<PAGE> 1
[TRAINER, WORTHAM & CO. LOGO]
"Time is the most important tool of the intelligent investor."
<TABLE>
<S> <C>
Since markets always go to extremes;
"only buy something that you'd be
perfectly happy to hold if the
market
shut down for 10 years!"
Warren Buffett
</TABLE>
[PORTFOLIO NEWS GRAPHIC LOGO]
Dear Fellow and Future Shareholders:
Once again stock selection won out over the market in 1998! Our increased
weightings in the technology and telecommunications sectors in the third quarter
added handsomely to our returns for the year and continue to increase portfolio
values as we begin 1999.
We continue to believe in the diversified growth strategy and philosophy and
find it interesting that the market is ignoring the future growth potential for
the pharmaceutical, broadcasting entertainment and the financial sectors. We
continue to take advantage of these opportunities by adding to these positions
in our portfolios. We believe our positions in Solectron Corp. (6.65%) and
Federal-Mogul (3.55%), representing the manufacturing sector, have the potential
to double their earnings per share this year. The increased growth in earnings
will be driven by cost cutting as a result of implementing technological changes
in the production cycle.
[MARKET NEWS GRAPHIC LOGO]
We look for 1999 to be another strong year for the markets; driven by very
positive supply and demand dynamics. Lower interest rates have allowed increased
liquidity to flow into equities at a time when companies continue to buy back
their shares and merger and acquisition activity shrinks the equity base.
Not all markets around the world are following the United States. However,
outside of Latin American a more positive trend is developing. Any trouble spots
for our market will probably stem from outside our borders so the Latin American
situation warrants some degree of caution. We are always mindful of what John
Maynard Keynes said about the stock market - "The Critical issue is not the
business cycle but rather the psychological cycle."
The American public continues to take advantage of the opportunities that are
creating wealth in this long-term, strong market environment. We see a constant
flow of new dollars going into the markets that support Corporate America and
its products & services. Sentiment is positive, rates are low, inflation is not
an issue and earning power is increasing. Wealth creation will continue as
growth is being recognized in most areas of corporate America.
Respectively,
/s/ DAVID P. COMO
David P. Como, President
<PAGE> 2
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------- -----------
<C> <S> <C>
COMMON STOCKS - 107.75%
COMPUTER SOFTWARE & SERVICES - 11.45%
30,000 America Online, Inc.*....................................... $ 4,800,000
-----------
DIVERSIFIED OPERATIONS - 3.55%
25,000 Federal-Mogul Corp. ........................................ 1,487,500
-----------
FINANCIAL - 14.06%
35,000 Citigroup, Inc. ............................................ 1,732,500
31,000 Federal National Mortgage Association....................... 2,294,000
34,000 Hartford Financial Services Group, Inc. .................... 1,865,750
-----------
5,892,250
-----------
MEDIA - RADIO/TV - 20.17%
37,000 Clear Channel Communications, Inc.*......................... 2,016,500
20,000 General Electric Co. ....................................... 2,041,250
43,900 Infinity Broadcasting Corp. - Class A*...................... 1,201,763
32,850 MediaOne Group, Inc.*....................................... 1,543,950
55,000 The Walt Disney Co. ........................................ 1,650,000
-----------
8,453,463
-----------
MEDICAL - PHARMACEUTICAL - 18.78%
22,400 Amgen, Inc.*................................................ 2,342,200
24,500 Johnson & Johnson........................................... 2,054,937
15,000 Lilly (Eli) & Co. .......................................... 1,333,125
14,500 Merck & Co., Inc. .......................................... 2,141,469
-----------
7,871,731
-----------
OIL & GAS - EXPLORATION & PRODUCTION - 2.62%
15,000 Exxon Corporation........................................... 1,096,875
-----------
TECHNOLOGY & COMPUTERS - 20.34%
15,000 Cisco Systems, Inc.*........................................ 1,392,188
40,000 Compaq Computer Corporation................................. 1,677,500
22,500 Intel Corp. ................................................ 2,667,656
30,000 Solectron Corp.*............................................ 2,788,125
-----------
8,525,469
-----------
TELECOMMUNICATIONS EQUIPMENT - 16.78%
30,000 Ascend Communications, Inc.*................................ 1,972,500
22,000 Lucent Technologies, Inc. .................................. 2,420,000
36,804 MCI WorldCom, Inc.*......................................... 2,640,687
-----------
7,033,187
-----------
TOTAL COMMON STOCKS (COST $30,139,795)...................... 45,160,475
-----------
</TABLE>
<PAGE> 3
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------- -----------
<C> <S> <C>
SHORT TERM INVESTMENTS - 0.53%
224,421 UMB Bank, Money Market Fiduciary, 3.413%
(Cost $224,421)............................................. $ 224,421
-----------
TOTAL INVESTMENTS (COST $30,364,216**) - 108.28%............ 45,384,896
OTHER LIABILITIES LESS OTHER ASSETS - (8.28)%............... (3,471,691)
-----------
NET ASSETS - 100.00%........................................ $41,913,205
===========
* Non-income producing security
** Cost for Federal income tax purposes is $30,364,216 and net unrealized appreciation
consists of:
Gross unrealized appreciation............................... $15,358,711
Gross unrealized depreciation............................... (338,031)
-----------
Net unrealized appreciation................................. $15,020,680
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
FIXED INCOME SECURITIES - 93.36%
U.S. GOVERNMENT TREASURY - 30.07%
$ 50,000 U.S. Treasury Notes, 8.000%, 08/15/99....................... $ 51,008
50,000 U.S. Treasury Notes, 7.750%, 11/30/99....................... 51,376
800,000 U.S. Treasury Notes, 6.375%, 09/30/01....................... 835,630
900,000 U.S. Treasury Notes, 7.500%, 11/15/01....................... 968,918
650,000 U.S. Treasury Notes, 6.375%, 08/15/02....................... 686,424
400,000 U.S. Treasury Notes, 5.500%, 05/31/03....................... 413,059
650,000 U.S. Treasury Notes, 7.250%, 05/15/04....................... 728,357
300,000 U.S. Treasury Notes, 7.250%, 08/15/22....................... 373,082
-----------
TOTAL U.S. GOVERNMENT TREASURY (COST $3,996,065)............ 4,107,854
-----------
U.S. GOVERNMENT AGENCY - 23.56%
200,000 Federal Home Loan Bank 4.690%, 10/16/00..................... 198,979
400,000 Student Loan Marketing Association 4.750%, 12/11/00......... 398,965
381,249 Federal Home Loan Mortgage Corp. Gold Pool #E65534, 6.500%,
10/01/11.................................................... 387,206
3,207 Federal National Mortgage Association Pool #041474, 7.500%,
04/01/17.................................................... 3,296
10,656 Federal Home Loan Mortgage Corp. Pool #141248, 7.500%,
07/01/17.................................................... 11,063
3,628 Federal National Mortgage Association Pool #134195, 7.500%,
10/01/21.................................................... 3,729
513,760 Federal Home Loan Mortgage Corp. Gold Pool #D72664, 7.000%,
07/01/26.................................................... 524,196
168,543 Federal Home Loan Mortgage Corp. Gold Pool #C80442, 7.000%,
10/01/26.................................................... 171,967
487,886 Government National Mortgage Association Pool #407955,
6.500%, 10/15/27............................................ 493,222
524,025 Federal National Mortgage Association Pool #251568, 6.500%,
03/01/28.................................................... 527,791
492,641 Government National Mortgage Association Pool #458485,
6.500%, 08/15/28............................................ 498,029
-----------
TOTAL U.S. GOVERNMENT AGENCY (COST $3,144,880).............. 3,218,443
-----------
CORPORATE BONDS - 39.73%
150,000 Associates Corp. of North America, 6.740%, 08/13/99......... 151,476
110,000 General Motors Acceptance Corp., 8.400%, 10/15/99........... 112,600
160,000 Ford Motor Credit Co., 7.020%, 10/10/00..................... 164,600
500,000 Cendant Corporation, 7.500%, 12/01/00....................... 503,125
200,000 Sears Roebuck Acceptance Corp., 5.870%, 01/08/01............ 201,500
150,000 Morgan Stanley Group, Inc., 9.375%, 06/15/01................ 163,313
200,000 WFS Financial Owner Trust, 1997-B A3, 6.300%, 07/20/01...... 203,814
451,258 Olympic Automobile Receivables Trust, 1997-A A3, 6.400%,
09/15/01.................................................... 453,890
</TABLE>
<PAGE> 5
TRAINER, WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- --------- -----------
<C> <S> <C>
$250,000 WFS Financial Owner Trust, 1998-A A3, 5.900%, 05/20/02...... $ 252,116
200,000 Scholastic Corp., 7.000%, 12/15/03.......................... 212,500
500,000 MCI Worldcom Inc., 7.550%, 04/01/04......................... 541,875
246,429 Province Of Tucuman, 9.450%, 08/01/04 (Note 4).............. 204,536
250,000 Hydro-Quebec, 6.720%, 03/16/05.............................. 262,500
200,000 Salomon Smith Barney Holdings, Inc., 7.125%, 10/01/06....... 213,750
100,000 Union Pacific Resources Corp., 7.000%, 10/15/06............. 101,500
500,000 Sears Roebuck Acceptance Corp., 7.000%, 06/15/07............ 539,375
500,000 Time Warner Inc., 8.180%, 08/15/07.......................... 580,000
500,000 Comp De Desarollo Aeropu, 10.190%, 05/31/11 (Note 4)........ 396,250
200,000 Empresa Nacional Electric, 7.875%, 02/01/27................. 167,457
57 BA Mortgage Securities, Inc., 1997-2 1A3, 7.400%,
10/25/27.................................................... 56
-----------
TOTAL CORPORATE BONDS (COST $5,579,398)..................... 5,426,233
-----------
TOTAL FIXED INCOME SECURITIES (COST $12,720,343)............ 12,752,530
-----------
</TABLE>
<TABLE>
<CAPTION>
SHARES
- --------
<C> <S> <C>
SHORT TERM INVESTMENTS - 7.82%
1,068,149 UMB Bank, Money Market Fiduciary, 3.413% (Cost $1,068,149).. 1,068,149
-----------
TOTAL INVESTMENTS (COST $13,788,492**) - 101.18%............ 13,820,679
OTHER LIABILITIES LESS OTHER ASSETS - (1.18%)............... (160,638)
-----------
NET ASSETS - 100.00%........................................ $13,660,041
===========
** Cost for Federal income tax purposes is $13,788,492 and net unrealized appreciation
consists of:
Gross unrealized appreciation............................... $ 267,318
Gross unrealized depreciation............................... (235,131)
-----------
Net unrealized appreciation................................. $ 32,187
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST TOTAL RETURN
MUTUAL BOND
----------- ------------
<S> <C> <C>
ASSETS
Investments in securities at market value (identified cost
$30,364,216 and $13,788,492 respectively)
(Notes 1 and 4)......................................... $45,384,896 $13,820,679
Cash...................................................... 0 2,689
Receivables:
Capital stock sold...................................... 1,000 0
Dividends and interest.................................. 24,190 142,635
Reimbursement due from Advisor............................ 0 2,050
Deferred organizational costs (Note 1).................... 0 6,612
----------- -----------
TOTAL ASSETS............................................ 45,410,086 13,974,665
----------- -----------
LIABILITIES
Payables:
Capital stock redeemed.................................. 21,593 0
Distributions payable................................... 3,440,903 313,704
Accrued expenses.......................................... 34,385 920
----------- -----------
TOTAL LIABILITIES....................................... 3,496,881 314,624
----------- -----------
NET ASSETS
(applicable to outstanding shares of 3,016,483 and
1,334,342 respectively; unlimited shares of $0.001 par
value authorized)....................................... $41,913,205 $13,660,041
=========== ===========
Net asset value, offering and redemption price per
share................................................... $ 13.89 $ 10.24
=========== ===========
SOURCE OF NET ASSETS
Paid-in capital........................................... $26,118,179 $13,546,263
Undistributed net investment loss......................... (162,989) (2,197)
Accumulated net realized gain on investments.............. 937,335 83,788
Net unrealized appreciation of investments................ 15,020,680 32,187
----------- -----------
NET ASSETS.............................................. $41,913,205 $13,660,041
=========== ===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 7
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
FIRST RETURN
MUTUAL BOND
---------- --------
<S> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 145,173 $ 0
Interest.................................................. 7,465 394,588
Other Income.............................................. 1,999 0
---------- --------
TOTAL INCOME............................................ 154,637 394,588
---------- --------
EXPENSES
Advisory fees (Note 3).................................... 142,782 28,818
Distribution expense (Note 3)............................. 47,594 0
Administrator expense..................................... 30,020 8,728
Transfer agent fees....................................... 17,638 12,568
Bookkeeping and pricing................................... 18,147 15,273
Insurance expense......................................... 6,051 1,751
Custodian fees............................................ 5,636 4,263
Legal expense............................................. 4,569 1,512
Registration expense...................................... 10,586 8,571
Organizational expense (Note 1)........................... 0 1,209
Independent accountants................................... 6,178 2,732
Other..................................................... 12,602 3,781
Trustees' fees and expenses............................... 11,594 1,110
Reports to shareholders................................... 4,229 1,008
---------- --------
TOTAL EXPENSES.......................................... 317,626 91,324
Expenses waived and reimbursed (Note 3)................. 0 (14,476)
---------- --------
NET EXPENSES............................................ 317,626 76,848
---------- --------
NET INVESTMENT INCOME (LOSS)............................ (162,989) 317,740
---------- --------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions.............. 937,293 189,363
Net change in unrealized appreciation (depreciation) of
investments............................................. 6,933,783 (89,865)
---------- --------
Net realized and unrealized gain on investments........... 7,871,076 99,498
---------- --------
Net increase in net assets resulting from operations...... $7,708,087 $417,238
========== ========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 8
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST MUTUAL TOTAL RETURN BOND
-------------------------- --------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED PERIOD
DECEMBER 31, ENDED DECEMBER 31, ENDED
1998 JUNE 30, 1998 JUNE 30,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss)....... $ (162,989) $ (208,369) $ 317,740 $ 538,669
Net realized gain on investments... 937,293 4,703,647 189,363 134,091
Net change in unrealized
appreciation (depreciation) of
investments...................... 6,933,783 3,903,311 (89,865) 71,363
----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations........ 7,708,087 8,398,589 417,238 744,123
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income........................... 0 0 (321,584) (550,088)
Distributions from realized gains
on investments................... (3,440,903) (6,718,173) (149,580) (70,764)
Distributions in excess of realized
gains on investments............. 0 0 0 0
----------- ----------- ----------- -----------
Total distributions.............. (3,440,903) (6,718,173) (471,164) (620,852)
----------- ----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold........... 490,472 6,953,881 2,336,555 4,528,818
Receipt from shares issued on
reinvestment of distributions.... 0 6,279,709 151,665 585,608
Shares redeemed.................... (2,055,049) (9,352,149) (750,183) (1,741,170)
----------- ----------- ----------- -----------
Net increase in net assets
resulting from capital share
transactions(a).................. (1,564,577) 3,881,441 1,738,037 3,373,256
----------- ----------- ----------- -----------
Total increase in net assets..... 2,702,607 5,561,857 1,684,111 3,496,527
NET ASSETS
Beginning of period................ 39,210,598 33,648,741 11,975,930 8,479,403
----------- ----------- ----------- -----------
End of period...................... $41,913,205 $39,210,598 $13,660,041 $11,975,930
=========== =========== =========== ===========
(a) Transactions in capital stock
were:
Shares sold.................... 42,034 576,681 224,099 439,159
Shares issued on reinvestment
of distributions............ 0 600,355 14,514 57,284
Shares redeemed................ (169,151) (757,177) (72,476) (169,442)
----------- ----------- ----------- -----------
Net increase................... (127,117) 419,859 166,137 327,001
Beginning balance.............. 3,143,600 2,723,741 1,168,205 841,204
----------- ----------- ----------- -----------
Ending balance................. 3,016,483 3,143,600 1,334,342 1,168,205
=========== =========== =========== ===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 9
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
FIRST MUTUAL
--------------------------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
1998 -----------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD..................... $12.47 $12.35 $13.81 $10.03 $8.21 $9.29
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
----------------------------
OPERATIONS
---------------
Net investment loss........ (0.05) (0.07) (0.11) (0.09) (0.09) (0.09)
Net gains (losses) on
securities (both realized
and unrealized).......... 2.61 2.72 0.95 4.79 2.10 (0.13)
------- ------- ------- ------- ------- -------
Total from investment
operations............. 2.56 2.65 0.84 4.70 2.01 (0.22)
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
---------------------
Dividends from net
investment income........ 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from capital
gains.................... (1.14) (2.53) (2.30) (0.92) (0.19) (0.86)
------- ------- ------- ------- ------- -------
Total distributions...... (1.14) (2.53) (2.30) (0.92) (0.19) (0.86)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD..................... $13.89 $12.47 $12.35 $13.81 $10.03 $8.21
======= ======= ======= ======= ======= =======
TOTAL RETURN................. 34.20%+ 25.40% 7.67% 49.12% 25.04% (3.91%)
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period
(in 000's)............... $41,913 $39,211 $33,649 $32,147 $20,281 $21,446
Ratio of expenses to
average net assets....... 1.67%* 1.66% 1.87% 1.74% 2.16% 1.97%
Ratio of net investment
loss to average net
assets................... (0.86%)* (0.56%) (0.96%) (0.82%) (0.77%) (0.97%)
Portfolio turnover rate.... 34%+ 81% 109% 107% 198% 178%
</TABLE>
- -------------------------------------------
* Annualized.
+ Not annualized.
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 10
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
TOTAL RETURN BOND
------------------------------------
SIX MONTHS
ENDED YEAR PERIOD
DECEMBER 31, ENDED ENDED
1998 JUNE 30, JUNE 30,
(UNAUDITED) 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............................. 0.25 0.52 0.41
Net gains on securities (both realized and
unrealized)..................................... 0.11 0.25 0.08
------- ------- ------
Total from investment operations................ 0.36 0.77 0.49
------- ------- ------
LESS DISTRIBUTIONS
---------------------
Dividends from net investment income.............. (0.26) (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............................. (0.37) (0.60) (0.41)
------- ------- ------
NET ASSET VALUE, END OF PERIOD...................... $10.24 $10.25 $10.08
======= ======= ======
TOTAL RETURN........................................ 6.40%+ 7.84% 4.90%+
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period (in 000's).............. $13,660 $11,976 $8,479
Ratio of expenses to average net assets
before reimbursement of expenses by Advisor..... 1.43%* 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......................................... 4.73%* 4.86% 4.53%*
after reimbursement of expenses by Advisor...... 4.96%* 5.34% 5.66%*
Portfolio turnover rate........................... 28%+ 83% 112%+
</TABLE>
- -------------------------------------------
(1) The Total Return Bond Fund commenced operations on October 1, 1996.
+ Not annualized.
* Annualized.
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Trainer, Wortham First Mutual Funds (the "Trust") is an open-end investment
management company which currently offers shares of two series: First Mutual
Fund; and Trainer, Wortham Total Return Bond Fund ("Total Return Bond Fund").
Each Series has distinct investment objectives and policies.
First Mutual Fund's primary investment objective is to seek capital appreciation
principally through investments in common stock. The Fund may also invest in
securities convertible into common stock such as convertible bonds or preferred
stock. Its secondary investment objective is to seek income from dividends and
interest. The Total Return Bond Fund seeks to maximize total return consistent
with preservation of capital. The Fund will invest in U.S. Government and agency
securities, investment grade corporate bonds and other fixed-income securities.
The Fund will seek to produce conservative, risk adjusted returns.
Due to the inherent risk in any investment program, no Fund can ensure that its
investment objectives will be realized. The following is a summary of
significant accounting policies consistently followed by the Funds in the
preparation of their financial statements. The policies are in conformity with
generally accepted accounting principles for investment companies.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last reported sales price on the last
business day of the period. Unlisted securities, or listed securities in which
there were no sales, are valued at the mean of the closing bid and ask prices.
Short-term obligations with remaining maturities of 60 days or less are valued
at amortized cost which approximates market value. All other securities are
valued at their fair value as determined in good faith by the Board of Trustees.
B. OTHER. As is common in the industry, security transactions are accounted
for on the date the securities are purchased or sold (trade date). Cost is
determined and gains and losses are based on the identified cost basis for both
financial statement and Federal income tax purposes. Dividend income and
distributions to shareholders are reported on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Discounts and premiums on
securities purchased are amortized over the life of the respective securities.
Distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Those differences are
primarily due to different treatments for net operating losses and post-October
capital losses.
C. NET ASSET VALUE PER SHARE. Net asset value per share of the capital stock of
a Fund is determined daily as of the close of trading on the New York Stock
Exchange by dividing the value of its net assets by the number of Fund shares
outstanding. The offering price and redemption price per share is the same as
the net asset value per share.
D. FEDERAL INCOME TAXES. It is the policy of each Fund to comply with
requirements of the Internal Revenue Code applicable to regulated investment
companies, if such qualification is in the best interest of its stockholders,
and to make distributions of net investment income and
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
capital gains (after reduction for any amounts available for Federal income tax
purposes as capital loss carryovers) sufficient to relieve it from all, or
substantially all, Federal income taxes.
E. USE OF ESTIMATES IN FINANCIAL STATEMENTS. In preparing financial statements
in conformity with generally accepted accounting principles, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the reported
amounts of income and expenses during the reporting period. Actual results may
differ from these estimates.
F. ORGANIZATIONAL COSTS. Organizational costs for Total Return Bond Fund are
being amortized on a straight-line basis over five years, commencing October 1,
1996.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, for the
six-month period ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
First Mutual Fund........................................... $12,747,438 $13,871,602
Total Return Bond Fund...................................... 4,727,967 3,427,644
</TABLE>
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Trainer, Wortham & Co., Inc. (the "Advisor") is the investment advisor for the
Trust pursuant to two separate investment advisory agreements (the
"Agreements"). Under the terms of the Agreements, the Advisor receives an annual
fee, accrued daily and paid monthly, of 0.75% of the average daily net assets of
First Mutual Fund and 0.45% of the average daily net assets of the Total Return
Bond Fund.
For the six months ended December 31, 1998, the Trust paid the Advisor $142,782
in advisory fees on behalf of First Mutual Fund and $28,818 on behalf of Total
Return Bond Fund. For the period October 1, 1996 (commencement of operations)
through April 30, 1997, the Advisor voluntarily elected to waive advisory fees
and reimburse other operating expenses to the extent necessary to cause total
operating expenses not to exceed 0.75% for the Total Return Bond Fund. Effective
May 1, 1997, the waiver and reimbursement was reduced on the Total Return Bond
Fund to the extent that total operating expenses do not exceed 1.20%. For the
six months ended December 31, 1998, the Advisor waived and reimbursed expenses
amounting to $14,476 for the Total Return Bond Fund. The Trust has adopted a
Distribution Plan (the "Plan"), with respect to First Mutual Fund, pursuant to
Rule 12b-1 under the Investment Company Act of 1940, which permits the Fund to
pay certain expenses associated with the distribution of its shares. The Plan
provides that the Trust will reimburse FPS Broker Services, Inc. (the
"Distributor"), the Trust's sole Underwriter and Distributor, for actual
distribution and shareholder servicing expenses incurred by the Distributor not
exceeding, on an annual basis, 0.25% of the average daily net assets of First
Mutual Fund. For the six months ended December 31, 1998, the Trust reimbursed
the Distributor $47,594 on behalf of First Mutual Fund for distribution
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
costs incurred. Distribution costs incurred by First Mutual include $14,871 paid
to an affiliate involved with Marketing and Distribution of the Fund and $12,334
retained by FPS Broker Services, Inc. as compensation for their distribution
services.
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 December 31, 1998, 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>
Province of Tucuman
9.450%, 08/01/04.............. 08/15/97 246,429 $100.00 $204,536 1.50% $246,429
Comp De Desarollo Aeropu
10.190%, 05/31/11........... 07/16/97 500,000 111.36 396,250 2.90% 556,800
-------- ----- --------
$600,786 4.40% $803,229
======== ===== ========
</TABLE>
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Certain officers and trustees of the Trust are affiliated persons of the
Advisor.
TRAINER, WORTHAM FUNDS
845 Third Avenue, 6th Floor
New York, NY 10022
<TABLE>
<S> <C>
OFFICERS AUDITORS
David P. Como Briggs, Bunting & Dougherty, LLP
President Two Logan Square, Suite 2121
Philadelphia, PA 19103
H. Williamson Ghriskey, Jr.
Vice President/Treasurer CUSTODIAN
UMB Bank KC, NA
John D. Knox P.O. Box 412797
Vice President Kansas City, MO 64141
Debra L. Clark
Secretary FUND ADMINISTRATION
First Data Investor Services Group, Inc.
INVESTMENT ADVISOR 3200 Horizon Drive
Trainer, Wortham & Co., Inc. King of Prussia, PA 19406
845 Third Avenue, 6th Floor
New York, NY 10022
</TABLE>
Effective 1/1/99 the Funds will be distributed by First Data Distributors, Inc.,
4400 Computer Drive, Westborough, MA 01581 - DFU 2/99.
This report is submitted for the general information of the shareholders of the
Trust. It is not authorized for distribution to prospective investors in the
Trust unless preceded or accompanied by an effective Prospectus which includes
details regarding the Trust's objectives, policies, expenses and other
information.
<PAGE> 15
TRUSTEES:
Robert H. Breslin, Jr.
David P. Como
Raymond Eisenberg
David Elias
Robert S. Lazar
Martin S. Levine
Timothy J. O'Hara
James F. Twaddell
For more complete information including
charges and expenses, you may request
a prospectus by calling:
800.257.4414
[TRAINER, WORTHAM FUNDS LOGO]
845 Third Avenue/6th Floor, New York, New York 10022
800.257.4414 - Fax: 415.288.1401
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
[TRAINER, WORTHAM FUNDS LOGO]
FIRST MUTUAL FUND
TOTAL RETURN BOND FUND
800.257.4414
