<PAGE> 1
Trainer, Wortham & Co., Inc. - A View of the Markets & Our Portfolios
- - LOOKING BACK
Since the end of the first quarter investors have been concerned about the lofty
valuations of growth stocks and by threats of inflationary pressures in the
economy. Chairman Greenspan hinted of a rate hike and further expressed his
views that inflation was becoming an issue. Although the market eventually
accepted that the Federal Reserve would raise interest rates, fear continued to
prevail that the official bias would lean towards tightening. As we know the Fed
raised rates as expected, but they changed their bias from tightening to
neutral.
Rising valuations have never been the sole cause of a market sell-off. However,
high market valuations have created a cautious atmosphere, particularly in
technology and Internet stocks. Internet valuations skyrocketed in the 1st
quarter and created price performances that were mystifying. However, we have
now seen the market broaden and the limelight went to the cyclical and value-
oriented stocks that were the outcasts in 1998.
- LOOKING FORWARD
Looking forward as we enter the 3rd quarter, there are few inflationary
pressures and the economic picture is being boosted by strong consumer
confidence and the lowest unemployment levels in nearly 29 years. The markets
and corporate America are raging ahead. Merger and acquisition activity is at
historic levels and signs that the economic turmoil in Asia is subsiding.
The Y2K problem is still a concern and we will not know the full impact on
corporate America and the markets until we cross into the new millennium. We
have analyzed the companies in our portfolios to be certain that they are on
schedule with their Y2K compliance efforts and testing. It is interesting to
note that most technology companies have not seen a slowdown in orders for new
products such as servers, computers and networking products that could be
severely impacted by Y2K.
We continue to be optimistic about the markets based on the confidence we have
in the business models for the companies that we invest in at Trainer Wortham.
The stock prices of many of the companies in our clients' portfolios have been
affected by significant corporate events. This is particularly apparent in the
telecommunications sector where both MediaOne (5.70%) and Qwest Communications
(4.23%) have been involved in mergers this year. Our commitment and confidence
in this sector stems from our belief in continued consolidation and staggering
growth. The propelled growth in communications extends beyond traditional
telephone and cable companies to companies influenced by broadband, the
Internet, networking, and to the outsourcers for these industries. In addition
to MediaOne (5.70%) and Qwest (4.23%), this trend directly relates to many
Trainer, Wortham selected companies such as America OnLine (7.67%), Cisco
Systems (3.54%), CNET (3.79%), Lucent Technologies (5.44%), Sanmina (4.16%),
Solectron (7.34%), and MCI WorldCom (5.83%).
Trainer, Wortham continues to follow a dynamic and disciplined approach to
investing that seeks to meet our clients' specific investment objectives
throughout all market and economic cycles.
Respectfully,
/s/ DAVID P. COMO
David P. Como
President
This material is to be preceded or accompanied by a prospectus. 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 FUND INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
DFU 8/99
<PAGE> 2
TRAINER WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------- -----------
<C> <S> <C>
COMMON STOCK - 94.78%
COMPUTER SOFTWARE & SERVICES - 14.44%
38,050 America On Line, Inc.*...................................... $ 4,204,525
36,000 CNET, Inc.*................................................. 2,074,500
12,500 Inktomi Corp.*.............................................. 1,632,031
-----------
7,911,056
-----------
DIVERSIFIED OPERATIONS - 4.14%
20,075 General Electric Co. ....................................... 2,268,475
-----------
ELECTRONICS/MANUFACTURING - 14.13%
10,000 BroadCom Corp., Class A*.................................... 1,445,625
60,250 Solectron Corp.*............................................ 4,017,922
30,000 Sanmina Corp.*.............................................. 2,276,250
-----------
7,739,797
-----------
FINANCIAL - 12.53%
52,762 Citigroup, Inc. ............................................ 2,506,195
34,600 Federal National Mortgage Association....................... 2,365,775
34,100 Hartford Financial Services Group, Inc. .................... 1,988,456
-----------
6,860,426
-----------
MEDIA/BROADCASTING - 9.46%
37,175 Clear Channel Communications, Inc.*......................... 2,562,752
88,000 Infinity Broadcasting Corp. - Class A*...................... 2,618,000
-----------
5,180,752
-----------
MEDICAL - PHARMACEUTICAL - 11.67%
30,175 Amgen, Inc.*................................................ 1,836,903
24,500 Johnson & Johnson........................................... 2,401,000
29,100 Merck & Co., Inc. .......................................... 2,153,400
-----------
6,391,303
-----------
TECHNOLOGY & COMPUTERS - 7.20%
30,100 Cisco Systems, Inc.*........................................ 1,941,450
33,600 Intel Corp. ................................................ 1,999,200
-----------
3,940,650
-----------
TELECOMMUNICATIONS - 21.21%
44,200 Lucent Technologies, Inc. .................................. 2,980,738
37,104 MCI WorldCom, Inc.*......................................... 3,193,263
42,000 MediaOne Group, Inc.*....................................... 3,123,750
70,150 Qwest Communications International, Inc.*................... 2,319,334
-----------
11,617,085
-----------
TOTAL COMMON STOCKS (COST $30,355,609)...................... 51,909,544
-----------
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 3
TRAINER, WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS (CONTINUED) JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- -------- -----------
<C> <S> <C>
SHORT TERM INVESTMENTS - 5.29%
2,897,428 UMB Bank, Money Market Fiduciary, 3.76% (Cost $2,897,428)... $ 2,897,428
-----------
TOTAL INVESTMENTS (COST $33,253,037**) - 100.07%............ 54,806,972
OTHER LIABILITIES LESS OTHER ASSETS - (0.07)%............... (38,451)
-----------
NET ASSETS - 100.00%........................................ $54,768,521
===========
* Non-income producing security
** Cost for Federal income tax purposes is $33,253,037 and net unrealized appreciation
consists of:
Gross unrealized appreciation............................... $21,590,411
Gross unrealized depreciation............................... (36,476)
-----------
Net unrealized appreciation................................. $21,553,935
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities at market value (identified cost
$33,253,037) (Note 1)................................... $54,806,972
Receivables:
Dividends and interest.................................. 24,291
Other assets.............................................. 11,601
-----------
TOTAL ASSETS............................................ 54,842,864
-----------
LIABILITIES
Payables:
Capital stock redeemed.................................. 2,500
Advisory fee............................................ 32,084
Distribution fee........................................ 10,695
Accrued expenses.......................................... 29,064
-----------
TOTAL LIABILITIES....................................... 74,343
-----------
NET ASSETS
(applicable to outstanding shares of 3,310,710; unlimited
shares of $0.001 par value authorized).................. $54,768,521
===========
Net asset value, offering and redemption price per
share................................................... $ 16.54
===========
SOURCE OF NET ASSETS
Paid-in capital........................................... $30,377,956
Accumulated net realized gain on investments.............. 2,836,630
Net unrealized appreciation of investments................ 21,553,935
-----------
NET ASSETS.............................................. $54,768,521
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 5
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 241,454
Interest.................................................. 33,793
-----------
TOTAL INCOME............................................ 275,247
-----------
EXPENSES
Advisory fees (Note 3).................................... 331,176
Distribution expense (Note 3)............................. 110,392
Administrator expense..................................... 66,391
Transfer agent fees....................................... 42,886
Bookkeeping and pricing................................... 38,712
Insurance expense......................................... 12,008
Custodian fees............................................ 11,278
Legal expense............................................. 16,128
Registration expense...................................... 19,891
Independent accountants................................... 12,500
Other..................................................... 30,140
Trustees' fees and expenses............................... 23,085
Reports to shareholders................................... 9,230
-----------
TOTAL EXPENSES.......................................... 723,817
-----------
NET INVESTMENT LOSS..................................... (448,570)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions.............. 3,285,878
Net change in unrealized appreciation of investments...... 13,467,038
-----------
Net realized and unrealized gain on investments........... 16,752,916
-----------
Net increase in net assets resulting from operations...... $16,304,346
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
------------- -------------
<S> <C> <C>
OPERATIONS
Net investment loss....................................... $ (448,570) $ (208,369)
Net realized gain on investments.......................... 3,285,878 4,703,647
Net change in unrealized appreciation of investments...... 13,467,038 3,903,311
----------- -----------
Net increase in net assets resulting from operations...... 16,304,346 8,398,589
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from realized gains on investments.......... (3,441,613) (6,718,173)
----------- -----------
Total distributions..................................... (3,441,613) (6,718,173)
----------- -----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold.................................. 3,537,403 6,953,881
Receipt from shares issued on reinvestment of
distributions........................................... 3,274,771 6,279,709
Shares redeemed........................................... (4,116,984) (9,352,149)
----------- -----------
Net increase in net assets resulting from capital share
transactions(a)......................................... 2,695,190 3,881,441
----------- -----------
Total increase in net assets............................ 15,557,923 5,561,857
NET ASSETS
Beginning of period....................................... 39,210,598 33,648,741
----------- -----------
End of period............................................. $54,768,521 $39,210,598
=========== ===========
(a) Transactions in capital stock were:
Shares sold........................................... 234,602 576,681
Shares issued on reinvestment of distributions........ 235,764 600,355
Shares redeemed....................................... (303,256) (757,177)
----------- -----------
Net increase.......................................... 167,110 419,859
Beginning balance..................................... 3,143,600 2,723,741
----------- -----------
Ending balance........................................ 3,310,710 3,143,600
=========== ===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 7
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
YEARS ENDED 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... -- -- -- -- --
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 000's)..... $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>
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 8
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 ("the Fund"); Trainer Wortham Total Return Bond Fund;
and Trainer Wortham California Intermediate Tax-Free Fund. Each Fund has
distinct investment objectives and policies. This Annual Report relates to the
First Mutual Fund. Information on the Total Return Bond Fund and the California
Intermediate Tax-Free Fund is provided in a separate report.
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.
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 Fund in the
preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles for investment companies.
A. SECURITY VALUATION. Investments in securities traded on a national
securities exchange are valued at the last reported sales price on the last
business day of the period. Unlisted securities, or listed securities in which
there were no sales, are valued at the mean of the closing bid and ask prices.
Short-term obligations with remaining maturities of 60 days or less are valued
at amortized cost which approximates market value. All other securities are
valued at their fair value as determined in good faith by the Board of Trustees.
B. OTHER. As is common in the industry, security transactions are accounted for
on the date the securities are purchased or sold (trade date). Cost is
determined and gains and losses are based on the identified cost basis for both
financial statement and Federal income tax purposes. Dividend income and
distributions to shareholders are reported on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Discounts and premiums on
securities purchased are amortized over the life of the respective securities.
Distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. Those differences are
primarily due to different treatments for net operating losses and post-October
capital losses.
C. NET ASSET VALUE PER SHARE. Net asset value per share of the capital stock of
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 the Fund to comply with
requirements of the Internal Revenue Code applicable to regulated investment
companies, if such qualification is in the best interest of its stockholders,
and to make distributions of net investment income and capital gains (after
reduction for any amounts available for Federal income tax purposes as capital
loss carryovers) sufficient to relieve it from all, or substantially all,
Federal income taxes.
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999
- --------------------------------------------------------------------------------
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.
NOTE 2 - PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term investments, for the
year ended June 30, 1999 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
----------- -----------
<S> <C> <C>
First Mutual Fund........................................... $24,324,337 $27,579,022
</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 an investment advisory agreement (the "Agreement"). Under the
terms of the Agreement, the Advisor receives an annual fee, accrued daily and
paid monthly, of 0.75% of the average daily net assets of First Mutual Fund.
For the year ended June 30, 1999, the Trust paid the Advisor $331,176 in
advisory fees on behalf of First Mutual 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 First Data Distributors, 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 year ended June 30, 1999, the Trust reimbursed the
Distributor $110,392 on behalf of First Mutual Fund for distribution costs
incurred. Distribution costs incurred by First Mutual Fund include $48,000 paid
to an affiliate involved with Marketing and Distribution of the Fund and $57,370
retained by First Data Distributors, Inc. as compensation for their distribution
services.
Certain officers and trustees of the Trust are affiliated persons of the
Advisor.
<PAGE> 10
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 statement of assets and liabilities of First Mutual Fund (a
series of shares of Trainer, Wortham First Mutual Funds), including the schedule
of investments, as of June 30, 1999, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
three years in the period then ended. 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. The financial highlights for each of the two years in the
period ended June 30, 1996 were audited by other auditors whose report dated
July 11, 1996 expressed an unqualified opinion thereon.
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. 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 that 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
First Mutual Fund series of Trainer, Wortham First Mutual Funds as of June 30,
1999, and the results of its operations for the year then ended, the changes in
its net assets for each of the two years in the period then ended, and the
financial highlights for each of the three years in the period then ended, in
conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
July 23, 1999
<PAGE> 11
ILLUSTRATION OF $10,000 INVESTMENT
- --------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in the
Trainer, Wortham First Mutual Fund with the performance of the Standard & Poor's
500 Index. The values are as of June 30 for each of the last ten years. The
values and returns for the Trainer, Wortham First Mutual Fund include reinvested
dividends.
[First Mutual Fund Performance Graph]
<TABLE>
<CAPTION>
FIRST MUTUAL FUND S&P 500 INDEX
----------------- -------------
<S> <C> <C>
'1989' 10000.00 10000.00
'1990' 11787.00 11259.00
'1991' 12300.00 11672.00
'1992' 12176.00 12835.00
'1993' 13657.00 14169.00
'1994' 13123.00 13972.00
'1995' 16409.00 17205.00
'1996' 24470.00 21090.00
'1997' 26346.00 27836.00
'1998' 33038.00 35658.00
'1999' 47420.00 43000.00
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
1 YEAR 5 YEAR 10 YEAR
<S> <C> <C>
43.53% 29.28% 16.83%
</TABLE>
Past performance is not predictive of future performance.
<TABLE>
<S> <C>
INVESTMENT ADVISOR CUSTODIAN
Trainer, Wortham & Co., Inc. UMB Bank KC, NA
845 Third Avenue, 6th Floor P.O. Box 412797
New York, NY 10022 Kansas City, MO 64141
AUDITORS FUND ADMINISTRATION
Briggs, Bunting & Dougherty, LLP First Data Investor Services Group, Inc.
Two Logan Square, Suite 2121 3200 Horizon Drive
Philadelphia, PA 19103 King of Prussia, PA 19406
</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> 12
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
OFFICERS:
David P. Como
President
Berkeley S. Belknap
Vice President
John D. Knox
Vice President
Debra L. Como
Secretary/Treasurer
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
[FIRST MUTUAL FUND]
888.257.4450
