<PAGE> 1
Dear Current and Future Shareholders:
Technology means more: more of everything, to more locations more quickly. In
the first half of the year 2000 even the financial markets have taken on the
hyper characteristics of the technological world. We saw a parabolic move in the
NASDAQ in the first two months of the year. There was a NASDAQ bear market
decline of 36% in the second two months as the bubble burst. In June the average
NASDAQ stock was down 37% from its 52-week highs, and about 80% of all NASDAQ
stocks were down at least 20%. Shares traded hands in unprecedented volumes and
moved with record volatility, as there were thirteen days when the NASDAQ was up
or down more than 5%, versus one day in all of 1999. The broader S&P 500 Index
had a less severe downturn, but was still off more than 11% from its March
highs. The heavy selling left the major U.S. equity indexes negative in the
first half of the year for the first time since 1994. As this storm passes and
the markets enter the summer "doldrums" we turn to the inevitable question of
"now what?"
There's no doubt that the past six months have left many changes in their wake
and today we find ourselves in a different investment landscape. Having a
presence in San Francisco we have been lucky enough to see Silicon Valley's
change in attitude first hand. The gold rush, get rich quick attitude is gone
and has been replaced by a longer-term outlook. The latest buzzword for the
Internet sector is not "B2C" or "B2B," but rather "P2P": Path to Profitability
or "Show me the money!" Even though many companies will not be able to survive
and others will have to sell, value-creating companies with good management and
a competitive advantage will always attract investments.
Earnings reports show that the United States economy and most of the technology
sector is still very strong. But the Federal Reserve's continued vigilance
against inflation expectations has slowed growth to more sustainable levels. In
real terms the economy grew at 7.3% in the fourth quarter of 1999, 5.5% in this
year's first quarter and will probably be at about 3.5% in the second quarter.
We could be witnessing Federal Reserve Chairman Greenspan's economic "soft
landing" or the beginning of an economic recession.
At Trainer Wortham we continue the strict discipline which has allowed us to
outperform the market over time. We are no longer in a market where every
dot-com or IPO will rocket upwards; stock selection and diversification will
make all the difference in this new market. The market of our new millennium
will no longer be a stock market but rather a market of stocks. We thank you for
your continued support and look forward to many more positive years.
Sincerely,
/S/ DAVID P. COMO
David P. Como
President
Trainer Wortham Funds
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. Shares of the
Trainer Wortham Funds are distributed by Provident Distributors, Inc. which is
not affiliated with the 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 FUND INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
<PAGE> 2
TRAINER WORTHAM FIRST MUTUAL FUND
SCHEDULE OF INVESTMENTS JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
--------- -----------
<C> <S> <C>
COMMON STOCK - 98.20%
COMPUTER SOFTWARE & SERVICES - 8.38%
46,100 America Online, Inc.*....................................... $ 2,431,775
30,000 Inktomi Corp.*.............................................. 3,547,500
-----------
5,979,275
-----------
DIVERSIFIED OPERATIONS - 4.48%
60,225 General Electric Co. ....................................... 3,191,925
-----------
ELECTRONICS/MANUFACTURING - 19.09%
50,000 Amphenol Corp., Class A*.................................... 3,309,375
15,000 BroadCom Corp., Class A*.................................... 3,284,063
50,000 Sanmina Corp.*.............................................. 4,275,000
65,500 Solectron Corp.*............................................ 2,742,813
-----------
13,611,251
-----------
FINANCIAL - 4.46%
52,762 Citigroup, Inc. ............................................ 3,178,911
-----------
MEDIA/BROADCASTING - 15.88%
35,000 American Tower Corp., Class A............................... 1,459,062
47,175 Clear Channel Communications, Inc.*......................... 3,538,125
77,000 Comcast Corp., Special Class A*............................. 3,118,500
88,000 Infinity Broadcasting Corp., Class A*....................... 3,206,500
-----------
11,322,187
-----------
MEDICAL - PHARMACEUTICAL - 19.74%
66,350 Amgen, Inc.*................................................ 4,661,088
24,500 Johnson & Johnson........................................... 2,495,937
41,100 Merck & Co., Inc. .......................................... 3,149,288
127,400 NeoTherapeutics, Inc.*...................................... 1,361,587
36,500 PE Corp. - PE Biosystems Group.............................. 2,404,437
-----------
14,072,337
-----------
TECHNOLOGY & COMPUTERS - 14.55%
40,200 Cisco Systems, Inc.*........................................ 2,555,213
33,600 Intel Corp. ................................................ 4,491,900
30,350 International Business Machines Corp. ...................... 3,325,222
-----------
10,372,335
-----------
TELECOMMUNICATIONS - 11.62%
44,200 Lucent Technologies, Inc. .................................. 2,618,850
70,150 Qwest Communications International, Inc.*................... 3,485,578
40,000 Western Wireless Corp., Class A*............................ 2,180,000
-----------
8,284,428
-----------
TOTAL COMMON STOCKS (COST $41,393,728)...................... 70,012,649
-----------
</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, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
-------- -----------
<C> <S> <C>
SHORT TERM INVESTMENTS - 1.87%
1,331,967 UMB Bank, Money Market Fiduciary, 4.90% (Cost $1,331,967)... $ 1,331,967
-----------
TOTAL INVESTMENTS (COST $42,725,695**) - 100.07%............ 71,344,616
OTHER LIABILITIES LESS OTHER ASSETS - (0.07)%............... (48,111)
-----------
NET ASSETS - 100.00%........................................ $71,296,505
===========
* Non-income producing security
** Cost for Federal income tax purposes is $42,725,695 and net unrealized appreciation
consists of:
Gross unrealized appreciation............................... $30,360,976
Gross unrealized depreciation............................... (1,742,055)
-----------
Net unrealized appreciation................................. $28,618,921
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 4
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST
MUTUAL FUND
-----------
<S> <C>
ASSETS
Investments in securities at market value (identified cost
$42,725,695) (Note 1)................................... $71,344,616
Receivables:
Dividends and interest.................................. 18,907
Capital stock sold...................................... 4,098
Other assets.............................................. 9,684
-----------
TOTAL ASSETS............................................ 71,377,305
-----------
LIABILITIES
Payables:
Advisory fee............................................ 42,455
Distribution fee........................................ 14,152
Accrued expenses.......................................... 24,193
-----------
TOTAL LIABILITIES....................................... 80,800
-----------
NET ASSETS
(applicable to outstanding shares of 3,555,508; unlimited
shares of $0.001 par value authorized).................. $71,296,505
===========
Net asset value, offering and redemption price per
share................................................... $ 20.05
===========
SOURCE OF NET ASSETS
Paid-in capital........................................... $34,273,129
Accumulated net realized gain on investments.............. 8,404,455
Net unrealized appreciation of investments................ 28,618,921
-----------
NET ASSETS.............................................. $71,296,505
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 5
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST
MUTUAL FUND
-----------
<S> <C>
INVESTMENT INCOME
Dividends................................................. $ 176,023
Interest.................................................. 53,089
-----------
TOTAL INCOME............................................ 229,112
-----------
EXPENSES
Advisory fees (Note 3).................................... 475,160
Distribution expense (Note 3)............................. 158,387
Administrator expense..................................... 94,432
Transfer agent fees....................................... 68,048
Bookkeeping and pricing................................... 47,121
Insurance expense......................................... 12,045
Custodian fees............................................ 15,630
Legal expense............................................. 34,493
Registration expense...................................... 20,012
Independent accountants................................... 13,655
Trustees' fees and expenses............................... 32,714
Reports to shareholders................................... 12,126
Other..................................................... 23,445
-----------
TOTAL EXPENSES.......................................... 1,007,268
-----------
NET INVESTMENT LOSS..................................... (778,156)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain from security transactions.............. 8,404,175
Net change in unrealized appreciation of investments...... 7,064,986
-----------
Net realized and unrealized gain on investments........... 15,469,161
-----------
Net increase in net assets resulting from operations...... $14,691,005
===========
</TABLE>
The notes to financial statements are an integral part of these statements.
<PAGE> 6
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIRST MUTUAL FUND
-----------------------------
YEAR YEAR
ENDED ENDED
JUNE 30, JUNE 30,
2000 1999
------------- -------------
<S> <C> <C>
OPERATIONS
Net investment loss....................................... $ (778,156) $ (448,570)
Net realized gain on investments.......................... 8,404,175 3,285,878
Net change in unrealized appreciation of investments...... 7,064,986 13,467,038
------------ ------------
Net increase in net assets resulting from operations...... 14,691,005 16,304,346
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from realized gains on investments.......... (2,836,630) (3,441,613)
------------ ------------
Total distributions..................................... (2,836,630) (3,441,613)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Receipt from shares sold.................................. 28,367,244 3,537,403
Receipt from shares issued on reinvestment of
distributions........................................... 2,711,333 3,274,771
Shares redeemed........................................... (26,404,968) (4,116,984)
------------ ------------
Net increase in net assets resulting from capital share
transactions(a)......................................... 4,673,609 2,695,190
------------ ------------
Total increase in net assets............................ 16,527,984 15,557,923
NET ASSETS
Beginning of year......................................... 54,768,521 39,210,598
------------ ------------
End of year............................................... $ 71,296,505 $ 54,768,521
============ ============
(a) Transactions in capital stock were:
Shares sold........................................... 1,502,612 234,602
Shares issued on reinvestment of distributions........ 139,289 235,764
Shares redeemed....................................... (1,397,103) (303,256)
------------ ------------
Net increase.......................................... 244,798 167,110
Beginning balance..................................... 3,310,710 3,143,600
------------ ------------
Ending balance........................................ 3,555,508 3,310,710
============ ============
</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>
FIRST MUTUAL FUND
------------------------------------------------
YEARS ENDED JUNE 30,
------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR....... $16.54 $12.47 $12.35 $13.81 $10.03
------- ------- ------- -------- -------
INCOME FROM INVESTMENT
----------------------
OPERATIONS
----------
Net investment loss.................... (0.22) (0.14) (0.07) (0.11) (0.09)
Net gains on securities (both realized
and unrealized)...................... 4.58 5.35 2.72 0.95 4.79
------- ------- ------- -------- -------
Total from investment operations..... 4.36 5.21 2.65 0.84 4.70
------- ------- ------- -------- -------
LESS DISTRIBUTIONS
------------------
Dividends from net investment income... -- -- -- -- --
Distributions from capital gains....... (0.85) (1.14) (2.53) (2.30) (0.92)
------- ------- ------- -------- -------
Total distributions.................. (0.85) (1.14) (2.53) (2.30) (0.92)
------- ------- ------- -------- -------
NET ASSET VALUE, END OF YEAR............. $20.05 $16.54 $12.47 $12.35 $13.81
======= ======= ======= ======== =======
TOTAL RETURN............................. 26.50% 43.53% 25.40% 7.67% 49.12%
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets, end of year (in 000's)..... $71,297 $54,769 $39,211 $33,649 $32,147
Ratio of expenses to average net
assets............................... 1.59% 1.64% 1.66% 1.87% 1.74%
Ratio of net investment loss to average
net assets........................... (1.23%) (1.02%) (0.56%) (0.96%) (0.82%)
Portfolio turnover rate................ 36% 56% 81% 109% 107%
</TABLE>
The notes to financial statements are an integral part of these financial
statements.
<PAGE> 8
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"). Each Fund has distinct investment objectives and policies. This
Annual Report relates to the First Mutual Fund. Information on the Large-Cap
Growth Fund, the Total Return Bond Fund and the California Intermediate Tax-Free
Fund is provided in separate reports.
The First Mutual Fund seeks 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 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> 9
NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000
--------------------------------------------------------------------------------
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.
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>
First Mutual Fund........................................... $24,827,942 $22,193,998
</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 0.75% of the average daily net assets of
the First Mutual Fund. For the year ended June 30, 2000, the Trust paid the
Advisor $475,160 in Advisory fees on behalf of First Mutual Fund.
The Trust has adopted a Distribution Plan (the "Plan" or "Plans"), with respect
to the 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 it's
sole Underwriter and Distributor (the "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.
Provident Distributors, Inc. currently serves as the Trust's Distributor. For
periods prior to December 1, 1999, First Data Distributors, Inc. served as the
Trust's Distributor.
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 Funds
New York, New York
We have audited the statement of assets and liabilities of Trainer Wortham First
Mutual 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, 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 four 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 the year
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, 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 First Mutual Fund series of Trainer Wortham Funds as of June 30,
2000, 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 four years in the period then ended in conformity
with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
July 27, 2000
<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. Unlike a mutual fund, an unmanaged index assumes no transaction
costs, taxes, management fees or other expenses.
Average Annual Total Return
1 Year 26.50%
5 Year 29.56%
10 Year 17.65%
Past performance is not predictive of future performance.
<TABLE>
<CAPTION>
FIRST MUTUAL FUND S&P 500 INDEX
----------------- -------------
<S> <C> <C>
1990 10,000 10,000
1991 10,435 10,367
1992 10,540 11,400
1993 11,823 12,584
1994 12,285 12,409
1995 15,362 15,281
1996 22,907 18,732
1997 24,664 24,723
1998 30,929 31,670
1999 44,393 38,342
2000 56,157 40,629
</TABLE>
<PAGE> 12
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
Treasurer FUND ADMINISTRATION
PFPC Inc.
Kelly O'Neill 3200 Horizon Drive
Secretary 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., 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> 13
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
FIRST MUTUAL FUND
888.257.4450
