<PAGE> 1
[TRAINER WORTHAM & CO., INC. -- A VIEW OF THE MARKETS & OUR PORTFOLIOS]
July 19, 1999
Dear Shareholders:
The Federal Reserve's widely expected 25 basis point rate hike on June 30, 1999,
actually caused long term rates to decline below 6% from a high of 6.16% as the
Fed announced at the time of the rate increase, a neutral bias for future open
market actions. Although many expect further tightenings, we would be very
surprised if the Federal Reserve raised rates in the fourth quarter of this year
with all the uncertainty surrounding the "Y2K" event. In fact we believe that
the defining moment for the fixed income markets in 1999 will take place in the
fourth quarter as either one of two outcomes occur.
The first scenario is that there will be a "flight to quality" in the U.S.
Treasury market from foreign investors in Latin America, Asia, and Europe as it
becomes evident that many of their critical systems are not prepared for the
millennium change. Treasuries, as the safest and highest quality instruments,
would be the beneficiaries of significant flight capital and rates could decline
dramatically here in the U.S. In this environment, corporate bonds, especially
low rated corporates, emerging market debt, and even mortgage-backed bonds would
underperform as concerns of weaker corporate profits, especially from U.S.
corporations with foreign subsidiaries or suppliers would come under pressure.
The second scenario, embraced by most Wall Street economists, is surprisingly
quite opposite from the first. Their premise is that all of the issuance
activity in the markets will be accelerated to the third quarter of 1999 because
Corporate Treasurers and mortgage issuers will try to get their deals done
before the liquidity dries up in the fourth quarter. (In fact we are already
starting to see this happening as Ford Motor Company (0.96% of portfolio) last
week issued $7.0 Billion in new corporate debt). Here, because of a lack of
supply, corporate bonds and mortgage-backed bonds actually outperform Treasuries
as investors reach for yield in a stagnant interest rate environment.
At this point, it appears that the second scenario is more likely than the
first, however we are watching the markets closely and will obviously be in
communication with you as the year progresses. Perhaps in fact, these two events
will counteract each other out and the markets reaction in the fourth quarter
will be uneventful. Only time will tell.
In terms of the economy, recent statistics continue to reflect an environment
where GDP is growing at 2.5% to 3.5% with inflation increasing slightly from
1998 levels but still less than 3% per annum. The large budget deficits of the
80's and early 90's are now gone and thus the need to issue Treasury securities
to fund our overspending has declined significantly. This has created a very
favorable supply/demand situation for Treasuries and is a solid underpinning for
the market.
In conclusion, the fate of the fixed income market rests in our view with
investors' response to the "Y2K" event and most likely the fourth quarter of
1999 will be an important one for interest rates. We believe that the likelihood
for a strong rally exists but that most likely corporate issuance will dry up
and as a result, the corporate and mortgage backed sectors of the market may
also perform well. Please call us directly at 888.257.4450 with your questions
or comments. Thank you for your continued interest in the Trainer Wortham Funds.
Sincerely,
[/s/ John D. Knox]
John D. Knox
Vice-President
This material is to be preceded or accompanied by a prospectus. The U.S.
Government guarantees the payment of principal and interest on U.S. Treasury
securities, while the principal and investment return of Trainer Wortham Funds
are not guaranteed and will vary over time. Shares of the Trainer Wortham Funds
are distributed by First Data Distributors, Inc. which is not affiliated with
First Republic Bank and is not a bank. Trainer Wortham & Co., Inc. is the
investment advisor to the Funds, for which it receives a fee.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED OR OTHERWISE SUPPORTED BY, FIRST REPUBLIC BANK, ITS AFFILIATES, AND ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, FEDERAL DEPOSIT
INSURANCE CORPORATION, FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY.
INVESTMENT IN THE FUNDS INVOLVE RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
DFU 8/99
<PAGE> 2
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
FIXED INCOME SECURITIES - 93.86%
U.S. GOVERNMENT TREASURY - 30.39%
$ 50,000 U.S. Treasury Notes, 8.000%, 08/15/99....................... $ 50,080
50,000 U.S. Treasury Notes, 7.750%, 11/30/99....................... 50,554
800,000 U.S. Treasury Notes, 6.375%, 09/30/01....................... 812,336
900,000 U.S. Treasury Notes, 7.500%, 11/15/01....................... 936,801
750,000 U.S. Treasury Notes, 6.375%, 08/15/02....................... 763,808
900,000 U.S. Treasury Notes, 5.500%, 05/31/03....................... 891,225
200,000 U.S. Treasury Notes, 5.875%, 02/15/04....................... 200,744
650,000 U.S. Treasury Notes, 7.250%, 05/15/04....................... 688,311
400,000 U.S. Treasury Notes, 6.500%, 10/15/06....................... 413,048
300,000 U.S. Treasury Notes, 7.250%, 08/15/22....................... 336,006
-----------
TOTAL U.S. GOVERNMENT TREASURY (COST $5,251,153)............ 5,142,913
-----------
U.S. GOVERNMENT AGENCY - 34.51%
200,000 Federal Home Loan Bank
4.690%, 10/16/00............................................ 197,468
400,000 Student Loan Marketing Association
4.750%, 12/11/00............................................ 395,440
374,584 Federal Home Loan Mortgage Corp., Series #1647,
6.500%, 11/15/08............................................ 363,189
325,537 Federal Home Loan Mortgage Corp. Gold Pool #E65534,
6.500%, 10/01/11............................................ 321,569
487,595 Federal National Mortgage Association Pool #421151,
6.000%, 05/01/13............................................ 470,983
494,269 Federal National Mortgage Association Pool #479939,
5.500%, 01/01/14............................................ 467,543
488,479 Federal National Mortgage Association Pool #483994,
6.000%, 04/01/14............................................ 472,408
2,953 Federal National Mortgage Association Pool #041474,
7.500%, 04/01/17............................................ 2,986
10,539 Federal Home Loan Mortgage Corp. Pool #141248,
7.500%, 07/01/17............................................ 10,766
565,863 Federal National Mortgage Association Pool #100285,
9.500%, 12/15/20............................................ 612,546
598,288 Government National Mortgage Association Pool #331266,
8.000%, 08/15/22............................................ 612,683
392,306 Federal Home Loan Mortgage Corp. Gold Pool #D72664,
7.000%, 07/01/26............................................ 388,748
136,163 Federal Home Loan Mortgage Corp. Gold Pool #C80442,
7.000%, 10/01/26............................................ 134,928
484,546 Government National Mortgage Association Pool #407955,
6.500%, 10/15/27............................................ 466,676
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 3
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (CONTINUED) JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
$493,257 Federal National Mortgage Association Pool #251568,
6.500%, 03/01/28............................................ $ 476,452
464,186 Government National Mortgage Association Pool #458485,
6.500%, 08/15/28............................................ 447,066
-----------
TOTAL U.S. GOVERNMENT AGENCY (COST $5,942,816).............. 5,841,451
-----------
CORPORATE BONDS - 28.96%
150,000 Associates Corp. of North America, 6.740%, 08/13/99......... 150,064
110,000 General Motors Acceptance Corp., 8.400%, 10/15/99........... 110,970
160,000 Ford Motor Credit Co., 7.020%, 10/10/00..................... 162,050
500,000 Cendant Corporation, 7.500%, 12/01/00....................... 504,375
200,000 Sears Roebuck Acceptance Corp., 5.870%, 01/08/01............ 199,250
150,000 Morgan Stanley Group, Inc., 9.375%, 06/15/01................ 158,813
111,625 WFS Financial Owner Trust, 1997-B A3, 6.300%, 07/20/01...... 111,427
156,561 Olympic Automobile Receivables Trust, 1997-A A3, 6.400%,
09/15/01.................................................... 156,663
250,000 WFS Financial Owner Trust, 1998-A A3, 5.900%, 05/20/02...... 250,706
250,000 Hydro-Quebec, 6.720%, 03/16/05.............................. 250,937
200,000 Salomon Smith Barney Holdings, Inc., 7.125%, 10/01/06....... 199,250
100,000 Union Pacific Resources Corp., 7.000%, 10/15/06............. 95,625
500,000 Sears Roebuck Acceptance Corp., 7.000%, 06/15/07............ 501,875
500,000 Time Warner Inc., 8.180%, 08/15/07.......................... 534,375
468,637 Norwest Asset Securities Corp., 1997-13 A1, 6.750%,
09/25/27.................................................... 463,177
200,000 General Motors Acceptance Corp., 5.850%, 01/14/09........... 183,250
250,000 SBC Communications, Inc., 6.625%, 11/01/09.................. 247,188
497,500 Comp De Desarollo Aeropu, 10.190%, 05/31/11 (Note 4)........ 451,481
200,000 Empresa Nacional Electric, 7.875%, 02/01/27................. 169,597
-----------
TOTAL CORPORATE BONDS (COST $5,136,381)..................... 4,901,073
-----------
TOTAL FIXED INCOME SECURITIES (COST $16,330,350)............ 15,885,437
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- --------
<C> <S> <C>
SHORT TERM INVESTMENTS - 4.09%
692,918 UMB Bank, Money Market Fiduciary, 3.760% (Cost $692,918).... 692,918
-----------
TOTAL INVESTMENTS (COST $17,023,268**) - 97.95%............. 16,578,355
OTHER ASSETS LESS OTHER LIABILITIES - 2.05%................. 347,447
-----------
NET ASSETS - 100.00%........................................ $16,925,802
===========
** Cost for Federal income tax purposes is $17,023,268 and net unrealized depreciation
consists of:
Gross unrealized appreciation............................... $ 29,560
Gross unrealized depreciation............................... (474,473)
-----------
Net unrealized depreciation................................. $ (444,913)
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
TRAINER, WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF INVESTMENTS JUNE 30,1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ----------
<C> <S> <C>
BOND - 56.33%
MUNICIPAL
$ 250,000 San Diego County, California, Regional Transportation
Commission, Sales Tax Revenue,
5.50%, 04/01/08............................................. $ 262,152
250,000 California State General Obligation,
6.75%, 08/01/10............................................. 288,930
400,000 San Francisco, California City & County Educational
Facility - Zoo Facility, Series C,
5.500%, 06/15/11............................................ 415,500
400,000 California State, Department of Water Resources, Central
Valley Project Revenue,
5.000%, 12/01/11............................................ 400,000
300,000 California State, Public Works, Lease Revenue, California
Community Colleges, Series B,
5.000%, 09/01/12............................................ 298,125
400,000 California State Refunding,
5.000%, 02/01/14............................................ 393,500
325,000 San Francisco, California, Bay Area Rapid Transit District
Sales Tax Revenue,
5.250%, 07/01/16............................................ 324,594
1,000,000 Campbell, California, Unified School District
0.000%, 08/01/18............................................ 357,500
----------
TOTAL MUNICIPALS (COST $2,751,792).......................... 2,740,301
----------
TOTAL BONDS (COST $2,751,792)............................... 2,740,301
----------
TOTAL INVESTMENTS (COST $2,751,792**) - 56.33%.............. 2,740,301
OTHER ASSETS LESS OTHER LIABILITIES - 43.67%................ 2,124,255
----------
NET ASSETS - 100.00%........................................ $4,864,556
==========
** Cost for Federal income tax purposes is $2,751,792 and net unrealized depreciation
consists of:
Gross unrealized appreciation............................... $ 2,816
Gross unrealized depreciation............................... (14,307)
----------
Net unrealized depreciation................................. $ (11,491)
==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 5
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN CALIFORNIA INTERMEDIATE
BOND TAX-FREE FUND
------------ -----------------------
<S> <C> <C>
ASSETS
Investments in securities at market value
(identified cost $17,023,268 and $2,751,792,
respectively)
(Notes 1 and 4)................................. $16,578,355 $2,740,301
Cash.............................................. -- 2,657,786
Receivables:
Investment securities sold...................... 187,540 --
Dividends and interest.......................... 167,506 25,995
Reimbursement due from Advisor.................... -- 8,283
Deferred organizational costs (Note 1)............ 5,424 --
Other assets...................................... 3,644 --
----------- ----------
TOTAL ASSETS.................................... 16,942,469 5,432,365
----------- ----------
LIABILITIES
Payables:
Investment securities purchased................. -- 558,669
Advisory fee...................................... 2,250 --
Accrued expenses.................................. 14,417 9,140
----------- ----------
TOTAL LIABILITIES............................... 16,667 567,809
----------- ----------
NET ASSETS
(applicable to outstanding shares of 1,698,720 and
489,113 respectively; unlimited shares of $0.001
par value authorized)........................... $16,925,802 $4,864,556
=========== ==========
Net asset value, offering and redemption price per
share........................................... $ 9.96 $ 9.95
=========== ==========
SOURCE OF NET ASSETS
Paid-in capital................................... $17,266,643 $4,875,000
Undistributed net investment income............... 12,527 1,047
Accumulated net realized gain on investments...... 91,545 --
Net unrealized depreciation of investments........ (444,913) (11,491)
----------- ----------
NET ASSETS...................................... $16,925,802 $4,864,556
=========== ==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
STATEMENTS OF OPERATIONS
PERIOD ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
RETURN CALIFORNIA INTERMEDIATE
BOND TAX-FREE FUND(1)
--------- -----------------------
<S> <C> <C>
INVESTMENT INCOME
Interest............................................ $ 848,283 $ 2,272
--------- --------
TOTAL INCOME...................................... 848,283 2,272
--------- --------
EXPENSES
Advisory fees (Note 3).............................. 63,531 735
Administrator expense............................... 20,116 3,478
Transfer agent fees................................. 26,980 1,957
Bookkeeping and pricing............................. 28,961 1,739
Insurance expense................................... 3,589 --
Custodian fees...................................... 8,200 87
Legal expense....................................... 7,196 --
Registration expense................................ 16,127 1,812
Organizational expense (Note 1)..................... 2,398 --
Independent accountants............................. 6,000 217
Other............................................... 9,940 217
Trustees' fees and expenses......................... 7,472 --
Reports to shareholders............................. 5,047 --
--------- --------
TOTAL EXPENSES.................................... 205,557 10,242
Expenses waived and reimbursed (Note 3)........... (36,141) (9,017)
--------- --------
NET EXPENSES...................................... 169,416 1,225
--------- --------
NET INVESTMENT INCOME............................. 678,867 1,047
--------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain from security transactions........ 197,123 --
Net change in unrealized depreciation of
investments....................................... (566,965) (11,491)
--------- --------
Net realized and unrealized gain (loss) on
investments....................................... (369,842) (11,491)
--------- --------
Net increase (decrease) in net assets resulting from
operations........................................ $ 309,025 $(10,444)
========= ========
</TABLE>
- ---------------
(1) The California Intermediate Tax-Free Fund commenced operations on June 10,
1999.
The notes to financial statements are an integral part of these statements.
<PAGE> 7
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN BOND CA TAX-FREE
------------------------- -----------
YEAR YEAR PERIOD
ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999(1)
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS
Net investment income.......................... $ 678,867 $ 538,669 $ 1,047
Net realized gain on investments............... 197,123 134,091 --
Net change in unrealized appreciation
(depreciation) of investments................ (566,965) 71,363 (11,491)
----------- ----------- ----------
Net increase (decrease) in net assets resulting
from operations.............................. 309,025 744,123 (10,444)
----------- ----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income....... (670,385) (550,088) --
Distributions from realized gains on
investments.................................. (149,582) (70,764) --
----------- ----------- ----------
Total distributions.......................... (819,967) (620,852) --
----------- ----------- ----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold....................... 6,041,530 4,528,818 4,875,000
Receipt from shares issued on reinvestment of
distributions................................ 778,454 585,608 --
Shares redeemed................................ (1,359,170) (1,741,170) --
----------- ----------- ----------
Net increase in net assets resulting from
capital share transactions(a)................ 5,460,814 3,373,256 4,875,000
----------- ----------- ----------
Total increase in net assets................. 4,949,872 3,496,527 4,864,556
NET ASSETS
Beginning of period............................ 11,975,930 8,479,403 --
----------- ----------- ----------
End of period.................................. $16,925,802 $11,975,930 $4,864,556
=========== =========== ==========
(a) Transactions in capital stock were:
Shares sold................................ 587,067 439,159 489,113
Shares issued on reinvestment of
distributions........................... 76,423 57,284 --
Shares redeemed............................ (132,975) (169,442) --
----------- ----------- ----------
Net increase............................... 530,515 327,001 489,113
Beginning balance.......................... 1,168,205 841,204 --
----------- ----------- ----------
Ending balance............................. 1,698,720 1,168,205 489,113
=========== =========== ==========
</TABLE>
- -------------------------------------------
(1) The California Intermediate Tax-Free Fund commenced operations on June 10,
1999.
The notes to financial statements are an integral part of these statements.
<PAGE> 8
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
TOTAL RETURN BOND
--------------------------------
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 000's)................... $16,926 $11,976 $8,479
Ratio of expenses to average net assets
before reimbursement of expenses by Advisor.......... 1.46% 1.68% 2.01%*
after reimbursement of expenses by Advisor........... 1.20% 1.20% 0.88%*
Ratio of net investment income (loss)
to average net assets
before reimbursement of expenses by Advisor.......... 4.55% 4.86% 4.53%*
after reimbursement of expenses by Advisor........... 4.81% 5.34% 5.66%*
Portfolio turnover rate................................ 57% 83% 112%+
</TABLE>
- -------------------------------------------
(1) The Total Return Bond Fund commenced operations on October 1, 1996.
+ Since inception, not annualized.
* Annualized.
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 9
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout the period presented.
<TABLE>
<CAPTION>
CA TAX-FREE
------------
PERIOD
ENDED
JUNE 30,
1999(1)
------------
<S> <C>
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 000's)...................... $4,865
Ratio of expenses to average net assets
before reimbursement of expenses by Advisor............. 6.27%*
after reimbursement of expenses by Advisor.............. 0.75%*
Ratio of net investment income (loss) to average net
assets
before reimbursement of expenses by Advisor............. (4.88%)*
after reimbursement of expenses by Advisor.............. 0.64%*
Portfolio turnover rate................................... --
</TABLE>
- -------------------------------------------
(1) The California Intermediate Tax-Free Fund commenced operations on June 10,
1999.
+ Since inception, not annualized.
* Annualized.
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Trainer Wortham First Mutual Funds (the "Trust") is an open-end investment
management company which currently offers shares of three series: Trainer
Wortham First Mutual Fund ("First Mutual Fund"); Trainer Wortham Total Return
Bond Fund ("Total Return Bond Fund"); and Trainer Wortham California
Intermediate Tax-Free Fund ("California Intermediate Tax-Free Fund"). Each Fund
has distinct investment objectives and policies. This Annual Report relates to
the Total Return Bond Fund and the California Intermediate Tax-Free Fund.
Information on the First Mutual Fund is provided in a separate report.
The Total Return Bond Fund seeks to maximize total return consistent with
preservation of capital. The Fund will invest in U.S. Government and agency
securities, investment grade corporate bonds and other fixed-income securities.
The Fund will seek to produce conservative, risk adjusted returns.
The California Intermediate Tax-Free Fund seeks 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. The Fund seeks to
achieve its objective by investing in debt securities whose interest income is
not includable in gross income for Federal income tax purposes and is exempt
from California personal income taxes.
Due to the inherent risk in any investment program, the Fund can not ensure that
its investment objectives will be realized. The following is a summary of
significant accounting policies consistently followed by the Funds in the
preparation of financial statements. The policies are in conformity with
generally accepted accounting principles for investment companies.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last reported sales price on the last
business day of the period. Unlisted securities, or listed securities in which
there were no sales, are valued at the mean of the closing bid and ask prices.
Short-term obligations with remaining maturities of 60 days or less are valued
at amortized cost which approximates market value. All other securities are
valued at their fair value as determined in good faith by the Board of Trustees.
B. OTHER. As is common in the industry, security transactions are accounted for
on the date the securities are purchased or sold (trade date). Cost is
determined and gains and losses are based on the identified cost basis for both
financial statement and Federal income tax purposes. Dividend income and
distributions to shareholders are reported on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Discounts and premiums on
securities purchased are amortized over the life of the respective securities.
Distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Those differences are
primarily due to different treatments for net operating losses and post-October
capital losses.
C. NET ASSET VALUE PER SHARE. Net asset value per share of the capital stock of
a Fund is determined daily as of the close of trading on the New York Stock
Exchange by dividing the value
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999
- --------------------------------------------------------------------------------
of its net assets by the number of Fund shares outstanding. The offering price
and redemption price per share is the same as the net asset value per share.
D. FEDERAL INCOME TAXES. It is the policy of Each Fund to comply with
requirements of the Internal Revenue Code applicable to regulated investment
companies, if such qualification is in the best interest of its stockholders,
and to make distributions of net investment income and capital gains (after
reduction for any amounts available for Federal income tax purposes as capital
loss carryovers) sufficient to relieve it from all, or substantially all,
Federal income taxes.
E. USE OF ESTIMATES IN FINANCIAL STATEMENTS. In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reporting period. Actual results may
differ from these estimates.
F. ORGANIZATIONAL COSTS. Organizational costs for Total Return Bond Fund are
being amortized on a straight-line basis over five years, commencing October 1,
1996. The costs incurred in connection with the organization, initial
registration and public offering of shares of California Intermediate Tax-Free
Fund have been paid by Trainer, Wortham & Co., Inc.. Accordingly, no
organization costs have been recorded by this Fund.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, for the
period ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- ----------
<S> <C> <C>
Total Return Bond Fund...................................... $12,061,016 $7,561,624
California Intermediate Tax-Free Fund....................... $ 2,751,793 --
</TABLE>
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Trainer Wortham & Co., Inc. (the "Advisor") is the investment advisor for the
Trust pursuant to two separate investment advisory agreements (the
"Agreements"). Under the terms of each Agreement, the Advisor receives an annual
fee, accrued daily and paid monthly, of 0.45% of the average daily net assets of
the Total Return Bond Fund and the California Intermediate Tax-Free Fund. The
Advisor has agreed, pursuant to an Operating Expenses Agreement, to waive its
advisory fees and/or reimburse other operating expenses in amounts necessary to
limit the annual operating expenses of the Total Return Bond Fund and the
California Intermediate Tax-Free Fund to 1.20% and 0.75%, respectively, of each
fund's average daily net assets through May 2000. During the period ended June
30, 1999 the Advisor waived advisory fees and/or reimbursed other operating
expenses in the amount of $36,141 for the Total Return Bond Fund and $9,017 for
the California Intermediate Tax-Free Fund.
Certain officers and trustees of the Trust are affiliated persons of the
Advisor.
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 4 - RESTRICTED SECURITIES
Total Return Bond Fund owns certain investment securities which are restricted
as to resale. Accordingly, these securities are valued at fair value in good
faith by or under the direction of the Trust's Board of Trustees, taking into
consideration such factors including recent private sales, market conditions and
the issuer's financial performance. At June 30, 1999, Total Return Bond Fund
owned the following securities which may not be sold without registration under
the Securities Act of 1933:
TOTAL RETURN BOND FUND
<TABLE>
<CAPTION>
ACQUISITION UNIT MARKET
SECURITY DATE PAR PRICE VALUE %TNA COST
-------- ----------- -------- ----- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Comp De Desarollo Aeropu
10.190%, 05/31/11............. 07/16/97 $497,500 90.75 $451,481 2.67% $497,500
</TABLE>
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999
- --------------------------------------------------------------------------------
TRAINER WORTHAM FUNDS
845 Third Avenue, 6th Floor
New York, NY 10022
<TABLE>
<S> <C>
OFFICERS AUDITORS
David P. Como Briggs, Bunting & Dougherty, LLP
President Two Logan Square, Suite 2121
Philadelphia, PA 19103
Berkeley S. Belknap
Vice President CUSTODIAN
UMB Bank KC, NA
John D. Knox P.O. Box 412797
Vice President Kansas City, MO 64141
Debra L. Como FUND ADMINISTRATION
Secretary/Treasurer First Data Investor Services Group, Inc.
3200 Horizon Drive
INVESTMENT ADVISOR King of Prussia, PA 19406
Trainer, Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
</TABLE>
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors in the
Trust unless preceded or accompanied by an effective Prospectus which includes
details regarding the Trust's objectives, policies, expenses and other
information.
<PAGE> 14
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Trainer, Wortham First Mutual Funds
New York, New York
We have audited the statements of assets and liabilities of Trainer, Wortham
Total Return Bond Fund and Trainer, Wortham California Intermediate Tax-Free
Fund (each a series of shares of Trainer, Wortham First Mutual Funds), including
the schedules of investments, as of June 30, 1999, and the related statements of
operations for the year then ended (or period from commencement of operations),
the statements of changes in net assets for each of the two years in the period
then ended (or period from commencement of operations), and the financial
highlights for each of the three years in the period then ended (or period from
commencement of operations). These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1999, by correspondence with the custodian and brokers. Where brokers did
not reply to our confirmation requests, we carried out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Trainer, Wortham Total Return Bond Fund series and the Trainer, Wortham
California Intermediate Tax-Free Fund series of Trainer, Wortham First Mutual
Funds as of June 30, 1999, the results of their operations for the year then
ended (or period from commencement of operations), the changes in their net
assets for each of the two years in the period then ended (or period from
commencement of operations), and the financial highlights for each of the three
years in the period then ended (or period from commencement of operations) in
conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
July 23, 1999
<PAGE> 15
ILLUSTRATION OF $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in the
Trainer, Wortham Total Return Bond Fund with the performance of the Lehman
Aggregate Index. The values and returns for the Trainer, Wortham Total Return
Bond Fund include reinvested dividends.
[Average Annual Total Return Graph]
<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND LEHMAN AGGREGATE INDEX
---------------------- ----------------------
<S> <C> <C>
10/01/96 10000.00 10000.00
12/31/96 10221.00 10300.00
06/30/97 10490.00 10618.00
12/31/97 11001.00 11293.00
06/30/98 11313.00 11738.00
12/31/98 11705.00 12276.00
06/30/99 11629.00 12107.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION
<S> <C>
2.79% 5.66%*
</TABLE>
Past performance is not predictive of future performance.
* Fund commenced operations October 1, 1996.
<PAGE> 16
TRUSTEES:
Robert H. Breslin, Jr.
David P. Como
Raymond Eisenberg
David Elias
Robert S. Lazar
Martin S. Levine
Timothy J. O'Hara
James F. Twaddell
For more complete information including
charges and expenses, you may request
a prospectus by calling:
888.257.4450
[TRAINER WORTHAM LOGO]
845 Third Avenue/6th Floor, New York, New York 10022
888.257.4450 - Fax: 415.288.1401-www.trainerwortham.com
[TRAINER WORTHAM FUNDS LOGO]
ANNUAL REPORT
JUNE 30, 1999
TOTAL RETURN BOND FUND
CALIFORNIA INTERMEDIATE
TAX-FREE FUND
888.257.4450
