<PAGE> 1
[Trainer Wortham & Co., Inc. Page Heading]
Dear Shareholders:
The year 1999 was not a good year for the bond market as interest rates rose
throughout the year producing one of the worst periods of total return in recent
history. We did our best to protect principal as the Trainer Wortham Total
Return Bond Fund was down -0.12% during the year (4.93% Average Annual Total
Return Since 10/1/96 Inception) while the Lehman Aggregate Index was -0.82%.
Long term bonds were the worst performers as the benchmark 30-year was down
almost 15%. To make matters worse, there was complete euphoria in the equity
markets reducing the spirits of bond managers and their clients even more
throughout the year.
The Federal Reserve initiated a tightening bias beginning in May and proceeded
to raise rates three times during the year. Strong growth in almost every sector
of the economy (especially in payroll employment) was hardly impacted by these
rate increases. Surprisingly however, the usual associated inflationary uptick
has not materialized and although it may going forward, there are some who say
that "this time is different". Certainly, the rise of the Internet and
subsequently "e-commerce" and the "B to B" and "B to C" marketplace has
significantly impacted the ability of producers and retailers to pass along
price increases to the consumer. However, October's producer price report of up
1.1% (the highest in nine years) was the first sign that maybe this new Internet
paradigm may not be the complete antidote for inflation. Many of the "this time
is different" believers have ignored the fact that oil prices have doubled over
the last year and the supply of new workers is practically non existent, making
wage gains inevitable. In the meantime, rates continue to trend higher, the Fed
will most likely raise rates again after their meeting in early February, and
where yields peak is anyone's guess.
One thing is for sure, if rates continue to rise at their current pace, sooner
or later the equity market will feel a chill as higher rates will choke off
growth and impact earnings per share. It is in the best interest of everyone
that the Fed orchestrates an orderly slow down and does their best not to
precipitate anything too dramatic.
The average duration of the portfolio is currently 4.4 years, one half of a year
shorter than the Lehman Aggregate Index. We are overweighted in both the
corporate and mortgage backed sectors of the market vis a vis the Index and this
strategy has worked well both last year and thus far in 2000. The "flight to
quality" that we were concerned about at the end of the year in response to the
Y2K event never materialized, and at this point, it does not make sense to hold
too many Treasuries as there is so much yield available in other sectors.
Finally, we hope that this year is a better one for fixed income investors even
though we have gotten off to a rough start. Our best guess is that rates will
stabilize in the spring at higher levels and then fall modestly in the latter
half of the year. Net net, we should earn the coupon in 2000 which would produce
an annual return of 7% to 8%.
Sincerely,
[/s/ John D. Knox]
John D. Knox
Managing Director
Fixed Income
Past performance is no guarantee of future results. Share prices will fluctuate
and you may have a gain or loss when you redeem shares.
The Lehman Aggregate Index is an unmanaged index and, unlike a mutual fund, its
performance assumes no transaction costs, taxes, management fees or other
expenses. A direct investment in an index is not possible.
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, 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.
<PAGE> 2
TRAINER WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
FIXED INCOME SECURITIES - 95.75%
U.S. GOVERNMENT TREASURY - 35.71%
$ 800,000 U.S. Treasury Notes, 6.375%, 09/30/01....................... $ 801,784
225,000 U.S. Treasury Notes, 5.875%, 10/31/01....................... 223,619
900,000 U.S. Treasury Notes, 7.500%, 11/15/01....................... 919,737
750,000 U.S. Treasury Notes, 6.375%, 08/15/02....................... 751,800
900,000 U.S. Treasury Notes, 5.500%, 05/31/03....................... 876,825
1,000,000 U.S. Treasury Notes, 5.875%, 02/15/04....................... 983,290
650,000 U.S. Treasury Notes, 7.250%, 05/15/04....................... 669,682
400,000 U.S. Treasury Notes, 6.500%, 10/15/06....................... 399,080
300,000 U.S. Treasury Notes, 7.250%, 08/15/22....................... 316,518
-----------
TOTAL U.S. GOVERNMENT TREASURY (COST $6,148,286)............ 5,942,335
-----------
U.S. GOVERNMENT AGENCY - 30.90%
200,000 Federal Home Loan Bank
4.690%, 10/16/00............................................ 197,493
400,000 Student Loan Marketing Association
4.750%, 12/11/00............................................ 393,776
317,307 Federal Home Loan Mortgage Corp., Series #1647,
6.500%, 11/15/08............................................ 300,251
268,292 Federal Home Loan Mortgage Corp. Pool #E65534,
6.500%, 10/01/11............................................ 260,493
457,128 Federal National Mortgage Association Pool #421151,
6.000%, 05/01/13............................................ 434,126
477,960 Federal National Mortgage Association Pool #479939,
5.500%, 01/01/14............................................ 443,905
474,536 Federal National Mortgage Association Pool #483994,
6.000%, 04/01/14............................................ 450,537
2,424 Federal National Mortgage Association Pool #041474,
7.500%, 04/01/17............................................ 2,398
10,404 Federal Home Loan Mortgage Corp. Pool #141248,
7.500%, 07/01/17............................................ 10,411
464,290 Federal National Mortgage Association Pool #100285,
9.500%, 12/15/20............................................ 487,356
362,906 Government National Mortgage Association Pool #331266,
8.000%, 08/15/22............................................ 365,399
370,591 Federal Home Loan Mortgage Corp. Gold Pool #D72664,
7.000%, 07/01/26............................................ 358,891
125,824 Federal Home Loan Mortgage Corp. Gold Pool #C80442,
7.000%, 10/01/26............................................ 121,852
481,414 Government National Mortgage Association Pool #407955,
6.500%, 10/15/27............................................ 452,226
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 3
TRAINER WORTHAM TOTAL RETURN BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- -----------
<C> <S> <C>
$ 467,210 Federal National Mortgage Association Pool #251568,
6.500%, 03/01/28............................................ $ 440,490
450,400 Government National Mortgage Association Pool #458485,
6.500%, 08/15/28............................................ 423,092
-----------
TOTAL U.S. GOVERNMENT AGENCY (COST $5,340,228).............. 5,142,696
-----------
CORPORATE BONDS - 29.14%
160,000 Ford Motor Credit Co., 7.020%, 10/10/00..................... 160,504
500,000 Cendant Corporation, 7.500%, 12/01/00....................... 499,375
200,000 Sears Roebuck Acceptance Corp., 5.870%, 01/08/01............ 197,250
150,000 Morgan Stanley Group, Inc., 9.375%, 06/15/01................ 155,062
150,006 WFS Financial Owner Trust, 1998-A A3, 5.900%, 05/20/02...... 149,723
400,000 First Union Corp., 6.950%, 11/01/04......................... 393,500
250,000 Hydro-Quebec, 6.720%, 03/16/05.............................. 243,437
400,000 Commercial Credit Company, 7.375%, 04/15/05................. 401,500
200,000 Salomon Smith Barney Holdings, Inc., 7.125%, 10/01/06....... 194,750
100,000 Union Pacific Resources Corp., 7.000%, 10/15/06............. 95,375
500,000 Sears Roebuck Acceptance Corp., 7.000%, 06/15/07............ 473,125
500,000 Time Warner, Inc., 8.180%, 08/15/07......................... 515,625
200,000 General Motors Acceptance Corp., 5.850%, 01/14/09........... 177,250
250,000 SBC Communications, Inc., 6.625%, 11/01/09.................. 236,875
492,500 Comp De Desarollo Aeropu, 10.190%, 05/31/11 (Note 4)........ 399,541
200,000 Empresa Nacional Electric, 7.875%, 02/02/27................. 174,103
396,342 Norwest Asset Securities Corp., 1997-13 A1, 6.750%,
09/25/27.................................................... 382,989
-----------
TOTAL CORPORATE BONDS (COST $5,227,275)..................... 4,849,984
-----------
TOTAL FIXED INCOME SECURITIES (COST $16,715,789)............ 15,935,015
-----------
TOTAL INVESTMENTS (COST $16,715,789**) - 95.75%............. 15,935,015
OTHER ASSETS LESS OTHER LIABILITIES - 4.25%................. 708,055
-----------
NET ASSETS - 100.00%........................................ $16,643,070
===========
Gross unrealized appreciation............................... $ 86
Gross unrealized depreciaton................................ (780,860)
-----------
Net unrealized depreciation................................. $ (780,774)
===========
</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 (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT VALUE
- ---------- ----------
<C> <S> <C>
BOND - 97.97%
MUNICIPAL
$ 250,000 Foothill/Eastern Corridor Agency, California Toll Road
Revenue,
4.500%, 01/15/08............................................ $ 240,938
250,000 San Diego County, California, Regional Transportation
Commission, Sales Tax Revenue, Series A,
5.500%, 04/01/08............................................ 258,437
250,000 Riverside County, California, Transportation Commission,
Sales Tax Revenue, Series A,
4.625%, 06/01/08............................................ 243,750
250,000 University of California, Revenue, Multi-Purpose Projects,
Series F,
5.000%, 09/01/08............................................ 250,000
250,000 Orange County, California, Local Transportation Authority,
Sales Tax Revenue,
5.050%, 02/15/09............................................ 249,688
250,000 San Mateo Foster City, California, School District,
4.750%, 08/01/10............................................ 240,313
250,000 California State General Obligation,
5.250%, 10/01/10............................................ 251,562
400,000 San Francisco, California, City & County Educational
Facility - Zoo Facility, Series C,
5.500%, 06/15/11............................................ 407,500
250,000 Los Angeles, California, Unified School District,
5.250%, 07/01/11............................................ 250,000
300,000 California State, Public Works, Lease Revenue, California
Community Colleges, Series B,
5.000%, 09/01/12............................................ 289,500
300,000 Foothill/Eastern Corridor Agency, California Toll Road
Revenue, Senior Lien, Series A,
7.150%, 01/01/13............................................ 250,125
400,000 California State Refunding,
5.000%, 02/01/14............................................ 374,000
185,000 California State, Water Resources Development, Series P,
5.800%, 06/01/14............................................ 185,995
325,000 San Francisco, California, Bay Area Rapid Transit, Sales Tax
Revenue,
5.250%, 07/01/16............................................ 306,719
1,000,000 Campbell, California, Unified School District,
0.000%, 08/01/18............................................ 327,500
----------
</TABLE>
<PAGE> 5
TRAINER WORTHAM CALIFORNIA INTERMEDIATE TAX-FREE FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE
----------
<C> <S> <C>
TOTAL INVESTMENTS (COST $4,294,755*) - 97.97%............... $4,126,027
OTHER ASSETS LESS OTHER LIABILITIES - 2.03%................. 85,943
----------
NET ASSETS - 100.00%........................................ $4,211,970
==========
* Cost for Federal income tax purposes is $4,294,755 and net unrealized depreciation
consists of:
Gross unrealized appreciation............................... $ --
Gross unrealized depreciation............................... (168,728)
----------
Net unrealized depreciation................................. $ (168,728)
==========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN CALIFORNIA INTERMEDIATE
BOND TAX-FREE FUND
------------ -----------------------
<S> <C> <C>
ASSETS
Investments in securities at market value
(identified cost $16,715,789 and $4,294,755,
respectively)
(Notes 1 and 4).................................. $15,935,015 $4,126,027
Cash............................................... 537,720 48,866
Receivables:
Dividends and interest........................... 185,045 55,600
Reimbursement due from Advisor..................... -- 11,336
Deferred organizational costs (Note 1)............. 4,215 --
Other assets....................................... 1,513 --
----------- ----------
TOTAL ASSETS..................................... 16,663,508 4,241,829
----------- ----------
LIABILITIES
Advisory fee....................................... 6,386 --
Accrued expenses................................... 14,052 29,859
----------- ----------
TOTAL LIABILITIES................................ 20,438 29,859
----------- ----------
NET ASSETS
(applicable to outstanding shares of 1,718,170 and
437,510 respectively; unlimited shares of $0.001
par value authorized)............................ $16,643,070 $4,211,970
=========== ==========
Net asset value, offering and redemption price per
share............................................ $ 9.69 $ 9.63
=========== ==========
SOURCE OF NET ASSETS
Paid-in capital.................................... $17,444,584 $4,399,310
Undistributed (distributions in excess of) net
investment income................................ (5,363) 5,205
Accumulated net realized loss on investments....... (15,377) (23,817)
Net unrealized depreciation of investments......... (780,774) (168,728)
----------- ----------
NET ASSETS....................................... $16,643,070 $4,211,970
=========== ==========
</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, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
RETURN CALIFORNIA INTERMEDIATE
BOND TAX-FREE FUND(1)
--------- -----------------------
<S> <C> <C>
INVESTMENT INCOME
Interest............................................. $ 520,190 $ 107,351
--------- ---------
TOTAL INCOME....................................... 520,190 107,351
--------- ---------
EXPENSES
Advisory fees (Note 3)............................... 38,170 11,265
Administrator expense................................ 11,486 8,379
Transfer agent fees.................................. 14,764 13,831
Bookkeeping and pricing.............................. 14,402 11,391
Insurance expense.................................... 1,877 --
Custodian fees....................................... 4,774 2,567
Legal expense........................................ 5,345 5,034
Registration expense................................. 9,061 3,941
Organizational expense (Note 1)...................... 1,209 --
Independent accountants.............................. 4,028 2,914
Trustees' fees and expenses.......................... 4,463 1,348
Reports to shareholders.............................. 2,889 1,270
Other................................................ 4,692 3,719
--------- ---------
TOTAL EXPENSES..................................... 117,160 65,659
Expenses waived and reimbursed (Note 3)............ (30,205) (46,885)
--------- ---------
NET EXPENSES....................................... 86,955 18,774
--------- ---------
NET INVESTMENT INCOME.............................. 433,235 88,577
--------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss from security transactions......... (15,341) (23,817)
Net change in unrealized depreciation of
investments........................................ (335,861) (157,237)
--------- ---------
Net unrealized loss on investments................... (351,202) (181,054)
--------- ---------
Net increase (decrease) in net assets resulting from
operations......................................... $ 82,033 $ (92,477)
========= =========
</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
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN BOND CA TAX-FREE
-------------------------- -------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED PERIOD
DECEMBER 31, ENDED DECEMBER 31, ENDED
1999 JUNE 30, 1999 JUNE 30,
(UNAUDITED) 1999 (UNAUDITED) 1999(1)
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income................. $ 433,235 $ 678,867 $ 88,577 $ 1,047
Net realized gain (loss) on
investments......................... (15,341) 197,123 (23,817) --
Net change in unrealized appreciation
(depreciation) of investments....... (335,861) (566,965) (157,237) (11,491)
----------- ----------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations........... 82,033 309,025 (92,477) (10,444)
----------- ----------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment
income.............................. (451,125) (670,385) (84,419)
Distributions from realized gains on
investments......................... (91,581) (149,582) -- --
----------- ----------- ---------- ----------
Total distributions................. (542,706) (819,967) (84,419) --
----------- ----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold.............. 360,621 6,041,530 901,403 4,875,000
Receipt from shares issued on
reinvestment of distributions....... 506,493 778,454 84,419 --
Shares redeemed....................... (689,173) (1,359,170) (1,461,512) --
----------- ----------- ---------- ----------
Net increase in net assets resulting
from capital share transactions
(a)................................. 177,941 5,460,814 (475,690) 4,875,000
----------- ----------- ---------- ----------
Total increase (decrease) in net
assets............................ (282,732) 4,949,872 (652,586) 4,864,556
NET ASSETS
Beginning of period................... 16,925,802 11,975,930 4,864,556 --
----------- ----------- ---------- ----------
End of period......................... $16,643,070 $16,925,802 $4,211,970 $4,864,556
=========== =========== ========== ==========
(a) Transactions in capital stock
were:
Shares sold....................... 36,384 587,067 95,173 489,113
Shares issued on reinvestment of
distributions.................. 51,820 76,423 4,397 --
Shares redeemed................... (68,754) (132,975) (151,173) --
----------- ----------- ---------- ----------
Net increase (decrease)........... 19,450 530,515 (51,603) 489,113
Beginning balance................. 1,698,720 1,168,205 489,113 --
----------- ----------- ---------- ----------
Ending balance.................... 1,718,170 1,698,720 437,510 489,113
=========== =========== ========== ==========
</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> 9
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
----------------------------------------------
SIX MONTHS
ENDED YEARS ENDED PERIOD
DECEMBER 31, JUNE 30, ENDED
1999 ------------------ JUNE 30,
(UNAUDITED) 1999 1998 1997(1)
------------ ------- ------- --------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..... $9.96 $10.25 $10.08 $10.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income.................. 0.26 0.47 0.52 0.41
Net gains (losses) on securities (both
realized and unrealized)............. (0.21) (0.18) 0.25 0.08
------- ------- ------- ------
Total from investment operations..... 0.05 0.29 0.77 0.49
------- ------- ------- ------
LESS DISTRIBUTIONS
---------------------
Dividends from net investment income... (0.27) (0.47) (0.53) (0.40)
Distributions from capital gains....... (0.05) (0.11) (0.07) --
Distributions in excess of capital
gains................................ -- -- -- (0.01)
------- ------- ------- ------
Total distributions.................. (0.32) (0.58) (0.60) (0.41)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD........... $9.69 $ 9.96 $10.25 $10.08
======= ======= ======= ======
TOTAL RETURN............................. 0.54%# 2.80% 7.84% 4.90%+
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period (in 000's)... $16,643 $16,926 $11,976 $8,479
Ratio of expenses to average net assets
before reimbursement of expenses by
Advisor............................ 1.38%* 1.46% 1.68% 2.01%*
after reimbursement of expenses by
Advisor............................ 1.03%* 1.20% 1.20% 0.88%*
Ratio of net investment income (loss)
to average net assets before
reimbursement of expenses by
Advisor.............................. 4.75%* 4.55% 4.86% 4.53%*
after reimbursement of expenses by
Advisor............................ 5.10%* 4.81% 5.34% 5.66%*
Portfolio turnover rate................ 7%# 57% 83% 112%+
</TABLE>
- -------------------------------------------
(1) The Total Return Bond Fund commenced operations on October 1, 1996.
+ Since inception, not annualized.
* Annualized.
# Not annualized.
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 10
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The tables below set forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
INTERMEDIATE
CA TAX-FREE
------------------------
SIX MONTHS
ENDED PERIOD
DECEMBER 31, ENDED
1999 JUNE 30,
(UNAUDITED) 1999(1)
------------ --------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 9.95 $10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
----------------------------------------
Net investment income..................................... 0.18 0.01
Net losses on securities (both realized and unrealized)... (0.33) (0.06)
------- -------
Total from investment operations........................ (0.15) (0.05)
------- -------
LESS DISTRIBUTIONS
---------------------
Dividends from net investment income...................... (0.17) --
Distributions from capital gains.......................... -- --
------- -------
Total distributions..................................... (0.17) --
------- -------
NET ASSET VALUE, END OF PERIOD.............................. $ 9.63 $ 9.95
======= =======
TOTAL RETURN................................................ (1.51)%# (0.50)%+
RATIOS/SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period (in 000's)...................... $4,212 $4,865
Ratio of expenses to average net assets
before reimbursement of expenses by Advisor............. 2.62%* 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............. 1.67%* (4.88)%*
after reimbursement of expenses by Advisor.............. 3.54%* 0.64%*
Portfolio turnover rate................................... 21%# --
</TABLE>
- -------------------------------------------
(1) The California Intermediate Tax-Free Fund commenced operations on June 10,
1999.
+ Since inception, not annualized.
# 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, 1999
- --------------------------------------------------------------------------------
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"). Each Fund has distinct investment objectives and policies. This
Semi-annual Report relates to the Total Return Bond Fund and the California
Intermediate Tax-Free Fund. Information on the First Mutual Fund and Large-Cap
Growth 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 Funds can not ensure
that their 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.
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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 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
six-months ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------- ----------
<S> <C> <C>
Total Return Bond Fund...................................... $1,831,463 $1,033,354
California Intermediate Tax-Free Fund....................... $2,418,248 $ 863,285
</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 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 1.00% and 0.75%, respectively, of each
fund's average daily net assets through May 2000. Prior to November 1, 1999, the
Advisor agreed to waive its advisory fees and/or reimburse other operating
expenses to limit the annual operating expenses of the Total Return Bond Fund to
1.20%. During the six-months ended December 31, 1999 the Advisor waived
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
advisory fees and/or reimbursed other operating expenses in the amount of
$30,205 for the Total Return Bond Fund and $46,885 for the California
Intermediate Tax-Free Fund.
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, 1999, Total Return Bond Fund
owned the following security 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 $492,500 81.13 $399,541 2.40% $542,886
</TABLE>
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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
John D. Knox
Vice President
CUSTODIAN
Robert Vile UMB Bank KC, NA
Vice President P.O. Box 412797
Kansas City, MO 64141
Brian J. O'Neill
Treasurer
FUND ADMINISTRATION
Kelly O'Neill PFPC Inc.
Secretary 3200 Horizon Drive
King of Prussia, PA 19406
INVESTMENT ADVISOR
Trainer Wortham & Co., Inc.
845 Third Avenue, 6th Floor
New York, NY 10022
</TABLE>
Distributed by Provident Distributors, Inc., Four Falls Corporate Center, 6th
Floor, West Conshohocken, PA 19428 -- DFU 2/00
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> 15
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
OFFICERS:
David P. Como
President
John D. Knox
Vice President
Robert Vile
Vice President
Brian J. O'Neill
Treasurer
Kelly O'Neill
Secretary
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]
SEMI-ANNUAL REPORT
DECEMBER 31, 1999
TOTAL RETURN BOND FUND
CALIFORNIA INTERMEDIATE
TAX-FREE FUND
888.257.4450
