer fee of $9.00 per transaction. Note: Your
financial institution may also charge a separate fee.
1. Call 1-800-441-6580 with instructions as to how you wish to telephone receive
your funds (mail, wire, electronic transfer).
Write a letter of instruction indicating:
- - your Fund and account number
- - amount you wish to redeem
- - address where your check should be sent
- - account owner signature(s)
Mail to:
TRAINER WORTHAM FIRST MUTUAL FUNDS
c/o First Data Investor Services Group
P.O. Box 61503
King of Prussia, PA 19406
Call 1-800-441-6580 to request a wire transfer.
If you call by 4 p.m. Eastern Standard Time, your payment will normally be wired
to your bank on the next business day.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Circumstances under which redemption requests require a signature guarantee
include, but may not be limited to, each of the following:
- Redemptions over $10,000
- Your account registration or the name(s) on your account has changed
within the last 15 days
- The check is not being mailed to the address on
your account
- The check is not being made payable to the owner of the
account
- The redemption proceeds are being transferred to another Fund
account with a different registration
A signature guarantee can be obtained from a financial institution,
such as a bank, broker-dealer, credit union, clearing agency, or savings
association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders.
10
<PAGE> 36
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(a redemption fee of more than 1% of the Fund's net assets). If the Fund deems
it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, the Fund may ask you to increase your balance.
If it is still below $250 after 60 days, the Fund may close your account and
send you the proceeds at the then current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund.
11
<PAGE> 37
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in one Fund for shares of another Trainer Wortham
Fund. No transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by calling 1-800-441-6580. Please provide the following
information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
Please refer to "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
- - The registration and tax identification numbers of the two accounts
must be identical.
- - The Exchange Privilege (including automatic exchanges) may be changed
or eliminated at any time upon a 60-day notice to shareholders.
The following special services are available to shareholders. An investor may
change or stop these services at any time by written notice to the Fund.
AUTOMATIC INVESTMENT PLAN
The Fund has an Automatic Investment Plan which provides shareholders with a
convenient method by which investors may have amounts deducted directly from
their checking accounts for investment in the Fund. The minimum initial and
subsequent investments for the Fund also apply when using this method of
investing. To begin participating in this Plan, use the Automatic Investment
Plan Application found in the back of this Prospectus.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Fund has a Systematic Withdrawal Plan which provides for voluntary automatic
withdrawals of at least $50 monthly, quarterly, semi-annually or annually.
Shareholders who purchase or already own $5,000 or more of Fund shares valued at
the current public offering price, and who wish to receive periodic payments may
establish a Systematic Withdrawal Plan. In order to qualify for this option,
dividends and capital gains must be reinvested.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of dividends is paid out, less
expenses, to its shareholders. Income dividends and capital gains distributions
on the Fund are usually paid annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
12
<PAGE> 38
Dividends are taxable as ordinary income. Taxation on capital gains
distributions will vary with the length of time the Fund has held the security -
not how long the shareholder has been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement in the following year.
You will be notified in January of each year about the federal tax status of
distributions made by the Fund. Depending on your state of residence,
distributions also may be subject to state and local taxes, including
withholding taxes. There is a penalty on certain pre-retirement distributions
from retirement accounts. Consult your tax adviser about the federal, state and
local tax consequences in your particular circumstances.
Foreign shareholders may be subject to special withholding requirements.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Trainer, Wortham & Co., Inc., (the "Adviser"), with offices at 845 Third Avenue,
New York, NY 10022 and 111 Pine Street, San Francisco, CA 94111 is the Fund's
Investment Adviser and manager and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended.
The Adviser, organized in 1998, continues an investment counseling business
which began in 1924 as Trainer & Associates. The Adviser supervises
approximately $___billion in investment accounts and is a wholly owned
subsidiary of First Republic Bank. First Republic Bank is a commercial bank
headquartered at 111 Pine Street, San Francisco, California 94111, which is
engaged in general banking business and provides private banking services. First
Republic Bank has offices in California, Nevada and New York City and has
approximately $___ billion in assets as of October 31, 1999.
Pursuant to an Investment Advisory Agreement with the Trust on behalf of the
Fund, the Adviser receives an annual fee, accrued daily and paid monthly, of
0.45% of the Fund's average daily net assets.
Subject to the general supervision of the Board of Trustees, and in accordance
with the Fund's investment objectives, policies, and restrictions, the Adviser
manages the Fund's investment portfolio, makes decisions with respect to and
places orders for all purchases and sales of the portfolio securities.
PORTFOLIO MANAGER
John D. Knox serves as portfolio manager of the Fund and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Knox
joined the Adviser in December 1995 and serves as Managing Director of Fixed
Income. Prior to joining the Adviser, Mr. Knox served as Director of Global
Fixed Income and Managing Director from 1994 - 1995 for Bear Stearns Asset
13
<PAGE> 39
Management and Bear Stearns, respectively. For more than 11 years prior thereto,
Mr. Knox was a principal and Senior Portfolio Manager at Morgan Stanley Asset
Management.
The Statement of Additional Information has more detailed information about the
Adviser.
THE DISTRIBUTOR AND ADMINISTRATOR
First Data Distributors, Inc., 4400 Computer Drive, Westborough, Massachusetts
01581, serves as principal underwriter to the Trust pursuant to an Underwriting
Agreement.
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly
owned subsidiary of First Data Corporation, serves as Administrator to the Trust
pursuant to an Administration Agreement. The principal business address of
Investor Services Group is 4400 Computer Drive, Westborough, MA 01581.
14
<PAGE> 40
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since its inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). The information
has been audited by Briggs, Bunting & Dougherty LLP, whose report, along with
the Fund's financial statements, are included in the annual report of the Fund,
which is available upon request.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1999 1998 1997(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period................... $ 10.25 $ 10.08 $ 10.00
------- ------- -------
Income from investment operations
Net investment income .............................. 0.47 0.52 0.41
Net gains (losses) on securities (both realized and
unrealized)......................................... (0.18) 0.25 0.08
------- ------- -------
Total from investment operations....................... 0.29 0.77 0.49
------- ------- -------
Less distributions
Dividends from net investment income................ (0.47) (0.53) (0.40)
Distributions from capital gains.................... (0.11) (0.07) 0.00
Distributions in excess of capital gains............ 0.00 0.00 (0.01)
------- ------- --------
Total distributions.................................... 0.58 (0.60) (0.41)
------- ------- --------
Net asset value, end of period......................... $ 9.96 $ 10.25 $ 10.08
======= ======= ========
Total return .......................................... 2.80% 7.84% 4.90%+
Ratios/supplemental data
Net assets, end of period (in 000s).................... $16,926 $11,976 $ 8,479
Ratio of expenses to average net assets
before reimbursement of expenses by Adviser......... 1.46% 1.68% 2.01%*
after reimbursement of expenses by Adviser.......... 1.20% 1.20% 0.88%*
Ratio of net investment income (loss) to
average net assets
before reimbursement of expenses by Adviser......... 4.55% 4.86% 4.53%
after reimbursement of expenses by Adviser.......... 4.81% 5.34% 5.66%*
Portfolio turnover rate................................ 57% 83% 112%+
</TABLE>
(1) The Fund commenced operations on October 1, 1996.
+ Since inception, not annualized.
* Annualized.
15
<PAGE> 41
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING THE FUND AT:
TRAINER, WORTHAM FIRST MUTUAL FUNDS
C/O TRAINER WORTHAM
111 PINE STREET, 3RD FLOOR
SAN FRANCISCO, CA 94111
TELEPHONE: 1-800-257-4450
- --------------------------------------------------------------------------------
You can review the Funds' reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
- For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-879.
16
<PAGE> 42
TRAINER WORTHAM FUNDS
TRAINER WORTHAM TOTAL RETURN BOND FUND
THIS IS YOUR
INVESTMENT APPLICATION
Detach and mail to:
FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 61503
KING OF PRUSSIA, PA 19406-0903
<PAGE> 43
TRAINER WORTHAM FUNDS INVESTMENT APPLICATION
1. INITIAL FUND INVESTMENT
Please indicate the amount you are investing in the fund. The minimum initial
investment is $250 for the fund.
Trainer Wortham Total Return Bond Fund $
------------------
2. INITIAL INVESTMENT METHOD
[ ] Check (made payable to the fund)
[ ] Wire sent on (date) _____________ for credit to account no. ____________*
*Before making an initial investment by wire, you must be assigned an account
number by calling (800) 441-6580. Have your local bank wire fund to:
Boston Safe Deposit & Trust
ABA#011001234
Credit: Trainer Wortham Total Return Bond Fund
Act #000159
FBO (Insert Shareholder name & account number)
---------------
3. REGISTRATION AND SOCIAL SECURITY NUMBER (PLEASE PRINT)
INDIVIDUAL OR JOINT ACCOUNT:
-----------------------------------------------------------------------------
Owner's First Name Middle Initial Last Name Owner's Social Security #
-----------------------------------------------------------------------------
Joint Owner's First Name Middle Initial Last Name
-----------------------------------------------------------------------------
Joint Owner's Social Security #
GIFT TO MINOR
-----------------------------------------------------------------------------
Name of Custodian (one name only)
-----------------------------------------------------------------------------
Name of Minor Minor's Social Security #
Under the _________________________ Uniform Gift/Transfer to
Minors Act State
CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS (Complete attached Corporate
Resolution)
-----------------------------------------------------------------------------
Name of Corporation, Partnership, Trust or Other
-----------------------------------------------------------------------------
Name of Trustee(s) Date of Trust Tax Identification No.
4. MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S)
-----------------------------------------------------------------------------
Street Address & Apt. No. City State Zip
( ) ( )
----------------------------------- --------------------------------
Day Telephone Evening Telephone
5. DISTRIBUTION OPTIONS (All distributions will be reinvested unless otherwise
indicated below.)
[ ] Reinvest (dividends and capital gains in additional shares)
[ ] Cash Dividends (dividends in cash, capital gains in additional shares)
[ ] All Cash (dividends and capital gains in cash)
<PAGE> 44
6. SYSTEMATIC WITHDRAWAL PLAN (minimum initial investment of $5,000 is required)
I wish to have the following amount(s) systematically withdrawn from:
Trainer Wortham Total Return Bond Fund $
---------------------
Please indicate the frequency of withdrawal, and if other than monthly, the
desired months. Liquidations take place on or about the 25th of the month.
[ ] Monthly
[ ] Quarterly__________, ___________, _____________ and______________
[ ] Semi annually_______________ and_______________
[ ] Annually
Unless indicated otherwise in Section 8, a check will be sent to your address
of record.
7. TELEPHONE PRIVILEGE
[ ] I (We) authorize First Data Investor Services Group, Inc. And/or Trainer
Wortham Funds to act upon instructions received by telephone from me (us)
to redeem shares or to exchange for shares of other Trainer Wortham
Funds. I (We) understand an exchange is made by redeeming shares of one
fund and using the proceeds to buy shares of another fund. Exchanges must
be made into identically registered accounts. Redemption proceeds will be
sent as indicated in this prospectus.
If not otherwise indicated below, only exchanges will be allowed.
[ ] Redemption [ ] Exchange [ ] Both
8. REDEMPTIONS
(Unless otherwise indicated below, all redemptions will be sent by check.)
[ ] All redemption proceeds should be executed by an ACH transaction unless
First Data Investor Services Group, Inc. is notified in writing. There is
no charge for ACH transactions.
Allow 3 business days.
[ ] All redemptions proceeds should be executed by FED wire transaction
unless First Data Investor Services Group, Inc. is notified in writing.
There is a $9 charge for FED wire transactions.
All FED wire and ACH transactions will be sent as indicated below. Please
allow one month for ACH instructions to become effective. Any changes in
these instructions must be made in writing with signature guarantees as
described in the prospectus.
*Please notify your bank of your intent to establish this option on your
account.
*ATTACH A VOIDED CHECK OR DEPOSIT SLIP.
-----------------------------------------------------------------------------
Bank Name Branch Office
-----------------------------------------------------------------------------
Bank Address
-----------------------------------------------------------------------------
Bank Wire Routing Number Account Number
-----------------------------------------------------------------------------
Name(s) on Bank Account
9. SIGNATURE AND CERTIFICATION
(Required by Federal tax law to avoid backup withholding.)
"By signing below, I certify under penalty of perjury that the social
security or tax payer identification number entered above is correct (or I
am waiting for a number to be issued to me), and that I have not been
notified by the IRS that I am subject to backup withholding unless I have
checked the box." If you have been notified by the IRS that you are subject
to backup withhold, check box. [ ]
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certificates required to avoid backup
withholding.
"I hereby acknowledge receipt of a current prospectus."
----------------------------------------------------------------------------
Signature [ ] Owner [ ] Custodian [ ] Trustee Date
----------------------------------------------------------------------------
Signature of Joint Owner (if applicable) Date
10. INVESTMENT DEALER INFORMATION
----------------------------------------------------------------------------
Name of Firm
----------------------------------------------------------------------------
Firm Address
----------------------------------------------------------------------------
Rep Name & Number
----------------------------------------------------------------------------
Signature
<PAGE> 45
THIS SECTION TO BE COMPLETED BY CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS
RESOLUTIONS
RESOLVED: That this corporation or organization become a shareholder of Trainer
Wortham Total Return Bond Fund (the "Trust") and that
- --------------------------------------------------------------------------------
(Name(s) of officers)
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and take any action for it as may be necessary
or appropriate with respect to its shareholder account(s) with the Trust, and it
is FURTHER RESOLVED: That any one of the above-noted officers is authorized to
sign any documents necessary or appropriate to appoint First Data Investor
Services Group, Inc. as redemption agent of the corporation or organization for
shares of the Trust, to establish or acknowledge terms and conditions governing
the redemption of said shares or to otherwise implement the privileges elected
on the application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the____________________
_______________________________________ incorporated or formed under the laws of
(Name of Corporation/Organization)
_________________________ and were adopted at a meeting of the Board of Trustees
(State)
of the corporation or organization duly called and held on ____________________
(Date)
at which a quorum was present and acting throughout, and that the same are now
in full force and effect.
I further certify that the following is (are) the duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title Name Title
__________________________________ _____________________________________
__________________________________ _____________________________________
Witness my hand and the seal of the corporation or organization this
___________ day of ___________ , 19__.
_____________________________________ ______________________________________
*Secretary-Clerk Other Authorized Officer (if required)
*If the secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE> 46
TRAINER WORTHAM FUNDS
AUTOMATIC INVESTMENT PLAN APPLICATION
First Data Investor Services Group, Inc., P.O. Box 61503, King of Prussia, PA
19406-0903 (610) 239-4500
INSTRUCTIONS
HOW DOES IT WORK?
1. First Data Investor Services Group, Inc., through our bank, UMB Bank N.A.,
draws an Automatic Clearing House (ACH) debit electronically against your
personal checking/savings account each month, according to your instructions.
2. Choose any amount of $50.00 or more that you would like to invest regularly
and your debit for this amount will be processed by First Data Investor
Services Group, Inc., as if you had written a check yourself.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete both sides of this form, and the Investment Application form if you
do not have an existing account.
2. Include initial investment check of $250.00 or more if you are establishing a
new account.
3. If you are using a Credit Union, please have your financial institution
verify the bank information.
4. Mark one of your personal checks or deposit slips VOID, attach it to this
form and mail to First Data Investor Services Group, Inc. at the above
address.
5. As soon as your bank accepts your authorization, debits will be generated and
your Automatic Investment Plan started. In order for you to have Automatic
Clearing House (ACH) debits from your account, your bank must be able to
accept ACH transactions and/or be a member of an ACH association. Your bank
manager should be able to tell you your bank's capabilities. We cannot
guarantee acceptance by your bank.
6. Please allow one month for processing before the first debit occurs.
7. Returned items will result in a $20.00 fee being deducted from your account.
MONTHLY WITHDRAWAL AMOUNT AND DATE
Please indicate amount you would like invested monthly. The minimum amount for
monthly investment is $50.
[ ] Trainer Wortham Total Return Bond Fund $___________________________
Date of Withdrawal: (check only one) [ ] 10th [ ] 15th [ ] 20th
ACCOUNT INFORMATION
Indicate One: [ ] I am in the process of establishing a new account
[ ] I have an established account. My account number is:__________
________________________________________________________________________________
Registered Owner
________________________________________________________________________________
Street Address
________________________________________________________________________________
City State Zip Code
________________________________________________________________________________
Day Time Phone Number Evening Phone Number
BANK INFORMATION
Complete the following or attach a voided check below. If you are using a Credit
Union account, please complete this section and have your financial institution
verify the information.
________________________________________________________________________________
Bank Account Owner Joint Owner
________________________________________________________________________________
Bank Name
________________________________________________________________________________
Bank Branch Street Address
________________________________________________________________________________
City State Zip Code
- --------------------------------------------------------------------------------
ABA Number (9 digits) Account Number
Type of Account: [ ] Checking [ ] Savings
AUTHORIZATION AND SIGNATURE
I understand that my ACH debit will be dated on the day of each month I have
indicated on this form. I agree that if such a debit is not honored upon
presentation, First Data Investor Services Group, Inc. may discontinue this
service and any share purchase made upon deposit on such debit may be canceled.
I further agree that if the net asset value of the shares purchased with such
debit is less when said purchase is canceled than when the purchase was made,
First Data Investor Services Group, Inc. shall be authorized to liquidate other
shares or fractions thereof held in my account to make up the deficiency. This
Automatic Investment Plan may be discontinued by First Data Investor Services
Group, Inc. upon 30 days written notice or at any time by the investor by
written notice to First Data Investor Services Group, Inc. which is received no
later than five (5) business days prior to the above designated investment date.
________________________________________________________________________________
SIGNATURE OF BANK ACCOUNT OWNER
________________________________________________________________________________
SIGNATURE OF JOINT BANK ACCOUNT OWNER
<PAGE> 47
- --------------------------------------------------------------------------------
TRAINER, WORTHAM FIRST MUTUAL FUNDS
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
November 1, 1999
- --------------------------------------------------------------------------------
Investment Adviser
------------------
Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, New York 10022
Telephone: (800) 257-4450
Neither the Securities and Exchange Commission nor any other regulatory body has
approved the securities being offered by this prospectus or determined whether
this prospectus is accurate and complete. It is unlawful for anyone to make any
representation to the contrary.
<PAGE> 48
TRAINER, WORTHAM FIRST MUTUAL FUNDS
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
TABLE OF CONTENTS
-----------------
RISK/RETURN SUMMARY AND FUND EXPENSES
1 RISK/RETURN SUMMARY
2 ANNUAL FEES AND EXPENSES
CAREFULLY REVIEW THIS IMPORTANT SECTION FOR A SUMMARY OF THE FUND'S
INVESTMENTS, RISKS AND FEES.
INVESTMENT OBJECTIVE AND STRATEGIES
4 INVESTMENT OBJECTIVE
4 POLICIES AND STRATEGIES
5 INVESTMENT RISKS
THIS SECTION CONTAINS DETAILS ON THE FUND'S INVESTMENT STRATEGIES AND
RISKS.
SHAREHOLDER INFORMATION
6 PRICING OF FUND SHARES
6 PURCHASING AND ADDING TO YOUR SHARES
7 SELLING YOUR SHARES
10 EXCHANGING YOUR SHARES
10 DIVIDENDS, DISTRIBUTIONS AND TAXES
CONSULT THIS SECTION TO OBTAIN DETAILS ON HOW SHARES ARE VALUED, HOW TO
PURCHASE, SELL AND EXCHANGE SHARES, RELATED CHARGES AND PAYMENTS OF
DIVIDENDS AND DISTRIBUTIONS.
FUND MANAGEMENT
11 THE INVESTMENT ADVISER
11 PORTFOLIO MANAGER
12 THE DISTRIBUTOR AND ADMINISTRATOR
REVIEW THIS SECTION FOR DETAILS ON THE PEOPLE AND ORGANIZATIONS WHO
OVERSEE THE FUND.
FINANCIAL HIGHLIGHTS
13 FINANCIAL HIGHLIGHTS
REVIEW THIS SECTION FOR DETAILS ON THE SELECTED FINANCIAL STATEMENTS OF
THE FUND.
<PAGE> 49
RISK/RETURN SUMMARY AND FUND EXPENSES
- -------------------------------------
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
INVESTMENT OBJECTIVE The Fund's investment objective is to
obtain as high a level of interest
income exempt from federal income tax
and California personal income tax as is
consistent with prudent investment
management.
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in California
municipal securities that generally have
3 to 20 years remaining to maturity at
the time of acquisition. The
dollar-weighted average portfolio
maturity of the Fund is expected to
range from 3 to 10 years. The Fund
restricts its investments in municipal
securities to those within or of a
quality comparable to the four highest
rating classifications of Moody's
Investor Services, Inc. ("Moody's") or
Standard & Poor's Rating Group ("S&P").
PRINCIPAL INVESTMENT RISKS The Fund is subject to both market risk
and interest rate risk. Therefore, the
value of the Fund's investments will
fluctuate with market conditions and
changes in interest rates and the value
of your investment in the Fund will also
vary. You could lose money on your
investment in the Fund, or the Fund
could underperform other investments. In
addition, the Fund is considered
"non-diversified" because it can
concentrate its investments in those of
California municipal issuers, and
accordingly, the Fund is more sensitive
to the risks posed by political and
economic developments in the State of
California.
An investment in the Fund is not a
deposit of First Republic Bank, the
parent of the Fund's investment adviser,
and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or
any other government agency.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you
are:
- Looking to add income component to
your portfolio
- Willing to accept risks of price and
dividend fluctuations
This Fund will not be appropriate for
someone:
- Investing emergency reserves
- Seeking safety of principal
1
<PAGE> 50
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND (CONTINUED)
- ------------------------------------------------------------------
ANNUAL FEES AND EXPENSES
- ------------------------
<TABLE>
<CAPTION>
<S> <C>
This table describes the fees and Shareholder
expenses that you may pay if you buy Fees (fees
and hold shares of the Fund. paid directly from
your investment)
Maximum Sales
Charge (load)
on Purchases None
---------------------------------------------------
Maximum Deferred
Sales Charge (load) None
Annual Fund
Operating
Expenses
(expenses that are
deducted from
Fund assets)
---------------------------------------------------
Management Fees 0.45%
---------------------------------------------------
Distribution and
Service (12b-1) Fee None
---------------------------------------------------
Other Expenses 0.81%*
---------------------------------------------------
Total Fund
Operating Expenses 1.26%*
---------------------------------------------------
Fee Waiver and/or
Expense
Reimbursement 0.51%*
---------------------------------------------------
Net Expenses 0.75%*
---------------------------------------------------
</TABLE>
* The Adviser has entered into an expense limitation agreement with the Fund
to limit the "Total Fund Operating Expenses" of the Fund to 0.75% of the
Fund's average daily net assets for its current fiscal year. The amount
presented for "Other Expenses" is based on estimated amounts for the Fund's
current fiscal year.
2
<PAGE> 51
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND (CONTINUED)
- ------------------------------------------------------------------
Expense Example
Use this table to compare fees and expenses with those of other Funds. It
illustrates the amount of fees and expenses you would pay, assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
- reinvestment of dividends and distributions
Because this example is hypothetical and for comparison purposes only, your
actual costs will be different.
TRAINER, WORTHAM
CALIFORNIA INTERMEDIATE 1 3
TAX-FREE FUND Year Years
-------------------------------------------------
$--- $---
-------------------------------------------------
3
<PAGE> 52
INVESTMENT OBJECTIVE AND STRATEGIES
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to obtain as high a
level of interest income exempt from federal income tax and California personal
income tax as is consistent with prudent investment management.
POLICIES AND STRATEGIES
The Fund invests primarily in debt securities, the interest
income on which is not includable in gross income for federal income tax
purposes and is also exempt from California personal income taxes. These
securities generally have 3 to 20 years remaining to maturity at the time of
acquisition and the dollar-weighted average portfolio maturity of the Fund is
expected to range from 3 to 10 years.
Consistent with the Fund's investment objective, the Fund:
- invests at least 80% of the value of its net assets in
California municipal securities, the interest on which is
exempt from federal income tax and California personal
income tax
- may invest in the following types of municipal
obligations: general obligation bonds; revenue bonds;
tax-exempt notes; tax and revenue anticipation notes; bond
anticipation notes and municipal lease obligations
- may invest in municipal obligations issued by other
states, territories and possessions of the U.S. and their
political subdivisions, agencies and instrumentalities
- restricts its municipal securities investments to those
within or of a comparable quality to the four highest
rating classifications of Moody's Investors Service, Inc.
("Moody's") or the Standard & Poor's Ratings Group ("S&P")
- may engage in repurchase transactions
- may lend securities to qualified brokers, dealers or other
institutional investors
- may purchase securities on a when - issued or a delayed
delivery basis
- may invest in short-term money market instruments and
shares of registered investment companies
Portfolio Turnover. The annual rate of portfolio turnover is
not expected to exceed 100%. In general, the Adviser will not consider the rate
of portfolio turnover to be a limiting factor in determining when or whether to
purchase or sell securities in order to achieve the Fund's objective.
In the event that the Adviser determines that market
conditions are not suitable for the Fund's typical investments, the Adviser may,
for temporary defensive purposes during such unusual market conditions, invest
all or any portion of the Fund's assets in money market instruments.
4
<PAGE> 53
INVESTMENT RISKS
- --------------------------------------------------------------------------------
Any investment in the Fund is subject to investment risks,
including the possible loss of the principal amount invested.
Generally, the Fund will be subject to the following risks:
- - MARKET RISK: Market risk refers to the risk related to investments in
securities in general and the daily fluctuations in the securities markets.
The Fund's performance per share will change daily based on many factors,
including fluctuation in interest rates, the quality of the instruments in
the Fund's investment portfolio, national and international economic
conditions and general market conditions.
- - INTEREST RATE RISK: Interest rate risk refers to the risk that the value
of the Fund's fixed income securities can change in response to changes in
prevailing interest rates causing volatility and possible loss of value as
rates increase.
- - CREDIT RISK: Credit risk refers to the risk related to the credit quality
of the issuer of a security held in the Fund's portfolio. The Fund could
lose money if the issuer of a security is unable to meet its financial
obligations.
- - SINGLE STATE INVESTMENT RISK: Because the Fund invests primarily in the
securities of California municipal issuers, it is specifically subject to
local, state and regional factors affecting the State of California,
including economic and political developments.
- - YEAR 2000 RISK: Like other funds and business organizations around the
world, the Fund could be affected adversely if the computer systems used by
the Adviser and the Fund's other service providers do not properly process
and calculate date related information for the year 2000 and beyond. In
addition, Year 2000 issues may affect adversely those issuers in which the
Fund invests where, for example, such issuers incur substantial costs to
address Year 2000 issues or suffer losses caused by the failure to do so
adequately, and in a timely manner. The Fund has been informed that the
Adviser and the Fund's other service providers have developed and are
implementing clearly defined and documented plans intended to minimize
risks associated with Year 2000 issues with regard to services critical to
the Fund's operations. In the event that any systems upon which the Fund is
dependent are not Year 2000 ready by December 31, 1999, administrative
errors and account maintenance failures would likely occur. While the
ultimate costs or consequences of incomplete or untimely resolution of Year
2000 issues by the Adviser or the Fund's service providers cannot be
assessed accurately at this time, the Fund currently has no reason to
believe that the Year 2000 plans of the Adviser and the Fund's service
providers will not be completed by December 31, 1999, or that the
anticipated costs associated with full implementation of their plans will
have a material adverse impact on either their business operations or the
financial condition of the Fund.
5
<PAGE> 54
SHAREHOLDER INFORMATION
-----------------------
PRICING OF FUND SHARES
- ----------------------
How NAV is Calculated
The NAV is calculated by adding the total value of the Fund's investments and
other assets, subtracting its liabilities and then dividing that figure by the
number of outstanding shares of the Fund:
NAV =
Total Assets - Liabilities
--------------------------
Number of Shares
Outstanding
The net asset value per share of the Fund is determined at the time trading
closes on the New York Stock Exchange ("NYSE") (currently 4:00 p.m., Eastern
Standard Time, Monday through Friday), except on business holidays when the NYSE
is closed. The NYSE recognizes the following holidays: New Year's Day,
President's Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Fourth
of July, Labor Day, Thanksgiving Day, and Christmas Day. Any other holiday
recognized by the NYSE will be considered a business holiday on which the net
asset value of the Fund will not be calculated.
Your order for purchase, sale or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund. This is what is known as
the offering price.
The Fund's securities are generally valued at current market prices. If market
quotations are not available, prices will be based on fair value as determined
by the Fund's Trustees.
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
You may purchase the Fund through the Distributor or through investment
representatives, who may charge additional fees and may require higher minimum
investments or impose other limitations on buying and selling shares. If you
purchase shares through an investment representative, that party is responsible
for transmitting orders by close of business and may have an earlier cut-off
time for purchase and sale requests. Consult your investment representative for
specific information.
The minimum initial investment in the Fund is $250. Subsequent investments must
be at least $50. First Data Distributors, Inc. (the "Distributor") acts as
Distributor of the Fund's shares. Shares of the Fund are offered continuously
for purchase at the net asset value per share of the Fund next determined after
a purchase order is received. Investors may purchase shares of the Fund by check
or wire, as described below.
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted without prior approval by the
Fund.
The Fund or the Adviser may waive its minimum purchase requirement, or the
Distributor may reject a purchase order, if it is deemed to be in the best
interest of the Fund and its shareholders.
6
<PAGE> 55
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
By Regular Mail
Initial Investment:
1. Carefully read and complete the application.
2. Make check, certified check or money order payable to "Trainer, Wortham
California Intermediate Tax-Free Fund."
3. Mail to: Trainer, Wortham First Mutual Funds, c/o First Data Investor
Services Group, P.O. Box 61503, King of Prussia, Pennsylvania, 19406.
Subsequent Investment:
1. Subsequent investments should be made by check payable to the Fund and mailed
to:
Trainer, Wortham First Mutual Funds
c/o First Data Investor Services Group
P. O. Box 61767
King of Prussia, PA 19406
By Wire Transfer
NOTE: YOUR BANK MAY CHARGE A WIRE TRANSFER FEE.
For initial investment: Before wiring funds, you should call 1-800-441-6580 to
receive an account number. Follow the instructions below after receiving your
account number.
For initial and subsequent investments:
Instruct your bank to wire transfer your investment to:
Boston Safe Deposit & Trust
Routing Number: ABA #011001234
Account #000159
Name of the Fund
Shareholder Account #
Name on the Account
Mail a completed account application to First Data Investor Services Group at
the above address.
SELLING YOUR SHARES
- -------------------
You may sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund. Normally you will receive your
proceeds within 7 business days after your request is received. See section on
"General Policies on Selling Shares" below.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR
FUND INVESTMENT
A request for a withdrawal in cash from the Fund constitutes a redemption or
sale of shares for a mutual fund shareholder.
- --------------------------------------------------------------------------------
7
<PAGE> 56
INSTRUCTIONS FOR SELLING SHARES
By telephone (unless you have declined telephone sales privileges) By mail
By Wire transfer You must indicate this option on your application.
The Fund may charge a wire transfer fee of $9.00 per transaction.
Note: Your financial institution may also charge a separate fee.
1. Call 1-800-441-6580 with instructions as to how you wish to receive your
funds (mail, wire, electronic transfer).
Write a letter of instruction indicating:
- - your Fund and account number
- - amount you wish to redeem
- - address where your check should be sent
- - account owner signature(s)
Mail to:
TRAINER WORTHAM FIRST MUTUAL FUNDS
c/o First Data Investor Services Group
P.O. Box 61503
King of Prussia, PA 19406
Call 1-800-441-6580 to request a wire transfer.
If you call by 4 p.m. Eastern Standard Time, your payment will normally be wired
to your bank on the next business day.
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. Redemptions from Individual Retirement Accounts ("IRAs").
2. Circumstances under which redemption requests require a signature guarantee
include, but may not be limited to, each of the following:
- Redemptions over $10,000
- Your account registration or the name(s) on your account has changed
within the last 15 days
- The check is not being mailed to the address on your account
- The check is not being made payable to the owner of the account
- The redemption proceeds are being transferred to another Fund account
with a different registration
A signature guarantee can be obtained from a financial institution,
such as a bank, broker-dealer, credit union, clearing agency, or savings
association.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Given these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders.
8
<PAGE> 57
REDEMPTIONS WITHIN 10 DAYS OF INITIAL INVESTMENT
When you have made your initial investment by check, you cannot redeem any
portion of it until the Transfer Agent is satisfied that the check has cleared
(which may require up to 10 business days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission in order to protect
remaining shareholders.
REDEMPTION IN KIND
The Fund reserves the right to make payment in securities rather than cash,
known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(a redemption fee of more than 1% of the Fund's net assets). If the Fund deems
it advisable for the benefit of all shareholders, redemption in kind will
consist of securities equal in market value to your shares. When you convert
these securities to cash, you will pay brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, the Fund may ask you to increase your balance.
If it is still below $250 after 60 days, the Fund may close your account and
send you the proceeds at the then current NAV.
UNDELIVERABLE REDEMPTION CHECKS
For any shareholder who chooses to receive distributions in cash:
If distribution checks (1) are returned and marked as "undeliverable" or (2)
remain uncashed for six months, your account will be changed automatically so
that all future distributions are reinvested in your account. Checks that remain
uncashed for six months will be canceled and the money reinvested in the Fund.
9
<PAGE> 58
EXCHANGING YOUR SHARES
- ----------------------
You can exchange your shares in one Fund for shares of another Trainer Wortham
Fund. No transaction fees are charged for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges may be made by calling 1-800-441-6580. Please provide the following
information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares to be exchanged
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
Please refer to "Selling your Shares" for important information about telephone
transactions.
NOTES ON EXCHANGES
- - The registration and tax identification numbers of the two accounts
must be identical.
- - The Exchange Privilege (including automatic exchanges) may be changed
or eliminated at any time upon a 60-day notice to shareholders.
The following special services are available to shareholders. An investor may
change or stop these services at any time by written notice to the Fund.
AUTOMATIC INVESTMENT PLAN
The Fund has an Automatic Investment Plan which provides shareholders with a
convenient method by which investors may have amounts deducted directly from
their checking accounts for investment in the Fund. The minimum initial and
subsequent investments for the Fund also apply when using this method of
investing. To begin participating in this Plan, use the Automatic Investment
Plan Application found in the back of this Prospectus.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Fund has a Systematic Withdrawal Plan which provides for voluntary automatic
withdrawals of at least $50 monthly, quarterly, semi-annually or annually.
Shareholders who purchase or already own $5,000 or more of Fund shares valued at
the current public offering price, and who wish to receive periodic payments may
establish a Systematic Withdrawal Plan. In order to qualify for this option,
dividends and capital gains must be reinvested.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Any income the Fund receives in the form of dividends is paid out, less
expenses, to its shareholders. Income dividends and capital gains distributions
on the Fund are usually paid annually.
Dividends and distributions are treated in the same manner for federal income
tax purposes whether you receive them in cash or in additional shares.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
10
<PAGE> 59
Dividends are taxable as ordinary income. Taxation on capital gains
distributions will vary with the length of time the Fund has held the security -
not how long the shareholder has been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement in the following year.
You will be notified in January of each year about the federal tax status of
distributions made by the Fund. Depending on your state of residence,
distributions also may be subject to state and local taxes, including
withholding taxes. There is a penalty on certain pre-retirement distributions
from retirement accounts. Consult your tax adviser about the federal, state and
local tax consequences in your particular circumstances.
Foreign shareholders may be subject to special withholding requirements.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number in compliance with IRS
rules. To avoid this, make sure you provide your correct Tax Identification
Number (Social Security Number for most investors) on your account application.
FUND MANAGEMENT
- ---------------
THE INVESTMENT ADVISER
Trainer, Wortham & Co., Inc., (the "Adviser"), with offices at 845 Third Avenue,
New York, NY 10022 and 111 Pine Street, San Francisco, CA 94111 is the Fund's
Investment Adviser and manager and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended.
The Adviser, organized in 1998, continues an investment counseling business
which began in 1924 as Trainer & Associates. The Adviser supervises
approximately $___billion in investment accounts and is a wholly owned
subsidiary of First Republic Bank. First Republic Bank is a commercial bank
headquartered at 111 Pine Street, San Francisco, California 94111, which is
engaged in general banking business and provides private banking services. First
Republic Bank has offices in California, Nevada and New York City and has
approximately $___ billion in assets as of October 31, 1999.
Pursuant to an Investment Advisory Agreement with the Trust on behalf of the
Fund, the Adviser receives an annual fee, accrued daily and paid monthly, of
0.45% of the Fund's average daily net assets.
Subject to the general supervision of the Board of Trustees, and in accordance
with the Fund's investment objectives, policies, and restrictions, the Adviser
manages the Fund's investment portfolio, makes decisions with respect to and
places orders for all purchases and sales of the portfolio securities.
PORTFOLIO MANAGER
John D. Knox serves as portfolio manager of the Fund and is primarily
responsible for the day-to-day management of the Fund's portfolio. Mr. Knox
joined the Adviser in December 1995 and serves as Managing Director of Fixed
Income. Prior to joining the Adviser, Mr. Knox served as
11
<PAGE> 60
Director of Global Fixed Income and Managing Director from 1994 - 1995 for Bear
Stearns Asset Management and Bear Stearns, respectively. For more than 11 years
prior thereto, Mr. Knox was a principal and Senior Portfolio Manager at Morgan
Stanley Asset Management.
The Statement of Additional Information has more detailed information about the
Adviser.
THE DISTRIBUTOR AND ADMINISTRATOR
First Data Distributors, Inc., 4400 Computer Drive, Westborough, Massachusetts
01581, serves as principal underwriter to the Trust pursuant to an Underwriting
Agreement.
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly
owned subsidiary of First Data Corporation, serves as Administrator to the Trust
pursuant to an Administration Agreement. The principal business address of
Investor Services Group is 4400 Computer Drive, Westborough, MA 01581.
12
<PAGE> 61
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since its inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). The information
has been audited by Briggs, Bunting & Dougherty LLP, whose report, along with
the Fund's financial statements, are included in the annual report of the Fund,
which is available upon request.
- --------------------------------------------------------------------------------
PERIOD
ENDED
JUNE 30,
1999(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period............................. $ 10.00
Income from investment operations
Net investment income ...................................... 0.01
Net losses on securities (both realized and unrealized)..... (0.06)
--------
Total from investment operations................................. (0.05)
Net asset value, end of period................................... $ 9.95
Total return .................................................... (0.50%)+
Ratios/supplemental data
Net assets, end of period (in 000s).............................. $ 4,865
Ratio of expenses to average net assets
before reimbursement of expenses by Adviser................. 6.27%*
after reimbursement of expenses by Adviser.................. 0.75%*
Ratio of net investment income (loss) to
average net assets
before reimbursement of expenses by Adviser................. (4.88%)*
after reimbursement of expenses by Adviser.................. 0.64%*
Portfolio turnover rate.......................................... 0%
(1) The Fund commenced operations on June 10, 1999.
+ Since inception, not annualized.
* Annualized.
13
<PAGE> 62
For more information about the Fund, the following documents are available free
upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Fund, including its operations and investment policies. It
is incorporated by reference and is legally considered a part of this
prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUND BY CONTACTING THE FUND AT:
TRAINER, WORTHAM FIRST MUTUAL FUNDS
C/O TRAINER WORTHAM
111 PINE STREET, 3RD FLOOR
SAN FRANCISCO, CA 94111
TELEPHONE: 1-800-257-4450
- --------------------------------------------------------------------------------
You can review the Funds' reports and the SAI at the Public Reference Room of
the Securities and Exchange Commission. You can get text-only copies:
- For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-879.
14
<PAGE> 63
TRAINER WORTHAM FUNDS
TRAINER WORTHAM CALIFORNIA
INTERMEDIATE TAX-FREE FUND
THIS IS YOUR
INVESTMENT APPLICATION
Detach and mail to:
FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 61503
KING OF PRUSSIA, PA 19406-0903
<PAGE> 64
TRAINER WORTHAM FUNDS INVESTMENT APPLICATION
1. INITIAL FUND INVESTMENT
Please indicate the amount you are investing in the fund. The minimum initial
investment is $250 for the fund.
Trainer Wortham California Intermediate Tax-Free Fund $
---------------
2. INITIAL INVESTMENT METHOD
[ ] Check (made payable to the fund)
[ ] Wire sent on (date) for credit to account no. *
------------- ------------
*Before making an initial investment by wire, you must be assigned an account
number by calling (800) 441-6580. Have your local bank wire fund to:
Boston Safe Deposit & Trust
ABA#011001234
Credit: Trainer Wortham California Intermediate Tax-Free Fund
Act #000159
FBO (Insert Shareholder name & new account
number)
--------------------
3. REGISTRATION AND SOCIAL SECURITY NUMBER (PLEASE PRINT)
INDIVIDUAL OR JOINT ACCOUNT:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Owner's First Name Middle Initial Last Name Owner's Social Security #
- ------------------------------------------------------------------------------------------
Joint Owner's First Name Middle Initial Last Name Joint Owner's Social Security #
GIFT TO MINOR
- ------------------------------------------------------------------------------------------
Name of Custodian (one name only)
- ------------------------------------------------------------------------------------------
Name of Minor Minor's Social Security #
Under the _________________________ Uniform Gift/Transfer to
Minors Act State
CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS (Complete attached Corporate Resolution)
- ------------------------------------------------------------------------------------------
Name of Corporation, Partnership, Trust or Other
- ------------------------------------------------------------------------------------------
Name of Trustee(s) Date of Trust Tax Identification No.
4. MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S)
- ------------------------------------------------------------------------------------------
Street Address & Apt. No. City State Zip
( ) ( )
- ----------------------------------- -----------------------------------
Day Telephone Evening Telephone
</TABLE>
5. DISTRIBUTION OPTIONS (All distributions will be reinvested unless otherwise
indicated below.)
[ ] Reinvest (dividends and capital gains in additional shares)
[ ] Cash Dividends (dividends in cash, capital gains in additional shares)
[ ] All Cash (dividends and capital gains in cash)
<PAGE> 65
6. SYSTEMATIC WITHDRAWAL PLAN (minimum initial investment of $5,000 is
required)
I wish to have the following amount(s) systematically withdrawn from:
<TABLE>
<S> <C>
Trainer Wortham California Intermediate Tax-Free Fund $
---------------
</TABLE>
Please indicate the frequency of withdrawal, and if other than monthly, the
desired months. Liquidations take place on or about the 25th of the month.
[ ] Monthly
[ ] Quarterly , , and
--------------- --------------- ---------------
--------------
[ ] Semi annually and
--------------- ---------------
[ ] Annually
Unless indicated otherwise in Section 8, a check will be sent to your
address of record.
7. TELEPHONE PRIVILEGE
[ ] I (We) authorize First Data Investor Services Group, Inc. And/or
Trainer Wortham Funds to act upon instructions received by telephone
from me (us) to redeem shares or to exchange for shares of other
Trainer Wortham Funds. I (We) understand an exchange is made by
redeeming shares of one fund and using the proceeds to buy shares of
another fund. Exchanges must be made into identically registered
accounts. Redemption proceeds will be sent as indicated in this
prospectus.
If not otherwise indicated below, only exchanges will be allowed.
[ ] Redemption [ ] Exchange [ ] Both
8. REDEMPTIONS
(Unless otherwise indicated below, all redemptions will be sent by check.)
[ ] All redemption proceeds should be executed by an ACH transaction unless
First Data Investor Services Group, Inc. is notified in writing. There
is no charge for ACH transactions.
Allow 3 business days.
[ ] All redemptions proceeds should be executed by FED wire transaction
unless First Data Investor Services Group, Inc. is notified in writing.
There is a $9 charge for FED wire transactions.
All FED wire and ACH transactions will be sent as indicated below. Please
allow one month for ACH instructions to become effective. Any changes in
these instructions must be made in writing with signature guarantees as
described in the prospectus.
*Please notify your bank of your intent to establish this option on your
account.
*ATTACH A VOIDED CHECK OR DEPOSIT SLIP.
- --------------------------------------------------------------------------------
Bank Name Branch Office
- --------------------------------------------------------------------------------
Bank Address
- --------------------------------------------------------------------------------
Bank Wire Routing Number Account Number
- --------------------------------------------------------------------------------
Name(s) on Bank Account
9. SIGNATURE AND CERTIFICATION
(Required by Federal tax law to avoid backup withholding.)
"By signing below, I certify under penalty of perjury that the social
security or tax payer identification number entered above is correct (or I
am waiting for a number to be issued to me), and that I have not been
notified by the IRS that I am subject to backup withholding unless I have
checked the box." If you have been notified by the IRS that you are subject
to backup withhold, check box. [ ]
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certificates required to avoid backup
withholding.
"I hereby acknowledge receipt of a current prospectus."
----------------------------------------------------------------------------
Signature [ ] Owner [ ] Custodian [ ] Trustee Date
----------------------------------------------------------------------------
Signature of Joint Owner (if applicable) Date
10. INVESTMENT DEALER INFORMATION
----------------------------------------------------------------------------
Name of Firm
----------------------------------------------------------------------------
Firm Address
----------------------------------------------------------------------------
Rep Name & Number
----------------------------------------------------------------------------
Signature
<PAGE> 66
THIS SECTION TO BE COMPLETED BY CORPORATIONS, TRUSTS AND OTHER ORGANIZATIONS
RESOLUTIONS
RESOLVED: That this corporation or organization become a shareholder of Trainer
Wortham California Intermediate Tax-Free Funds (the "Trust") and that
- --------------------------------------------------------------------------------
(Name(s) of officers)
is (are) hereby authorized to complete and execute the Application on behalf of
the corporation or organization and take any action for it as may be necessary
or appropriate with respect to its shareholder account(s) with the Trust, and it
is FURTHER RESOLVED: That any one of the above-noted officers is authorized to
sign any documents necessary or appropriate to appoint First Data Investor
Services Group, Inc. as redemption agent of the corporation or organization for
shares of the Trust, to establish or acknowledge terms and conditions governing
the redemption of said shares or to otherwise implement the privileges elected
on the application.
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the
___________________________________________________________________incorporated
(Name of Corporation/Organization)
or formed under the laws of ____________________ and were adopted at a meeting
(State)
of the Board of Trustees of the corporation or organization duly called and
held on ______________________________ at which a quorum was present and acting
(Date)
throughout, and that the same are now in full force and effect.
I further certify that the following is (are) the duly elected officer(s) of the
corporation or organization, authorized to act in accordance with the foregoing
resolutions.
Name Title Name Title
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
Witness my hand and the seal of the corporation or organization this ____ day
of _________________, 19 ____.
- ------------------------------------ ---------------------------------------
*Secretary-Clerk Other Authorized Officer (if required)
*If the secretary or other recording officer is authorized to act by the above
resolutions, this certificate must also be signed by another officer.
<PAGE> 67
TRAINER WORTHAM FUNDS
AUTOMATIC INVESTMENT PLAN APPLICATION
First Data Investor Services Group, Inc., P.O. Box 61503, King of Prussia, PA
19406-0903 (610) 239-4500
INSTRUCTIONS
HOW DOES IT WORK?
1. First Data Investor Services Group, Inc., through our bank, UMB Bank N.A.,
draws an Automatic Clearing House (ACH) debit electronically against your
personal checking/savings account each month, according to your instructions.
2. Choose any amount of $50.00 or more that you would like to invest regularly
and your debit for this amount will be processed by First Data Investor
Services Group, Inc., as if you had written a check yourself.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete both sides of this form, and the Investment Application form if you
do not have an existing account.
2. Include initial investment check of $250.00 or more if you are establishing a
new account.
3. If you are using a Credit Union, please have your financial institution
verify the bank information.
4. Mark one of your personal checks or deposit slips VOID, attach it to this
form and mail to First Data Investor Services Group, Inc. at the above
address.
5. As soon as your bank accepts your authorization, debits will be generated and
your Automatic Investment Plan started. In order for you to have Automatic
Clearing House (ACH) debits from your account, your bank must be able to
accept ACH transactions and/or be a member of an ACH association. Your bank
manager should be able to tell you your bank's capabilities. We cannot
guarantee acceptance by your bank.
6. Please allow one month for processing before the first debit occurs.
7. Returned items will result in a $20.00 fee being deducted from your account.
MONTHLY WITHDRAWAL AMOUNT AND DATE
Please indicate amount you would like invested monthly. The minimum amount for
monthly investment is $50.
<TABLE>
<S> <C>
[ ] Trainer Wortham California Intermediate Tax-Free Fund $
---------------
</TABLE>
Date of Withdrawal: (check only one) [ ] 10th [ ] 15th [ ] 20th
ACCOUNT INFORMATION
Indicate One: [ ] I am in the process of establishing a new account
[ ] I have an established account. My account number is:
---------------
- --------------------------------------------------------------------------------
Registered Owner
- --------------------------------------------------------------------------------
Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
Day Time Phone Number Evening Phone Number
BANK INFORMATION
Complete the following or attach a voided check below. If you are using a Credit
Union account, please complete this section and have your financial institution
verify the information.
- --------------------------------------------------------------------------------
Bank Account Owner Joint Owner
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Bank Branch Street Address
- --------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------
ABA Number (9 digits) Account Number
Type of Account: [ ] Checking [ ] Savings
AUTHORIZATION AND SIGNATURE
I understand that my ACH debit will be dated on the day of each month I have
indicated on this form. I agree that if such a debit is not honored upon
presentation, First Data Investor Services Group, Inc. may discontinue this
service and any share purchase made upon deposit on such debit may be canceled.
I further agree that if the net asset value of the shares purchased with such
debit is less when said purchase is canceled than when the purchase was made,
First Data Investor Services Group, Inc. shall be authorized to liquidate other
shares or fractions thereof held in my account to make up the deficiency. This
Automatic Investment Plan may be discontinued by First Data Investor Services
Group, Inc. upon 30 days written notice or at any time by the investor by
written notice to First Data Investor Services Group, Inc. which is received no
later than five (5) business days prior to the above designated investment date.
- --------------------------------------------------------------------------------
SIGNATURE OF BANK ACCOUNT OWNER
- --------------------------------------------------------------------------------
SIGNATURE OF JOINT BANK ACCOUNT OWNER
<PAGE> 68
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1999
- --------------------------------------------------------------------------------
TRAINER WORTHAM FIRST MUTUAL FUNDS
TRAINER WORTHAM FIRST MUTUAL FUND
TRAINER WORTHAM TOTAL RETURN BOND FUND
TRAINER WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
TRAINER WORTHAM LARGE-CAP GROWTH FUND
- --------------------------------------------------------------------------------
Trainer Wortham First Mutual Funds (the "Trust") currently offers
shares of the following four Series, representing separate portfolios of
investments: TRAINER WORTHAM FIRST MUTUAL FUND, TRAINER WORTHAM TOTAL RETURN
BOND FUND, TRAINER WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND AND TRAINER
WORTHAM LARGE-CAP GROWTH FUND (the "Fund(s)"). Information concerning each Fund
is provided in separate Prospectuses. This Statement of Additional Information
is not a Prospectus, but should be read in conjunction with the current
Prospectus for each Fund. Much of the information contained herein expands upon
subjects discussed in each Prospectus. No investment in shares should be made
without first reading the applicable Prospectus. A copy of each Series'
Prospectus may be obtained without charge by writing to the Trust, at 845 Third
Avenue, 6th Floor, New York, NY 10022 or by calling 888-257-4450.
Each Fund's most recent Annual Report to Shareholders is a separate
document that is incorporated by reference into this Statement of Additional
Information. The Funds' Annual and Semi-Annual Reports to Shareholders are also
available without charge by calling 888-257-4450.
NOVEMBER 1, 1999
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<PAGE> 69
TABLE OF CONTENTS
-----------------
THE TRUST.....................................................................
INFORMATION ON PERMITTED INVESTMENTS AND RELATED RISK FACTORS.................
American Depository Receipts ("ADRs")........................................
Convertible Securities.......................................................
U.S. Government Securities...................................................
U.S. Treasury Securities.....................................................
Illiquid Securities..........................................................
Repurchase Agreements........................................................
Money Market Instruments.....................................................
Fixed-Income Securities......................................................
Forward Commitments..........................................................
Mortgage-Related Securities..................................................
Asset-Backed Securities......................................................
Municipal Obligations........................................................
Zero Coupon & Stripped Securities............................................
Foreign Government Obligations: Securities of Supranational Entities.........
Other Foreign Securities.....................................................
Description of Municipal Securities..........................................
Special Risk Considerations in California....................................
When-Issued Securities and Firm Commitment Agreements........................
Final Futures Contracts......................................................
Shares of Investment Companies...............................................
Loans of Portfolio Securities................................................
Borrowing....................................................................
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<PAGE> 70
Investment Restrictions .....................................................
Portfolio Turnover...........................................................
INVESTMENT LIMITATIONS OF THE FUNDS...........................................
Other Investment Restrictions................................................
MANAGEMENT OF THE TRUST.......................................................
Trustees and Officers of the Trust...........................................
PRINCIPAL HOLDERS OF SECURITIES...............................................
INVESTMENT ADVISORY AND OTHER SERVICES........................................
The Investment Advisor.......................................................
The Distributor..............................................................
Distribution and Shareholder Service Plan....................................
The Administrator............................................................
Transfer Agent and Fund Accountant...........................................
The Custodian................................................................
Independent Auditors.........................................................
Brokerage Commissions........................................................
NET ASSET VALUE...............................................................
Systematic Withdrawal Plan...................................................
TAXES.........................................................................
All Funds....................................................................
California Intermediate Tax-Free Fund........................................
PERFORMANCE INFORMATION.......................................................
Calculation of Total Return..................................................
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<PAGE> 71
SHARES OF BENEFICIAL INTEREST.................................................
Description of Shares........................................................
Shareholder Meetings.........................................................
FINANCIAL STATEMENTS..........................................................
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<PAGE> 72
THE TRUST
---------
This Statement of Additional Information pertains to the following four separate
funds incorporated under the laws of the State of Delaware:
NAME OF FUND
- ------------
TRAINER WORTHAM FIRST MUTUAL FUND ("FIRST MUTUAL FUND")
TRAINER WORTHAM TOTAL RETURN BOND FUND ("TOTAL RETURN BOND FUND")
TRAINER WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND ("CALIFORNIA INTERMEDIATE
TAX-FREE FUND")
TRAINER WORTHAM LARGE-CAP GROWTH FUND ("LARGE-CAP GROWTH FUND")
TRAINER WORTHAM FIRST MUTUAL FUNDS (the "Trust") is an open-end
management investment company established as a Delaware business trust under a
Declaration of Trust dated January 17, 1995. FIRST MUTUAL FUND, TOTAL RETURN
BOND FUND and LARGE-CAP GROWTH FUND are classified as diversified, meaning that,
with respect to 75% of its total assets, it has not invested more than 5% of its
assets in the securities of any single issuer (other than securities issued by
the U.S. Government or its agencies or instrumentalities). CALIFORNIA
INTERMEDIATE TAX-FREE FUND is considered "non-diversified" because the Fund may
invest more than 5% of its assets in the securities of a single California
issuer, such as the state of California.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus of each Fund.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in shares of a Fund should be made without first reading the
Prospectus.
INFORMATION ON PERMITTED INVESTMENTS
------------------------------------
AND RELATED RISK FACTORS
------------------------
AMERICAN DEPOSITORY RECEIPTS ("ADRS)"
- -------------------------------------
ADRs are typically issued by a U.S. financial institution and are
evidence ownership of underlying securities issued by a foreign issuer.
Sponsored ADRs are a joint arrangement between the foreign issuer and the U.S.
financial institution acting depository and tend to be more liquid than
unsponsored ADRs. FIRST MUTUAL FUND and LARGE-CAP GROWTH FUND may invest in
sponsored or unsponsored ADRs.
CONVERTIBLE SECURITIES
- ----------------------
Convertible securities are securities such as rights, bonds, notes and
preferred stocks which are convertible into or exchangeable for common stocks.
Convertible securities have characteristics similar to both fixed income and
equity securities. Because of the conversion feature, the market value of
convertible securities tends to move together with the market value of the
underlying common stock. As a result, a Fund's selection of convertible
securities is based, to a great extent, on the potential for capital
appreciation that may exist in the underlying stock. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer, and any call provisions. FIRST MUTUAL FUND, TOTAL RETURN BOND FUND
and LARGE-CAP GROWTH FUND may invest in convertible securities.
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<PAGE> 73
U.S. GOVERNMENT SECURITIES
- --------------------------
In addition to U.S. Treasury securities, each Fund may invest in U. S.
Government securities, including securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Some obligations issued or
guaranteed by U.S. Government agencies and instrumentalities, for example,
Government National Mortgage Association pass-through certificates, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those issued by the Federal National Mortgage Association, by right of the
issuer to borrow from the Treasury. others, such as those issued by the Federal
National Mortgage Association, by discretionary authority of the U.S. Government
to purchase certain obligations of the agency or instrumentality; and others,
such as those issued by the Student Loan Marketing Association, only by the
credit of the agency or instrumentality. These securities bear fixed, floating
or variable rates of interest. Principal and interest may fluctuate based on
generally recognized reference rates or the relationship of rates. While the
U.S. Government provides financial support to such U.S. Government-sponsored
agencies or instrumentalities, no assurance can be given that it will always do
so, since it is not so obligated by law.
U.S. TREASURY SECURITIES
- ------------------------
Each Fund may invest in U.S. Treasury securities, including Treasury
bills, Treasury notes and Treasury bonds that differ in their interest rates,
maturities and times of issuance. Treasury bills have initial maturities of one
year or less; Treasury notes have initial maturities of one to ten years; and
Treasury bonds generally have initial maturities of greater than ten years.
ILLIQUID SECURITIES
- -------------------
Each Fund will not invest more than 10% of the value of the Fund's net
assets in securities that are illiquid because of restrictions on
transferability or other reasons. Repurchase agreements with deemed maturities
in excess of seven days and securities that are not registered under the
Securities Act of 1933 (the "1933 Act") but that may be purchased by
institutional buyers pursuant to Rule 144A under the 1933 Act are subject to
this 10% limit. Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public by
establishing a "safe harbor" from the registration requirements of the 1933 Act
for resales of certain securities to qualified institutional buyers.
REPURCHASE AGREEMENTS
- ---------------------
Securities held by each of the Funds may be subject to repurchase
agreements. Under the terms of a repurchase agreement, a Fund would acquire
securities from member banks of the Federal Reserve System and registered
broker-dealers which Trainer Wortham deems creditworthy under guidelines
approved by the Trust's Board of Trustees, subject to the seller's agreement to
repurchase such securities at a mutually agreed-upon date and price. The
repurchase price would generally equal the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may be more or less
than the rate on the underlying portfolio securities. The seller under a
repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at not less than 102% the repurchase
price (including accrued interest). If the seller were to default on its
repurchase obligation or become insolvent, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Fund were delayed pending court action.
Additionally, there is no controlling legal precedent confirming that the Fund
would be entitled, as against a claim by such seller or its receiver or trustee
in bankruptcy, to
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<PAGE> 74
retain the underlying securities, although the Board of Trustees of the Trust
believes that, under the regular procedures normally in effect for custody of
the Fund's securities subject to repurchase agreements and under Federal laws, a
court of competent jurisdiction would rule in favor of the Trust if presented
with the question. Securities subject to repurchase agreements will be held by
the Trust's Custodian or another qualified custodian or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a Fund under the 1940 Act.
MONEY MARKET INSTRUMENTS
- ------------------------
Each Fund may invest, in the following types of money market
instruments, each of which at the time of purchase must have or be deemed to
have under rules of the Securities and Exchange Commission remaining maturities
of 13 months or less. Each Fund may invest in money market instruments and debt
securities, including bank obligations and commercial paper, which are at least
comparable in quality to the Fund's other investments. Bank obligations may
include bankers' acceptances, negotiable certificates of deposit and
non-negotiable time deposits earning a specified return, issued for a definite
period of time by a U.S. bank that is a member of the Federal Reserve System or
is insured by the Federal Deposit Insurance Corporation, or by a savings and
loan association or savings bank that is insured by the Federal Deposit
Insurance Corporation. Bank obligations also include U.S. dollar-denominated
obligations of foreign branches of U.S. banks or of U.S. branches of foreign
banks, all of the same type as domestic bank obligations. Investments in bank
obligations are limited to the obligations of financial institutions having more
than $1 billion in total assets tat the time of purchase. Investments by a Fund
in non-negotiable time deposits are limited to no more than 5% of its total
assets at the time of purchase.
FIXED-INCOME SECURITIES
- -----------------------
Investors in each Fund should be aware that even though
interest-bearing securities are investments which promise a stable stream of
income, the prices of such securities typically are inversely affected by
changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. Thus, if interest rates have increased from the time a
security was purchased, such security, if sold, might be sold at a price less
than its cost. Similarly, if interest rates have declined from the time a
security was purchased, such security, if sold, might be sold at a price greater
than its cost. In either instance, if the security was purchased at face value
and held to maturity, no gain or loss would be realized. Certain securities
purchased by the Fund, such as those with interest rates that fluctuate directly
or indirectly based on multiples of a stated index, are designed to be highly
sensitive to changes in interest rates and can subject the holders thereof to
extreme reductions of yield and possibly loss of principal.
The values of fixed-income securities also may be affected by changes
in the credit rating or financial condition of the issuing entities. Once the
rating of a security purchased by a Fund has been adversely changed, a Fund will
consider all circumstances deemed relevant in determining whether to continue to
hold the security.
Holding such securities that have been downgraded below
investment-grade can subject the Fund to additional risk. Certain securities
purchased by the Fund, such as those rated "Baa" by Moody's or "BBB" by S&P,
Fitch or Duff, may be subject to such risk with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
fixed-income securities. Debt securities which are rated "Baa" by Moody's are
considered medium-grade obligations; they are neither highly protected nor
poorly secured, and are considered by Moody's to have speculative
characteristics. Debt securities rated "BBB" by S&P are regarded as having
adequate capacity to pay interest and repay principal, and while such debt
securities
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<PAGE> 75
ordinarily exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt securities in this category than in higher
rated categories. Fitch considers the obligor's ability to pay interest and
repay principal on debt securities rated "BBB" to be adequate; adverse changes
in economic conditions and circumstances, however, are more likely to have an
adverse impact on these debt securities and, therefore, impair timely payment.
Debt securities rated "BBB" by Duff is considered to have below average
protection factors but may still be considered sufficient for prudent
investment.
FORWARD COMMITMENTS
- -------------------
The TOTAL RETURN BOND FUND may purchase securities on a when-issued or
forward commitment basis, which means that the price is fixed at the time of
commitment, but delivery and payment ordinarily take place a number of days
after the date of the commitment to purchase. The Fund will make commitments to
purchase such securities only with the intention of actually acquiring the
securities, but the Fund may sell these securities before the settlement date if
it is deemed advisable. The Fund will not accrue income in respect of a security
purchased on a when-issued or forward commitment basis prior to its stated
delivery date.
Securities purchased on a when-issued or forward commitment basis and
certain other securities held by the Fund are subject to changes in value (both
generally changing in the same way, i.e., appreciating when interest rates
decline and depreciating when interest rates rise) based upon the public's
perception of the creditworthiness of the issuer and changes, real or
anticipated, in the level of interest rates. Such securities may expose the Fund
to risk because they may experience fluctuations in value prior to their actual
delivery. Purchasing debt securities on a when-issued or forward commitment
basis can involve the additional risk that the yield available in the market
when the delivery takes place actually may be higher than that obtained in the
transaction itself. A segregated account of the Fund consisting of cash, cash
equivalents or U.S. Government securities or other high-quality liquid debt
securities of the type in which the Fund invests at least equal at all times to
the amount of the when-issued or forward commitments will be established and
maintained at the Fund's custodian bank.
MORTGAGE-RELATED SECURITIES
- ---------------------------
Mortgage-related securities which may be purchased by the TOTAL RETURN
BOND FUND are securities collateralized by pools of mortgage loans assembled for
sale to investors by various governmental agencies, such as the Government
National Mortgage Association and government-related organizations such as the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, as well as by private issuers such as commercial banks, savings and
loan institutions, mortgage banks and private mortgage insurance companies, and
similar foreign entities. The mortgage-related securities in which the Fund may
invest include those with fixed, floating and variable interest rates, those
with interest rates that change based on multiples of changes in interest rates
and those with interest rates that change inversely to changes in interest
rates, as well as stripped mortgage-backed securities which are derivative
multi-class mortgage securities. Stripped mortgage-backed securities usually are
structured with two classes that receive different proportions of interest and
principal distributions on a pool of mortgage-backed securities or whole loans.
A common type of stripped mortgage-backed security will have one class receiving
some of the interest and most of the principal from the mortgage collateral,
while the other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the interest
(the interest-only or "IO" class), while the other class will receive all of the
principal (the principal-only or "PO" class). Although certain mortgage-related
securities are guaranteed by a third party or otherwise similarly secured, the
market value of
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<PAGE> 76
the security, which may fluctuate, is not so secured. If the Fund purchases a
mortgage-related security at a premium, all or part of the premium may be lost
if there is a decline in the market value of the security, whether resulting
from changes in interest rates or prepayments in the underlying mortgage
collateral. As with other interest-bearing securities, the prices of certain of
these securities are inversely affected by changes in interest rates. However,
though the value of a mortgage-related security may decline when interest rates
rise, the converse is not necessarily true, since in periods of declining
interest rates the mortgages underlying the security are more likely to prepay.
For this and other reasons, a mortgage-related security's stated maturity may be
shortened by unscheduled prepayments on the underlying mortgages, and therefore,
it is not possible to predict accurately the security's return to the Fund.
Moreover, with respect to stripped mortgage-backed securities, if the underlying
mortgage securities experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities even if the securities are rated in the highest rating category by a
nationally recognized statistical rating organization. In addition, regular
payments received in respect of mortgage-related securities include both
interest and principal. No assurance can be given as to the return the Fund will
receive when these amounts are reinvested.
No assurance can be given as to the liquidity of the market for certain
mortgage-backed securities, such as collateralized mortgage obligations and
stripped mortgage-backed securities. Determination as to the liquidity of
interest-only and principal-only fixed mortgage-backed securities issued by the
U.S. Government or its agencies and instrumentalities will be made in accordance
with guidelines established by the Fund's Board of Trustees. In accordance with
such guidelines, the Advisor will monitor investments in such securities with
particular regard to trading activity, availability of reliable price
information and other relevant information. The Fund intends to treat other
stripped mortgage-backed securities as illiquid securities.
ASSET-BACKED SECURITIES
- -----------------------
The TOTAL RETURN BOND FUND may invest in asset-backed securities. The
securitization techniques used for asset-backed securities are similar to those
used for mortgage-related securities. These securities include debt securities
and securities with debt-like characteristics. The collateral for these
securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
generally are unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
automobile receivables permit the services of such receivables to retain
possession of the underlying obligations. If the servicer were to sell these
obligations to another party, there is a risk that the purchaser would acquire
an interest superior to that of the holders of the related asset-backed
securities. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
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<PAGE> 77
MUNICIPAL OBLIGATIONS
- ---------------------
The TOTAL RETURN BOND FUND may invest in municipal obligations which
are debt obligations issued by states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies
and instrumentalities, or multistate agencies or authorities. While in general,
municipal obligations are tax exempt securities having relatively low yields as
compared to taxable non-municipal obligations of similar quality, certain issues
of municipal obligations, both taxable and non-taxable, offer yields comparable
and in some cases greater than the yields available on other permissible
investments. Municipal obligations generally include debt obligations issued to
obtain funds for various public purposes as well as certain industrial
development bonds issued by or on behalf of public authorities.
Municipal obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general taxing
power. Tax-exempt industrial development bonds, in most cases, are revenue bonds
and generally do not carry the pledge of the credit of the issuing municipality,
but generally are guaranteed by the corporate entity on whose behalf they are
issued.
Dividends received by shareholders which are attributable to interest
income received by it from municipal obligations generally will be subject to
Federal income tax. Municipal obligations bear fixed, floating or variable rates
of interest, which are determined in some instances by formulas under which the
municipal obligation's interest rate will change directly or inversely to
changes in interest rates or an index, or multiples thereof, in many cases
subject to a maximum and minimum. The Fund currently intends to invest no more
than 25% of its assets in municipal obligations. However, this percentage may be
varied from time to time without shareholder approval.
ZERO COUPON AND STRIPPED SECURITIES
- -----------------------------------
The TOTAL RETURN BOND FUND may invest in zero coupon U.S. Treasury
securities, which are Treasury notes and bonds that have been stripped of their
unmatured interest coupons, the coupons themselves and receipts or certificates
representing interests in such stripped debt obligations and coupons. The Fund
also may invest in zero coupon securities issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool of
underlying U.S. Treasury securities. A zero coupon security pays no interest to
its holder during its life and is sold at a discount to its face value at
maturity. The amount of the discount fluctuates with the market price of the
security. The market prices of zero coupon securities generally are more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to a greater degree to changes in interest rates than
non-zero coupon securities having similar maturities and credit qualities.
Federal income tax law requires the holder of a zero coupon security or
of certain pay-in-kind bonds to accrue income with respect to these securities
prior to the receipt of cash payments. If the Fund invests in such securities it
may be required, in order to maintain its qualification as a regulated
investment company and avoid liability for Federal income taxes, to distribute
the income accrued with respect to these securities and may have to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
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<PAGE> 78
FOREIGN GOVERNMENT OBLIGATIONS; SECURITIES OF SUPRANATIONAL ENTITIES
- --------------------------------------------------------------------
The TOTAL RETURN BOND FUND may invest in U.S. dollar denominated
obligations issued or guaranteed by one or more foreign governments or any of
their political subdivisions, agencies or instrumentalities that are determined
by the Advisor to be of comparable quality to the other obligations in which the
Fund may invest. Such securities also include debt obligations of supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank. The percentage of the
Fund's assets invested in securities issued by foreign governments will vary
depending on the relative yields of such securities, the economic and financial
markets of the countries in which the investments are made and the interest rate
climate of such countries.
OTHER FOREIGN SECURITIES
- ------------------------
The TOTAL RETURN BOND FUND may invest in U.S. dollar denominated
obligations of foreign corporations. Investing in securities issued by foreign
corporations involves considerations and possible risks not typically associated
with investing in obligations issued by domestic corporations. Less information
may be available about foreign companies than about domestic companies, and
foreign companies generally are not subject to the same uniform accounting,
auditing and financial reporting standards or to other regulatory practices and
requirements comparable to those applicable to domestic companies.
The risks associated with investing in foreign securities are often
heightened by investments in developing or emerging markets. Investments in
emerging or developing markets involve exposure to economic structures that are
generally less diverse and mature and to political systems which can be expected
to have less stability, than those of more developed countries. Moreover, the
economies of individual emerging market countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth in
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
DESCRIPTION OF MUNICIPAL SECURITIES
- -----------------------------------
Municipal securities may have fixed, variable or floating rates of
interest. Any variable or floating rate municipal security not payable on demand
within seven days will be deemed illiquid unless the Advisor determines,
according to procedures established by the Board of Directors, that such
securities are liquid. If held by the CALIFORNIA INTERMEDIATE TAX-FREE FUND,
such securities will be included in the calculation of the limitation of 15% of
net assets which may be invested in illiquid securities. Municipal bonds, which
finance long-term capital needs and generally have maturities of more than one
year when issued, are generally classified as either general obligation bonds or
revenue bonds. General obligation bonds are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, the proceeds of a
special excise tax or other specific revenue source. The Fund may also invest in
certificates of participation in general fund obligation leases of the State of
California and its political subdivisions. The staff of the Securities and
Exchange Commission may view such a security as illiquid. Unless the Board of
Directors determines that such a security is not illiquid, the Advisor will
limit its
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<PAGE> 79
investment in such securities, together with all other illiquid securities and
assets, to 15% of the Fund's net assets.
The securities in which the Fund invests are subject to market and
credit risk. Market risk relates to the changes in market value that occur as a
result of variation in the level of prevailing interest rates and yield
relationships in the municipal securities market. In general, the longer the
maturity of a municipal security, the higher the yield and the greater the
potential for taxable capital appreciation or depreciation. Conversely, shorter
maturities tend to provide lower yields, but greater stability of principal. An
increase in interest rates will normally decrease the value of these longer-term
investments, while a decline in interest rates will normally increase the value
of these investments. Generally, the shorter the average maturity of the Fund's
portfolio, the less its price will be affected by interest rate fluctuations.
In addition to the market risk of changing interest rates, municipal
securities are subject to credit risk relating to the operations of individual
issuers. The ability of the Fund to achieve its investment objective is
dependent upon the continuing ability of the issuers of municipal securities in
which the Fund invests to meet their obligations for the payment of principal
and interest when due.
SPECIAL RISK CONSIDERATIONS IN CALIFORNIA
- -----------------------------------------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND'S performance may be
especially affected by factors pertaining to the California economy, as well as
other factors affecting the ability of issuers of California municipal
securities to meet their obligations. As a result, the value of the Fund's
shares may fluctuate more widely than the value of shares of a portfolio
investing in securities relating to a number of different states. The amounts of
tax and other revenues available to issuers of California municipal securities
may be affected from time to time by economic, political, geographic and
demographic conditions.
There are additional risks associated with the Fund's investment in
California municipal obligations. These risks result from certain amendments to
the California Constitution and other statues that limit the taxing and spending
authority of California governmental entities, as well as from the general
financial conditions of the State of California. These may impair the ability of
issuers of California municipal obligations to pay interest and principal on
their obligations.
California constitutional and statutory amendments and initiatives have
imposed certain limitations on taxes that may be levied against real property,
as well as place limits on the annual appropriations of the state and its
political subdivisions. These initiative measures approved by California voters
have resulted in a reduction in state and local government revenues and in
spending limits.
The payment of California municipal securities may be dependent on the
ability and willingness of the California Legislature to assist local
governments in paying bond obligations, and on the collection of ad Valero or
special taxes by local governments within the state. The continuing ability of
the California Legislature to increase the revenue of local governments, as well
as to make timely payments in connection with its own obligations, and the
continuing ability of local governments to raise revenue through taxation will
affect the ability of the state and local governments to pay debt service on
these obligations.
An expanded discussion of investment considerations regarding
investment in California municipal obligations is contained in the Statement of
Additional Information.
-12-
<PAGE> 80
WHEN-ISSUED SECURITIES AND FIRM COMMITMENT AGREEMENTS
- -----------------------------------------------------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND may purchase securities on a
delayed delivery or "when-issued" basis and enter into firm commitment
agreements (transactions whereby the payment obligation and interest rate are
fixed at the time of the transaction, but the settlement is delayed). The Fund
will not purchase securities the value of which is greater than 5% of its net
assets on a when-issued basis. The Fund, as purchaser, assumes the risk of any
decline in value of the security beginning on the date of the agreement or
purchase, and no interest accrues to the Fund until its accepts delivery of the
security.
The Fund will not use such transactions for leveraging purposes, and
accordingly will segregate cash, cash equivalents or liquid securities or hold a
covered position in an amount sufficient to meet its payment obligations
thereunder. There is always a risk that the securities may not be delivered and
that the Fund may incur a loss or will have lost the opportunity to invest the
amount set aside for such transaction in the segregated asset account.
FINANCIAL FUTURES CONTRACTS
- ---------------------------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND may purchase and sell
financial futures contracts listed on a commodities board of trade to hedge its
portfolio investments against changes in value or as a temporary substitute for
purchases or sales of actual securities. The Fund is not a commodity pool and
will engage in futures transactions only for bona fide hedging purposes. Futures
contracts are agreements to buy or sell underlying securities at a specific
future date and price. The underlying instrument may be a security or an index
of securities. By buying or selling a futures contract, the Fund agrees to buy
or sell the underlying instrument or to deliver or receive cash settlement.
Income from financial futures trading is not exempt from federal or state income
taxes.
Because fixed-income securities fluctuate in value inversely with the
movement of interest rates, a decline in value of a security can be hedged, or
offset, by an increase in value of an interest rate futures contract. Also, if
the Advisor anticipates that the value of a security will decline, it may
purchase a futures contract instead of the security to gain the benefit of the
expected lower price. Different trading strategies for futures have different
risk and return characteristics. The Advisor will choose among futures
strategies based on its judgment of how best to meet the Fund's goals. The
judgment will be based on factors such as current and anticipated interest
rates, relative market liquidity, and price levels in the futures markets
compared to the underlying securities markets. If the Advisor judges these
factors incorrectly, or if price changes in the futures positions are not well
correlated with other investments, the strategies may lower the Fund's return.
These strategies involve certain risks. There is no assurance that closing
purchase transactions will be available at favorable prices, resulting in
possible reduction of the Fund's income due to the use of hedging instruments,
and possible loss in excess of the initial margin. There may be imperfect
correlation between the contract and the underlying security and unsuccessful
hedging transactions due to incorrect market trend forecasts. A more thorough
description of these investment practices and their associated risks is
contained in the Statement of Additional Information.
When required by Securities and Exchange Commission guidelines, the
Fund will maintain a segregated account with the custodian with sufficient cash,
U.S. Government securities or other liquid securities to cover the potential
obligations created by futures. The Fund may invest up to 5% of its assets in
futures transactions represented by the aggregate "initial margin" (down
payment). The aggregate market value of securities underlying futures contracts
will not exceed 25% of the net assets of the Fund.
-13-
<PAGE> 81
SHARES OF INVESTMENT COMPANIES
- ------------------------------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND may invest some portion of
its assets in shares of other no-load, open-end investment companies and
closed-end investment companies which invest in securities whose income is
exempt from Federal and California state income taxes. Pursuant to the 1940 Act,
the percentage of Fund assets which may be so invested is not limited, provided
that the Fund and its affiliates do not acquire more than 3% of the shares of
any such investment company. The provisions of the 1940 Act may also impose
certain restrictions on redemption of the Fund's shares in other investment
companies. The Fund's purchase of shares of investment companies may result in
the payment by a shareholder of duplicative management fees. The Advisor will
consider such fees in determining whether to invest in other mutual funds. The
Fund will invest only in investment companies which do not charge a sales load;
however, the Fund may invest in such companies with distribution plans and fees
under Rule 12b-1 of the 1940 Act, and may pay customary brokerage commissions to
buy and sell shares of closed-end investment companies.
The return on the Fund's investments in investment companies will be
reduced by the operating expenses, including investment advisory and
administrative fees, of such companies. The Fund's investment in a closed-end
investment company may require the payment of a premium above the net asset
value of the investment company's shares, and the market price of the investment
company thereafter may decline without any change in the value of the investment
company's assets. The Fund, however, will not invest in any investment company
or trust unless it is believed that the potential benefits of such investment
are sufficient to warrant the payment of any such premium.
As an exception to the above 1940 Act restrictions, the Fund does have
the authority to invest all of its assets in the securities of a single open-end
investment company with substantially the same fundamental investment objective,
restrictions and policies as that of the Fund. The Fund will notify its
shareholders prior to initiating such an arrangement.
LOANS OF PORTFOLIO SECURITIES
- -----------------------------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND is authorized to make loans
of its portfolio securities to broker-dealers or to other institutional
investors up to 331/3% of its net assets. The borrower must maintain with the
Fund's custodian collateral consisting of cash, cash equivalents or U.S.
Government securities equal to at least 100% of the value of the borrowed
securities, plus any accrued interest. The Fund will receive any interest paid
on the loaned securities and a fee or a portion of the interest earned on the
collateral. The risks in lending portfolio securities, as with other extensions
of secured credit, consist of possible delay in receiving additional collateral
or in the recovery of the securities, or possible loss of rights in the
collateral should the borrower fail financially. The lender also may bear the
risk of capital loss on investment of the cash collateral, which must be
returned in full to the borrower when the loan is terminated. Loans will be made
only to firms deemed by the Advisor to be of good standing and will not be made
unless, in the judgment of the Advisor, the consideration to be earned from such
loans would justify the associated risk.
BORROWING
- ---------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND may borrow from banks up to
30% of the value of its total assets for temporary or emergency purposes and
enter into reverse repurchase agreements. If the income and gains on securities
purchased with the proceeds of borrowings or reverse repurchase agreements
exceed
-14-
<PAGE> 82
the cost of such borrowings or agreements, the Fund's earnings or net asset
value will increase faster than otherwise would be the case; conversely, if the
income and gains fail to exceed the cost, earnings or net asset value would
decline faster than otherwise would be the case. If the 300% asset coverage
required by the 1940 Act should decline as a result of market fluctuation or
other reasons, the Fund may be required to sell some of its portfolio securities
within three days to reduce the borrowings and restore the 300% asset coverage,
even though it may be disadvantageous from an investment standpoint to sell
securities at that time.
INVESTMENT RESTRICTIONS
- -----------------------
The CALIFORNIA INTERMEDIATE TAX-FREE FUND has certain fundamental
policies that are described in the Statement of Additional Information under
"Investment Restrictions." These investment restrictions include prohibitions
against borrowing money (except as described above) and against concentrating
the Fund's investments in issuers conducting their principal business activities
in a single industry (except that this limitation does not apply with respect to
U.S. Government securities). In addition, a minimum of 80% of assets must be
invested in California municipal securities exempt from federal and California
income taxes and not subject to the alternative minimum tax on individuals.
These investment restrictions and the Fund's investment objective cannot be
changed without the approval of shareholders of the Fund; all other investment
practices described in this Prospectus and in the Statement of Additional
Information can be changed by the Board of Directors without shareholder
approval.
PORTFOLIO TURNOVER
- ------------------
The Funds expects to trade in securities for short-term gain whenever
deemed advisable by the Advisor in order to take advantage of anomalies
occurring in general market, economic or political conditions. Therefore, the
Fund may have a higher portfolio turnover rate than that of some other
investment companies, but it is anticipated that the annual portfolio turnover
rate of the Fund will not exceed 100%. The portfolio turnover rate is calculated
by dividing the lesser of sales or purchases of long-term portfolio securities
by the Fund's average month-end long-term investments. High portfolio turnover
involves correspondingly greater transaction costs in the form of dealer spreads
or brokerage commissions and other costs that the Fund will bear directly, and
may result in the realization of net capital gains, which are generally taxable
whether or not distributed to shareholders.
INVESTMENT LIMITATIONS OF THE FUNDS
-----------------------------------
The Funds have adopted the following restrictions with respect to their
investment policies. These restrictions are fundamental policies, and may not be
changed as to a Fund unless authorized by the vote of a majority of the
outstanding shares of the Fund, as that term is defined herein under the section
entitled "GENERAL INFORMATION" below.
(a) UNDERWRITING OF SECURITIES: The Funds will not engage in the
underwriting of securities of other issuers.
(b) DIVERSIFICATION: The Funds have adopted the policy prohibiting it
from, as to 75% of each Fund's total assets, investing more than 5%
of its total assets in the securities of any one issuer (other than
securities issued by the Government or its agencies or
instrumentalities).
-15-
<PAGE> 83
(c) INDUSTRY CONCENTRATIONS: The Funds may not purchase the securities
of issuers conducting their principal business activities in the
same industry, other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities if immediately
after such purchase the value of a Fund's investments in such
industry would exceed 25% of the value of the total assets of the
Fund.
(d) PURCHASE AND SALE OF REAL ESTATE: The Funds will not engage in the
purchase and sale of interests in real estate except that the Funds
may engage in the purchase and sale of marketable securities which
may represent indirect interests in real estate.
(e) PURCHASE AND SALE OF COMMODITIES OR COMMODITY CONTRACTS: The Funds
will not engage in the purchase and sale of commodities or
commodity contracts.
(f) MAKING OF LOANS TO OTHER PERSONS: The Funds will not make loans to
any person or company, except that the Funds may purchase a portion
of an issue of publicly distributed bonds, debentures or other debt
securities and except further that the Funds may enter into
repurchase agreements.
(g) BORROWING OF MONEY: From time to time, the Funds may borrow money.
All such borrowings shall be exclusively from banks. The purpose of
such borrowings shall be both for temporary use and to provide
funds for the purchase of additional investments whenever the Board
of Trustees of the Trust shall deem it desirable. In connection
with any such borrowing, a Fund shall issue promissory notes or
other evidences of indebtedness and shall, when required, pledge,
assign or otherwise encumber its assets, provided, however, (i)
that immediately after such borrowing it shall have an asset
coverage of at least 300% for all its borrowing and (ii) that in
the event such asset coverage shall at any time fall below 300% it
shall, within three days thereafter (not including Sundays and
holidays) or such longer periods as the U.S. Securities and
Exchange Commission (the "SEC") may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that
the asset coverage of the borrowings shall be at least 300%.
(h) SECURITIES OF OTHER INVESTMENT COMPANIES: The Funds will not invest
in the securities of other investment companies.
(i) ISSUANCE OF SENIOR SECURITIES: The Funds are not authorized to
issue securities senior to the shares offered by each Prospectus,
except in connection with borrowings under the terms described
above under "BORROWING OF MONEY."
OTHER INVESTMENT RESTRICTIONS
(a) The Funds may not invest in oil, gas or mineral leases;
(b) The Funds may invest up to 5% of their total assets at the time of
purchase in warrants. Included within this amount, but not to
exceed 2% of the Fund's total assets are warrants which are not
listed on the New York Stock Exchange or the American Stock
Exchange. This restriction does not apply to warrants initially
attached to securities purchased by the Funds;
-16-
<PAGE> 84
(c) The Funds will not invest in real estate limited partnerships; and
(d) The Funds will not purchase securities on margin, but the Funds may
obtain such short-term credits as may be necessary for the purchase
and sale of securities.
(e) Purchase or retain the securities of any issuer if, to the
knowledge of a Fund, any Officer or Trustee of the Fund or of its
Investment Advisor owns beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, and such Officers and
Trustees of the Fund or of its Investment Advisor who own more than
1/2 of 1%, own, in aggregate, more than 5% of the outstanding
securities of such issuer.
MANAGEMENT OF THE TRUST
-----------------------
TRUSTEES AND OFFICERS OF THE TRUST
- ----------------------------------
Under Delaware law, the business and affairs of the Trust are managed
under the direction of the Board of Trustees. There are currently eight
Trustees, six of whom are not "interested persons" of the Trust within the
meaning of that term under the Act. The Trustees, in turn, elect the officers of
the Trust to supervise actively its day-to-day operations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NAME, AGE POSITION(S) PRINCIPAL OCCUPATION(S) DURING THE
& ADDRESS HELD WITH PAST FIVE YEARS
TRUST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James F. Twaddell (59) Chairman of the Board; Investment Banker at Schneider
c/o Schneider Securities, Trustee since 1979 Securities, Inc. since June 1995;
Inc. Chairman of the Board, Director and
2 Charles Street Registered Representative of Barclay
Providence, RI 02904 Investment, Inc. until June 1995.
- ------------------------------------------------------------------------------------------------------------
Robert H. Breslin, Jr. (70) Trustee since 1979; Partner in the law firm of Breslin & Sweeney,
107 Forge Road Member of Audit Warwick, RI. since 1970 .
E. Greenwich, RI 02818 Committee
- ------------------------------------------------------------------------------------------------------------
David P. Como(1) (52) Trustee since 1984; Managing Director, Trainer Wortham &
111 Pine Street President Co., Inc. since 1969.
3rd Floor
San Francisco, CA 94111
- ------------------------------------------------------------------------------------------------------------
Raymond Eisenberg (75) Trustee since 1960; President of Raymond Eisenberg &
488 County Street Chairman of the Audit Associates, PC Accountants and Auditors,
New Bedford, MA 02740 Committee New Bedford, MA since 1980.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE> 85
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
David Elias(1) (53) Trustee since 1991 President and Chief Investment Officer of
500 Essjay Road Elias Asset Management, Inc., Buffalo,
Suite 220 NY since 1978.
Williamsville, NY 14221
- ----------------------------------------------------------------------------------------------------
Robert S. Lazar (54) Trustee since 1976; Retired in 1992, formerly an Engineer,
P.O. Box 4158 Member of the Audit Newport, RI; Director, Newport Federal
Middletown, RI 02842- Committee Savings Bank, Newport, RI.
0011
- ----------------------------------------------------------------------------------------------------
Martin S. Levine (45) Trustee since 1994; Controller and Chief Financial Officer of
c/o John P. Picone, Inc. Member of the Audit John P. Picone, Inc., Contractors and
31 Garden Lane Committee Engineers, Lawrence, NY, since 1984.
Lawrence, NY 11559
- ----------------------------------------------------------------------------------------------------
Berkeley Belknap Vice President Portfolio Manager and Research Analyst,
111 Pine Street received her BA degree in History from
3rd Floor Yale University in 1992; Financial
San Francisco, CA 94111 Analyst with Morgan Stanley in the
Investment Banking Division from 1993
to 1995, option trader in the Foreign
Exchange Division from 1995 to 1996.
Ms. Belknap joined Trainer Wortham in
1997 and holds the following licenses
with the NASD: Series 7 and 63.
- ----------------------------------------------------------------------------------------------------
Timothy J. O'Hara (48) Trustee since 1998 Publisher of CU Journal , a national
Faulkner & Gray weekly financial newspaper owned by
224 Datura Street Faulkner & Gray, Inc.
Suite 709
W. Palm Beach, FL 33401
- ----------------------------------------------------------------------------------------------------
Todd Eisenberg Trustee since July 1999 Managing Partner for Petitti, Eisenberg &
488 Pleasant Street Gamache, P.C. since 1982.
New Bedford, MA 02740
- ----------------------------------------------------------------------------------------------------
John D. Knox Vice President Fixed Income Portfolio Manager of
845 Third Avenue Trainer Wortham First Mutual Funds
6th Floor since 1994.
New York, NY 10022
- ----------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE> 86
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Debra L. Como (40) Secretary & Treasurer Mutual Fund and Marketing Distribution
111 Pine Street Agent for Trainer Wortham First Mutual
3rd Floor Funds from 1993 to present; Vice-
San Francisco, CA 94111 President & Director of Fund/Plan Broker
Services, Inc. from 1987 to 1993.
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) "Interested person" within the meaning of Section 2(a)(19) of the
Investment Company Act of 1940. Mr. Como is an "interested person" by
reason of his affiliation with the Advisor and as a result of being an
Officer of the Trust. Mr. Elias may be regarded as an "interested
person" by reason of a material business relationship with Trainer
Wortham.
The Audit Committee of the Board of Trustees of the Trust was
established to consider such matters as the selection of the independent
certified public accountant for the Trust, review of the auditor's report on
accounting procedures and internal controls, review of the quarterly reports on
brokerage commissions paid by the Trust, and other issues referred to the
Committee by the full Board. The Audit Committee is currently comprised of four
disinterested Trustees; under the Trust's By-laws, the President also serves as
an Ex-Officio member of the Audit Committee.
The following table sets forth information regarding the total
compensation paid by the Trust to its Trustees for their services as Trustees
during the fiscal year ended June 30, 1999.
COMPENSATION TABLE:
- --------------------------------------------------------------------------------
NAME, AGE AGGREGATE TOTAL
& ADDRESS COMPENSATION COMPENSATION
FROM TRUST FROM TRUST AND FUND COMPLEX
- --------------------------------------------------------------------------------
James F. Twaddell, $5,000 $5,000
Chairman
- --------------------------------------------------------------------------------
Robert H. Breslin, Jr., $5,200 $5,200
Trustee, Member of Audit
Committee
- --------------------------------------------------------------------------------
David P. Como(1), $ 0 $ 0
Trustee
- --------------------------------------------------------------------------------
Raymond Eisenberg, $4,700 $4,700
Trustee, Chairman of the
Audit Committee
- --------------------------------------------------------------------------------
-19-
<PAGE> 87
- --------------------------------------------------------------------------------
David Elias(1), $ 0 $ 0
Trustee
- --------------------------------------------------------------------------------
Robert S. Lazar, $5,200 $5,200
Trustee, Member of Audit
Committee
- --------------------------------------------------------------------------------
Martin S. Levine, $5,200 $5,200
Trustee, Member of Audit
Committee
- --------------------------------------------------------------------------------
Berkeley Belknap, $ 0 $ 0
Vice President
- --------------------------------------------------------------------------------
Timothy J. O'Hara , $ 0 $ 0
Trustee, Member of Audit
Committee
- --------------------------------------------------------------------------------
Todd Eisenberg*, $ 0 $ 0
Trustee
- --------------------------------------------------------------------------------
John D. Knox, $ 0 $ 0
Vice President
- --------------------------------------------------------------------------------
Debra L. Como, $ 0 $ 0
Secretary & Treasurer
- --------------------------------------------------------------------------------
As of June 30, 1999, the compensation for disinterested Trustees
included a fee of $500 per meeting of the Board of Trustees attended and an
annual retainer of $3,000. In addition, the Trustees were reimbursed for
expenses incurred in connection with their attendance at meetings of the Board
of Trustees. Members of the Audit Committee also receive fees for meetings
attended. However, no Officer of the Trust receives any compensation directly
from the Trust for performing the duties of their offices. The Advisor, of which
Mr. Como is an officer and/or trustee, receives fees from the Trust for acting
as its Investment Advisor. (See the section entitled "INVESTMENT ADVISOR.")
*Mr. Eisenberg was elected to the Board of Trustees on July 20, 1999
and did not receive any compensation during the June 30, 1999 fiscal year.
-20-
<PAGE> 88
PRINCIPAL HOLDERS OF SECURITIES
-------------------------------
Listed below are the names and addresses of those shareholders and
accounts who, as of October , 1999, owned of record or beneficially 5% or more
of the shares of a Fund.
Persons or organizations owning 25% or more of the outstanding shares
of a Fund may be presumed to "control" (as that term is defined in the 1940 Act)
a Fund. As a result, these persons or organizations could have the ability to
approve or reject those matters submitted to the shareholders of such Fund for
their approval.
As of October , 1999, the Trustees and Officers of the Trust individually and as
a group owned beneficially less than 1.00% of the outstanding shares of any
Fund.
As of October , 1999, the following persons owned of record or beneficially more
than 5% of the outstanding voting shares of FIRST MUTUAL FUND:
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES HELD PERCENTAGE
- ------------------------------------ ----------- ----------
Trainer Wortham Profit Sharing Trust %
c/o Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Perry R. Como %
c/o Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Semper Trust Co. c/f IRA r/o of %
Perry R. Como
c/o Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Semper Trust Co. c/f IRA r/o of %
Alice Stone Trainer
304 Pomperaug Woods
Southbury, CT 06488-1872
As of October , 1999, the following persons owned of record or beneficially more
than 5% of the outstanding voting shares of TOTAL RETURN BOND FUND:
-21-
<PAGE> 89
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES HELD PERCENTAGE
- ------------------------------------ ----------- ----------
H. Williamson Ghriskey, Jr. %
TRST Margot Marsh Biodiversity Foundation
c\o Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
HW Mali Profit Sharing Ret Plan %
c\o Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
Daniel U. Escaro %
TRST York Labs PSP
DTD N/A
c/o York Hospital
1001 S. George Street
York, PA 17405
AMSOUTH Bank %
TRST Tuscaloosa Ear Nose & Throat
Center PC Profit Sharing Plan
Walburn A/CC/O trainer Wortham & Co.
845 Third Avenue
New York, NY 10022-6601
As of October , 1999, the following persons owned of record or beneficially more
than 5% of the outstanding voting shares of CALIFORNIA INTERMEDIATE TAX-FREE
FUND:
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES HELD PERCENTAGE
- ------------------------------------ ----------- ----------
Catherine Sullivan %
55 Laurel Street
San Francisco, CA 94118
Richard & Cynthia Long Trust %
2395 Old Soda Springs Road
Napa, CA 94558
Charlotte Vaughn Winton %
3905 Clay Street
San Francisco, CA 94118
-22-
<PAGE> 90
Joseph Paige and May Paige JWROS %
60 Parkwood Drive
Atherton, CA 94027
INVESTMENT ADVISORY AND OTHER SERVICES
--------------------------------------
THE INVESTMENT ADVISOR
- ----------------------
In 1981, Trainer Wortham & Co., Inc. ("the Advisor") became the
Investment Advisor of the Trust. The Advisor has offices at 845 Third Avenue,
6th Floor, New York, N.Y. 10022. The Advisor, organized in 1998, continues an
investment counseling business which began in 1924 as Trainer & Associates. The
Advisor is registered as an investment advisor under the Investment Advisers Act
of 1940, as amended, and supervises approximately $ billion in investment
accounts. The advisor is a wholly-owned subsidiary of First Republic Bank. First
Republic Bank is a commercial bank headquartered at 111 Pine Street, San
Francisco, California 94111, which is engaged in a general banking business and
it also provides private banking services. First Republic Bank has offices in
California, Nevada and New York City and has approximately $ billion in assets.
The Directors of the Advisor are: A. Alexander Arnold III, Katherine
August deWilde, David P. Como, James P. Conn, H. Williamson Ghriskey, Jr., James
H. Herbert, II, Charles V. Moore and Roger O. Walther. Mr. Como, Managing
Director of the Advisor, is the President and a Trustee of the Trust.
Each Fund's Investment Advisory Agreement provides that, subject to the
general supervision of the Trust's Board of Trustees and in accordance with each
Fund's investment objectives, policies, and restrictions, the Advisor will
manage the Funds' investment portfolio, make decisions with respect to and place
orders for all purchases and sales of the portfolio securities. Pursuant to the
Investment Advisory Agreements, the Advisor is not liable for any mistake of
judgment, mistake of law, or other loss to a Fund in connection with its
performance under the Investment Advisory Agreements except a loss resulting
from a breach of fiduciary duty with respect to the receipt of compensation for
its services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Advisor in the performance of its duties, or by
reason of its reckless disregard of its obligations under the Investment
Advisory Agreements.
Pursuant to individual Investment Advisory Agreements, with respect to
FIRST MUTUAL FUND and LARGE-CAP GROWTH FUND the Advisor receives an annual
investment advisory fee, accrued daily and paid monthly, of 0.75% of the Fund's
average daily net assets; with respect to TOTAL RETURN BOND FUND and CALIFORNIA
INTERMEDIATE TAX-FREE FUND, the Advisor receives an annual fee, accrued daily
and paid monthly, of 0.45% of the Fund's average daily net assets. From time to
time, the Advisor may waive receipt of its fees and/or voluntarily assume
certain Fund expenses, which would have the effect of lowering a Fund's expense
ratio and increasing yield to investors at the time such amounts are waived or
assumed, as the case may be. No Fund will reimburse the Advisor at a later time
for the expenses it has assumed.
For the fiscal years ended June 30, 1999, 1998 and 1997, with respect
to FIRST MUTUAL FUND, the Fund paid the Advisor fees aggregating $331,176,
$280,113 and $235,424, respectively.
With respect to the TOTAL RETURN BOND FUND, for the fiscal year ended
June 30, 1999, the Advisor earned Investment Advisory fees of $63,531, of which
$36,141 were waived. For the fiscal year ended June
-23-
<PAGE> 91
30, 1998, the Advisor earned Investment Advisory fees of $45,382, all of which
it voluntarily waived. For the fiscal period October 1, 1996 (commencement of
operations) through June 30, 1997, the Advisor earned Investment Advisory fees
of $22,431, all of which it voluntarily waived.
With respect to the CALIFORNIA INTERMEDIATE TAX-FREE FUND, for the
period June 10, 1999 (commencement of operations) through June 30, 1999, the
Advisor earned Investment Advisory fees of $735, all of which it voluntarily
waived.
THE DISTRIBUTOR
- ---------------
First Data Distributors, Inc. ("FDDI"), 4400 Computer Drive,
Westborough, MA 01581 serves as the Trust's Distributor pursuant to an
Underwriting Agreement (the "Underwriting Agreement"). FDDI is an affiliated
company of the Administrator, Investor Services Group, inasmuch as both FDDI
and Investor Services Group are under common ownership.
The Underwriting Agreement may be renewed for successive one-year
periods provided that each continuance is specifically approved by (1) the vote
of a majority of the Trust's outstanding voting shares or by the Board of
Trustees and (2) the vote of a majority of the Board of Trustees who are not
"interested persons" of the Trust and who have no direct or indirect financial
interest in the Underwriting Agreement.
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
FIRST MUTUAL FUND and LARGE-CAP GROWTH FUND each have adopted a Plan of
Distribution (the "Plan" or "Plans") pursuant to Rule 12b-1 under the Act. The
Plans permit each Fund to pay certain expenses associated with the distribution
of its shares. The Plans provide that each Fund will reimburse FDDI for actual
distribution and shareholder servicing expenses incurred by FPSB not exceeding,
on an annual basis, 0.25% of the Fund's average daily net assets.
In adopting each Plan, the Board of Trustees considered the likelihood
that the Plan is designed to benefit the Fund and its shareholders by
strengthening the system for distributing the Fund's shares and thereby
increasing sales and reducing redemptions. Potential benefits from increased
sales and reduced redemptions include: (i) additional funds being available for
investment, thereby giving the Fund's portfolio manager greater flexibility in
pursuing the Fund's investment objectives; (ii) reducing the likelihood that an
unusually large demand for redemption would require disadvantageous liquidations
of portfolio investments; and (iii) increasing net assets, thereby reducing on a
per share basis those expenses which do not rise proportionately with net
assets. The Board of Trustees concluded that there was a reasonable likelihood
that each Fund and their shareholders would benefit from the adoption of the
Plan.
Each Plan may be renewed for successive one year periods provided that
each continuance is specifically approved by: (1) the vote of a majority of the
Fund's outstanding voting shares or by the Board of Trustees; and (2) the vote
of a majority of the Board of Trustees who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the Plan.
Any change in a Plan that would materially increase the amount of
distribution expense borne by the Fund requires shareholder approval; any other
material change requires approval by the Board of Trustees,
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<PAGE> 92
including a majority of the disinterested trustees as described above. While a
Plan is in effect, the selection and nomination of a Fund's disinterested
Trustees is committed to the disinterested Trustees.
Each Plan authorizes the Fund to pay service organizations, which may
include but are not limited to: (1) compensation to securities brokers and
dealers for selling shares; (2) compensation to securities brokers and dealers,
accountants, attorneys, investment advisors and pension actuaries for services
rendered to their clients relating to the distribution of shares of the Fund;
(3) compensation to such parties for marketing research and promotional services
specifically relating to the distribution of Fund shares; (4) the costs of
advertising in newspapers, magazines or other periodicals, or on radio or
television; (5) the costs of telephone (including "WATS" and "800" services),
mail (including postage and other delivery costs) or other direct solicitation
of prospective investors; (6) the costs of preparing and printing prospectuses
and other sales material for prospective investors, and the cost of distributing
these materials; (7) the fees of public relations consultants; and (8) any other
distribution expenses that the Board of Trustees may from time to time approve
before such expenses are incurred.
All such payments made pursuant to a Plan shall be made for the purpose
of selling shares issued by the Fund. Payments of compensation pursuant to (3)
above may be based in whole or in part on a percentage of the regular salary
expense for those employees of such parties engaged in marketing research and
promotional services specifically relating to the distribution of Fund shares
based on the amount of time devoted by such employees to such activities, and
any out-of-pocket expenses associated with the distribution of Fund shares.
The Plans provide that FDDI will be reimbursed on a monthly basis for
expenses incurred in connection with the distribution of Fund shares. During the
fiscal year ended June 30, 1999, distribution expenses for FIRST MUTUAL FUND
were reimbursed as follows:
EXPENSE ITEM AMOUNT
- ------------ ------
Printing $9,023.37
Underwriter Compensation $16,405.03
Compensation to Broker Dealer's $3,303.16
Fulfillment Distribution Paid to Como Group $24,000.00
Marketing and Advertising $35,299.37
TOTAL 12B-1 EXPENSES *$88,030.93
* Reimbursement to Plan for the fiscal year ended June 30, 1999 was $15,623.75.
THE ADMINISTRATOR
- -----------------
First Data Investor Services Group, Inc., ("Investor Services Group")
3200 Horizon Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903,
serves as the Trust's Administrator pursuant to an Administration Agreement (the
"Administration Agreement") Investor Services Group is an affiliate of the
Trust's Distributor, First Data Distributors, Inc. Pursuant to the
Administration Agreement, Investor Services Group receives an annual fee,
accrued daily and paid monthly, of 0.15% on the first $50 million of the
average daily net assets of the Trust, 0.10% on the next $50 million of the
average daily net assets of the Trust; and 0.05% on average daily net assets
of the Trust over $100 million, subject to a minimum fee of $72,000 for the
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<PAGE> 93
Trust. Minimum fees are $48,000 per year for the first Series, and $12,000 for
each additional Series or class. The Trust pays the fees and out-of-pocket costs
of Investor Services Group.
The services Investor Services Group provides to the Trust include: the
coordination and monitoring of any third parties furnishing services to the
Trust; providing the necessary office space, equipment and personnel to perform
administrative and clerical functions for the Trust; preparing, filing and
distributing proxy materials, periodic reports to shareholders, organization of
Board meetings, registration statements and other documents; and responding to
shareholder inquiries.
With respect to FIRST MUTUAL FUND, Investor Services Group received
administration fees of $66,391 $59,915 and $55,489, for the fiscal years ended
June 30, 1999, 1998, and 1997, respectively. For the fiscal year ended June 30,
1999 and 1998 and for the fiscal period ended June 30, 1997, TOTAL RETURN BOND
FUND paid Investor Services Group administration fees of $ 20,116, $15,476 and
$9,270, respectively. For the period June 10, 1999 (commencement of operations)
to June 30, 1999, CALIFORNIA INTERMEDIATE TAX-FREE FUND paid Investor Services
Group administration fees of $3,478.
TRANSFER AGENT AND FUND ACCOUNTANT
- ----------------------------------
Investor Services Group serves as the Trust's Transfer Agent, Dividend
Disbursing Agent and Redemption Agent pursuant to a Transfer Agent Services
Agreement and also serves as the Trust's Accounting Services Agent pursuant to
an Accounting Services Agreement (the "Accounting and Transfer Agent Services
Agreements"). The Accounting and Transfer Agent Services Agreements will
continue in effect from year to year, provided such continuance is specifically
approved at least annually by the Board of Trustees or by a vote of a majority
of the outstanding shares of the Trust (as defined under the section entitled
"GENERAL INFORMATION" in the Prospectus), and a majority of the Board of
Trustees who are not interested persons (as defined in the Act) of any party to
the respective Agreements, by votes cast in person at a meeting called for such
purpose.
The Accounting and Transfer Agent Services Agreements provide generally
that Investor Services Group shall be indemnified against liabilities to the
Trust in connection with matters relating to the Accounting and Transfer Agent
Services Agreements except those arising out of willful misfeasance, bad faith
or gross negligence on the part of Investor Services Group in the performance of
its duties or from reckless disregard of its obligations and duties thereunder.
The Trust pays Investor Services Group an annual fee of $15.00 per
shareholder account (subject to a minimum monthly fee of $ $2,250) for its
services as Transfer Agent, Dividend Disbursing Agent and Redemption Agent. For
accounting services, Investor Services Group receives from the Trust an annual
fee, payable monthly, of $24,000 on the first $10 million of average daily net
assets; .0004% on the next $40 million of average daily net assets; .0003% of
the next $50 million of average daily net assets; and .0001% of average daily
net assets in excess of $100 million.
THE CUSTODIAN
- -------------
UMB Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64141, serves
as the Funds' Custodian pursuant to a Custody Agreement. In such capacity, the
Custodian holds or arranges for the holding of all portfolio securities and
other assets of the Funds.
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<PAGE> 94
INDEPENDENT AUDITORS
- --------------------
Briggs, Bunting and Dougherty, LLP, 2121 Two Logan Square, 18th & Arch
Streets, Philadelphia, PA 19103-4901 have been selected as the independent
accountants for the Funds and will provide audit and tax services. The books of
the Funds will be audited at least once each year by Briggs, Bunting and
Dougherty, LLP.
BROKERAGE COMMISSIONS
- ---------------------
It is the policy of each Fund to secure the execution of orders on its
portfolio transactions in an effective manner at the most favorable price.
Pursuant to its agreement with each Fund, the Advisor determines, subject to the
general supervision of the Board of Trustees and in accordance with each Fund's
investment objectives, policies and restrictions, which securities are to be
purchased and sold and which brokers are to be eligible to execute its portfolio
transaction. It is not the policy of the Funds to deal solely with one broker,
but it is each Fund's intention to place portfolio transactions with those
brokers which provide the most favorable combination of price, execution and
services to the Trust. Research services are a factor in selection of brokers,
but payment in excess of brokerage commissions charged by other brokers is not
made in recognition of research services. The reasonableness of brokerage
commissions is evaluated by comparison to fees charged by other brokers where
the execution and services are comparable.
During the fiscal year ended June 30, 1999, 1998 & 1997, FIRST MUTUAL
FUND paid total brokerage commissions of $51,226, $77,023.60 and $99,150.57,
respectively. The Board of Trustees, including a majority of the disinterested
Trustees, have adopted certain procedures pursuant to Rule 17e-1 governing
brokerage transactions between the Trust and affiliated brokers. During the
fiscal years ended June 30, 1999, 1998 and 1997 the Trust paid no such brokerage
commissions.
NET ASSET VALUE
---------------
As indicated in the Prospectus, the net asset value of each Fund is
determined and the shares of each Fund are priced as of the earlier of 4:00
p.m., Eastern Time, or the close of regular trading on the New York Stock
Exchange (the "Exchange"), on each Business Day. A "Business Day" is any day the
Exchange is open for regular business. Currently the Exchange is closed in
observance of the following holidays: New Year's Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day.
Valuations of securities purchased by the Funds are supplied by
independent pricing services used by Investor Services Group, as administrator,
which have been approved by the Trustees of the Trust. Equity securities which
are listed or admitted to trading on a national securities exchange or other
market trading system which reports actual transaction prices on a
contemporaneous basis will be valued at the last sales price on the exchange on
which the security is principally traded. Equity securities for which there is
no sale on that day and equity securities traded only in the over-the-counter
market will be valued at their closing bid prices obtained from one or more
dealers making markets for such securities or, if market quotations are not
readily available, at their fair value as determined in good faith by the Board
of Trustees.
Valuations of fixed and variable income securities ("debt securities")
are based upon a consideration of yields or prices of obligations of comparable
quality, coupon, maturity and type, indications at to value
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<PAGE> 95
from recognized dealers, and general market conditions. The pricing services may
use electronic data processing techniques and/or a computerized matrix system to
determine valuations. Debt securities for which market quotations are readily
available are valued based upon those quotations.
The procedures used by the pricing service are reviewed by the officers
of the Trust under the general supervision of the Trustees. The Trustees may
deviate from the valuation provided by the pricing service whenever, in their
judgment, such valuation is not indicative of the fair value of the debt
security. In such instances the debt security will be valued at fair value as
determined in good faith by or under the direction of the Trustees.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------
Each Fund offers a Systematic Withdrawal Plan ("SWP") if you wish to
receive regular distributions from your account in that Fund. However, before
you can utilize the SWP, your account in the Fund must have a current value of
$5,000 or more, your dividend and distributions must be automatically reinvested
and your requested distribution must be $50 or more made on a monthly,
quarterly, semi-annual or annual basis.
Your automatic payments under the SWP will either be made by check
mailed to your address as shown on the books of the Transfer Agent to your bank
account designated on your Account Application form. An application form for the
SWP may be obtained by calling 1-800-441-6580. You may change or cancel the SWP
at any time, upon written notice to the Transfer Agent at least five days prior
to SWP withdrawal date for which you want such change or cancellation.
Please note that if your redemptions from a Fund exceed your dividends
from that Fund, your invested principal in the account may decrease. Thus
depending on the frequency and amounts of the withdrawals and/or any
fluctuations in the net asset value per share, your original investment could be
exhausted entirely using the SWP.
TAXES
-----
ALL FUNDS
- ---------
Each Fund intends to qualify annually to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, the Funds will not be subject to Federal income
tax, or to any excise tax, to the extent its earnings are distributed as
provided in the Code and by satisfying certain other requirements relating to
the sources of their income and diversification of their assets.
Distributions paid by a Fund from capital gains, whether received in
cash or in additional shares, are taxable to investors as capital gains,
regardless of the length of time an investor has owned shares in the Fund. If
purchases of shares in a Fund are made shortly before the record date for a
capital gains distribution or a dividend, a portion of the investment will be
returned as a taxable distribution.
Dividends which are declared in October, November or December to
shareholders of record in such a month but which, for operational reasons, may
not be paid to the shareholder until the following January, will be treated for
tax purposes as if paid by a Fund and received by the shareholder on December 31
of the calendar year in which they are declared.
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<PAGE> 96
A sale or redemption of shares of a Fund is a taxable event and may
result in a capital gain or loss to shareholders subject to tax. The Fund is
required to withhold 31% of taxable dividends, capital gains distributions, and
redemptions paid to shareholders that have not complied with IRS taxpayer
identification regulations. You may avoid this withholding requirement by
certifying on your account registration form your proper taxpayer identification
number and by certifying that you are not subject to backup withholding.
CALIFORNIA INTERMEDIATE TAX-FREE FUND
- -------------------------------------
The Fund intends to invest in sufficient municipal securities so that
it will qualify to pay "exempt-income dividends" (as defined in the Code) to
shareholders. Exempt-interest dividends distributed to shareholders are not
includable in the shareholder's gross income for federal income tax purposes.
However, this favorable tax treatment may not apply to shareholders who are
"substantial users" (or "related persons" thereto) with respect to facilities
financed by securities held by the Fund.
To the extent that dividends are derived from interest on California
municipal securities, or from interest earnings on certain U.S. Government
obligations, and as long as at least 50% of the value of the total assets of the
Fund consists of bonds on which the interest is exempt from taxation under the
laws of California or the laws of the United States, such dividends will also be
exempt from California personal income taxes. For California income tax
purposes, capital gain distributions and any income from investment in taxable
securities (other than California municipal obligations and direct U.S.
Government obligations) are taxable as ordinary income. The Fund will inform
shareholders annually as to the portion of the distributions, which constitutes
dividends exempt from California personal income tax. All distributions received
by a corporation doing business in California may be subject to California
franchise taxes.
Interest income (in the form of dividends) exempt from federal income
tax is not necessarily exempt under the income or other tax laws of state and
local taxing authorities. Shareholders should consult their tax advisors about
the status of distributions from the Fund in this regard.
The Tax Reform Act of 1986 restricts the federal tax exemption for
interest earned on certain municipal obligations. Under that law, interest on
"private activity" municipal bonds (for example, those issued to finance housing
projects) issued after the effective date is an item of "tax preference" subject
to the individual Alternative Minimum Tax. It is the current intention of the
Fund not to purchase bonds that are subject to the individual Alternative
Minimum Tax. Shareholders will be given prior notification if the Fund intends
to change this policy. Corporate shareholders may wish to consult their tax
advisors before investing in the Fund, since some of the interest on municipal
bonds held in the Fund's portfolio may be included in income subject to the
corporate Alternative Minimum Tax.
The tax discussion set forth above is included for general information
only. Prospective investors should consult their own tax advisers concerning the
Federal, state, local or foreign tax consequences of an investment in the Fund.
PERFORMANCE INFORMATION
-----------------------
From time to time, performance information regarding a Fund, such as
total return, may be quoted in advertisements or in communications to
shareholders. These performance quotations represent a Fund's past
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<PAGE> 97
performance, and should not be considered as representative of future results. A
Fund's total return may be calculated on an average annual and/or aggregate
basis for various periods (which will be stated in all advertisements). Average
annual total return reflects the average percentage change per year in the value
of an investment in the Fund. Aggregate total return reflects the total
percentage change over the stated period. In calculating total return, the
assumption is made that dividends and capital gain distributions made by the
Fund during the period are reinvested in additional shares.
From time to time, a Fund may advertise its yield and "tax-equivalent"
yield. A Fund's yields are calculated according to methods that are standardized
for all mutual funds. Because yield calculation methods differ from the methods
used for other purposes, a Fund's yield may not equal its distribution rate, the
income paid to a shareholder s account, or the income reported in the Fund's
financial statements. The yield of a Fund refers to the income generated by an
investment in the Fund over a 30-day period (which period will be stated in the
advertisement). This income is then "annualized." That is, the amount of income
generated by the investment during that period is assumed to be generated each
30 days over a 365-day period and is shown as a percentage of the investment.
The Fund may also advertise together with its yield a tax-equivalent yield which
reflects the yield which would be required of a taxable investment at a stated
income tax rate in order to equal the Fund's yield.
A Fund's investment results will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio, and operating
expenses of the Fund, so that any investment results reported by a Fund should
not be considered representative of what an investment in the Fund may earn in
any future period. These factors and possible differences in calculation methods
should be considered when comparing the Fund's investment results with those
published for other investment companies, other investment vehicles and
unmanaged indices. The comparison of a Fund to an alternative investment should
be made with consideration of differences in features and expected performance.
The Fund's may also be mentioned in newspapers, magazines, or other media from
time to time. The Fund's assume no responsibility for the accuracy of such data.
Each Fund's results also should be considered relative to the risks associated
with the Fund's investment objective and policies.
The principal value of an investment in a Fund will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
CALCULATION OF TOTAL RETURN
- ---------------------------
Funds compute their average annual total return by determining the
average annual compounded rate of return during specified periods that equate
the initial amount invested to the ending redeemable value of such investment.
This is done by dividing the ending redeemable value of a hypothetical $1,000
initial payment by $1,000 and raising the quotient to a power equal to one
divided by the number of years (or fractional portion thereof) covered by the
computation and subtracting one from the result. This calculation can be
expressed as follows:
ERV = P(1 + T)"
Where: ERV = ending redeemable value at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period.
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<PAGE> 98
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms of years.
T = average annual total return.
The Funds compute their aggregate total return by determining the
aggregate compounded rate of return during specified period that likewise equate
the initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
Aggregate Total Return = [(ERV) -1]
-----
P
Where: ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain distributions
on the reinvestment dates during the period. The ending redeemable value
(variable "ERV" in each formula) is determined by assuming complete redemption
of the hypothetical investment and the deduction of all nonrecurring charges at
the end of the period covered by the computations.
Based on the foregoing calculations, the average annual total returns
for the FIRST MUTUAL FUND for the one year, five year and ten year periods ended
June 30, 1999 were 43.53%, 29.28% and 16.83%, respectively. The aggregate total
returns for the same five and ten year periods were 261.35% and 374.20%,
respectively. The total return for TOTAL RETURN BOND FUND for the one year
period ended June 30, 1999 was 2.79%. The average annual total return for the
TOTAL RETURN BOND FUND since its inception on Oct. 1, 1996 through June 30, 1999
was 5.66%.
A Fund may also quote its yield in advertisements and investor
communications. The yield computation is determined by dividing the net
investment income per share earned during a recent 30-day (or one month) period
by the maximum offering price per share on the last day of that period and
annualizing the resulting figure, according to the following formula:
YIELD = 2 [(a-b+1)6-1]
-----
cd
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends; and
d = the maximum offering price per share on the last day of the period.
For the period ended June 30, 1999, TOTAL RETURN BOND FUND had a yield
of 4.77%. Since performance will fluctuate, performance data for the Funds
should not be used to compare an investment in the Fund's shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed upon or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is
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<PAGE> 99
generally a function of the kind and quality of the instruments held in a
portfolio, portfolio maturity, operating expenses and market conditions.
SHARES OF BENEFICIAL INTEREST
-----------------------------
DESCRIPTION OF SHARES
- ---------------------
The Trust is authorized to issue an unlimited number of shares of
beneficial interest with a par value of $0.001 per share. Shares a Fund
represent equal proportionate interests in the assets of that Fund only and have
identical voting, dividend, redemption, liquidation and other rights. All shares
issued are fully paid and non-assessable, and shareholders have no preemptive or
other right to subscribe to any additional shares.
SHAREHOLDER MEETINGS
- --------------------
The Board of Trustees does not intend to hold annual meetings of
shareholders of the Fund. Subject to certain conditions, shareholders of the
Funds may seek to communicate with other shareholders to request a shareholder's
meeting to vote upon the removal of a Trustee or Trustees.
FINANCIAL STATEMENTS
--------------------
The audited financial statements and notes thereto for each Fund,
contained in the Annual Report to Shareholders dated June 30, 1999, are
incorporated by reference into this Statement of Additional Information and have
been audited by Briggs, Bunting and Dougherty, LLP., whose report also appears
in the Annual Report and is also incorporated by reference herein. No other
parts of the Annual Report are incorporated by reference herein. Such financial
statements and notes thereto have been incorporated herein in reliance on the
report of Briggs, Bunting and Dougherty, LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
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<PAGE> 100
APPENDIX "A"
------------
DESCRIPTIONS OF SECURITIES RATINGS
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<PAGE> 101
APPENDIX "A"
RATINGS OF SECURITIES
---------------------
COMMERCIAL PAPER RATINGS
- ------------------------
STANDARD & POOR'S CORPORATION:
Commercial paper ratings of Standard & Poor's Corporation ("S&P") are current
assessments of the likelihood of timely payment of debts having original
maturities of no more than 365 days. Commercial paper rated "A-1" by S&P
indicates that the degree of safety regarding timely payment is either
overwhelming or very strong. Those issues determined to possess overwhelming
safety characteristics are denoted "A-1+." Commercial paper rated "A-2" by S&P
indicates that capacity for timely payment on issues is strong. However, the
relative degree of safety is not as high as for issues designated "A-1."
MOODY'S INVESTORS SERVICE, INC.:
The rating "Prime-1" is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior capacity for
repayment of short-term promissory obligations. Issuers rated "Prime-2" (or
related supporting institutions) have a strong capacity for repayment of
short-term promissory obligations.
This will normally be evidenced by many of the characteristics of "Prime-1"
rated issuers, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variations. Capitalization characteristics,
while still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
FITCH IBCA:
Commercial paper rated "F-1" by Fitch IBCA ("Fitch") is regarded as having the
strongest degree of assurance for timely payments. Commercial paper rated "F-2"
by Fitch is regarded as having an assurance of timely payment only slightly less
than the strongest rating, I.E., "F-1." The plus (+) sign is used after a rating
symbol to designate the relative position of an issuer within the rating
category.
CORPORATE DEBT RATINGS
- ----------------------
STANDARD & POOR'S CORPORATION:
An S&P corporate debt rating is a current assessment of the creditworthiness of
an obligor with respect to a specific obligation. Debt rated "AAA" has the
highest rating assigned by S&P. Capacity to pay interest and repay principal is
extremely strong. Debt rated "AA has a very strong capacity to pay interest and
to repay principal and differs from the highest rated issues only in small
degree. Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories. Debt
rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate
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<PAGE> 102
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories. Debt rated "BB" and
"B" is regarded as having predominantly speculative characteristics with respect
to capacity to pay interest and repay principal. "BB" indicates the least degree
of speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions. Debt rated "BB" has less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BBB" rating. Debt rated "B" has a
greater vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The "B" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "BB" or "BB-" rating.
MOODY'S INVESTORS SERVICE, INC.:
The following summarizes the six highest ratings used by Moody's for corporate
debt. Bonds that are rated "Aaa" by Moody's are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
that are rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in "Aaa" securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa" securities. Bonds that
are rated "A" by Moody's possess many favorable investment attributes and are to
be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future. Bonds that
are rated "Baa" by Moody's are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds that are rated "Ba" are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bond
which are rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Moody's applies
numerical modifiers (1, 2, and 3) with respect to bonds rated "Aa" through "B."
The modifier 1 indicates that the bond being rated ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the bond ranks in the lower end of its generic
rating category.
<PAGE> 103
DUFF & PHELPS, INC.:
The following summarizes the six highest long-term debt ratings by Duff &
Phelps, Inc. ("Duff"). Debt rated "AAA" has the highest credit quality. The risk
factors are negligible being only slightly more than for risk-free U.S. Treasury
debt. Debt rated "AA" has a high credit quality and protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions. Debt rated "A" has protection factors that are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress. Debt rated "BBB" has below average protection factors but is
still considered sufficient for prudent investment. However, there is
considerable variability in risk during economic cycles. Debt rated "BB" is
below investment-grade but deemed likely to meet obligations when due. Present
or prospective financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or down frequently
within this category. Debt rated "B" is below investment-grade and possesses
risk that obligations will not be met when due. Financial protection factors
will fluctuate widely according to economic cycles, industry conditions and/or
company fortunes. Potential exists for frequent changes in the rating within
this category or into a higher or lower rating grade. To provide more detailed
indications of credit quality, the ratings from "AA" to "B" may be modified by
the addition of a plus (+) or minus (-) sign to show relative standing within
this major rating category.
FITCH IBCA:
The following summarizes the six highest long-term debt ratings by Fitch
IBCA(except for "AAA" ratings, plus(+) or minus (-) signs are used with a rating
symbol to indicate the relative position of the credit within the rating
category). Bonds rated "AAA" are considered to be investment-grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated "AA" are considered to be investment-grade and
of very high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issues
is generally rated "F-1+." Bonds rated as "A" are considered to be
investment-grade and of high credit quality. The obligor's ability to pay
interest and repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings. Bonds rated "BBB" are considered to be
investment-grade and of satisfactory credit quality. The obligor's ability to
pay interest and repay principal is considered to be adequate. Adverse changes
in economic conditions and circumstances, however, are more likely to have
adverse impact on these bonds, and therefore, impair timely payment. The
likelihood that the ratings for these bonds will fall below investment-grade is
higher than for bonds with higher ratings. Bonds rated "BBB" are considered
speculative. The obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in satisfying its
debt service requirements. Bonds rated "B" are considered highly speculative.
While bonds in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
<PAGE> 104
THOMPSON BANKWATCH, INC.:
The following summarizes the six highest long-term debt ratings by Thompson
BankWatch, Inc. ("Thompson"). "AAA" is the highest category and indicates that
the ability to repay principal and interest on a timely basis is very high. "AA"
is the second highest category and indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category. "A" is the third highest category and
indicates the ability to repay principal and interest is strong. Issues rated
"A" could be more vulnerable to adverse developments (both internal and
external) than obligations with higher ratings. "BBB" is the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings. While not investment-grade, the "BB" rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations. Issuer rated "B" show a higher degree of uncertainty
and therefore greater likelihood of default that higher rated issuers. Adverse
developments could well negatively affect the payment of interest and principal
on a timely basis. Thomson may include a plus (+) or minus (-) designation to
indicate where within the respective category the issue is placed.
<PAGE> 105
TRAINER WORTHAM FIRST MUTUAL FUNDS
FORM N-1A
PART C: OTHER INFORMATION
=========================
Item 23.
(a) Agreement and Declaration of Trust dated October 18, 1994, last
amended July 25, 1996 -- Incorporated herein by reference to
Exhibit No. 1(a) to Post-Effective Amendment No. 56 to
Registration Statement No. 2-15037 filed electronically September
30, 1996.
(b) By-Laws dated October 18, 1994, last amended July 25, 1996
--Incorporated herein by reference to Exhibit No. 2(a) to
Post-Effective Amendment No. 56 to Registration Statement No.
2-15037 filed electronically September 30, 1996.
(c) None
(d) (i) Investment Advisory Agreement for FIRST MUTUAL FUND
between Registrant and Trainer Wortham & Co., Inc. dated
September 30, 1996 --Incorporated herein by reference to
Exhibit No. 5(a) to Post-Effective Amendment No. 56 to
Registration Statement No. 2-15037 filed electronically
September 30, 1996.
(ii) Investment Advisory Agreement for TRAINER WORTHAM TOTAL
RETURN BOND FUND between Registrant and Trainer Wortham &
Co., Inc. dated July 25, 1996 --Incorporated herein by
reference to Exhibit No. 5(c) to Post-Effective Amendment
No. 56 to Registration Statement No. 2-15037 filed
electronically September 30, 1996.
(iii) Investment Advisory Agreement for TRAINER WORTHAM
CALIFORNIA INTERMEDIATE TAX-FREE FUND between Registrant
and Trainer Wortham & Co., Inc. dated April 29, 1999
--Incorporated herein by reference to Exhibit No. 5(d) to
Post-Effective Amendment No. 61 to Registration Statement
No. 2-15037 filed electronically June 1, 1999.
(iv) Investment Advisory Agreement for TRAINER WORTHAM
LARGE-CAP GROWTH FUND -- to be filed by amendment.
(e) (ii) Underwriting Agreement between Registrant and First Data
Distributors, Inc. dated January 1, 1999 - Incorporated
herein by reference to Exhibit No. 6(b) to Post-Effective
Amendment No.60 to Registration Statement No. 2-15037
filed electronically March 16, 1999.
(f) None.
(g) (i) Custody Agreement with UMB Bank, N.A. -- dated October 18,
1994 --Incorporated herein by reference to Exhibit No.
8(a) to Post-Effective Amendment No. 56 to Registration
Statement No. 2-15037 filed electronically September 30,
1996.
(ii) Amendment dated July 25, 1996 to Custody Agreement,
reflecting the Trust?s name change and creation of new
Series -- Incorporated herein by reference to Exhibit No.
8(b) to Post-Effective Amendment No. 56 to Registration
Statement No. 2-15037 filed electronically September 30,
1996.
(h) (i) Administration Agreement between Registrant and Fund/Plan
Services, Inc., dated July 25, 1996 --Incorporated herein
by reference to Exhibit No. 9(a) to Post-Effective
Amendment No. 56 to Registration Statement No. 2-15037
filed electronically September 30, 1996.
(a) Amendment to Administration Agreement dated
April 28, 1998 - Incorporated herein by
reference to Exhibit No. 9(a)(i) to
Post-Effective Amendment No. 59 to Registration
Statement No. 2-15037 filed electronically
October 30, 1998.
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<PAGE> 106
(ii) Accounting Services Agreement between Registrant and
Fund/Plan Services, Inc., dated July 25, 1996
--Incorporated herein by reference to Exhibit No. 9(b) to
Post-Effective Amendment No. 56 to Registration Statement
No. 2-15037 filed electronically September 30, 1996.
(a) Amendment to Accounting Services Agreement dated
April 28, 1998 - Incorporated herein by
reference to Exhibit No. 9(b)(i) to
Post-Effective Amendment No. 59 to Registration
Statement No. 2-15037 filed electronically
October 30, 1998.
(iii) Transfer Agent Services Agreement between Registrant and
Fund/Plan Services, Inc., dated July 25, 1996
--Incorporated herein by reference to Exhibit No. 9(c) to
Post-Effective Amendment No. 56 to Registration Statement
No. 2-15037 filed electronically September 30, 1996.
(a) Amendment to Transfer Agent Services Agreement
dated April 28, 1998 - Incorporated herein by
reference to Exhibit No. 9(c)(i) to
Post-Effective Amendment No. 59 to Registration
Statement No. 2-15037 filed electronically
October 30, 1998.
(i) Consent of Dechert Price & Rhoads -- Not Applicable.
(j) Consent of Briggs, Bunting & Dougherty, LLP - To be filed by
amendment.
(k) Not Applicable.
(l) None.
(m) (i) Distribution (12b-1) Plan for FIRST MUTUAL FUND, with
Fund/Plan Broker Services, Inc., dated October 31, 1991 --
Incorporated herein by reference to Exhibit No. 15(a) to
Post-Effective Amendment No. 56 to Registration Statement
No. 2-15037 filed electronically September 30, 1996.
(ii) Distribution (12b-1) Plan for LARGE-CAP GROWTH FUND, with
First Data Distributors, Inc., dated April 29 31, 1999 --
to be filed by amendment.
(n) Financial Data Schedules -- Not applicable
(o) None.
(p) Powers-of-Attorney - Incorporated herein by reference to Exhibit
No. 99(B) (p) to Post-Effective Amendment No. 62 to Registration
Statement No. 2-15037 filed electronically August 5, 1999.
Item 24. Persons Controlled by or Under Common Control with Registrant
-------------------------------------------------------------
None.
Item 25. Indemnification
---------------
Article VII, Section 2 of the Registrant's Agreement and
Declaration of Trust provides as follows: The Trustees
shall not be responsible or liable in any event for any
neglect or wrong-doing of any officer, agent, employee,
Manager or Principal Underwriter of the Trust, nor shall
any Trustee be responsible for the act or omission of any
other Trustee, and, subject to the provisions of the
Bylaws, the Trust out of its assets may indemnify and hold
harmless each and every trustee and officer of the Trust
from an against any and all claims, demands, costs,
losses, expenses, and damages whatsoever arising out of or
related to such Trustee's performance of his or her duties
as a Trustee or officer of the Trust; provided that
nothing herein contained shall indemnify, hold harmless or
protect any Trustee or officer from or against any
liability to the Trust or any
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<PAGE> 107
Shareholder to which he or she would otherwise be subject
by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his or her office.
Every note, bond, contract, instrument, certificate or
undertaking and every other act or thing whatsoever
issued, executed or done by or on behalf of the Trust or
the Trustees or any of them in connection with the Trust
shall be conclusively deemed to have been issued, executed
or done only in or with respect to their or his or her
capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
Article Sixth of the By-Laws of the Trust provide that any
trustee and officer shall be indemnified against reasonable
costs and expenses incurred in connection with any
proceeding to which he or she is made a party by reason of
his being or having been a trustee or officer of the Trust,
except in relation to any action, suit or proceeding in
which he or she is adjudged liable because of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office. In the absence of an adjudication which expressly
absolves a trustee or officer of liability for such willful
misfeasance, etc., a written opinion of independent counsel
is required prior to payment of indemnification.
Indemnification of the Trust's investment advisor,
distributor, custodian, administrator, transfer agent,
dividend disbursing and redemption agent and accounting
services agent is provided for, respectively, in Section 8
of the Investment Advisory Agreement (Exhibit 5(a));
Section 8 of the Underwriting Agreement (Exhibit 6(a)),
Section 18 of the Custodian Agreement (Exhibit 8), Section
25 of the Administration Agreement (Exhibit 9(a)) Section
8(d) of the Administration Agreement (Exhibit 9(c)), and
Section 23 of the Accounting Services Agreement (Exhibit
9(c)).
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Trust pursuant to
the foregoing provisions, or otherwise, the Trust has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Trust of
expenses incurred or paid by a trustee, officer or
controlling person of the Trust in the successful defense
of any action, suit or proceeding) is asserted by such
trustee, officer, or controlling person in connection with
the securities which have been registered, the Trust will,
unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Advisor
----------------------------------------------------
Trainer Wortham & Co., Inc. is engaged in investment
advising and counseling, and continues an investment
counseling business which began in 1924 as Trainer &
Associates. The company is registered as an investment
advisor under the Investment Advisors Act of 1940 and, as
of June 30, 1999 supervised approximately $3.0 billion in
investment accounts.
The company is a wholly owned subsidiary of First Republic
Bank of San Francisco, California. The business and other
connections of the officers and directors of Trainer
Wortham & Co., are set forth in the Form ADV of Trainer
Wortham & Co., as currently on file with U.S. Securities
and Exchange Commission, and which is incorporated by
reference herein.
Item 27. Principal Underwriter
---------------------
(a) First Data Distributors, Inc., the principal underwriter for
the Registrant's securities, currently acts as principal
underwriter for the following entities:
The Galaxy Fund
Galaxy Fund II
The Galaxy VIP Fund
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<PAGE> 108
Alleghany Funds (f/k/a CT&T Funds)
Wilshire Target Funds, Inc.
The Potomac Funds
Panorama Trust
First Choice Funds Trust
Undiscovered Managers Fund
LKCM Funds
BT Insurance Funds Trust
ABN AMRO Funds (f/k/a Rembrandt Funds)
IBJ Funds Trust
ICM Series Trust
Forward Funds, Inc.
Light Index Funds, Inc.
WorldWide Index Funds
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth Fund
WPG Growth and Income Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The Govett Funds, Inc.
IAA Trust Growth Fund, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
Matthews International Funds
McM Funds
Metropolitan West Funds
Smith Breeden Series Fund
Smith Breeden Trust
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
Trainer Wortham First Mutual Funds
(b) The table below sets forth certain information as to the
Underwriter's Trustees, Officers and Control Persons:
<TABLE>
<CAPTION>
Position Position
Name and Principal and Offices and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Kenneth J. Kempf Director, President None
3200 Horizon Drive
King of Prussia, PA 19406-0903
Lynne M. Cannon Vice President and None
3200 Horizon Drive Principal
King of Prussia, PA 19406-0903
Rocco J. Cavalieri Director and None
3200 Horizon Drive Vice-President
King of Prussia, PA 19406-0903
</TABLE>
-4-
<PAGE> 109
<TABLE>
<CAPTION>
<S> <C> <C>
Gerald J. Holland Director, Vice- None
3200 Horizon Drive President and
King of Prussia, PA 19406-0903 Principal
Sandra L. Adams None
3200 Horizon Drive
King of Prussia, PA 19406-0903 Principal
Bruno DiStefano Principal None
3200 Horizon Drive
King of Prussia, PA 19406-0903
Mary P. Efstration Secretary None
3200 Horizon Drive
King of Prussia, PA 19406-0903
</TABLE>
(c) None
Item 28. Location of Accounts and Records
--------------------------------
(1) Trainer Wortham & Co., Inc., 845 Third Avenue, New
York, NY 10022 (records relating to its functions
as investment advisor).
(2) UMB Bank, KC, NA, P.O. Box 412797, Kansas City, MO
64141-2797 (records prepared after February 29,
1988 relating to its functions as Custodian).
(3) First Data Investor Services Group, Inc.,. 3200
Horizon Drive, P.O. Box 61503, King of Prussia, PA
19406-0903 (records prepared after March 15, 1985
relating to its functions as Transfer Agent,
dividend disbursing and redemption agent, and
Accounting Services Agent); and since April 16,
1991 for its administrative records.
(4) Dechert Price & Rhoads, 1775 Eye Street N.W.,
Washington, DC 20006 (Articles of Association,
By-Laws and Minute Books).
(5) First Data Investor Services Group, Inc. and First
Data Distributors, Inc. 3200 Horizon Drive, P.O.
Box 61503, King of Prussia, PA 19406-0903
(Administrative records and those records relating
to functions as Distributor prepared after May 1,
1991 which are required to be maintained pursuant
to Section 31(a) under the Investment Company Act
of 1940, as the rules promulgated thereunder).
Item 29. Management Services
-------------------
None
Item 30. Undertakings
------------
None
-5-
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 63 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in King of Prussia, PA on September 2,
1999.
TRAINER WORTHAM FIRST MUTUAL FUNDS
David P. Como*
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this Registrant's
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
*James F. Twaddell Chairman of the September 2, 1999
Board and Trustee
*Debra L. Como Secretary and Treasurer September 2, 1999
*Robert S. Lazar Trustee September 2, 1999
*David Elias Trustee September 2, 1999
*Raymond Eisenberg Trustee September 2, 1999
*Robert H. Breslin, Jr. Trustee September 2, 1999
*Timothy J. O'Hara Trustee September 2, 1999
*Todd Eisenberg Trustee September 2, 1999
* By: /s/ Kelly O'Neill
--------------------------------------
Kelly O'Neill, as Attorney-in-Fact
pursuant to Power-of-Attorney
-6-
