<PAGE> 1
Dear Current and Future Shareholders:
Who could possibly have guessed that rates would decline in the midst of an
aggressive Federal Reserve ("Fed") tightening? During the quarter ending June
30, 2000, two-year Treasury note yields fell close to 15 basis points and
five-year yields, almost 20. This occurred as the Fed raised short-term rates
both on March 21, 2000 then again on May 16, 2000. The cause of the recent bull
market and the two overriding factors affecting the municipal investment
environment are, in our opinion, investor's confidence in Fed Chairman
Greenspan's ability to fine-tune the economy and the collapsing supply of
Treasury securities as the U.S. surplus continues to expand.
The key factor affecting the municipal market is the outlook for the U.S.
economy including growth rates, inflation risk and the need for additional Fed
tightenings. Chairman Greenspan, in recent testimony, suggested that he was
"cautiously optimistic" that the recent slowing in consumer spending was
noteworthy. He emphasized that the recent flattening in equity prices was
curbing the wealth effect. Consumer debt burdens are weighing more heavily as
interest rates have risen, and higher energy prices have acted as a tax hike by
diverting discretionary income. Putting this all together, we feel that although
the Fed may not be done raising interest rates, bond markets, including
municipals, will continue to rally as it is perceived by investors that the
tightening cycle is nearing an end.
The second factor affecting the municipal market is the diminishing supply of
Treasury securities due to declining new issuance, and open market purchases of
longer dated "off the run" securities by the Treasury. The net effect on
Treasury yields is that they have fallen further than yields in other sectors.
As a result, long-term municipal yields have increased sharply relative to their
Treasury counterparts.
Lastly, and to a lessor extent, the issuance of municipal bonds is running
behind 1999 year-to-date levels. The two reasons for this are: 1) the increase
in interest rates in the second half of 1999 and into 2000 eliminated the
economic incentive of refunding outstanding issues, and 2) The strength of the
U.S. economy has allowed many municipalities to utilize pay-as-you-go financing
using current budgetary revenues rather than borrowing through the capital
markets. The consequence for municipal bond investors has been a relative
shortage of supply.
In the portfolio, we have maintained a conservative duration believing that
rates were sure to rise. Although this has not hurt relative performance, we
were definitely wrong on the direction of rates. The good news though is that
the municipal yield curve still has a positive slope. Thirty-year high-grade
municipal bonds currently yield about 130 basis points more than one-year
issues. Although we don't expect rates to rise significantly from here, we do
believe that there will be an opportunity to initiate new positions at lower
dollar prices before year-end.
Sincerely,
[/s/ John D. Knox]
John D. Knox
Managing Director
Trainer Wortham & Company, Inc.
Past performance is no guarantee of future results. Share prices fluctuate and
you may have a gain or loss when you redeem shares.
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 Provident 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, ANY 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.
<PAGE> 2
TRAINER WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF INVESTMENTS JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
<C> <S> <C>
BOND - 92.19%
MUNICIPAL
$ 250,000 Foothill/Eastern Corridor Agency, California Toll Road
Revenue, 4.500%, 01/15/08................................... $ 247,812
250,000 San Diego County, California, Regional Transportation
Commission, Sales Tax Revenue, Series A, 5.500%, 04/01/08... 263,750
250,000 Riverside County, California, Transportation Commission,
Sales Tax Revenue, Series A, 4.625%, 06/01/08............... 249,687
250,000 University of California, Revenue, Multi-Purpose Projects,
Series F, 5.000%, 09/01/08.................................. 255,938
250,000 Orange County, California, Local Transportation Authority,
Sales Tax Revenue, 5.050%, 02/15/09......................... 254,063
250,000 San Mateo Foster City, California, School District, 4.750%,
08/01/10.................................................... 249,687
250,000 California State General Obligation, 5.250%, 10/01/10....... 258,125
250,000 Los Angeles, California, Unified School District, 5.250%,
07/01/11.................................................... 257,500
300,000 California State, Public Works, Lease Revenue, California
Community Colleges, Series B, 5.000%, 09/01/12.............. 300,750
300,000 Foothill/Eastern Corridor Agency, California Toll Road
Revenue, Senior Lien, Series A, 7.150%, 01/01/13............ 266,625
325,000 San Francisco, California, Bay Area Rapid Transit, Sales Tax
Revenue, 5.250%, 07/01/16................................... 321,344
1,000,000 Campbell, California, Unified School District, 0.000%,
08/01/18.................................................... 353,750
----------
TOTAL INVESTMENTS (COST $3,311,620*) - 92.19%............... 3,279,031
OTHER ASSETS LESS OTHER LIABILITIES - 7.81%................. 277,775
----------
NET ASSETS - 100.00%........................................ $3,556,806
==========
* Cost for Federal income tax purposes is $3,311,620 and net unrealized depreciation
consists of:
Gross unrealized appreciation............................... $ 9,855
Gross unrealized depreciation............................... (42,444)
----------
Net unrealized depreciation................................. $ (32,589)
==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 3
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE
TAX-FREE FUND
-----------------------
<S> <C>
ASSETS
Investments in securities at market value (identified
cost $3,311,620) (Note 1)............................... $3,279,031
Cash...................................................... 247,640
Receivables:
Dividends and interest.................................. 52,179
Reimbursement due from Advisor............................ 1,476
Other assets.............................................. 792
----------
TOTAL ASSETS............................................ 3,581,118
----------
LIABILITIES
Accrued expenses.......................................... 24,312
----------
TOTAL LIABILITIES....................................... 24,312
----------
NET ASSETS
(applicable to outstanding shares of 359,654; unlimited
shares of $0.001 par value authorized).................. $3,556,806
==========
Net asset value, offering and redemption price per
share................................................... $ 9.89
==========
SOURCE OF NET ASSETS
Paid-in capital........................................... $3,640,723
Undistributed net investment income....................... 1,110
Accumulated net realized loss on investments.............. (52,438)
Net unrealized depreciation of investments................ (32,589)
----------
NET ASSETS.............................................. $3,556,806
==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALIFORNIA INTERMEDIATE
TAX-FREE FUND
-----------------------
<S> <C>
INVESTMENT INCOME
Interest.................................................. $193,206
--------
TOTAL INCOME............................................ 193,206
--------
EXPENSES
Advisory fees (Note 3).................................... 19,617
Administrator expense..................................... 5,879
Transfer agent fees....................................... 26,632
Bookkeeping and pricing................................... 22,080
Insurance expense......................................... 139
Custodian fees............................................ 4,864
Legal expense............................................. 10,078
Registration expense...................................... 7,486
Independent accountants................................... 2,750
Trustees' fees and expenses............................... 2,478
Reports to shareholders................................... 3,257
Other..................................................... 7,188
--------
TOTAL EXPENSES.......................................... 112,448
Expenses waived and reimbursed (Note 3)................. (79,753)
--------
NET EXPENSES............................................ 32,695
--------
NET INVESTMENT INCOME................................... 160,511
--------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss from security transactions.............. (52,438)
Net change in unrealized depreciation of investments...... (21,098)
--------
Net unrealized loss on investments........................ (73,536)
--------
Net increase in net assets resulting from operations...... $ 86,975
========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 5
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CA INTERMEDIATE
TAX-FREE FUND
-------------------------
YEAR PERIOD
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999(1)
----------- ----------
<S> <C> <C>
OPERATIONS
Net investment income..................................... $ 160,511 $ 1,047
Net realized loss on investments.......................... (52,438) --
Net change in unrealized depreciation of investments...... (21,098) (11,491)
----------- ----------
Net increase (decrease) in net assets resulting from
operations.............................................. 86,975 (10,444)
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income.................. (160,448) --
----------- ----------
Total distributions..................................... (160,448) --
----------- ----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold.................................. 1,217,603 4,875,000
Receipt from shares issued on reinvestment of
distributions........................................... 155,601 --
Shares redeemed........................................... (2,607,481) --
----------- ----------
Net increase (decrease) in net assets resulting from
capital share transactions(a)........................... (1,234,277) 4,875,000
----------- ----------
Total increase (decrease) in net assets................. (1,307,750) 4,864,556
NET ASSETS
Beginning of period....................................... 4,864,556 --
----------- ----------
End of period............................................. $ 3,556,806 $4,864,556
=========== ==========
(a) Transactions in capital stock were:
Shares sold........................................... 123,299 489,113
Shares issued on reinvestment of distributions........ 15,935 --
Shares redeemed....................................... (268,693) --
----------- ----------
Net increase (decrease)............................... (129,459) 489,113
Beginning balance..................................... 489,113 --
----------- ----------
Ending balance........................................ 359,654 489,113
=========== ==========
</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> 6
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
CA INTERMEDIATE
TAX-FREE FUND
--------------------
YEAR PERIOD
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999(1)
-------- --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.95 $10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
Net investment income..................................... 0.38 0.01
Net losses on securities (both realized and unrealized)... (0.06) (0.06)
------ -------
Total from investment operations........................ 0.32 (0.05)
------ -------
LESS DISTRIBUTIONS
------------------
Dividends from net investment income...................... (0.38) --
Distributions from capital gains.......................... -- --
------ -------
Total distributions..................................... (0.38) --
------ -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.89 $ 9.95
====== =======
TOTAL RETURN................................................ 3.34% (0.50%)+
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets, end of period (in 000's)...................... $3,557 $4,865
Ratio of expenses to average net assets before
reimbursement of expenses by Advisor.................... 2.58% 6.27%*
after reimbursement of expenses by Advisor.............. 0.75% 0.75%*
Ratio of net investment income (loss) to average net
assets before reimbursement of expenses by Advisor...... 1.86% (4.88%)*
after reimbursement of expenses by Advisor.............. 3.69% 0.64%*
Portfolio turnover rate................................... 48% --
</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> 7
NOTES TO FINANCIAL STATEMENTS JUNE 30, 2000
--------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Trainer Wortham Funds (the "Trust") is an open-end investment management company
which currently offers shares of four series: Trainer Wortham First Mutual Fund
("First Mutual Fund"); Trainer Wortham Large-Cap Growth Fund ("Large-Cap Growth
Fund"); Trainer Wortham Total Return Bond Fund ("Total Return Bond Fund"); and
Trainer Wortham California Intermediate Tax-Free Fund ("California Intermediate
Tax-Free Fund") a non-diversified series. Each Fund has distinct investment
objectives and policies. This Annual Report relates to the California
Intermediate Tax-Free Fund. Information on the First Mutual Fund, the Large-Cap
Growth Fund and the Total Return Bond Fund is provided in separate reports.
California Intermediate Tax-Free Fund commenced operations on June 10, 1999.
Trainer Wortham & Co., Inc., the Trust's investment advisor, has agreed to bear
all of the costs incurred in connection with the organization and initial
registration of the Fund's shares.
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 cannot 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 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> 8
NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000
--------------------------------------------------------------------------------
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. As of June 30, 2000 the Fund has a $19,260 capital loss
carryover available for Federal income tax purposes which expires in 2008. The
Fund has also realized $33,178 of capital losses for financial reporting
purposes which have been deferred for Federal income tax purposes.
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, 2000 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
California Intermediate Tax-Free Fund....................... $2,418,245 $1,831,704
</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 four separate investment advisory agreements (the
"Agreements"). Under the terms of the Agreement, the Advisor receives an annual
fee, accrued daily and paid monthly, of 0.45% of the average daily net assets of
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 California Intermediate Tax-Free Fund to 0.75% of the fund's
average daily net assets to at least June 30, 2000. During the year ended June
30, 2000 the Advisor waived advisory fees and/or reimbursed other operating
expenses in the amount of $79,753 for the California Intermediate Tax-Free Fund.
Certain officers and trustees of the Trust are affiliated persons of the
Advisor.
<PAGE> 9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
Trainer Wortham Funds
New York, New York
We have audited the statement of assets and liabilities of Trainer Wortham
California Intermediate Tax-Free Fund (one of the series constituting Trainer
Wortham Funds), including the schedule of investments, as of June 30, 2000, and
the related statement of operations for the year then ended, and the statements
of changes in net assets and the financial highlights for the year then ended
and for the period June 10, 1999 (commencement of operations) to June 30, 1999.
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, 2000, by correspondence with the custodian. 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 California Intermediate Tax-Free Fund series of Trainer Wortham
Funds as of June 30, 2000, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
year then ended and for the period June 10, 1999 to June 30, 1999 in conformity
with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
July 27, 2000
<PAGE> 10
ILLUSTRATION OF $10,000 INVESTMENT
--------------------------------------------------------------------------------
The graph below compares the increase in value of a $10,000 investment in the
Trainer Wortham California Intermediate Tax-Free Fund with the performance of
the Lehman California Municipal Index. The values and returns for the Trainer
Wortham California Intermediate Tax-Free Fund include reinvested dividends.
Unlike a mutual fund, an unmanaged index assumes no transaction costs, taxes,
management fees or other expenses.
Average Annual Total Return
1 Year 3.34%
Since Inception 2.67%*
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
CA TAX-FREE LEHMAN CA MUNI
----------- --------------
<S> <C> <C>
06/10/99 10,000
06/30/99 9,950 10,000
06/30/00 10,282 10,345
</TABLE>
* Fund commenced operations June 10, 1999.
<PAGE> 11
TRAINER WORTHAM FUNDS
845 Third Avenue, 6th Floor
New York, NY 10022
<TABLE>
<S> <C>
OFFICERS AUDITORS
Briggs, Bunting & Dougherty, LLP
David P. Como Two Logan Square, Suite 2121
President Philadelphia, PA 19103
John D. Knox
Vice President CUSTODIAN
UMB Bank KC, NA
Robert J. Vile P.O. Box 412797
Vice President Kansas City, MO 64141
Brian J. O'Neill FUND ADMINISTRATION
Treasurer PFPC Inc.
3200 Horizon Drive
Kelly O'Neill King of Prussia, PA 19406
Secretary
INVESTMENT ADVISOR
Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
</TABLE>
Distributed by Provident Distributors, Inc., 3200 Horizon Drive, King of
Prussia, PA 19406 -- DFU 8/00
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
Todd L. 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, New York, New York 10022
888.257.4450 - Fax: 415.288.1401-www.trainerwortham.com
[TRAINER WORTHAM FUNDS LOGO]
ANNUAL REPORT
June 30, 2000
CALIFORNIA INTERMEDIATE TAX-FREE FUND
888.257.4450
