FIRST FUNDS, 485BPOS, 1996-10-25

FIRST FUNDS
485BPOS, 1996-10-25

Previous: POMEROY COMPUTER RESOURCES INC, 8-K, 1996-10-25

Next: CAPPIELLO RUSHMORE TRUST, 485BPOS, 1996-10-25

<PAGE>

As Filed with the Securities and Exchange Commission on October 25, 1996

Registration Nos. 33-46374
811-6589

- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /

Post-Effective Amendment No. 9 /X/

and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 /X/
AMENDMENT NO. __
(Check appropriate box or boxes) / /
----------------------------
First Funds
(Exact Name of Registrant as Specified in Charter)
370 Seventeenth Street, Suite 2700
Denver, Colorado 80202
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: 303-623-2577

James V. Hyatt
370 Seventeenth Street, Suite 2700
Denver, Colorado 80202
(Name and Address of Agent for Service)

Copy to:
Dan Hatzenbuehler
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2100
Memphis, TN 38103

It is proposed that this filing will become effective (check appropriate
box):

X immediately upon filing pursuant to paragraph (b)
_____
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a) of Rule 485

Registrant registered an indefinite number of shares pursuant to regulation
24f-2 under the Investment Company Act of 1940 on August 29, 1996.

- -------------------------------------------------------------------------------
<PAGE>

FIRST FUNDS

GROWTH & INCOME PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III PROSPECTUS

Form N-1A Item Number
- ---------------------

Part A Prospectus Caption
- ------ ------------------
1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . . . . . . . . . . .Summary of Portfolio Expenses
3 a,b. . . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights
c . . . . . . . . . . . . . . . . . . . . . How is Performance Calculated?
d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
4 a(i). . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
a(ii),b,c . . . . . . . What is the Investment Objective of the Portfolio?;
Is the Portfolio a Suitable Investment? Investment Risks;
What are the Portfolio's Investment Policies and Limitations?;
Investment Instruments, Strategies, Transactions and Risks;
5 a . . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
b,c,d,e,f . . . . . . .What Advisory and Other Fees does the Portfolio Pay?
g . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
5A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
6 a(i) . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
a(ii) . . . . . . . . How are Investments, Exchanges and Redemptions Made?
a(iii). . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
b,c,d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
e . . . . Cover Page; How are Investments, Exchanges and Redemptions Made?
f,g . . . . . . . . . How are Investments, Exchanges and Redemptions Made?;
What is the Effect of Federal Income Tax on this Investment?
h . . . . .Cover Page; How are Investments, Exchanges and Redemptions Made?
7 a . . . . . . . . . . .What Advisory and Other Fees does the Portfolio Pay?
b(i, ii, iii, iv, v), c, d . . . . . . . How are Investments, Exchanges and
Redemptions Made?
e, f(i, ii). . . . . . What Advisory and Other Fees does the Portfolio Pay?
f(iii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
8. . . . . . . . . . . . How are Investments, Exchanges and Redemptions Made?
9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*

* Not Applicable

<PAGE>

FIRST FUNDS

BOND PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III PROSPECTUS

Form N-1A Item Number
- ---------------------

Part A Prospectus Caption
- ------ ------------------
1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . . . . . . . . . . . .Summary of Portfolio Expenses
3 a,b. . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights
c . . . . . . . . . . . . . . . . . . . . . . How is Performance Calculated?
d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
4 a(i). . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
a(ii),b,c . . . . . . . . What is the Investment Objective of the Portfolio?;
Is the Portfolio a Suitable Investment? Investment Risks;
What are the Portfolio's Investment Policies and Limitations?;
Investment Instruments, Strategies, Transactions and Risks
5 a . . . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
b,c,d,e,f . . . . . . . .What Advisory and Other Fees does the Portfolio Pay?
g . . . . . . . . . . . . . . . . . . . . . . . . . . .Portfolio Transactions
5A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
6 a(i). . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
a(ii) . . . . . . . . . .How are Investments, Exchanges and Redemptions Made?
a(iii). . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
b,c,d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
e . . . . . .Cover Page; How are Investments, Exchanges and Redemptions Made?
f,g . . . . . . . . . . How are Investments, Exchanges and Redemptions Made?;
What is the Effect of Federal Income Tax on this Investment?
h . . . . . .Cover Page; How are Investments, Exchanges and Redemptions Made?
7 a . . . . . . . . . . . .What Advisory and Other Fees does the Portfolio Pay?
b(i, ii, iii, iv, v), c, d. . . . . . . . . . How are Investments, Exchanges
and Redemptions Made?
e, f(i, ii) . . . . . . .What Advisory and Other Fees does the Portfolio Pay?
f(iii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
8 . . . . . . . . . . . . .How are Investments, Exchanges and Redemptions Made?
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *

* Not Applicable

<PAGE>
FIRST FUNDS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
CASH RESERVE PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III PROSPECTUS

Form N-1A Item Number
- ---------------------

Part A Prospectus Caption
- ------ ------------------
1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . . . . . . . . . . . Summary of Portfolio Expenses
3 a,b. . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Highlights
c . . . . . . . . . . . . . . . . . . . . . . How is Performance Calculated?
d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
4 a(i). . . . . . . . . . . . . . . . . . . . How are the Portfolios Organized?
a(ii),b,c . . . . . . . .What is the Investment Objective of each Portfolio?;
Are the Portfolios Suitable Investments? Investment Risks;
What are the Portfolios' Investment Policies, Practices and Risks?;
Investment Instruments, Strategies, Transactions and Risks
5 a . . . . . . . . . . . . . . . . . . . . . How are the Portfolios Organized?
b,c,d,e,f . . . . . . . . What Advisory and Other Fees do the Portfolios Pay?
g . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
5A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
6 a(i). . . . . . . . . . . . . . . . . . . . How are the Portfolios Organized?
a(ii) . . . . . . . . . How are Investments, Exchanges and Redemptions Made?
a(iii). . . . . . . . . . . . . . . . . . . How are the Portfolios Organized?
b,c,d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
e . . . . . Cover Page; How are Investments, Exchanges and Redemptions Made?
f,g . . . . . . . . . . How are Investments, Exchanges and Redemptions Made?;
What is the Effect of Federal Income Tax on this Investment?
h . . . . . .Cover Page; How are Investments, Exchanges and Redemptions Made?
7 a . . . . . . . . . . . . What Advisory and Other Fees do the Portfolios Pay?
b(i),(ii) . . . . . . . How are Investments, Exchanges and Redemptions Made?
b(iii, iv,v),c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
d . . . . . . . . . . . .How are Investments, Exchanges and Redemptions Made?
e, f(i),(ii). . . . . . . What Advisory and Other Fees do the Portfolios Pay?
f(iii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
8. . . . . . . . . . . . . How are Investments, Exchanges and Redemptions Made?
9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*

* Not Applicable

<PAGE>

FIRST FUNDS

TENNESSEE TAX-FREE PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III PROSPECTUS

Form N-1A Item Number
- ---------------------

Part A Prospectus Caption
- ------ ------------------
1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. . . . . . . . . . . . . . . . . . . . . . . . . Summary of Portfolio Expenses
3 a,b. . . . . . . . . . . . . . . . . . . . . . . . . . . .Financial Highlights
c . . . . . . . . . . . . . . . . . . . . . . .How is Performance Calculated?
d. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
4 a(i) . . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
a(ii),b,c . . . . . . . . What is the Investment Objective of the Portfolio?;
Is the Portfolio a Suitable Investment? Investment Risks;
What are the Portfolio's Investment Policies and Limitations?;
Investment Instruments,Strategies, Transactions and Risks
5 a . . . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
b,c,d,e,f. . . . . . . . What Advisory and Other Fees does the Portfolio Pay?
g. . . . . . . . . . . . . . . . . . . . . . . . . . . .Portfolio Transactions
5A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
6 a(i) . . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
a(ii). . . . . . . . . . How are Investments, Exchanges and Redemptions Made?
a(iii) . . . . . . . . . . . . . . . . . . . . How is the Portfolio Organized?
b,c,d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
e. . . . . . .Cover Page; How are Investments, Exchanges and Redemptions Made?
f,g. . . . . . . . . . . How are Investments, Exchanges and Redemptions Made?;
What is the Effect of Income Tax on this Investment?
h. . . . . . .Cover Page; How are Investments, Exchanges and Redemptions Made?
7 a. . . . . . . . . . . . What Advisory and Other Fees does the Portfolio Pay?
b(i, ii, iii, iv, v), c, d. . . . . . . . . How are Investments, Exchanges and
Redemptions Made?
e, f(i, ii). . . . . . . What Advisory and Other Fees does the Portfolio Pay?
f(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
g. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
8. . . . . . . . . . . . . .How are Investments, Exchanges and Redemptions Made?
9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *

* Not Applicable

<PAGE>

FIRST FUNDS

GROWTH AND INCOME PORTFOLIO
BOND PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III
STATEMENT OF ADDITIONAL INFORMATION

Form N-1A Item Number Statement of Additional Information Caption
- --------------------- -------------------------------------------
10, 11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
12. . . . . . . . . . . . . . . . . . . . . . . . . . .Description of the Trust
13 a, b, c. . . Investment Restrictions and Limitations; Investment Instruments
d. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
14 a, b, c(i) . . . . . . . . . . . . . . . . . . . . . . Trustees and Officers
c(ii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
15 a, b, c. . . . . . . . . . . Description of the Trust; Trustees and Officers
16 a(i, ii) . . . . . . . Investment Advisory Agreements; Trustees and Officers
a(iii), b, c, d. . . . . . . . . . . . . . . .Investment Advisory Agreements
e, f . . . . . . . . . . . . . . . . . . . . Investment Advisory Agreements;
Administration Agreement and Other Contracts
g. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
h. . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
i. . . . . . . . . . . . . . . .Administration Agreement and Other Contracts
17 a, b . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
c. . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
d, e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
18 a. . . . . . . . . . . . . . . . . . . . . . . . . .Description of the Trust
b. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
19 a. . . . . . . . . . . . . . .Additional Purchase and Redemption Information
b. . . . . . . . . . . . . . . . . . . . . Valuation of Portfolio Securities
c. . . . . . . . . . . . . . . . . . . . . . . . . .Description of the Trust
20 . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions and Taxes
21 a(i, ii) . . . . . . . . . . . .Administration Agreement and Other Contracts
a(iii), b, c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
22 a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
b. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance
23. . . . . . . Financial Information for the annual period ended June 30, 1996
. . . . for Class I, II and III of each Portfolio is filed herein as Item 24(a)

* Not Applicable

<PAGE>
FIRST FUNDS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
CASH RESERVE PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III
STATEMENT OF ADDITIONAL INFORMATION

Form N-1A Item Number Statement of Additional Information Caption
- --------------------- -------------------------------------------
10, 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
12 . . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
13 a, b, c . . .Investment Restrictions and Limitations; Investment Instruments
d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*
14 a, b, c(i). . . . . . . . . . . . . . . . . . . . . . .Trustees and Officers
c(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
15 a, b, c . . . . . . . . . . .Description of the Trust; Trustees and Officers
16 a(i, ii). . . . . . . .Investment Advisory Agreements; Trustees and Officers
a(iii), b, c, d . . . . . . . . . . . . . . . Investment Advisory Agreements
e, f. . . . . . . . . . . . . . . . . . . . .Investment Advisory Agreements;
Administration Agreement and Other Contracts
g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .*
h . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
i . . . . . . . . . . . . . . . Administration Agreement and Other Contracts
17 a, b. . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
c . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
d, e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
18 a . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
19 a . . . . . . . . . . . . . . Additional Purchase and Redemption Information
b . . . . . . . . . . . . . . . . . . . . .Valuation of Portfolio Securities
c . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
20 . . . . . . . . . . . . . . . . . . . . . . . . . . .Distributions and Taxes
21 a(i, ii). . . . . . . . . . . . Administration Agreement and Other Contracts
a(iii), b, c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
22 a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance
b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
23 . . . . . . .Financial Information for the annual period ended June 30, 1996
. . . . for Class I, II and III of each Portfolio is filed herein as Item 24(a)

* Not Applicable

<PAGE>
FIRST FUNDS

TENNESSEE TAX-FREE PORTFOLIO
CROSS REFERENCE SHEET FOR CLASS I, II AND III
STATEMENT OF ADDITIONAL INFORMATION

Form N-1A Item Number Statement of Additional Information Caption
- --------------------- -------------------------------------------
10, 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
12 . . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
13 a, b, c . . .Investment Restrictions and Limitations; Investment Instruments
d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
14 a, b, c(i). . . . . . . . . . . . . . . . . . . . . . Trustees and Officers
c(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
15 a, b, c . . . . . . . . . . .Description of the Trust; Trustees and Officers
16 a(i, ii). . . . . . . Investment Advisory Agreements; Trustees and Officers
a(iii), b, c, d . . . . . . . . . . . . . . . Investment Advisory Agreements
e, f. . . . . . . . . . . . . . . . . . . . .Investment Advisory Agreements;
Administration Agreement and Other Contracts
g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
h . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
i . . . . . . . . . . . . . . . Administration Agreement and Other Contracts
17 a, b. . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
c . . . . . . . . . . . . . . . . . . . . . . . . . . Portfolio Transactions
d, e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
18 a . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
19 a . . . . . . . . . . . . . . Additional Purchase and Redemption Information
b . . . . . . . . . . . . . . . . . . . . .Valuation of Portfolio Securities
c . . . . . . . . . . . . . . . . . . . . . . . . . Description of the Trust
20 . . . . . . . . . . . . . . . . . . . . . . . . . . .Distributions and Taxes
21 a(i, ii). . . . . . . . . . . . Administration Agreement and Other Contracts
a(iii), b, c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
22 a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance
23 . . . . . . .Financial Information for the annual period ended June 30, 1996
. . . . for Class I, II and III of each Portfolio is filed herein as Item 24(a)

* Not Applicable
<PAGE>

[LOGO]

FIRST FUNDS 370 17th Street
Suite 2700
GROWTH & INCOME PORTFOLIO Denver, Colorado 80202

- -------------------------------------------------------------------------------
PROSPECTUS FOR CLASS I, II, AND III
October 25, 1996
- -------------------------------------------------------------------------------

First Funds (the Trust) offers investors a convenient and economical means of
investing in a professionally managed equity mutual fund. The objective of the
Growth & Income Portfolio (formerly the Total Return Equity Portfolio) (the
Portfolio) is to achieve maximum total return through a combination of capital
appreciation and dividend income consistent with reasonable risk by investing
primarily in equity securities. The Portfolio's net asset value per share will
fluctuate in response to changes in the value of its investments.

This Prospectus is designed to provide you with information that you
should know before investing. Please read and retain this document for future
reference. This Prospectus offers Class I, II and III shares of the
Portfolio. Class I shares are designed exclusively for investment of monies
held in non-retail trust, advisory, agency, custodial or similar accounts
(Institutional Accounts). Class I shares may be purchased for Institutional
Accounts by financial institutions, business organizations, corporations,
municipalities, non-profit institutions and other entities serving in trust,
advisory, agency, custodial or similar capacities (each, an Institutional
Investor and collectively, Institutional Investors) that meet the investment
threshold for this Class of shares. Class II and III shares are designed for
individuals and other investors who seek mutual fund investment convenience
plus a lower investment minimum. These Classes offer investors differing
expense and sales load structures to choose between. See "Expense Summary" on
page 3.

A Statement of Additional Information (dated October 25, 1996) for the
Portfolio has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference. This Prospectus, the Annual Report
and the Statement of Additional Information are available free upon request
from ALPS Mutual Funds Services, Inc., (ALPS), the Portfolio's Distributor.
The Annual Report for the fiscal period ended June 30, 1996 for the Portfolio
is incorporated into the Statement of Additional Information by reference.
Please call ALPS at 1-800-442-1941 (option 1) for more information concerning
each Class of shares. If you are investing through a broker, other financial
institution or adviser (Investment Professional), please contact that
institution directly.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED
BY, FIRST TENNESSEE BANK NATIONAL ASSOCIATION OR ANY DEPOSITORY INSTITUTION.
SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FDIC, THE FEDERAL RESERVE
BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

TNTREQ-pro-1096

<PAGE>

- -------------------------------------------------------------------------------
TABLE OF CONTENTS

PAGE
----
Summary Of Portfolio Expenses ............................................. 3
Financial Highlights ...................................................... 5
What Is The Investment Objective Of The Portfolio? ........................ 6
Is The Portfolio A Suitable Investment?; Investment Risks ................ 6
What Are The Portfolio's Investment Policies And Limitations? ............. 7
How Are Investments, Exchanges And Redemptions Made? ...................... 7
How Is Performance Calculated? ............................................ 14
Portfolio Transactions .................................................... 15
What Is The Effect Of Federal Income Tax On This Investment? .............. 15
What Advisory And Other Fees Does The Portfolio Pay? ...................... 16
How Is The Portfolio Organized? ........................................... 17
Investment Instruments, Transactions, Strategies And Risks ................ 17
- -------------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
SUMMARY OF PORTFOLIO EXPENSES
- -----------------------------------------------------------------------------

The purpose of the table below is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly. This
standard format was developed for use by all mutual funds to help you make
your investment decisions. The information below is based upon the Portfolio's
expenses for the fiscal year ended June 30, 1996 adjusted to reflect new
servicing arrangements. This expense information should be considered along
with other important information, such as the Portfolio's investment objective.

A. EXPENSE SUMMARY

GROWTH & INCOME
---------------
PORTFOLIO
-----------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS I CLASS II CLASS III
------- -------- ---------
Maximum Sales Load on Purchases
(as a percentage of offering price) None 4.50% None
Sales Load Imposed on Reinvested
Distributions None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fee None None None

ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* .50% .50% .50%
12b-1 Fees .00% .00% .75%
Shareholder Servicing Fees .00% .25% .25%
Other Expenses .35% .40% .46%
---- ----- -----

Total Portfolio Operating Expenses* .85% 1.15% 1.96%
---- ----- -----
---- ----- -----
*Net of expense waivers

If the waivers were not in effect, Management Fees would be .65% for each
Class. Total Portfolio Operating Expenses would be estimated as follows:

GROWTH & INCOME
---------------
PORTFOLIO
------------------------------
CLASS I CLASS II CLASS III
------- -------- ---------

Total Portfolio Operating Expenses 1.00% 1.30% 2.11%

There is no guarantee that any waivers will continue at their stated
levels.

<PAGE>

Portfolio to securities brokers, financial institutions or advisers
(Investment Professionals) for services and expenses incurred in connection
with providing personal service to shareholders and/or maintenance of
shareholder accounts. Long-term shareholders may eventually pay more than the
economic equivalent of the maximum 8.50% front-end sales charge permitted by
the National Association of Securities Dealers, Inc. (NASD) due to 12b-1
fees. Please see page 16 for further information.

B. EXAMPLE: You would pay the following expenses for every $1,000
investment in each Class of shares of the Growth & Income Portfolio assuming
(1) 5% annual return, (2) redemption at the end of each time period, (3) that
operating expenses (net of expense waivers) are the same as described above,
and (4) reinvestment of all dividends and distributions. THE RETURN OF 5% AND
EXPENSES SHOULD NOT BE CONSIDERED INDICATIONS OF ACTUAL OR EXPECTED PERFORMANCE
OR PORTFOLIO OPERATING EXPENSES, BOTH OF WHICH MAY VARY SIGNIFICANTLY:

GROWTH & INCOME
---------------
PORTFOLIO
-------------------------------------
CLASS I CLASS II CLASS III
------- -------- ---------

1 year $9 $56* $20
3 years $27 $80* $62
5 years $47 $106* $107
10 years $105 $179* $230

*Reflects imposition of maximum sales charge at the beginning of the period.

4
<PAGE>

- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------

The table that follows is included in the Annual Report for the Portfolio
dated June 30, 1996 and has been audited by Price Waterhouse LLP, independent
accountants. Their report on the financial statements and the financial
highlights for the Portfolio is included in the Annual Report. The financial
statements and financial highlights are incorporated by reference into the
Portfolio's Statement of Additional Information. The Annual Report contains
additional performance information and will be made available upon request
and without charge.

<TABLE>
GROWTH & INCOME PORTFOLIO
(FORMERLY THE TOTAL RETURN EQUITY PORTFOLIO)

CLASS I CLASS II CLASS III
-------------------------- ------------- -------------------------
For the Year For the Year For the Year
Ended June 30, Ended June 30, Ended June 30,
-------------------------- ------------- -------------------------
1996 1995 1994** 1996**** 1996 1995 1994***
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $12.22 $10.53 $10.00 $13.05 $12.23 $10.51 $10.60
-------- -------- ------- ------- ------- ------- ------
Income from investment operations:
Net investment income 0.19 0.23 0.17 0.09 0.03 0.06 0.06
Net realized and unrealized gain (loss) on
investments 2.58 2.21 0.57 1.74 2.60 2.24 (0.05)
-------- -------- ------- ------- ------- ------- ------
Total from investment operations 2.77 2.44 0.74 1.83 2.63 2.30 0.01
-------- -------- ------- ------- ------- ------- ------
Distributions:
Net investment income (0.19) (0.23) (0.17) (0.08) (0.07) (0.06) (0.06)
Net realized gain (0.68) (0.52) (0.04) (0.68) (0.68) (0.52) (0.04)
-------- -------- ------- ------- ------- ------- ------
Total distributions (0.87) (0.75) (0.21) (0.76) (0.75) (0.58) (0.10)
-------- -------- ------- ------- ------- ------- ------
Net asset value, end of period $14.12 $12.22 $10.53 $14.12 $14.11 $12.23 $10.51
-------- -------- ------- ------- ------- ------- ------
-------- -------- ------- ------- ------- ------- ------

TOTAL RETURN+ 23.54% 24.20% 7.39%# 14.71%# 22.19% 22.61% 0.08%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $159,146 $114,000 $82,751 $1,918 $36,892 $19,363 $2,094
Ratio of expenses to average daily net
assets (1) 0.76% 0.47% 0.34%* 1.06%* 1.87% 1.72% 1.83%*
Ratio of net investment income to
average net assets 1.40% 2.12% 1.83%* 1.10%* 0.29% 0.87% 0.34%*
Portfolio turnover rate 41% 33% 83%* 41% 41% 33% 83%*

(1) During the period, various fees
were waived. The ratio of expenses to
average net assets had such waivers not
occurred is as follows. 1.00% 0.99% 1.05%* 1.30%* 2.11% 2.26% 6.03%*
</TABLE>

* Annualized.
** Class commenced operations on August 2, 1993.
*** Fund commenced operations on December 9, 1993.
**** Class commenced operations on December 20,1995.
+ Total return would have been lower had
various fees not been waived during the period.
# Total return for periods of less than one year
are not annualized.

<PAGE>

- -----------------------------------------------------------------------------
WHAT IS THE INVESTMENT OBJECTIVE OF the PORTFOLIO?
- -----------------------------------------------------------------------------

First Tennessee serves as Investment Adviser to the Portfolio and, with the
prior approval of the Board of Trustees (the Trustees), has engaged Highland
Capital Management Corp. (Highland), to act as Sub-Adviser to the Portfolio.
Subject to First Tennessee's supervision, Highland is responsible for the
day-to-day investment management of the Portfolio, including providing
investment research and credit analysis concerning Portfolio investments and
conducting a continuous program of investment of Portfolio assets in accordance
with the investment policies and objectives of the Portfolio. For additional
information about the Portfolio's investment advisory arrangements, see "What
Advisory And Other Fees Does The Portfolio Pay? - Investment Advisory and
Management and Sub-Advisory Agreements" beginning on page 16.

The investment objective of the Portfolio is to achieve maximum total
return through a combination of capital appreciation and dividend income by
investing at least 65% of its total assets in equity securities. However, the
Investment Adviser and Sub-Adviser currently intend, under normal circumstances,
to invest at least 80% of the Portfolio's total assets in equity securities,
except where prevailing market conditions require a more defensive posture.
There is no assurance that the Portfolio will achieve its investment objective.
The permitted investments of the Portfolio are as follows:

The Portfolio invests primarily in common stock and American Depository
Receipts (ADRs) of U.S. and international companies that trade on major
exchanges (NYSE, ASE, NASDAQ). Highland will analyze the fundamental values both
of particular companies and industries. Fundamental analysis considers a
company's essential soundness and future prospects, as well as overall industry
outlook.

The Portfolio may also invest in convertible preferred stock, bonds and
debentures that are convertible into common stock, options and may sell short
securities it owns. The Portfolio may engage in repurchase agreements and
reverse repurchase agreements, may buy and sell securities on a when-issued or
delayed-delivery basis, and may purchase warrants, interests in real estate
investment trusts, forward currency contracts, illiquid and restricted
securities, and shares in other investment companies. The Portfolio may, for
temporary defensive or liquidity purposes, invest without limit in short-term
money market securities including, but not limited to, U.S. government
obligations, commercial paper, and certificates of deposit.

- -----------------------------------------------------------------------------
IS THE PORTFOLIO A SUITABLE INVESTMENT?; INVESTMENT RISKS
- -----------------------------------------------------------------------------

By itself, the Portfolio does not constitute a balanced investment plan.
The Growth & Income Portfolio emphasizes maximizing total return through a
combination of capital appreciation and dividend income by investing primarily
in equity securities. An investment in the Portfolio may involve greater risk
than is inherent in other types of investments since it seeks capital
appreciation, and the value of its investments will generally fluctuate in
response to stock market conditions. Further, investment in the securities of
issuers in any foreign country involves special risks and considerations not
typically associated with investing in U.S. issuers. The Portfolio's share
price, yield and total return will fluctuate. An investment in the Portfolio may
be worth more or less than the original cost when shares are redeemed.

Further information about the types of securities in which the Portfolio
may invest and their related risks, as well as the investment policies of the
Portfolio in general are set forth in the section "Investment Instruments,
Transactions, Strategies And Risks " on page 17 and in the Statement of
Additional Information.

<PAGE>

- --------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIO'S INVESTMENT POLICIES AND LIMITATIONS?
- --------------------------------------------------------------------------------

INVESTMENT LIMITATIONS. The Growth & Income Portfolio has adopted the
following investment limitations:

(1) With respect to 75% of the Portfolio's assets, the Portfolio will
not purchase a security, other than U.S. government securities, if, as a result,
(a) more than 5% of its total assets would be invested in the securities of any
single issuer; or (b) the Portfolio would own more than 10% of the voting
securities of any single issuer.

(2) The Portfolio will not invest 25% or more of
its total assets in a particular industry, other than U.S. government
obligations.

(3) (a) The Portfolio may borrow money solely for temporary or
emergency purposes, but not in an amount exceeding 33 1/3% of its total assets.
(b) The Portfolio may borrow money from banks, or by engaging in reverse
repurchase agreements. (c) The Portfolio will not purchase securities when
borrowings exceed 5% of its total assets. If the Portfolio borrows money, its
share price may be subject to greater fluctuation until the borrowing is paid
off. To this extent, purchasing securities when borrowings are outstanding may
involve an element of leverage.

(4) (a) The Portfolio may temporarily lend its portfolio securities to
broker-dealers and institutions, but only when the loans are fully
collateralized. (b) Loans, in the aggregate, will be limited to 33 1/3% of the
Portfolio's total assets.

Unless otherwise noted, the Portfolio's policies and limitations are not
fundamental and may be changed by the Trustees without shareholder approval. The
fundamental policies of the Portfolio that require shareholder approval prior to
any changes are: the Portfolio's investment objective, and limitations (1), (2),
(3)(a), and (4)(b) above. These limitations and the Portfolio's policies are
considered at the time of purchase of securities; the sale of securities is not
required in the event of a subsequent change in circumstances.

The investment policies and limitations set forth above are supplemented by
the investment policies and limitations in the Statement of Additional
Information. No assurance can be made that the Portfolio will achieve its
objective, but it will follow the investment style described in this Prospectus.

From time to time, the Portfolio, to the extent consistent with its
investment objective, policies, and restrictions, may invest in securities of
companies with which First Tennessee or any affiliates have lending
relationships.

- --------------------------------------------------------------------------------
HOW ARE INVESTMENTS, EXCHANGES AND REDEMPTIONS MADE?
- --------------------------------------------------------------------------------

CLASS I

WHO MAY INVEST?

Class I shares are designed exclusively for investment of monies held in
non-retail trust, advisory, agency, custodial or similar Institutional Accounts.
Class I shares may be purchased for Institutional Accounts by financial
institutions, business organizations, corporations, municipalities, non-profit
institutions, and other Institutional Investors serving in a trust, advisory,
agency, custodial or similar capacity who meet the investment minimum.

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

An initial investment must be preceded by or made in conjunction with the
establishment of an Institutional Account with an Institutional Investor.
Establishment of an Institutional Account may require that documents and
applications be completed and signed before the investment can be implemented.
The Institutional Investor may require that certain documents be provided prior
to making a redemption from the Portfolio. Institutional Investors may charge
fees in addition to those described herein. Fee schedules for Institutional
Accounts are available upon request from the Institutional Investor and are
detailed in the agreements by which each client opens an account with an
Institutional Investor.

HOW ARE INVESTMENTS MADE?

<PAGE>

defined in the section "how are investments, exchanges and redemptions made -
Class I, II and III - How Are Portfolio Shares Valued?") and the funds are
received by CGFSC that day, the investment will earn dividends declared, if
any, on the day of purchase. Institutional Investors will wire funds through
the Federal Reserve System. Purchases will be processed at the net asset
value per share (NAV) calculated after an order is received in proper form
and accepted by CGFSC. The Portfolio requires advance notification of all
wire purchases. To secure same day acceptance of federal funds (monies
transferred from one bank to another through the Federal Reserve System with
same-day availability), an Institutional Investor must call CGFSC at
1-800-442-1941, (option 2) prior to 4:00 p.m. Eastern Time on any Business
Day to advise it of the wire. The Trust may discontinue offering its shares
in any Class of a Portfolio without notice to shareholders.

MINIMUM INVESTMENT AND ACCOUNT BALANCE. The minimum initial investment for
each Institutional Investor is $100,000. Institutional Investors may satisfy the
minimum investment by aggregating their Institutional Accounts within the
Portfolio. Subsequent investments may be in any amount. If an Institutional
Investor's Class I account falls below $50,000 due to redemption, the Portfolio
may close the account. An Institutional Investor may be notified if the minimum
balance is not being maintained and will be allowed 30 days to make additional
investments before its account is closed. Shares will be redeemed at the NAV on
the day the account is closed, and proceeds will be sent to the address of
record.

Exchanges are generally permitted from Class I to another class should a
beneficial owner of these shares cease to be eligible to purchase shares of
Class I. Class I shares held in an Institutional Account may be converted to
shares of another Class upon distribution.

HOW ARE REDEMPTIONS MADE?

Institutional Investors may redeem all or a portion of their account shares
on any Business Day. Shares will be redeemed at the NAV next calculated after
CGFSC has received the redemption request in proper form and will earn dividends
declared, if any, through the day prior to redemption. If an account is closed,
any accrued dividends will be paid at the beginning of the following month.

Institutional Investors may make redemptions by wire provided they have
established a wire account with CGFSC. Please call 1-800-442-1941, (option 2) to
advise CGFSC of the wire. If telephone instructions are received before 4:00
p.m. Eastern Time on any Business Day, proceeds of the redemption will be wired
as federal funds on the next Business Day to the bank account designated with
CGFSC. The Institutional Investor may change the bank account designated to
receive an amount redeemed at any time by sending a letter of instruction with a
signature guarantee to CGFSC at 73 Tremont Street, Boston, Massachusetts, 02108.

Pursuant to the Investment Company Act of 1940, as amended (1940 Act), if
making immediate payment of redemption proceeds could adversely affect the
Portfolio, payments may be made up to seven days later. Also, when the New York
Stock Exchange (NYSE) or the Federal Reserve Bank of New York (New York Federal
Reserve) is closed (or when trading is restricted) for any reason other than
customary weekend or holiday closings, or under any emergency circumstances as
determined by the SEC to merit such action, the right of redemption may be
suspended or the date of payment postponed for a period of time that may exceed
seven days. In addition, the Portfolio reserves the right to advance the time on
that day by which purchase and redemption orders must be received. To the extent
Portfolio securities are traded in other markets on days when either the NYSE or
the New York Federal Reserve is closed, the Portfolio's NAV may be affected on
days when investors do not have access to the Portfolio to purchase or redeem
shares.

If transactions by telephone cannot be executed (for example, during times
of unusual market activity), orders may be placed by mail to CGFSC. In case of
suspension of the right of redemption, the Institutional Investor may either
withdraw its request for redemption or it will receive payment based on the NAV
next determined after the termination of the suspension.

ADDITIONAL INFORMATION

The Portfolio also reserves the right to reject any specific purchase
order, including certain purchases by exchange. Purchase orders may be refused
if, in First Tennessee's opinion, they are of a size that would disrupt
management of the Portfolio.

In order to allow First Tennessee to manage the Portfolio most effectively,
Institutional Investors are strongly urged to initiate all trades (investments,
exchanges and redemptions of shares) as early in the day as possible and to
notify CGFSC at least one day in advance of trades in excess of $1 million. In
making these trade requests, the name of the Institutional Investor and the
account number(s) must be supplied.

<PAGE>

Transactions may be initiated by telephone. Please note that the Portfolio
and its agents will not be responsible for any losses resulting from
unauthorized telephone transactions if the Portfolio or its agents follow
reasonable procedures designed to verify the identity of the caller. These
procedures may include requesting additional information or using personalized
security codes. The Portfolio or its agents may also record calls and an
Institutional Investor should verify the accuracy of confirmation statements
immediately after receipt. If an Institutional Investor does not want to be able
to initiate redemptions and exchanges by telephone, please call CGFSC for
instructions.

CLASS II AND III

WHO MAY INVEST?

Class II and III shares are designed for individuals and other investors
who seek mutual fund investment convenience plus a lower investment minimum.
These Classes offer investors differing expense and sales load structures to
choose between. See "Summary Of Portfolio Expenses" on page 3.

INVESTMENT REQUIREMENTS

The minimum initial investment in Class II or III shares is $1,000.
Subsequent investments may be in any amount greater than $100. If you
participate in the Systematic Investing Program or the "A Plus Card Program" (a
consumer discount card program provided by "A" Plus Strategic Alliances, Inc., a
subsidiary of First Tennessee), the minimum initial investment is $250, and
subsequent investments may be in any amount of $25 or greater. If you are an
employee of First Tennessee or any of its affiliates and you participate in the
Systematic Investing Program, the minimum initial investment is $50, and
subsequent investments may be in any amount of $25 or greater. See page 11 for
additional information on the Systematic Investing Program. If your balance in
the Portfolio falls below the applicable minimum investment requirement due to
redemption, you may be given 30 days' notice to reestablish the minimum balance.
If you do not reestablish the minimum balance, your account may be closed and
the proceeds mailed to you at the address on record. Shares will be redeemed on
the day the account is closed.

All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. No cash will be accepted. If you make a purchase with more than one
check, each check must have a value of at least $100, and the minimum investment
requirement still applies (excluding the specific circumstances, stated above,
which reduce the minimum investment requirement). The Portfolio reserves the
right to limit the number of checks processed at one time. If your check does
not clear, your purchase will be canceled and you could be liable for any losses
or fees incurred.

You may initiate any transaction either directly or through your Investment
Professional. Please note that the Portfolio and its agents will not be
responsible for any losses resulting from unauthorized transactions if the
Portfolio or its agents follow reasonable procedures designed to verify the
identity of the caller. These procedures may include requesting additional
information or using personalized security codes. Your Investment Professional
may also record calls and you should verify the accuracy of your confirmation
statements immediately after you receive them. If you do not want to be able to
redeem and exchange by telephone, please check the box on your application (if
you invest directly) or, if you invest through an Investment Professional,
please call your Investment Professional for instructions.

HOW DO I SET UP AN ACCOUNT?

You may set up an account directly in the Portfolio or you may invest in
the Portfolio through your Investment Professional. See page 11 for information
on how to invest through your Investment Professional. Shares will be purchased
based on the NAV next calculated after CGFSC has received the request in proper
form. If you are investing through an Investment Professional, transactions that
your Investment Professional initiates should be transmitted to CGFSC before
4:00 p.m. Eastern Time in order for you to receive that day's share price. CGFSC
must receive payment within three business days after an order is placed.
Otherwise, the purchase order may be canceled and you could be held liable for
the resulting fees and/or losses. An investor will earn dividends declared, if
any, on the day of purchase if the funds are received by CGFSC that day.

HOW DO I INVEST DIRECTLY?

When opening a new account directly, you must complete and sign an account
application and send it to CGFSC, 73 Tremont Street, Boston, MA 02108. Telephone
representatives are available at 1-800-442-1941, (option 2) between the hours of
8:00 a.m. to 4:00 p.m. Central Time (9:00 a.m. to 5:00 p.m. Eastern Time),
Monday through Friday.

Investments may be made in several ways:

BY MAIL: Make your check payable to First Funds: Growth & Income
Portfolio, and mail it, along with the application, to the address indicated on
the application. Your account will be credited on the business day that CGFSC
receives your application in good order and processes your transaction.

<PAGE>

BY BANK TRANSFER: Bank transfer allows you to move money between your bank
account and your First Funds account. This automatic service allows you to
transfer money from your bank account via the Automated Clearing House (ACH)
network to your Portfolio account. First, a Portfolio account must be
established, and an application sent to CGFSC. Be sure to indicate on the
application under the section Account Privileges that you desire to have this
option. Once you have completed this process, you can initiate a bank transfer
by contacting CGFSC at 1-800-442-1941, (option 2). Please allow two or three
days after the authorization for the transfer to occur.

BY WIRE: Call 1-800-442-1941, (option 2) to set up your Portfolio account
to accommodate wire transactions. To initiate your wire transaction, call your
depository institution. Federal funds (monies transferred from one bank to
another through the Federal Reserve System with same-day availability) should be
wired to:

Chase Manhattan Bank, N.A.
ABA #021000021
First Funds
Credit DDA #910-2-733335
(Account Registration)
(Account Number)
(Wire Control Number) *See Below*

Prior to sending wires, please be sure to call 1-800-442-1941, (option 2)
to receive a Wire Control Number to be included in the body of the wire (see
above).

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

You may redeem all or a portion of your shares on any day that the
Portfolio is open for business. Shares will be redeemed at the NAV next
calculated after CGFSC has received the redemption request and will earn
dividends declared, if any, through the day prior to redemption. If a Portfolio
account is closed, any accrued dividends will be paid at the beginning of the
following month.

You may redeem shares in several ways:

BY MAIL: Write a "letter of instruction" with your name, the Portfolio's
name, your Portfolio account number, the dollar amount or number of shares to be
redeemed, and any additional requirements that apply to each particular account.
You will need the letter of instruction signed by all persons required to sign
for transactions, exactly as their names appear on the account application,
along with a signature guarantee.

A signature guarantee is designed to protect you, the Portfolio, and its
agents from fraud. Your written request requires a signature guarantee if you
wish to redeem more than $1,000 worth of shares; if your Portfolio account
registration has changed within the last 30 days; if the check is not being
mailed to the address on your account; if the check is not being made out to the
account owner; or if the redemption proceeds are being transferred to another
First Funds account with a different registration. The following institutions
should be able to provide you with a signature guarantee: banks, brokers,
dealers, credit unions (if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A signature guarantee
may not be provided by a notary public.

BY BANK TRANSFER: When establishing your account in the Portfolio, you
must have indicated this account privilege in order to authorize the redemption
of monies with the proceeds transferred to your bank account. To authorize a
redemption, simply contact CGFSC at 1-800-442-1941, (option 2) and your
redemption will be processed at the NAV next calculated. Please allow two or
three days after the authorization for monies to reach your bank account.

BY WIRE: You may make redemptions by wire provided you have established a
Portfolio account to accommodate wire transactions. If telephone instructions
are received before 4:00 p.m. Eastern Time, proceeds of the redemption will be
wired as federal funds on the next Business Day to the bank account designated
with CGFSC. You may change the bank account designated to receive an amount
redeemed at any time by sending a letter of instruction with a signature
guarantee to CGFSC at 73 Tremont Street, Boston, Massachusetts, 02108.

ADDITIONAL REDEMPTION REQUIREMENTS: The Portfolio may hold payment on
redemptions until it is reasonably satisfied that investments made by check have
been collected, which can take up to seven days. Also, when the NYSE or the New
York Federal Reserve is closed (or when trading is restricted) for any reason
other than its customary weekend or holiday closings, or under any emergency
circumstances as determined by the SEC to merit such action, the right of
redemption may be suspended or the date of payment postponed for a period of
time that may exceed seven days. In addition, the Portfolio reserves the right
to advance the time on that day by which purchase and redemption orders

<PAGE>

must be received. To the extent that portfolio securities are traded in other
markets on days when either the NYSE or the New York Federal Reserve is
closed, each Portfolio's NAV may be affected on days when investors do not
have access to the Portfolios to purchase or redeem shares.

If you are unable to reach CGFSC by telephone (for example, during times of
unusual market activity), consider placing your order by mail directly to CGFSC.
In case of suspension of the right of redemption, you may either withdraw your
request for redemption or you will receive payment based on the NAV next
determined after the termination of the suspension.

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

If you are investing through your Investment Professional, you may be
required to set up a brokerage or agency account. Please call your Investment
Professional for information on establishing an account. If you are purchasing
shares of the Portfolio through a program of services offered or administered by
your Investment Professional, you should read the program materials in
conjunction with this Prospectus. Certain features of such programs may impose
additional requirements and charges for the services rendered. Your Investment
Professional may offer any or all of the services mentioned in this section, and
is responsible for initiating all initial purchase transactions. Please contact
your Investment Professional for information on these services.

SYSTEMATIC INVESTING PROGRAM

The Systematic Investing Program offers a simple way to maintain a regular
investment program. You may arrange automatic transfers (minimum $25 per
transaction) from your bank account to your First Funds account on a periodic
basis. When you participate in this program, the minimum initial investment in
each Portfolio is $250. If you are an employee of First Tennessee or any of its
affiliates, the minimum initial investment in the Portfolio is $50. You may
change the amount of your automatic investment, skip an investment, or stop the
Systematic Investing Program by calling CGFSC at 1-800-442-1941, (option 2) or
your Investment Professional at least three Business Days prior to your next
scheduled investment date.

SYSTEMATIC WITHDRAWAL PLAN

You can have monthly, quarterly or semi-annual checks sent from your
account to you, to a person named by you, or to your bank checking account. Your
Systematic Withdrawal Plan payments are drawn from share redemptions and must be
in the amount of $100 or more per Portfolio per month. If Systematic Withdrawal
Plan redemptions exceed income dividends earned on your shares, your account
eventually may be exhausted. Please contact your Investment Professional for
more information.

ADDITIONAL INFORMATION

Tax-Deferred Retirement Plans: Retirement plans can offer significant tax
savings to individuals. Please call ALPS at 1-800-442-1941 (option 1) or your
Investment Professional for more information on the plans and their benefits,
provisions and fees. CGFSC or your Investment Professional can set up your new
account in the Portfolio under one of several tax-deferred plans. These plans
let you invest for retirement and defer the tax on your investment income.
Minimums may differ from those listed on page 9. Plans include Individual
Retirement Accounts (IRAs), Rollover IRAs, Keogh Plans, and Simplified Employee
Pension Plans (SEP-IRAs).

CLASS II

PUBLIC OFFERING PRICE

The public offering price for Class II shares is the sum of the NAV plus a
sales load. As indicated below, a portion of this load may be reallowed to
Investment Professionals which have entered into an agreement with ALPS, the
Portfolio's Distributor (Service Organizations). You may calculate your sales
load as follows:

<TABLE>
TOTAL SALES LOAD REALLOWANCE TO
FOR CLASS II SHARES SERVICE ORGANIZATIONS
------------------- ---------------------
AS A % OF OFFERING AS A % OF OFFERING
AMOUNT OF TRANSACTION PRICE PER SHARE AS A % OF NAV PRICE PER SHARE

<S> <C> <C> <C>
Less than $100,000 4.50 4.71 4.00
$100,000 to $249,999 3.50 3.63 3.00
$250,000 to $499,999 2.50 2.56 2.25
$500,000 to $999,999 1.50 1.52 1.25
$1,000,000 and over 0.50 0.50 0.40

</TABLE>

<PAGE>

The reallowance to Service Organizations may be changed from time to time. ALPS,
at its expense, may provide additional non-cash promotional incentives to
eligible representatives of Service Organizations in the form of attendance at a
sales seminar at a resort. These incentives may be limited to certain eligible
representatives of Service Organizations who have sold significant numbers of
shares of any of the Portfolios of the Trust.

You may purchase Class II shares without a sales load if the purchase will
be (a) through a First Funds sponsored IRA; (b) through an IRA, 401 Plan, 403
Plan or directed agency account if the trustee, custodian, or agent thereof is a
direct or indirect subsidiary or franchisee bank of First Tennessee or its
affiliates; (c) by registered representatives, directors, advisory directors,
officers and employees (and their immediate families) of First Tennessee or its
affiliates ; (d) by a current or former Trustee, officer or employee of First
Funds; the spouse of a First Funds Trustee, officer or employee; a First Funds
Trustee acting as a custodian for a minor child of a First Funds Trustee,
officer or employee; or the child of a current or former Trustee, officer or
employee of First Funds who has reached the age of majority; (e) by a charitable
remainder trust or life income pool established for the benefit of a charitable
organization (as defined in Section 501(c)(3) of the Internal Revenue Code); (f)
for use in a financial institution or investment adviser managed account for
which a management or investment advisory fee is charged; (g) with redemption
proceeds from other mutual fund complexes on which the investor has paid a
front-end sales charge within the past 60 days upon presentation of purchase
verification information; or (h) through certain promotions where the load is
waived for investors.

In addition, you will not pay a sales load on the reinvestment of dividends
or distributions in the Portfolio or any other First Funds Portfolio, or in
connection with certain share exchanges as described under "How Are Investments,
Exchanges And Redemptions Made? - Class I, II, and III - How are Exchanges
Made?" on page 14. Further, you generally will not pay a sales load on Class II
shares of the Portfolio which you buy using proceeds from the redemption of a
First Funds Portfolio which does not charge a front-end load, if you obtained
such shares through an exchange for Class II shares which you purchased with a
sales load. A sales load will apply to your purchase of Class II shares in the
foregoing situation only to the extent that the Portfolio's sales load exceeds
the sales load you paid in the prior purchase of the Class II shares.

In addition, if you purchase Class II shares within 60 days after redeeming
shares of the Portfolio, you will receive credit towards the sales load payable
on the purchase to the extent of the sales load you paid on the shares you
redeemed. This reinstatement privilege may be exercised only with respect to
redemptions and purchases in the same First Funds Portfolio. The reinstatement
privilege can be exercised only one time with respect to any particular
redemption.

QUANTITY DISCOUNTS

You may be entitled to reduced sales charges through the Right of
Accumulation or a Letter of Intent, even if you do not make an investment of a
size that would normally qualify for a quantity discount.

To qualify for a reduction of or exception to the sales load, you or your
Investment Professional must notify the Transfer Agent, CGFSC at the time of
purchase or exchange. The reduction in sales load is subject to confirmation of
your holdings through a check of records. The Trust may modify or terminate
quantity discounts at any time. For more information about quantity discounts,
contact your Service Organization or ALPS at 1-800-442-1941 (option 1).

RIGHT OF ACCUMULATION. The sales charge schedule under the heading "How
Are Investments, Exchanges And Redemptions Made? - Public Offering Price" shows
that the sales load you will pay on Class II shares is reduced as your aggregate
investment increases. The Right of Accumulation allows you to combine certain
First Funds investments to determine your aggregate investment and the
applicable reduced sales load. You may combine the amount of your investment in
the Portfolio's Class II shares with the value of your investment in Class II of
any other First Funds Portfolio you own and on which you paid a sales load. If
you are a participant in a First Funds IRA or if you are a trustee or custodian
of another type of First Funds retirement plan, you may also include as part of
your aggregate investment any holdings through the IRA or in the plan even if a
load was not paid. If for example, you beneficially own Class II shares of a
First Funds Portfolio with an aggregate current value of $99,000 and you
subsequently purchase shares of the Portfolio having a current value of $1,000,
the load applicable to the subsequent purchase would be reduced to 3.50% of the
offering price. Similarly, each subsequent purchase of First Funds Class II
shares may be added to your aggregate investment at the time of purchase to
determine the applicable sales loads.

<PAGE>

intend to invest. The reduced sales load applies only to new purchases. If
you do not invest the total amount within the period, you may pay the
difference between the higher sales charge rate that would have been applied
to the purchases you made and the reduced sales charge rate you have paid.
Shares of the Portfolio equal to 5% of the amount you intend to invest will
be held in escrow and, if you do not pay the difference within 20 days
following the mailing of a request, the Transfer Agent will redeem a
sufficient amount of your escrowed shares to pay the additional sales charge.
After the terms of your Letter of Intent are fulfilled, the Transfer Agent
will release your escrowed shares.

If your purchases qualify for a further sales load reduction in addition to
that indicated in the Letter of Intent, the sales load will be adjusted to
reflect your total purchases. Signing a Letter of Intent does not bind you to
purchase the full amount indicated at the sales load in effect at the time of
signing, but you must complete the intended purchase to obtain the reduced sales
load. To apply, sign the Letter of Intent form at the time you purchase Class
II shares. You will be entitled to the applicable sales load that is in effect
at the date you submit the Letter of Intent until you complete your intended
purchase.

QUALIFICATION OF DISCOUNTS. As shown in the schedule of Class II sales
charges, larger purchases may result in lower sales charges to you. For purposes
of determining the amount of purchases using the Right of Accumulation and
Letter of Intent privileges, you may combine your purchase with:

- purchases by your spouse or his, her or your joint account or for the
account of any minor children, and

- the aggregate investment of any trustee or other Institutional Investor
for you and/or your spouse or your minor children.

A trustee or custodian of any qualified pension or profit sharing plan may
combine its aggregate purchases.

OTHER. Class II shares also incur Shareholder Servicing Fees. See
discussion under "what advisory and other fees does the portfolio pay? -
Distribution Plans and Shareholder Servicing Plans."

CLASS III

Class III shares are bought without a front-end load; that is, the offering
price for such shares will be their NAV. Class III shares incur Distribution
Fees and Shareholder Servicing Fees. See discussion under what advisory and
other fees does the portfolio pay? - Distribution Plans and Shareholder
Servicing Plans."

CLASS I, II AND III

HOW ARE PORTFOLIO SHARES VALUED?

The term "net asset value per share," or NAV, means the worth of one share.
The NAV of each Class of the Portfolio is calculated by adding that Class' pro
rata share of the value of all securities and other assets attributable to the
Portfolio, deducting that Class' pro rata share of Portfolio liabilities,
further deducting Class specific liabilities, and dividing the result by the
number of shares outstanding in that Class.

The Portfolio is open for business each day that both the NYSE and the
New York Federal Reserve are open (a Business Day). The NAV is calculated at
the close of the Portfolio's Business Day, which coincides with the close of
regular trading of the NYSE (normally 4:00 p.m. Eastern Time).

The Portfolio's securities and other assets are valued primarily on the
basis of market quotations furnished by pricing services, or if quotations are
not available, by a method that the Trustees believe accurately reflects fair
value. Foreign securities are valued on the basis of quotations from the primary
United States market in which they are traded or, if not traded on a U.S.
market, then their primary foreign market, and translated from foreign market
quotations into U.S. dollars using current exchange rates.

DISTRIBUTION OPTIONS: The Portfolio earns dividends from its stocks and
interest from bond, money market, and other fixed-income investments. These are
passed along as dividend distributions. The Portfolio may realize capital gains
if it sells securities for a higher price than it paid for them. These are
passed along as capital gain distributions. Income dividends for the Portfolio
are declared and paid monthly.

When you fill out your account application, you can specify how you want to
receive your distributions. Currently, there are three available options:

1. REINVESTMENT OPTION. Your dividend distributions and capital gain
distributions, if any, will be automatically reinvested in additional shares of
the Portfolio. Reinvestment of distributions will be made at that day's NAV. If
you do not indicate a choice on your application, you will be assigned this
option.

<PAGE>

2. CASH OPTION. You will be sent a check for each dividend and capital
gain distribution, if any. Distribution checks will be mailed no later than
seven days after the last day of the month.

3. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.

HOW ARE EXCHANGES MADE?

Class II shares of the First Funds Money Market Portfolios are not
currently available for investment. Investors in Class II shares wishing to
exchange into one of the Money Market Portfolios will receive Class III shares.

When making an exchange or opening an account in another Portfolio by
exchange, the registration and tax identification numbers of the two accounts
must be identical. In order to open a new account through exchange, the minimum
initial investment requirements must be met.

Each exchange may produce a gain or loss for tax purposes. In order to
protect the Portfolio's performance and its shareholders, First Tennessee
discourages frequent exchange activity by investors in response to short-term
market fluctuations. The Portfolio reserves the right to refuse any specific
purchase order, including certain purchases by exchange if, in First Tennessee's
opinion, the Portfolio would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise be affected adversely.
Exchanges or purchase orders may be restricted or refused if the Portfolio
receives or anticipates individual or simultaneous orders affecting significant
portions of the Portfolio's assets. Although the Portfolio will attempt to give
prior notice whenever it is reasonably able to do so, it may impose these
restrictions at any time. The Portfolio reserves the right to modify or withdraw
the exchange privilege and to suspend the offering of shares in any Class
without notice to shareholders. You or your Institutional Investor, if you are
invested in Class I, will receive written confirmation of each exchange
transaction.

Exchanges are generally not permitted from Class I to another Class. Should
a beneficial owner of Class I shares cease to be eligible to purchase shares of
Class I, Class I shares held in an Institutional Account may be converted to
shares of another Class.

STATEMENTS AND REPORTS

You, or if Class I, the Institutional Investor, will receive a monthly
statement and a confirmation after every transaction that affects the account
registration. A statement with tax information will be mailed by January 31 of
each tax year and also will be filed with the IRS. At least twice a year, you
or, if Class I, the Institutional Investor will receive the Portfolio's
financial statements. To reduce expenses, only one copy of the Portfolio's
reports (such as the Prospectus and Annual Report) will be mailed to each
investor or, if Class I, each Institutional Investor. Please write to ALPS to
request additional copies.

- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------

From time to time the Portfolio may quote the yield of Class I, II or III
shares in advertisements or in reports or other communications with
shareholders. The YIELD is a way of showing the rate of income that the
Portfolio earns on its investments as the percentage of its share price. To
calculate yield, the Portfolio takes the net investment income it earned from
its portfolio securities for a 30-day period, divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on share price at the end of the 30-day period.
Yields do not reflect gains or losses from portfolio transactions. Yields are
calculated according to accounting methods that are standardized for all mutual
funds. Because yield accounting methods differ from the methods used for other
accounting purposes, the Portfolio's yield may not equal its distribution rate,
the income paid to an account, or the income reported in financial statements.

<PAGE>

produced the same cumulative total return if performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in performance, you should recognize that they are not the same as
actual year-by-year results. The yield and total returns of the three Classes
of the Portfolio are calculated separately due to separate expense structures
as indicated in the "Summary Of Portfolio Expenses"; the yields and total
returns of Class II and Class III will be lower than that of Class I.

For additional performance information, contact your Investment
Professional or ALPS for a free Annual Report and Statement of Additional
Information for the Portfolio.

- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

Broker-dealers are utilized to conduct securities transactions for the
Portfolio and are chosen based upon professional ability and quality of
service.In additionthe Portfolio's investment advisers may consider a
broker-dealer's sales of shares of the Portfolio or recommendations to its
customers that they purchase shares of the Portfolio as a factor in the
selection of broker-dealers to execute transactions for the Portfolio. In
placing business with such broker-dealers, the advisers will seek the best
execution of each transaction.

Higher commissions may be paid to firms that provide research services to
the extent permitted by law. The frequency of Portfolio transactions - the
portfolio turnover rate - will vary from year to year depending on market
conditions. The Portfolio's portfolio turnover rate for the period ended June
30, 1996 was 41%.

- --------------------------------------------------------------------------------
WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON THIS INVESTMENT?
- --------------------------------------------------------------------------------

The Portfolio intends to distribute substantially all of its net investment
income and capital gains, if any, to shareholders within each calendar year as
well as on a fiscal year basis. Any net capital gains realized are normally
distributed in December. Income dividends for the Portfolio are declared and
paid monthly.

FEDERAL TAXES. Distributions from the Portfolio's taxable income and
short-term capital gains are taxed as dividends, and long-term capital gain
distributions are taxed as long-term capital gains. A portion of the
Portfolio's dividends may qualify for the dividends-received deduction for
corporations. Distributions are taxable when they are paid, whether taken in
cash or reinvested in additional shares, except that distributions declared in
December and paid in January are taxable as if paid on December 31. The
Portfolio will send each investor or, if Class I, each Institutional Investor an
IRS Form 1099-DIV by January 31.

CAPITAL GAINS. A capital gain or loss may be realized when shares of the
Portfolio are redeemed or exchanged. For most types of accounts, the Portfolio
will report the proceeds of redemptions to each investor or, if Class I, the
Institutional Investor, and the IRS annually. However, because the tax
treatment also depends on the purchase price and your personal tax position,
regular account statements should be used to determine the tax gain or loss.

"BUYING A DIVIDEND." On the record date for a capital gain distribution or
an income dividend, the Portfolio's share price is reduced by the amount of the
distribution. If shares are bought just before the record date ("buying a
dividend"), the full price for the shares will be paid, and a portion of the
price will be received back as a taxable distribution.

OTHER TAX INFORMATION. The information above is only a summary of some of
the federal tax consequences generally affecting the Portfolio and its
shareholders, and no attempt has been made to discuss individual tax
consequences. In addition to federal tax, distributions may be subject to state
or local taxes. Institutional Investors and other shareholders should consult
their tax advisers for details and up-to-date information on the tax laws in
your state to determine whether the Portfolio is suitable given your particular
tax situation. It is not anticipated that the Portfolio's distributions will be
exempt from Tennessee personal income tax, except to the extent that any
distributions of income are attributable to interest on bonds or securities of
the U.S. government or any of its agencies or instrumentalities.

When you sign your account application, you will be asked to certify that
your taxpayer identification number is correct and that you are not subject to
backup withholding for failing to report income to the IRS. If you do not comply
with IRS regulations, the IRS can require the Portfolio to withhold 31% of
taxable distributions from your account.

<PAGE>

- -------------------------------------------------------------------------------
WHAT ADVISORY AND OTHER FEES DOES THE PORTFOLIO PAY?
- -------------------------------------------------------------------------------

INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS. For
managing its investment and business affairs, the Portfolio is obligated to pay
First Tennessee, 4990 Poplar Avenue, Memphis, Tennessee, a monthly management
fee at the annual rate of .65% of its average net assets. First Tennessee has
voluntarily agreed to waive its advisory fees to .50% of the Portfolio's average
net assets. This voluntary waiver can be discontinued at any time.

Under the Investment Advisory and Management Agreement, First Tennessee
may, with the prior approval of the Trustees, engage one or more sub-advisers
which may have full investment discretion to make all determinations with
respect to the investment and reinvestment of all or any portion of the
Portfolio's assets, subject to the terms and conditions of the Investment
Advisory and Management Agreement and the written agreement with any such
sub-adviser. In the event one or more sub-advisers is appointed by First
Tennessee, First Tennessee shall monitor and evaluate the performance of such
sub-advisers, allocate Portfolio assets to be managed by such sub-advisers,
recommend any changes in or additional sub-advisers when appropriate and
compensate each sub-adviser out of the investment advisory fee received by First
Tennessee from the Portfolio.

First Tennessee has experience as an investment adviser to individual,
corporate and institutional advisory clients, pension plans and collective
investment funds, with approximately $13.8 billion in assets under
administration (including nondiscretionary accounts) and $5.3 billion in assets
under management as of June 30, 1996, as well as experience in supervising
sub-advisers. For the Portfolio's fiscal year ended June 30, 1996, First
Tennessee earned $1,076,198 from the Portfolio before waiving $358,250 of its
fee.

Highland serves as the Sub-Adviser for the Portfolio subject to the
supervision of First Tennessee and pursuant to the authority granted to it under
its Sub-Advisory Agreement with First Tennessee. On March 1, 1994, Highland
merged with and into First Tennessee Investment Management, Inc. (FTIM), an
affiliate of First Tennessee, and changed its name to Highland Capital
Management Corp. FTIM (now Highland), has been a wholly-owned subsidiary of
First Tennessee National Corporation since 1972. First Tennessee and Highland
have a history of investment management that dates back to 1929. Highland has a
total of $2.1 billion in assets under management as of June 30, 1996. First
Tennessee is obligated to pay Highland a monthly sub-advisory fee at the annual
rate of .38% of the Portfolio's average net assets. Highland is currently
waiving some or all of its fees for the Portfolio.

First Tennessee, serves as the Co-Administrator for the Portfolio. As the
Co-Administrator, First Tennessee assists in the Portfolio's operation,
including but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to and receives from the Portfolio a monthly fee at the
annual rate of .05% of average net assets.

As the Distributor, ALPS sells shares of the Portfolio as agent on behalf
of the Trust at no additional cost to the Trust. First Tennessee and its
affiliates do not participate in and are not responsible for selling as an agent
on behalf of the Trust, underwriting or distributing Trust shares. Consistent
with applicable law, affiliates of First Tennessee may receive commissions or
asset-based fees.

TRANSFER AGENT AND CUSTODIAN. Chase Global Funds Services Company, a
division of Chase Manhattan Bank, N.A. (CGFSC), provides transfer agent and
related services for the Portfolio. Chase Manhattan Bank, N.A. is Custodian of
the Portfolio's assets.

PRICING AND ACCOUNTING. CGFSC calculates the NAV and dividends of each
Class and maintains the Portfolio and general accounting records.

<PAGE>

Trustees have also adopted Shareholder Servicing Plans on behalf of Class II and
III of the Portfolio, under which Service Organizations are paid at the annual
rate of .25% of each Class' average net assets for shareholder services and
account maintenance, including responding to shareholder inquiries, directing
shareholder communications, account balance maintenance, and dividend posting.
The Distribution Fees are expenses of Class III and the Shareholder Servicing
Fees are expenses of Class II and III in addition to the Management Fee, and the
Administration and Co-Administration Fees, and will reduce the net income and
total return of both Classes.

- -------------------------------------------------------------------------------
HOW IS THE PORTFOLIO ORGANIZED?
- -------------------------------------------------------------------------------

The Portfolio is a diversified portfolio of First Funds, an open-end
management investment company organized as a Massachusetts business trust by a
Declaration of Trust dated March 6, 1992, as amended and restated on September
4, 1992. The Portfolio consists of three separate Classes. The Trustees
supervise the Trust's activities and review its contractual arrangements with
companies that provide the Trust with services. The Trust is not required to
hold annual shareholder meetings, although special meetings may be called for a
specific Portfolio or Class with respect to issues affecting that Portfolio or
Class, or the Trust as a whole, for purposes such as electing or removing
Trustees, changing fundamental policies or approving investment advisory
agreements. Shareholders receive one vote for each share owned and fractional
votes for fractional shares owned. A Portfolio or Class votes separately with
respect to issues affecting only that Portfolio or Class. Pursuant to the
Declaration of Trust, the Trustees have the authority to issue additional
Classes of shares for the Portfolio.

PORTFOLIO MANAGEMENT

Edward J. Goldstein, one of the Portfolio Managers for the Portfolio, is a
Director and Executive Vice President of Highland. He joined Highland in
September, 1989. Mr. Goldstein is a graduate of Boston University and received a
Master of Business Administration from Columbia University.

David L. Thompson, one of the Portfolio Managers for the Portfolio, is
Senior Vice President of Highland. He joined Highland in May 1995 and is
Chartered Financial Analyst. Mr. Thompson is a graduate of the University of
Mississippi and received a Masters of Business Administration from the
University of North Carolina.

- -------------------------------------------------------------------------------
INVESTMENT INSTRUMENTS, TRANSACTIONS, STRATEGIES AND RISKS
- -------------------------------------------------------------------------------

The following paragraphs provide a brief description of the securities in
which the Portfolio may invest and the transactions each may make. The Portfolio
is not limited by this discussion, however, and may purchase other types of
securities and may enter into other types of transactions if they are consistent
with the Portfolio's investment objective and policies.

EQUITY SECURITIES may include common stocks, preferred stocks, convertible
securities, ADRs and warrants. Common stock purchased by the Portfolio is
evidence of ownership of a corporation. Owners typically are entitled to vote on
the selection of directors and other important matters as well as to receive
dividends on their holdings. In the event that a corporation is liquidated, the
claims of secured and unsecured creditors and owners of bonds and preferred
stock take precedence over the claims of those who own common stock. For the
most part, however, common stock has more potential for appreciation. Preferred
Stock is a class of capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the
liquidation of assets. Preferred stock does not ordinarily carry voting rights.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and on
overall market and economic conditions.

FOREIGN INVESTMENTS. The Portfolio may invest in foreign securities, which
may involve additional risks. Foreign securities and securities denominated in
or indexed to foreign currencies may be affected by the strength of foreign
currencies relative to the U.S. dollar, or by political, regulatory, or economic
developments in foreign countries. Foreign companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and there may be less public information about their operations. Foreign markets
may be less liquid or more volatile than U.S. markets, and may offer less
protection to investors. In addition to the political and economic factors that
can affect foreign securities, a governmental issuer may be unwilling to repay
principal and interest when due, and may require that the conditions for payment
be renegotiated. These factors could make foreign investments, especially those
in developing countries, more volatile. Highland considers these factors in
making foreign investments for the Portfolio.

<PAGE>

The Portfolio may also enter into currency forward contracts (agreements to
exchange one currency for another at a future date) to manage currency risks and
to facilitate transactions in foreign securities. Although currency forward
contracts can be used to protect the Portfolio from adverse exchange rate
changes, they involve a risk of loss if Highland fails to predict foreign
currency values correctly or employs a strategy that does not correlate well
with a Portfolio's investments. A loss to the Portfolio may also result if the
counterparty to a transaction fails to perform as obligated. Please see
discussion under "Forwards" below.

DELAYED-DELIVERY AND WHEN-ISSUED TRANSACTIONS. The Portfolio may buy and
sell obligations on a when-issued or delayed-delivery basis, with payment and
delivery taking place at a future date. The market value of obligations
purchased in this way may change before the delivery date, which could increase
fluctuations in the Portfolio's share price, yield, and return. Ordinarily, the
Portfolio will not earn interest on obligations until they are delivered.

FORWARDS. A forward represents a contract that obligates the counterparty
to buy, and the other to sell, a specific underlying asset at a specific
price, amount, and date in the future. Forwards are similar to futures except
for the fact that forwards are privately negotiated. The most common type of
forward contracts are foreign currency exchange contracts.

The Portfolio may enter into forward exchange currency contracts in order
to hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain firm purchase and sale
commitments denominated in foreign currencies. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future
date at a negotiated forward rate. The gain or loss arising from the
difference between the original contract and the closing of such contract is
included in net realized gain or loss on foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the
Portfolio.

ILLIQUID SECURITIES. Under the supervision of the Board of Trustees,
Highland, under FIRST TENNESSEE'S supervision, determines the liquidity of the
Portfolio's investments. The absence of a trading market can make it difficult
to ascertain a market value for illiquid investments. Disposing of illiquid
investments or securities subject to legal restrictions may involve
time-consuming negotiation and legal expenses. It may be difficult or impossible
for the Portfolio to sell illiquid or restricted securities promptly at an
acceptable price. The Portfolio may invest up to 15% of its assets in illiquid
investments.

MONEY MARKET INSTRUMENTS are high quality instruments that present minimal
credit risk. They may include U.S. government obligations, commercial paper and
other short-term corporate obligations, and certificates of deposit, bankers'
acceptances, bank deposits and other financial institution obligations. These
instruments may carry fixed or variable rates.

RESTRICTED SECURITIES. The Portfolio may purchase securities which cannot
be sold to the public without registration under the Securities Act of 1933
(restricted securities). Unless registered for sale, these securities can only
be sold in privately negotiated transactions or pursuant to an exemption from
registration. Provided that the security has a demand feature of seven days or
less, or a dealer or institutional trading market exists, these restricted
securities are not treated as illiquid securities for the purposes of the
Portfolio's investment limitations.

OPTIONS CONTRACTS. An option is a contract that gives the owner the right,
but not the obligation, to either buy (call option) or sell (put option) an
underlying security or currency at a fixed price for a specified period of time.
The Portfolio may buy and sell (write) put and call options contracts to manage
its exposure to changing interest rates and security prices. To the extent it
invests in securities denominated in foreign currencies, the Portfolio may also
buy and sell options contracts to manage exposure to currency exchange rates.
Some option strategies, including buying puts and writing calls, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including writing puts and buying calls, tend to increase market exposure.
Options may be combined with each other in order to adjust the risk and return
characteristics of the overall strategy. The Portfolio may enter into forward
contracts for settlement or hedging purposes. The Portfolio may invest in
options based on any type of security, index, or currency, including options
traded on foreign exchanges and options not traded on exchanges.

Options can be volatile investments and involve certain risks. If Highland
applies a hedge at an inappropriate time or judges market conditions
incorrectly, options strategies may result in a loss and lower the Portfolio's
return. The Portfolio could also experience losses if the prices of its options
positions were poorly correlated with its other investments, or if it could not
close out its positions because of an illiquid secondary market. The use of
options may increase the volatility of the Portfolio and may involve the
investment of a small amount of cash relative to the risk assumed.

The Portfolio will be able to hedge its total assets by writing calls or
purchasing puts under normal conditions. In addition, the Portfolio will not
write puts whose underlying value exceeds 25% of total assets, and will not buy
calls with a value exceeding 5% of total assets.

<PAGE>

REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price. In the event of the bankruptcy of the other party to a repurchase
agreement or a securities loan, the Portfolio could experience delays in
recovering its cash or the securities it lent. To the extent that, in the
meantime, the value of the obligations purchased had decreased, or the value of
obligations lent had increased, the Portfolio could experience a loss. In all
cases, Highland must find the creditworthiness of the other party to the
transaction satisfactory.

U.S. GOVERNMENT OBLIGATIONS purchased by the Portfolio are debt obligations
issued or guaranteed by the U.S. Treasury or by an agency or instrumentality of
the U.S. government. Not all U.S. government obligations are backed by the full
faith and credit of the United States. For example, obligations issued by the
Federal Farm Credit Bank or by the Federal National Mortgage Association are
supported by the agency's right to borrow money from the U.S. Treasury under
certain circumstances. Obligations issued by the Federal Home Loan Bank are
supported only by the credit of the agency. There is no guarantee that the
government will support these types of obligations, and therefore they involve
more risk than other government obligations.

U.S. TREASURY OBLIGATIONS purchased by the Portfolio are obligations issued
by the United States and backed by its full faith and credit.

ZERO COUPON BONDS purchased by the Portfolio do not make regular interest
payments; instead they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not pay
current income, their prices can be very volatile when interest rates change. In
calculating its daily dividend, the Portfolio takes into account as income a
portion of the difference between a zero coupon bond's purchase price and its
face value.

A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.

The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and the
Financing Corporation (FICO) can also be separated in this fashion. The risks of
these securities are similar to those of other debt securities, although they
may be more volatile and the value of certain types of stripped securities may
move in the same direction as interest rates. Original issue zeros are zero
coupon securities originally issued by the U.S. government, a government agency,
or a corporation in zero coupon form.

<PAGE>

INVESTMENT ADVISER AND CO-ADMINISTRATOR
---------------------------------------

First Tennessee Bank National Association
Memphis, TN

SUB-ADVISER
-----------

Highland Capital Management Corp.
Memphis, TN

OFFICERS
--------

Richard C. Rantzow, President
Mark A. Pougnet, Treasurer
James V. Hyatt, Secretary

TRUSTEES
--------

Thomas M. Batchelor
John A. DeCell
L.R. Jalenak, Jr.
Larry W. Papasan
Richard C. Rantzow

ADMINISTRATOR AND DISTRIBUTOR
-----------------------------

ALPS Mutual Funds Services, Inc.
Denver, CO

TRANSFER AND SHAREHOLDER SERVICING AGENT
----------------------------------------

Chase Global Funds Services Company
Boston, MA

CUSTODIAN
---------

Chase Manhattan Bank, N.A.
New York, NY

<PAGE>

[LOGO]

FIRST FUNDS 370 17th Street
Suite 2700
BOND PORTFOLIO Denver, Colorado 80202

- -------------------------------------------------------------------------------
PROSPECTUS FOR CLASS I, II, and III
October 25, 1996
- -------------------------------------------------------------------------------

First Funds (the Trust) offers investors a convenient and economical means
of investing in a professionally managed fixed income mutual fund. The objective
of the Bond Portfolio (formerly the Total Return Fixed Income Portfolio) (the
Portfolio) is to achieve maximum total return through high current income
consistent with reasonable risk by investing primarily in fixed income
securities. The Portfolio's net asset value per share will fluctuate in response
to changes in the value of its investments.

This Prospectus is designed to provide you with information that you should
know before investing. Please read and retain this document for future
reference. This Prospectus offers Class I, II and III shares of the Portfolio.
Class I shares are designed exclusively for investment of monies held in
non-retail trust, advisory, agency, custodial or similar accounts (Institutional
Accounts). Class I shares may be purchased for Institutional Accounts by
financial institutions, business organizations, corporations, municipalities,
non-profit institutions and other entities serving in trust, advisory, agency,
custodial or similar capacities (each, an Institutional Investor and
collectively, Institutional Investors) that meet the investment threshold for
this Class of shares. Class II and III shares are designed for individuals and
other investors who seek mutual fund investment convenience plus a lower
investment minimum. These Classes offer investors differing expense and sales
load structures to choose between. See "Expense Summary" on page 3.

A Statement of Additional Information (dated October 25, 1996) for the
Portfolio has been filed with the Securities and Exchange Commission (SEC) and
is incorporated herein by reference. This Prospectus, the Annual Report and the
Statement of Additional Information are available free upon request from ALPS
Mutual Funds Services, Inc., (ALPS) the Portfolio's Distributor. The Annual
Report for the fiscal period ended June 30, 1996 for the Portfolio is
incorporated into the Statement of Additional Information by reference. Please
call ALPS at 1-800-442-1941 (option 1) for more information concerning each
Class of shares. If you are investing through a broker, other financial
institution or adviser (Investment Professional), please contact that
institution directly.

<PAGE>

- -------------------------------------------------------------------------------
TABLE OF CONTENTS

PAGE
----
Summary Of Portfolio Expenses ............................................. 3
Financial Highlights ...................................................... 5
What Is The Investment Objective Of The Portfolio? ........................ 6
Is The Portfolio A Suitable Investment?; Investment Risks ................ 6
What Are The Portfolio's Investment Policies And Limitations? ............. 7
How Are Investments, Exchanges And Redemptions Made? ...................... 8
How Is Performance Calculated? ............................................ 15
Portfolio Transactions .................................................... 15
What Is The Effect Of Federal Income Tax On This Investment? .............. 15
What Advisory And Other Fees Does The Portfolio Pay? ...................... 16
How Is The Portfolio Organized? ........................................... 17
Investment Instruments, Transactions, Strategies And Risks ................ 18
- -------------------------------------------------------------------------------

<PAGE>
- ------------------------------------------------------------------------------
SUMMARY OF PORTFOLIO EXPENSES
- ------------------------------------------------------------------------------

The purpose of the table below is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly. This
standard format was developed for use by all mutual funds to help you make your
investment decisions. The information below is based upon the Portfolio's
expenses for the fiscal year ended June 30, 1996 adjusted to reflect new
servicing arrangements. This expense information should be considered along with
other important information such as the Portfolio's investment objective.

A. EXPENSE SUMMARY

BOND PORTFOLIO
-----------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS I CLASS II CLASS III
------- -------- ---------
Maximum Sales Load on Purchases
(as a percentage of offering price) None 3.75% None
Sales Load Imposed on Reinvested
Distributions None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fee None None None

ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* .15% .15% .15%
12b-1 Fees .00% .00% .75%
Shareholder Servicing Fees .00% .25% .25%
Other Expenses .36% .50% .44%
---- ---- -----
Total Portfolio Operating Expenses* .51% .90% 1.59%
---- ---- -----
---- ---- -----

*Net of expense waivers

If the waivers were not in effect, Management Fees would be .55% for each
Class. Total Portfolio Operating Expenses would be estimated as follows:

BOND PORTFOLIO
-----------------------------
CLASS I CLASS II CLASS III
------- -------- ---------

Total Portfolio Operating Expenses .91% 1.30% 1.99%

There is no guarantee that any waivers will continue at their stated
levels.

Management Fees, 12b-1 Fees, Shareholder Servicing Fees, and Other
Expenses, are reflected in the Portfolio's share price and are not charged
directly to individual accounts. 12b-1 Fees are paid by Class III shares of the
Portfolio to ALPS for services and expenses in connection with distribution.
Shareholder Servicing Fees are paid by Class II and III shares of the Portfolio
to securities brokers, financial institutions or advisers (Investment
Professionals) for services and expenses incurred in connection with providing
personal service to shareholders and/or maintenance of shareholder accounts.

<PAGE>

Long-term shareholders may eventually pay more than the economic equivalent of
the maximum 8.50% front-end sales charge permitted by the National Association
of Securities Dealers, Inc. (NASD) due to 12b-1 fees. Please see page 17 for
further information.

B. EXAMPLE: You would pay the following expenses for every $1,000
investment in each Class of shares of the Bond Portfolio assuming (1) 5% annual
return, (2) redemption at the end of each time period, (3) that operating
expenses (net of expense waivers) are the same as described above, and (4)
reinvestment of all dividends and distributions. THE RETURN OF 5% AND EXPENSES
SHOULD NOT BE CONSIDERED INDICATIONS OF ACTUAL OR EXPECTED PERFORMANCE OR
PORTFOLIO OPERATING EXPENSES, BOTH OF WHICH MAY VARY SIGNIFICANTLY:

BOND PORTFOLIO
-----------------------------
CLASS I CLASS II CLASS III
------- -------- ---------

1 year $5 $46* $16
3 years $16 $65* $51
5 years $29 $86* $87
10 years $64 $145* $190

*Reflects imposition of maximum sales charge at the beginning of the period.

<PAGE>
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------

BOND PORTFOLIO
(FORMERLY THE TOTAL RETURN FIXED INCOME PORTFOLIO)

<TABLE>
CLASS I CLASS II CLASS III
-------------------------- -------------- -------------------------
For the Year For the Year For the Year
Ended June 30, Ended June 30, Ended June 30,
-------------------------- -------------- -------------------------
1996 1995 1994** 1996**** 1996 1995 1994***
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $9.91 $9.41 $10.00 $10.18 $9.89 $9.40 $10.04
-----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.60 0.57 0.45 0.29 0.49 0.43 0.21
Net realized and unrealized gain (loss)
on investments (0.18) 0.50 (0.57) (0.47) (0.18) 0.49 (0.62)
-----------------------------------------------------------------------
Total from investment operations 0.42 1.07 (0.12) (0.18) 0.31 0.92 (0.41)
-----------------------------------------------------------------------
Distributions:
Net investment income (0.60) (0.57) (0.46) (0.29) (0.49) (0.43) (0.22)
Net realized gain - - (0.01) - - - (0.01)
-----------------------------------------------------------------------
Total distributions (0.60) (0.57) (0.47) (0.29) (0.49) (0.43) (0.23)
-----------------------------------------------------------------------
Net asset value, end of period $9.73 $9.91 $9.41 $9.71 $9.71 $9.89 $9.40
-----------------------------------------------------------------------
-----------------------------------------------------------------------
TOTAL RETURN+ 4.23% 11.87% (1.38)%# (1.75)%# 3.11% 10.12% (4.19)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $107,832 $90,574 $75,686 $67 $3,445 $1,916 $923
Ratio of expenses to average daily
net assets(1) 0.41% 0.35% 0.36%* 0.80%* 1.49% 1.84% 1.82%*
Ratio of net investment income to average
net assets 5.99% 6.07% 5.07%* 5.61%* 4.92% 4.58% 3.61%*
Portfolio turnover rate 56% 23% 36%* 56% 56% 23% 36%*

(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.91% 0.91% 0.96%* 1.30%* 1.99% 3.35% 6.36%*
</TABLE>

* Annualized.
** Class commenced operations on August 2, 1993.
*** Class commenced operations on December 2, 1993.
**** Class commenced operations on December 20,1995.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are
not annualized.

<PAGE>

- --------------------------------------------------------------------------------
WHAT IS THE INVESTMENT OBJECTIVE OF THE PORTFOLIO?
- --------------------------------------------------------------------------------

First Tennessee, serves as Investment Adviser to the Portfolio and, with
the prior approval of the Board of Trustees (the Trustees), has engaged Highland
Capital Management Corp. (Highland), to act as Sub-Adviser to the Portfolio.
Subject to First Tennessee's supervision, Highland is responsible for the
day-to-day investment management of the Portfolio, including providing
investment research and credit analysis concerning Portfolio investments and
conducting a continuous program of investment of Portfolio assets in accordance
with the investment policies and objective of the Portfolio. For additional
information about the Portfolio's investment advisory arrangements, see "What
Advisory And Other Fees Does The Portfolio Pay? - Investment Advisory and
Management and Sub-Advisory Agreements" beginning on page 16.

The investment objective of the Portfolio is to achieve maximum total
return through high current income by investing at least 65% of its total assets
in fixed income securities. There is no assurance that the Portfolio will
achieve its investment objective. The permitted investments of the Portfolio are
as follows:

The Portfolio invests primarily in U.S. government obligations, investment
grade debt of U.S. corporations, mortgage-backed securities, (such as Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA), and Federal Home Loan Mortgage Corporation (Freddie Mac) obligations,
and investment-grade asset-backed securities. First Tennessee expects to invest
a major portion of the Portfolio (at least 65% of total assets) in
investment-grade debt securities, which are considered to be those rated Baa or
higher by Moody's Investors Service, Inc. (Moody's) or BBB or higher by Standard
& Poor's Corporation (S&P). Investment-grade securities are generally of medium
to high quality. Accordingly, the Portfolio will not invest in securities judged
by Highland to be predominantly speculative or of poor quality, although it may
invest in securities rated in the lower end of the investment-grade category
(Baa/BBB), if Highland deems that such securities present attractive investment
opportunities. Securities rated Baa/BBB have speculative characteristics and are
more sensitive to economic changes and changes in the financial condition of
issuers. The Portfolio may also invest in unrated securities. Unrated securities
are not necessarily of lower quality than rated securities, but they may not be
attractive to as many buyers. The Portfolio relies more on Highland's credit
analysis when investing in debt securities that are unrated.

The Portfolio also may invest in foreign securities and make foreign
investments in foreign currencies. The Portfolio may buy and sell securities on
a when-issued or delayed-delivery basis, engage in dollar roll transactions,
invest in options, and purchase zero coupon bonds, illiquid and restricted
securities, and shares in other investment companies. The Portfolio may, for
temporary defensive and liquidity purposes, invest without limit in short-term
money market securities.

The Portfolio will invest primarily in intermediate to long-term bonds.
While the Portfolio's dollar-weighted average portfolio maturity may range from
5 to 15 years, Highland anticipates that this average maturity, under normal
circumstances, will fluctuate between 7 and 11 years. If Highland determines
that market conditions warrant a shorter or longer average maturity within the
range of 5 to 15 years, the Portfolio's investments will be adjusted
accordingly.

See "Investment Instruments, Transactions, Strategies And Risks" on page
18 for a further discussion of the Portfolio's investments.

- --------------------------------------------------------------------------------
IS THE PORTFOLIO A SUITABLE INVESTMENT?; INVESTMENT RISKS
- --------------------------------------------------------------------------------

By itself, the Bond Portfolio does not constitute a balanced investment
plan. The Bond Portfolio emphasizes maximizing total return through high current
income by investing primarily in debt securities. An increase in interest rates
generally will reduce the value of portfolio investments of the Portfolio and a
decline in interest rates will generally increase the value of its portfolio
investments. Short-term obligations (such as instruments with maturities of one
year or less) generally offer greater stability and are less sensitive to
interest rate changes. Long-term bonds of the type in which the Portfolio will
invest offer less stability and are more sensitive to interest rate changes, but
generally offer higher yields. Further, investment in the securities of issuers
in any foreign country involves special risks and considerations not typically
associated with investing in U.S. issuers. The Portfolio's share price, yield
and total return will fluctuate. An investment in the Bond Portfolio may be
worth more or less than the original cost when shares are redeemed.

<PAGE>

In addition, the Portfolio may invest in instruments and securities
generally known as derivative investments. These investments may include the use
of forward currency contracts, put and call option contracts, zero coupon bonds
stripped fixed-income obligations and mortgage-backed and asset-backed
pass-through securities. Highland may not buy all of these instruments or use
all of these techniques unless it believes that doing so will help the Portfolio
achieve its investment objective. Use of these instruments and techniques can
alter the risk and return characteristics of the Portfolio. They may increase
the Portfolio's volatility and may involve the investment of small amounts of
cash relative to the magnitude of the risk assumed. They may also result in a
loss of principal if Highland judges market conditions incorrectly or employs a
strategy that does not correlate well with the Portfolio's investment strategy.
With respect to mortgage-backed securities, risks include a sensitivity to the
rate of prepayments in that, although the value of fixed-income securities
generally increase during periods of falling interest as a result of prepayments
and other factors, this is not always the case with respect to mortgage-backed
securities. Asset-backed securities involve the risk that such securities do not
usually have the benefit of a complete security interest in the related
collateral. Positions in options involve the risk that such options may fail as
a hedging technique and that closing transactions may not be effected where a
liquid secondary market does not exist.

The Portfolio seeks to maximize total return over an interest rate cycle.
Highland believes that by lessening the effect of bond market declines,
investors should experience greater overall returns; accordingly, Highland may
address market risk through a strategy of adjusting the dollar-weighted average
maturity of the Portfolio to reflect changing economic and interest rate
environments. The timing of Portfolio transactions in response to anticipated
changes in interest rate trends is important to the successful application of
such strategies. Bond funds such as the Portfolio are generally subject to two
risk factors: (1) credit risk, and (2) interest rate risk. The Portfolio will
seek to manage credit risk by investing only in investment-grade securities as
described previously. In the event a security's credit rating is downgraded, its
value can be expected to decrease. Highland may elect to continue to hold such
securities. The Portfolio will seek to manage interest rate risk by limiting its
average maturity to 15 years or less.

Further information about the types of securities in which the Portfolio
may invest and their related risks, as well as the investment policies of the
Portfolio in general are set forth in the section "Investment Instruments,
Transactions, Strategies and Risks" on page 18 and in the Statement of
Additional Information.

INVESTMENT LIMITATIONS. The Portfolio has adopted the following
investment limitations:

(1) With respect to 75% of the Portfolio's assets, the Portfolio
will not purchase a security, other than U.S. government securities, if,
as a result, (a) more than 5% of its total assets would be invested in
the securities of any single issuer; or (b) the Portfolio would own more
than 10% of the voting securities of any single issuer.

(2) The Portfolio will not invest 25% or more of its total assets
in a particular industry, other than U.S. government obligations.

(3) (a) The Portfolio may borrow money solely for temporary or
emergency purposes, but not in an amount exceeding 33 1/3% of its
total assets. (b) The Portfolio may borrow money from banks, or by
engaging in reverse repurchase agreements. (c) The Portfolio will not
purchase securities when borrowings exceed 5% of its total assets. If
the Portfolio borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. To this extent, purchasing
securities when borrowings are outstanding may involve an element of
leverage.

(4) (a) The Portfolio may temporarily lend its portfolio securities
to broker-dealers and institutions, but only when the loans are fully
collateralized. (b) Loans, in the aggregate, will be limited to 33 1/3%
of the Portfolio's total assets.

<PAGE>

From time to time, the Portfolio, to the extent consistent with its
investment objective, policies, and restrictions, may invest in
securities of companies with which First Tennessee or any affiliates
have lending relationships.

CLASS I

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

HOW ARE INVESTMENTS MADE?

Each Institutional Investor will transmit orders to the Transfer Agent,
Chase Global Funds Services Company (CGFSC). If an order is received by CGFSC in
proper form prior to 4:00 p.m. Eastern Time on any Business Day (as defined in
the section "how are investments, exchanges and redemptions made - Class I, II
and III - How Are Portfolio Shares Valued?") and the funds are received by CGFSC
that day, the investment will earn dividends declared, if any, on the day of
purchase. Institutional Investors will wire funds through the Federal Reserve
System. Purchases will be processed at the net asset value per share (NAV)
calculated after an order is received in proper form and accepted by CGFSC. The
Portfolio requires advance notification of all wire purchases. To secure same
day acceptance of federal funds (monies transferred from one bank to another
through the Federal Reserve System with same-day availability), an Institutional
Investor must call CGFSC at 1-800-442-1941, (option 2) prior to 4:00 p.m.
Eastern Time on any Business Day to advise it of the wire. The Trust may
discontinue offering its shares in any Class of a Portfolio without notice to
shareholders.

HOW ARE REDEMPTIONS MADE?

Institutional Investors may redeem all or a portion of their account shares
on any Business Day. Shares will be redeemed at the NAV next calculated after
CGFSC has received the redemption request in proper form and will accrue
dividends through the day of redemption. If an account is closed, any accrued
dividends will be paid at the beginning of the following month.

<PAGE>

receive an amount redeemed at any time by sending a letter of instruction with a
signature guarantee to CGFSC at 73 Tremont Street, Boston, Massachusetts, 02108.

ADDITIONAL INFORMATION

Transactions may be initiated by telephone. Please note that the Portfolio
and its agents will not be responsible for any losses resulting from
unauthorized telephone transactions if the Portfolio or its agents follow
reasonable procedures designed to verify the identity of the caller. These
procedures may include requesting additional information or using personalized
security codes. The Portfolio or its agents may also record calls, and an
Institutional Investor should verify the accuracy of confirmation statements
immediately after receipt. If an Institutional Investor does not want to be
able to initiate redemptions and exchanges by telephone, please call CGFSC for
instructions.

CLASS II AND III

WHO MAY INVEST?

INVESTMENT REQUIREMENTS

<PAGE>

HOW DO I SET UP AN ACCOUNT?

HOW DO I INVEST DIRECTLY?

Investments may be made in several ways:

BY MAIL: Make your check payable to First Funds: Bond Portfolio, and mail
it, along with the application, to the address indicated on the application.
Your account will be credited on the business day that CGFSC receives your
application in good order and processes your transaction.

Chase Manhattan Bank, N.A.
ABA #021000021
First Funds
Credit DDA #910-2-733335
(Account Registration)
(Account Number)
(Wire Control Number) *See Below*

Prior to sending wires, please be sure to call 1-800-442-1941, (option 2)
to receive a Wire Control Number to be included in the body of the wire (see
above).

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

You may redeem shares in several ways:

<PAGE>

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

SYSTEMATIC INVESTING PROGRAM

SYSTEMATIC WITHDRAWAL PLAN

<PAGE>

must be in the amount of $100 or more per Portfolio per month. If Systematic
Withdrawal Plan redemptions exceed income dividends earned on your shares,
your account eventually may be exhausted. Please contact your Investment
Professional for more information.

ADDITIONAL INFORMATION

TAX-DEFERRED RETIREMENT PLANS: Retirement plans can offer significant tax
savings to individuals. Please call ALPS at 1-800-442-1941 (option 1) or your
Investment Professional for more information on the plans and their benefits,
provisions and fees. CGFSC or your Investment Professional can set up your new
account in the Portfolio under one of several tax-deferred plans. These plans
let you invest for retirement and defer the tax on your investment income.
Minimums may differ from those listed on page 9. Plans include Individual
Retirement Accounts (IRAs), Rollover IRAs, Keogh Plans, and Simplified Employee
Pension Plans (SEP-IRAs).

CLASS II
- --------

PUBLIC OFFERING PRICE

<S> <C> <C> <C>
Less than $100,000 3.75 3.90 3.25
$100,000 to $249,999 3.00 3.09 2.65
$250,000 to $499,999 2.25 2.30 2.00
$500,000 to $999,999 1.50 1.52 1.25
$1,000,000 and over 0.50 0.50 0.40

</TABLE>

<PAGE>

QUANTITY DISCOUNTS

LETTER OF INTENT. A Letter of Intent allows you to purchase Class II
shares over a 13-month period at a reduced sales charge. The sales charge is
based on the total amount you intend to purchase plus the total net asset value
of Class II shares which you already own on which you have paid a sales load. If
you are a participant in a First Funds IRA or if you are a trustee or custodian
of another type of First Funds retirement plan, you may also credit towards
completion of your Letter of Intent any Class II shares held through the IRA or
in the plan, even if a load was not paid. Each investment you make during the
period may be made at the reduced sales charge that would apply to the total
amount you intend to invest. The reduced sales load applies only to new
purchases. If you do not invest the total amount within the period, you may pay
the difference between the higher sales charge rate that would have been applied
to the purchases you made and the reduced sales charge rate you have paid.
Shares of the Portfolio equal to 5% of the amount you intend to invest will be
held in escrow and, if you do not pay the difference within 20 days following
the mailing of a request, the Transfer Agent will redeem a sufficient amount of
your escrowed shares to pay the additional sales charge. After the terms of your
Letter of Intent are fulfilled, the Transfer Agent will release your escrowed
shares.

- purchases by your spouse or his, her or your joint account or for the
account of any minor children, and

- the aggregate investment of any trustee or other Institutional Investor
for you and/or your spouse or your minor children.

A trustee or custodian of any qualified pension or profit sharing plan may
combine its aggregate purchases.

OTHER. Class II shares also incur Shareholder Servicing Fees. See
discussion under "what advisory and other fees does the portfolio pay? -
Distribution Plans and Shareholder Servicing Plans."

CLASS III
- ---------

<PAGE>

CLASS I, II AND III
- -------------------

HOW ARE PORTFOLIO SHARES VALUED?

The term "net asset value per share," or NAV, means the worth of one share.
The NAV of each Class of the Portfolio is calculated by adding that Class' pro
rata share of the value of all securities and other assets attributable to the
Portfolio, deducting that Class' pro rata share of Portfolio liabilities,
further deducting Class-specific liabilities, and dividing the result by the
number of shares outstanding in the Class.

The Portfolio is open for business each day that both the NYSE and the New
York Federal Reserve are open (a Business Day). The NAV is calculated at the
close of the Portfolio's Business Day, which coincides with the close of regular
trading of the NYSE (normally 4:00 p.m. Eastern Time).

The Portfolio's securities and other assets are valued primarily on the
basis of market quotations furnished by pricing services, or if quotations are
not available, by a method that the Trustees believe accurately reflects fair
value. Foreign securities are valued on the basis of quotations from the
primary United States market in which they are traded or, if not traded on a
U.S. market, then their primary foreign market, and translated from foreign
market quotations into U.S. dollars using current exchange rates.

DISTRIBUTION OPTIONS: The Portfolio earns interest from bond, money
market, and other fixed-income investments and dividends from its stocks. These
are passed along as dividend distributions. The Portfolio may realize capital
gains if it sells securities for a higher price than it paid for them. These
are passed along as capital gain distributions. Income dividends for the Bond
Portfolio are declared daily and paid monthly.

When you fill out your account application, you can specify how you want to
receive your distributions. Currently, there are three available options:

2. CASH OPTION. You will be sent a check for each dividend and capital
gain distribution, if any. Distribution checks will be mailed no later than
seven days after the last day of the month.

3. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.

HOW ARE EXCHANGES MADE?

An exchange is the redemption of shares of one Portfolio and the purchase
of shares of another. The exchange privilege is a convenient way to sell and
buy shares of other Portfolios registered in an investor's state. Except as
noted below, the Portfolio's shares may be exchanged for the same Class shares
of other First Funds Portfolios. The redemption and purchase will be made at
the next determined NAV after the exchange request is received and accepted by
CGFSC. You may execute exchange transactions by calling CGFSC at 1-800-442-1941
(option 2) prior to 4:00 p.m. Eastern Time on any Business Day. Class II shares
of the First Funds Money Market Portfolios are not currently available for
investment. Investors in Class II shares wishing to exchange into one of these
Money Market Portfolios will receive Class III shares.

<PAGE>

Exchanges are generally not permitted from Class I to another Class. Should
a beneficial owner of Class I shares cease to be eligible to purchase shares of
Class I , Class I shares held in an Institutional Account may be converted to
shares of another Class.

STATEMENTS AND REPORTS

You or, if Class I, the Institutional Investor will receive a monthly
statement and a confirmation after every transaction that affects the account
registration. A statement with tax information will be mailed by January 31 of
each tax year and also will be filed with the IRS. At least twice a year, you
or, if Class I, the Institutional Investor will receive the Portfolio's
financial statements. To reduce expenses, only one copy of the Portfolio's
reports (such as the Prospectus and Annual Report) will be mailed to each
investor or, if Class I, each Institutional Investor. Please write to ALPS to
request additional copies.

- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------

From time to time the Portfolio may quote the yield of Class I, II or III
shares in advertisements or in reports or other communications with
shareholders. The YIELD is a way of showing the rate of income that the
Portfolio earns on its investments as the percentage of its share price. To
calculate yield, the Portfolio takes the net investment income it earned from
its Portfolio securities for a 30-day period, divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on share price at the end of the 30-day period.
Yields do not reflect gains or losses from portfolio transactions. Yields are
calculated according to accounting methods that are standardized for all mutual
funds. Because yield accounting methods differ from the methods used for other
accounting purposes, the Portfolio's yield may not equal its distribution rate,
the income paid to an account, or the income reported in financial statements.

TOTAL RETURN for Class I, II or III of the Portfolio is based on the
overall dollar or percentage change in value of a hypothetical investment,
assuming dividends are reinvested. A CUMULATIVE TOTAL RETURN reflects
performance over a stated period of time. An AVERAGE ANNUAL TOTAL RETURN
reflects the hypothetical annually compounded rate that would have produced the
same cumulative total return if performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in
performance, you should recognize that they are not the same as actual
year-by-year results. The yield and total returns of the three classes of the
Portfolio are calculated separately due to separate expense structures as
indicated in the "Summary Of Portfolio Expenses"; the yields and total returns
of Class II and Class III will be lower than that of Class I.

For additional performance information, contact your Investment
Professional or ALPS for a free Annual Report and Statement of Additional
Information for the Portfolio.

- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

Broker-dealers are utilized to conduct securities transactions for the
Portfolio and are chosen based upon professional ability and quality of service.
In addition, the Portfolio's investment advisers may consider a broker-dealer's
sales of shares of the Portfolio or recommendations to its customers that they
purchase shares of the Portfolio as a factor in the selection of broker-dealers
to execute transactions for the Portfolio. In placing business with such
broker-dealers, the advisers will seek the best execution of each transaction.

Higher commissions may be paid to firms that provide research services to
the extent permitted by law. The frequency of Portfolio transactions - the
portfolio turnover rate - will vary from year to year depending on market
conditions. Bond Portfolio's portfolio turnover rate for the period ended June
30, 1996 was 56%.

<PAGE>

FEDERAL TAXES. Distributions from the Portfolio's taxable income and
short-term capital gains are taxed as dividends, and long-term capital gain
distributions are taxed as long-term capital gains. Distributions are taxable
when they are paid, whether taken in cash or reinvested in additional shares,
except that distributions declared in December and paid in January are taxable
as if paid on December 31. The Portfolio will send each investor or, if Class I,
each Institutional Investor, an IRS Form 1099-DIV by January 31.

CAPITAL GAINS. A capital gain or loss may be realized when shares of the
Portfolio are redeemed or exchanged. For most types of accounts, the Portfolio
will report the proceeds of redemptions to each investor or, if Class I,the
Institutional Investor and the IRS annually. However, because the tax treatment
also depends on the purchase price and your personal tax position, regular
account statements should be used to determine the tax gain or loss.

"BUYING A DIVIDEND." On the record date for a distribution, the
Portfolio's share price is reduced by the amount of the distribution. If shares
are bought just before the record date (buying a dividend), the full price for
the shares will be paid, and a portion of the price will be received back as a
taxable distribution.

- --------------------------------------------------------------------------------
WHAT ADVISORY AND OTHER FEES DOES THE PORTFOLIO PAY?
- --------------------------------------------------------------------------------

INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS. For
managing its investment and business affairs, the Portfolio is obligated to pay
First Tennessee, 4990 Poplar Avenue, Memphis, Tennessee, a monthly management
fee at the annual rate of .55% of its average net assets. First Tennessee has
voluntarily agreed to waive its advisory fees to .15% of the Portfolio's average
net assets. This voluntary waiver can be discontinued at any time.

Under the Investment Advisory and Management Agreement, First Tennessee
may, with the prior approval of the Trustees, engage one or more sub-advisers
which may have full investment discretion to make all determinations with
respect to the investment and reinvestment of all or any portion of the
Portfolio's assets, subject to the terms and conditions of the investment
advisory agreement and the written agreement with any such sub-adviser. In the
event one or more sub-advisers is appointed by First Tennessee, First Tennessee
shall monitor and evaluate the performance of such sub-advisers, allocate
Portfolio assets to be managed by such sub-advisers, recommend any changes in or
additional sub-advisers when appropriate and compensate each sub-adviser out of
the investment advisory fee received by First Tennessee from the Portfolio.

First Tennessee has experience as an investment adviser to individual,
corporate and institutional advisory clients, pension plans and collective
investment funds, with approximately $13.8 billion in assets under
administration (including nondiscretionary accounts) and $5.3 billion in assets
under management as of June 30, 1996, as well as experience in supervising
sub-advisers. For the Portfolio's fiscal year ended June 30, 1996, First
Tennessee earned $563,748 from the Portfolio before waiving $482,559 of its fee.

Highland serves as the Sub-Adviser for the Portfolio subject to the
supervision of First Tennessee and pursuant to the authority granted to it under
its Sub-Advisory Agreement with First Tennessee. On March 1, 1994, Highland
merged with and into First Tennessee Investment Management, Inc. (FTIM), an
affiliate of First Tennessee, and changed its name to Highland Capital
Management Corp. FTIM (now Highland), has been a wholly-owned subsidiary of
First Tennessee National Corporation since 1972. First Tennessee and Highland
have a history of investment management since 1929. Highland has a total of $2.1
billion in assets under management as of June 30, 1996. First Tennessee is
obligated to pay Highland a monthly sub-advisory fee at the annual rate of .33%
of the Bond Portfolio's average net assets. Highland is currently waiving some
or all of its fees for the Portfolio.

<PAGE>

First Tennessee serves as the Co-Administrator for the Portfolio. As the
Co-Administrator, First Tennessee assists in the Portfolio's operation,
including but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to and receives from the Portfolio a monthly fee at the
annual rate of .05% of average net assets.

TRANSFER AGENT AND CUSTODIAN. Chase Global Funds Services Company, a
division of Chase Manhattan Bank, N.A. ("CGFSC"), provides transfer agent and
related services for the Portfolio. Chase Manhattan Bank, N.A. is custodian of
the assets of the Trust.

PRICING AND ACCOUNTING. CGFSC calculates the NAV and dividends of each
class and maintains the portfolio and general accounting records.

DISTRIBUTION PLANS AND SHAREHOLDER SERVICING PLANS. The Trustees have
adopted a Distribution Plan on behalf of Class III of the Portfolio pursuant to
Rule 12b-1 (the Rule) under the 1940 Act. The NASD subjects asset-based sales
charges to its maximum sales charge rule. Fees paid pursuant to the Portfolio's
Distribution Plan will be limited by the restrictions imposed by the NASD rule.
The Distribution Plan provides for payment of a fee to ALPS at the annual rate
of .75% of the average net assets of Class III. All or a portion of these fees
will in turn be paid to Service Organizations as compensation for selling shares
of Class III and for providing ongoing sales support services. The Trustees
have also adopted Shareholder Servicing Plans on behalf of Class II and III of
the Portfolio, under which Investment Professionals are paid at the annual rate
of .25% of each Class' average net assets, for shareholder services and account
maintenance, including responding to shareholder inquiries, directing
shareholder communications, account balance maintenance, and dividend posting.
The Distribution Fees are expenses of Class III and the Shareholder Servicing
Fees are expenses of Class II and III in addition to the Management Fee, and the
Administration and Co-Administration Fees, and will reduce the net income and
total return of both Classes.

- --------------------------------------------------------------------------------
HOW IS THE PORTFOLIO ORGANIZED?
- --------------------------------------------------------------------------------

The Portfolio is a diversified portfolio of First Funds, an open-end
management investment company organized as a Massachusetts business trust by a
Declaration of Trust dated March 6, 1992, as amended and restated on September
4, 1992. The Portfolio consists of three separate Classes. The Trustees
supervise the Trust's activities and review its contractual arrangements with
companies that provide the Trust with services. The Trust is not required to
hold annual shareholder meetings, although special meetings may be called for a
specific Portfolio or class with respect to issues affecting that Portfolio or
Class, or the Trust as a whole, for purposes such as electing or removing
Trustees, changing fundamental policies or approving investment advisory
agreements. Shareholders receive one vote for each share owned and fractional
votes for fractional shares owned. A Portfolio or Class votes separately with
respect to issues affecting only that Portfolio or Class. Pursuant to the
Declaration of Trust, the Trustees have the authority to issue additional
classes of shares for the Portfolio.

PORTFOLIO MANAGEMENT

James R. Turner is one of the Portfolio Managers for the Bond Portfolio.
Mr. Turner managed the assets of the Portfolio's predecessor account from August
1986 until its conversion in August 1993 to a mutual fund. He also manages
pension and endowment funds. He is a Senior Vice President of Highland and is a
Chartered Financial Analyst. Mr. Turner is a graduate of the U.S. Military
Academy and received a Masters of Science in Industrial Engineering from
Stanford University.

Steven Wishnia, one of the Portfolio Managers for the Bond Portfolio, is a
Director and Chairman of the Board of Highland. He joined Highland in April,
1987. Mr. Wishnia is a graduate of Pace University.

<PAGE>

- --------------------------------------------------------------------------------
INVESTMENT INSTRUMENTS, TRANSACTIONS, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------

The following paragraphs provide a brief description of the securities in
which the Portfolio may invest and the transactions each may make. The
Portfolio is not limited by this discussion, however, and may purchase other
types of securities and may enter into other types of transactions if they are
consistent with the Portfolio's investment objective and policies.

ASSET-BACKED AND MORTGAGE SECURITIES purchased by the Portfolio may include
interests in pools of mortgages, loans (including consumer loans), receivables
or other assets. They may also include collateralized mortgage obligations
(CMOs) and stripped mortgage-backed securities. CMOs are pass-through securities
collateralized by mortgages or mortgage-backed securities. CMOs are issued in
classes and series that have different maturities and often are retired in
sequence. Payment of principal and interest may be largely dependent upon the
cash flows generated by the assets backing the securities. The Portfolio may
purchase mortgage-backed securities issued by government and non-government
entities such as banks, mortgage lenders, or other financial institutions. A
mortgage-backed security may be an obligation of the issuer backed by a mortgage
or pool of mortgages or a direct interest in an underlying pool of mortgages.
Some mortgage-backed securities, such as CMOs, make payments of both principal
and interest at a variety of intervals; others make semiannual interest payments
at a predetermined rate and repay principal at maturity (like a typical bond).
Mortgage-backed securities are based on different types of mortgages including
those on commercial real estate or residential properties. Other types of
mortgage-backed securities will likely be developed in the future, and the
Portfolio may invest in them if Highland determines they are consistent with the
Portfolio's investment objective and policies.

The value of mortgage-backed securities may change due to changes in the
market's perception of issuers including their credit-worthiness. In addition,
regulatory or tax changes may adversely affect the mortgage securities market as
a whole. Non-government mortgage-backed securities may offer higher yields than
those issued by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject to
prepayment risk. Prepayment, which occurs when unscheduled or early payments are
made on the underlying mortgages, may shorten the effective maturities of these
securities and may lower their total returns. Some securities may have a
structure that makes their reaction to changing interest rates and other factors
difficult to predict and highly volatile.

COMMERCIAL PAPER purchased by the Portfolio are short-term obligations
issued by banks, broker-dealers, corporations and other entities for purposes
such as financing their current operations.

DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Portfolio may engage in dollar roll transactions with
respect to mortgage securities. In a dollar roll transaction, the Portfolio
sells a mortgage security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase a substantially similar
(same type, coupon and maturity) security from the institution at a later date
at an agreed upon price. The mortgage securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories. During the
period between the sale and repurchase, the Portfolio will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale will be invested in short-term instruments. The income from these
investments, together with any price difference at the time of sale, will
determine the net advantage to the Portfolio. When the Portfolio enters into a
dollar roll transaction, liquid assets of the Portfolio, in a dollar amount
sufficient to make payment for the obligations to be repurchased, are segregated
at the trade date. These securities are marked to market daily and are
maintained until the transaction is settled.

FOREIGN INVESTMENTS. The Portfolio may invest in foreign securities, which
may involve additional risks. Foreign securities and securities denominated in
or indexed to foreign currencies may be affected by the strength of foreign
currencies relative to the U.S. dollar, or by political, regulatory or economic
developments in foreign countries. Foreign companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies,
and there may be less public information about their operations. Foreign markets
may be less liquid or more volatile than U.S. markets, and may offer less
protection to investors. In addition to the political and economic factors that
can affect foreign securities, a governmental issuer may be unwilling to repay
principal and interest when due, and may require that the conditions for payment
be renegotiated. These factors could make foreign investments, especially those
in developing countries, more volatile. Highland considers these factors in
making foreign investments for the Portfolio.

<PAGE>

FORWARDS. A forward represents a contract that obligates the counterparty
to buy, and the other to sell, a specific underlying asset at a specific price,
amount, and date in the future. Forwards are similar to futures except for the
fact that forwards are privately negotiated. The most common type of forward
contracts are foreign currency exchange contracts.

The Portfolio may enter into forward exchange currency contracts in order
to hedge its exposure to changes in foreign currency exchange rates on its
foreign portfolio holdings and to hedge certain firm purchase and sale
commitments denominated in foreign currencies. A forward exchange currency
contract is a commitment to purchase or sell a foreign currency at a future date
at a negotiated forward rate. The gain or loss arising from the difference
between the original contract and the closing of such contract is included in
net realized gain or loss on foreign currency transactions. Fluctuations in the
value of forward exchange currency contracts are recorded for financial
reporting purposes as unrealized gains or losses by the Portfolio.

ILLIQUID SECURITIES. Under the supervision of the Board of Trustees,
Highland, under First Tennessee's supervision, determines the liquidity of the
Portfolio's investments. The absence of a trading market can make it difficult
to ascertain a market value for illiquid investments. Disposing of illiquid
investments or securities subject to legal restrictions may involve
time-consuming negotiation and legal expenses. It may be difficult or impossible
for the Portfolio to sell illiquid or restricted securities promptly at an
acceptable price. The Portfolio may invest up to 15% of its assets in illiquid
investments.

OPTIONS CONTRACTS. An option is a contract that gives the owner the right,
but not the obligation, to either buy (call option) or sell (put option) an
underlying security or currency at a fixed price for a specified period of time.
The Portfolio may buy and sell put and call options contracts to manage its
exposure to changing interest rates and security prices. To the extent it
invests in securities denominated in foreign currencies, the Portfolio may also
buy and sell options contracts to manage exposure to currency exchange rates.
Some option strategies, including buying puts and writing calls, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including writing puts and buying calls, tend to increase market exposure.
Options may be combined with each other in order to adjust the risk and return
characteristics of the overall strategy. The Portfolio may enter into forward
contracts for settlement or hedging purposes. The Portfolio may invest in
options based on any type of security, index, or currency, including options
traded on foreign exchanges and options not traded on exchanges.

REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, a
Portfolio buys a security at one price and simultaneously agrees to sell it back
at a higher price. A Portfolio may also make securities loans to broker-dealers
and institutional investors. In the event of the bankruptcy of the other party
to a repurchase agreement or a securities loan, a Portfolio could experience
delays in recovering its cash or the securities it lent. To the extent that, in
the meantime, the value of the obligations purchased had decreased, or the
value of obligations lent had increased, a Portfolio could experience a loss. In
all cases, Highland must find the creditworthiness of the other party to the
transaction satisfactory.

<PAGE>

U.S. TREASURY OBLIGATIONS purchased by the Portfolio are obligations issued
by the United States and backed by its full faith and credit.

VARIABLE AND FLOATING RATE INSTRUMENTS purchased by the Bond Portfolio,
including certain participation interests in municipal obligations, have
interest rate adjustment formulas that help to stabilize their market values.
Many variable or floating rate instruments also carry demand features that
permit the Portfolio to sell them at par value plus accrued interest on short
notice. When determining its average weighted portfolio maturity, the Portfolio
will look to the interest readjustment date, rather than the maturity date, of
the instrument.

<PAGE>

INVESTMENT ADVISER AND CO-ADMINISTRATOR
---------------------------------------

First Tennessee Bank National Association
Memphis, TN

SUB-ADVISER
-----------

Highland Capital Management Corp.
Memphis, TN

OFFICERS
--------

Richard C. Rantzow, President
Mark A. Pougnet, Treasurer
James V. Hyatt, Secretary

TRUSTEES
--------

Thomas M. Batchelor
John A. DeCell
L.R. Jalenak, Jr.
Larry W. Papasan
Richard C. Rantzow

ADMINISTRATOR AND DISTRIBUTOR
-----------------------------

ALPS Mutual Funds Services, Inc.
Denver, CO

TRANSFER AND SHAREHOLDER SERVICING AGENT
----------------------------------------

Chase Global Funds Services Company
Boston, MA

CUSTODIAN
---------

Chase Manhattan Bank, N.A.
New York, NY

<PAGE>

[LOGO]

FIRST FUNDS 370 17th Street
Suite 2700
TENNESSEE TAX-FREE PORTFOLIO Denver, Colorado 80202

Prospectus for Class I, II, and III
October 25, 1996

First Funds (the Trust) offers investors a convenient and economical
means of investing in a professionally managed mutual fund. The objective of
the Tennessee Tax-Free Portfolio (the Portfolio) is to seek a high level of
current income, which is exempt from federal and Tennessee personal income
tax, by investing in a portfolio consisting primarily of Tennessee tax-exempt
obligations. The Portfolio's net asset value per share will fluctuate in
response to changes in the value of its investments.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, FIRST TENNESSEE BANK NATIONAL ASSOCIATION OR ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FDIC, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

TNTF-pro-1096

<PAGE>

- -------------------------------------------------------------------------------
TABLE OF CONTENTS

PAGE
----
Summary of Portfolio Expenses.............................................. 3
Financial Highlights....................................................... 5
What Is The Investment Objective Of The Portfolio?......................... 6
Is The Portfolio A Suitable Investment?; Investment Risks.................. 6
What Are The Portfolio's Investment Policies and Limitations?.............. 8
How Are Investment, Exchanges and Redemptions Made?........................ 9
How Is Performance Calculated?............................................. 16
Portfolio Transactions..................................................... 16
What Is The Effect Of Income Tax On This Investment?....................... 16
What Advisory And Other Fees Does The Portfolio Pay?....................... 17
How Is The Portfolio Organized?............................................ 18
Investment Instruments, Transactions, Strategies and Risks................. 18

- -------------------------------------------------------------------------------

<PAGE>

- -------------------------------------------------------------------------------
SUMMARY OF PORTFOLIO EXPENSES
- -------------------------------------------------------------------------------

The purpose of the table below is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly. This
standard format was developed for use by all mutual funds to help you make
your investment decisions. The information below is based upon the
Portfolio's expenses for the fiscal year ended June 30, 1996 adjusted to
reflect new servicing arrangements. This expense information should be
considered along with other important information, such as the Portfolio's
investment objective.

A. EXPENSE SUMMARY

TENNESSEE TAX-FREE
PORTFOLIO
------------------------------
SHAREHOLDER TRANSACTION EXPENSES: CLASS I CLASS II CLASS III
------- -------- ---------

Maximum Sales Load on Purchases
(as a percentage of offering price) None 3.75% None
Sales Load Imposed on Reinvested
Distributions None None None
Deferred Sales Load None None None
Redemption Fees None None None
Exchange Fee None None None

ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* .00% .00% .00%
12b-1 Fees* .00% .00% .00%
Shareholder Servicing Fees .00% .00% .00%
OTHER EXPENSES* .00% .00% .00%
---- ---- ----

Total Portfolio Operating Expenses* .00% .00% .00%
---- ---- ----
---- ---- ----

*Net of expense waivers and/or reimbursements.

ANNUAL PORTFOLIO OPERATING EXPENSES. The Portfolio is obligated to pay
Management Fees to First Tennessee Bank National Association (First Tennessee)
for managing the Portfolio's investments. First Tennessee, as Investment
Adviser, has voluntarily agreed to waive its entire investment advisory fee;
however, there is no guarantee that the waiver will continue. The Portfolio
incurs Other Expenses, including Administrative and Co-Administrative Fees, for
maintaining shareholder records, furnishing shareholder statements and reports,
and other services. ALPS, the Administrator, is entitled to .15% of the
Portfolio's average net assets for administration services. ALPS has agreed to
voluntarily waive its administration fee to .075% through December 31, 1996.
Additionally, through December 31, 1996, ALPS has voluntarily agreed to assume
all Portfolio expenses in order to maintain an expense ratio of 0.00% for all
Classes of the Portfolio. ALPS reserves the right to modify or terminate this
voluntary fee waiver and assumption of expenses at any time. First Tennessee,
the Co-Administrator, is entitled to .05% of the Portfolio's average net assets
for co-administration services. First Tennessee has voluntarily agreed to waive
its entire co-administration fee; however, there is no guarantee that this
waiver will continue.

If the waivers and assumption of expenses were not in effect, Management
Fees would be .75% of average net assets for each Class and 12b-1 Fees would be
.50% of average net assets for Class III. Other Expenses and Total Portfolio
Operating Expenses would be estimated as follows:

TENNESSEE TAX-FREE
PORTFOLIO
------------------------------
CLASS I CLASS II CLASS III
------- -------- ---------

Other Expenses .92% .92% .92%
Total Portfolio Operating Expenses 1.67% 1.67% 2.17%

<PAGE>

There is no guarantee that any waivers or assumptions of expenses will
continue at their stated levels.

Management Fees, 12b-1 Fees, Shareholder Servicing Fees, and Other
Expenses, are reflected in the Portfolio's share price and are not charged
directly to individual accounts. 12b-1 Fees are paid by Class III to ALPS for
services and expenses in connection with distribution. Shareholder Servicing
Fees are paid by Class II and III to securities brokers, financial
institutions or advisers (Investment Professionals) for services and expenses
incurred in connection with providing personal service to shareholders and/or
maintenance of shareholder accounts. Long-term shareholders may eventually
pay more than the economic equivalent of the maximum 8.50% front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
(NASD) due to 12b-1 fees. Please see page 17 for further information.

B. EXAMPLE: You would pay the following expenses for every $1,000
investment in each Class of shares of the Tennessee Tax-Free Portfolio assuming
(1) 5% annual return, (2) redemption at the end of each time period, (3) that
operating expenses (net of expense waivers) are the same as described above, and
(4) reinvestment of all dividends and distributions. THE RETURN OF 5% AND
EXPENSES SHOULD NOT BE CONSIDERED INDICATIONS OF ACTUAL OR EXPECTED PERFORMANCE
OR PORTFOLIO OPERATING EXPENSES, BOTH OF WHICH MAY VARY SIGNIFICANTLY:

TENNESSEE TAX-FREE
PORTFOLIO
------------------------------
CLASS I CLASS II CLASS III
------- -------- ---------

1 year $0 $38* $0
3 years $0 $38* $0
5 years $0 $38* $0
10 years $0 $38* $0

*Reflects imposition of maximum sales charge at the beginning of the period.

<PAGE>

- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

<TABLE>

TENNESSEE TAX-FREE PORTFOLIO

CLASS I CLASS II CLASS III
--------------- --------------- ---------------

For the For the For the
Year Ended Year Ended Year Ended
June 30, 1996** June 30, 1996** June 30, 1996**
--------------- --------------- ---------------
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $10.00 $10.06 $10.00
---------------------------------------------------
Income from investment operations:
Net investment income 0.23 0.21 0.19
Net realized and unrealized gain (loss)
on investments (0.29) (0.33) (0.28)
---------------------------------------------------
Total from investment operations (0.06) (0.12) (0.09)
---------------------------------------------------
Distributions:
Net investment income (0.23) (0.21) (0.19)
Net realized gain - - -
---------------------------------------------------
Total distributions (0.23) (0.21) (0.19)
---------------------------------------------------
Net asset value, end of period $9.71 $9.73 $9.72
---------------------------------------------------
---------------------------------------------------

TOTAL RETURN+ (0.65)%# (1.25)%# (0.87)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $5,925 $1,875 $896
Ratio of expenses to average daily
net assets 0.50%* 0.49%* 0.98%*
Ratio of net investment income to average
net assets 4.31%* 4.32%* 3.83%*
Portfolio turnover rate 8%* 8%* 8%*

(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 1.42% 1.42% 1.91%

</TABLE>

* Annualized.
** Class I and III commenced operations on December 15, 1995.
Class II commenced operations on December 29, 1995.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are
not annualized.

5
<PAGE>

- -------------------------------------------------------------------------------
WHAT IS THE INVESTMENT OBJECTIVE OF the PORTFOLIO?
- -------------------------------------------------------------------------------

The Tennessee Tax-Free Portfolio's investment objective is to provide a
high level of current income which is exempt from federal and Tennessee personal
income tax. There is no assurance that the Portfolio will achieve its investment
objective.

The Portfolio invests in securities rated at least investment grade by
Moody's Investors Services, Inc. (Moody's) or Standard & Poor's Corporation
(S&P), or another nationally recognized statistical rating service, or in
unrated securities deemed by First Tennessee to be of comparable quality, issued
by the State of Tennessee or any city, county, school district or any other
political agency or sub-division of the State of Tennessee. These may include
tax, revenue, or bond anticipation notes; tax-exempt commercial paper; general
obligation or revenue bonds (including municipal lease obligations and resource
recovery bonds); industrial development bonds; private activity securities;
standby commitments; and tender option bonds. It is a non-fundamental investment
policy of the Portfolio that under normal conditions, it will invest its assets
so that at least 65% of its income will be exempt from Tennessee personal income
tax, and it is a fundamental policy of the Portfolio that at least 80% of its
income will be exempt from federal income tax. As a non-fundamental investment
policy, the Portfolio will invest its assets on an ongoing basis to achieve as
fully as possible income that is tax-exempt for both Tennessee and federal
income tax purposes.

Municipal obligations are issued to raise money for various public
purposes, including general purpose financing for state and local governments as
well as financing for specific projects or public facilities. Municipal
obligations may be backed by the full taxing power of a municipality or by the
revenues from a specific project or the credit of a private organization. Some
municipal obligations are insured by private insurance companies, while others
may be supported by letters of credit furnished by domestic or foreign banks.

It is anticipated that the Portfolio normally will be invested in
intermediate-to-long term bonds, and its dollar-weighted average maturity
generally will be between 5 and 15 years, although it may invest in obligations
of any maturity. If First Tennessee determines that market conditions warrant a
shorter or longer average maturity within the range of 5 to 15 years, the
Portfolio's investments will be adjusted accordingly.

The Portfolio does not intend to invest in federally taxable obligations
under normal conditions; however, it may, for temporary defensive purposes,
invest in high quality taxable money market instruments, including U.S.
government obligations; U.S. Treasury bills, notes and bonds; commercial paper;
repurchase agreements; and reverse repurchase agreements. The Portfolio may also
buy and sell securities on a when-issued or delayed delivery basis, and may
purchase zero coupon bonds.

See "Investment Instruments, Transactions, Strategies And Risks" on page 18
for a further discussion of the Portfolio's investments.

- -------------------------------------------------------------------------------
IS THE PORTFOLIO A SUITABLE INVESTMENT?; INVESTMENT RISKS
- -------------------------------------------------------------------------------

By itself, the Tennessee Tax-Free Portfolio does not constitute a balanced
investment plan; it emphasizes both federal and Tennessee personal tax-free
income. Bond funds such as the Portfolio are generally subject to two risk
factors: (1) credit risk and (2) interest rate risk. The Portfolio will seek to
manage credit risk by investing only in securities as described previously in
"What is the Investment Objective of the Portfolio?" In the event a security's
credit rating is downgraded, its value can be expected to decrease. First
Tennessee may elect to continue to hold such securities. The Portfolio will seek
to manage interest rate risk by limiting its average maturity to 15 years or
less. An increase in interest rates will generally reduce the value of portfolio
investments and a decline in interest rates will generally increase the value of
portfolio investments. Shorter-term obligations (such as instruments with
maturities of one year or less) generally offer greater stability and are less
sensitive to interest rate changes. Longer-term bonds of the type in which the
Portfolio will invest offer less stability and are more sensitive to interest
rate changes, but generally offer higher yields. The Portfolio's share price,
yield and total return will fluctuate, and an investment may be worth more or
less than the original cost when shares are redeemed.

In general, the secondary market for Tennessee obligations is less liquid
than that for taxable debt obligations or for large issues of municipal
obligations that trade in a national market. There is, however, an established
resale market for Tennessee obligations in which the Portfolio may invest. These
considerations may have the effect of restricting

<PAGE>

the availability of such obligations for the Portfolio to purchase, may
affect the choice of securities sold to meet redemption requests and may have
the effect of limiting the ability of the Portfolio to sell or dispose of
such securities. Also, valuation of such obligations may be more difficult.

SPECIAL FACTORS CONCERNING THE STATE OF TENNESSEE

Because the Portfolio will ordinarily invest 65% or more of its total
assets in Tennessee obligations, it is more susceptible to factors affecting
Tennessee issuers than is a comparable fund not concentrated in the obligations
located in a single state.

Tennessee contains four geographically separated cities and a number of
small towns spread throughout the state. The demography of the State is such
that its economic strength is concentrated in Nashville, Memphis, Knoxville, and
Chattanooga. The different geographic influences of these cities, strongly
affect the economic growth and diversity of surrounding counties. The state also
contains a number of emerging economic centers such as Johnson
City/Bristol/Kingsport (Tri-Cities), Jackson, and Cookeville. Most of the
remaining counties have more isolated and rural economies. Although rural, most
of these economies often include some diversified, small scale manufacturing
concerns which are often the cornerstone of local employment and personal
income.

Tennessee's industrialized economy is dominated by diverse manufacturing,
which includes automotive, fabricated metals, non-electrical machinery,
electronic equipment, chemicals and textiles. The State's industrial expansion
has left Tennessee vulnerable to national economic cycles and foreign
competition. Consequently, Tennessee has focused on developing growth in the
services sector. Total State employment has continued to grow and the
unemployment rate since 1988 has been at or below the national average. The
State unemployment rate for August 1996, seasonally adjusted, declined to 4.4%
from 5.1% for August 1995. The national average was 5.1% for August 1996. Per
capita income has steadily increased and in 1994 was 90% of the national
average, up from 85% in 1990 and 83% in 1995.

TennCare, the State-provided healthcare plan, replaced Medicaid and insures
all qualified uninsured individuals in the State. This has caused a strain in
the past on the State's finances; however, the costs associated with the program
have stabilized in fiscal 1996.

Tennessee has revamped its education aid program, the Basic Education
Program. In 1993, it increased the State sales tax rate from 5.5% to 6%, with
the additional half percent dedicated to education. Funding under the Basic
Education Program continues to be phased in and is expected to be fully funded
by July 1, 1998. $125 million is estimated to be required during the next
fiscal year for this program.

Tennessee's financial operations are considerably different than most other
states because there is no state payroll income tax. This factor, together with
the State's reliance on the sales tax for approximately 60% of general fund
receipts, exposes total State tax collections to considerably more volatility
than would otherwise be the case and, in the event of an economic downswing,
could affect the State's ability to pay principal and interest in a timely
manner. The second largest revenue generator is the gasoline tax. The General
Fund balance, which was drawn down to $7.3 million in 1991, has since grown to
$101.4 million in fiscal year 1995. The State economy remains strong with
revenue growth of 9% in fiscal 1995. Estimated growth in the current year is
expected to be sufficient to meet increased expenditures. Although the State
continues to experience balanced financial operations, there can be no assurance
that Tennessee's relatively favorable economic performance will continue.

As of the date of this Prospectus, general obligations of the State of
Tennessee are currently rated "AA+," "Aaa" and "AAA" by S&P, Moody's and Fitch
Investors Service, respectively. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political
or other conditions. There are no material state tax considerations for
shareholders of this Portfolio other than those set forth under the section
"What Is The Effect Of Federal Income Tax On This Investment?" on page 16.

Further information about the types of securities in which the Portfolio
may invest and their related risks, as well as the investment policies of the
Portfolio in general are set forth in the section "Investment Instruments,
Transactions, Strategies And Risks" on page 18 and in the Statement of
Additional Information.

<PAGE>

- -------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIO'S INVESTMENT POLICIES AND LIMITATIONS?
- -------------------------------------------------------------------------------

INVESTMENT LIMITATIONS. The Tennessee Tax-Free Portfolio has adopted the
following investment limitations:

(1) The Portfolio will not invest 25% or more of its total assets in a
particular industry, other than U.S. government obligations.

(2) (a) The Portfolio may borrow money solely for temporary or
emergency purposes, but not in an amount exceeding 33 1/3% of its total
assets. (b) The Portfolio may borrow money from banks or by engaging in
reverse repurchase agreements. (c) The Portfolio will not purchase
securities when borrowings exceed 5% of its total assets. If the Portfolio
borrows money, its share price may be subject to greater fluctuation until
the borrowing is paid off. To this extent, purchasing securities when
borrowings are outstanding may involve an element of leverage.

Unless otherwise noted, the Portfolio's policies and limitations are not
fundamental and may be changed by the Trustees without shareholder approval. The
fundamental policies of the Portfolio that require shareholder approval prior to
any changes are: the Portfolio's investment objective, the Portfolio's policy
that, under normal conditions, at least 80% of its income will be exempt from
federal income tax, and limitations (1) and (2)(a) above. These limitations and
the Portfolio's policies are considered at the time of purchase of securities;
the sale of securities is not required in the event of a subsequent change in
circumstances.

Tennessee Tax-Free Portfolio is classified under the Investment Company Act
of 1940, as amended (1940 Act) as a "non-diversified" investment company, which
allows it to invest more than 5% of its assets in the securities of any issuer,
subject to satisfaction of certain tax requirements. Due to the relatively small
number of issuers of Tennessee obligations, the Portfolio is likely to invest a
greater percentage of its assets in the securities of a single issuer than is an
investment company which invests in a broad range of municipal obligations on a
national scale. The Portfolio is, therefore, more susceptible than a diversified
portfolio to any single adverse economic or political occurrence or development
affecting Tennessee issuers. The Portfolio will also be subject to an
incremental risk of loss if the issuer is unable to make interest or principal
payments or if the market value of such securities declines. It is also possible
that there will not be sufficient availability of suitable Tennessee tax-exempt
obligations for the Portfolio to achieve its objective of providing income
exempt from Tennessee personal income taxes.

The Portfolio may also invest 25% or more of its total assets in municipal
securities whose revenue sources are from similar types of projects, e.g.,
education, electric utilities, health care, housing, transportation, or water,
sewer, and gas utilities. There may be economic, business or political
developments or changes that affect all securities of a similar type.

First Tennessee defines the issuer of a security depending on its terms and
conditions. In identifying the issuer, First Tennessee will consider the entity
or entities responsible for payment of interest and repayment of principal and
the source of such payments; the way in which assets and revenues of an issuing
political subdivision are separated from those of other political entities; and
whether a governmental body is guaranteeing the security.

It is the current position of the SEC staff that the Portfolio may not
derive more than 20% of its income from municipal obligations that pay interest
that is a preference item for purposes of the federal alternative minimum tax
(AMT).

To the extent that the Portfolio invests in private activity obligations,
individuals who are subject to the AMT will be required to report a portion of
the Portfolio's dividends as a "tax preference item" in determining their
federal tax. Income distributions that are a tax preference item for purposes of
the federal AMT are considered to be exempt from federal income tax for purposes
of the Portfolio's fundamental policy that at least 80% of its income will be
federally tax-exempt.

From time to time, the Portfolio to the extent consistent with its
investment objective, policies and restrictions, may invest in securities of
cities, counties or municipalities with which First Tennessee or its affiliates
have lending relationships and may engage in agency brokerage transactions with
First Tennessee. Subject to the terms of the SEC exemptive order received by the
Portfolio on July 15, 1996 , the Portfolio may invest in securities underwritten
by First Tennessee and may engage in brokerage transactions with First Tennessee
acting as principal.

<PAGE>

- -------------------------------------------------------------------------------
HOW ARE INVESTMENTS, EXCHANGES AND REDEMPTIONS MADE?
- -------------------------------------------------------------------------------

CLASS I
- -------

WHO MAY INVEST?

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

HOW ARE INVESTMENTS MADE?

HOW ARE REDEMPTIONS MADE?

Institutional Investors may redeem all or a portion of their account shares
on any Business Day. Shares will be redeemed at the NAV next calculated after
CGFSC has received the redemption request in proper form and will accrue
dividends through the day of redemption. If an account is closed, any accrued
dividends will be paid at the beginning of the following month.

Institutional Investors may make redemptions by wire provided they have
established a wire account with CGFSC. Please call 1-800-442-1941 (option 2) to
advise CGFSC of the wire. If telephone instructions are received before 4:00
p.m. Eastern time on any Business Day, proceeds of the redemption will be wired
as federal funds on the next Business Day to the bank account designated with
CGFSC. An Institutional Investor may change the bank account designated to
receive an amount redeemed at any time by sending a letter of instruction with a
signature guarantee to CGFSC, 73 Tremont Street, Boston, Massachusetts, 02108.
Shares redeemed will earn dividends declared, if any, through the date of
redemption.

<PAGE>

Pursuant to the 1940 Act, if making immediate payment of redemption
proceeds could adversely affect the Portfolio, payments may be made up to seven
days later. Also, when the New York Stock Exchange (NYSE) or the Federal Reserve
Bank of New York (New York Federal Reserve) is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or under any emergency circumstances as determined by the SEC to merit such
action, the right of redemption may be suspended or the date of payment
postponed for a period of time that may exceed seven days. In addition, the
Portfolio reserves the right to advance the time on that day by which purchase
and redemption orders must be received. To the extent Portfolio securities are
traded in other markets on days when either the NYSE or the New York Federal
Reserve is closed, the Portfolio's NAV may be affected on days when investors do
not have access to the Portfolio to purchase or redeem shares.

If transactions by telephone cannot be executed (for example, during times
of unusual market activity), orders may be placed by mail to CGFSC. In case of
suspension of the right of redemption, an Institutional Investor may either
withdraw its request for redemption, or it will receive payment based on the NAV
next determined after the termination of the suspension.

ADDITIONAL INFORMATION

CLASS II AND III
- ----------------

WHO MAY INVEST?

INVESTMENT REQUIREMENTS

The minimum initial investment in Class II or III shares is $1,000.
Subsequent investments may be in any amount greater than $100. If you
participate in the Systematic Investing Program or the "A Plus Card Program", (a
consumer discount card program provided by "A" Plus Strategic Alliances, Inc. a
subsidiary of First Tennessee), the minimum initial investment is $250, and
subsequent investments may be in any amount of $25 or greater. If you are an
employee of First Tennessee or any of its affiliates and you participate in the
Systematic Investing Program, the minimum initial investment is $50, and
subsequent investments may be in any amount of $25 or greater. See page 12 for
additional information on the Systematic Investing Program. If your balance in
the Portfolio falls below the applicable minimum investment requirement due to
redemption, you may be given 30 days' notice to reestablish the minimum balance.
If you do not reestablish the minimum balance, your account may be closed and
the proceeds mailed to you at the address on record. Shares will be redeemed on
the day the account is closed.

All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. No cash will be accepted. If you make a purchase with more than one
check, each check must have a value of at least $100, and the minimum investment
requirement still applies (excluding the specific circumstances, stated above,
which reduce the minimum investment requirement). The Portfolio reserves the
right to limit the number of checks processed at one time. If your check does
not clear, your purchase will be canceled, and you could be liable for any
losses or fees incurred.

<PAGE>

requesting additional information or using personalized security codes. Your
Investment Professional may also record calls, and you should verify the
accuracy of your confirmation statements immediately after you receive them.
If you do not want to be able to redeem and exchange by telephone, please
check the box on your application (if you invest directly) or, if you invest
through an Investment Professional, please call your Investment Professional
for instructions.

HOW DO I SET UP AN ACCOUNT?

You may set up an account directly in the Portfolio or you may invest in
the Portfolio through your Investment Professional. See page 12 for information
on how to invest through your Investment Professional. Shares will be purchased
based on the NAV next calculated after CGFSC has received the request in proper
form. If you are investing through an Investment Professional, transactions that
your Investment Professional initiates should be transmitted to CGFSC before
4:00 p.m. Eastern Time in order for you to receive that day's share price. CGFSC
must receive payment within three business days after an order is placed.
Otherwise, the purchase order may be canceled and you could be held liable for
the resulting fees and/or losses. An investment will begin accruing dividends on
the day following purchase.

HOW DO I INVEST DIRECTLY?

Investments may be made in several ways:

BY MAIL: Make your check payable to First Funds: Tennessee Tax-Free, and
mail it, along with the application, to the address indicated on the
application. Your account will be credited on the business day that CGFSC
receives your application in good order and processes your transaction.

Chase Manhattan Bank, N.A.
ABA #021000021
First Funds
Credit DDA #910-2-733335
(Account Registration)
(Account Number)
(Wire Control Number) *See Below*

Prior to sending wires, please be sure to call 1-800-442-1941, (option
2) to receive a Wire Control Number to be included in the body of the wire
(see above).

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

You may redeem shares in several ways:

<PAGE>

account. You will need the letter of instruction signed by all persons
required to sign for transactions, exactly as their names appear on the
account application, along with a signature guarantee.

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

SYSTEMATIC INVESTING PROGRAM

SYSTEMATIC WITHDRAWAL PLAN

<PAGE>

CLASS II
- --------

PUBLIC OFFERING PRICE

<TABLE>

TOTAL SALES LOAD REALLOWANCE TO
FOR CLASS II SHARES SERVICE ORGANIZATIONS
------------------- ---------------------
AS A % OF OFFERING AS A % OF OFFERING
AMOUNT OF TRANSACTION PRICE PER SHARE AS A % OF NAV PRICE PER SHARE

<S> <C> <C> <C>
Less than $100,000 3.75 3.90 3.25
$100,000 to $249,999 3.00 3.09 2.65
$250,000 to $499,999 2.25 2.30 2.00
$500,000 to $999,999 1.50 1.52 1.25
$1,000,000 and over 0.50 0.50 0.40

</TABLE>

You may purchase Class II shares without a sales load if the purchase will
be (a) by registered representatives, directors, advisory directors, officers
and employees (and their immediate families) of First Tennessee or its
affiliates ; (b) by a current or former Trustee, officer or employee of First
Funds; the spouse of a First Funds Trustee, officer or employee; a First Funds
Trustee acting as a custodian for a minor child of a First Funds Trustee,
officer or employee; or the child of a current or former Trustee, officer or
employee of First Funds who has reached the age of majority; (c) by a charitable
remainder trust or life income pool established for the benefit of a charitable
organization (as defined in Section 501(c)(3) of the Internal Revenue Code); (d)
for use in a financial institution or investment adviser managed account for
which a management or investment advisory fee is charged; (e) with redemption
proceeds from other mutual fund complexes on which the investor has paid a
front-end sales charge within the past 60 days upon presentation of purchase
verification information; or (f) through certain promotions where the load is
waived for investors.

In addition, you will not pay a sales load on the reinvestment of dividends
or distributions in the Portfolio or any other First Funds Portfolio, or in
connection with certain share exchanges as described under "How Are Investments,
Exchanges And Redemptions Made? - Class I, II, and III - How are Exchanges
Made?" on page 15. Further, you generally will not pay a sales load on Class II
shares of the Portfolio which you buy using proceeds from the redemption of a
First Funds Portfolio which does not charge a front-end load, if you obtained
such shares through an exchange for Class II shares which you purchased with a
sales load. A sales load will apply to your purchase of Class II shares in the
foregoing situation only to the extent that the Portfolio's sales load exceeds
the sales load you paid in the prior purchase of the Class II shares.

QUANTITY DISCOUNTS

<PAGE>

investment in the Portfolio's Class II shares with the value of your
investment in Class II of any other First Funds Portfolio you own and on
which you paid a sales load. If you are a participant in a First Funds IRA
or if you are a trustee or custodian of another type of First Funds
retirement plan, you may also include as part of your aggregate investment
any holdings through the IRA or in the plan even if a load was not paid. If
for example, you beneficially own Class II shares of a First Funds Portfolio
with an aggregate current value of $99,000 and you subsequently purchase
shares of the Portfolio having a current value of $1,000, the load applicable
to the subsequent purchase would be reduced to 3.50% of the offering price.
Similarly, each subsequent purchase of First Funds Class II shares may be
added to your aggregate investment at the time of purchase to determine the
applicable sales loads.

- purchases by your spouse or his, her or your joint account or for the
account of any minor children, and

- the aggregate investment of any trustee or other Institutional Investor
for you and/or your spouse or your minor children.

A trustee or custodian of any qualified pension or profit sharing plan may
combine its aggregate purchases.

OTHER. Class II shares also incur Shareholder Servicing Fees. See
discussion under "what advisory and other fees does the portfolio pay? -
Distribution Plans and Shareholder Servicing Plans."

CLASS III
- ---------

CLASS I, II AND III
- -------------------

HOW ARE PORTFOLIO SHARES VALUED?

The term "net asset value per share," or NAV, means the worth of one share.
The NAV of each Class is calculated by adding that Class' pro rata share of the
value of all securities and other assets attributable to the Portfolio,
deducting that Class' pro rata share of Portfolio liabilities, further deducting
Class specific liabilities, and dividing the result by the number of shares
outstanding in that Class.

The Portfolio is open for business each day that both the NYSE and the New
York Federal Reserve are open (a Business Day). The NAV is calculated at the
close of the Portfolio's Business Day, which coincides with the close of regular
trading of the NYSE (normally 4:00 p.m. Eastern Time).

The Portfolio's securities and other assets are valued primarily on the
basis of market quotations furnished by pricing services, or, if quotations are
not available, by a method that the Trustees believe accurately reflects fair
value.

<PAGE>

DISTRIBUTION OPTIONS: The Portfolio earns interest from its bond, money
market, and other fixed-income investments. These are passed along as dividend
distributions. The Portfolio may realize capital gains if it sells securities
for a higher price than it paid for them. These are passed along as capital
gain distributions. Income dividends for the Tennessee Tax-Free Portfolio are
declared daily and paid monthly.

When you fill out your account application, you can specify how you want to
receive your distributions. Currently, there are two available options:

2. CASH OPTION. You will be sent a check for each dividend and capital
gain distribution, if any. Distribution checks will be mailed no later than
seven days after the last day of the month.

3. INCOME-EARNED OPTION. Your capital gain distributions will be
automatically reinvested, but you will be sent a check for each dividend
distribution.

HOW ARE EXCHANGES MADE?

STATEMENTS AND REPORTS

You or, if Class I, the Institutional Investor, will receive a monthly
statement and a confirmation after every transaction that affects the account
registration. A statement with tax information will be mailed by January 31 of
each tax year and also will be filed with the IRS. At least twice a year, you
or, if Class I, the Institutional Investor, will receive the Portfolio's
financial statements. To reduce expenses, only one copy of the Portfolio's
reports (such as the Prospectus and Annual Report) will be mailed to each
investor or, if Class I, each Institutional Investor. Please write to ALPS to
request additional copies.

<PAGE>

- --------------------------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------------------------

From time to time the Portfolio may quote the yield of Class I, II or III
shares in advertisements or in reports or other communications with
shareholders. The YIELD is a way of showing the rate of income that the
Portfolio earns on its investments as the percentage of its share price. To
calculate yield, the Portfolio takes the net investment income it earned from
its Portfolio securities for a 30-day period, divides it by the average number
of shares entitled to receive dividends, and expresses the result as an
annualized percentage rate based on share price at the end of the 30-day period.
Yields do not reflect gains or losses from portfolio transactions. Yields are
calculated according to accounting methods that are standardized for all mutual
funds. Because yield accounting methods differ from the methods used for other
accounting purposes, the Portfolio's yield may not equal its distribution rate,
the income paid to an account, or the income reported in financial statements.

The Portfolio also may quote the TAX EQUIVALENT YIELD, which shows the
taxable yield an investor would have to earn, before taxes, to equal the
tax-free yield. A tax equivalent yield is calculated by dividing the tax-exempt
current yield by the result of one minus a combined federal and Tennessee tax
rate.

TOTAL RETURN for Class I, II or III of the Portfolio is based on the overall
dollar or percentage change in value of a hypothetical investment, assuming
dividends are reinvested. A CUMULATIVE TOTAL RETURN reflects performance over a
stated period of time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical
annually compounded rate that would have produced the same cumulative total
return if performance had been constant over the entire period. Because average
annual returns tend to smooth out variations in performance, you should
recognize that they are not the same as actual year-by-year results. The yield
and total returns of the three Classes of the Portfolio are calculated
separately due to separate expense structures as indicated in the "Summary Of
Portfolio Expenses"; the yields and total returns of Class II and Class III will
be lower than that of Class I.

For additional performance information, contact your Investment
Professional or ALPS for a free Annual Report and Statement of Additional
Information for the Portfolio.

- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------------------------

Municipal obligations and other fixed income securities are generally
traded in the over-the-counter market through broker-dealers. Broker-dealers are
utilized to conduct securities transactions for the Portfolio and are chosen
based upon professional ability and quality of service. In addition, the
Portfolio's investment advisers may consider a broker-dealer's sales of shares
of the Portfolio or recommendations to its customers that they purchase shares
of the Portfolio as a factor in the selection of broker-dealers to execute
transactions for the Portfolio. In placing business with such broker-dealers,
the advisers will seek the best execution of each transaction.

- --------------------------------------------------------------------------------
WHAT IS THE EFFECT OF INCOME TAX ON THIS INVESTMENT?
- --------------------------------------------------------------------------------

The Portfolio intends to distribute substantially all of its net investment
income, and capital gains, if any, to shareholders within each calendar year as
well as on a fiscal year basis. Any net capital gains realized are normally
distributed in December. Income dividends for the Portfolio are declared daily
and paid monthly.

FEDERAL TAXES. Distributions from the Portfolio's taxable income and
short-term capital gains are taxed as dividends, and long-term capital gain
distributions are taxed as long-term capital gains. Distributions are taxable
when they are paid, whether taken in cash or reinvested in additional shares,
except that distributions declared in December and paid in January are taxable
as if paid on December 31. The Portfolio will send each investor or, if Class I,
each Institutional Investor, an IRS Form 1099-DIV by January 31.

Federally tax-free interest earned by the Portfolio is federally tax-free
when distributed as income dividends. If the Portfolio earns federally taxable
income from any of its investments, it will be distributed as a taxable
dividend. Gains

<PAGE>

from the sale of tax-free bonds results in a taxable capital gain
distribution. Short-term capital gains and a portion of the gain on bonds
purchased at a discount are taxed as dividends.

STATE TAXES. In the opinion of Fund counsel, Baker, Donelson, Bearman &
Caldwell, Memphis, Tennessee, distributions received from the Portfolio will not
be subject to Tennessee personal income taxes to the extent such distributions
are attributable to interest on bonds or securities of the U.S. government or
any of its agencies or instrumentalities, or on bonds or securities issued by
the State of Tennessee or any county, municipality or political subdivision of
Tennessee, including any agency, board, authority or commission thereof, without
regard to maturity.

CAPITAL GAINS. A capital gain or loss may be realized when shares of the
Portfolio are redeemed or exchanged. For most types of accounts, the Portfolio
will report the proceeds of redemptions to each investor or, if Class I, each
Institutional Investor and the IRS annually. However, because the tax treatment
also depends on the purchase price and the investor's personal tax position,
regular account statements should be used to determine the tax gain or loss.

"BUYING A DIVIDEND." On the record date for a capital gain distribution,
the Portfolio's share price is reduced by the amount of the distribution. If
shares are bought just before the record date ("buying a dividend"), the full
price for the shares will be paid, and a portion of the price may be received
back as a taxable distribution. Consult your tax advisor for more information.

OTHER TAX INFORMATION. The information above is only a summary of some of
the federal and Tennessee tax consequences generally affecting the Portfolio and
its shareholders, and no attempt has been made to discuss individual tax
consequences. You should consult your tax adviser for details and up-to-date
information on the tax laws in your state to determine whether the Portfolio is
suitable given a your particular tax situation.

When you sign an account application, you will be asked to certify that
your taxpayer identification number is correct and that you are not subject to
backup withholding for failing to report income to the IRS. If you do not comply
with IRS regulations, the IRS can require the Portfolio to withhold 31% of
distributions from your account.

INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS. For
managing its investment and business affairs, the Tennessee Tax-Free Portfolio
is obligated to pay First Tennessee a monthly management fee at the annual rate
of .50% of its average net assets. First Tennessee has voluntarily agreed to
waive its entire fee. This voluntary waiver can be discontinued at any time.

Under the Investment Advisory and Management Agreement, First Tennessee
may, with the prior approval of the Trustees, engage one or more sub-advisers
which may have full investment discretion to make all determinations with
respect to the investment and reinvestment of all or any portion of the
Portfolio's assets, subject to the terms and conditions of the investment
advisory agreement and the written agreement with any such sub-adviser. In the
event one or more sub-advisers is appointed by First Tennessee, First Tennessee
shall monitor and evaluate the performance of such sub-advisers, allocate
Portfolio assets to be managed by such sub-advisers, recommend any changes in or
additional sub-advisers when appropriate and compensate each sub-adviser out of
the investment advisory fee received by First Tennessee from the Portfolio.

First Tennessee has experience as an investment adviser to individual,
corporate and institutional advisory clients, pension plans and collective
investment funds, with approximately $ 13.8 billion in assets under
administration (including nondiscretionary accounts) and $5.3 billion in assets
under management as of June 30, 1996, as well as experience in supervising
sub-advisers.

ADMINISTRATOR AND DISTRIBUTOR. ALPS, 370 17th Street, Suite 2700, Denver,
Colorado 80202, serves as the Administrator and Distributor for the Portfolio.
As Administrator, ALPS assists in the Portfolio's administration and operation,
including but not limited to, providing office space and various legal and
operational services in connection with the regulatory requirements applicable
to each Portfolio. ALPS is entitled to receive from each Class of the Portfolio
a monthly fee at the annual rate of .15% of average net assets. ALPS has
voluntarily agreed to waive its administration fee to .075% through December
31, 1996. Additionally, through December 31, 1996, ALPS has voluntarily agreed
to assume all Portfolio expenses in order to maintain an expense ratio of 0.00%
for all Classes of the Portfolio. ALPS reserves the right to modify or terminate
this voluntary fee waiver and assumption of expenses at any time.

<PAGE>

First Tennessee serves as the Co-Administrator for the Portfolio. As the
Co-Administrator, First Tennessee assists in the Portfolio's operation,
including but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive from the Portfolio a monthly fee at the annual
rate of .05% of average net assets. First Tennessee is voluntarily waiving its
full fee; , however, there is no guarantee that this waiver will continue.

PRICING AND ACCOUNTING. CGFSC calculates the NAV and dividends of each
class and maintains the portfolio and general accounting records.

DISTRIBUTION PLANS AND SHAREHOLDER SERVICING PLANS. The Trustees have
adopted a Distribution Plan on behalf of Class III of the Portfolio pursuant
to Rule 12b-1 (the Rule) under the 1940 Act, as amended. The NASD subjects
asset-based sales charges to its maximum sales charge rule. Fees paid
pursuant to the Portfolio's Distribution Plan will be limited by the
restrictions imposed by the NASD rule. The Distribution Plan provides for
payment of a fee to ALPS at the annual rate of up to .75% of the average net
of assets of Class III; however, the Trustees have limited such fees to .50% of
Class III's average net assets. All or a portion of these fees will in turn
be paid to Investment Professionals as compensation for selling shares of
Class III and for providing ongoing sales support services. The Trustees
have also adopted Shareholder Servicing Plans on behalf of Class II and Class
III of the Portfolio under which Investment Professionals may be paid at an
annual rate of up to .25% of the average net assets of each Class for
shareholder services and account maintenance including responding to
shareholder inquiries, directing shareholder communications, account balance
maintenance and dividend posting. The Distribution Fees are expenses of
Class III, and the Shareholder Servicing Fees would be expenses of Class II
and III in addition to the Management Fee, and Administration and
Co-Administration Fees, and would reduce the net income and total return of
both Classes.

- --------------------------------------------------------------------------------
HOW IS THE PORTFOLIO ORGANIZED?
- --------------------------------------------------------------------------------

The Tennessee Tax-Free Portfolio is a non-diversified portfolio of First
Funds, an open-end management investment company organized as a Massachusetts
business trust by a Declaration of Trust dated March 6, 1992, as amended and
restated on September 4, 1992. The Portfolio consists of three separate Classes.
The Trustees supervise the Trust's activities and review its contractual
arrangements with companies that provide the Trust with services. The Trust is
not required to hold annual shareholder meetings, although special meetings may
be called for a specific Portfolio or class with respect to issues affecting
that Portfolio or Class, or the Trust as a whole, for purposes such as electing
or removing Trustees, changing fundamental policies or approving investment
advisory agreements. Shareholders receive one vote for each share owned and
fractional votes for fractional shares owned. A Portfolio or Class votes
separately with respect to issues affecting only that Portfolio or Class.
Pursuant to the Declaration of Trust, the Trustees have the authority to issue
additional Classes of shares for the Portfolio.

PORTFOLIO MANAGEMENT

Ralph W. Herbert, Vice President and Portfolio Manager, has eighteen years
experience in the financial services industry and specializes in fixed income
securities. Before joining First Tennessee in 1991, he was with Valley Fidelity
Bank and Trust Company (Valley), Knoxville, Tennessee, for three years. For the
two years prior to joining Valley, he was a municipal debt underwriter.

- --------------------------------------------------------------------------------
INVESTMENT INSTRUMENTS, TRANSACTIONS, STRATEGIES AND RISKS.
- --------------------------------------------------------------------------------

The following paragraphs provide a brief description of the securities in
which the Portfolio may invest and the transactions it may make. The Portfolio
is not limited by this discussion, however, and may purchase other types of
securities and may enter into other types of transactions if they are consistent
with the Portfolio's investment objective and policies.

<PAGE>

DELAYED DELIVERY TRANSACTIONS. The Portfolio may buy and sell obligations
on a when-issued or delayed delivery basis, with payment and delivery taking
place at a future date. The market value of obligations purchased in this way
may change before the delivery date, which could increase fluctuations in the
Portfolio's share price, yield, and return. Ordinarily, the Portfolio will not
earn interest on obligations until they are delivered.

DEMAND FEATURES AND STAND-BY COMMITMENTS. A demand feature is a put that
entitles the security holder to repayment of the principal amount of the
underlying security at any time or at specified intervals. A standby commitment
is a put that entitles the security holder to same-day settlement at amortized
cost plus accrued interest.

ILLIQUID INVESTMENTS. Under the supervision of the Trustees, First
Tennessee determines the liquidity of the Portfolio's investments. The absence
of a trading market can make it difficult to ascertain a market value for
illiquid investments. Disposing of illiquid investments may involve
time-consuming negotiation and legal expense, and it may be difficult or
impossible for the Portfolio to sell them promptly at an acceptable price. The
Portfolio may invest up to 15% of its assets in illiquid investments and private
placements.

LETTERS OF CREDIT. Issuers or financial intermediaries who provide demand
features or standby commitments often support their ability to buy obligations
on demand by obtaining LETTERS OF CREDIT (LOCS) or other guarantees from
domestic or foreign banks. LOCs also may be used as credit supports for
municipal instruments. First Tennessee may rely upon its evaluation of a bank's
credit in determining whether to purchase an instrument supported by an LOC. In
evaluating a foreign bank's credit, First Tennessee will consider whether
adequate public information about the bank is available and whether the bank may
be subject to unfavorable political or economic developments, currency controls,
or other governmental restrictions that might affect the bank's ability to honor
its credit commitment.

MUNICIPAL LEASE OBLIGATIONS are issued by a state and local government or
authority to acquire land and a wide variety of equipment and facilities. These
obligations typically are not fully backed by the municipality's credit, and
their interest may become taxable if the lease is assigned. If funds are not
appropriated for the following year's lease payments, the lease may terminate,
with the possibility of significant loss to the Portfolio. CERTIFICATES OF
PARTICIPATION in municipal lease obligations or installment sales contracts
entitle the holder to a proportionate interest in the lease- purchase payments
made.

MUNICIPAL REFUNDING COLLATERALIZED MORTGAGE OBLIGATIONS (MR CMOs) are CMOs
originated from revenue bonds issued to fund low interest rate mortgages for
first time home buyers with low to moderate incomes. The security is considered
a "mortgage related security" for investment purposes; therefore, banks have no
investment limitations or restrictions for purchasing the security for their own
account. MR CMOs are attractive for investors seeking triple-A credit quality
with above average yield.

CMOS are pass-through securities collateralized by mortgages or
mortgage-backed securities. CMOs are issued in classes and series that have
different maturities and often are retired in sequence. Payment of principal and
interest may be largely dependent upon the cash flows generated by the assets
backing the securities.

MUNICIPAL SECURITIES include GENERAL OBLIGATION SECURITIES, which are
backed by the full taxing power of a municipality, and REVENUE SECURITIES, which
are backed by the revenues of a specific tax, project, or facility. INDUSTRIAL
REVENUE BONDS are a type of revenue bond backed by the credit and security of a
private issuer and may involve greater risk. PRIVATE ACTIVITY MUNICIPAL
SECURITIES, which may be subject to the federal alternative minimum tax, include
securities issued to finance housing projects, student loans, and privately
owned solid waste disposal and water and sewage treatment facilities. TAX AND
REVENUE ANTICIPATION NOTES are issued by municipalities in expectation of future
tax or other revenues and are payable from those specific taxes or revenues.
BOND ANTICIPATION NOTES normally provide interim financing in advance of an
issue of bonds or notes, the proceeds of which are used to repay the
anticipation notes.

TAX-EXEMPT COMMERCIAL PAPER are promissory notes issued by municipalities
to help finance short-term capital or operating needs.

RESOURCE RECOVERY BONDS are a type of revenue bond issued to build
facilities such as solid waste incinerators or waste-to-energy plants.
Typically, a private corporation will be involved, at least during the
construction phase, and the revenue stream will be secured by fees or rents paid
by municipalities for use of the facilities. The viability of a resource
recovery project, environmental protection regulations, and project operator tax
incentives may affect the value and credit quality of resource recovery bonds.

REFUNDING CONTRACTS. The Portfolio may purchase securities on a
when-issued basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the Portfolio
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
Although the Portfolio may sell its rights under a refunding contract, these
contracts are relatively

<PAGE>

new and the secondary market for them may be less liquid than the secondary
market for other types of municipal securities.

REPURCHASE AGREEMENTS AND SECURITIES LOANS. In a repurchase agreement, the
Portfolio buys a security at one price and simultaneously agrees to sell it back
at a higher price. The Portfolio may also make securities loans to
broker-dealers and institutional investors. In the event of the bankruptcy of
the other party to a repurchase agreement or a securities loan, the Portfolio
could experience delays in recovering its cash or the securities it lent. To the
extent that, in the meantime, the value of the obligations purchased had
decreased, or the value of obligations lent had increased, the Portfolio could
experience a loss. In all cases, First Tennessee must find the creditworthiness
of the other party to the transaction satisfactory.

U.S. GOVERNMENT OBLIGATIONS are debt obligations issued or guaranteed by
the U.S. Treasury or by an agency or instrumentality of the U.S. government. Not
all U.S. government obligations are backed by the full faith and credit of the
United States. For example, obligations issued by the Federal Farm Credit Bank
or by the Federal National Mortgage Association are supported by the agency's
right to borrow money from the U.S. Treasury under certain circumstances.
Obligations issued by the Federal Home Loan Bank are supported only by the
credit of the agency. There is no guarantee that the government will support
these types of obligations, and ,therefore, they involve more risk than other
government obligations.

U.S. TREASURY OBLIGATIONS are obligations issued by the United States and
backed by its full faith and credit.

VARIABLE AND FLOATING RATE INSTRUMENTS, including certain participation
interests in municipal obligations, have interest rate adjustment formulas that
help to stabilize their market values. Many variable or floating rate
instruments also carry demand features that permit the Portfolio to sell them at
par value plus accrued interest on short notice.

<PAGE>

INVESTMENT ADVISER AND CO-ADMINISTRATOR
---------------------------------------

First Tennessee Bank National Association
Memphis, TN

OFFICERS
--------

Richard C. Rantzow, President
Mark A. Pougnet, Treasurer
James V. Hyatt, Secretary

TRUSTEES
--------

Thomas M. Batchelor
John A. DeCell
L.R. Jalenak, Jr.
Larry W. Papasan
Richard C. Rantzow

ADMINISTRATOR AND DISTRIBUTOR
-----------------------------

ALPS Mutual Funds Services, Inc.
Denver, CO

TRANSFER AND SHAREHOLDER SERVICING AGENT
----------------------------------------

Chase Global Funds Services Company
Boston, MA

CUSTODIAN
---------

Chase Manhattan Bank, N.A.
New York, NY

<PAGE>

[LOGO]

FIRST FUNDS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO 370 17th Street
MUNICIPAL MONEY MARKET PORTFOLIO Suite 2700
CASH RESERVE PORTFOLIO Denver, Colorado 80202

- -------------------------------------------------------------------------------
PROSPECTUS FOR CLASSES I, II AND III
October 25, 1996
- -------------------------------------------------------------------------------

First Funds (the Trust) offers investors a convenient and economical
means of investing in professionally managed money market mutual funds. The
objective of each Money Market Portfolio is to obtain as high a level of
current income as is consistent with the preservation of principal and
liquidity. Municipal Money Market Portfolio also seeks as high a level of
federally tax-exempt income as is consistent with this objective.

AN INVESTMENT IN EACH PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT EACH PORTFOLIO WILL
MAINTAIN A STABLE $1.00 SHARE PRICE.

This Prospectus is designed to provide you with information that you
should know before investing. Please read and retain this document for future
reference. This Prospectus offers Class I, II and III shares of each
Portfolio. Class I shares are designed exclusively for investment of monies
held in non-retail trust, advisory, agency, custodial or similar accounts
(Institutional Accounts). Class I shares may be purchased for Institutional
Accounts by financial institutions, business organizations, corporations,
municipalities, non-profit institutions and other entities serving in trust,
advisory, agency, custodial or similar capacities (each, an Institutional
Investor and collectively, Institutional Investors) that meet the investment
threshold for this Class of shares. Class II and III shares are designed for
individuals and other investors who seek mutual fund investment convenience
plus a lower investment minimum. These Classes offer investors differing
expense and sales load structures to choose between. See "Expense Summary" on
page 3.

A Statement of Additional Information (dated October 25, 1996) for the
Portfolio has been filed with the Securities and Exchange Commission (SEC)
and is incorporated herein by reference. This Prospectus, the Annual Report
and the Statement of Additional Information are available free upon request
from ALPS Mutual Funds Services, Inc., (ALPS) the Portfolio's Distributor.
The Annual Report for the fiscal period ended June 30, 1996 for the Portfolio
is incorporated into the Statement of Additional Information by reference.
Please call ALPS at 1-800-442-1941 (option 1) for more information concerning
each Class of shares. If you are investing through a broker, other financial
institution or adviser (Investment Professional), please contact that
institution directly.

MUTUAL FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, FIRST TENNESSEE BANK NATIONAL ASSOCIATION OR ANY DEPOSITORY
INSTITUTION. SHARES ARE NOT INSURED BY THE U.S. GOVERNMENT, THE FDIC, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY AND ARE SUBJECT TO INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

TNMMIII-pro-1096

<PAGE>

- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PAGE
Summary Of Portfolio Expenses. . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
What Is The Investment Objective Of Each Portfolio?. . . . . . . . . . . . . 8
Are The Portfolios Suitable Investments? Investment Risks. . . . . . . . . . 9
What Are The Portfolios' Investment Policies And Limitations?. . . . . . . .10
How Are Investments, Exchanges And Redemptions Made? . . . . . . . . . . . .11
How Is Performance Calculated? . . . . . . . . . . . . . . . . . . . . . . .17
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . .17
What Is The Effect Of Federal Income Tax On This Investment? . . . . . . . .17
What Advisory And Other Fees Do The Portfolios Pay?. . . . . . . . . . . . .18
How Are The Portfolios Organized?. . . . . . . . . . . . . . . . . . . . . .19
Investment Instruments, Transactions, Strategies and Risks . . . . . . . . .20
- -------------------------------------------------------------------------------

2
<PAGE>

- -------------------------------------------------------------------------------
SUMMARY OF PORTFOLIO EXPENSES
- -------------------------------------------------------------------------------

The purpose of the table below is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly. This
standard format was developed for use by all mutual funds to help you make
your investment decisions. The information below is based upon the
Portfolios' expenses for the fiscal year ended June 30, 1996, adjusted to
reflect new servicing arrangements. This expense information should be
considered along with other important information, such as each Portfolio's
investment objective. There are no sales charges, exchange, or redemption
fees.

A. EXPENSE SUMMARY

<TABLE>

U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------------------------------------

CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
------- -------- --------- ------- -------- ---------

<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* 10% 10% 10% 10% 10% 10%
12b-1 Fees 00% 00% 25% 00% 00% 25%
Shareholder Servicing Fees 00% 25% 00% 00% 25% 00%
Other Expenses* 28% 29% 29% 25% 32% 32%
------- -------- --------- ------- -------- ---------

Total Portfolio Operating Expenses* 38% 64% 64% 35% 67% 67%
------- -------- --------- ------- -------- ---------
------- -------- --------- ------- -------- ---------

MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
---------------------------------------------------------------

CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
------- -------- --------- ------- -------- ---------

ANNUAL PORTFOLIO OPERATING EXPENSES:
(as a percentage of average net assets)
Management Fees* 10% 10% 10% 10% 10% 10%
12b-1 Fees 00% 00% 25% 00% 00% 25%
Shareholder Servicing Fees 00% 25% 00% 00% 25% 00%
Other Expenses* 24% 25% 25% 33% 28% 28%
------- -------- --------- ------- -------- ---------

Total Portfolio Operating Expenses* 34% 60% 60% 43% 63% 63%
------- -------- --------- ------- -------- ---------
------- -------- --------- ------- -------- ---------

</TABLE>

*Net of expense waivers.

ANNUAL PORTFOLIO OPERATING EXPENSES. Each Portfolio is obligated to pay
Management Fees to First Tennessee Bank National Association (First
Tennessee) for managing each Portfolio's investments. First Tennessee, as
Investment Adviser, is entitled to receive .25% of each Portfolio's average
net assets. First Tennessee has voluntarily agreed to waive its investment
advisory fee to .10% of each Portfolio's average net assets; however, there
is no guarantee that this waiver will continue. Each Portfolio incurs Other
Expenses, including Administration and Co-Administration Fees, for
maintaining shareholder records, furnishing shareholder statements and
reports, and other services. ALPS Mutual Funds Services, Inc. (ALPS), the
Administrator, is entitled to and charges .075% of each Portfolio's average
net assets for administration services. First Tennessee, the
Co-Administrator, is entitled to .05% of each Portfolio's average net assets
for co-administration services. First Tennessee has voluntarily agreed to
waive this fee to .025%; however, there is no guarantee that this waiver will
continue.

<PAGE>

If the waivers were not in effect, Management Fees would be .25% for
each Class and 12b-1 Fees would be .45% for Class III. Other Expenses and
Total Portfolio Operating Expenses would be estimated as follows:

<TABLE>

U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------------------------------------

CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
------- -------- --------- ------- -------- ---------

Other Expenses 31% 32% 32% 28% 35% 35%
Total Portfolio Operating Expenses 56% 82% 1.02% 53% 85% 1.05%

MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
---------------------------------------------------------------

CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
------- -------- --------- ------- -------- ---------

Other Expenses 27% 28% 28% 36% 31% 31%
Total Portfolio Operating Expenses 52% 78% 98% 61% 81% 1.01%

</TABLE>

There is no guarantee that any waivers will continue at their stated
levels.

Management Fees, 12b-1 Fees, Shareholder Servicing Fees, and Other
Expenses, are reflected in each Portfolio's yield and are not charged
directly to individual accounts. 12b-1 Fees are paid by each Class III
Portfolio to ALPS for services and expenses in connection with distribution.
Shareholder Servicing Fees are paid by Class II to securities brokers,
financial institutions or advisers (Investment Professionals) for services
and expenses incurred in connection with providing personal service to
shareholders, subaccounting and/or maintenance of shareholder accounts.
Long-term shareholders may eventually pay more than the economic equivalent
of the maximum 8.50% front-end sales charge permitted by the National
Association of Securities Dealers, Inc. (NASD) due to 12b-1 fees. Please see
page 19 for further information.

B. EXAMPLE: You would pay the following expenses for every $1,000
investment in each Class of shares of the Money Market Portfolios assuming
(1) 5% annual return, (2) redemption at the end of each time period, (3) that
operating expenses (net of expense waivers) are the same as described above,
and (4) reinvestment of all dividends and distributions. THE RETURN OF 5% AND
EXPENSES SHOULD NOT BE CONSIDERED INDICATIONS OF ACTUAL OR EXPECTED
PERFORMANCE OR PORTFOLIO OPERATING EXPENSES, BOTH OF WHICH MAY VARY
SIGNIFICANTLY:

U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------------------------------------

CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
------- -------- --------- ------- -------- ---------
1 year $4 $7 $7 $4 $7 $7
3 years $12 $21 $21 $11 $22 $22
5 years $21 $36 $36 $20 $37 $37
10 years $48 $80 $80 $44 $84 $84

MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
---------------------------------------------------------------

CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
------- -------- --------- ------- -------- ---------

1 year $4 $6 $6 $4 $6 $6
3 years $11 $19 $19 $14 $20 $20
5 years $19 $34 $34 $24 $35 $35
10 years $43 $75 $75 $54 $79 $79

4
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The tables that follow are included in the Annual Report for the
Portfolios dated June 30, 1996 and have been audited by Price Waterhouse LLP,
independent accountants. Their report on the financial statements and the
financial highlights for the Portfolios is included in the Annual Report.
The financial statements and financial highlights are incorporated by
reference into the Portfolios' Statement of Additional Information. The
Annual Report contains additional performance information and will be made
available upon request and without charge.

<TABLE>
U.S. TREASURY MONEY MARKET PORTFOLIO

Distributions:
Net investment income (0.052) (0.050) (0.030) (0.018) (0.044)
---------------------------------------------------------------
Net asset value, end of period $1.00 1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------
---------------------------------------------------------------

TOTAL RETURN+ 5.30% 5.10% 3.06% 1.76%# 4.47%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) 75,703 $67,377 $100,868 $59,326 $3,528
Ratio of expenses to average net assets (1) 0.36% 0.36% 0.33% 0.39%* 0.62%*
Ratio of net investment income to
average net assets 5.19% 5.00% 3.04% 2.73%* 4.93%*

(1) During the period, various fees were
waived. The ratio of expenses to
average net assets had such waivers
not occurred is as follows. 0.56% 0.63% 0.60% 0.65%* 0.82%*
</TABLE>

* Annualized.
** Class commenced operations on November 12, 1992.
*** Class commenced operations on August 8, 1995.
+ Total return would have been lower had various fees not
been waived during the period.
# Total return for periods of less than one year are not annualized.

<PAGE>
<TABLE>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO

CLASS I CLASS III
---------------------------------------- --------------
For the Year For the Period
Ended June 30, Ended June 30,
---------------------------------------- --------------
1996 1995 1994 1993** 1996***
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------
Income from investment operations:
Net investment income 0.053 0.053 0.032 0.019 0.044
---------------------------------------------------------------
Distributions:
Net investment income (0.053) (0.053) (0.032) (0.019) (0.044)
---------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------
---------------------------------------------------------------

TOTAL RETURN+ 5.37% 5.39% 3.23% 1.87%# 4.49%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) 88,111 $88,057 $67,854 $94,903 $228
Ratio of expenses to average net assets (1) 0.33% 0.31% 0.28% 0.27%* 0.65%*
Ratio of net investment income to
average net assets 5.28% 5.27% 3.18% 2.98%* 4.96%*

(1)During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.53% 0.58% 0.55% 0.55%* 0.85%*
</TABLE>

<TABLE>
MUNICIPAL MONEY MARKET PORTFOLIO

CLASS I CLASS III
---------------------------------------- --------------
For the Year For the Period
Ended June 30, Ended June 30,
---------------------------------------- --------------
1996 1995 1994 1993** 1996***
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------
Income from investment operations:
Net investment income 0.035 0.034 0.024 0.014 0.030
---------------------------------------------------------------
Distributions:
Net investment income (0.035) (0.034) (0.024) (0.014) (0.030)
---------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------
---------------------------------------------------------------

TOTAL RETURN+ 3.52% 3.48% 2.40% 1.40%# 3.03%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $71,665 $94,078 $76,231 $74,362 $2,905
Ratio of expenses to average net assets (1) 0.32% 0.30% 0.28% 0.31%* 0.58%*
Ratio of net investment income to average net
assets 3.50% 3.44% 2.39% 2.26%* 3.24%*

(1)During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.52% 0.57% 0.55% 0.58%* 0.78%*
</TABLE>

* Annualized.
** Class commenced operations on November 12, 1992.
*** Class commenced operations on July 28, 1995.
+ Total return would have been lower had various fees not
been waived during the period.
# Total return for periods of less than one year are not annualized.

<PAGE>

<TABLE>
CASH RESERVE PORTFOLIO

CLASS I CLASS III
-------------------- --------------
For the Year For Period
Ended June 30, Ended June 30,
-------------------- --------------
1996 1995** 1996***
---- ---- ----
<S> <C> <C> <C>
SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00
-------------------------------------
Income from investment operations:
Net investment income 0.053 0.042 0.047
-------------------------------------
Distributions:
Net investment income (0.053) (0.042) (0.047)
-------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
-------------------------------------
-------------------------------------

TOTAL RETURN+ 5.39% 4.27%# 4.78%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $16,369 $15,460 $24,190
Ratio of expenses to average net assets (1) 0.42% 0.43%* 0.62%*
Ratio of net investment income to average net
assets 5.22% 5.48%* 5.02%*
(1)During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.61% 0.70%* 0.81%*
</TABLE>

* Annualized.
** Class commenced operations on September 26, 1994.
*** Class commenced operations on July 28, 1995.
+ Total return would have been lower had various fees
not been waived during the period.
# Total return for periods of less than one year are not annualized.

<PAGE>

- ------------------------------------------------------------------------------
WHAT IS THE INVESTMENT OBJECTIVE OF EACH PORTFOLIO?
- ------------------------------------------------------------------------------

First Tennessee, serves as Investment Adviser to each Portfolio and,
with the prior approval of the Board of Trustees (the Trustees), has engaged
PNC Institutional Management Corporation (PIMC) to act as Sub-Adviser to each
Portfolio. Subject to First Tennessee's supervision, PIMC is responsible for
the day-to-day operations of the Portfolios, including providing investment
research and credit analysis concerning Portfolio investments and conducting
a continuous program of investment of Portfolio assets in accordance with the
investment policies and objectives of each Portfolio. For additional
information about the Portfolios' investment advisory arrangements, see "What
Advisory and Other Fees Do the Portfolios Pay? - Investment Advisory and
Management and Sub-Advisory Agreements" beginning on page 18.

The investment objective of each Money Market Portfolio is to obtain as
high a level of current income as is consistent with the preservation of
principal and liquidity within the prescribed standards for each Portfolio.
Municipal Money Market Portfolio also seeks as high a level of federally
tax-exempt income as is consistent with this objective. There is no assurance
that each Portfolio will achieve its investment objective. The permitted
investments of each Money Market Portfolio are as follows:

U.S. TREASURY MONEY MARKET PORTFOLIO may invest in U.S. Treasury bills,
notes, and bonds, and in other direct obligations of the U.S. Treasury. The
Portfolio also may engage in repurchase agreements and reverse repurchase
agreements backed by these instruments. As an operating policy, the Portfolio
intends to invest 100% of its total assets in these instruments. This
operating policy is not fundamental and may be changed upon 90 days' notice
to shareholders.

U.S. Treasury Money Market Portfolio is rated to reflect investment
quality by a nationally recognized statistical rating organization. These
quality ratings are based on, but not limited to, an analysis of the
Portfolio's operational policies, investment strategies and management. These
rating organizations also may undertake an ongoing analysis and assessment of
these criteria in order to continually update the Portfolio's rating. For
additional information please call the Distributor, ALPS Mutual Funds
Services, Inc., at 1-800-442-1941 (option 1).

U.S. GOVERNMENT MONEY MARKET PORTFOLIO may invest in instruments issued
or guaranteed as to principal and interest by the U.S. government or by any
of its agencies or instrumentalities. These instruments include, but are not
limited to, U.S. Treasury bills, notes, and bonds, and other obligations of
the U.S. government such as the Export-Import Bank of the U.S., the General
Services Administration, the Government National Mortgage Association, the
Small Business Administration and the Washington Metropolitan Area Transit
Authority (U.S. government obligations). U.S. Government Money Market
Portfolio may also include instruments which are backed only by the right of
the issuer to borrow from the U.S. Treasury or are backed only by the credit
of the agency or instrumentality issuing the obligations. Such instruments
(e.g., those issued by the Federal Home Loan Bank, Federal Farm Credit Bank,
and Federal National Mortgage Association) are not deemed direct obligations
of the United States. The Portfolio may invest in variable or floating rate
instruments that have features that give them interest rates, maturities, and
prices similar to short-term instruments.

The Portfolio invests at least 65% of its total assets in the instruments
described in the above paragraph.

The Portfolio may also engage in repurchase agreements and reverse
repurchase agreements, may buy and sell securities on a when-issued or
delayed-delivery basis, and may purchase restricted securities and illiquid
securities.

MUNICIPAL MONEY MARKET PORTFOLIO may invest in high-quality, short-term
municipal obligations but also may invest in high-quality, long-term fixed,
variable or floating rate instruments (including tender option bonds) that
have features that give them interest rates, maturities, and prices similar
to short-term instruments. Under normal conditions, at least 80% of the
Portfolio's income will be exempt from federal income tax. The Portfolio's
investments in municipal obligations may include tax, revenue, or bond
anticipation notes; tax-exempt commercial paper; general obligation or
revenue bonds (including municipal lease obligations and resource recovery
bonds); standby commitments; and zero coupon bonds. The Portfolio may buy and
sell securities on a when-issued or delayed-delivery basis, and may purchase
restricted and illiquid securities.

Municipal obligations are issued to raise money for various public
purposes, including general purpose financing for state and local governments
as well as financing for specific projects or public facilities. Municipal
obligations may be backed by the full taxing power of a municipality or by
the revenues from a specific project or the credit of a private organization.
Some municipal obligations are insured by private insurance companies, while
others may be supported by letters of credit furnished by domestic or foreign
banks. PIMC monitors the financial condition of parties (including insurance
companies, banks, and corporations) whose creditworthiness is relied upon in
determining the credit quality of securities the Portfolio may purchase.

<PAGE>

Municipal Money Market Portfolio does not intend to invest in federally
taxable obligations under normal conditions; however, it reserves the right,
for temporary defensive purposes, to invest without limitation in taxable
money market instruments, including U.S. government securities, commercial
paper, and repurchase agreements.

CASH RESERVE PORTFOLIO may invest in a broad range of high-quality,
short-term, U.S. dollar-denominated money market obligations. Such
obligations may include, but are not limited to, certificates of deposit,
bankers' acceptances, demand and time deposits, bank notes, corporate
commercial paper, bonds, variable and floating rate notes, and short-term
obligations issued or guaranteed by the U.S. government, its agencies and
instrumentalities.

Cash Reserve Portfolio concentrates its investments in obligations
issued by the financial services industry. Money market instruments of
companies in the financial services industry include, but are not limited to,
certificates of deposit, commercial paper, bankers' acceptances, demand and
time deposits, and bank notes. These money market obligations are issued by
domestic or foreign banks, savings and loan associations, consumer and
industrial finance companies, securities brokerage companies and a variety of
firms in the insurance field. Financial service companies offering money
market issues must have total assets of $1 billion or more before their
issues can be considered for investment. Because the Portfolio concentrates
more than 25% of its total assets in the financial services industry, it will
be exposed to greater risks associated with that industry, such as government
regulation, the availability and cost of capital funds, and general economic
conditions.

The Portfolio may also invest in U.S. dollar-denominated obligations of
foreign banks or foreign branches of U.S. banks where PIMC deems the
instrument to present minimal credit risks. Foreign banks offering money
market issues must also have total assets of $1 billion or more before their
issues can be considered for investment. Such investments may include
Eurodollar Certificates of Deposit (ECDs), which are U.S. dollar-denominated
certificates of deposit issued by offices of foreign and domestic banks
located outside the United States; Eurodollar Time Deposits (ETDs), which are
U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or a
foreign bank; Canadian Time Deposits (CTDs), which are essentially the same
U.S. dollar-denominated instruments as ETDs, except that they are issued by
Canadian offices of major Canadian banks; and Yankee Certificates of Deposit
(Yankee CDs), which are U.S. dollar-denominated certificates of deposit
issued by a U.S. branch of a foreign bank and held in the United States.
Investments in obligations issued by foreign banks and foreign branches of
U.S. banks may involve risks that are different from investments in
obligations of domestic branches of U.S. banks. These risks may include
future unfavorable political and economic developments, possible withholding
taxes on interest income, seizure or nationalization of foreign deposits,
currency controls, interest limitations, or other government restrictions
which might affect the payment of principal or interest on the securities
held by the Portfolio. Additionally, these institutions may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting and recordkeeping requirements than those applicable to domestic
branches of U.S. banks.

The Portfolio may engage in repurchase agreements and reverse repurchase
agreements, may buy and sell securities on a when-issued or delayed-delivery
basis, and may purchase restricted and illiquid securities.

See "Investment Instruments, Transactions, Strategies and Risks" on
page 20 for a further discussion of each Portfolio's investments.

- ------------------------------------------------------------------------------
ARE THE PORTFOLIOS SUITABLE INVESTMENTS?; Investment risks
- ------------------------------------------------------------------------------

Each Money Market Portfolio may be appropriate for investors who seek to
earn income at current money market rates while preserving the value of their
investment. The rate of income will vary from day to day, generally reflecting
current short-term interest rates. Each Portfolio individually may not
constitute a balanced investment plan. Each Portfolio's objective emphasizes
income with preservation of capital and liquidity, and not the higher yields
or capital appreciation that may be available from more aggressive investments.
However, because they emphasize stability, each Portfolio could be well-suited
for a portion of an investor's savings. Although no guarantee can be made, each
Money Market Portfolio seeks to maintain a stable $1.00 share price.

Further information relating to the types of securities in which each
Portfolio may invest and their related risks, as well as the investment
policies of each Portfolio in general are set forth in the section
"Investment Instruments, Transactions, Strategies And Risks" on page 20 and
in the Statement of Additional Information.

The Portfolios attempt to maintain the value of their shares at a
constant $1.00 per share price, although there can be no assurance that the
Portfolios will always be able to do so. The Portfolios may not achieve as
high a level of current income as other funds that do not limit their
investments to the high quality securities in which the Portfolios invest.

9
<PAGE>

Each Portfolio's ability to achieve its investment objective depends on
the quality and maturity of its investments. Although each Portfolio's
policies are designed to help maintain a stable share price of $1.00, all
money market instruments can change in value when interest rates or issuers'
creditworthiness change, or if an issuer or guarantor of a security fails to
pay interest or principal when due. If these changes in value were large
enough, a Portfolio's share price could fall below $1.00. In general,
obligations with longer maturities are more vulnerable to price changes,
although they may provide higher yields.

While each Portfolio invests in high quality obligations, note that
investments are not without risk. A Portfolio's ability to achieve its
objective depends on a number of factors, including the skills of First
Tennessee and PIMC in purchasing securities whose issuers can be expected to
have the ability to meet their obligations for the payment of interest and
principal when due.

- -------------------------------------------------------------------------------
WHAT ARE THE PORTFOLIOS' INVESTMENT POLICIES AND LIMITATIONS?
- -------------------------------------------------------------------------------

MAINTAINING $1.00 NAV. The Trust uses its best efforts to maintain a
stable net asset value per share (NAV) of $1.00 for each Portfolio, and to
value its portfolio securities on the basis of the amortized cost valuation
method, pursuant to Rule 2a-7 under the Investment Company Act of 1940. This
method is based on acquisition cost and assumes a steady rate of amortization
of premium or discount from the date of purchase until maturity instead of
looking at actual changes in market values.

MATURITY. Each Portfolio must limit its investments to obligations with
remaining maturities of 397 days or less, as determined in accordance with
the rules of the SEC, and must maintain a dollar-weighted average maturity of
90 days or less.

QUALITY. Pursuant to procedures adopted by the Trustees, each Portfolio may
purchase only high quality obligations that the Sub-Adviser believes present
minimal credit risks. To be considered high quality, a security must be a
U.S. government security; or rated in accordance with applicable rules in one
of the two highest rating categories for short-term obligations by at least
two nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of equivalent
quality by PIMC.

High-quality securities are divided into"first tier" and "second tier"
securities. First tier securities have received the highest rating (e.g.,
Standard & Poor's A-1 rating) from at least two rating services (or one, if
only one has rated the security). Second tier securities have received
ratings within the two highest categories (e.g., Standard & Poor's A-1 or
A-2) from at least two rating services (or one, if only one has rated the
security), but do not qualify as first tier securities. If a security has
been assigned different ratings by different rating services, at least two
rating services must have assigned the higher rating in order for PIMC to
determine eligibility on the basis of that higher rating. Based on procedures
adopted by the Trustees, PIMC, under the supervision of First Tennessee, may
determine that an unrated security is of equivalent quality to a rated first
or second tier security. Cash Reserve Portfolio, as a non-fundamental policy,
will limit its investments to first tier securities.

INVESTMENT LIMITATIONS. Each Portfolio has adopted the following investment
limitations:

(1) Each Portfolio normally may not invest more than 5% of
its total assets in the securities (other than U.S.
government securities) of any single issuer. Under certain
conditions, however, Cash Reserve Portfolio may invest up to
25% of its total assets in the first tier securities of a
single issuer for up to three days.

(2) Each Portfolio will not purchase a security if, as a
result, 25% or more of its total assets would be invested in
a particular industry, other than U.S. government
obligations; or (i) with respect to Municipal Money Market
Portfolio, other than tax-exempt obligations issued or
guaranteed by a U.S. territory or possession or a state or
local government, or a political subdivision thereof; or
(ii) with respect to Cash Reserve Portfolio, other than
obligations issued by members of the financial services
industry.

(3) Each Portfolio (a) may borrow money for temporary or
emergency purposes or, with respect to U.S. Treasury Money
Market Portfolio, U.S. Government Money Market Portfolio and
Cash Reserve Portfolio, engage in reverse repurchase
agreements in a combined amount not to exceed 33 1/3% of its
total assets and (b) will not purchase any security while
borrowings (including reverse repurchase agreements)
representing more than 5% of its total assets are
outstanding. If a Portfolio borrows money, its share price
may be subject to greater fluctuation until the borrowing is
paid off. To this extent, purchasing securities when
borrowings are outstanding may involve an element of
leverage.

<PAGE>

(4)(a) Each Portfolio may temporarily lend its portfolio
securities to broker-dealers and institutions, but only when
the loans are fully collateralized. (b) Loans, in the
aggregate, will be limited to 33 1/3% of each Portfolio's
total assets.

Unless otherwise noted, the Portfolios' policies and limitations are not
fundamental and may be changed by the Trustees without shareholder approval.
The fundamental policies of each Portfolio that require shareholder approval
prior to any changes are: each Portfolio's investment objective; Municipal
Money Market Portfolio's policy that, under normal conditions, at least 80%
of its income will be exempt from federal income tax; and investment
limitation (1), with respect to 75% of each Portfolio's assets, and
limitations (2), (3)(a) and (4)(b) above. These limitations and each
Portfolio's policies are considered at the time of purchase of securities;
the sale of securities is not required in the event of a subsequent change in
circumstances.

Municipal Money Market Portfolio may invest all or a portion of its assets
in municipal obligations whose interest is a tax preference item for purposes
of the federal alternative minimum tax (AMT). If an individual is subject to
the AMT, a portion of the income may not be exempt from federal income tax.
Income distributions that are a tax preference item for purposes of the
federal AMT are considered to be exempt from federal income tax for purposes
of the 80% policy noted above. See "What Is The Effect Of Federal Income Tax
On This Investment?" on page 18 for further information. Municipal Money
Market Portfolio may purchase other types of tax-exempt instruments that
become available in the future as long as First Tennessee and PIMC believe
that their character is consistent with the Portfolio's quality and maturity
standards.

Municipal Money Market Portfolio and Cash Reserve Portfolio each may
invest up to 25% of their total assets in a particular industry. Therefore,
developments affecting a single issuer or industry, or securities financing
similar types of projects, could have a significant effect on the Portfolios'
performance. Municipal Money Market Portfolio may invest any portion of its
assets in industrial revenue bonds (IRBs) backed by private issuers, and may
invest up to 25% of its total assets in IRBs related to a single industry.
Municipal Money Market Portfolio may also invest 25% or more of its total
assets in securities whose revenue sources are from similar types of
projects, e.g., education, electric utilities, health care, housing,
transportation, or water, sewer, and gas utilities. There may be economic,
business or political developments or changes that affect all securities of a
similar type.

PIMC defines the issuer of a security depending on its terms and
conditions. In identifying the issuer, PIMC will consider the entity or
entities responsible for payment of interest and repayment of principal and
the source of such payments; the way in which assets and revenues of an
issuing political subdivision are separated from those of other political
entities; and whether a governmental body is guaranteeing the security.

The investment policies and limitations set forth above are supplemented
by the investment policies and limitations in the Statement of Additional
Information. No assurance can be made that each Portfolio will achieve its
objective, but it will follow the investment style described in this
Prospectus.

From time to time, each Portfolio, to the extent consistent with its
investment objective, policies, and restrictions, may invest in securities of
companies with which First Tennessee, PIMC or their affiliates have lending
relationships.

CLASS I

WHO MAY INVEST?

Class I shares are designed exclusively for investment of monies held in
non-retail trust, advisory, agency, custodial or similar Institutional
Accounts. Class I shares may be purchased for Institutional Accounts by
financial institutions, business organizations, corporations, municipalities,
non-profit institutions, and other Institutional Investors serving in a
trust, advisory, agency, custodial or similar capacity who meet the
investment threshold for this Class of shares.

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

An initial investment must be preceded by or made in conjunction with the
establishment of an Institutional Account with an Institutional Investor.
Establishment of an Institutional Account may require that documents and
applications be completed and signed before the investment can be
implemented. The Institutional Investor may require that certain documents be
provided prior to making a redemption from any Portfolio. Institutional
Investors may charge fees in addition to those described herein. Fee
schedules for Institutional Accounts are available upon request from the

<PAGE>

Institutional Investor and are detailed in the agreements by which each
client opens an account with an Institutional Investor.

HOW ARE INVESTMENTS MADE?

Each Institutional Investor will telephone the Transfer Agent, Chase
Global Funds Services Company (CGFSC), with the investment instructions. If
investment instructions are received by CGFSC in proper form prior to 2:00
p.m. Eastern Time on any Business Day (as defined in the section "how are
investments, exchanges and redemptions made - Class I, II and III - How Are
Portfolio Shares Valued?")and the funds are received by CGFSC that day, you
will earn that day's dividend accrual. Institutional Investors will wire
funds through the Federal Reserve System. Purchases will be processed at the
NAV calculated after an order is received in proper form and accepted by
CGFSC. Each Portfolio requires advance notification of all wire purchases.
To secure same day acceptance of federal funds (monies transferred from one
bank to another through the Federal Reserve System with same-day
availability), an Institutional Investor must call CGFSC at 1-800-442-1941
(option 2) prior to 2:00 p.m. Eastern Time on any Business Day, defined
below, to advise it of the wire. The Trust may discontinue offering its
shares in any Class of a Portfolio without notice to shareholders

MINIMUM INVESTMENT AND ACCOUNT BALANCE. The minimum initial investment
for each Institutional Investor is $100,000 per Portfolio. Institutional
Investors may satisfy the minimum investment by aggregating their
Institutional Accounts within each Portfolio. Subsequent investments may be
in any amount. If an Institutional Investor's Class I account falls below
$50,000 due to redemption, a Portfolio may close the account. An
Institutional Investor may be notified if the minimum balance is not being
maintained and will be allowed 30 days to make additional investments before
its account is closed. Shares will be redeemed at the NAV on the day the
account is closed, and proceeds will be sent to the address of record.

HOW ARE REDEMPTIONS MADE?

Institutional Investors may redeem all or a portion of their account
shares on any Business Day. Shares will be redeemed at the NAV next
calculated after CGFSC has received the redemption request in proper form. If
an account is closed, any accrued dividends will be paid at the beginning of
the following month.

Institutional Investors may make redemptions by wire provided they have
established a wire account with CGFSC. Please call 1-800-442-1941 (option 2)
to advise CGFSC of the wire. If telephone instructions are received before
2:00 p.m. Eastern Time on any Business Day, proceeds of the redemption will
be wired as federal funds on the same day to the bank account designated with
CGFSC. An Institutional Investor may change the bank account designated to
receive an amount redeemed at any time by sending a letter of instruction
with a signature guarantee to CGFSC, 73 Tremont Street, Boston,
Massachusetts, 02108. Shares redeemed will receive the accrued dividends
through the day prior to redemption.

Pursuant to the Investment Company Act of 1940, as amended (1940 Act), if
making immediate payment of redemption proceeds could adversely affect a
Portfolio, payments may be made up to seven days later. Also, when the New
York Stock Exchange (NYSE) or the Federal Reserve Bank of New York (New York
Federal Reserve) is closed (or when trading is restricted) for any reason
other than customary weekend or holiday closings, or under any emergency
circumstances as determined by the SEC to merit such action, the right of
redemption may be suspended or the date of payment postponed for a period of
time that may exceed seven days. In addition, each Portfolio reserves the
right to advance the time on that day by which purchase and redemption orders
must be received. To the extent Portfolio securities are traded in other
markets on days when either the NYSE or the New York Federal Reserve is
closed, each Portfolio's NAV may be affected on days when investors do not
have access to the Portfolios to purchase or redeem shares.

If transactions by telephone cannot be executed (for example, during times
of unusual market activity), orders may be placed by mail to CGFSC. In case
of suspension of the right of redemption, an Institutional Investor may
either withdraw its request for redemption or it will receive payment based
on the NAV next determined after the termination of the suspension.

ADDITIONAL INFORMATION

Each Portfolio also reserves the right to reject any specific purchase order,
including certain purchases by exchange. Purchase orders may be refused if,
in First Tennessee's opinion, they are of a size that would disrupt
management of a Portfolio.

<PAGE>

In order to allow First Tennessee to manage each Portfolio most
effectively, Institutional Investors are strongly urged to initiate all
trades (investments, exchanges and redemptions of shares) as early in the day
as possible and to notify CGFSC at least one day in advance of trades in
excess of $1 million. In making these trade requests, the name of the
Institutional Investor and the account number(s) must be supplied.

Transactions may be initiated by telephone. Please note that each
Portfolio and its agents will not be responsible for any losses resulting
from unauthorized telephone transactions if such Portfolios or agents follow
reasonable procedures designed to verify the identity of the caller. These
procedures may include requesting additional information or using
personalized security codes. Each Portfolio or its agents may also record
calls and an Institutional Investor should verify the accuracy of
confirmation statements immediately after receipt. If an Institutional
Investor does not want to be able to initiate redemptions and exchanges by
telephone, please call CGFSC for instructions.

CLASS II AND III

WHO MAY INVEST?

Class II and III shares are designed for individuals and other investors
who seek mutual fund investment convenience plus a lower investment minimum.
These Classes offer investors differing expense structures to choose from.
See "Expense Summary" on page 3. Class II shares of the First Funds Money
Market Portfolios are not currently available for investment.

INVESTMENT REQUIREMENTS

The minimum initial Class II or Class III investment is $1,000 per Portfolio.
Subsequent investments may be in any amount greater than $100. If you
participate in the Systematic Investing Program, or the "A Plus Card
Program," (a consumer discount card program provided by "A" Plus Strategic
Alliances, Inc., a subsidiary of First Tennessee), the minimum initial
investment is $250, and subsequent investments may be in any amount of $25 or
greater. If you are an employee of First Tennessee or any of its affiliates
and you participate in the Systematic Investing Program, the minimum initial
investment is $50, and subsequent investments may be in any amount of $25 or
greater. See page 15 for additional information on the Systematic Investing
Program. If your balance in the Portfolio falls below the applicable minimum
investment requirement due to redemption, you may be given 30 days' notice to
reestablish the minimum balance. If you do not reestablish the minimum
balance, your account may be closed and the proceeds mailed to you at the
address of record. Shares will be redeemed on the day the account is closed.

All purchases must be made in U.S. dollars and checks must be drawn on
U.S. banks. No cash will be accepted. If you make a purchase with more than
one check, each check must have a value of at least $100, and the minimum
investment requirement still applies (excluding the specific circumstances
stated above which reduce the minimum investment requirement). Each Portfolio
reserves the right to limit the number of checks processed at one time. If
your check does not clear, your purchase will be canceled and you could be
liable for any losses or fees incurred.

You may initiate any transaction either directly or through your
Investment Professional. Please note that each Portfolio and its agents will
not be responsible for any losses resulting from unauthorized transactions if
such Portfolios or agents follow reasonable procedures designed to verify the
identity of the caller. These procedures may include requesting additional
information or using personalized security codes. Your Investment
Professional may also record calls, and you should verify the accuracy of
your confirmation statements immediately after you receive them. If you do
not want to be able to redeem and exchange by telephone, please check the box
on your application (if you invest directly), or, if you invest through an
Investment Professional, please call your Investment Professional for
instructions.

HOW DO I SET UP AN ACCOUNT?

You may set up an account directly in each Portfolio or you may invest in
each Portfolio through your Investment Professional. See page 15 for
information on how to invest through your Investment Professional. Shares
will be purchased based on the NAV next calculated after CGFSC has received
the request in proper form. If you are investing through an Investment
Professional, investment instructions that your Investment Professional
initiates should be called in to CGFSC before 2:00 p.m. Eastern Time and the
funds must be received by CGFSC that day in order for you to receive that
day's dividend accrual.

HOW DO I INVEST DIRECTLY?

When opening a new account directly, you must complete and sign an account
application and send it to CGFSC, 73 Tremont Street, Boston, MA 02108.
Telephone representatives are available at 1-800-442-1941 between the hours
of 8:00 a.m. to 4:00 p.m. Central Time (9:00 a.m. to 5:00 p.m. Eastern Time),
Monday through Friday.

Investments may be made in several ways:

<PAGE>

BY MAIL: Make your check payable to First Funds: [name of
Portfolio], and mail it, along with the application, to the
address indicated on the application. Your account will be
credited on the Business Day that CGFSC receives your
application in good order and processes your transaction.

BY BANK TRANSFER: Bank transfer allows you to move money
between your bank account and your First Funds account. This
automatic service allows you to transfer money from your
bank account via the Automated Clearing House (ACH) network
to your Portfolio account. First, a Portfolio account must
be established, and an application sent to CGFSC. Next, a
deposit account must be opened at a bank providing bank
transfer services and you must arrange for this service to
be provided. Once you have completed this process, you can
initiate a bank transfer by contacting a representative from
your bank, providing the required information for the bank,
and authorizing the transfer to take place. Please allow two
or three days after the authorization for the transfer to
occur.

BY WIRE: Call 1-800-442-1941 (option 2) to set up your
Portfolio account to accommodate wire transactions. To
initiate your wire transaction, call your depository
institution. If you call CGFSC before 2:00 p.m. Eastern Time
and your wire is received that day, you will earn that day's
dividend accrual. Federal funds (monies transferred from one
bank to another through the Federal Reserve System with
same-day availability) should be wired to:

Chase Manhattan Bank, N.A.
ABA #021000021
First Funds
Credit DDA #910-2-733335
(Account Registration)
(Account Number)
(Wire Control Number) *See Below*

Prior to sending wires, please be sure to call
1-800-442-1941 (option 2) to receive a Wire Control Number
to be included in the body of the wire (see above).

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

You may redeem all or a portion of your shares on any day
that a Portfolio is open for business. Shares will be
redeemed at the NAV next calculated after CGFSC has received
the redemption request in proper form. If a Portfolio
account is closed, any accrued dividends will be paid at the
beginning of the following month.

You may redeem shares in several ways:

BY MAIL: Write a "letter of instruction" with your name,
the Portfolio's name, your Portfolio account number, the
dollar amount or number of shares to be redeemed, and any
additional requirements that apply to each particular
account. You will need the letter of instruction signed by
all persons required to sign for transactions, exactly as
their names appear on the account application, along with a
signature guarantee.

A signature guarantee is designed to protect you, the
Portfolios and their agents from fraud. Your written request
requires a signature guarantee if you wish to redeem more
than $1,000 worth of shares; if your Portfolio account
registration has changed within the last 30 days; if the
check is not being mailed to the address on your account; if
the check is not being made out to the account owner; or if
the redemption proceeds are being transferred to another
First Funds account with a different registration. The
following institutions should be able to provide you with a
signature guarantee: banks, brokers, dealers, credit unions
(if authorized under state law), securities exchanges and
associations, clearing agencies, and savings associations. A
signature guarantee may not be provided by a notary public.

BY BANK TRANSFER: You must have opened a Portfolio account
as well as a deposit account with a bank providing this
feature in order to authorize the redemption of monies with
the proceeds transferred to your bank account. Please allow
two or three days after the authorization for the redemption
to take place.

BY WIRE: You may make redemptions by wire provided you have
established a Portfolio account to accommodate wire
transactions. If telephone instructions are received before
2:00 p.m. Eastern Time, proceeds of the redemption for each
Portfolio will be wired as federal funds on the same day to
the bank account designated with CGFSC. You may change the
bank account designated to receive an amount redeemed at any
time by sending a letter of instruction with a signature
guarantee to CGFSC, 73 Tremont Street, Boston,
Massachusetts, 02108.

BY CHECK: You may request on your Account Application or by
written request to the Trust that a Portfolio provide you
with Redemption Checks ("Checks") which you can write on
your account. In order to establish the checkwriting

<PAGE>

option, you must manually sign a signature card.
Corporations, trusts and other organizations should call or
write the Portfolio's Distributor before submitting
signature cards as additional documents may be required to
establish the checkwriting service. The Trust will send
checks only to the registered owner(s) of the account and
only to the address listed in the Trust's records. You may
make checks payable to the order of any person in the amount
of $250 or more. When a Check is presented to the Transfer
Agent for payment, the Transfer Agent, as your agent, will
cause a Portfolio to redeem a sufficient number of your
shares to cover the amount of the Check. Shares earn
dividends through the day prior to the day that the
redemption is processed. There is no charge to you for the
use of the Checks; however, the Transfer Agent will impose a
charge for stopping payment of a Check upon request, or if
the Transfer Agent cannot honor a Check due to insufficient
funds or other valid reasons. A Portfolio cannot guarantee a
stop payment order on a Check. You must submit any request
to reverse a stop payment order in writing.

You may not write a Check to redeem shares which you
purchase by check until your check clears. If the amount of
the Check is greater than the value of the shares in your
account, the Check will be returned marked "insufficient
funds." Checks written on amounts subject to the hold
described above will be returned marked "uncollected." If
your check does not clear, you will be responsible for any
loss the Portfolio or its service providers incur.

Checkwriting is not available for participants in retirement
plan accounts, to shareholders who hold shares in
certificate form or to shareholders who are subject to
Internal Revenue Service (IRS) backup withholding. You may
not use a Check to close an account. The Trust may
terminate or alter the checkwriting service at any time.

ADDITIONAL REDEMPTION REQUIREMENTS: Each Portfolio may hold
payment on redemptions until it is reasonably satisfied that
investments made by check have been collected, which can
take up to seven days. Also, when the NYSE or the New York
Federal Reserve is closed (or when trading is restricted)
for any reason other than its customary weekend or holiday
closings, or under any emergency circumstances as determined
by the SEC to merit such action, the right of redemption may
be suspended or the date of payment postponed for a period
of time that may exceed seven days. In addition, each
Portfolio reserves the right to advance the time on that day
by which purchase and redemption orders must be received. To
the extent that Portfolio securities are traded in other
markets on days when either the NYSE or the New York Federal
Reserve is closed, each Portfolio's NAV may be affected on
days when investors do not have access to the Portfolios to
purchase or redeem shares.

If you are unable to reach CGFSC by telephone (for example,
during times of unusual market activity), consider placing
your order by mail directly to CGFSC. In case of suspension
of the right of redemption, you may either withdraw your
request for redemption or you will receive payment based on
the NAV next determined after the termination of the
suspension. Shares redeemed will receive the accrued
dividends through the day prior to redemption.

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

If you are investing through your Investment Professional,
you may be required to set up a brokerage or agency account.
Please call your Investment Professional for information on
establishing an account. If you are purchasing shares of any
Portfolio through a program of services offered or
administered by your Investment Professional, you should
read the program materials in conjunction with this
Prospectus. Certain features of such programs may impose
additional requirements and charges for the services
rendered. Your Investment Professional may offer any or all
of the services mentioned in this section, and is
responsible for initiating all initial purchase
transactions. Please contact your Investment Professional
for information on these services.

SYSTEMATIC INVESTING PROGRAM

The Systematic Investing Program offers a simple way to
maintain a regular investment program. You may arrange
automatic transfers (minimum $25 per transaction) from your
bank account to your First Funds account on a periodic
basis. When you participate in this program, the minimum
initial investment in each Portfolio is $250. If you are an
employee of First Tennessee or any of its affiliates, the
minimum initial investment in the Portfolio is $50. You may
change the amount of your automatic investment, skip an
investment, or stop the Systematic Investing Program by
calling CGFSC at 1-800-442-1941 (option 2) or your
Investment Professional at least three Business Days prior
to your next scheduled investment date.

SYSTEMATIC WITHDRAWAL PLAN

You can have monthly, quarterly or semi-annual checks sent
from your account to you, to a person named by you, or to
your bank checking account. Your Systematic Withdrawal Plan
payments are drawn from share redemptions and must be in the
amount of $100 or more per Portfolio per month. If
Systematic Withdrawal Plan redemptions exceed income
dividends earned on your shares, your account eventually may
be exhausted. Please contact ALPS at 1-800-442-1941 (option
1) or your Investment Professional for more information.

<PAGE>

ADDITIONAL INFORMATION

TAX-DEFERRED RETIREMENT PLANS: Retirement plans can offer
significant tax savings to individuals. Please call ALPS at
1-800-442-1941 (option 1) or your Investment Professional
for more information on the plans and their benefits,
provisions and fees. CGFSC or your Investment Professional
can set up your new account in any of the Portfolios (with
the exception of Municipal Money Market Portfolio) under one
of several tax-deferred plans. These plans let you invest
for retirement and defer the tax on your investment income.
Minimums may differ from those listed on page 13. Plans
include Individual Retirement Accounts (IRAs), Rollover
IRAs, Keogh Plans, and Simplified Employee Pension Plans
(SEP-IRAs).

ADDITIONAL FEES: Class III shares are sold without a
front-end sales load; that is, the offering price for such
shares will be their NAV. Class II shares incur Shareholder
Servicing Fees and Class III shares incur Distribution Fees.
See discussion under "What advisory and other fees do the
portfolios pay? - Distribution Plans and Shareholder
Servicing Plans."

CLASS I, II AND III

HOW ARE PORTFOLIO SHARES VALUED?

The term "net asset value per share," or NAV, means the
worth of one share. The NAV of each Class of each Portfolio
is calculated by adding that Class' pro rata share of the
value of all securities and other assets attributable to a
Portfolio, deducting that Class' pro rata share of Portfolio
liabilities, further deducting Class specific liabilities,
and dividing the result by the number of shares outstanding
in that Class.

Each Portfolio is open for business each day that both the
NYSE and the New York Federal Reserve are open (a Business
Day). The NAV is calculated twice daily, at 2:00 p.m.
Eastern Time, and at the close of each Portfolio's Business
Day, which coincides with the close of regular trading of
the NYSE (normally 4:00 p.m. Eastern Time).

Assets in each Portfolio are valued based upon the amortized
cost method. Although each Portfolio seeks to maintain a
NAV of $1.00, there can be no assurance that this NAV will
not vary.

DISTRIBUTION OPTIONS: Each Portfolio earns interest from
its investments. These are passed along as dividend
distributions. Income dividends on the Portfolios are
declared daily and paid monthly.

When you fill out your account application, you can specify
how you want to receive your distributions. Currently, there
are two available options:

1. REINVESTMENT OPTION. Your dividend distributions, if
any, will be automatically reinvested in additional shares
of a Portfolio. Reinvestment of distributions will be made
at that day's NAV. If you do not indicate a choice on your
application, you will be assigned this option.

2. CASH OPTION. You will be sent a check for income
distributions, if any. Distribution checks will be mailed no
later than seven days after the last day of the month.

HOW ARE EXCHANGES MADE?

An exchange is the redemption of shares of one Portfolio and
the purchase of shares of another. The exchange privilege
is a convenient way to sell and buy shares of other
Portfolios registered in an investor's state. Except as
noted below, the Portfolio's shares may be exchanged for the
same Class of shares of other First Funds Portfolios. The
redemption and purchase will be made at the next determined
NAV after the exchange request is received in proper form
and accepted by CGFSC. You may execute exchange transactions
by calling CGFSC at 1-800-442-1941 (option 2) prior to 4:00
p.m. Eastern Time on any Business Day. Class II shares of
the First Funds Money Market Portfolios are not currently
available for investment. Investors in Class II shares of
other First Funds Portfolios wishing to exchange into one of
the Money Market Portfolios will receive Class III shares.

When making an exchange or opening an account in another
Portfolio by exchange, the registration and tax
identification numbers of the two accounts must be
identical. In order to open a new account through exchange,
the minimum initial investment requirements must be met.

Each exchange may produce a gain or loss for tax purposes.
In order to protect each Portfolio's performance and its
shareholders, First Tennessee discourages frequent exchange
activity by investors in response to short-term market
fluctuations. Each Portfolio reserves the right to refuse
any specific purchase order, including certain purchases by
exchange if, in First Tennessee's opinion, a Portfolio would
be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise be
affected adversely. Exchanges or purchase orders may be
restricted or refused if a Portfolio receives or anticipates
individual or simultaneous orders affecting significant
portions of the Portfolio's

<PAGE>

assets. Although a Portfolio will attempt to give prior notice
whenever it is reasonably able to do so, it may impose these
restrictions at any time. Each Portfolio reserves the right to
modify or withdraw the exchange privilege and to suspend the
offering of shares in any Class without notice to
shareholders. You or your Institutional Investor, if you are
invested in Class I, will receive written confirmation of each
exchange transaction.

Exchanges are generally not permitted from Class I to
another Class. Should a beneficial owner of Class I shares
cease to be eligible to purchase shares of Class I, Class I
shares held in a Institutional Account may be converted to
shares of another Class.

STATEMENTS AND REPORTS

You or, if Class I, the Institutional Investor, will
receive a monthly statement and a confirmation after every
transaction that affects the account registration. A
statement with tax information will be mailed by January 31
of each tax year and also will be filed with the IRS. At
least twice a year, you, or if Class I, the Institutional
Investor will receive the Portfolios' financial statements.
To reduce expenses, only one copy of each Portfolio's
reports (such as the Prospectus and Annual Report) will be
mailed to each investor or, if Class I, each Institutional
Investor. Please write to ALPS to request additional copies.

- --------------------------------------------------------------
HOW IS PERFORMANCE CALCULATED?
- --------------------------------------------------------------

From time to time each Portfolio may quote the current yield
and EFFECTIVE YIELD of Class I, II or III shares in
advertisements or in reports or other communications with
shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future
performance. CURRENT YIELD refers to the income generated
by an investment over a seven-day period expressed as an
annual percentage rate. Since money market funds seek to
maintain a stable $1.00 share price, current yields are the
most common illustration of money market fund performance.
The effective yield is calculated similarly, but assumes
that the income earned from the investment is reinvested.
The EFFECTIVE YIELD will be slightly higher than the current
yield because of the compounding effect on this assumed
reinvestment. In addition to the current yield, yields may
be quoted in advertising based on any historical seven-day
period.

Municipal Money Market Portfolio also may quote the TAX
EQUIVALENT YIELD for Class I, II or III shares, which shows
the taxable yield an investor would have to earn, before
taxes, to equal the tax-free yield. A tax equivalent yield
is calculated by dividing the tax-exempt current yield by
the result of one minus a stated federal tax rate.

The yield of the three Classes of each Portfolio are
calculated separately due to separate expense structures as
indicated in the "Summary Of Portfolio Expenses"; the yields
of Class II and Class III will be lower than that of Class
I. For additional performance information, contact your
Investment Professional or ALPS for a free Annual Report and
Statement of Additional Information for these Portfolios.

- --------------------------------------------------------------
PORTFOLIO TRANSACTIONS
- --------------------------------------------------------------

Money market obligations are generally traded in the
over-the-counter market through broker-dealers. A
broker-dealer is a securities firm or bank which makes a
market for securities by offering to buy at one price and
sell at a slightly higher price. The difference between the
prices is known as a spread. The selection of such
broker-dealers is generally made based upon the price,
quality of execution services and research provided.

As a money market fund, each Portfolio does not pay
commissions, as securities purchased and sold by each
Portfolio will be traded on a net basis (i.e., without
commission) through principals acting for their own account
and not as agents for the issuer or otherwise involve
transactions directly with the issuer of the instrument.

- --------------------------------------------------------------
WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON THIS INVESTMENT?
- --------------------------------------------------------------

Each Portfolio intends to distribute substantially all of
its net investment income and capital gains, if any, to
shareholders within each calendar year as well as on a
fiscal year basis. Income dividends are declared daily and
paid monthly.

<PAGE>

FEDERAL TAXES. Dividends derived from net investment income for U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio and
Cash Reserve Portfolio, and short-term capital gains, if any, are taxable as
ordinary income. Distributions are taxable when they are paid, whether taken
in cash or reinvested in additional shares, except that distributions
declared in December and paid in January are taxable as if paid on December
31. Each Portfolio will send each investor, or if Class I, each Institutional
Investor, an IRS Form 1099-DIV by January 31.

Federally tax-free interest earned by Municipal Money Market Portfolio
is federally tax-free when distributed as income dividends. If the Portfolio
earns federally taxable income from any of its investments, it will be
distributed as a taxable dividend. Gains on the sale of tax-free bonds result
in a taxable distribution. Short-term capital gains and a portion of the gain
on bonds purchased at a discount are taxed as dividends. The Portfolio may
invest up to 100% of its assets in municipal obligations whose interest is
subject to the federal alternative minimum tax (AMT) for individuals (private
activity obligations). To the extent that the Portfolio invests in private
activity obligations, individuals who are subject to the AMT will be required
to report a portion of the Portfolio's dividends as a "tax preference item"
in determining their federal income tax.

STATE AND LOCAL TAXES. Mutual fund dividends from U.S. government
securities generally are free from state and local income taxes. Income
dividends distributed by the Portfolios attributable to interest on bonds or
securities of the U.S. government or any of its agencies or instrumentalities
will generally be exempt from Tennessee personal income tax. However,
particular states may limit this benefit, and some types of securities, such
as repurchase agreements and some agency-backed securities, may not qualify
for the benefit. Ginnie Mae securities and other mortgage-backed securities
are notable exceptions to this limitation, and will qualify for the benefit
in most states. Some states may impose intangible property taxes.

OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each Portfolio and its
shareholders, and no attempt has been made to discuss individual tax
consequences. You should consult your tax adviser for details and up-to-date
information on the tax laws in your state to determine whether a Portfolio is
suitable to your particular tax situation.

When you sign an account application, you will be asked to certify that
the taxpayer identification number is correct and that you are not subject to
backup withholding for failing to report income to the IRS. If you do not
comply with IRS regulations, the IRS can require each Portfolio to withhold
31% of taxable distributions from your account.

- --------------------------------------------------------------------------------
WHAT ADVISORY AND OTHER FEES DO THE PORTFOLIOS PAY?
- --------------------------------------------------------------------------------

INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS. For
managing its investment and business affairs, each Portfolio is obligated to
pay First Tennessee, 4990 Poplar Avenue, Memphis, Tennessee, a monthly
management fee at the annual rate of .25% of aggregate average net assets of
all Money Market Portfolios of the Trust managed by First Tennessee through
$1 billion, and .22% on amounts greater than $1 billion. First Tennessee has
voluntarily agreed to waive its fees to .10% of each Money Market Portfolio's
average net assets. This voluntary waiver can be discontinued at any time.

Under the Investment Advisory and Management Agreement, First Tennessee
may, with the prior approval of the Trustees, engage one or more sub-advisers
which may have full investment discretion to make all determinations with
respect to the investment and reinvestment of all or any portion of a
Portfolio's assets, subject to the terms and conditions of the Investment
Advisory and Management Agreement and the written agreement with any such
sub-adviser. In the event one or more sub-advisers is appointed by First
Tennessee, First Tennessee shall monitor and evaluate the performance of such
sub-advisers, allocate Portfolio assets to be managed by such sub-advisers,
recommend any changes in or additional sub-advisers when appropriate and
compensate each sub-adviser out of the investment advisory fee received by
First Tennessee from each Portfolio.

First Tennessee has experience as an investment adviser to individual,
corporate and institutional advisory clients, pension plans and collective
investment funds, with approximately $13.8 billion in assets under
administration (including non-discretionary accounts) and $5.3 billion in
assets under management as of June 30, 1996, as well as experience in
supervising sub-advisers.

PIMC, 400 Bellevue Parkway, Wilmington, Delaware, serves as the
Sub-Adviser for each Portfolio subject to the supervision of First Tennessee,
pursuant to the authority granted to it under its Sub-Advisory Agreement with
First Tennessee. PIMC is a wholly-owned subsidiary of PNC Bank National
Association (PNC Bank). PIMC was organized in 1977 to perform advisory
services for investment companies. PNC Bank and its predecessors have been in
the business

<PAGE>

of managing the investments of fiduciary and other accounts in the
Philadelphia, Pennsylvania area since 1847. PNC Bank is a wholly-owned,
indirect subsidiary of PNC Bank Corp., a multi-bank holding company. PIMC
advises or manages approximately 45 investment company portfolios with total
assets of approximately $30.3 billion as of September 30, 1996. PIMC is paid
by First Tennessee a monthly sub-advisory fee at the annual rate of .08% of
aggregate average net assets of all of the First Funds Money Market
Portfolios advised by PIMC through $500 million, .06% of the next $500
million, and .05% on assets greater than $1 billion.

ADMINISTRATOR AND DISTRIBUTOR. ALPS, 370 17th Street, Suite 2700,
Denver, Colorado 80202, serves as the Administrator and Distributor for each
Portfolio. As Administrator, ALPS assists in each Portfolio's administration
and operation, including but not limited to, providing office space and
various legal and operational services in connection with the regulatory
requirements applicable to each Portfolio. ALPS is entitled to and receives
from each Portfolio a monthly fee at the annual rate of .075% of average net
assets.

First Tennessee serves as the Co-Administrator for each Portfolio. As
the Co-Administrator, First Tennessee assists in each Portfolio's operation,
including but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive from each Portfolio a monthly fee at the
annual rate of .05% of average net assets. First Tennessee is voluntarily
waiving this fee to .025%; however, there is no guarantee that this waiver
will continue.

As the Distributor, ALPS sells shares of each Portfolio as agent on
behalf of the Trust at no additional cost to the Trust. First Tennessee and
its affiliates do not participate in and are not responsible for selling as
an agent on behalf of the Trust, underwriting or distributing Trust shares.
Consistent with applicable law, affiliates of First Tennessee may receive
commissions or asset-based fees.

TRANSFER AGENT AND CUSTODIAN. Chase Global Funds Services Company
(CGFSC), a division of Chase Manhattan Bank, N.A. provides transfer agent and
related services for each Portfolio. Chase Manhattan Bank, N.A. is custodian
of each Portfolio's assets.

PRICING AND ACCOUNTING. CGFSC calculates the NAV and dividends of each
Class and maintains the Portfolio and general accounting records.

DISTRIBUTION PLANS AND SHAREHOLDER SERVICING PLANS. The Trustees have
adopted a Distribution Plan on behalf of Class III of each Portfolio pursuant
to Rule 12b-1 (the Rule) under the 1940 Act. The NASD subjects asset-based
sales charges to its maximum sales charge rule. Fees paid pursuant to each
Portfolio's Distribution Plan will be limited by the restrictions imposed by
the NASD rule. Each Distribution Plan provides for payment of a fee to ALPS
at the annual rate of up to .45% of the average net assets of Class III;
however, the Trustees have limited such fees to .25% of Class III's average
net assets. All or a portion of these fees will in turn be paid to Investment
Professionals as compensation for selling shares of Class III and for
providing ongoing sales support services. The Trustees have also adopted
Shareholder Servicing Plans on behalf of Class II of each Portfolio under
which Investment Professionals are paid at the annual rate of up to .25% of
the average net assets of Class II for shareholder services and account
maintenance, including responding to shareholder inquiries, directing
shareholder communications, account balance maintenance, and dividend
posting. The Distribution Fees and the Shareholder Servicing Fees are
expenses of Class III and Class II, respectively, in addition to the
Management Fee, and Administration and Co-Administration Fees, and will
reduce the net income and total return of both Classes.

- --------------------------------------------------------------------------------
HOW ARE THE PORTFOLIOS ORGANIZED?
- --------------------------------------------------------------------------------

U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, Municipal Money Market Portfolio, and Cash Reserve Portfolio are
diversified portfolios of First Funds, an open-end management investment
company organized as a Massachusetts business trust by a Declaration of Trust
dated March 6, 1992, as amended and restated on September 4, 1992. Each
Portfolio consists of three separate Classes. The Trustees supervise the
Trust's activities and review its contractual arrangements with companies
that provide the Trust with services. The Trust is not required to hold
annual shareholder meetings, although special meetings may be called for a
specific Portfolio or Class with respect to issues affecting that Portfolio
or Class, or the Trust as a whole, for purposes such as electing or removing
Trustees, changing fundamental policies or approving investment advisory
agreements. Shareholders receive one vote for each share owned and fractional
votes for fractional shares owned. A Portfolio or Class votes separately with
respect to issues affecting only that Portfolio or Class.

<PAGE>

Pursuant to the Declaration of Trust, the Trustees have the authority to
issue additional Classes of shares for each Portfolio of the Trust.

The following paragraphs provide a brief description of the securities
in which each Portfolio may invest and the transactions each may make. Each
Portfolio is not limited by this discussion, however, and may purchase other
types of securities and may enter into other types of transactions if they
are consistent with each Portfolio's investment objective and policies.

ASSET-BACKED SECURITIES purchased by each Portfolio may include pools of
mortgages, loans, receivables or other assets. Payment of principal and
interest may be largely dependent upon the cash flows generated by the assets
backing the securities.

BANKERS' ACCEPTANCES purchased by Cash Reserve Portfolio are negotiable
obligations of a bank to pay a draft which has been drawn on it by a
customer. These obligations are backed by large banks and also usually are
backed by goods in international trade.

CERTIFICATES OF DEPOSIT purchased by Cash Reserve Portfolio are
negotiable certificates that represent a commercial bank's obligations to
repay funds deposited with it and earn rates of interest over given periods.

COMMERCIAL PAPER purchased by Cash Reserve Portfolio are short-term
obligations issued by banks, broker-dealers, corporations and other entities
for purposes such as financing their current operations.

CORPORATE OBLIGATIONS purchased by Municipal Money Market Portfolio and
Cash Reserve Portfolio are bonds and notes issued by corporations and other
business organizations to finance their credit needs.

DELAYED-DELIVERY TRANSACTIONS. Each Portfolio may buy and sell
obligations on a when-issued or delayed-delivery basis, with payment and
delivery taking place at a future date. The market value of obligations
purchased in this way may change before the delivery date, which could affect
the market value of a Portfolio's assets. Ordinarily, each Portfolio will not
earn interest on obligations until they are delivered.

DEMAND FEATURES AND STANDBY COMMITMENTS. A demand feature purchased by
Municipal Money Market Portfolio is a put that entitles the security holder
to repayment of the principal amount of the underlying security at any time
or at specified intervals not exceeding 397 days on no more than 30 days'
notice. A standby commitment is a put that entitles the security holder to
same-day settlement at amortized cost plus accrued interest.

ILLIQUID SECURITIES. Under the supervision of the Trustees, PIMC, under
the supervision of First Tennessee, determines the liquidity of the
Portfolios' investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Disposing of
illiquid investments or securities subject to legal restrictions may involve
time-consuming negotiation and legal expenses. It may be difficult or
impossible for the Portfolio to sell illiquid or restricted securities
promptly at an acceptable price. Each Portfolio may invest up to 15% of its
assets in illiquid investments.

LETTERS OF CREDIT. Issuers or financial intermediaries who provide
demand features or standby commitments often support their ability to buy
obligations on demand by obtaining letters of credit (LOCs) or other
guarantees from domestic or foreign banks. LOCs also may be used as credit
supports for municipal instruments purchased by Municipal Money Market
Portfolio. PIMC may rely upon its evaluation of a bank's credit in
determining whether to purchase an instrument supported by an LOC. In
evaluating a foreign bank's credit, PIMC, under the supervision of First
Tennessee, will consider whether adequate public information about the bank
is available and whether the bank may be subject to unfavorable political or
economic developments, currency controls, or other governmental restrictions
that might affect the bank's ability to honor its credit commitment.

MONEY MARKET refers to the marketplace where short-term, high grade debt
obligations are traded, including U.S. government obligations, commercial
paper, certificates of deposit, bankers' acceptances, time deposits and
short-term corporate obligations. Money market instruments may carry fixed
rates of return or have variable or floating interest rates.

MUNICIPAL LEASE OBLIGATIONS purchased by Municipal Money Market
Portfolio are issued by a state or local government or authority to acquire
land and a wide variety of equipment and facilities. These obligations
typically are not fully backed by the municipality's credit, and their
interest may become taxable if the lease is assigned. If funds are not
appro-

<PAGE>

priated for the following year's lease payments, the lease may terminate,
with the possibility of significant loss to the Portfolio. Certificates of
Participation in municipal lease obligations or installment sales contracts
entitle the holder to a proportionate interest in the lease-purchase payments
made.

MUNICIPAL SECURITIES purchased by Municipal Money Market Portfolio
include GENERAL OBLIGATION SECURITIES, which are backed by the full taxing
power of a municipality, and REVENUE SECURITIES, which are backed by the
revenues of a specific tax, project, or facility. INDUSTRIAL REVENUE BONDS
are a type of revenue bond backed by the credit and security of a private
issuer and may involve greater risk. PRIVATE ACTIVITY MUNICIPAL SECURITIES,
which may be subject to the federal AMT, include securities issued to finance
housing projects, student loans, and privately owned solid waste disposal and
water and sewage treatment facilities. TAX AND REVENUE ANTICIPATION NOTES are
issued by municipalities in expectation of future tax or other revenues, and
are payable from those specific taxes or revenues. BOND ANTICIPATION NOTES
normally provide interim financing in advance of an issue of bonds or notes,
the proceeds of which are used to repay the anticipation notes. TAX-EXEMPT
COMMERCIAL PAPER are promissory notes issued by municipalities to help
finance short-term capital or operating needs.

RESOURCE RECOVERY BONDS purchased by Municipal Money Market Portfolio
are a type of revenue bond issued to build facilities such as solid waste
incinerators or waste-to-energy plants. Typically, a private corporation will
be involved, at least during the construction phase, and the revenue stream
will be secured by fees or rents paid by municipalities for use of the
facilities. The viability of a resource recovery project, environmental
protection regulations, and project operator tax incentives may affect the
value and credit quality of resource recovery bonds

REPURCHASE AGREEMENTS are transactions by which a Portfolio buys a
security at one price and simultaneously agrees to sell it back at a higher
price. In the event of the bankruptcy of the other party to a repurchase
agreement, a Portfolio could experience delays in recovering its cash. To the
extent that, in the meantime, the value of the obligations purchased had
decreased, a Portfolio could experience a loss. In all cases, PIMC must find
the creditworthiness of the other party to the transaction satisfactory.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
Portfolio temporarily transfers possession of a portfolio security to another
party, such as a bank or broker-dealer, in return for cash. At the same time,
each Portfolio agrees to repurchase the instrument at an agreed upon price
and time. Each Portfolio expects that it will engage in reverse repurchase
agreements for temporary purposes such as to fund redemptions, or with
respect to U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, and Cash Reserve Portfolio, when each is able to invest the cash
so acquired at a rate higher than the cost of the agreement, which would
increase income earned by these Portfolios. Reverse repurchase agreements may
increase the risk of fluctuation in the market value of a Portfolio's assets
or in each Portfolio's yield. Engaging in reverse repurchase agreements may
involve an element of leverage, and each Portfolio will not purchase a
security while borrowings (including reverse repurchase agreements)
representing more than 5% of its total assets are outstanding. Each Portfolio
may engage in reverse repurchase agreements only with those parties whose
creditworthiness has been reviewed and found satisfactory by PIMC consistent
with each Portfolio's objective and policies.

RESTRICTED SECURITIES. Municipal Money Market Portfolio and Cash
Reserve Portfolio may purchase securities which cannot be sold to the public
without registration under the Securities Act of 1933 (restricted
securities). Unless registered for sale, these securities can only be sold in
privately negotiated transactions or pursuant to an exemption from
registration. Provided that the security has a demand feature of seven days
or less, or a dealer or institutional trading market exists, these restricted
securities are not treated as illiquid securities for the purposes of the
Portfolios' investment limitations.

SECURITIES LENDING. Each Portfolio may lend securities to parties such
as broker-dealers or institutional investors. Securities lending allows each
Portfolio to retain ownership of the securities loaned and, at the same time,
to earn additional income. Since there may be delays in the recovery of
loaned securities, or even a loss of rights in collateral supplied should the
borrower fail financially, loans will be made only to parties deemed by PIMC
to be of good standing. Furthermore, they will only be made if, in PIMC's
judgment, the consideration to be earned from such loans would justify the
risk.

PIMC understands that it is the current view of the SEC Staff that a
Portfolio may engage in loan transactions only under the following
conditions: (1) the Portfolio must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the market
value of the securities loaned (determined on a daily basis) rises above the
value of the collateral; (3) after giving notice, the Portfolio must be able
to terminate the loan at any time; (4) the Portfolio must receive reasonable
interest on the loan or a flat fee from the borrower, as well as amounts
equivalent to any dividends, interest,or other distributions on the
securities loaned and to any increase in market value; (5) the Portfolio may
pay only reasonable custodian fees in con-

<PAGE>

nection with the loan; and (6) the Board of Trustees must be able to vote
proxies on the securities loaned, either by terminating the loan or by
entering into an alternative arrangement with the borrower. Cash received
through loan transactions may be invested in any security in which a
Portfolio is authorized to invest.

STRIPPED GOVERNMENT SECURITIES. Stripped securities are created by
separating the income and principal components of a debt instrument and
selling them separately. Each Portfolio may purchase U.S. Treasury STRIPS
(Separate Trading of Registered Interest and Principal of Securities) that
are created when the coupon payments and the principal payment are stripped
from an outstanding Treasury bond by the Federal Reserve Bank. Bonds issued
by the Resolution Funding Corporation (REFCORP) can also be stripped in this
fashion. REFCORP STRIPS are eligible investments for U.S. Government Money
Market Portfolio, Municipal Money Market Portfolio and Cash Reserve
Portfolio.

Cash Reserve Portfolio and Municipal Money Market Portfolio may purchase
privately stripped government securities, which are created when a dealer
deposits a Treasury security or federal agency security with a custodian for
safekeeping and then sells the coupon payments and principal payments that
will be generated by this security. Proprietary receipts, such as
Certificates of Accrual on Treasury Securities (CATS), Treasury Investment
Growth Receipts (TIGRs), and generic Treasury Receipts (TRs), are stripped
U.S. Treasury securities that are separated into their component parts
through trusts created by their broker sponsors. Bonds issued by the
Financing Corporation (FICO) can also be stripped in this fashion.

Because of the SEC's views on privately stripped government securities,
Cash Reserve Portfolio must evaluate them as it would non-government
securities pursuant to regulatory guidelines applicable to all money market
funds. Accordingly, Cash Reserve Portfolio currently intends to purchase only
those privately stripped government securities that have either received the
highest rating from two nationally recognized rating services (or one, if
only one has rated the security), or, if unrated, been judged to be of
equivalent quality by PIMC.

TIME DEPOSITS purchased by Cash Reserve Portfolio are non-negotiable
deposits in a banking institution earning a specified interest rate over a
given period of time.

U.S. GOVERNMENT OBLIGATIONS are debt obligations issued or guaranteed by
the U.S. Treasury or by an agency or instrumentality of the U.S. government.
Not all U.S. government obligations are backed by the full faith and credit
of the United States. For example, obligations issued by the Federal Farm
Credit Bank or by the Federal National Mortgage Association are supported by
the agency's right to borrow money from the U.S. Treasury under certain
circumstances. Obligations issued by the Federal Home Loan Bank are supported
only by the credit of the agency. There is no guarantee that the government
will support these types of obligations, and therefore they involve more risk
than other government obligations.

U.S. TREASURY OBLIGATIONS are obligations issued by the United States
and backed by its full faith and credit.

VARIABLE AND FLOATING RATE INSTRUMENTS for Municipal Money Market
Portfolio, including certain participation interests in municipal
obligations, have interest rate adjustment formulas that help to stabilize
their market values. Many variable or floating rate instruments also carry
demand features that permit the Portfolio to sell them at par value plus
accrued interest on short notice. When determining the maturity of a variable
or floating rate instrument, the Portfolio may look to the date the demand
feature can be exercised, or to the date the interest rate is readjusted,
rather than to the final maturity of the instrument.

VARIABLE AND FLOATING RATE Instruments for U.S. Government Money Market
Portfolio and Cash Reserve Portfolio, including notes purchased directly from
issuers, bear variable or floating interest rates and may carry rights that
permit holders to demand full payment from the issuers or certain financial
intermediaries. Floating rate securities have interest rates that change
whenever there is a change in a designated market-based interest rate, while
variable rate instruments provide for a specified periodic adjustment in the
interest rate. These formulas are designed to result in a market value for
the instrument that approximates its par value.

ZERO COUPON BONDS purchased by each Portfolio do not make regular
interest payments; instead they are sold at a deep discount from their face
value and are redeemed at face value when they mature. Because zero coupon
bonds do not pay current income, their prices can be very volatile when
interest rates change. In calculating its daily dividend, each Portfolio
takes into account as income a portion of the difference between a zero
coupon bond's purchase price and its face value.

<PAGE>

INVESTMENT ADVISER AND CO-ADMINISTRATOR
---------------------------------------

First Tennessee Bank National Association
Memphis, TN

SUB-ADVISER
-----------

PNC Institutional Management Corporation
Wilmington, DE

OFFICERS
--------

Richard C. Rantzow, President
Mark A. Pougnet, Treasurer
James V. Hyatt, Secretary

TRUSTEES
--------

Thomas M. Batchelor
John A. DeCell
L.R. Jalenak, Jr.
Larry W. Papasan
Richard C. Rantzow

GENERAL DISTRIBUTOR
-------------------

ALPS Mutual Funds Services, Inc.
Denver, CO

TRANSFER AND SHAREHOLDER SERVICING AGENT
----------------------------------------

Chase Global Funds Services Company
Boston, MA

CUSTODIAN
---------

Chase Manhattan Bank, N.A.
New York, NY

<PAGE>

FIRST FUNDS
GROWTH & INCOME PORTFOLIO (FORMERLY TOTAL RETURN EQUITY PORTFOLIO)
BOND PORTFOLIO (FORMERLY TOTAL RETURN FIXED INCOME PORTFOLIO)
STATEMENT OF ADDITIONAL INFORMATION FOR CLASS I, CLASS II, AND CLASS III
OCTOBER 25, 1996

This Statement is not a prospectus but should be read in conjunction with
the current Prospectus for each Class of First Funds: Growth & Income
Portfolio and Bond Portfolio dated October 25, 1996. Please retain this
Statement for future reference. The Portfolio's financial statements and
financial highlights, included in the Annual Report for the fiscal year ended
June 30, 1996, are incorporated herein by reference. To obtain additional
free copies of this Statement, the Annual Report or the Prospectuses for the
Growth & Income or Bond Portfolio, please call the Distributor at
1-800-442-1941, option 1 or write to the Distributor at 370 17th Street,
Suite 2700, Denver CO 80202.

TABLE OF CONTENTS PAGE

Investment Restrictions and Limitations 2
Investment Instruments 5
Portfolio Transactions 10
Valuation of Portfolio Securities 11
Performance 11
Additional Purchase and Redemption Information 13
Distributions and Taxes 14
Trustees and Officers 15
Investment Advisory Agreements 16
Administration Agreements and Other Contracts 17
Description of the Trust 19
Financial Statements 21
Appendix 21

INVESTMENT ADVISER
First Tennessee Bank National Association (First Tennessee or the Investment
Adviser)

SUB-ADVISER
Highland Capital Management Corp. (Highland or the Sub-Adviser)

ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. (ALPS or the Administrator and Distributor)

CO-ADMINISTRATOR
First Tennessee Bank National Association (First Tennessee or the
Co-Administrator)

TRANSFER AGENT & CUSTODIAN
Chase Global Funds Services Company (CGFSC or the Transfer Agent)

1
<PAGE>

INVESTMENT RESTRICTIONS AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Portfolios' Prospectuses. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a Portfolio's assets that may be
invested in any security or other asset, or sets forth a policy regarding
quality standards, such standard or percentage limitation will be determined
immediately after and as a result of a Portfolio's acquisition of such security
or other asset. Accordingly, any subsequent change in values, net assets, or
other circumstances will not be considered when determining whether the
investment complies with a Portfolio's investment policies and limitations.

Fundamental policies and investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of that Portfolio. However, except for the
fundamental investment limitations set forth below, the investment policies and
limitations described in this Statement of Additional Information are not
fundamental and may be changed without shareholder approval.

INVESTMENT LIMITATIONS OF GROWTH & INCOME PORTFOLIO
(FORMERLY TOTAL RETURN EQUITY PORTFOLIO)

THE FOLLOWING ARE GROWTH & INCOME PORTFOLIO'S FUNDAMENTAL LIMITATIONS SET FORTH
IN THEIR ENTIRETY. THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if, as
a result, (a) more than 5% of the Portfolio's total assets would be
invested in the securities of that issuer; or (b) the Portfolio would
hold more than 10% of the outstanding voting securities of that issuer;

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(3) borrow money, except that the Portfolio may borrow money for temporary or
emergency purposes (not for leveraging or investment) in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed)
less liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33 1/3%
limitation;

(4) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;

(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Portfolio's total
assets would be invested in the securities of companies whose principal
business activities are in the same industry;

(6) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business);

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent
the Portfolio from purchasing or selling options and futures contracts
or from investing in securities or other instruments backed by physical
commodities); or

(8) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limit does
not apply to purchases of debt securities or to repurchase agreements.

(9) The Portfolio may, notwithstanding any other fundamental investment policy
or limitation, invest all of its assets in the securities of a single
open-end or closed-end management investment company with substantially
the same fundamental investment objectives, policies, and limitations as
the Portfolio.

THE FOLLOWING LIMITATIONS OF GROWTH & INCOME PORTFOLIO ARE NOT FUNDAMENTAL AND
MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend during the coming year to sell
securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short, and provided
that transactions in futures contracts and options are not deemed to
constitute selling short.

2
<PAGE>

(ii) The Portfolio does not currently intend during the coming year to
purchase securities on margin, except that the Portfolio may obtain
such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.

(iii) The Portfolio may borrow money only (a) from a bank or (b) by engaging
in reverse repurchase agreements with any party (reverse repurchase
agreements are treated as borrowings for purposes of fundamental
investment limitation 3). The Portfolio will not purchase any security
while borrowings representing more than 5% of its total assets are
outstanding.

(iv) The Portfolio does not currently intend during the coming year to
purchase any security, if, as a result, more than 15% of its net
assets would be invested in securities that are deemed to be illiquid
because they are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued.

(v) The Portfolio does not currently intend during the coming year to
purchase or sell futures contracts. This limitation does not apply to
securities that incorporate features similar to futures contracts.

(vi) The Portfolio does not currently intend during the coming year to make
loans, but this limitation does not apply to purchases of debt
securities.

(vii) The Portfolio does not currently intend during the coming year to
purchase securities of other investment companies, except in the open
market where no commission except the ordinary broker's commission is
paid. This limitation does not apply to securities received as
dividends, through offers of exchange, or as a result of a
reorganization, consolidation, or merger.

(viii) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political subdivisions
thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of business enterprises that, including
predecessors, have a record of less than three years of continuous
operation.

(ix) The Portfolio does not currently intend during the coming year to invest
all of its assets in the securities of a single open-end management
investment company with substantially the same fundamental investment
objectives, policies, and limitations as the Portfolio.

INVESTMENT LIMITATIONS OF BOND PORTFOLIO
(FORMERLY TOTAL RETURN FIXED INCOME PORTFOLIO)

THE FOLLOWING ARE BOND PORTFOLIO'S FUNDAMENTAL LIMITATIONS SET FORTH IN THEIR
ENTIRETY. THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the Portfolio's total assets
would be invested in the securities of that issuer, or (b) the
Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(3) borrow money, except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;

(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Portfolio's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry;

3
<PAGE>

(6) purchase or sell real estate, unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business);

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Portfolio from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or

(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limit does not apply to purchases of debt securities or to repurchase
agreements.

(9) The Portfolio may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end or closed-end management investment company with
substantially the same fundamental investment objectives, policies,
and limitations as the Portfolio.

THE FOLLOWING LIMITATIONS OF BOND PORTFOLIO ARE NOT FUNDAMENTAL AND
MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend during the coming year to sell
securities short, unless it owns or has the right to obtain securities
equivalent in kind and amount to the securities sold short and
provided that transactions in futures contracts and options are not
deemed to constitute selling short.

(vi) The Portfolio does not currently intend during the coming year to make
loans, but this limitation does not apply to purchases of debt
securities.

(viii) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years
of continuous operation.

(ix) The Portfolio does not currently intend during the coming year to
invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental
investment objectives, policies, and limitations as the Portfolio.

4
<PAGE>

INVESTMENT INSTRUMENTS

First Tennessee Bank National Association, (First Tennessee), serves as
Investment Adviser to the Portfolios and, with the prior approval of the Board
of Trustees (the Trustees), has engaged Highland Capital Management Corp.
(Highland) to act as Sub-Adviser to each of the Portfolios, including providing
investment research and credit analysis concerning Portfolio investments and
conducting a continuous program of investment of Portfolio assets in accordance
with the investment policies and objectives of each Portfolio.

DELAYED-DELIVERY TRANSACTIONS. Each Portfolio may buy and sell securities on a
delayed-delivery or when-issued basis. These transactions involve a commitment
by each Portfolio to purchase or sell specific securities at a predetermined
price and/or yield, with payment and delivery taking place after the customary
settlement period for that type of security (and more than seven days in the
future). Typically, no interest accrues to the purchaser until the security is
delivered. Each Portfolio may receive fees for entering into delayed delivery
transactions.

When purchasing securities on a delayed-delivery basis, each Portfolio
assumes the rights and risks of ownership, including the risk of price and
yield fluctuations. Because each Portfolio is not required to pay for
securities until the delivery date, these risks are in addition to the risks
associated with the Portfolios' other investments. If each Portfolio remains
substantially fully invested at a time when delayed-delivery purchases are
outstanding, the delayed-delivery purchases may result in a form of leverage.
When delayed-delivery purchases are outstanding, each Portfolio will set
aside appropriate liquid assets in a segregated custodial account to cover
its purchase obligations. When each Portfolio has sold a security on a
delayed-delivery basis, each Portfolio does not participate in further gains
or losses with respect to the security. If the other party to a
delayed-delivery transaction fails to deliver or pay for the securities, each
Portfolio could miss a favorable price or yield opportunity, or could suffer
a loss.

Each Portfolio may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.

FOREIGN INVESTMENTS. Foreign investments purchased by each Portfolio can
involve significant risks in addition to the risks inherent in U.S. investments.
The value of securities denominated in or indexed to foreign currencies, and of
dividends and interest from such securities, can change significantly when
foreign currencies strengthen or weaken to the U.S. dollar. Foreign securities
markets generally have less trading volume and less liquidity than U.S. markets,
and prices on some foreign markets can be highly volatile. Many foreign
countries lack uniform accounting and disclosure standards comparable to those
applicable to U.S. companies, and it may be more difficult to obtain reliable
information regarding an issuer's financial condition and operations. In
addition, the costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial costs, are generally higher than for U.S.
investments.

Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.

Investing abroad also involves different political and economic risks. Foreign
investments may be affected by actions of foreign governments adverse to the
interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restriction on U.S. investment
or on the ability to repatriate assets or convert currency into U.S. dollars, or
other government intervention. There may be a greater possibility of default by
foreign governments or foreign government-sponsored enterprises. Investments in
foreign countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
There is no assurance that Highland will be able to anticipate or counter these
potential events.

The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.

Each Portfolio may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.

American Depository Receipts and European Depository Receipts (ADRs and EDRs)
are certificates evidencing ownership of shares of a foreign-based corporation
held in trust by a bank or similar financial institution. Designed for use in
U.S.

<PAGE>

and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.

FOREIGN CURRENCY TRANSACTIONS. Growth & Income Portfolio may conduct foreign
currency transactions on a spot (i.e., cash) basis or by entering into forward
contracts to purchase or sell foreign currencies at a future date and price.
The Portfolio will convert currency on a spot basis from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers generally do not charge a fee for conversion, they do realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the fund at one rate, while offering a lesser rate of exchange should the
portfolio desire to resell that currency to the dealer. Forward contracts are
generally traded in an interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. The parties to a
forward contract may agree to offset or terminate the contract before its
maturity, or may hold the contract to maturity and complete the contemplated
currency exchange.

Each Portfolio may use currency forward contracts for any purpose consistent
with its investment objective. The following discussion summarizes the
principal currency management strategies involving forward contracts that could
be used by the portfolio. The portfolio may also use swap agreements, indexed
securities, and options and futures contracts relating to foreign currencies for
the same purposes.

When the Portfolio agrees to buy or sell a security denominated in a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale, for a fixed amount of
U.S. dollars, of the amount of foreign currency involved in the underlying
security transaction, the Portfolio will be able to protect itself against an
adverse change in foreign currency values between the date the security is
purchased or sold and the date on which payment is made or received. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." The portfolio may also enter into forward contracts to purchase or sell
a foreign currency in anticipation of future purchases or sales of securities
denominated in foreign currency, even if the specific investments have not yet
been selected by Highland.

The Portfolio may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Portfolio owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Growth & Income Portfolio could also hedge the
position by selling another currency expected to perform similarly to the pound
sterling - for example, by entering into a forward contract to sell Deutsche
marks or European Currency Units in return for U.S. dollars. This type of
hedge, sometimes referred to as a "proxy hedge," could offer advantages in terms
of cost, yield, or efficiency, but generally would not hedge currency exposure
as effectively as a simple hedge into U.S. dollars. Proxy hedges may result in
losses if the currency used to hedge does not perform similarly to the currency
in which the hedged securities are denominated.

The Portfolio may enter into forward contracts to shift its investment exposure
from one currency into another. This may include shifting exposure from U.S.
dollars to a foreign currency, or from one foreign currency to another foreign
currency. For example, if the Portfolio held investments denominated in
Deutsche marks, the Portfolio could enter into forward contracts to sell
Deutsche marks and purchase Swiss Francs. This type of strategy, sometimes
known as a "cross hedge," will tend to reduce or eliminate exposure to the
currency that is sold, and increase exposure to the currency that is purchased,
much as if the Portfolio had sold a security denominated in one currency and
purchased an equivalent security denominated in another. Cross-hedges protect
against losses resulting from a decline in the hedged currency, but will cause
the Portfolio to assume the risk of fluctuations in the value of the currency it
purchases.

Under certain conditions, Securities and Exchange Commission (SEC) guidelines
require mutual funds to set aside cash or other appropriate liquid assets in a
segregated custodial account to cover currency forward contracts. As required
by SEC guidelines, Growth & Income Portfolio will segregate assets to cover
currency forward contracts, if any, whose purpose is essentially speculative.
The Portfolio will not segregate assets to cover forward contracts entered into
for hedging purposes, including settlement hedges, position hedges, and proxy
hedges.

Successful use of forward currency contracts will depend on Highland's skill in
analyzing and predicting currency values. Forward contracts may substantially
change the Portfolio's investment exposure to changes in currency exchange
rates, and could result in losses to the Portfolio if currencies do not perform
as Highland anticipates. For example, if a currency's value rose at a time when
Highland had hedged the Portfolio by selling that currency in exchange for
dollars,

<PAGE>

the Portfolio would be unable to participate in the currency's
appreciation. If Highland hedges currency exposure through proxy hedges, Growth
& Income Portfolio could realize currency losses from the hedge and the security
position at the same time if the two currencies do not move in tandem.
Similarly, if Highland increases the Portfolio's exposure to a foreign currency,
and that currency's value declines, the Portfolio will realize a loss. There is
no assurance that Highland's use of forward currency contracts will be
advantageous to the Portfolio or that it will hedge at an appropriate time. The
policies described in this section are non-fundamental policies of the
Portfolio.

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Trustees, Highland, under the supervision
of First Tennessee, determines the liquidity of each Portfolio's investments
and, through reports from Highland, the Trustees monitor investments in illiquid
instruments. In determining the liquidity of each Portfolio's investments,
Highland may consider various factors including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset each
Portfolio's rights and obligations relating to the investment). Investments
currently considered by each Portfolio to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days, over-the-counter options, and some restricted securities determined
by Highland to be illiquid. However, with respect to over-the-counter options
that each Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement each Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the
Trustees. If through a change in values, net assets or other circumstances,
each Portfolio was in a position where more than 15% of its net assets were
invested in illiquid securities, the Trustees would seek to take appropriate
steps to protect liquidity.

REAL ESTATE INVESTMENT TRUSTS. Growth & Income Portfolio may purchase interests
in real estate investment trusts. Real estate industry companies include, among
others, equity real estate investment trusts, which own properties, and mortgage
real estate investment trusts, which make construction, development, and
long-term mortgage loans. Equity real estate investment trusts may be affected
by changes in the value of the underlying property owned by the trusts, while
mortgage real estate investment trusts may be affected by the quality of credit
extended. Equity and mortgage real estate investment trusts are dependent upon
management skill, are not diversified, and are subject to the risks of financing
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self liquidation, and the possibilities of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code and failing to
maintain exemption from the Investment Company Act of 1940 (the 1940 Act).

REPURCHASE AGREEMENTS are transactions in which a Portfolio purchases a security
and simultaneously commits to resell that security at an agreed upon price and
date within a number of days from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price. This obligation is in effect secured by the underlying security
having a value at least equal to the amount of the agreed upon resale price.
Each Portfolio may enter into a repurchase agreement with respect to any
security in which it is authorized to invest. While it presently does not
appear possible to eliminate all risks from the transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delay and costs to each Portfolio in connection with bankruptcy
proceedings), it is the policy of each Portfolio to limit repurchase agreements
to those parties whose creditworthiness has been reviewed and found satisfactory
by Highland.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a Portfolio
sells a portfolio security to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, each Portfolio
will maintain appropriate high grade liquid assets in a segregated custodial
account to cover its obligation under the agreement. Each Portfolio will enter
into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by Highland. Such transactions may increase
fluctuations in the market values of each Portfolio's assets and may be viewed
as a form of leverage.

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, each Portfolio may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to seek
registration and the time each Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, each Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.

<PAGE>

SECURITIES LENDING. Each Portfolio may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows the
Portfolios to retain ownership of the securities loaned and, at the same time,
to earn additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties deemed by Highland to be of
good standing. Furthermore, they will only be made if, in Highland's judgment,
the consideration to be earned from such loans would justify the risk.

First Tennessee understands that it is the current view of the SEC that each
Portfolio may engage in loan transactions only under the following conditions:
(1) each Portfolio must receive 100% collateral in the form of cash or cash
equivalents (e.g., U.S. Treasury bills or notes) from the borrower; (2) the
borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, each Portfolio must be able to terminate
the loan at any time; (4) each Portfolio must receive reasonable interest on the
loan or a flat fee from the borrower, as well as amounts equivalent to any
dividends, interest, or other distributions on the securities loaned and to any
increase in market value; (5) each Portfolio may pay only reasonable custodian
fees in connection with the loan; and (6) the Trustees must be able to vote
proxies on the securities loaned, either by terminating the loan or by entering
into an alternative arrangement with the borrower.

Cash received through loan transactions may be invested in any security in which
the Portfolios are authorized to invest. Investing this cash subjects that
investment, as well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).

SHORT SALES AGAINST THE BOX. If Growth & Income Portfolio enters into a short
sale against the box, it will be required to set aside securities equivalent in
kind and amount to the securities sold short (or securities convertible or
exchangeable into such securities) and will be required to hold such securities
while the short sale is outstanding. The Portfolio will incur transaction
costs, including interest expenses, in connection with opening, maintaining and
closing short sales against the box.

VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS (VRDOS/FRDOS) are obligations that
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate instruments have
interest rates that change whenever there is a change in a designated base rate
while variable rate obligations provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the VRDO or FRDO that approximates its par value.

BOND PORTFOLIO may invest in fixed-rate bonds that are subject to third party
puts and in participation interests in such bonds held by a bank in trust or
otherwise. These bonds and participation interests have tender options or
demand features that permit the Portfolio to tender (or put) their bonds to an
institution at periodic intervals and to receive the principal amount thereof.
The Portfolio considers variable rate instruments structured in this way
(Participating VRDOs) to be essentially equivalent to other VRDOs they purchase.

WARRANTS. Growth & Income Portfolio may invest in warrants which entitle the
holder to buy equity securities at a specific price during a specific period of
time. Warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the securities which may be purchased, nor do they represent any
rights in the assets of the issuing company. The value of a warrant may be more
volatile than the value of the securities underlying the warrants. Also, the
value of the warrant does not necessarily change with the value of the
underlying securities and a warrant ceases to have value if it is not exercised
prior to the expiration date. Warrants may be allowed to expire if Highland
deems it undesirable to exercise or sell.

LIMITATIONS ON OPTIONS TRANSACTIONS. Each Portfolio will not: (a) purchase put
options or write call options if, as a result, more than 25% of the Portfolios'
total assets would be hedged with options under normal conditions; (b) write put
options if, as a result, the Portfolios' total obligations upon settlement or
exercise of written put options would exceed 25% each of their total assets; or
(c) purchase call options if, as a result, the current value of option premiums
for call options purchased by each Portfolio would exceed 5% of total assets.
These limitations do not apply to options attached to or acquired or traded
together with their underlying securities, and do not apply to securities that
incorporate features similar to options.

PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, each Portfolio
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Portfolios
pay the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities and indexes of securities prices. The Portfolios may terminate their
position in a put option they have purchased by allowing them to expire or by
exercising the option. If the option is allowed to expire, the Portfolios

<PAGE>

will lose the entire premium they paid. If the Portfolios exercise the option,
they complete the sale of the underlying instrument at the strike price. The
Portfolios may also terminate a put option position by closing it out in the
secondary market at its current price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).

The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.

WRITING PUT AND CALL OPTIONS. When a Portfolio writes a put option, it takes
the opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, the Portfolio assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the option
chooses to exercise it. The Portfolios may seek to terminate their positions in
put options they write before exercise by closing out the options in the
secondary market at their current price. If the secondary market is not liquid
for a put option a Portfolio has written, however, the Portfolio must continue
to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to set aside assets to cover its
position.

If security prices rise, a put writer would generally expect to profit, although
its gain would be limited to the amount of the premium it received. If security
prices remain the same over time, it is likely that the writer will also profit,
because it should be able to close out the option at a lower price. If security
prices fall, the put writer would expect to suffer a loss. This loss should be
less than the loss from purchasing the underlying instrument directly, however,
because the premium received for writing the option should mitigate the effects
of the decline.

Writing a call option obligates each Portfolio to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

COMBINED POSITIONS. Each Portfolio may purchase and write options in
combination with each other, or in combination with forward contracts, to adjust
the risk and return characteristics of the overall position. For example, the
Portfolios may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.

CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options contracts, it is likely that the standardized contracts
available will not match the Portfolios' current or anticipated investments
exactly. Each Portfolio may invest in options contracts based on securities
with different issuers, maturities, or other characteristics from the securities
in which each typically invests.

Options prices can also diverge from the prices of their underlying instruments,
even if the underlying instruments match the Portfolios' investments well.
Options prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options markets and the securities markets,
from structural differences in how options and securities are traded, or from
imposition of daily price fluctuation limits or trading halts. The Portfolios
may purchase or sell options contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in the Portfolios' options positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result in
losses that are not offset by gains in other investments.

<PAGE>

LIQUIDITY OF OPTIONS. There is no assurance a liquid secondary market will
exist for any particular options contract at any particular time. Options
may have relatively low trading volume and liquidity if their strike prices
are not close to the underlying instrument's current price. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolios to enter into new positions
or close out existing positions. If the secondary market for a contract is
not liquid because of price fluctuation limits or otherwise, it could prevent
prompt liquidation of unfavorable positions, and potentially could require
the Portfolios to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Portfolios' access to
other assets held to cover its options or futures positions could also be
impaired.

OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Portfolios greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.

ASSET COVERAGE FOR OPTIONS POSITIONS. The Portfolios will comply with
guidelines established by the SEC with respect to coverage of options
strategies by mutual funds and, if the guidelines so require, will set aside
appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
option strategy is outstanding, unless they are replaced with other suitable
assets. As a result, there is a possibility that segregation of a large
percentage of the Portfolios' assets could impede portfolio management or the
Portfolios' ability to meet redemption requests or other current obligations.

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of securities are placed on behalf of
each Portfolio by First Tennessee and Highland (collectively, the Advisers)
pursuant to authority contained in each Portfolio's Investment Advisory
Agreement and Sub-Advisory Agreement. The Advisers are also responsible for
the placement of transaction orders for other investment companies and
accounts for which they or their affiliates act as investment adviser. In
selecting broker-dealers, subject to applicable limitations of the federal
securities laws, the Advisers consider various relevant factors, including,
but not limited to, the broker's execution capability; the broker's perceived
financial stability; the broker's responsiveness to the Advisers' transaction
requests; and the broker's clearance and settlement capability. Commissions
for foreign investments traded on foreign exchanges will generally be higher
than for U.S. investments and may not be subject to negotiation.

Each Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolios or other accounts over
which the Advisers or their affiliates exercise investment discretion. Such
services may include research-related computer hardware and software; furnishing
analyses and reports concerning issuers, industries, and economic factors and
trends.

The receipt of research from broker-dealers that execute transactions on behalf
of each Portfolio may be useful to the Advisers in rendering investment
management services to each Portfolio and/or its other clients, and conversely,
such information provided by broker-dealers who have executed transaction orders
on behalf of other clients may be useful to the Advisers in carrying out its
obligations to each Portfolio. The receipt of such research has not reduced the
Advisers' normal independent research activities; however, it enables the
Advisers to avoid the additional expenses that could be incurred if they tried
to develop comparable information through their own efforts.

Subject to applicable limitations of the federal securities laws, broker-dealers
may receive commissions for agency transactions that are higher than the
commission of other broker-dealers in recognition of their research and
execution services. In order to cause each Portfolio to pay such higher
commissions, the Advisers must determine in good faith that such commissions are
reasonable in relation to the value of the brokerage and research services
provided by such executing broker-dealers viewed in terms of a particular
transaction or the Advisers' overall responsibilities to each Portfolio and its
other clients. In reaching this determination, the Advisers will not attempt to
place a specific dollar value on the brokerage and research services provided or
to determine what portion of the compensation should be related to those
services.

The Advisers are authorized to use research services provided by and to place
portfolio transactions, to the extent permitted by law, with brokerage firms
that have provided assistance in the distribution of shares of each Portfolio.

The Trustees periodically review the Advisers' performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of each Portfolio and review the commissions paid by each Portfolio over
representative periods of time to determine if they are reasonable in relation
to the benefits to each Portfolio.

10
<PAGE>

For the fiscal years ended June 30, 1996 and 1995, the portfolio turnover rates
were 41% and 33% for the Growth & Income Portfolio, and 56% and 23% for the Bond
Portfolio, respectively. In aggregate, the Trust paid brokerage commissions in
the amounts of $276,190, $146,176 and $161,109 during the fiscal years ended
June 30, 1996, 1995 and 1994, respectively. During the fiscal years ended June
30, 1996, 1995 and 1994, no brokerage commissions were paid by either Portfolio
to an affiliated broker of the Trust.

From time to time the Trustees will review whether the recapture for the benefit
of each Portfolio of some portion of the brokerage commissions or similar fees
paid by each Portfolio on portfolio transactions is legally permissible and
advisable. Each Portfolio seeks to recapture soliciting broker-dealer fees on
the tender of portfolio securities, but at present no other recapture
arrangements are in effect. The Trustees intend to continue to review whether
recapture opportunities are available and are legally permissible and, if so, to
determine, in the exercise of their business judgment, whether it would be
advisable for each Portfolio to seek such recapture.

When two or more Portfolios are simultaneously engaged in the purchase or sale
of the same security, the prices and amounts are allocated in accordance with a
formula considered by the Trustees and First Tennesseeto be equitable to each
Portfolio. In some cases this system could have a detrimental effect on the
price or value of the security as far as each Portfolio is concerned. In other
cases, however, the ability of each Portfolio to participate in volume
transactions will produce better executions for each Portfolio. It is the
current opinion of the Trustees that the desirability of retaining the Advisers
as investment adviser and sub-adviser to each Portfolio outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions.

VALUATION OF PORTFOLIO SECURITIES

Securities owned by each Portfolio are appraised by various methods depending on
the market or exchange on which they trade. Securities traded on the New York
Stock Exchange (NYSE) or the American Stock Exchange are appraised at the last
sale price, or if no sale has occurred, at the closing bid price. Securities
traded on other exchanges are appraised as nearly as possible in the same
manner. Securities and other assets for which exchange quotations are not
readily available are valued on the basis of closing over-the-counter bid
prices, if available, or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the Trustees.
Short-term securities maturing in 60 days are valued either at amortized cost or
at original cost plus accrued interest, both of which approximate current value.
Convertible securities and fixed-income securities are valued primarily by a
pricing service that uses a vendor security valuation matrix which incorporates
both dealer-supplied valuations and electronic data processing techniques. This
two-fold approach is believed to more accurately reflect fair value because it
takes into account appropriate factors such as institutional trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance upon
quoted, exchange, or over-the-counter prices.

Use of pricing services has been approved by the Board of Trustees. Securities
and other assets for which there is no readily available market are valued in
good faith by a committee appointed by the Board of Trustees. The procedures
set forth above need not be used to determine the value of the securities owned
by a Portfolio if, in the opinion of a committee appointed by the Board of
Trustees , some other method (e.g., closing over-the-counter bid prices in the
case of debt instruments traded on an exchange) would more accurately reflect
the fair market value of such securities.

Generally, the valuation of foreign and domestic equity securities, as well as
corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, is substantially completed each day at the close of the
NYSE. The values of any such securities held by the Portfolios are determined
as of such time for the purpose of computing the Portfolios' net asset values
per share (NAV). Foreign security prices are furnished by independent brokers
or quotation services which express the value of securities in their local
currency. Chase Global Funds Services Company, the Transfer Agent, gathers all
exchange rates daily at the close of the NYSE using the last quoted price on
the local currency and then translates the value of foreign securities from
their local currency into U.S. dollars. Any changes in the value of forward
contracts due to exchange rate fluctuations and days to maturity are included in
the calculation of the net asset value. If an extraordinary event that is
expected to materially affect the value of a portfolio security occurs after the
close of an exchange on which that security is traded, then the security will be
valued as determined in good faith.

PERFORMANCE

For each Class of Bond Portfolio, YIELDS used in advertising are computed by
dividing interest income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive dividends
during the period, dividing this figure by the NAV at the end of the period
and annualizing the result (assuming compounding of income) in order to
arrive at an annual percentage rate. Income is calculated for purposes of
yield quotations in accordance with stan-

11
<PAGE>

dardized methods applicable to all bond funds. In general, interest income
is reduced with respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and is
increased with respect to bonds trading at a discount by adding a portion of
the discount to daily income. Capital gains and losses generally are
excluded from the calculation.

Income calculated for the purposes of determining yields differs from income as
determined for other accounting purposes. Because of the different accounting
methods used, and because of the compounding of income assumed in yield
calculations, yield may not equal its distribution rate, the income paid to an
account, or income reported in financial statements.

Yield information may be useful in reviewing performance and in providing a
basis for comparison with other investment alternatives. Yield will fluctuate,
unlike investments that pay a fixed interest rate over a stated period of time.
Investors should give consideration to the quality and maturity of portfolio
securities of the respective investment companies when comparing investments.

Investors should recognize that in periods of declining interest rates, yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money from the continuous sale
of its shares will likely be invested in instruments producing lower yields than
the balance of the holdings, thereby reducing the current yield. In periods of
rising interest rates, the opposite can be expected to occur. For the fiscal
year ending June 30, 1996, the 30-day yields for Class I, II and III of Bond
Portfolio were 6.41%, 5.88% and 5.39%, respectively.

TOTAL RETURNS for each Class of each Portfolio quoted in advertising reflect all
aspects of return, including the effect of reinvesting dividends and capital
gain distributions (if any), and any change in NAV over the period. AVERAGE
ANNUAL TOTAL RETURNS are calculated by determining the growth or decline in
value of a hypothetical historical investment over a stated period, and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. For example, a cumulative total return of 100% over ten years would
produce an average annual total return of 7.18%, which is the steady annual rate
of return that would equal 100% growth on a compounded basis in ten years.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that performance is not
constant over time, but changes from year to year, and that average annual total
returns represent averaged figures as opposed to the actual year-to-year
performance. Average annual returns covering periods of less than one year are
calculated by determining total return for the period, extending that return for
a full year (assuming that performance remains constant over the year), and
quoting the result as an annual return. The following table shows total returns
for the fiscal year ending June 30, 1996 for each Class of each Portfolio:
<TABLE>
<CAPTION>
Class I Average Class II Average Class III Average
Annual Total Return Annual Total Return Annual Total Return
------------------- ------------------- -------------------
One Since One Since One Since
Year Inception Year Inception Year Inception
---- --------- ---- --------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Growth & Income Portfolio 23.54% 18.67% 17.68% 16.65% 22.19% 17.40%
Bond Portfolio 4.23% 4.91% (0.14%) 3.39% 3.11% 3.65%
</TABLE>

CUMULATIVE TOTAL RETURNS reflect the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be quoted
as a percentage or as a dollar amount, and may be calculated for a single
investment, a series of investments, or a series of redemptions, over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Where applicable,
sales loads may or may not be included.

Each Portfolio may compare the performance of each of its Classes or the
performance of securities in which it or each of its Classes may invest to
other mutual funds, especially to those with similar investment objectives.
These comparisons may be based on data published by IBC USA (Publications),
Inc. of Ashland, MA or by Lipper Analytical Services, Inc. (Lipper, sometimes
referred to as Lipper Analytical Services), an independent service located in
Summit, New Jersey that monitors the performance of mutual funds. Lipper
generally ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. Lipper
may also rank funds based on yield. In addition to the mutual fund rankings,
the Portfolio's performance may be compared to mutual fund performance
indices prepared by Lipper. The BOND FUND

12
<PAGE>

REPORT AVERAGES which is reported in the BOND FUND REPORT, covers taxable
bond funds. When evaluating comparisons to money market funds, investors
should consider the relevant differences in investment objectives and
policies. Specifically, money market funds invest in short-term, high-quality
instruments and seek to maintain a stable $1.00 share price. Bond Portfolio,
however, invests in longer-term instruments and its share price changes daily
in response to a variety of factors. Investors should give consideration to
the quality and maturity of the portfolio securities of the respective
investment companies when comparing investment alternatives.

MOVING AVERAGES. Growth & Income Portfolio may illustrate performance using
moving averages. A long-term moving average is the average of each week's
adjusted closing NAV for a specified period. A short-term moving average is the
average of each day's adjusted closing NAV for a specified period. Moving
Average Activity Indicators combine adjusted closing NAVs from the last business
day of each week with moving averages for a specified period to produce
indicators showing when an NAV has crossed, stayed above, or stayed below its
moving average.

NET ASSET VALUE. Charts and graphs using the Portfolios' net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted NAV includes any distributions paid by the Portfolio
and reflects all elements of its return. Unless otherwise indicated, the
Portfolio's adjusted NAVs are not adjusted for sales charges, if any.

From time to time, each Portfolio's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Portfolios may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates mutual
funds on the basis of risk-adjusted performance.

Each Portfolio may be compared in advertising to certificates of deposits (CDs)
or other investments issued by banks. Mutual funds differ from bank investments
in several respects. For example, the Portfolios may offer greater liquidity or
higher potential returns than CDs, and the Portfolio does not guarantee your
principal or your return.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical returns
of the capital markets in the United States, including common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury bills, the U.S. rate of inflation
(based on the Consumer Price Index), and combinations of various capital
markets. The performance of these capital markets is based on the return of
different indices.

Growth & Income Portfolio may compare its performance to that of the Standard &
Poor's Composite Index of 500 stocks (S&P 500), a widely recognized, unmanaged
index of the combined performance of the stocks of 500 American companies. The
index is composed of stocks from 400 industrial corporations, 20 transportation,
40 utility, and 40 financial corporations, which amounts to approximately 80% of
the U.S. equity market value. Bond Portfolio may compare its performance to
that of the Lehman Brothers Government Bond Index, an index comprised of all
public obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and corporate debt guaranteed by the U.S. government, and the
Lehman Brothers Corporate Bond Index, an index comprised of all public,
fixed-rate, non-convertible investment-grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's or BBB by S&P, or in
the case of non-rated bonds, BBB by Fitch Investors Service. The Government
Bond Index and the Corporate Bond Index are combined to form the
Government/Corporate Bond Index. Each Portfolio may compare its performance to
that of the Lehman Brothers Aggregate Bond Index, an index comprised of
securities from the Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and Yankee Bond Index. Each Portfolio may
also quote mutual fund rating services in its advertising materials, including
data from a mutual fund rating service which rates mutual funds on the basis of
risk adjusted performance. Because the fees for Class II and Class III are
higher than the fees for Class I, yields and returns for those classes will be
lower than for Class I.

Each Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program, the
investor invests a fixed dollar amount at periodic intervals, thereby purchasing
fewer shares when prices are high and more shares when prices are low. While
such a strategy does not assure a profit nor guard against loss in a declining
market, the investor's average cost per share can be lower than if fixed numbers
of shares had been purchased at those intervals. In evaluating such a plan,
investors should consider their ability to continue purchasing shares through
periods of low price levels.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The following holiday closings have been scheduled for the remainder of 1996 and
for 1997: Veterans' Day, Thanksgiving Day, Christmas Day, New Year's Day, Dr.
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, and Columbus Day. Although First Tennessee expects
the same holiday schedule to be

13
<PAGE>

observed in the future, the New York Sock Exchange (NYSE) and the Federal
Reserve Bank of New York (New York Federal Reserve) may modify their holiday
schedules at any time. If the Trustees determine that existing conditions
make cash payment undesirable, redemption payments may be made in whole or in
part in securities or other property, valued for this purpose as they are
valued in computing each Portfolio's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax purposes
and will incur any costs of sale, as well as the associated inconveniences.

Pursuant to Rule 11a-3 under the 1940 Act, each Portfolio is required to give
shareholders at least 60 days' notice prior to terminating or modifying each
Portfolio's exchange privilege. Under Rule 11a-3, the 60-day notification
requirement may be waived if (i) the only effect of a modification would be to
reduce or eliminate an administrative fee, redemption fee or deferred sales
charge ordinarily payable at the time of exchange, or (ii) under extraordinary
circumstances, a Portfolio temporarily suspends the offering of shares as
permitted under the 1940 Act or by the SEC or because it is unable to invest
amounts effectively in accordance with its investment objective and policies.
This exchange limit may be modified for accounts in certain institutional
retirement plans to conform to plan exchange limits and Department of Labor
Regulations.

ADDITIONAL CLASS II AND CLASS III INFORMATION

SYSTEMATIC INVESTING PROGRAM. Investors can make regular investments in Class
II and Class III with Systematic Investing by completing the appropriate section
on the account application and attaching a voided personal check. If the bank
account is jointly owned, make sure that all owners sign. Investments may be
made monthly by automatically deducting $25 or more from your checking account.
This monthly purchase amount may be changed at any time. There is a $250
minimum initial investment requirement for this option. For employees of First
Tennessee Bank National Association or any of its affiliates, who participate in
the Systematic Investing Program, the minimum initial investment requirement is
$50. Accounts will be drafted on or about the first business day of every
month. Systematic Investing may be canceled at any time without payment of a
cancellation fee. Investors will receive a confirmation from their securities
broker or financial institution (Investment Professional), or from the Transfer
Agent for every transaction, and a debit entry will appear on your bank
statement.

SYSTEMATIC WITHDRAWAL PLAN. Investors can have monthly, quarterly or
semi-annual checks sent from their account to you, to a person named by them, or
to their bank checking account. The Systematic Withdrawal Plan payments are
drawn from share redemptions and must be in the amount of $100 or more per
Portfolio per transaction. If Systematic Withdrawal Plan redemptions exceed
income dividends earned on shares, an account eventually may be exhausted.
Contact the Investment Professional for more information.

DISTRIBUTIONS AND TAXES

DIVIDENDS. A portion of Growth & Income Portfolio's income may qualify for the
dividends-received deduction available to corporate shareholders to the extent
that the Portfolio's income is derived from qualifying dividends. Because the
Portfolio may also earn other types of income, such as interest, income from
securities loans, non-qualifying dividends and short-term capital gains, the
percentage of dividends from the Portfolio that qualifies for the deduction will
generally be less than 100%. The Portfolio will notify corporate shareholders
annually of the percentage of portfolio dividends which qualify for the
dividends received deduction. Because Bond Portfolio's income is primarily
derived from interest, dividends from the Portfolio generally will not qualify
for the dividends-received deductible available to corporations. A portion of
each Portfolio's dividends derived from certain U.S. government obligations may
be exempt from state and local taxation. Gains (losses) attributable to foreign
currency fluctuations are generally taxable as ordinary income and therefore
increase (decrease) dividend distributions. Each Portfolio will send each
shareholder a notice in January describing the tax status of dividends and
capital gain distributions for the prior year.

CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains realized by each Portfolio
on the sale of securities and distributed to shareholders are federally taxable
as long-term capital gains regardless of the length of time that shareholders
have held their shares. If a shareholder receives a long-term capital gain
distribution on shares of each Portfolio, and such shares are held less than six
months and are sold at a loss, the portion of the loss equal to the amount of
the long-term capital gain distribution will be considered a long-term loss for
tax purposes.

Short-term capital gains distributed by each Portfolio are taxable to
shareholders as dividends, not as capital gains. Distributions from short-term
capital gains do not qualify for the dividends received deduction.

FOREIGN TAXES. Foreign governments may withhold taxes on dividends and interest
paid with respect to foreign securities. Because each Portfolio does not
currently anticipate that securities of foreign corporations will constitute
more than

14
<PAGE>

50% of each Portfolio's total assets at the end of its fiscal year,
shareholders should not expect to claim a foreign tax credit or deduction on
their federal income tax returns with respect to foreign taxes withheld.

TAX STATUS OF THE TRUST. Each Portfolio has qualified and intends to qualify as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the Code), so that each Portfolio will not be liable for
federal income or excise taxes on net investment income or capital gains to the
extent that these are distributed to shareholders in accordance with applicable
provisions of the Code. In order to qualify as a regulated investment company
and avoid being subject to federal income or excise taxes, each Portfolio
intends to distribute substantially all of its net investment income and net
realized capital gains within each calendar year as well as on a fiscal year
basis. Each Portfolio also intends to comply with other tax rules applicable to
regulated investment companies, including a requirement that capital gains from
the sale of securities held for less than three months must constitute less than
30% of each Portfolio's gross income for each fiscal year.

Gains from some forward currency contracts and options are included in this 30%
calculation, which may limit each Portfolio's investments in such instruments.
If the Portfolios purchase shares in certain foreign investment entities, called
passive foreign investment companies (PFICs), they may be subject to U.S.
federal income tax on a portion of any excess distribution or gain from the
disposition of such shares. Interest charges may also be imposed on the
Portfolios with respect to deferred taxes arising from such distributions or
gains.

OTHER TAX INFORMATION. The information above is only a summary of some of the
tax consequences generally affecting each Portfolio and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
distributions received from each Portfolio. Investors should consult their tax
advisors to determine whether each Portfolio is suitable to their particular tax
situation.

Federal income tax will be withheld at a 20% rate on any eligible rollover
distributions that are not transferred directly to another qualified plan or
IRA. Actual income tax may be higher or lower and will be due when tax forms
for the year are filed. Taxes will not be withheld in cases of direct rollover
into an IRA or another qualified plan.

TRUSTEES AND OFFICERS

The Trustees and executive officers of the Trust are listed below. Each Trustee
or officer that is an "interested person" (as defined in the 1940 Act) by virtue
of his affiliation with First Tennessee or ALPS, is indicated by an asterisk
(*).

THOMAS M. BATCHELOR, Trustee, 4325 Woodcrest Drive, Memphis, TN, who presently
operates a management consultant business on a limited basis, retired after
owning and operating two General Insurance Companies agencies for over thirty
years. He was one of the founders and served as a director of First American
State Bank in Memphis, TN (now part of United American Bank of Memphis). He
currently serves as Chairman, Memphis Union Mission, TN, as well as a charity
and a non-profit foundation.

JOHN A. DECELL, Trustee, 5178 Wheelis, Suite 2, Memphis, TN is Proprietor,
DeCell & Company (real estate and business consulting), and President of Capital
Advisers, Inc. (real estate asset management).

*L. R. JALENAK, JR., Trustee, 6094 Apple Tree Drive, Suite 11, Memphis, TN was
Chairman of the Board (1990 - 1993 (retired)), Cleo Inc., a Gibson Greetings
Company. Mr. Jalenak is also a Director of Perrigo Company (1988 - present),
Lufkin Industries (1990 - present), Dyersburg Corporation (April 1992 -
present), was President and CEO (until 1990) of Cleo Inc., and was a Director of
Gibson Greetings, Inc. from 1983 to 1991.

LARRY W. PAPASAN, Trustee, 1450 Brooks Road, Memphis, TN is President of Smith &
Nephew Richards, Inc. Mr. Papasan is a former Director of First American
National Bank of Memphis and The West Tennessee Board of First American National
Bank (1988 - 1991) and was President of Memphis Light Gas and Water Division of
the City of Memphis (1984 - 1991).

*RICHARD C. RANTZOW, President and Trustee, 5790 Shelby Avenue, Memphis, TN is
Vice President/Director, Ron Miller Associates, Inc. (manufacturer). Mr.
Rantzow was Managing Partner (until 1990) of the Memphis office of Ernst &
Young.

*MARK A. POUGNET, Treasurer , is Chief Financial Officer of ALPS Mutual Funds
Services, Inc. (ALPS), the Administrator and Distributor. In addition, Mr.
Pougnet serves as Treasurer of the Duff & Phelps Funds, and Treasurer of
Westcore Trust. Prior to joining ALPS, Mr. Pougnet served as Executive Director
of Syndication Accounting for Paramount Pictures-Television Group from 1989 to
1991.

15
<PAGE>

*JAMES V. HYATT, Secretary, is General Counsel of ALPS Mutual Funds Services,
Inc. (ALPS), the Administrator and Distributor. Prior to joining ALPS, Mr.
Hyatt served as Senior Legal Counsel for FMR and Clerk for Fidelity
Management Trust Company.

The Trustees of the Trust each receive from the Trust an annual fee of $4,000
and a fee in the amount of $1,250 for attending each regularly scheduled
quarterly meeting of the Trustees and $500 for each unscheduled meeting. The
Trustees were compensated as follows for their services provided during the
Trust's fiscal year ended June 30, 1996:

- -------------------------------------------------------------------------------
Pension Or Aggregate
Retirement Estimated Compensation
Aggregate Benefits Annual From The Trust
Compensation Accrued As Benefits and Fund
From the Part of Fund Upon Complex Paid
Trust Expenses Retirement to Trustees
- -------------------------------------------------------------------------------
Thomas M. Batchelor
Trustee $6,000 $0 $0 $6,000
- -------------------------------------------------------------------------------
John A. DeCell
Trustee $6,000 $0 $0 $6,000
- -------------------------------------------------------------------------------
L.R. Jalenak, Jr.
Trustee $6,000 $0 $0 $6,000
- -------------------------------------------------------------------------------
Larry W. Papasan,
Trustee $6,000 $0 $0 $6,000
- -------------------------------------------------------------------------------
Richard C. Rantzow
Trustee $6,000 $0 $0 $6,000
- -------------------------------------------------------------------------------

As of September 30, 1996, the officers and Trustees of the Trust owned less
than 1% of the outstanding shares of any Portfolio.

INVESTMENT ADVISORY AGREEMENTS

Each Portfolio employs First Tennessee Bank National Association (First
Tennessee), Memphis, Tennessee, to furnish investment advisory and other
services to the Portfolio. Under the Investment Advisory and Management
Agreement with each Portfolio, First Tennessee is authorized to appoint one
or more sub-advisers at First Tennessee's expense. Highland Capital
Management Corp. (Highland), Memphis, Tennessee, acts as Sub-Adviser and,
subject to the direction of the Trustees and of First Tennessee, directs the
investments of each Portfolio in accordance with its investment objective,
policies and limitations.

In addition to First Tennessee's fee and the fees payable to the Transfer
Agent, Pricing and Accounting Agent, and to the Administrator, each Portfolio
pays for all its expenses, without limitation, that are not assumed by these
parties. Each Portfolio pays for typesetting, printing and mailing of proxy
material to existing shareholders, legal expenses, and the fees of the
custodian, auditor and Trustees. Other expenses paid by each Portfolio
include: interest, taxes, brokerage commissions, the Portfolio's
proportionate share of insurance premiums and Investment Company Institute
dues, and costs of registering shares under federal and state securities
laws. Each Portfolio also is liable for such nonrecurring expenses as may
arise, including costs of litigation to which each Portfolio is a party, and
its obligation under the Declaration of Trust to indemnify its officers and
Trustees with respect to such litigation.

For managing the investment and business affairs of the Growth & Income
Portfolio, First Tennessee is entitled to receive a monthly management fee at
the annual rate of .65% of its average net assets. For managing the
investment and business affairs of the Bond Portfolio, First Tennessee is
entitled to receive a monthly management fee at the annual rate of .55% of
its average net assets. For the fiscal years ended June 30, 1996, 1995 and
1994, First Tennessee earned $1,076,198, $686,850 and $447,908 from the
Growth & Income Portfolio, respectively, before waiving $358,250, $532,648
and $447,908 of its

<PAGE>

fees, respectively. For the fiscal years ended June 30, 1996, 1995 and 1994,
First Tennessee earned $563,748, $447,309 and $350,736 from the Bond
Portfolio, respectively, before waiving $482,559, $447,309 and $350,736 of
its fees, respectively.

Under the Investment Advisory and Management Agreement, First Tennessee is
authorized, at its own expense, to hire sub-advisers to provide investment
advice to each Portfolio. As Sub-Adviser, Highland is entitled to receive
from First Tennessee a monthly sub-advisory fee at the annual rate of .38% of
Growth & Income Portfolio's average net assets, and .33% of Bond Portfolio's
average net assets. Under the terms of the sub-advisory agreement with First
Tennessee, Highland, subject to the supervision of First Tennessee,
supervises the day-to-day operations of each Portfolio and provides
investment research and credit analysis concerning each Portfolio's
investments, conducts a continual program of investment of each Portfolio's
assets and maintains the books and records required in connection with its
duties under each sub-advisory agreement. In addition, Highland keeps First
Tennessee informed of the developments materially affecting each Portfolio.
Highland is currently waiving some or all of the fees it is entitled to
receive from First Tennessee.

ADMINISTRATION AGREEMENT AND OTHER CONTRACTS

ADMINISTRATOR AND DISTRIBUTOR. ALPS Mutual Funds Services, Inc. (ALPS, the
Administrator and Distributor), is the Administrator and Distributor to each
Portfolio ALPS, a Colorado corporation, is a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association
of Securities Dealers, Inc.

As the Administrator, ALPS assists in each Portfolio's administration and
operation, including, but not limited to, providing office space and various
legal and accounting services in connection with the regulatory requirements
applicable to each Portfolio. ALPS is entitled to and receives from each
Portfolio a monthly fee at the annual rate of .15% of average net assets.

For each Portfolio's fiscal year ended June 30, 1996, ALPS earned
administration fees in the amount of $248,353 and $153,749 from the Growth &
Income Portfolio and the Bond Portfolio, respectively. For the fiscal years
ended June 30, 1995 and 1994, National Financial Services Corporation (NFSC)
served as the Administrator and Distributor for each Portfolio. As
Administrator, NFSC earned fees from each Portfolio computed daily and
payable monthly at an annual rate of .20% of average net assets through $100
million, .15% above $100 million and through $200 million, and .10% over $200
million. For each Portfolio's fiscal year ended June 30, 1995, NFSC earned
administration fees in the amount of $208,504 and $162,658 from the Growth &
Income Portfolio and the Bond Portfolio, respectively. For the period July 1,
1994 to September 30, 1994, NFSC waived .05% of its administration fees,
totaling $13,373 for the Growth & Income Portfolio and $9,078 for the Bond
Portfolio.

For the period ended June 30, 1994, NFSC received administration and
distribution fees totaling $137,818 and $127,540 from the Growth & Income and
Bond Portfolios, respectively. For this period, NFSC waived administration
fees of $34,455 for the Growth & Income Portfolio and $31,885 for the Bond
Portfolio and reimbursed these Portfolios $1,748 and $1,742, respectively.

First Tennessee serves as the Co-Administrator for each Portfolio. As the
Co-Administrator, First Tennessee assists in each Portfolio's operation,
including, but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive from each Portfolio a monthly fee at the
annual rate of .05% of average net assets. For each Portfolio's fiscal year
ended June 30, 1996, First Tennessee earned co-administration fees in the
amount of $82,965 and $51,198 from the Growth & Income Portfolio and the Bond
Portfolio, respectively, before waiving $34,639 and $23,882, respectively.

As the Distributor, ALPS sells shares of Class I as agent on behalf of the
Trust at no additional cost to the Trust. Class III is obligated to pay ALPS
monthly a 12b-1 fee at the annual rate of .75% of average net assets, all or
a portion of which may be paid out to broker-dealers or others involved in
the distribution of Class III shares. See "ADMINISTRATION AGREEMENTS AND
CONTRACTS -Distribution Plans" on page 18. Class II and III pay shareholder
servicing fees to Investment Professionals at an annual rate of .25% of
average net assets as more fully described under the section "ADMINISTRATION
AGREEMENTS AND OTHER CONTRACTS - Shareholder Services Plans" on page 18.
First Tennessee and its affiliates neither participate in nor are responsible
for the underwriting of Portfolio shares. Consistent with applicable law,
affiliates of First Tennessee may receive commissions or asset-based fees.

<PAGE>

an banks and clearing agencies. The Custodian takes no part in determining
the investment policies of the Portfolios or in deciding which securities are
purchased or sold by the Portfolios. The Portfolios, however, may invest in
obligations of the Custodian and may purchase securities from or sell
securities to the Custodian.

For the fiscal year ended June 30, 1996, the following fees were earned by
the Transfer Agent/Fund Accountant and Custodian:

Growth & Income Bond
Portfolio Portfolio
--------- ---------
Transfer Agent/Fund Accounting
Class I $85,576 $68,107
Class II $467 $17
Class III $49,582 $2,950
Custodian $40,307 $26,793

For the fiscal year ended June 30, 1995, the following fees were earned by the
Transfer Agent, Fund Accountant and Custodian:

Growth & Income Bond
Portfolio Portfolio
--------- ---------
Transfer Agent
Class I $13,594 $14,672
Class III $25,174 $17,500
Fund Accounting $28,082 $28,767
Custodian $29,646 $22,079

During the fiscal year ended June 30, 1995, the transfer agent voluntarily
agreed to waive its fee for Class III of each Portfolio to the extent
necessary to maintain the maximum differential in expenses, excluding 12b-1
fees and shareholder servicing fees, between Class I and Class III of each
Portfolio to .49% of average net assets. The transfer agent waived fees
totaling $5,333 and $12,462 for the Growth & Income Portfolio and the Bond
Portfolio, respectively.

DISTRIBUTION PLANS. The Trustees of the Trust have adopted a Distribution
Plan on behalf of Class III of each Portfolio (each Class III Plan) pursuant
to Rule 12b-1 (the Rule) under the 1940 Act. The Rule provides in substance
that a mutual fund may not engage directly or indirectly in financing any
activity that is intended primarily to result in the sale of shares of the
fund except pursuant to a plan adopted by the fund under the Rule. The
Trustees have adopted the Plans to allow each class and ALPS to incur
distribution expenses. ALPS receives a Distribution and Service fee (12b-1
fee) of up to 0.75% of the average net assets of Class III of each Portfolio.
(These fees are in addition to the fees paid to ALPS under the
Administration Agreement.) The Trust or ALPS, on behalf of Class III of each
Portfolio, may enter into servicing agreements (Service Agreements) with
banks, broker-dealers or other institutions (Agency Institutions). Each
Class III Plan provides that ALPS may use its fees and other resources to
make payments to Agency Institutions for performance of distribution-related
services, including those enumerated above. The Service Agreements further
provide for compensation to broker-dealers for their efforts to sell Class
III shares. The distribution-related services include, but are not limited
to, the following: formulation and implementation of marketing and
promotional activities, such as mail promotions and television, radio,
newspaper, magazine and other mass media advertising; preparation, printing
and distribution of sales literature; preparation, printing and distribution
of prospectuses of each Portfolio and reports to recipients other than
existing shareholders of each Portfolio; obtaining such information, analyses
and reports with respect to marketing and promotional activities as ALPS may
from time to time, deem advisable; making payments to securities dealers and
others engaged in the sales of Class III Shares; and providing training,
marketing and support to such dealers and others with respect to the sale of
Class III Shares. Each Class III Plan recognizes ALPS may use its fees and
other resources to pay expenses associated with the promotion and
administration of activities primarily intended to result in the sale of
shares.

Each Plan has been approved by the Trustees, including the majority of
disinterested Trustees. As required by the Rule, the Trustees carefully
considered all pertinent factors relating to the implementation of the Plans
prior to its approval, and have determined that there is a reasonable
likelihood that each Plan will benefit each Portfolio and its shareholders.
To the extent that the Class III Plans give ALPS greater flexibility in
connection with the distribution of shares of the class, additional sales of
shares may result.

<PAGE>

tribution-related expenses and receives $2 under a Class III Plan, the $1
difference could be said to be a profit for ALPS. (Because ALPS is
reimbursed for its out-of-pocket direct promotional expenses, a Class III
Plan also could be construed as a reimbursement plan. Until the issue is
resolved by the SEC, unreimbursed expenses incurred in one year will not be
carried over to a subsequent year.) If after payments by ALPS for marketing
and distribution there are any remaining fees attributable to a Class III
Plan, these may be used as ALPS may elect. Since the amount payable under a
Class III Plan will be commingled with ALPS's general funds, including the
revenues it receives in the conduct of its business, it is possible that
certain of ALPS's overhead expenses will be paid out of Plan fees and that
these expenses may include items which the SEC has noted, for example, the
costs of leases, depreciation, communications, salaries, training and
supplies. Each Portfolio believes that such expenses, if paid, will be paid
only indirectly out of the fees being paid under the Plan.

For the fiscal years ended June 30, 1996 and 1995, the Growth & Income
Portfolio and the Bond Portfolio paid distribution fees in the amounts of
$226,023 and $73,018, and $23,789 and $9,726, respectively.

SHAREHOLDER SERVICES PLANS. In addition to the Rule 12b-1 Distribution Plans
described above, Class II and Class III have adopted Shareholder Services
Plans to compensate Agency Institutions for individual shareholder services
and account maintenance. These functions include: maintaining account
records for each shareholder who beneficially owns Class II or Class III
Shares; answering questions and handling correspondence from shareholders
about their accounts; handling the transmission of funds representing the
purchase price or redemption proceeds; issuing confirmations for transactions
in Class II or Class III Shares by shareholders; assisting customers in
completing application forms; communicating with the transfer agent; and
providing account maintenance and account level support for all transactions.
For these services the participating Agency Institutions are paid a service
fee at the annual rate of up to .25% of average net assets of Class II and
Class III.

For the fiscal years ended June 30, 1996 and 1995, the Growth & Income
Portfolio and the Bond Portfolio paid shareholder servicing fees in the
following amounts:

Growth & Income Bond
Portfolio Portfolio
--------- ---------
1996 1995 1996 1995
------- ------- ------ ------
Class II $ 989 $ 0 $ 36 $ 0
Class III $75,107 $24,340 $7,930 $3,240

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit
a bank holding company registered under the Bank Holding Company Act of 1956
or any affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares and prohibit banks
generally from issuing, underwriting, selling or distributing securities.
The same laws and regulations generally permit a bank or bank affiliate to
act as an investment adviser and co-administrator and to purchase shares of
the investment company as agent for and upon the order of a customer. In the
Trust's and Investment Adviser's opinion, banks and their affiliates may be
paid for investment advisory, shareholder servicing, recordkeeping and
co-administration functions. Changes in federal or state statutes and
regulations pertaining to the permissible activities of banks and their
affiliates or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to perform
all or a part of the contemplated services. If a bank or its affiliates were
prohibited from so acting, the Trustees would consider what actions, if any,
would be necessary to continue to provide efficient and effective shareholder
services. In such event, changes in the operation of the Portfolios might
occur, including possible termination of any automatic investment or
redemption or other services then being provided by any bank. It is not
expected that shareholders would suffer any adverse financial consequences as
a result of any of these occurrences. The Portfolios may execute portfolio
transactions with and purchase securities issued by depository institutions
that receive payments under the Plans. No preference will be shown in the
selection of investments for the instruments of such depository institutions.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
state law.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. Growth & Income Portfolio and Bond Portfolio are
Portfolios of First Funds (formerly The Masters Group of Mutual Funds), an
open-end management investment company organized as a Massachusetts business
trust by a Declaration of Trust dated March 6, 1992, as amended and restated
on September 4, 1992. The Declaration of Trust permits the Trustees to
create additional Portfolios and Classes. There are seven Portfolios of the
Trust, each with three Classes.

<PAGE>

The assets of the Trust received for the issue or sale of shares of each
Portfolio and all income, earnings, profits, and proceeds thereof, subject
only to the rights of creditors, are specially allocated to such Portfolio,
and constitute the underlying assets of such Portfolio. The underlying
assets of each Portfolio are segregated on the books of account, and are to
be charged with the liabilities with respect to such Portfolio and with a
share of the general expenses of the Trust. Expenses with respect to the
Trust are to be allocated in proportion to the asset value of the respective
Portfolios except where allocations of direct expense can otherwise be fairly
made. The officers of the Trust, subject to the general supervision of the
Trustees, have the power to determine which expenses are allocable to a given
Portfolio, or which are general or allocable to all of the Portfolios. In
the event of the dissolution or liquidation of the Trust, shareholders of a
Portfolio are entitled to receive as a class the underlying assets of such
Portfolio available for distribution.

SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except
for the payment of the purchase price of shares and requires that each
agreement, obligation, or instrument entered into or executed by the Trust or
the Trustees shall include a provision limiting the obligations created
thereby to the Trust and its assets. The Declaration of Trust provides for
indemnification out of each Portfolio's property of any shareholders held
personally liable for the obligations of each Portfolio. The Declaration of
Trust also provides that each Portfolio shall, upon request, assume the
defense of any claim made against any shareholder for any act or obligation
of a Portfolio and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Portfolio itself would be unable to
meet its obligations. The Trustees believe that, in view of the above, the
risk of personal liability to shareholders is remote.

The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing,
but nothing in the Declaration of Trust protects a Trustee against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

As of September 30, 1996, the following shareholders owned more than 5% of
the outstanding shares of the indicated Class of the Portfolios:

Name and Address Portfolio Class % of Class Held
- ---------------- --------- ----- ---------------
First Tennessee National Corp. Growth & Income I 40%
D/B Pension Plan Bond I 57%
Memphis, TN

Milton C. Vincent Growth & Income II 37.68%
102 Polo Field Road
Chattanooga, TN 37419

Herschel B. Brown Growth & Income II 8.32%
P.O. Box 127
Hixson, TN 37343

Bonnie B. Hixson Growth & Income II 6.51%
4 Whispering Pines Dr.
Signal Mountain, TN 37377

First Tennessee National Corp. Growth & Income I 7%
401K Savings - Fund A Bond I 6%
Memphis, TN

James Pentecost and Virginia Bond II 32.54%
Pentecost, Trustees FBO
Pentecost Family Trust
2700 Germantown Road
Germantown, TN 38138

<PAGE>

David Pitchford and June Pitchford Bond II 24.95%
2002 Cochran
Mayville, TN 37801

VOTING RIGHTS. Each Portfolio's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable, except
as set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the Trust or a Portfolio may, as set
forth in the Declaration of Trust, call meetings of the Trust or a Portfolio
for any purpose related to the Trust or Portfolio, as the case may be,
including, in the case of a meeting of the entire Trust, the purpose of
voting on removal of one or more Trustees. The Trust or any Portfolio may be
terminated upon the sale of its assets to another open-end management
investment company, or upon liquidation and distribution of its assets, if
approved by vote of the holders of a majority of the outstanding shares of
the Trust or that Portfolio. If not so terminated, the Trust and each
Portfolio will continue indefinitely.

CLASSES. Pursuant to the Declaration of Trust, the Trustees have authorized
additional Classes of shares for each Portfolio of the Trust. Although the
investment objective for each separate Class of a particular Portfolio is the
same, fee structures are different such that one Class may have a higher
yield than another Class of the same Portfolio at any particular time.
Shareholders of the Trust will vote together in the aggregate and not
separately by Portfolio, or by Class thereof, except as otherwise required by
law or when the Trustees determine that the matter to be voted upon affects
only the interests of the shareholders of a particular Portfolio or a Class
thereof. Pursuant to a vote by the Board of Trustees, the Trust has adopted
Rule 18f-3 under the Act and has issued multiple Classes of shares with
respect to each of its Portfolios. Accordingly, the rights, privileges and
obligations of each such Class will be determined in accordance with such
rule.

INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 160 Federal Street, Boston,
Massachusetts, serves as the Trust's independent accountant. The independent
accountant examines the annual financial statements for the Trust and
provides other audit, tax, and related services.

FINANCIAL STATEMENTS

Portfolios' financial statements and financial highlights for the fiscal year
ended June 30, 1996 are included in each Portfolio's Annual Report which is a
separate report supplied independent of this Statement of Additional
Information. The Portfolios' financial statements and financial highlights
are incorporated herein by reference.

APPENDIX

DOLLAR-WEIGHTED AVERAGE MATURITY for Bond Portfolio is derived by multiplying
the value of each investment by the number of days remaining to its maturity,
adding these calculations, and then dividing the total by the value of the
Portfolio. An obligation's maturity is typically determined on a stated
final maturity basis, although there are some exceptions to this rule.

For example, if it is probable that the issuer of an instrument will take
advantage of a maturity-shortening device, such as a call, refunding, or
redemption provision, the date on which the instrument will probably be
called, refunded, or redeemed may be considered to be its maturity date.
Also, the maturities of mortgage-backed securities and some asset-backed
securities, such as collateralized mortgage obligations, are determined on a
weighted average life basis, which is the average time for principal to be
repaid. For a mortgage security, this average time is calculated by assuming
a constant prepayment rate for the life of the mortgage. The weighted
average life of these securities is likely to be substantially shorter than
their stated final maturity.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protections may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
Aaa securities.

<PAGE>

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S CORPORATE BOND RATINGS:

AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated debt issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in highest-rated categories.

The ratings from AA to BBB may be modified by the addition of a plus or minus
to show relative standing within the major rating categories.

<PAGE>

FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION FOR CLASS I, CLASS II, AND CLASS III
OCTOBER 25, 1996

This Statement is not a prospectus but should be read in conjunction with the
current Prospectus for each Class of Tennessee Tax-Free Portfolio dated October
25, 1996. Please retain this Statement for future reference. The Portfolio's
financial statements and financial highlights, included in the Annual Report for
the fiscal year ended June 30, 1996, are incorporated herein by reference. To
obtain additional free copies of this Statement, the Annual Report or the
Prospectus, please call the Distributor at 1-800-442-1941, option 1 or write to
the Distributor at 370 17th Street, Suite 2700, Denver CO 80202.

TABLE OF CONTENTS PAGE

Investment Restrictions and Limitations 2
Investment Instruments 3
Special Considerations Affecting Tennessee 6
Portfolio Transactions 6
Valuation of Portfolio Securities 7
Performance 8
Additional Purchase and Redemption Information 10
Distributions and Taxes 11
Trustees and Officers 12
Investment Advisory Agreement 13
Administration Agreement and Other Contracts 13
Description of the Trust 15
Financial Statements 16
Appendix 16

INVESTMENT ADVISER
First Tennessee Bank National Association (First Tennessee or the Investment
Adviser)

ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. (ALPS or the Administrator and Distributor)

CO-ADMINISTRATOR
First Tennessee Bank National Association (First Tennessee or the
Co-Administrator)

TRANSFER AGENT & CUSTODIAN
Chase Global Funds Services Company (CGFSC or the Transfer Agent)

<PAGE>

INVESTMENT RESTRICTIONS AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
Portfolio's investment policies and limitations.

Fundamental policies and investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of the Portfolio. However, except for the
fundamental investment limitations set forth below, the investment policies and
limitations described in this Statement of Additional Information are not
fundamental and may be changed without shareholder approval.

INVESTMENT LIMITATIONS OF TENNESSEE TAX-FREE PORTFOLIO

THE FOLLOWING ARE TENNESSEE TAX-FREE PORTFOLIO'S FUNDAMENTAL LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE PORTFOLIO MAY NOT:

(1) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(2) borrow money, except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days
(not including Sundays and holidays) to the extent necessary to
comply with the 33 1/3% limitation;

(3) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;

(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by
a U.S. territory or possession or the state of Tennessee or any
county, municipality, or political subdivision of any of the
foregoing, including any agency, board authority, or commission of
the foregoing) if, as a result, 25% or more of the Portfolio's total
assets would be invested in securities of companies whose principal
business activities are in the same industry;

(5) purchase or sell real estate, unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business);

(6) purchase or sell physical commodities unless acquired as a
result of ownership of securities or other instruments (but this
shall not prevent the Portfolio from purchasing or selling options
and futures contracts or from investing in securities or other
instruments backed by physical commodities); or

(7) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limit does not apply to purchases of debt securities or to
repurchase agreements.

(8) The Portfolio may, notwithstanding any other fundamental
investment policy or limitation, invest all of its assets in the
securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies,
and limitations as the Portfolio.

THE FOLLOWING LIMITATIONS OF TENNESSEE TAX-FREE PORTFOLIO ARE NOT FUNDAMENTAL
AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:

(i) To meet federal tax requirements for qualification as a
"regulated investment company," the Portfolio limits its investments
so that at the close of each quarter of its taxable year: (a) with
regard to at least 50% of total assets, no more than 5% of total
assets are invested in the securities of a single issuer, and (b) no
more than 25% of total assets are invested in the securities of a
single issuer. Limitations (a) and (b) do not apply to "government
securities" as defined for federal tax purposes.

<PAGE>

(ii) The Portfolio does not currently intend during the coming year
to sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
and provided that transactions in futures contracts and options are
not deemed to constitute selling short.

(iii) The Portfolio does not currently intend during the coming year
to purchase securities on margin, except that the Portfolio may
obtain such short-term credits as are necessary for the clearance of
transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.

(iv) The Portfolio may borrow money only (a) from a bank, or (b) by
engaging in reverse repurchase agreements with any party (reverse
repurchase agreements are treated as borrowings for purposes of
fundamental investment limitation 2). The Portfolio will not
purchase any security while borrowings representing more than 5% of
its total assets are outstanding.

(v) The Portfolio does not currently intend during the coming year
to purchase any security, if, as a result, more than 15% of its net
assets would be invested in securities that are deemed to be illiquid
because they are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued.

(vi) The Portfolio does not currently intend during the coming year
to engage in repurchase agreements or make loans, but this limitation
does not apply to purchases of debt securities.

(vii) The Portfolio does not currently intend during the coming year
to (a) purchase securities of other investment companies, except in
the open market where no commission except the ordinary broker's
commission is paid. This limitation does not apply to securities
received as dividends, through offers of exchange, or as a result of
a reorganization, consolidation, or merger.

INVESTMENT INSTRUMENTS

DELAYED DELIVERY TRANSACTIONS. The Portfolio may buy and sell securities on a
delayed delivery or when-issued basis. These transactions involve a commitment
by the Portfolio to purchase or sell specific securities at a predetermined
price and/or yield, with payment and delivery taking place after the customary
settlement period for that type of security (and more than seven days in the
future). Typically, no interest accrues to the purchaser until the security is
delivered. The Portfolio may receive fees for entering into delayed delivery
transactions.

When purchasing securities on a delayed delivery basis, the Portfolio assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because the Portfolio is not required to pay for securities until
the delivery date, these risks are in addition to the risks associated with the
Portfolio's other investments. If the Portfolio remains substantially fully
invested at a time when delayed delivery purchases are outstanding, the delayed
delivery purchases may result in a form of leverage. When delayed delivery
purchases are outstanding, the Portfolio will set aside appropriate liquid
assets in a segregated custodial account to cover its purchase obligations.
When the Portfolio has sold a security on a delayed delivery basis, the
Portfolio does not participate in further gains or losses with respect to the
security. If the other party to a delayed delivery transaction fails to deliver
or pay for the securities, the Portfolio could miss a favorable price or yield
opportunity, or could suffer a loss.

The Portfolio may renegotiate delayed delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.

FEDERALLY-TAXABLE OBLIGATIONS. Tennessee Tax-Free Portfolio does not intend to
invest in securities whose interest is federally taxable; however, from time to
time, the Portfolio may invest a portion of its assets on a temporary basis in
fixed-income obligations whose interest is subject to federal income tax. As an
operating policy, the Portfolio intends to invest its assets to achieve as fully
as possible tax exempt income for both Tennessee state and federal purposes.
For example, the Portfolio may invest in obligations whose interest is federally
taxable pending the investment or reinvestment in municipal securities of
proceeds from the sale of its shares or sales of portfolio securities.

Should the Portfolio invest in taxable obligations, it would purchase securities
which in the judgment of First Tennessee are of high quality. These would
include obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, obligations of domestic banks, and repurchase agreements.
The Portfolio's standards for high-quality taxable obligations are essentially
the same as those described by Moody's Investors Service, Inc. (Moody's) in
rating corporate

<PAGE>

obligations within its two highest ratings of Aaa and Aa, and those described
by Standard and Poor's Corporation (S&P) in rating corporate obligations
within its two highest ratings of AAA and AA.

Proposals to restrict or eliminate the federal income tax exemption for interest
on municipal obligations are introduced before Congress from time to time.
Proposals also may be introduced before the Tennessee General Assembly that
would affect the state tax treatment of the Portfolio's distributions. If such
proposals were enacted, the availability of municipal obligations and the value
of the Portfolio's holdings would be affected and the Board of Trustees (the
Trustees) would reevaluate the Portfolio's investment objective and policies.

Tennessee Tax-Free Portfolio anticipates being as fully invested as practicable
in municipal securities; however, there may be occasions when as a result of
maturities of portfolio securities, or sales of Portfolio shares, or in order to
meet redemption requests, the Portfolio may hold cash that is not earning
income. In addition, there may be occasions when, in order to raise cash to
meet redemptions, the Portfolio may be required to sell securities at a loss.

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Trustees, First Tennessee determines the
liquidity of Tennessee Tax-Free Portfolio's investments and, through reports
from First Tennessee, the Trustees monitor investments in illiquid instruments.
In determining the liquidity of the Portfolio's investments, First Tennessee may
consider various factors including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by
the Portfolio to be illiquid include repurchase agreements not entitling the
holder to payment of principal and interest within seven days, and some
restricted securities determined by First Tennessee to be illiquid. In the
absence of market quotations, illiquid investments are valued at fair value as
determined in good faith by the Trustees. If through a change in values, net
assets or other circumstances, the Portfolio were in a position where more than
15% of its net assets were invested in illiquid securities, the Trustees would
seek to take appropriate steps to protect liquidity.

MUNICIPAL LEASE OBLIGATIONS. The Portfolio may invest a portion of its assets
in municipal leases and participation interests therein. These obligations,
which may take the form of a lease, an installment purchase, or a conditional
sale contract, are issued by state and local governments and authorities to
acquire land and a wide variety of equipment and facilities. Generally, the
Portfolio will not hold such obligations directly as a lessor of the property,
but will purchase a participation interest in a municipal obligation from a bank
or other third party. A participation interest gives a Portfolio a specified,
undivided interest in the obligation in proportion to its purchased interest in
the total amount of the obligation.

Municipal leases frequently have risks distinct from those associated with
general obligation or revenue bonds. State constitutions and statutes set forth
requirements that states or municipalities must meet to incur debt. These may
include voter referenda, interest rate limits, or public sale requirements.
Leases, installment purchase, or conditional sale contracts (which normally
provide for title to the leased asset to pass to the governmental issuer) have
evolved as a means for governmental issuers to acquire property and equipment
without meeting their constitutional and statutory requirements for the issuance
of debt. Many leases and contracts include "non-appropriation clauses"
providing that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis.
Non-appropriation clauses free the issuer from debt issuance limitations.

REFUNDING CONTRACTS. Tennessee Tax-Free Portfolio generally will not be
obligated to pay the full purchase price if it fails to perform under a
refunding contract. Instead, refunding contracts generally provide for payment
of liquidated damages to the issuer (currently 15 - 20% of the purchase price).
The Portfolio may secure its obligations under a refunding contract by
depositing collateral or a letter of credit equal to the liquidated damages
provisions of the refunding contract. When required by Securities and Exchange
Commission (SEC) guidelines, the Portfolio will place liquid assets in a
segregated custodial account equal in amount to its obligations under refunding
contracts.

REPURCHASE AGREEMENTS are transactions in which the Portfolio purchases a
security and simultaneously commits to resell that security at an agreed upon
price and date within a number of days from the date of purchase. The resale
price reflects the purchase price plus an agreed upon market rate of interest
which is unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price. This obligation is in effect secured by the underlying security
having a value at least equal to the amount of the agreed upon resale price.
The Portfolio may enter into a repurchase agreement with respect to any security
in which it is authorized to invest. While it presently does not appear
possible to eliminate all risks from the transactions (particularly the
possibility of a

<PAGE>

decline in the market value of the underlying securities, as well as delay
and costs to the Portfolio in connection with bankruptcy proceedings), it is
the policy of the Portfolio to limit repurchase agreements to those parties
whose creditworthiness has been reviewed and found satisfactory by First
Tennessee.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, the Portfolio
sells a portfolio security to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, the Portfolio
will maintain appropriate high grade liquid assets in a segregated custodial
account to cover its obligation under the agreement. The Portfolio will enter
into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by First Tennessee. As a result, such transactions may
increase fluctuations in the market values of the Portfolio's assets and may be
viewed as a form of leverage.

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, Tennessee Tax-Free Portfolio may be obligated to pay all or part of
the registration expense and a considerable period may elapse between the time
each decides to seek registration and the time the Portfolio may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Portfolio might obtain a
less favorable price than prevailed when it decided to seek registration of the
security.

STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at an
exercise price equal to the amortized cost of the underlying security plus
accrued interest, if any, at the time of exercise. Tennessee Tax-Free Portfolio
may acquire standby commitments to enhance the liquidity of portfolio
securities, but only when the issuers of the commitments present minimal risk of
default.

Ordinarily, the Portfolio will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third party
at any time. The Portfolio may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In the
latter case, the Portfolio would pay a higher price for the securities acquired,
thus reducing their yield to maturity.

Standby commitments are subject to certain risks, including the ability of
issuers to pay for securities at the time the commitments are exercised; the
fact that standby commitments are not marketable by the Portfolio; and that the
maturities of the underlying securities may be different from those of the
commitments.

TENDER OPTION BONDS are created by coupling an intermediate or long-term
fixed-rate tax-exempt bond (generally held pursuant to a custodial arrangement)
with a tender agreement that gives the holder the option to tender the bond at
its face value. As consideration for providing the tender option, the sponsor
(usually a bank, broker-dealer, or other financial institution) receives
periodic fees equal to the difference between the bond's fixed coupon rate and
the rate (determined by a remarketing or similar agent) that would cause the
bond, coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, Tennessee Tax-Free
Portfolio effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. In selecting tender option bonds for the
Portfolio, First Tennessee will consider the creditworthiness of the issuer of
the underlying bond, the custodian, and the third party provider of the tender
option. In certain instances, a sponsor may terminate a tender option if, for
example, the issuer of the underlying bond defaults on interest payments.

Tennessee Tax-Free Portfolio may invest in fixed-rate bonds that are subject to
third party puts and in participation interests in such bonds held by a bank in
trust or otherwise. These bonds and participation interests have tender options
or demand features that permit the Portfolio to tender (or put) their bonds to
an institution at periodic intervals and to receive the principal amount
thereof. The Portfolio considers variable rate instruments structured in this
way (Participating VRDOs) to be essentially equivalent to other VRDOs they
purchase.

<PAGE>

ZERO COUPON BONDS do not make regular interest payments; instead they are
sold at a deep discount from their face value and are redeemed at face value
when they mature. Because zero coupon bonds do not pay current income, their
prices can be very volatile when interest rates change. In calculating its
daily dividend, the Portfolio takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.

A broker-dealer creates a DERIVATIVE ZERO by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.

The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them as
individual securities. Bonds issued by the Resolution Funding Corporation
(REFCORP) and the Financing Corporation (FICO) can also be separated in this
fashion. ORIGINAL ISSUE ZEROS are zero coupon securities originally issued
by the U.S. government, a government agency, or a corporation in zero coupon
form.

SPECIAL CONSIDERATIONS AFFECTING TENNESSEE

TENNESSEE OBLIGATIONS. The following information as to certain Tennessee
considerations is given to investors in view of the Portfolio's policy of
concentrating its investments in Tennessee issuers. Such information is
derived from sources that are generally available to investors and is
believed to be accurate. Such information constitutes only a brief summary,
does not purport to be a complete description and is based on information
from official statements relating to securities offerings of Tennessee
issuers. Neither the Trust or the Portfolio has independently verified this
information.

In 1978, the voters of the State of Tennessee approved an amendment to the
State Constitution requiring that (1) the total expenditures of the State for
any fiscal year shall not exceed the State's revenues and reserves, including
the proceeds of debt obligations issued to finance capital expenditures and
(2) in no year shall the rate of growth of appropriations from State tax
revenues exceed the estimated rate of growth of the State's economy. In the
past the Governor and the General Assembly have had to restrict expenditures
to comply with the State Constitution.

While the financial operations of the State were negatively impacted by the
national economic downturn, the State's finances have stabilized in recent
years. The General Fund balance was reduced to $7.3 million in 1991;
however, operating surpluses for 1992 built up the balance to $150.1 million
for 1993. In fiscal 1995 the General Education Fund was $101.4 million.

Several new programs could have a negative impact on the financial operations
of the State. A half percent increase in the sales tax rate, imposed in
fiscal 1993, was dedicated to a new Basic Education Program. This increase
has since been made permanent. Tennessee will provide health care to the
entire Medicaid population as well as the uninsured population in the State.
A service tax that was implemented to help fund this program was repealed in
connection with the implementation of the expanded health care program
although recently, the costs of this healthcare plan have stabilized.

The Tennessee economy is largely based on manufacturing and services, which
accounted for approximately 47% of the gross State product in 1989. The
location of General Motors' Saturn project in Tennessee is believed to
demonstrate the continuing viability of manufacturing in the State. Other
important segments of the State economy include the wholesale and retail
trade, transportation, and the government sector. The State unemployment
rate for August 1996 declined to 4.4% from 5.1% for August 1995. The national
average was 5.1% for August 1996. There can be no assurance that Tennessee's
relatively favorable economic performance will continue.

As of the date of this Statement of Additional Information, general
obligations of the State of Tennessee are rated "AA+," "Aaa" and "AAA" by
S&P, Moody's and Fitch. There can be no assurance that the economic
conditions on which these ratings are based will continue or that particular
bond issues may not be adversely affected by changes in economic, political
or other conditions.

PORTFOLIO TRANSACTIONS

All orders for the purchase or sale of securities are placed on behalf of the
Portfolio by First Tennessee pursuant to authority contained in the
Portfolio's Investment Advisory and Management Agreement. First Tennessee is
also responsible for the placement of transaction orders for other investment
companies and accounts for which it or its affiliates act as investment
advisor. In selecting broker-dealers, subject to applicable limitations of
the federal securities laws, First Tennessee considers various relevant
factors, including, but not limited to, the broker's execution capability;
the broker's perceived

6
<PAGE>

financial stability; the broker's responsiveness to the First Tennessee's
transaction requests; and the broker's clearance and settlement capability.

The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio or other accounts
over which First Tennessee or its affiliates exercise investment discretion.
Such services may include research-related computer hardware and software;
furnishing analyses and reports concerning issuers, industries, and economic
factors and trends.

The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to First Tennessee in rendering
investment management services to the Portfolio and/or its other clients, and
conversely, such information provided by broker-dealers who have executed
transaction orders on behalf of other clients may be useful to First
Tennessee in carrying out its obligations to the Portfolio. The receipt of
such research has not reduced First Tennessee' normal independent research
activities; however, it enables First Tennessee to avoid the additional
expenses that could be incurred if it tried to develop comparable information
through its own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are
higher than the commission of another broker-dealer who might have charged
for their research and execution services. In order to cause the Portfolio
to pay such higher commissions, First Tennessee must determine in good faith
that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers
viewed in terms of a particular transaction or First Tennessee's overall
responsibilities to the Portfolio and its other clients. In reaching this
determination, First Tennessee will not attempt to place a specific dollar
value on the brokerage and research services provided or to determine what
portion of the compensation should be related to those services.

First Tennessee is authorized to use research services provided by and to
place portfolio transactions to the extent permitted by law, with brokerage
firms that have provided assistance in the distribution of shares of the
Portfolio.

The Trustees periodically review First Tennessee's performance of its
responsibilities in connection with the placement of portfolio transactions
on behalf of the Portfolio and review the commissions paid by the Portfolio
over representative periods of time to determine if they are reasonable in
relation to the benefits to the Portfolio.

For the fiscal period ended June 30, 1996, the portfolio turnover rate was
8%. In aggregate, the Trust paid brokerage commissions in the amount of
$276,190, $146,176 and $161,109 during the fiscal years ended June 30, 1996,
1995 and 1994, respectively. During the fiscal years ended June 30, 1996,
1995 and 1994, no brokerage commissions were paid by the Portfolio to an
affiliated broker of the Trust.

From time to time the Trustees will review whether the recapture for the
benefit of the Portfolio of some portion of the brokerage commissions or
similar fees paid by the Portfolio on portfolio transactions is legally
permissible and advisable. The Portfolio seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at present no
other recapture arrangements are in effect. The Trustees intend to continue
to review whether recapture opportunities are available and are legally
permissible and, if so, to determine, in the exercise of their business
judgment, whether it would be advisable for the Portfolio to seek such
recapture.

When two or more Portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a formula considered by the Trustees and First Tennessee to be equitable
to each Portfolio. In some cases this system could have a detrimental effect
on the price or value of the security as far as the Portfolio is concerned.
In other cases, however, the ability of the Portfolio to participate in
volume transactions will produce better executions for the Portfolio. It is
the current opinion of the Trustees that the desirability of retaining First
Tennessee as investment adviser to the Portfolio outweighs any disadvantages
that may be said to exist from exposure to simultaneous transactions.

VALUATION OF PORTFOLIO SECURITIES

Valuations of securities furnished by the pricing service employed by the
Portfolio are based upon a computerized matrix system and/or appraisals by
the independent pricing service, in each case in reliance upon information
concerning market transactions and quotations from recognized securities
dealers. The methods used by the pricing service and the quality of
valuations so established are reviewed by officers of the Portfolio and the
Portfolio's pricing agent under general supervision of the Trustees.

7
<PAGE>

Use of pricing services has been approved by the Board of Trustees.
Securities and other assets for which there is no readily available market
are valued in good faith by a committee appointed by the Board of Trustees.
The procedures set forth above need not be used to determine the value of the
securities owned by the fund if, in the opinion of a committee appointed by
the Board of Trustees, some other method (e.g., closing over-the-counter- bid
prices in the case of debt instruments traded on an exchange) would more
accurately reflect the fair market value of such securities.

PERFORMANCE

For each class of the Portfolio, YIELDS used in advertising are computed by
dividing interest income for a given 30-day or one-month period, net of
expenses, by the average number of shares entitled to receive dividends
during the period, dividing this figure by the net asset value per share
(NAV) at the end of the period and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate.
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all bond funds. In general, interest
income is reduced with respect to bonds trading at a premium over their par
value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. Capital gains and losses generally
are excluded from the calculation.

Income calculated for the purposes of determining yields differs from income
as determined for other accounting purposes. Because of the different
accounting methods used, and because of the compounding of income assumed in
yield calculations, yield may not equal its distribution rate, the income
paid to an account, or income reported in financial statements.

Yield information may be useful in reviewing performance and in providing a
basis for comparison with other investment alternatives. Yield will
fluctuate, unlike investments that pay a fixed interest rate over a stated
period of time. Investors should give consideration to the quality and
maturity of portfolio securities of the respective investment companies when
comparing investments.

Investors should recognize that in periods of declining interest rates, yield
will tend to be somewhat higher than prevailing market rates, and in periods
of rising interest rates yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money from the continuous
sale of its shares will likely be invested in instruments producing lower
yields than the balance of the holdings, thereby reducing the current yield.
In periods of rising interest rates, the opposite can be expected to occur.

For the fiscal period ending June 30, 1996, the 30-day yield was 4.64%, 4,45%
and 4.15% for Class I, II and III, respectively.

Tennessee Tax-Free Portfolio also may quote the TAX-EQUIVALENT YIELD for each
class, which shows the taxable yield an investor would have to earn, before
taxes, to equal the tax-free yield. Tax-equivalent yield is the current
yield that would have to be earned, in the investor's tax bracket, to match
the tax-free yields shown below after taking federal income taxes into
account. Tax-equivalent yields are calculated by dividing current yield by
the result of one minus a stated federal or combined federal and state tax
rate. It gives the approximate yield a taxable security must provide at
various income brackets to produce after-tax yields equivalent to those of
tax-exempt obligations yielding from 2.0% to 8.0%. Of course, no assurance
can be given that each class will achieve any specific tax-exempt yield.
While the Portfolio invests principally in municipal obligations whose
interest is not includable in gross income for purposes of calculating
federal income tax, other income received by the Portfolio may be taxable.

The following table shows the effect of a shareholder's tax status on
effective yield under the federal income tax laws for 1996:

1996 TAX RATES AND TAX-EQUIVALENT YIELDS

<TABLE>
<CAPTION>
Taxable Federal
Income * Tax If individual tax-exempt yield is:
Bracket ** 2.00% 3.00% 4.00%
single return joint return Then taxable equivalent yield is:
<S> <C> <C> <C> <C>
$0 - $24,000 $0 - $40,100 15% 2.35% 3.53% 4.71%
$24,001 - $58,150 $40,101 - $96,900 28% 2.78% 4.17% 5.56%
$58,151 - $121,300 $96,901 - $147,700 31% 2.90% 4.35% 5.80%
$121,301 - $263,750 $147,701 - $263,750 36% 3.13% 4.69% 6.25%
$263,751 - above $263,751 - above 39.6% 3.31% 4.97% 6.62%
</TABLE>

8
<PAGE>

* Taxable income (gross income after all exemptions, adjustments, and
deductions) based on 1996 tax rates.

** Excludes the impact of the phaseout of personal exemptions, limitation
on itemized deductions, and other credits, exclusions, and adjustments
which may raise a taxpayer's marginal tax rate. An increase in a
shareholder's marginal tax rate would increase that shareholder's
tax-equivalent yield.

Tennessee individual income tax is levied at a flat rate of 6%. The tax
is levied on dividend and interest income.

If your effective combined federal and Tennessee state tax rate in 1996 is:

20.10% 32.32% 35.14% 39.84% 43.22%
Then your tax-equivalent yield is:
Tax-Equivalent Yield*
- ---------------------
2.0% 2.50% 2.96% 3.08% 3.32% 3.52%
3.0% 3.75% 4.43% 4.63% 4.99% 5.28%
4.0% 5.01% 5.91% 6.17% 6.65% 7.04%
5.0% 6.26% 7.39% 7.71% 8.31% 8.81%
6.0% 7.51% 8.87% 9.25% 9.97% 10.57%
7.0% 8.76% 10.34% 10.79% 11.64% 12.33%
8.0% 10.01% 11.82% 12.33% 13.30% 14.09%

* The Portfolio may invest a portion of its assets in obligations that are
subject to state or federal income tax. When the Portfolio invests in these
obligations, its tax-equivalent yield will be lower. In the table above,
tax-equivalent yields are calculated assuming investments are 100% federally
and state tax-free.

TOTAL RETURNS for each Class of the Portfolio quoted in advertising reflect
all aspects of return, including the effect of reinvesting dividends and
capital gain distributions (if any), and any change in NAV over the period.
AVERAGE ANNUAL TOTAL RETURNS are calculated by determining the growth or
decline in value of a hypothetical historical investment over a stated
period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative total return of
100% over ten years would produce an average annual total return of 7.18%,
which is the steady annual rate of return that would equal 100% growth on a
compounded basis in ten years. While average annual total returns are a
convenient means of comparing investment alternatives, investors should
realize that performance is not constant over time, but changes from year to
year, and that average annual total returns represent averaged figures as
opposed to the actual year-to-year performance. Average annual returns
covering periods of less than one year are calculated by determining total
return for the period, extending that return for a full year (assuming that
performance remains constant over the year), and quoting the result as an
annual return.

CUMULATIVE TOTAL RETURNS reflect the simple change in value of an investment
over a stated period. Average annual and cumulative total returns may be
quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over
any time period. Total returns may be broken down into their components of
income and capital (including capital gains and changes in share price) in
order to illustrate the relationship of these factors and their contributions
to total return. Total returns, yields, and other performance information
may be quoted numerically or in a table, graph, or similar illustration.
Where applicable, sales loads may or may not be included. The cumulative
total return since inception for the fiscal period ended June 30, 1996 was
(0.65%), (4.36%) and (0.87%) for Class I, II and III, respectively.

The Portfolio may compare the performance of its Classes or the performance
of securities in which it or its Classes may invest to other mutual funds,
especially to those with similar investment objectives. These comparisons
may be based on data published by IBC/Donoghue's Money Fund Report of
Ashland, MA 01721, or by Lipper Analytical Services, Inc. (Lipper, sometimes
referred to as Lipper Analytical Services), an independent service located in
Summit, New Jersey that monitors the performance of mutual funds. Lipper
generally ranks funds on the basis of total return, assuming reinvestment of
distributions, but does not take sales charges or redemption fees into
consideration, and is prepared without regard to tax consequences. Lipper
may also rank funds based on yield. In addition to the mutual fund rankings,
the Portfolio's performance may be compared to mutual fund performance
indices prepared by Lipper. The BOND FUND REPORT AVERAGES, which is reported
in the BOND FUND REPORT, covers taxable bond funds. Investors should give
consideration to the quality and maturity of the portfolio securities of the
respective investment companies when comparing investment alternatives.

From time to time, the Portfolio's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Portfolio may quote Morningstar, Inc. in its advertising materials.

9
<PAGE>

Morningstar, Inc. is a mutual fund rating service that rates mutual funds on
the basis of risk-adjusted performance. The Portfolio may be compared in
advertising to certificates of deposits (CDs) or other investments issued by
banks. Mutual funds differ from bank investments in several respects. For
example, the Portfolio may offer greater liquidity or higher potential
returns than CDs, and the Portfolio does not guarantee your principal or your
return.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate
of inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
return of different indices.

The Portfolio may compare its performance to that of the Lehman Brothers
Municipal Bond Index, an index comprised of revenue bonds and state
government obligations. The Portfolio may also compare its performance to
that of the Lehman Brothers General Obligation Bond Index, an index comprised
of all public, fixed-rate, non-convertible investment-grade domestic
corporate debt. The Portfolio may also quote mutual fund rating services in
its advertising materials, including data from a mutual fund rating service
which rates mutual funds on the basis of risk adjusted performance. Because
the fees for Class II and Class III are higher than the fees for Class I,
yields and returns for those classes will be lower than for Class I.

The Portfolio may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a program,
the investor invests a fixed dollar amount at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit nor guard against loss
in a declining market, the investor's average cost per share can be lower
than if fixed numbers of shares had been purchased at those intervals. In
evaluating such a plan, investors should consider their ability to continue
purchasing shares through periods of low price levels.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The following holiday closings have been scheduled for the remainder of 1996
and 1997: Veterans' Day, Thanksgiving Day, Christmas Day), New Year's Day,
Dr. Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day),
Independence Day, Labor Day, and Columbus Day. Although First Tennessee
expects the same holiday schedule to be observed in the future, the New York
Stock Exchange (NYSE) and the Federal Reserve Bank of New York (New York
Federal Reserve) may modify their holiday schedules at any time.

If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the Portfolio's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes and will
incur any costs of sale, as well as the associated inconveniences.

Pursuant to Rule 11a-3 under the 1940 Act, the Portfolio is required to give
shareholders at least 60 days' notice prior to terminating or modifying the
Portfolio's exchange privilege. Under Rule 11a-3, the 60 day notification
requirement may be waived if (I) the only effect of a modification would be
to reduce or eliminate an administrative fee, redemption fee or deferred
sales charge ordinarily payable at the time of exchange, or (ii) under
extraordinary circumstances, a Portfolio temporarily suspends the offering of
shares as permitted under the 1940 Act or by the SEC or because it is unable
to invest amounts effectively in accordance with its investment objective and
policies. This exchange limit may be modified for accounts in certain
institutional retirement plans to conform to plan exchange limits and
Department of Labor Regulations. ADDITIONAL CLASS II AND CLASS III INFORMATION

PURCHASE INFORMATION. As provided for in Rule 22d-1 under the 1940 Act, ALPS
Mutual Funds Services, Inc. (ALPS or the Distributor), exercises its right to
waive the Portfolio's Class II shares' maximum 3.75% sales charge in
connection with the Portfolio's merger with or acquisition of any investment
company or trust.

SYSTEMATIC INVESTING PROGRAM. Investors can make regular investments in
Class II and Class III with Systematic Investing by completing the
appropriate section on the account application and attaching a voided
personal check. If the bank account is jointly owned, make sure that all
owners sign. Investments may be made monthly by automatically deducting $25
or more from your checking account. This monthly purchase amount may be
changed at any time. There is a $50 minimum initial investment requirement
for this option. For employees of First Tennessee Bank National Association
or any of its affiliates who participate in the Systematic Investing Program,
the minimum initial investment requirement is $50. Accounts will be drafted
on or about the first business day of every month. Systematic Investing may
be canceled at any time without payment of a cancellation fee. Investors
will receive a confirmation from their securities broker or financial

10
<PAGE>

institution (Investment Professional), or from the Transfer Agent for every
transaction, and a debit entry will appear on your bank statement.

SYSTEMATIC WITHDRAWAL PLAN. Investors can have monthly, quarterly or
semi-annual checks sent from their account to you, to a person named by them,
or to their bank checking account. The Systematic Withdrawal Plan payments
are drawn from share redemptions and must be in the amount of $100 or more
per Portfolio per month. If Systematic Withdrawal Plan redemptions exceed
income dividends earned on shares, an account eventually may be exhausted.
Contact the Investment Professional for more information.

DISTRIBUTIONS AND TAXES

DIVIDENDS. To the extent that the Portfolio's income is derived from
federally tax-exempt interest, the daily dividends declared by the Portfolio
are also federally tax-exempt. The Portfolio will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions (if any) for the prior year. Dividends derived from Tennessee
Tax-Free Portfolio's tax-exempt income are not subject to federal income tax,
but must be reported to the IRS by shareholders. Exempt-interest dividends
are included in income for purposes of computing the portion of social
security and railroad retirement benefits that may be subject to federal tax.
If the Portfolio earns taxable income or capital gains from its investments,
these amounts will be designated as taxable distributions. Dividends derived
from taxable investment income and short-term capital gains are taxable as
ordinary income. The Portfolio will send a tax statement showing the amount
of tax-exempt distributions for the past calendar year, and will send an IRS
Form 1099-DIV by January 31 if the Portfolio makes any taxable distributions.

The Portfolio purchases municipal obligations based on opinions of bond
counsel regarding the federal income tax status of the obligations. These
opinions generally will be based upon covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenants at any time, interest on the
obligation could become federally taxable retroactive to the date the
obligation was issued.

As a result of the Tax Reform Act of 1986, interest on certain "private
activity" securities (referred to in the Internal Revenue Code as "qualified
bonds") is subject to the federal alternative minimum tax (AMT), although the
interest continues to be excludable from gross income for other purposes.
Interest from private activity securities will be considered tax-exempt for
purposes of the Portfolio's policies of investing so that at least 80% of its
income is free from federal income tax. Interest from private activity
securities is a tax preference item for the purpose of determining whether a
taxpayer is subject to the AMT and the amount of AMT to be paid, if any.
Private activity securities issued after August 7, 1986 to benefit a private
or industrial user or to finance a private facility are affected by this rule.

STATE TAXES. In the opinion of fund counsel, Baker, Donelson, Bearman &
Caldwell, investments in Tennessee Tax-Free Portfolio will not be subject to
Tennessee personal income taxes on distributions received from the Portfolio
to the extent such distributions are attributable to interest on bonds or
securities of the U.S. government or any of its agencies or
instrumentalities, or in bonds or other securities of the State of Tennessee
or any county, municipality or political subdivision, including any agency,
board, authority or commission. Other distributions from the Portfolio,
including dividends attributable to obligations of issuers in other states,
and all long-term and short-term capital gains, will not be exempt from
personal income taxes in Tennessee. The Portfolio will report annually the
percentage and source, on a state-by-state basis, of interest income received
by the Portfolio on municipal bonds during the preceding year.

CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains realized by the
Portfolio on the sale of securities and distributed to shareholders are
federally taxable as long-term capital gains regardless of the length of time
that shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Portfolio, and such
shares are held less than six months and are sold at a loss, the portion of
the loss equal to the amount of the long-term capital gain distribution will
be considered a long-term loss for tax purposes.

A portion of the gain on bonds purchased at a discount after April 30, 1993
and short-term capital gains distributed by the Portfolio are taxable to
shareholders as dividends, not as capital gains. Distributions from
short-term capital gains do not qualify for the dividends received deduction.
Dividend distributions resulting from a re characterization of gain from the
sale of bonds purchased at a discount after April 30, 1993 are not considered
income for the purposes of the Portfolio's policy of investing so that at
least 80% of its income is free from federal income tax.

TAX STATUS OF THE TRUST. The Portfolio intends to qualify as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended, (the
Code), so that the Portfolio will not be liable for federal income or excise
taxes on net investment income or capital gains to the extent that these are
distributed to shareholders in accordance with applicable

11
<PAGE>

provisions of the Code. In order to qualify as a regulated investment
company and avoid being subject to federal income or excise taxes, the
Portfolio intends to distribute substantially all of its net investment
income and net realized capital gains within each calendar year as well as on
a fiscal year basis. The Portfolio also intends to comply with other tax
rules applicable to regulated investment companies, including a requirement
that capital gains from the sale of securities held for less than three
months must constitute less than 30% of the Portfolio's gross income for each
fiscal year.

OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Portfolio and its shareholders,
and no attempt has been made to discuss individual tax consequences. In
addition to federal income taxes, shareholders of the Portfolio may be
subject to state and local taxes on distributions received from the
Portfolio. Investors should consult their tax advisors to determine whether
the Portfolio is suitable to their particular tax situation.

Effective January 1, 1993, federal income tax will be withheld at a 20% rate
on any eligible rollover distributions that are not transferred directly to
another qualified plan or IRA. Actual income tax may be higher or lower and
will be due when tax forms for the year are filed. Taxes will not be
withheld in cases of direct rollover into an IRA or another qualified plan.

TRUSTEES AND OFFICERS

The Trustees and executive officers of the Trust are listed below. Each
Trustee or officer that is an "interested person" (as defined in the 1940
Act) by virtue of his affiliation with First Tennessee or ALPS is indicated
by an asterisk (*).

THOMAS M. BATCHELOR, Trustee, 4325 Woodcrest Drive, Memphis, TN, who
presently operates a management consultant business on a limited basis,
retired after owning and operating two General Insurance Companies agencies
for over thirty years. He was one of the founders and served as a director
of First American State Bank in Memphis, TN (now part of United American Bank
of Memphis). He currently serves as Chairman, Memphis Union Mission, TN, as
well as a charity and a non-profit foundation.

JOHN A. DECELL, Trustee, 5178 Wheelis, Suite 2, Memphis, TN is Proprietor,
DeCell & Company (real estate and business consulting), and President of
Capital Advisers, Inc. (real estate asset management).

*L. R. JALENAK, JR., Trustee, 6094 Apple Tree Drive, Suite 11, Memphis, TN
was Chairman of the Board (1990 - 1993 (retired)), Cleo Inc., a Gibson
Greetings Company. Mr. Jalenak is also a Director of Perrigo Company (1988 -
present), Lufkin Industries (1990 - present), Dyersburg Corporation (April
1992 -present), was President and CEO (until 1990) of Cleo Inc., and was a
Director of Gibson Greetings, Inc. from 1983 to 1991.

LARRY W. PAPASAN, Trustee, 1450 Brooks Road, Memphis, TN is President of
Smith & Nephew Richards, Inc. Mr. Papasan is a former Director of First
American National Bank of Memphis and The West Tennessee Board of First
American National Bank (1988 - 1991) and was President of Memphis Light Gas
and Water Division of the City of Memphis (1984 - 1991).

*RICHARD C. RANTZOW, President and Trustee, 5790 Shelby Avenue, Memphis, TN
is Vice President/Director, Ron Miller Associates, Inc. (manufacturer). Mr.
Rantzow was Managing Partner (until 1990) of the Memphis office of Ernst &
Young.

*MARK A. POUGNET, Treasurer , is Chief Financial Officer of ALPS Mutual Funds
Services, Inc. (ALPS), the Administrator and Distributor. In addition, Mr.
Pougnet serves as Treasurer of the Duff & Phelps Funds, and Treasurer of
Westcore Trust. Prior to joining ALPS, Mr. Pougnet served as Executive
Director of Syndication Accounting for Paramount Pictures-Television Group
from 1989 to 1991.

12
<PAGE>

Pension Or Aggregate
Retirement Estimated Compensation
Aggregate Benefits Annual From The Trust
Compensation Accrued As Benefits and Fund
From the Part of Fund Upon Complex Paid
Trust Expenses Retirement to Trustees
------------------------------------------------------------------------------
Thomas M. Batchelor
Trustee $6,000 $0 $0 $6,000
------------------------------------------------------------------------------
John A. DeCell
Trustee $6,000 $0 $0 $6,000
------------------------------------------------------------------------------
L.R. Jalenak, Jr.
Trustee $6,000 $0 $0 $6,000
------------------------------------------------------------------------------
Larry W. Papasan,
Trustee $6,000 $0 $0 $6,000
------------------------------------------------------------------------------
Richard C. Rantzow
Trustee $6,000 $0 $0 $6,000
------------------------------------------------------------------------------

As of September 30, 1996, the officers and Trustees of the Trust owned less than
1% of the outstanding shares of any Portfolio.

INVESTMENT ADVISORY AGREEMENT

The Portfolio employs First Tennessee Bank National Association (First Tennessee
or the Investment Adviser), Memphis, Tennessee, to furnish investment advisory
and other services to the Portfolio. Under the Investment Advisory and
Management Agreement with the Portfolio, First Tennessee is authorized to
appoint one or more sub-advisers at First Tennessee's expense.

In addition to First Tennessee's fee payable to First Tennessee and the fees
payable to the Transfer Agent and Pricing and Accounting Agent, and to the
Administrator, the Portfolio pays for all its expenses, without limitation, that
are not assumed by these parties. The Portfolio pays for typesetting, printing
and mailing of proxy material to existing shareholders, legal expenses, and the
fees of the custodian, auditor and Trustees. Other expenses paid by the
Portfolio include: interest, taxes, brokerage commissions, the Portfolio's
proportionate share of insurance premiums and Investment Company Institute dues,
and costs of registering shares under federal and state securities laws. The
Portfolio also is liable for such nonrecurring expenses as may arise, including
costs of litigation to which the Portfolio is a party, and its obligation under
the Declaration of Trust to indemnify its officers and Trustees with respect to
such litigation.

For managing its investment and business affairs, Tennessee Tax-Free Portfolio
pays First Tennessee a monthly management fee at the annual rate of .50% of
average net assets. First Tennessee has voluntarily agreed to waive its fee for
the Portfolio. This fee waiver may be discontinued at any time.

ADMINISTRATION AGREEMENT AND OTHER CONTRACTS

ADMINISTRATOR AND DISTRIBUTOR. ALPS Mutual Funds Services, Inc. (ALPS, the
Administrator and Distributor), is the Administrator and Distributor to the
Portfolio under an Administration and General Distribution Agreement. ALPS, a
Colorado corporation, is a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc.

As the Administrator, ALPS assists in the Portfolio's administration and
operation, including, but not limited to, providing office space and various
legal and accounting services in connection with the regulatory requirements
applicable to the Portfolio. ALPS is entitled to receive from each Class of the
Portfolio a monthly fee at the annual rate of .15% of average net assets. ALPS
has voluntarily agreed to waive its administration fee to .075% through
December 31, 1996. Additionally through December 31, 1996, ALPS has agreed to
voluntarily assume all Portfolio expenses in order to maintain an expense

<PAGE>

ratio of 0.00% for all Classes of the Portfolio. ALPS reserves the right to
modify or terminate this voluntary fee waiver and assumption of the expenses
at any time.

First Tennessee serves as the Co-Administrator for the Portfolio. As the
Co-Administrator, First Tennessee assists in the Portfolio's operation,
including, but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive from the Portfolio a monthly fee at the annual
rate of .05% of average net assets. First Tennessee is voluntarily waiving its
full fee; however, there is no guarantee that this waiver will continue.

As the Distributor, ALPS sells shares of Class I as agent on behalf of the Trust
at no additional cost to the Trust. Class III is obligated to pay ALPS monthly a
12b-1 fee at the annual rate of up to .75% of average net assets, all or a
portion of which may be paid out to broker-dealers or others involved in the
distribution of Class III shares. Class II and III pay shareholder servicing
fees to Investment Professionals at an annual rate of up to.25% of average net
assets as more fully described under the section "ADMINISTRATION AGREEMENT AND
OTHER CONTRACTS - Shareholder Services Plans" on page 15. First Tennessee and
its affiliates neither participate in nor are responsible for the underwriting
of Portfolio shares. Consistent with applicable law, affiliates of First
Tennessee may receive commissions or asset-based fees.

TRANSFER AGENT, FUND ACCOUNTING AND CUSTODIAN. Chase Global Funds Services
Company (CGFSC or the Transfer Agent), provides transfer agent and shareholder
services for the Portfolio, and calculates the NAV and dividends of each class
and maintains the portfolio and general accounting records. Chase Manhattan
Bank is Custodian of the assets of the Portfolio. The Custodian is responsible
for the safekeeping of the Portfolio's assets and the appointment of
sub-custodian banks and clearing agencies. The Custodian takes no part in
determining the investment policies of the Portfolio or in deciding which
securities are purchased or sold by the Portfolio. The Portfolio, however, may
invest in obligations of the Custodian and may purchase securities from or sell
securities to the Custodian.

For the fiscal period ended June 30, 1996, the following fees were earned by the
Transfer Agent/Fund Accountant and Custodian:

Transfer/Fund Accounting
Class I $4,292
Class II $ 766
Class III $ 911
Custodian $1,450

DISTRIBUTION PLAN. The Trustees of the Trust have adopted a Distribution Plan
on behalf of Class III of the Portfolio (the Class III Plan) pursuant to Rule
12b-1 (the Rule) under the 1940 Act. The Rule provides in substance that a
mutual fund may not engage directly or indirectly in financing any activity that
is intended primarily to result in the sale of shares of the fund except
pursuant to a plan adopted by the fund under the Rule. The Trustees have
adopted the Plan to allow each class and ALPS to incur distribution expenses.
ALPS receives a Distribution fee (12b-1 fee) of up to and 0.75% of the average
net assets of Class III of the Portfolio. (These fees are in addition to the
fees paid to ALPS under the Administration Agreement.) The Trust or ALPS, on
behalf of Class III of the Portfolio, may enter into servicing agreements
(Service Agreements) with banks, broker-dealers or other institutions (Agency
Institutions). The Class III Plan provides that ALPS may use its fees and other
resources to make payments to Agency Institutions for performance of
distribution-related services, including those enumerated above. The Service
Agreements further provide for compensation to broker-dealers for their efforts
to sell Class III shares. The distribution-related services include, but are
not limited to, the following: formulation and implementation of marketing and
promotional activities, such as mail promotions and television, radio,
newspaper, magazine and other mass media advertising; preparation, printing and
distribution of sales literature; preparation, printing and distribution of
prospectuses of the Portfolio and reports to recipients other than existing
shareholders of the Portfolio; obtaining such information, analyses and reports
with respect to marketing and promotional activities as ALPS may from time to
time, deem advisable; making payments to securities dealers and others engaged
in the sales of Class III Shares; and providing training, marketing and support
to such dealers and others with respect to the sale of Class III Shares. The
Class III Plan recognizes ALPS may use its fees and other resources to pay
expenses associated with the promotion and administration of activities
primarily intended to result in the sale of shares.

The Plan has been approved by the Trustees, including the majority of
disinterested Trustees. As required by the Rule, the Trustees carefully
considered all pertinent factors relating to the implementation of the Plans
prior to its approval, and have determined that there is a reasonable likelihood
that the Plan will benefit the Portfolio and its shareholders. To the extent
that the Class III Plans give ALPS greater flexibility in connection with the
distribution of shares of the class, additional sales of shares may result.

<PAGE>

The Class III Plans could be construed as compensation plans because ALPS is
paid a fixed fee and is given discretion concerning what expenses are payable
under the Plans. ALPS may spend more for marketing and distribution than it
receives in fees and reimbursements from the Portfolio. However, to the extent
fees received exceed expenses, including indirect expenses such as overhead,
ALPS could be said to have received a profit. For example, if ALPS pays $1 for
Class III distribution-related expenses and receives $2 under a Class III Plan,
the $1 difference could be said to be a profit for ALPS. (Because ALPS is
reimbursed for its out-of-pocket direct promotional expenses, a Class III Plan
also could be construed as a reimbursement plan. Until the issue is resolved by
the SEC, unreimbursed expenses incurred in one year will not be carried over to
a subsequent year.) If after payments by ALPS for marketing and distribution
there are any remaining fees attributable to a Class III Plan, these may be used
as ALPS may elect. Since the amount payable under a Class III Plan will be
commingled with ALPS's general funds, including the revenues it receives in the
conduct of its business, it is possible that certain of ALPS's overhead expenses
will be paid out of Plan fees and that these expenses may include items which
the SEC has noted, for example, the costs of leases, depreciation,
communications, salaries, training and supplies. The Portfolio believes that
such expenses, if paid, will be paid only indirectly out of the fees being paid
under the Plan.

SHAREHOLDER SERVICES PLANS. In addition to the Rule 12b-1 Distribution Plans
described above, Class II and Class III have adopted Shareholder Services Plans
to compensate Agency Institutions for individual shareholder services and
account maintenance. These functions include: maintaining account records for
each shareholder who beneficially owns Class III Shares; answering questions and
handling correspondence from shareholders about their accounts; handling the
transmission of funds representing the purchase price or redemption proceeds;
issuing confirmations for transactions in Class III Shares by shareholders;
assisting customers in completing application forms; communicating with the
transfer agent; and providing account maintenance and account level support for
all transactions. For these services the participating Agency Institutions are
paid a service fee at the annual rate of up to and .25% of average net assets of
Class II and Class III.

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, controlling, or distributing
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares and prohibit banks generally from issuing,
underwriting, selling or distributing securities. The same laws and regulations
generally permit a bank or bank affiliate to act as an investment adviser and
co-administrator and to purchase shares of the investment company as agent for
and upon the order of a customer. In the Trust's and Investment Adviser's
opinion, banks and their affiliates may be paid for investment advisory,
shareholder servicing, recordkeeping and co-administration functions. Changes
in federal or state statutes and regulations pertaining to the permissible
activities of banks and their affiliates or subsidiaries, as well as further
judicial or administrative decisions or interpretations, could prevent a bank
from continuing to perform all or a part of the contemplated services. If a
bank or its affiliates were prohibited from so acting, the Trustees would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. In such event, changes in the
operation of the Portfolio might occur, including possible termination of any
automatic investment or redemption or other services then being provided by any
bank. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Portfolio may execute
portfolio transactions with and purchase securities issued by depository
institutions that receive payments under the Plans. No preference will be shown
in the selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to state
law.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. Tennessee Tax Free Portfolio is a portfolio of First Funds
(formerly The Masters Group of Mutual Funds), an open-end management investment
company organized as a Massachusetts business trust by a Declaration of Trust
dated March 6, 1992, as amended and restated on September 4, 1992. The
Declaration of Trust permits the Trustees to create additional portfolios and
classes. There are seven portfolios of the Trust, each with three classes.

The assets of the Trust received for the issue or sale of shares of the
Portfolio and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are specially allocated to such Portfolio, and
constitute the underlying assets of such Portfolio. The underlying assets of
the Portfolio are segregated on the books of account, and are to be charged with
the liabilities with respect to such Portfolio and with a share of the general
expenses of the Trust. Expenses with respect to the Trust are to be allocated
in proportion to the asset value of the respective Portfolios except where
allocations of direct expense can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which expenses are allocable to a given Portfolio, or which are
general or allocable to all of the Portfolios. In the event of the dissolution
or liquidation of the Trust, shareholders of a Portfolio are entitled to receive
as a class the underlying assets of such Portfolio available for distribution.

<PAGE>

SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees
shall include a provision limiting the obligations created thereby to the Trust
and its assets. The Declaration of Trust provides for indemnification out of
the Portfolio's property of any shareholders held personally liable for the
obligations of the Portfolio. The Declaration of Trust also provides that the
Portfolio shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of a Portfolio and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Portfolio itself
would be unable to meet its obligations. The Trustees believe that, in view of
the above, the risk of personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects a Trustee against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of
his office.

As of September 30, 1996, Tennessee Mex. Inc., Agency, Knoxville, TN owned of
record or beneficially 8% of Tennessee Tax-Free Portfolio's outstanding Class I
shares. As of this date, Goy E. Moffatt, Elisabeth Moffatt and Mary Ann Claxton,
Joint Tenants, 5095 Evergreen Road, Arlington, TN owned of record or
beneficially 14.54% of the Portfolio's outstanding Class III shares.

VOTING RIGHTS. The Portfolio's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable, except as
set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the Trust or a Portfolio may, as set
forth in the Declaration of Trust, call meetings of the Trust or a Portfolio for
any purpose related to the Trust or Portfolio, as the case may be, including, in
the case of a meeting of the entire Trust, the purpose of voting on removal of
one or more Trustees. The Trust or any Portfolio may be terminated upon the
sale of its assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by vote of the holders
of a majority of the outstanding shares of the Trust or that Portfolio. If not
so terminated, the Trust and the Portfolio will continue indefinitely.

CLASSES. Pursuant to the Declaration of Trust, the Trustees have authorized
additional classes of shares for the Portfolio of the Trust. Although the
investment objective for each separate class of a particular Portfolio is the
same, fee structures are different such that one class may have a higher yield
than another class of the same Portfolio at any particular time. Shareholders
of the Trust will vote together in the aggregate and not separately by
Portfolio, or by class thereof, except as otherwise required by law or when the
Trustees determine that the matter to be voted upon affects only the interests
of the shareholders of a particular Portfolio or a class thereof. Pursuant to a
vote by the Board of Trustees, the Trust has adopted Rule 18f-3 under the Act
and has issued multiple classes of shares with respect to each of its
Portfolios. Accordingly, the rights, privileges and obligations of each such
class will be determined in accordance with such rule.

FINANCIAL STATEMENTS

The Portfolio's financial statements and financial highlights for the fiscal
year ended June 30, 1996 are included in the Portfolio's Annual Report which is
a separate report supplied independent of this Statement of Additional
Information. The Portfolio's financial statements and financial highlights are
incorporated herein by reference.

APPENDIX

DOLLAR-WEIGHTED AVERAGE MATURITY for the Portfolio is derived by multiplying the
value of each investment by the number of days remaining to its maturity, adding
these calculations, and then dividing the total by the value of the fund's
Portfolio. An obligation's maturity is typically determined on a stated final
maturity basis, although there are some exceptions to this rule.

<PAGE>

redeemed may be considered to be its maturity date. When a municipal bond
issuer has committed to call an issue of bonds and has established an
independent escrow account that is sufficient to, and is pledged to, refund
that issue, the number of days to maturity for the pre-refunded bond is
considered to be the number of days to the announced call date of the bonds.

The descriptions that follow are examples of eligible ratings for the
Portfolio. The Portfolio may, however, consider the ratings for other types
of investments and the ratings assigned by other rating organizations when
determining the eligibility of a particular investment.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S RATINGS OF STATE AND
MUNICIPAL NOTES: Moody's ratings for state and municipal and other short-term
obligations will be designated Moody's Investment Grade (MIG or VMIG for
variable rate obligations). This distinction is in recognition of the
difference between short-term credit risk and long-term credit risk. Factors
affecting the liquidity of the borrower and short-term cyclical elements are
critical in short-term ratings, while other factors of major importance in
bond risk, long-term secular trends for example, may be less important over
the short run. Symbols used will be as follows:

MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

MIG-3/VMIG-3 - This designation denotes favorable quality, with all security
elements accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.

MIG-4/VMIG-4 - This designation denotes adequate quality protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S RATINGS OF STATE AND MUNICIPAL
NOTES:

SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.

SP-2 - Satisfactory capacity to pay principal and interest.

SP-3 - Speculative capacity to pay principal and interest.

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S MUNICIPAL BOND RATINGS:

Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S MUNICIPAL BOND RATINGS:

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

<PAGE>

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

The ratings may be modified by the addition of a plus or minus to show
relative standing within the major rating categories.

<PAGE>

FIRST FUNDS
U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MUNICIPAL MONEY MARKET PORTFOLIO
CASH RESERVE PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION FOR CLASS I, CLASS II, AND CLASS III
OCTOBER 25, 1996

This Statement is not a prospectus but should be read in conjunction with the
current Prospectus for each Class of First Funds: U.S. Treasury Money Market
Portfolio, U.S. Government Money Market Portfolio, Municipal Money Market
Portfolio, and Cash Reserve Portfolio dated October 25, 1996. Please retain
this Statement for future reference. The Portfolios' financial statements
and financial highlights included in the Annual Report for the fiscal year
ended June 30, 1996, are incorporated herein by reference. To obtain
additional free copies of this Statement, the Annual Report or the
Prospectus, please call the Distributor at 1-800-442-1941, option 1 or write
to the Distributor at 370 17th Street, Suite 2700, Denver CO 80202.

TABLE OF CONTENTS PAGE

Investment Restrictions and Limitations 2
Investment Instruments 8
Portfolio Transactions 12
Valuation of Portfolio Securities 12
Performance 13
Additional Purchase and Redemption Information 14
Distributions and Taxes 15
Trustees and Officers 16
Investment Advisory Agreement 17
Administration Agreement and Other Contracts 18
Description of the Trust 20
Financial Statements 21
Appendix 21

INVESTMENT ADVISER
First Tennessee Bank National Association (First Tennessee or the Investment
Adviser)

SUB-ADVISER
PNC Institutional Management Corporation (PIMC or the Sub-Adviser)

ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. (ALPS or the Administrator and Distributor)

CO-ADMINISTRATOR
First Tennessee Bank National Association (First Tennessee or the
Co-Administrator)

TRANSFER AGENT & CUSTODIAN
Chase Global Funds Services Company (CGFSC or the Transfer Agent)

<PAGE>

INVESTMENT RESTRICTIONS AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of a Portfolio's assets that may be invested in any
security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of a Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with a
Portfolio's investment policies and limitations.

Fundamental policies and investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940 (the 1940 Act)) of that Portfolio. However,
except for the fundamental investment limitations set forth below, the
investment policies and limitations described in this Statement of Additional
Information are not fundamental and may be changed without shareholder approval.

INVESTMENT LIMITATIONS OF U.S. TREASURY MONEY MARKET PORTFOLIO

THE FOLLOWING ARE U.S. TREASURY MONEY MARKET PORTFOLIO'S FUNDAMENTAL LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the Portfolio's total assets
would be invested in the securities of that issuer; or (b) the
Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the 1940 Act;

(3) borrow money, except that the Portfolio may (I) borrow money for
temporary or emergency purposes (not for leveraging or investment)
and (ii) engage in reverse repurchase agreements for any purpose;
provided that (I) and (ii) in combination do not exceed 33 1/3% of
the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the
33 1/3% limitation;

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Portfolio's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry;

(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business);

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; or

(8) lend any security or make any other loan if, as a result, more than
33 1/3% of its total assets would be lent to other parties, but this
limitation does not apply to purchases of debt securities or to
repurchase agreements.

(9) The Portfolio may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single, open-end management investment company with substantially the
same fundamental investment objectives, policies, and limitations as
the Portfolio.

THE FOLLOWING LIMITATIONS OF U.S. TREASURY MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend during the coming year to
purchase the voting securities of any issuer.

<PAGE>

(iv) The Portfolio may borrow money only (a) from a bank or (b) by engaging in
reverse repurchase agreements with any party. The Portfolio will not
purchase any security while borrowings (excluding reverse repurchase
agreements) representing more than 5% of its total assets are
outstanding.

(v) The Portfolio does not currently intend during the coming year to
purchase any security, if, as a result, more than 10% of its net
assets would be invested in securities that are deemed to be illiquid
because they are subject to legal or contractual restrictions on
resale or because they cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued.

(vi) The Portfolio does not currently intend during the coming year to
purchase or sell futures contracts or call options. This limitation
does not apply to options attached to, or acquired or traded together
with, their underlying securities, and does not apply to securities
that incorporate features similar to options or futures contracts.

(vii) The Portfolio does not currently intend during the coming year to make
loans, but this limitation does not apply to purchases of debt
securities, to repurchase agreements or to loans of Portfolio
securities.

(viii) The Portfolio does not currently intend during the coming year to (a)
purchase securities of other investment companies, except in the open
market where no commission except the ordinary broker's commission is
paid, or (b) purchase or retain securities issued by other open-end
investment companies. Limitations (a) and (b) do not apply to
securities received as dividends, through offers of exchange, or as a
result of a reorganization, consolidation, or merger.

(ix) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer (other than securities issued or
guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years
of continuous operation.

(x) The Portfolio does not currently intend during the coming year to
invest in oil, gas, or other mineral exploration or development
programs or leases.

(xi) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer if those officers and Trustees
of the Trust and those officers and directors of the Investment
Adviser who individually own more than 1/2 of 1% of the securities of
such issuer together own more than 5% of such issuer's securities.

(xii) The Portfolio does not currently intend during the coming year to
invest all of its assets in the securities of a single, open-end
management investment company with substantially the same fundamental
investment objectives, policies, and limitations as the Portfolio.

INVESTMENT LIMITATIONS OF U.S. GOVERNMENT MONEY MARKET PORTFOLIO

THE FOLLOWING ARE U.S. GOVERNMENT MONEY MARKET PORTFOLIO'S FUNDAMENTAL
LIMITATIONS SET FORTH IN THEIR ENTIRETY. THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the Portfolio's total assets
would be invested in the securities of that issuer, or (b) the
Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the 1940 Act;

(3) borrow money, except that the Portfolio may (I) borrow money for
temporary or emergency purposes (not for leveraging or investment)
and (ii) engage in reverse repurchase agreements for any purpose;
provided that (I) and (ii) in combination do not exceed 33-1/3% of
the Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to
exceed this amount will be reduced within three days (not including
Sundays and holidays) to the extent necessary to comply with the 33-1/3%
limitation;

<PAGE>

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Portfolio's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry;

(6) purchase or sell real estate, unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Portfolio from investing in securities or other
instruments backed by real estate or securities of companies engaged
in the real estate business);

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; or

THE FOLLOWING LIMITATIONS OF U.S. GOVERNMENT MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend during the coming year to
purchase the voting securities of any issuer.

(iv) The Portfolio may borrow money only (a) from a bank or (b) by
engaging in reverse repurchase agreements with any party. The
Portfolio will not purchase any security while borrowings (excluding
reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.

(vii) The Portfolio does not currently intend during the coming year to
make loans, but this limitation does not apply to purchases of debt
securities to repurchase agreements or to loans of Portfolio
securities.

(ix) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer (other than securities issued
or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years
of continuous operation.

<PAGE>

(x) The Portfolio does not currently intend during the coming year to
invest in oil, gas, or other mineral exploration or development
programs or leases.

INVESTMENT LIMITATIONS OF MUNICIPAL MONEY MARKET PORTFOLIO

THE FOLLOWING ARE MUNICIPAL MONEY MARKET PORTFOLIO'S FUNDAMENTAL LIMITATIONS
SET FORTH IN THEIR ENTIRETY. THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the Portfolio's total assets
would be invested in the securities of that issuer, or (b) the
Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the 1940 Act;

(3) borrow money, except that the Portfolio may borrow money for
temporary or emergency purposes (not for leveraging or investment) in
an amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings that come to exceed this amount will be reduced within
three days (not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limitation;

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by
a U.S. territory or possession or a state or local government, or a
political subdivision of any of the foregoing) if, as a result, 25%
or more of the Portfolio's total assets would be invested in
securities of companies whose principal business activities are in
the same industry;

(6) buy or sell real estate, unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business);

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; or

THE FOLLOWING LIMITATIONS OF MUNICIPAL MONEY MARKET PORTFOLIO ARE NOT
FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend during the coming year to
purchase the voting securities of any issuer.

<PAGE>

(iv) The Portfolio may borrow money only (a) from a bank, or (b) by
engaging in reverse repurchase agreements with any party (reverse
repurchase agreements are treated as borrowings for purposes of
fundamental investment limitation (3)). The Portfolio will not
purchase any security while borrowings representing more than 5% of
its total assets are outstanding.

(vii) The Portfolio does not currently intend during the coming year to
make loans, but this limitation does not apply to purchases of debt
securities, to repurchase agreements or or to loans of Portfolio
securities.

(ix) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer (other than securities issued
or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years
of continuous operation.

(x) The Portfolio does not currently intend during the coming year to
invest in oil, gas, or other mineral exploration or development
programs or leases.

INVESTMENT LIMITATIONS OF CASH RESERVE PORTFOLIO

THE FOLLOWING ARE CASH RESERVE PORTFOLIO'S FUNDAMENTAL LIMITATIONS SET FORTH IN
THEIR ENTIRETY. THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities)
if, as a result, (a) more than 5% of the Portfolio's total assets
would be invested in the securities of that issuer; or (b) the
Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the 1940 Act;

<PAGE>

(5) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, 25% or more of the Portfolio's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry, except that
the Portfolio will invest 25% or more of its total assets in the
financial services industry;

(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the
Portfolio from investing in securities or other instruments backed by
real estate or securities of companies engaged in the real estate
business);

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; or

THE FOLLOWING LIMITATIONS OF CASH RESERVE PORTFOLIO ARE NOT FUNDAMENTAL AND MAY
BE CHANGED WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend during the coming year to
purchase a security (other than a security insured or guaranteed by
the U.S. government or any of its agencies or instrumentalities) if,
as a result, more than 5% of its total assets would be invested in
the securities of a single issuer; provided that the Portfolio may
invest up to 25% of its total assets in the first tier securities of
a single issuer for up to three business days.

(iv) The Portfolio may borrow money only (a) from a bank or (b) by
engaging in reverse repurchase agreements with any party. The
Portfolio will not purchase any security while borrowings (excluding
reverse repurchase agreements) representing more than 5% of its total
assets are outstanding.

(vii) The Portfolio does not currently intend during the coming year to
make loans, but this limitation does not apply to purchases of debt
securities, to repurchase agreements or or to loans of Portfolio
securities.

(ix) The Portfolio does not currently intend during the coming year to
purchase the securities of any issuer (other than securities issued
or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years
of continuous operation.

<PAGE>

(x) The Portfolio does not currently intend during the coming year to
invest in oil, gas, or other mineral exploration or development programs
or leases.

(xi) The Portfolio does not currently intend during the coming year to purchase
the securities of any issuer if those officers and Trustees of the Trust
and those officers and directors of the Investment Adviser who
individually own more than 1/2 of 1% of the securities of such issuer
together own more than 5% of such issuer's securities.

INVESTMENT INSTRUMENTS

First Tennessee Bank National Association (First Tennessee) serves as Investment
Adviser to the Portfolios, and with the prior approval of the Board of Trustees
(the Trustees), has engaged PNC Institutional Management Corporation (PIMC) to
act as Sub-Adviser to each of the Portfolios, including providing investment
research and credit analysis concerning Portfolio investments and conducting a
continuous program of investment of Portfolio assets in accordance with the
investment policies and objectives of each Portfolio.

RULE 2A-7. The Money Market Portfolios seek to maintain a stable net asset
value per share by limiting Portfolio investments in accordance with the terms
of Rule 2a-7 under the 1940 Act which sets forth limitations on the quality,
maturity and other investment characteristics of registered investment companies
which hold themselves out as money market funds.

ASSET-BACKED SECURITIES for Cash Reserve Portfolio may include pools of
mortgages, loans, receivables or other assets. Payment of principal and
interest may be largely dependent upon the cash flows generated by the assets
backing the securities, and, in certain cases, supported by letters of credit,
surety bonds, or other credit enhancements. The value of asset-backed
securities may also be affected by the creditworthiness of the servicing agent
for the pool, the originator of the loans or receivables, or the financial
institution(s) providing the credit support.

COMMERCIAL PAPER. Cash Reserve Portfolio may purchase commercial paper rated at
the time of purchase A-1 by Standard & Poor's Corporation (S&P) or Prime-1 by
Moody's Investors Service, Inc. (Moody's). The Portfolio may also purchase
unrated commercial paper determined to be of comparable quality at the time of
purchase by PIMC, pursuant to guidelines approved by the Trustees.

DELAYED-DELIVERY TRANSACTIONS. Each Portfolio may buy and sell securities on
a delayed-delivery or when-issued basis. These transactions involve a
commitment by each Portfolio to purchase or sell specific securities at a
predetermined price and/or yield, with payment and delivery taking place
after the customary settlement period for that type of security (and more
than seven days in the future). Typically, no interest accrues to the
purchaser until the security is delivered.

When purchasing securities on a delayed-delivery basis, each Portfolio assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. Because each Portfolio is not required to pay for securities
until the delivery date, these risks are in addition to the risks associated
with the Portfolios' other investments. If each Portfolio remains substantially
fully invested at a time when delayed-delivery purchases are outstanding, the
delayed-delivery purchases may result in a form of leverage. When
delayed-delivery purchases are outstanding, each Portfolio will set aside
appropriate liquid assets in a segregated custodial account to cover its
purchase obligations. When each Portfolio has sold a security on a
delayed-delivery basis, each Portfolio does not participate in further gains or
losses with respect to the security. If the other party to a delayed-delivery
transaction fails to deliver or pay for the securities, each Portfolio could
miss a favorable price or yield opportunity, or could suffer a loss.

Each Portfolio may renegotiate delayed-delivery transactions after they are
entered into, and may sell underlying securities before they are delivered,
which may result in capital gains or losses.

FEDERALLY-TAXABLE OBLIGATIONS. Municipal Money Market Portfolio does not intend
to invest in securities whose interest is federally taxable; however, from time
to time, the Portfolio may invest a portion of its assets on a temporary basis
in fixed-income obligations whose interest is subject to federal income tax.
For example, the Portfolio may invest in obligations whose interest is federally
taxable pending the investment or reinvestment in municipal securities of
proceeds from the sale of its shares or sales of portfolio securities.

<PAGE>

Should the Portfolio invest in taxable obligations, it would purchase securities
which in the judgment of PIMC are of high quality. These would include
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, obligations of domestic banks, and repurchase agreements.
The Portfolio will purchase taxable obligations only if they meet its quality
requirements as set forth in the Prospectus.

Proposals to restrict or eliminate the federal income tax exemption for interest
on municipal obligations are introduced before Congress from time to time.
Proposals also may be introduced before state legislatures that would affect the
state tax treatment of the Portfolio's distributions. If such proposals were
enacted, the availability of municipal obligations and the value of the
Portfolio's holdings would be affected and the Trustees would reevaluate the
Portfolio's investment objectives and policies.

Municipal Money Market Portfolio anticipates being as fully invested as
practicable in municipal securities; however, there may be occasions when as a
result of maturities of portfolio securities, or sales of Portfolio shares, or
in order to meet redemption requests, the Portfolio may hold cash that is not
earning income. In addition, there may be occasions when, in order to raise
cash to meet redemptions, the Portfolio may be required to sell securities at a
loss.

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued. Under supervision of the Trustees, PIMC, under the supervision of First
Tennessee, determines the liquidity of Municipal Money Market Portfolio and Cash
Reserve Portfolio's investments and, through reports from PIMC, the Trustees
monitor investments in illiquid instruments. In determining the liquidity of
the Portfolios' investments, PIMC may consider various factors including (1) the
frequency of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a market, (4) the
nature of the security (including any demand or tender features) and (5) the
nature of the marketplace for trades (including the ability to assign or offset
the Portfolios' rights and obligations relating to the investment). Investments
currently considered by Cash Reserve Portfolio to be illiquid include repurchase
agreements not entitling the holder to payment of principal and interest within
seven days, and some restricted securities and time deposits determined by PIMC
to be illiquid. Investments currently considered by Municipal Money Market
Portfolio to be illiquid include some restricted securities and municipal lease
obligations determined by PIMC to be illiquid. In the absence of market
quotations, illiquid investments are valued for purposes of monitoring amortized
cost valuation at fair value as determined in good faith by the Trustees. If
through a change in values, net assets or other circumstances, the Portfolios
were in a position where more than 10% of their net assets were invested in
illiquid securities, the Trustees would seek to take appropriate steps to
protect liquidity.

MONEY MARKET OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS, DOMESTIC BRANCHES OF
FOREIGN BANKS, AND FOREIGN BRANCHES OF DOMESTIC BANKS. Cash Reserve Portfolio
may purchase bank obligations, such as certificates of deposit, bankers'
acceptances, bank notes and time deposits, including instruments issued or
supported by the credit of U.S. or foreign banks or savings institutions that
have total assets at the time of purchase in excess of $1 billion. The assets
of a bank or savings institution will be deemed to include the assets of its
domestic and foreign branches for purposes of the Portfolio's investment
policies. Investments in short-term bank obligations may include obligations of
foreign banks and domestic branches of foreign banks, and also foreign branches
of domestic banks.

MUNICIPAL LEASE OBLIGATIONS. Municipal Money Market Portfolio may invest a
portion of its assets in municipal leases and participation interests therein.
These obligations, which may take the form of a lease, an installment purchase,
or a conditional sale contract, are issued by state and local governments and
authorities to acquire land and a wide variety of equipment and facilities.
Generally, the Portfolio will not hold such obligations directly as a lessor of
the property, but will purchase a participation interest in a municipal
obligation from a bank or other third party. A participation interest gives a
Portfolio a specified, undivided interest in the obligation in proportion to its
purchased interest in the total amount of the obligation.

<PAGE>

REPURCHASE AGREEMENTS are transactions in which a Portfolio purchases a security
and simultaneously commits to resell that security at an agreed upon price and
date within a number of days from the date of purchase. The resale price
reflects the purchase price plus an agreed upon market rate of interest which is
unrelated to the coupon rate or maturity of the purchased security. A
repurchase agreement involves the obligation of the seller to pay the agreed
upon price. This obligation is in effect secured by the underlying security
having a value at least equal to the amount of the agreed upon resale price and
marked to market daily. Each Portfolio may enter into a repurchase agreement
with respect to any security in which it is authorized to invest even though the
underlying security matures in more than one year. While it presently does not
appear possible to eliminate all risks from the transactions (particularly the
possibility of a decline in the market value of the underlying securities, as
well as delay and costs to each Portfolio in connection with bankruptcy
proceedings), it is the policy of each Portfolio to limit repurchase agreements
to those parties whose creditworthiness has been reviewed and found to present
minimal credit risks by PIMC.

REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a Portfolio
sells a portfolio instrument to another party, such as a bank or broker-dealer,
in return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, each Portfolio
will maintain appropriate high grade liquid assets in a segregated custodial
account to cover its obligation under the agreement. Each Portfolio will enter
into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by PIMC. Such transactions may increase fluctuations in
the market values of each Portfolio's assets and may be viewed as a form of
leverage.

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is
required, Municipal Money Market Portfolio and Cash Reserve Portfolio may be
obligated to pay all or part of the registration expense and a considerable
period may elapse between the time it decides to seek registration and the time
the Portfolios may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, the Portfolios might obtain a less favorable price than
prevailed when they decided to seek registration of the security. However, in
general, the Portfolios anticipate holding restricted securities to maturity or
selling them in an exempt transaction.

SHORT SALES AGAINST THE BOX. A Portfolio may sell securities short when it owns
or has the right to obtain securities equivalent in kind or amount to the
securities sold short. Short sales could be used to protect the net asset value
per share (NAV) of that Portfolio in anticipation of increased interest rates
without sacrificing the current yield of the securities sold short. If a
Portfolio enters into a short sale against the box, it will be required to set
aside securities equivalent in kind and amount to the securities sold short (or
securities convertible or exchangeable into such securities) and will be
required to hold such securities while the short sale is outstanding. A
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against the box.

STANDBY COMMITMENTS are puts that entitle holders to same-day settlement at an
exercise price equal to the amortized cost of the underlying security plus
accrued interest, if any, at the time of exercise. Municipal Money Market
Portfolio may acquire standby commitments to enhance the liquidity of portfolio
securities, but only when the issuers of the commitments present minimal risk of
default.

Issuers or financial intermediaries may obtain letters of credit or other
guarantees to support their ability to buy securities on demand. PIMC may rely
upon its evaluation of a bank's credit in determining whether to support an
instrument supported by a letter of credit. In evaluating a foreign bank's
credit, PIMC will consider whether adequate public information about the bank is
available and whether the bank may be subject to unfavorable political or
economic developments, currency controls, or other governmental restrictions
that might affect the bank's ability to honor its credit commitment.

<PAGE>

TENDER OPTION BONDS are created by coupling an intermediate or long-term,
tax-exempt bond (generally held pursuant to a custodial arrangement) with a
tender agreement that gives the holder the option to tender the bond at its face
value. As consideration for providing the tender option, the sponsor (usually a
bank, broker-dealer, or other financial institution) receives periodic fees
equal to the difference between the bond's fixed coupon rate and the rate
(determined by a remarketing or similar agent) that would cause the bond,
coupled with the tender option, to trade at par on the date of such
determination. After payment of the tender option fee, Municipal Money Market
Portfolio effectively holds a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. Subject to applicable regulatory
requirements, the Portfolio may buy tender option bonds if the agreement gives
the Portfolio the right to tender the bond to its sponsor no less frequently
than once every 397 days. In selecting tender option bonds for the Portfolio,
PIMC will consider the creditworthiness of the issuer of the underlying bond,
the custodian, and the third party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on interest payments.

VARIABLE AND FLOATING RATE DEMAND OBLIGATIONS (VRDOS/FRDOS) are obligations that
bear variable or floating interest rates and carry rights that permit holders to
demand payment of the unpaid principal balance plus accrued interest from the
issuers or certain financial intermediaries. Floating rate securities have
interest rates that change whenever there is a change in a designated base rate
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the VRDO or FRDO that approximates its par value.

A demand instrument with a conditional demand feature must have received both a
short-term and a long-term high quality rating, or, if unrated, have been
determined to be of comparable quality pursuant to procedures adopted by the
Trustees. A demand instrument with an unconditional demand feature may be
acquired solely in reliance upon a short-term high quality rating or, if
unrated, upon a finding of comparable short-term quality pursuant to procedures
to be adopted by the Trustees.

Municipal Money Market Portfolio and Cash Reserve Portfolio may invest in
fixed-rate bonds that are subject to third party puts and in participation
interests in such bonds held by a bank in trust or otherwise. These bonds and
participation interests have tender options or demand features that permit the
Portfolios to tender (or put) their bonds to an institution at periodic
intervals and to receive the principal amount thereof. The Portfolios consider
variable rate instruments structured in this way (Participating VRDOs) to be
essentially equivalent to other VRDOs they purchase. The IRS has not ruled
whether the interest on participating VRDOs is tax exempt and accordingly,
Municipal Money Market Portfolio and Cash Reserve Portfolio intend to purchase
these instruments based on opinions of PIMC's fund counsel.

Municipal Money Market Portfolio and Cash Reserve Portfolio may invest in
variable or floating rate instruments that ultimately mature in more than 397
days, if the Portfolios acquire a right to sell the instruments that meets
certain requirements set forth in Rule 2a-7. A variable rate instrument
(including instruments subject to a demand feature) that matures in 397 days or
less may be deemed to have a maturity equal to the the earlier of the period
remaining until the next readjustment of the interest rate or the date on which
principal can be recovered on demand. A variable rate instrument that matures
in greater than 397 days but that is subject to a demand feature that is 397
days or less may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A
floating rate instrument that matures in more than 397 days but that is subject
to a demand feature may be deemed to have a maturity equal to the period
remaining until the principal amount may be recovered through demand. A floating
rate instrument that matures in 397 days or less shall be deemed to have a
maturity of one day.

U.S. Government Money Market Portfolio and Cash Reserve Portfolio may invest in
variable and floating rate instruments of the U.S. Government, its agencies and
instrumentalities, with remaining maturities of 397 days or more provided that
they are deemed to have a maturity of less than 397 days as defined in
accordance with the rules of the SEC. A variable rate instrument that matures
in 397 days or more may be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate.

ZERO COUPON BONDS do not make regular interest payments. Instead, they are sold
at a deep discount from their face value and are redeemed at face value when
they mature. Because zero coupon bonds do not pay current income, their prices
can be very volatile when interest rates change. In calculating its daily
dividend, a Portfolio takes into account as income a portion of the difference
between a zero coupon bond's purchase price and its face value.

<PAGE>

PORTFOLIO TRANSACTIONS

First Tennessee and PIMC (collectively, the Advisers) are responsible for
decisions to buy and sell securities for each Portfolio, broker-dealer
selection, and negotiation of commission rates. Since purchases and sales of
portfolio securities by the Portfolios are usually principal transactions, the
Portfolios incur little or no brokerage commissions. Portfolio securities are
normally purchased directly from the issuer or from a market maker for the
securities. The purchase price paid to dealers serving as market makers may
include a spread between the bid and asked prices. The Portfolios may also
purchase securities from underwriters at prices which include a commission paid
by the issuer to the underwriter.

Each Portfolio does not seek to profit from short-term trading, and will
generally (but not always) hold portfolio securities to maturity. Each
Portfolio requires that investments mature within 397 days or less, as
determined in accordance with the rules of the SEC. The amortized cost method
of valuing portfolio securities requires that each Portfolio maintain an average
weighted portfolio maturity of 90 days or less. Both policies may result in
relatively high portfolio turnover, but since brokerage commissions are not
normally paid on money market instruments, the high rate of portfolio turnover
is not expected to have a material effect on the Portfolios' net income or
expenses.

The Advisers' primary consideration in effecting a security transaction is to
obtain the best net price and the most favorable execution of the order. To the
extent that the executions and prices offered by more than one dealer are
comparable, the Advisers may, at their discretion, effect transactions with
dealers that furnish statistical, research and other information or services
which are deemed by the Advisers to be beneficial to the Portfolios' investment
program. Certain research services furnished by dealers may be useful to the
Advisers with clients other than the Portfolios. Similarly, any research
services received by the Advisers through placement of portfolio transactions of
other clients may be of value to the Advisers in fulfilling their obligations to
the Portfolios. The Advisers are of the opinion that the material received is
beneficial in supplementing their research and analysis, and therefore, may
benefit the Portfolios by improving the quality of their investment advice. The
advisory fee paid by the Portfolios is not reduced because the Advisers receive
such services.

The Advisers and their affiliates manage several other investment accounts, some
of which may have objectives similar to that of the Portfolios. It is possible
that at times, identical securities will be acceptable for one or more of such
investment accounts. However, the position of each account in the securities of
the same issue may vary and the length of time that each account may choose to
hold its investment in the securities of the same issue may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of each Portfolio and one or more of these accounts is
considered at or about the same time, transactions in such securities will be
allocated in good faith among the Portfolios and such accounts in a manner
deemed equitable by the Advisers. The Advisers may combine such transactions,
in accordance with applicable laws and regulations, in order to obtain the best
net price and most favorable execution. The allocation and combination of
simultaneous securities purchases on behalf of each Portfolio will be made in
the same way that such purchases are allocated among or combined with those of
other such investment accounts. Simultaneous transactions could adversely
affect the ability of each Portfolio to obtain or dispose of the full amount of
a security which it seeks to purchase or sell.

Except to the extent permitted by law, portfolio securities will not be
purchased from or sold to or through any "affiliated person," as defined in the
1940 Act, of the Advisers.

VALUATION OF PORTFOLIO SECURITIES

Each Portfolio values its investments on the basis of amortized cost. This
technique involves valuing an instrument at its cost as adjusted for
amortization of premium or accretion of discount rather than its value based on
current market quotations or appropriate substitutes which reflect current
market conditions. The amortized cost value of an instrument may be higher or
lower than the price each Portfolio would receive if it sold the instrument.
Valuing each Portfolio's instruments on the basis of amortized cost and use of
the term "money market fund" are permitted by Rule 2a-7 under the 1940 Act, as
amended. Each Portfolio must adhere to certain conditions under Rule 2a-7 which
are summarized in the Prospectus.

The Trustees and First Tennessee oversee PIMC's adherence to Securities and
Exchange Commission (SEC) rules concerning money market funds, and the Trustees
have established procedures designed to stabilize each Portfolio's NAV at $1.00.
At such intervals as they deem appropriate, the Trustees consider the extent to
which NAV calculated by using market valuations would deviate from $1.00 per
share. If the Trustees believe that a deviation from each Portfolio's amortized
cost per share may result in material dilution or other unfair results to
shareholders, the Trustees have agreed to take such corrective action, if any,
as they deem appropriate to eliminate or reduce, to the extent reasonably
practicable, the dilution or unfair results. Such corrective action could
include selling portfolio instruments prior to maturity to realize capital gains

<PAGE>

or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; establishing NAV by using available market quotations;
and such other measures as the Trustees may deem appropriate.

During periods of declining interest rates, yield based on amortized cost may be
higher than the yield based on market valuations. Under these circumstances, a
shareholder would be able to obtain a somewhat higher yield than would result if
a Portfolio utilized market valuations to determine its NAV. The converse would
apply in a period of rising interest rates.

PERFORMANCE

From time to time, each Class of each Portfolio may quote the CURRENT YIELD and
EFFECTIVE YIELD for each Class in advertisements or in reports or other
communications with shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The net change in
value of a hypothetical account containing one share reflects the value of
additional shares purchased with dividends from the one original share and
dividends declared on both the original share and any additional shares. This
income is then annualized; that is, the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment is
assumed to be reinvested. The effective yield will be slightly higher than the
current yield because of the compounding effect of this assumed reinvestment.
In addition to the current yield, yields may be quoted in advertising based on
any historical seven-day period.

Yield information may be useful in reviewing performance and for providing a
basis for comparison with other investment alternatives. Yield will fluctuate,
unlike investments which pay a fixed yield for a stated period of time.
Investors should give consideration to the quality and maturity of portfolio
securities of the respective investment companies when comparing investments.

Investors should recognize that in periods of declining interest rates, yield
will tend to be somewhat higher than prevailing market rates, and in periods of
rising interest rates, yield will tend to be somewhat lower. Also, when
interest rates are falling, the inflow of net new money from the continuous sale
of its shares will likely be invested in instruments producing lower yields than
the balance of the holdings, thereby reducing the current yield. In periods of
rising interest rates, the opposite can be expected to occur. The 7-day yields
for the fiscal year ending June 30, 1996 were as follows:

CLASS I CLASS III
------- ---------
U.S. Treasury Money Market 4.91% 4.70%
U.S. Government Money Market 5.50% 4.77%
Municipal Money Market 3.30% 3.06%
Cash Reserve 4.92% 4.80%

Municipal Money Market Portfolio also may quote the TAX-EQUIVALENT YIELD for
each class, which shows the taxable yield an investor would have to earn, before
taxes, to equal the tax-free yield. Tax-equivalent yield is the current yield
that would have to be earned, in the investor's tax bracket, to match the
tax-free yields shown below after taking federal income taxes into account.
Tax-equivalent yields are calculated by dividing current yield by the result of
one minus a stated federal or combined federal and state tax rate. It gives the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of tax-exempt obligations yielding
from 2.0% to 4.0%. Of course, no assurance can be given that each class will
achieve any specific tax-exempt yield. While the Portfolio invests
principally in municipal obligations whose interest is not includable in gross
income for purposes of calculating federal income tax, other income received by
the Portfolio may be taxable.

<PAGE>

The following table shows the effect of a shareholder's tax status on
effective yield under the federal income tax laws for 1996:

1996 TAX RATES AND TAX-EQUIVALENT YIELDS
----------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Taxable Federal
Income * Tax If individual tax-exempt yield is:
Bracket ** 2.00% 3.00% 4.00%
single return joint return Then taxable equivalent yield is:
$0 - $24,000 $0 - $40,100 15% 2.35% 3.53% 4.71%
$24,001 - $58,150 $40,101 - $96,900 28% 2.78% 4.17% 5.56%
$58,151 - $121,300 $96,901 - $147,700 31% 2.90% 4.35% 5.80%
$121,301 - $263,750 $147,701 - $263,750 36% 3.13% 4.69% 6.25%
$263,751 - above $263,751 - above 39.6% 3.31% 4.97% 6.62%
</TABLE>

* Taxable income (gross income after all exemptions, adjustments, and
deductions) based on 1996 tax rates.

** Excludes the impact of the phase out of personal exemptions, limitation on
itemized deductions, and other credits, exclusions, and adjustments which
may raise a taxpayer's marginal tax rate. An increase in a shareholder's
marginal tax rate would increase that shareholder's tax-equivalent yield.

The Portfolio may invest a portion of its assets in obligations that are
subject to federal income tax. When the Portfolio invests in these
obligations, its tax-equivalent yield will be lower. In the table above,
tax-equivalent yields are calculated assuming investments are 100% federally
and state tax-free.

Each Portfolio may compare the performance of each of its Classes or the
performance of securities in which it or each of its Classes may invest to
other mutual funds, especially to those with similar investment objectives.
These comparisons may be based on data published by IBC USA (Publications),
Inc. of Ashland, MA, or by Lipper Analytical Services, Inc. (Lipper,
sometimes referred to as Lipper Analytical Services), an independent service
located in Summit, New Jersey that monitors the performance of mutual funds.
Lipper generally ranks funds on the basis of total return, assuming
reinvestment of distributions, but does not take sales charges or redemption
fees into consideration, and is prepared without regard to tax consequences.
Lipper may also rank funds based on yield. In addition to the mutual fund
rankings, each Portfolio's performance may be compared to mutual fund
performance indices prepared by Lipper. The MONEY FUND AVERAGES (Government
and Tax-Free), which is reported in the MONEY FUND REPORT, covers money
market funds.

From time to time each Portfolio's performance may also be compared to other
mutual funds tracked by financial or business publications or periodicals.
For example, the Portfolios may quote Morningstar, Inc. in its advertising
materials. Morningstar, Inc. is a mutual fund rating service that rates
mutual funds on the basis of risk-adjusted performance.

Each Portfolio may compare its performance to the yields or averages of other
money market securities as reported by the Federal Reserve Bulletin, by
TeleRate, a financial information network, or by Salomon Brothers Inc., a
broker-dealer firm; and other fixed-income investments such as certificates
of deposit (CDs). The principal value and interest rate of CDs and money
market securities are fixed at the time of purchase whereas yield will
fluctuate. Unlike some CDs and certain other money market securities, money
market mutual funds, and each Portfolio in particular, are not insured by the
Federal Deposit Insurance Corporation (FDIC). Investors should give
consideration to the quality and maturity of the Portfolio securities of the
respective investment companies when comparing investment alternatives. Each
Portfolio may also quote mutual fund rating services in its advertising
materials, including data from a mutual fund rating service which rates
mutual funds on the basis of risk adjusted performance. Each Portfolio may
reference the growth and variety of money market mutual funds and First
Tennessee's or Sub-Adviser's skill and participation in the industry.

Because the fees for Class II and Class III are higher than the fees for
Class I, yields and returns for those classes will be lower than for Class I.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

The following holiday closings have been scheduled for the remainder of 1996
and 1997: Veterans' Day, Thanksgiving Day, Christmas Day, New Year's Day, Dr.
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day ,
Independence Day, Labor Day, and Columbus Day. Although First Tennessee
expects the same holiday schedule to be observed in the future, the New York
Stock Exchange (NYSE) and the Federal Reserve Bank of New York (New York
Federal Reserve) may modify their holiday schedules at any time.

14
<PAGE>

If the Trustees determine that existing conditions make cash payment
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing each Portfolio's NAV. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes and will
incur any costs of sale, as well as the associated inconveniences.

Pursuant to Rule 11a-3 under the 1940 Act, each Portfolio is required to give
shareholders at least 60 days' notice prior to terminating or modifying each
Portfolio's exchange privilege. Under Rule 11a-3, the 60-day notification
requirement may be waived if (i) the only effect of a modification would be
to reduce or eliminate an administrative fee, redemption fee or deferred
sales charge ordinarily payable at the time of exchange, or (ii) under
extraordinary circumstances, a Portfolio temporarily suspends the offering of
shares as permitted under the 1940 Act or by the SEC or because it is unable
to invest amounts effectively in accordance with its investment objective and
policies. This exchange limit may be modified for accounts in certain
institutional retirement plans to conform to plan exchange limits and
Department of Labor Regulations.

ADDITIONAL CLASS II AND CLASS III INFORMATION

SYSTEMATIC INVESTING PROGRAM. Investors can make regular investments in
Class II and Class III with Systematic Investing by completing the
appropriate section on the account application and attaching a voided
personal check. If the bank account is jointly owned, make sure that all
owners sign. Investments may be made monthly by automatically deducting $25
or more from your checking account. This monthly purchase amount may be
changed at any time. There is a $50 minimum initial investment requirement
for this option. For employees of First Tennessee or any of its affiliates,
who participate in the Systematic Investing Program, the minimum initial
investment requirement is $50. Accounts will be drafted on or about the
first business day of every month. Systematic Investing may be canceled at
any time without payment of a cancellation fee. Investors will receive a
confirmation from their securities broker or financial institution
(Investment Professional), or from the Transfer Agent for every transaction,
and a debit entry will appear on your bank statement.

SYSTEMATIC WITHDRAWAL PLAN. Investors can have monthly, quarterly or
semi-annual checks sent from their account to you, to a person named by them,
or to their bank checking account. The Systematic Withdrawal Plan payments
are drawn from share redemptions and must be in the amount of $100 or more
per Portfolio per month. If Systematic Withdrawal Plan redemptions exceed
income dividends earned on shares, an account eventually may be exhausted.
Contact the Investment Professional for more information.

DISTRIBUTIONS AND TAXES

DIVIDENDS. Dividends will not normally qualify for the dividends-received
deduction available to corporations, since the Portfolios' income is
primarily derived from interest income and short-term capital gains.
Depending upon state law, a portion of each Portfolio's dividends
attributable to interest income derived from U.S. government securities may
be exempt from state and local taxation. It is not anticipated that
dividends attributable to U.S. government securities will be exempt from
Tennessee income tax. The Portfolios will provide information on the portion
of each Portfolio's dividends, if any, that qualifies for this exemption.

Dividends derived from Municipal Money Market Portfolio's tax-exempt income
are not subject to federal income tax, but must be reported to the IRS by
shareholders. Exempt-interest dividends are included in income for purposes
of computing the portion of social security and railroad retirement benefits
that may be subject to federal tax. If the Portfolio earns taxable income or
capital gains from its investments, these amounts will be designated as
taxable distributions. Dividends derived from taxable investment income and
short-term capital gains are taxable as ordinary income. Municipal Money
Market Portfolio will send a tax statement showing the amount of tax-exempt
distributions for the past calendar year, and will send an IRS Form 1099-DIV
by January 31 if the Portfolio makes any taxable distributions. It is not
anticipated that the Portfolio's distributions will be exempt from Tennessee
income tax.

Each Portfolio's distributions are taxable when they are paid whether taken
in cash or reinvested in additional shares, except that distributions
declared in December and paid in January are taxable as if paid on December
31. Each Portfolio will send an IRS Form 1099-DIV by January 31.

CAPITAL GAIN DISTRIBUTIONS. Each Portfolio may distribute short-term capital
gains once a year or more often as necessary to maintain their NAVs at $1.00
per share or to comply with distribution requirements under federal tax law.
Each Portfolio does not anticipate earning long-term capital gains on
securities held.

15
<PAGE>

STATE AND LOCAL TAX ISSUES. For mutual funds organized as business trusts,
state law provides for a pass-through of the state and local income tax
exemption afforded to direct owners of U.S. government securities. Some
states limit this pass-through to mutual funds that invest a certain amount
in U.S. government securities, and some types of securities, such as
repurchase agreements and some agency backed securities, may not qualify for
this pass-through benefit. The tax treatment of dividend distributions from
U.S. Treasury Money Market Portfolio and U.S. Government Money Market
Portfolio will be the same as if a shareholder directly owned a proportionate
share of the U.S. government securities in the Portfolio. Because the income
earned on most U.S. government securities in which the Portfolios invest is
exempt from the state and local income taxes, the portion of dividends from
the Portfolios attributable to these securities will also be free from income
taxes. The exemption from state and local income taxation does not preclude
states from assessing other taxes on the ownership of U.S. government
securities.

OTHER TAX INFORMATION. The information above is only a summary of some of the
tax consequences generally affecting each Portfolio and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
distributions received from each Portfolio. Investors should consult their tax
advisors to determine whether each Portfolio is suitable to their particular tax
situation.

TRUSTEES AND OFFICERS

16
<PAGE>

*JAMES V. HYATT, Secretary, is General Counsel of ALPS Mutual Funds Services,
Inc. (ALPS), the Administrator and Distributor. Prior to joining ALPS, Mr. Hyatt
served as Senior Legal Counsel of FMR Corp. and Clerk for Fidelity Management
Trust Company.

<TABLE>
Pension Or Aggregate
Retirement Estimated Compensation
Aggregate Benefits Annual From The Trust
Compensation Accrued As Benefits and Fund
From the Part of Fund Upon Complex Paid
Trust Expenses Retirement to Trustees
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas M. Batchelor
Trustee $6,000 $0 $0 $6,000
- --------------------------------------------------------------------------------------
John A. DeCell
Trustee $6,000 $0 $0 $6,000
- --------------------------------------------------------------------------------------
L.R. Jalenak, Jr.
Trustee $6,000 $0 $0 $6,000
- --------------------------------------------------------------------------------------
Larry W. Papasan,
Trustee $6,000 $0 $0 $6,000
- --------------------------------------------------------------------------------------
Richard C. Rantzow
Trustee $6,000 $0 $0 $6,000
- --------------------------------------------------------------------------------------
</TABLE>

As of September 30, 1996, the officers and Trustees of the Trust owned less
than 1% of the outstanding shares of any Portfolio.

INVESTMENT ADVISORY AGREEMENTS

Each Portfolio employs First Tennessee Bank National Association (First
Tennessee), Memphis, Tennessee, to furnish investment advisory and other
services to the Portfolio. Under the Investment Advisory and Management
Agreement with each Portfolio, First Tennessee is authorized to appoint one
or more sub-advisers at First Tennessee's expense. PNC Institutional
Management Corporation, formerly known as Provident Institutional Management
Corporation, (PIMC or the Sub-Adviser), Wilmington, Delaware acts as
Sub-Adviser and, subject to the direction of the Trustees and of First
Tennessee, directs the investments of each Portfolio in accordance with its
investment objective, policies and limitations.

In addition to First Tennessee's fee and the fees payable to the Transfer
Agent, Pricing and Accounting Agent, and to the Administrator, each Portfolio
pays for all its expenses, without limitation, that are not assumed by these
parties. Each Portfolio pays for typesetting, printing and mailing of proxy
material to existing shareholders, legal expenses, and the fees of the
custodian, auditor and Trustees. Other expenses paid by each Portfolio
include: interest, taxes, brokerage commissions, each Portfolio's
proportionate share of insurance premiums and Investment Company Institute
dues, and costs of registering shares under federal and state securities
laws. Each Portfolio also is liable for such nonrecurring expenses as may
arise, including costs of litigation to which each Portfolio is a party, and
its obligation under the Declaration of Trust to indemnify its officers and
Trustees with respect to such litigation.

For managing its investment and business affairs, each Portfolio pays First
Tennessee its prorated portion of a monthly management fee at the annual rate
of .25% of aggregate average monthly net assets of all Money Market
Portfolios of the Trust managed by First Tennessee through $1 billion, and
.22% on amounts greater than $1 billion. For the fiscal year ended June 30,
1996, First Tennessee earned $209,632, $241,977, $241,730, and $69,195 from
U.S. Treasury Money Market Portfolio, U.S. Government Money Market Portfolio,
Municipal Money Market Portfolio, and Cash Reserve Portfolio, respectively,
before waiving fees of $133,588, $155,065, $155,521, and $43,354 for the
respective Portfolios. For the fiscal year ended June 30, 1995, First
Tennessee earned $127,764, $206,630, $203,876, and $31,714 from U.S. Treasury
Money Market

17
<PAGE>

Portfolio, U.S. Government Money Market Portfolio, Municipal Money Market
Portfolio and Cash Reserve Portfolio, respectively, before waiving fees of
$86,879, $140,508, $138,636, and $21,566 for the respective Portfolios. For
the fiscal year ended June 30, 1994, First Tennessee earned $196,636,
$216,666, and $195,072 from U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Municipal Money Market Portfolio,
respectively, before waiving fees of $133,712, $147,333, and $132,649 to the
respective Portfolios. First Tennessee has voluntarily agreed to waive its
fees to .10% of each Portfolio's average net assets. This waiver is subject
to change, upon notification to shareholders.

Under the Investment Advisory and Management Agreement, First Tennessee is
authorized, at its own expense, to hire sub-advisers to provide investment
advice to each Portfolio. As Sub-Adviser, PIMC is paid by First Tennessee a
monthly sub-advisory fee at the annual rate of .08% of aggregate average monthly
net assets of all money market Portfolios of the Trust advised by PIMC, through
$500 million, .06% of the next $500 million, and .05% on amounts greater than $1
billion. Under the terms of the sub-advisory agreement with First Tennessee,
PIMC, subject to the supervision of First Tennessee, supervises the day-to-day
operations of each Portfolio and provides investment research and credit
analysis concerning each Portfolio's investments, conducts a continual program
of investment of each Portfolio's assets and maintains the books and records
required in connection with its duties under each sub-advisory agreement. In
addition, PIMC keeps First Tennessee informed of the developments materially
affecting each Portfolio. For the fiscal year ended June 30, 1996 fees paid to
PIMC were $67,113, $77,564, $77,341, and $22,289 for U.S. Treasury Money Market
Portfolio, U.S. Government Money Market Portfolio, Municipal Money Market
Portfolio, and Cash Reserve Portfolio, respectively. For the fiscal year ended
June 30, 1995 fees paid to PIMC were $40,884, $66,122, $65,241, and $10,149 for
U.S. Treasury MoneyMarket Portfolio, U.S. Government Money Market Portfolio,
Municipal Money Market Portfolio, and Cash Reserve Portfolio, respectively. For
the fiscal year ended June 30, 1994 fees paid to PIMC were $62,924, $69,333, and
$62,423, for U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, and Municipal Money Market Portfolio, respectively.

ADMINISTRATION AGREEMENT AND OTHER CONTRACTS

ADMINISTRATOR AND DISTRIBUTOR. ALPS Mutual Funds Services, Inc. (ALPS, the
Administrator and Distributor), is the Administrator and Distributor to each
Portfolio under separate Administration and General Distribution Agreements with
respect to each Portfolio. ALPS, a Colorado corporation, is a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc.

For each Portfolio's fiscal year ended June 30, 1996, ALPS earned
administration fees in the amount of $62,889, $72,593, $72,519, and $20,758 from
the U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, Municipal Money Market Portfolio and the Cash Reserve Portfolio
respectively. Prior to July 1, 1995, National Financial Services Corporation
(NFSC) served as the Administrator and Distributor for each Portfolio. As
Administrator, NFSC earned fees from each Portfolio computed daily and payable
monthly at an annual rate of .20% of average net assets through $100 million,
.15% above $100 million and through $200 million, and .10% over $200 million.
For each Portfolio's fiscal year ended June 30, 1995, NFSC earned administration
fees in the amount of $102,211, $165,304, $163,101, and $25,371 from the U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio,
Municipal Money Market Portfolio and the Cash Reserve Portfolio, respectively.
NFSC waived a portion of its fees payable to each of the MoneyMarket Portfolios
during the fiscal year ended June 30, 1995 so that each Money Market Portfolio
paid to NFSC .10% of its average net assets. For the fiscal year ended June 30,
1995, NFSC waived administration fees of $51,106, $82,652, $81,551, and $12,685
for the U.S. Treasury Money Market Portfolio, U.S. Government Money Market
Portfolio, Municipal Money Market Portfolio and Cash Reserve Portfolio,
respectively

First Tennessee, serves as the Co-Administrator for each Portfolio. As the
Co-Administrator, First Tennessee assists in each Portfolio's operation,
including, but not limited to, providing non-investment related research and
statistical data and various operational and administrative services. First
Tennessee is entitled to receive from each Portfolio a monthly fee at the annual
rate of .05% of average net assets. For each Portfolio's fiscal year ended June
30, 1996, First Tennessee earned co-administration fees in the amount of
$41,850, $48,327, $48,285 and $13,808 from the U.S. Treasury Money Market
Portfolio, U.S. Government Money Market Portfolio, Municipal Money Market
Portfolio and the Cash Reserve Portfolio, respectively, before waiving $30,649,
$36,477, $37,216 and $9,183, respectively.

As the Distributor, ALPS sells shares of Class I as agent on behalf of the Trust
at no additional cost to the Trust. Class II and III are obligated to pay ALPS
monthly an additional annual fee of up to .25% and .45 % of average net assets,
respec-

18
<PAGE>

tively, which consists of up to .25% in shareholder servicing fees for Class
II and up to .45% in 12b-1 fees for Class III, all or a portion of which may
be paid out to broker-dealers or others involved in the distribution of Class
II or Class III shares. First Tennessee and its affiliates neither
participate in nor are responsible for the underwriting of Portfolio shares.
Consistent with applicable law, affiliated brokers of First Tennessee may
receive commissions or asset-based fees.

TRANSFER AGENT, FUND ACCOUNTING AND CUSTODIAN. Chase Global Funds Services
Company (CGFSC or the Transfer Agent), provides transfer agent and shareholder
services for each Portfolio, and calculates the NAV and dividends of each class
and maintains the Portfolio and general accounting records. Chase Manhattan
Bank is Custodian of the assets of the Portfolios. The Custodian is responsible
for the safekeeping of each Portfolio's assets and the appointment of
sub-custodian banks and clearing agencies. The Custodian takes no part in
determining the investment policies of the Portfolios or in deciding which
securities are purchased or sold by the Portfolios. The Portfolios, however,
may invest in obligations of the Custodian and may purchase securities from or
sell securities to the Custodian.

DISTRIBUTION PLANS. The Trustees of the Trust have adopted a Distribution Plan
on behalf of Class III of each Portfolio (each Class III Plan) pursuant to Rule
12b-1 (the Rule) under the 1940 Act. The Rule provides in substance that a
mutual fund may not engage directly or indirectly in financing any activity that
is intended primarily to result in the sale of shares of the fund except
pursuant to a plan adopted by the fund under the Rule. The Trustees have
adopted the Plan to allow each Class and ALPS to incur distribution expenses.
ALPS receives a Distribution and Service fee (12b-1 fee) of up to 0.45% of the
average net assets of Class III of each Portfolio; however, the Trustees have
limited such fees to .25%of each Class III's average net assets. (These fees
are in addition to the fees paid to ALPS under the Administration Agreement.)
The Trust or ALPS, on behalf of Class III of each Portfolio, may enter into
servicing agreements (Service Agreements) with banks, broker-dealers or other
institutions (Agency Institutions). Each Class III Plan provides that ALPS may
use its fees and other resources to make payments to Agency Institutions for
performance of distribution-related services, including those enumerated above.
The Service Agreements further provide for compensation to broker-dealers for
their efforts to sell Class III shares. The distribution-related services
include, but are not limited to, the following: formulation and implementation
of marketing and promotional activities, such as mail promotions and television,
radio, newspaper, magazine and other mass media advertising; preparation,
printing and distribution of sales literature; preparation, printing and
distribution of prospectuses of each Portfolio and reports to recipients other
than existing shareholders of each Portfolio; obtaining such information,
analyses and reports with respect to marketing and promotional activities as
ALPS may from time to time, deem advisable; making payments to securities
dealers and others engaged in the sales of Class III Shares; and providing
training, marketing and support to such dealers and others with respect to the
sale of Class III Shares. Each Class III Plan recognizes ALPS may use its fees
and other resources to pay expenses associated with the promotion and
administration of activities primarily intended to result in the sale of shares.

Each Plan has been approved by the Trustees, including the majority of
disinterested Trustees. As required by the Rule, the Trustees carefully
considered all pertinent factors relating to the implementation of the Plans
prior to its approval, and have determined that there is a reasonable likelihood
that each Plan will benefit each Portfolio and its shareholders. To the extent
that the Class III Plans give ALPS greater flexibility in connection with the
distribution of shares of the class, additional sales of shares may result.

The Class III Plans could be construed as compensation plans because ALPS is
paid a fixed fee and is given discretion concerning what expenses are payable
under the Plans. ALPS may spend more for marketing and distribution than it
receives in fees and reimbursements from each Portfolio. However, to the extent
fees received exceed expenses, including indirect expenses such as overhead,
ALPS could be said to have received a profit. For example, if ALPS pays $1 for
Class III distribution-related expenses and receives $2 under a Class III Plan,
the $1 difference could be said to be a profit for ALPS. (Because ALPS is
reimbursed for its out-of-pocket direct promotional expenses, a Class III Plan
also could be construed as a reimbursement plan. Until the issue is resolved by
the SEC, unreimbursed expenses incurred in one year will not be carried over to
a subsequent year.) If after payments by ALPS for marketing and distribution
there are any remaining fees attributable to a Class III Plan, these may be used
as ALPS may elect. Since the amount payable under a Class III Plan will be
commingled with ALPS's general funds, including the revenues it receives in the
conduct of its business, it is possible that certain of ALPS's overhead expenses
will be paid out of Plan fees and that these expenses may include items which
the SEC has noted, for example, the costs of leases, depreciation,
communications, salaries, training and supplies. Each Portfolio believes that
such expenses, if paid, will be paid only indirectly out of the fees being paid
under the Plan.

For fiscal year ended June 30, 1996, ALPS received distribution fees from Class
III of the U.S. Treasury, U.S. Government and Municipal Money Market Portfolios
and the Cash Reserve Portfolio in the amounts of $5,572, $280, $6,207 and
$28,939, respectively.

19
<PAGE>

SHAREHOLDER SERVICES PLANS. In addition to the Rule 12b-1 Distribution Plans
described above, Class II of each Portfolio has adopted Shareholder Services
Plans to compensate Agency Institutions for individual shareholder services and
account maintenance. These functions include: maintaining account records for
each shareholder who beneficially owns Class II Shares; answering questions and
handling correspondence from shareholders about their accounts; handling the
transmission of funds representing the purchase price or redemption proceeds;
issuing confirmations for transactions in Class II Shares by shareholders;
assisting customers in completing application forms; communicating with the
transfer agent; and providing account maintenance and account level support for
all transactions. For these services the participating Agency Institutions are
paid a service fee at the annual rate of up to .25% of average net assets of
Class II.

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, controlling, or distributing
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares and prohibit banks generally from issuing,
underwriting, selling or distributing securities. The same laws and regulations
generally permit a bank or bank affiliate to act as an investment adviser and
co-administrator and to purchase shares of the investment company as agent for
and upon the order of a customer. In the Trust's and Investment Adviser's
opinion, banks and their affiliates may be paid for investment advisory,
shareholder servicing, recordkeeping and co-administration functions. Changes
in federal or state statutes and regulations pertaining to the permissible
activities of banks and their affiliates or subsidiaries, as well as further
judicial or administrative decisions or interpretations, could prevent a bank
from continuing to perform all or a part of the contemplated services. If a
bank or its affiliates were prohibited from so acting, the Trustees would
consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. In such event, changes in the
operation of the Portfolios might occur, including possible termination of any
automatic investment or redemption or other services then being provided by any
bank. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Portfolios may
execute portfolio transactions with and purchase securities issued by depository
institutions that receive payments under the Plans. No preference will be shown
in the selection of investments for the instruments of such depository
institutions. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and banks and
other financial institutions may be required to register as dealers pursuant to
state law.

DESCRIPTION OF THE TRUST

TRUST ORGANIZATION. U.S. Treasury Money Market Portfolio, U.S. Government Money
Market Portfolio, Municipal Money Market Portfolio, and Cash Reserve Portfolio
are portfolios of First Funds (formerly The Masters Group of Mutual Funds), an
open-end management investment company organized as a Massachusetts business
trust by a Declaration of Trust dated March 6, 1992, as amended and restated on
September 4, 1992. The Declaration of Trust permits the Trustees to create
additional portfolios and classes. There are seven portfolios of the Trust,
each with three classes.

The assets of the Trust received for the issue or sale of shares of each
Portfolio and all income, earnings, profits, and proceeds thereof, subject only
to the rights of creditors, are specially allocated to such Portfolio, and
constitute the underlying assets of such Portfolio. The underlying assets of
each Portfolio are segregated on the books of account, and are to be charged
with the liabilities with respect to such Portfolio and with a share of the
general expenses of the Trust. Expenses with respect to the Trust are to be
allocated in proportion to the asset value of the respective Portfolios except
where allocations of direct expense can otherwise be fairly made. The officers
of the Trust, subject to the general supervision of the Trustees, have the power
to determine which expenses are allocable to a given Portfolio, or which are
general or allocable to all of the Portfolios. In the event of the dissolution
or liquidation of the Trust, shareholders of a Portfolio are entitled to receive
as a class the underlying assets of such Portfolio available for distribution.

20
<PAGE>

As of September 30, 1996, State of Tennessee, Nashville, TN, owned of record or
beneficially 17% of U.S. Treasury Money Market Portfolio's outstanding Class I
shares. Volunteer State Student Funding Corp., Knoxville, TN owned of record
or beneficially 9% of U.S. Treasury Money Market Portfolio's outstanding Class I
shares. Ft. Sanders Regional Medical Center, Knoxville, TN owned of record or
beneficially 8% of U.S. Treasury Money Market Portfolio's outstanding Class I
shares.

As of September 30, 1996, Martha R. Robinson, Memphis, TN, owned of record or
beneficially 8% of U.S. Government Money Market Portfolio's outstanding Class I
shares and 6% of Municipal Money Market Portfolio's outstanding Class I shares.

As of September 30, 1996, First Tennessee CTF 1 Equity Fund, Memphis, TN, owned
of record or beneficially 7% of Cash Reserve Portfolio's outstanding Class I
shares.

As of September 30, 1996, John E. Marek and Diane D. Marek, joint tenants, P.O.
Box 309, Hixson, TN owned of record or beneficially 36.24% of U.S. Treasury
Money Market Portfolio's outstanding Class III shares.

As of September 30, 1996, Evadale Barnett, 131 County Road, Etowah, TN owned of
record or beneficially, 32.88% of U.S. Government Money Market Portfolio's
outstanding Class III shares.

VOTING RIGHTS. Each Portfolio's capital consists of shares of beneficial
interest. The shares have no preemptive or conversion rights; the voting and
dividend rights, the right of redemption, and the privilege of exchange are
described in the Prospectus. Shares are fully paid and nonassessable, except as
set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders representing 10% or more of the Trust or a Portfolio may, as set
forth in the Declaration of Trust, call meetings of the Trust or a Portfolio for
any purpose related to the Trust or Portfolio, as the case may be, including, in
the case of a meeting of the entire Trust, the purpose of voting on removal of
one or more Trustees. The Trust or any Portfolio may be terminated upon the
sale of its assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by vote of the holders
of a majority of the outstanding shares of the Trust or that Portfolio. If not
so terminated, the Trust and each Portfolio will continue indefinitely.

CLASSES. Pursuant to the Declaration of Trust, the Trustees have authorized
additional Classes of shares for each Portfolio of the Trust. Although the
investment objective for each separate Class of a particular Portfolio is the
same, fee structures are different such that one Class may have a higher yield
than another Class of the same Portfolio at any particular time. Shareholders
of the Trust will vote together in the aggregate and not separately by
Portfolio, or by Class thereof, except as otherwise required by law or when the
Trustees determine that the matter to be voted upon affects only the interests
of the shareholders of a particular Portfolio or a Class thereof. Pursuant to a
vote by the Board of Trustees, the Trust has adopted Rule 18f-3 under the Act
and has issued multiple Classes of shares with respect to each of its
Portfolios. Accordingly, the rights, privileges and obligations of each such
Class will be determined in accordance with such rule.

FINANCIAL STATEMENTS

The Portfolios' financial statements and financial highlights for the fiscal
period ended June 30, 1996, are included in the Portfolios' Annual Report, which
is a separate report supplied independent of this Statement of Additional
Information. The Portfolios' financial statements and financial highlights are
incorporated herein by reference.

APPENDIX

DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S COMMERCIAL PAPER RATINGS:

Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

21
<PAGE>

- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earning coverage of fixed financial charges and with
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.

DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:

A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety.

A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+)
sign designation.

22
<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Shareholders of First Funds:

In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Total Return
Equity Portfolio, the Total Return Fixed Income Portfolio, the Tennessee
Tax-Free Portfolio, the U.S. Treasury Money Market Portfolio, the U.S.
Government Money Market Portfolio, the Municipal Money Market Portfolio, and
the Cash Reserve Portfolio (portfolios of First Funds, hereafter, referred to
as the "Portfolios") at June 30, 1996, and the results of each of their
operations, the changes in each of their net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Portfolios' management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which include confirmation of securities at June 30, 1996 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.

Price Waterhouse LLP
Boston, Massachusetts
August 12, 1996

1 --------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

TOTAL RETURN FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ------------ ------------
U.S GOVERNMENT & AGENCY OBLIGATIONS - 54.6%
U.S. TREASURY BONDS
05/15/16 7.250% $ 15,090,000 $ 15,457,819
08/15/17 8.875% 4,055,000 4,866,000

U.S. TREASURY NOTES
11/30/97 6.000% 6,435,000 6,439,023
04/15/98 7.875% 460,000 473,656
05/31/98 5.375% 9,900,000 9,766,963
04/30/00 6.750% 7,335,000 7,412,934
08/15/02 6.375% 8,005,000 7,929,953
02/15/04 5.875% 8,965,000 8,558,769
------------

TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $61,722,228) 60,905,117
------------

CORPORATE BONDS AND NOTES - 35.1%
FINANCE - 17.7%
Associates Corp. of N.A.
05/15/99 7.500% 1,010,000 1,034,401
BHP Finance USA
03/01/06 6.690% 2,225,000 2,119,012
Bankers Trust - NY Corp.
03/15/06 7.125% 1,850,000 1,799,125
CNA Financial
11/15/03 6.250% 2,150,000 2,030,561
Donaldson, Lufkin & Jenrette
02/15/16 5.625% 2,000,000 1,882,414
First Chicago
1/15/03 7.625% 1,600,000 1,641,282
Ford Capital
05/01/98 9.125% 910,000 951,561
Ford Motor Credit Co.
10/06/00 6.375% 2,000,000 1,960,176
General Motors Acceptance Corp.
02/15/01 5.625% 1,575,000 1,494,596
Morgan Stanley Group, Inc.
10/01/03 6.125% 2,200,000 2,066,486
Norwest Corp.
12/01/05 6.200% 1,950,000 1,810,536
Tenneco Credit, Inc.
11/01/96 9.250% 950,000 960,123
------------

TOTAL FINANCE 19,750,273
------------

INDUSTRIAL & SERVICE - 16.3%
American Home Products Corp.
02/15/00 7.700% 1,550,000 1,598,402
Anheuser Busch
09/01/05 7.000% 2,000,000 1,969,162
Caremark International, Inc.
08/15/03 6.875% 1,500,000 1,413,618
Dover Corp.
11/15/05 6.450% 1,900,000 1,804,421
Federal Express Corp.
03/23/10 8.400% 1,750,000 1,874,390
Lockheed Martin
05/15/01 6.850% 2,000,000 1,990,406
Northwest Airlines Corp.
01/02/15 7.670% 1,500,000 1,512,960

DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ------------ ------------
INDUSTRIAL & SERVICE (CONTINUED)
Philip Morris
12/01/99 7.125% $ 1,225,000 $ 1,234,986
Raytheon Co.
07/15/05 6.500% 1,800,000 1,718,285
USX Corp.
01/21/99 8.050% 1,190,000 1,212,253
Waste Management
10/01/02 7.700% 1,825,000 1,892,151
------------

TOTAL INDUSTRIAL & SERVICE 18,221,034
------------

UTILITIES - 1.1%
Public Service Electric & Gas
11/01/01 7.875% 1,150,000 1,179,107
------------

TOTAL CORPORATE BONDS AND NOTES
(Cost $39,817,920) 39,150,414
------------

FOREIGN BOND - 1.4%
Fomento Economico Mexico S.A.
07/22/97 9.500% 1,500,000 1,522,500
(Cost $1,517,868) ------------

ASSET BACKED OBLIGATIONS - 0.0%
Security Pacific Home Equity
Loan, Series 1991-2A
06/15/20 8.100% 31,551 31,689
(Cost $32,546) ------------

MORTGAGE-BACKED OBLIGATIONS - 5.0%
Federal Home Loan Mortgage
Corp., CMO 1698 E PAC
10/15/06 6.000% 2,400,000 2,344,824
Federal National Mortgage
Association, 1994-M3 CL B
04/25/06 7.710% 2,225,000 2,280,277
Guaranteed Mortgage Corp.
III, L4 07/20/19 9.050% 193,695 196,448
Resolution Trust Corp.,
Series 1992-8 A2 12/25/26 8.250%+ 101,516 101,516
Resolution Trust Corp.,
Series 1992-C6 A2 07/25/24 6.500%* 633,208 635,187
------------

TOTAL MORTGAGE-BACKED OBLIGATIONS
(Cost $5,636,989) 5,558,252
------------

SHORT-TERM INVESTMENTS - COMMERCIAL PAPER - 3.9%
American Express Corp.
07/01/96 5.392% 2,342,800 2,342,800
Merrill Lynch & Co.
07/08/96 5.350% 2,000,000 1,997,919
------------

TOTAL SHORT-TERM INVESTMENTS - COMMERCIAL PAPER
(Cost $4,340,719) 4,340,719
------------

TOTAL INVESTMENTS - 100%
(Cost $113,068,270) $111,508,691
------------
------------

The accompanying notes are an integral part of the financial statements.

- -------------------------------------------------------------------------- 2
<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

TOTAL RETURN FIXED INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
(Showing Percentage of Total Value of Investments)

*Floating or variable rate security - rate disclosed as of June 30, 1996.
+Security is valued at fair value. See Note 1.

INCOME TAX INFORMATION:

At June 30, 1996, the net unrealized depreciation
based on cost for income tax purposes of $113,068,270
was as follows:

Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $466,184

Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (2,025,763)
-----------

Net unrealized depreciation $(1,559,577)
-----------
-----------

As of June 30, 1996, Total Return Fixed Income Portfolio had a capital loss
carryover of approximately $962,000 available to offset capital gains to the
extent provided in regulations, which will expire on June 30, 2003.

OTHER INFORMATION:

Purchases and sales of securities, other than short-term securities and U.S.
Government and Agency securities for the year ended June 30, 1996 aggregated
$33,179,683 and $13,253,906, respectively. Purchases and sales of U.S.
Government and Agency securities, other than short-term securities for the
year ended June 30, 1996 aggregated $46,031,282 and $43,606,879,
respectively.

TOTAL RETURN EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

VALUE
SHARES (NOTE 1)
-------- -----------
COMMON STOCKS - 93.2%
BASIC MATERIALS - 5.1%
Air Products & Chemicals, Inc. 61,100 $ 3,528,525
Morton International, Inc. 171,700 6,395,825
-----------
TOTAL BASIC MATERIALS 9,924,350
-----------

CAPITAL GOODS - 16.2%
Belden, Inc. 175,800 5,274,000
General Electric Co. 70,775 6,122,038
Grainger (W.W.), Inc. 54,650 4,235,375
Raytheon Co. 90,800 4,687,550
WMX Technologies, Inc. 198,300 6,494,325
York International Corp. 92,600 4,792,050
-----------

TOTAL CAPITAL GOODS 31,605,338
-----------

CONSUMER NON-DURABLES - 20.0%
Abbott Laboratories 148,400 6,455,400
Elan Corp. ADR* 91,900 5,249,787
Merck & Co., Inc. 79,500 5,137,688
Procter & Gamble Co. 29,550 2,677,969
Ralston Purina Group 20,700 1,327,387
Sara Lee Corp. 182,650 5,913,294
Schering-Plough Corp. 94,800 5,948,700
Sysco Corp. 181,000 6,199,250
-----------

TOTAL CONSUMER NON-DURABLES 38,909,475
-----------

CONSUMER SERVICES - 11.0%
Belo (A.H.) Corp., COM Series A 132,800 4,946,800
Federated Department Stores* 135,100 4,610,288
Interpublic Group of Companies, Inc. 121,600 5,700,000
Price/Costco, Inc.* 290,200 6,203,025
-----------

TOTAL CONSUMER SERVICES 21,460,113
-----------

ENERGY & NATURAL RESOURCES - 10.8%
Apache Corp. 48,300 1,587,863
Coastal Corp. 119,900 5,005,825
Repsol S.A. ADR 157,617 5,477,191
Texaco, Inc. 45,100 3,782,762
YPF S.A. ADR 225,500 5,073,750
-----------

TOTAL ENERGY & NATURAL RESOURCES 20,927,391
-----------

FINANCE - 14.3%
Bank of Boston Corp. 100,200 4,959,900
Chase Manhattan Corp. 73,600 5,198,000
Federal National Mortgage Association 186,000 6,231,000
Norwest Corp. 184,500 6,434,437
UNUM Corp. 80,500 5,011,125
-----------

TOTAL FINANCE 27,834,462
-----------

TECHNOLOGY - 12.3%
Airtouch Communications, Inc.* 203,400 5,746,050
EMC Corp.* 192,300 3,581,587
Intel Corp. 66,600 4,886,775

The accompanying notes are an integral part of the financial statements.

3 ---------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

TOTAL RETURN EQUITY PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
(Showing Percentage of Total Value of Investments)

VALUE
SHARES (NOTE 1)
-------- ------------
TECHNOLOGY (CONTINUED)
Motorola, Inc. 87,400 $ 5,495,275
Sprint Corp. 102,800 4,317,600
------------
TOTAL TECHNOLOGY 24,027,287
------------

UTILITIES - 3.5%
GTE Corp. 152,500 6,824,375
------------

TOTAL COMMON STOCKS
(Cost $144,730,328) 181,512,791
------------

DUE DISCOUNT RATE OR PRINCIPAL
DATE COUPON RATE AMOUNT
- ---- ---------------- ----------
SHORT-TERM INVESTMENTS - COMMERCIAL PAPER - 6.8%
American Express
07/01/96 5.392% $5,124,300 5,124,300
Idaho Power
07/29/96 5.380% 2,000,000 1,991,631
Merrill Lynch Co.
07/08/96 5.350% 2,595,000 2,592,301
Mitsubishi Motors
07/15/96 5.370% 2,000,000 1,995,823
Travelers Ins. Co.
07/10/96 5.382% 1,470,000 1,470,000
------------

TOTAL SHORT-TERM INVESTMENTS -
COMMERCIAL PAPER
(Cost $13,174,055) 13,174,055
------------

TOTAL INVESTMENTS - 100%
(Cost $157,904,383) $194,686,846
------------
------------

*Non-income producing security
ADR - American Depository Receipt

INCOME TAX INFORMATION:

At June 30, 1996, the net unrealized appreciation
based on cost for income tax purposes of
$157,951,929 was as follows:

Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 37,183,451

Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (448,534)
------------

Net unrealized appreciation. $ 36,734,917
------------
------------

OTHER INFORMATION:

Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 1996 aggregated $99,236,268 and $67,446,967,
respectively.

TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ --------- ----------
DEMAND NOTES - 7.8%
Lincoln County Wyoming
11/01/14 3.600%* $400,000 $ 400,000
New York City General
Obligation, Series B-4
08/15/23 3.600%* 200,000 200,000
New York City Water
Revenue, Series 92-C
06/15/22 3.600%* 100,000 100,000
----------
TOTAL DEMAND NOTES
(Cost $700,000) 700,000
----------
GENERAL OBLIGATION BONDS - 57.8%
Bradley County Tennessee
03/01/08 5.200% 320,000 310,176
Chattanooga Tennessee
06/01/03 5.000% 100,000 100,556
11/01/04 5.400% 250,000 256,050
Cleveland Tennessee
09/01/09 5.375% 330,000 325,987
Grundy County Tennessee
05/01/06 5.350% 300,000 303,171
Hamblen County Tennessee
Hospital 05/01/06 4.900% 150,000 145,995
Hamilton County Tennessee
09/01/05 5.000% 300,000 297,369
Johnson City Tennessee
06/01/12 5.900% 245,000 248,339
Kingsport Tennessee
09/01/02 5.500% 100,000 102,888
Knox County Tennessee
04/01/08 5.100% 350,000 339,731
Knoxville Tennessee
05/01/08 5.300% 350,000 345,737
Memphis Tennessee
03/01/11 5.250% 100,000 96,327
10/01/12 5.500% 90,000 88,756
Metropolitan Nashville
05/15/05 5.000% 350,000 348,247
Putnam County Tennessee
04/01/07 5.100% 330,000 322,763
Rutherford County Tennessee
04/01/04 5.125% 40,000 40,328
Shelby County Tennessee
08/01/01 6.600% 250,000 253,530
03/01/11 5.800% 400,000 404,380
State of Tennessee
03/01/07 5.400% 240,000 243,483
Weakly County Tennessee
05/01/09 5.000% 350,000 333,389
Williamson County Tennessee
09/01/02 4.900% 150,000 150,783
Wilson County Tennessee
04/01/07 5.250% 140,000 139,192
----------
TOTAL GENERAL OBLIGATION BONDS
(Cost $5,295,556) 5,197,177
----------

The accompanying notes are an integral part of the financial statements.

- -------------------------------------------------------------------------- 4

<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ------------ ----------
REVENUE BONDS - 34.4%
AIRPORT - 0.5 %
Metropolitan Nashville Airport
07/01/97 5.600% $ 40,000 $ 40,523
----------

HOSPITAL - 9.9%
Blount County Hospital
07/01/12 6.125% 250,000 259,350
Jackson Hospital
04/01/10 5.500% 300,000 294,582
Knox County Tennessee Health &
Education (St. Mary's Hospital)
09/01/03 5.200% 40,000 40,354
Knox County Tennessee Health &
Education (Ft. Sanders Hospital)
01/01/11 5.750% 300,000 300,291
----------

TOTAL HOSPITAL 894,577
----------

HOUSING - 7.2%
Tennessee Housing Development
Authority 07/01/00 4.950% 250,000 250,178
01/01/11 5.800% 400,000 401,028
----------

TOTAL HOUSING 651,206
----------

STATE AUTHORITY - 3.2%
Tennessee State Local
Development Authority
03/01/11 5.750% 250,000 246,088
Tennessee State School
Board Authority 05/01/03 5.750% 35,000 36,585
----------

TOTAL STATE AUTHORITY 282,673
----------

UTILITY - 13.6%
Jackson Tennessee Water &
Sewer 07/01/10 5.100% 190,000 180,329
Knoxville Tennessee Gas
03/01/08 5.050% 400,000 387,960
Lawrenceburg Tennessee
Electric 07/01/06 5.200% 345,000 345,531
Memphis Tennessee Sewer
10/01/09 5.250% 175,000 170,422
Memphis Tennessee Water
01/01/97 4.900% 40,000 40,191
Metropolitan Nashville Water &
Sewer 01/01/99 5.000% 100,000 101,149
----------

TOTAL UTILITY 1,225,582
----------

TOTAL REVENUE BONDS
(Cost $3,149,393) 3,094,561
----------

TOTAL INVESTMENTS - 100%
(Cost $9,144,949) $8,991,738
----------
----------

*Floating or variable rate security - rate disclosed as of June 30, 1996.

INCOME TAX INFORMATION:

At June 30, 1996, the net unrealized depreciation
based on cost for income tax purposes of
$9,144,949 was as follows:

Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 10,458

Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (163,669)
---------

Net unrealized depreciation $(153,211)
---------
---------

OTHER INFORMATION:

The Tennessee Tax-Free Portfolio intends to elect to defer to its fiscal year
ending June 30, 1997 $7,688 of losses recognized during the period November
1, 1995 to June 30, 1996.

Purchases and sales of securities, other than short-term securities, for the
year ended June 30, 1996 aggregated $8,851,566 and $394,300, respectively.

UNAUDITED INCOME TAX INFORMATION:

Tennessee Tax-Free Portfolio had designated all dividends paid during the
year as exempt-interest dividends. Thus 100% of these distributions are
exempt from Federal income tax.

The accompanying notes are an integral part of the financial statements.

5 ---------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- --------------
U.S. TREASURY OBLIGATIONS - 55.2%
U.S. TREASURY NOTES
08/31/96 6.25% $2,500,000 $ 2,501,876
09/30/96 6.50% 2,000,000 2,003,245
10/31/96 6.88% 1,000,000 1,004,963
11/30/96 6.50% 1,000,000 1,003,519
11/30/96 7.25% 3,500,000 3,524,916
12/31/96 7.50% 4,500,000 4,542,699
01/15/97 8.00% 1,000,000 1,012,621
01/31/97 7.50% 2,000,000 2,021,338
02/28/97 6.75% 3,000,000 3,022,545
02/28/97 6.88% 1,250,000 1,263,551
U.S. TREASURY BILLS
09/05/96 5.07% 20,000,000 19,814,100
12/12/96 5.20% 2,000,000 1,952,622
-----------

TOTAL U.S.TREASURY OBLIGATIONS 43,667,995
-----------

MATURITY
AMOUNT
------------
REPURCHASE AGREEMENTS - 44.8%
Donaldson, Lufkin & Jenrette
Securities Corp., 5.40%,
dated 06/28/96, due 07/01/96,
collateralized by $12,701,000
U.S. Treasury Notes, 6.75%
due 04/30/00 12,724,724 12,719,000

HSBC Securities, Inc., 5.375%,
dated 06/28/96, due 07/01/96,
collateralized by $12,475,000
U.S. Treasury Notes, 7.12%
due 02/29/00 12,723,697 12,718,000

Lehman Brothers, 5.29%, dated
06/26/96, due 07/17/96,
collateralized by $7,970,000
U.S. Treasury Bonds, 11.12%
due 08/15/03 10,030,858 10,000,000
-----------

TOTAL REPURCHASE AGREEMENTS 35,437,000
-----------

TOTAL INVESTMENTS - 100% $79,104,995
-----------
-----------

INCOME TAX INFORMATION:

Total cost for Federal income tax purposes - $79,104,995

The U.S. Treasury Money Market Portfolio intends to elect to defer to its
fiscal year ending June 30, 1997 $6,168 of losses recognized during the
period November 1, 1995 to June 30, 1996.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- -----------
U.S. GOVERNMENT TREASURY OBLIGATIONS - 9.5%
U.S. TREASURY NOTES
12/31/96 7.50% $2,500,000 $ 2,523,800
01/31/97 7.50% 2,500,000 2,527,525
02/28/97 6.75% 2,000,000 2,015,439
02/28/97 6.88% 1,250,000 1,263,551
-----------
TOTAL U.S. GOVERNMENT TREASURY OBLIGATIONS 8,330,315
-----------

U.S. GOVERNMENT AGENCY OBLIGATIONS - 80.3%
Federal Farm Credit Bank
07/01/96 5.60% 1,500,000 1,500,000
Federal Home Loan Bank
07/20/96 5.25%* 5,000,000 4,999,194
08/21/96 7.55% 2,000,000 2,005,664
09/23/96 6.72% 3,000,000 3,008,356
Federal Home Loan Mortgage Corp.
07/22/96 5.27% 1,000,000 996,926
08/22/96 5.32% 1,500,000 1,488,466
08/26/96 5.30% 1,570,000 1,557,056
09/03/96 5.33% 1,350,000 1,337,208
09/13/96 5.34% 1,500,000 1,483,535
Federal National Mortgage Association
07/01/96 5.21%* 5,000,000 4,995,521
07/01/96 5.22%* 10,000,000 9,992,753
07/01/96 5.25%* 5,000,000 4,999,175
07/01/96 5.50%* 3,000,000 2,999,784
07/02/96 5.45%* 5,000,000 5,000,000
09/06/96 5.35%* 5,000,000 4,997,435
09/23/96 5.09% 2,000,000 1,976,247
09/24/96 5.33% 1,500,000 1,481,123
12/02/96 5.29% 2,000,000 1,954,741
Student Loan Marketing Association
07/02/96 5.59%* 12,650,000 12,645,961
07/02/96 5.62%* 1,200,000 1,200,080
-----------

TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 70,619,225
-----------

MATURITY
AMOUNT
------------
REPURCHASE AGREEMENTS - 10.2%
HSBC Securities, Inc. 5.375%,
dated 06/28/96, due 07/01/96,
collateralized by $4,400,000
U.S. Treasury Notes, 7.12%
due 02/29/00 4,472,002 4,470,000
Donaldson, Lufkin, Jenrette
Securities Corp., 5.40%, dated
06/28/96, due 07/01/96,
collateralized by $4,390,000
U.S. Treasury Notes, 7.12% due
09/30/99 4,473,012 4,471,000
-----------

TOTAL REPURCHASE AGREEMENTS 8,941,000
-----------

TOTAL INVESTMENTS - 100% $87,890,540
-----------
-----------

*Floating or variable rate security - rate disclosed as of June 30, 1996.

The accompanying notes are an integral part of the financial statements.

- -------------------------------------------------------------------------- 6

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
(Showing Percentage of Total Value of Investments)

INCOME TAX INFORMATION:

Total cost for Federal income tax purposes - $87,890,540

The U.S. Government Money Market Portfolio intends to elect to defer to its
fiscal year ending June 30, 1997 $2,691 of losses recognized during the
period November 1, 1995 to June 30, 1996.

MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- -----------
MUNICIPAL BONDS & NOTES - 100.0%
DISTRICT OF COLUMBIA - 3.5%
District of Columbia,
Series 92A
07/01/96 3.80%* $2,600,000 $ 2,600,000
-----------
GEORGIA - 4.0%
Thomasville Georgia
Payroll Development
Authority
07/04/96 3.55%* 3,000,000 3,000,000
-----------
ILLINOIS - 13.9%
Chicago Illinois,
Gas Supply
12/01/96 3.85% 1,600,000 1,600,000
Illinois Development
Authority
07/05/96 3.60%* 2,300,000 2,300,000
Illinois Housing
Development Authority
09/03/96 3.75% 1,465,000 1,465,000
Peoria Illinois
Industrial
Development Revenue
07/05/96 3.55%* 3,000,000 3,000,000
Quad Cities Economic
Development
07/05/96 3.55%* 1,960,000 1,960,000
-----------
10,325,000
-----------
INDIANA - 12.2%
Franklin County,
Indiana
07/05/96 3.50%* 2,225,000 2,225,000
Indiana Development
Finance Authority
07/05/96 3.60%* 4,900,000 4,900,000
Indiana State Housing
07/01/96 4.00% 1,000,000 1,000,000
Noblesville, Indiana
Industrial Development
Revenue
07/05/96 3.65%* 960,000 960,000
-----------
9,085,000
-----------
KENTUCKY - 4.9%
Maysville, Kentucky
Solid Waste
09/10/96 3.80% 3,600,000 3,600,00
-----------

LOUISIANA - 0.1%
Calcasieu Parish
Industrial Development
07/01/96 3.80%* 100,000 100,000
-----------
MICHIGAN - 2.5%
Michigan State
Strategic Fund
07/03/96 3.50%* 700,000 700,000
Michigan State
Strategic Fund,
Series 88
08/08/96 3.45% 1,150,000 1,150,000
-----------
1,850,000
-----------
NEW HAMPSHIRE - 9.0%
New Hampshire
Health Facilities
07/05/96 3.35%* 200,000 200,000
New Hampshire I.D.A.
Solid Waste
09/03/96 3.30% 3,000,000 3,000,000

The accompanying notes are an integral part of the financial statements.

7 ---------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- --------------
NEW HAMPSHIRE (CONTINUED)
New Hampshire PCR
NE - Power
08/23/96 3.60% $1,450,000 $ 1,450,000
New Hampshire PCR -
Power, Series A
09/10/96 3.65% 1,000,000 1,000,000
New Hampshire State
Housing Authority
01/15/97 3.65% 1,000,000 1,000,000
-----------
6,650,000
-----------
OHIO - 3.3%
Greater Cleveland Regional
Transportation Authority
10/17/96 3.90% 1,000,000 1,001,301
Stark County Ohio
06/19/97 4.12% 1,450,000 1,452,959
-----------
2,454,260
-----------
SOUTH CAROLINA - 2.0%
South Carolina
Education Assistance
Authority
09/01/96 4.75% 1,500,000 1,502,369
-----------
TENNESSEE - 24.3%
Clarksville, Tennessee
Public Building
Authority
07/05/96 3.30%* 200,000 200,000
Knox County Tennessee
07/05/96 3.35%* 100,000 100,000
Knox County
Tennessee IDB
07/15/96 3.60% 1,650,000 1,650,000
Knox County Tennessee
Health Education,
Mercy Health System
Series 94B
07/04/96 3.50%* 900,000 900,000
Memphis Tennessee
07/03/96 3.35%* 1,800,000 1,800,000
Memphis Tennessee,
Series B
07/03/96 3.50%* 3,400,000 3,400,000
Metropolitan
Government Nashville
07/03/96 3.50%* 2,000,000 2,000,000
Metropolitan Nashville
Airport
07/05/96 3.40%* 1,200,000 1,200,000
Metropolitan Nashville
Airport
07/03/96 3.40%* 2,810,000 2,810,000
Shelby County,
Tennessee
08/01/96 3.90% 1,965,000 1,965,000
South Pittsburg
Tennessee Industrial
Development
07/03/96 3.50%* 2,000,000 2,000,000
-----------
18,025,000
-----------

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- -----------
TEXAS - 10.0%
Angelina Neches
River Texas
09/09/96 3.60% $2,000,000 $ 2,000,000
Brazos River
Harbor Texas
08/13/96 3.60% 4,000,000 4,000,000
Brazos River
Texas
08/08/96 3.45% 1,400,000 1,400,000
-----------
7,400,000
-----------
UTAH - 2.2%
Emery County PCR
(Pacificorp)
07/01/96 3.55%* 1,600,000 1,600,000
-----------
WASHINGTON - 5.4%
Yakima County
Washington Public
Corp.
02/01/11 3.70%* 4,000,000 4,000,000
-----------
WISCONSIN - 2.7%
Racine Wisconsin,
UNI School District
08/23/96 4.500% 2,000,000 2,001,251
-----------
TOTAL MUNICIPAL BONDS & NOTES 74,192,880
-----------
TOTAL INVESTMENTS - 100% $74,192,880
-----------
-----------

*Floating or variable rate security - rate disclosed as of June 30, 1996.

INCOME TAX INFORMATION:

Total cost for Federal income tax purposes - $74,192,880.

As of June 30, 1996 Municipal Money Market Portfolio had a capital loss
carryover of approximately $3,000 available to offset capital gains to the
extent provided in the regulations, which will expire on June 30, 2002.

UNAUDITED INCOME TAX INFORMATION:

Municipal Money Market Portfolio had designated all dividends paid during the
year as exempt-interest dividends. Thus 100% of these distributions are
exempt from Federal income tax.

The accompanying notes are an integral part of the financial statements.

- --------------------------------------------------------------------------- 8

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

CASH RESERVE PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Showing Percentage of Total Value of Investments)

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- -----------
AGENCY OBLIGATIONS - 7.4%
Federal Home
Loan Bank
07/01/96 5.52% $3,000,000 $ 3,000,000
-----------
CERTIFICATES OF DEPOSITS - 14.3%
Bank of America
09/26/96 5.36% 1,000,000 1,000,000
Comerica Bank
08/01/96 5.43%* 800,000 799,724
First National Bank
of Chicago
11/07/96 5.51% 1,000,000 999,967
LaSalle National Bank
09/11/96 5.48% 2,000,000 2,000,000
National Bank of
Detroit
09/12/96 5.47% 1,000,000 1,000,000
-----------
TOTAL CERTIFICATES OF DEPOSIT 5,799,691
-----------
BANKERS' ACCEPTANCES - 4.5%
Citibank
07/15/96 5.40% 832,152 830,404
09/20/96 5.23% 1,000,000 988,234
-----------
TOTAL BANKERS' ACCEPTANCES 1,818,638
-----------
CORPORATE NOTES - 10.6%
CONSTRUCTION MACHINERY - 2.4%
Caterpillar Inc.
12/02/96 7.04% 1,000,000 1,004,748
-----------
SECURITY BROKER/DEALERS - 8.2%
Bear Stearns Co.
08/04/96 5.50%* 800,000 800,000
CS First Boston Inc.
08/03/96 5.48%* 1,700,000 1,700,000
Goldman Sachs
Group, L.P.
08/06/96 5.63%* 825,000 825,000
-----------
TOTAL SECURITY BROKER/DEALERS 3,325,000
-----------
TOTAL CORPORATE NOTES 4,329,748
-----------
COMMERCIAL PAPER - 52.0%
BANKS - 12.2%
Chase Manhattan Corp.
07/09/96 5.33% 900,000 898,935
08/07/96 5.35% 1,000,000 994,501
JP Morgan & Co., Inc.
08/20/96 4.88% 1,600,000 1,589,156
National City
Credit Corp.
08/08/96 5.22% 1,500,000 1,491,735
-----------
TOTAL BANKS 4,974,327
-----------
BEVERAGES - 2.4%
Anheuser Busch Co.
10/10/96 5.30% 1,000,000 985,130
-----------

DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ---------- -----------
CHEMICALS & ALLIED PRODUCTS - 6.3%
Monsanto
09/27/96 5.30% $1,800,000 $ 1,776,680
Proctor & Gamble
08/29/96 5.38% 800,000 792,946
-----------
TOTAL CHEMICALS & ALLIED PRODUCTS 2,569,626
-----------
ELECTRIC SERVICES - 4.3%
Carolina Power &
Light
09/27/96 5.22% 1,750,000 1,727,692
-----------
HEALTH SERVICES - 1.2%
Kaiser Foundation
Hospitals
07/02/96 5.20% 500,000 499,927
-----------
PAPER & ALLIED SERVICES - 2.9%
Weyerhauser Co.
08/29/96 5.38% 1,184,000 1,173,560
-----------
PERSONAL CREDIT INSTITUTIONS - 6.9%
Ford Motor
Credit Corp.
07/17/96 5.29% 2,000,000 1,995,298
Transamerica Finance
09/26/96 5.23% 800,000 789,888
-----------
TOTAL PERSONAL CREDIT INSTITUTIONS 2,785,186
-----------
PETROLEUM REFINING - 4.9%
Koch Industries
07/01/96 5.55% 2,000,000 2,000,000
-----------
SECURITY BROKER/DEALERS - 5.4%
Morgan Stanley Group
07/30/96 5.31% 2,200,000 2,190,589
-----------
TELEPHONE COMMUNICATIONS - 5.5%
AT&T Corp.
08/16/96 5.39% 1,200,000 1,191,735
08/22/96 5.38% 750,000 744,172
Bell South Telecom
08/20/96 5.37% 300,000 297,763
-----------
TOTAL TELEPHONE COMMUNICATIONS 2,233,670
-----------
TOTAL COMMERCIAL PAPER 21,139,707
-----------
MATURITY
AMOUNT
--------
REPURCHASE AGREEMENT 11.2%
Donaldson, Lufkin & Jenrette
Securities Corp., 5.400%,
dated 06/28/96, due 07/01/96,
collateralized by $4,334,000
U.S. Treasury Notes, 8.25% due
07/15/98 4,577,059 4,575,000
-----------
TOTAL INVESTMENTS - 100% $40,662,784
-----------
-----------

*Floating or variable rate security - rate disclosed as of June 30, 1996.

Total cost for income tax purposes - $40,662,784

The accompanying notes are an integral part of the financial statements.

9 ---------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

TOTAL RETURN FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996

ASSETS:

Investments, at value
(Cost $113,068,270) (Note 1) $111,508,691
Receivable for investments sold 1,621,256
Receivable for portfolio shares sold 12,500
Interest receivable 1,598,536
Other assets 1,899
------------
Total assets 114,742,882
------------

LIABILITIES:

Payable for investments purchased 3,164,072
Payable for portfolio shares redeemed 106,009
Accrued advisory fee 26,878
Accrued administration fee 13,859
Accrued co-administration fee 4,479
Dividends payable 30,766
Accrued 12b-1 fee 3,115
Accrued shareholder servicing fee 1,063
Other payables and accrued expenses 48,539
------------
Total liabilities 3,398,780
------------
NET ASSETS $111,344,102
------------
------------

NET ASSETS CONSIST OF:

Paid in capital $113,903,480
Over-distributed net investment income (36,367)
Accumulated net realized loss on investments (963,432)
Net unrealized depreciation in value of investments (1,559,579)
------------
NET ASSETS $111,344,102
------------
------------
CLASS I:
Net Asset Value, offering price and redemption
price per share ($107,832,238/11,082,542 shares
outstanding of $.001 par value capital
stock, unlimited shares authorized) $ 9.73
------
------
CLASS II:
Net Asset Value, offering price and redemption
price per share ($67,168/6,917 shares outstanding
of $.001 par value capital stock, unlimited
shares authorized) $ 9.71
------
------
Offering price per share (net asset value plus sales
charge of 3.75% of offering price) $10.09
------
------
CLASS III:
Net Asset Value, offering price and redemption
price per share ($3,444,696/354,758 shares
outstanding of $.001 par value capital stock,
unlimited shares authorized) $ 9.71
------
------

TOTAL RETURN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996

ASSETS:

Investments, at value
(Cost $157,904,383) (Note 1) $194,686,846
Cash 99
Receivable for investments sold 3,347,299
Receivable for portfolio shares sold 93,635
Dividends receivable 216,588
Interest receivable 3,621
Other assets 5,063
------------
Total assets 198,353,151
------------

LIABILITIES:

Payable for portfolio shares redeemed 90,251
Accrued advisory fee 161,201
Accrued administration fee 22,432
Accrued co-administration fee 8,040
Dividends payable 5,795
Accrued 12b-1 fee 30,035
Accrued shareholder servicing fee 10,508
Other payables and accrued expenses 69,062
------------
Total liabilities 397,324
------------
NET ASSETS $197,955,827
------------
------------

NET ASSETS CONSIST OF:

Paid in capital $153,405,960
Accumulated net realized gain on investments 7,767,404
Net unrealized appreciation in value of investments 36,782,463
------------
NET ASSETS $197,955,827
------------
------------
CLASS I:
Net Asset Value, offering price and redemption
price per share ($159,145,845/11,273,266 shares
outstanding of $.001 par value capital
stock, unlimited shares authorized) $14.12
------
------
CLASS II:
Net Asset Value, offering price and redemption
price per share ($1,918,109/135,858 shares
outstanding of $.001 par value capital stock,
unlimited shares authorized) $14.12
------
------
Offering price per share (net asset value plus sales
charge of 4.50% of offering price) $14.79
------
------
CLASS III:
Net Asset Value, offering price and redemption
price per share ($36,891,873/2,614,206 shares
outstanding of $.001 par value capital stock,
unlimited shares authorized) $14.11
------
------

The accompanying notes are an integral part of the financial statements.

- -------------------------------------------------------------------------- 10

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

TENNESSEE TAX-FREE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996

ASSETS:

Investments, at value
(Cost $9,144,949) (Note 1) $8,991,738
Interest receivable 130,800
Receivable for portfolio shares sold 103,514
Due from administrator 5,632
----------
Total assets 9,231,684
----------

LIABILITIES:

Payable for investments purchased 411,213
Payable for portfolio shares redeemed 59,598
Payable to custodian 26,101
Dividends payable 21,537
Accrued 12b-1 fee 513
Other payables and accrued expenses 16,417
Total liabilities 535,379
----------
NET ASSETS $8,696,305
----------
----------

NET ASSETS CONSIST OF:

Paid in capital $8,857,204
Accumulated net realized loss (7,688)
Net unrealized depreciation in value of investments (153,211)
----------
NET ASSETS $8,696,305
----------
----------
CLASS I:
Net Asset Value, offering price and redemption
price per share ($5,924,883/610,116 shares
outstanding of $.001 par value capital stock,
unlimited shares authorized) $ 9.71
------
------
CLASS II:
Net Asset Value, offering price and redemption
price per share ($1,875,015/192,796 shares
outstanding of $.001 par value capital stock,
unlimited shares authorized) $ 9.73
------
------
Offering price per share (net asset value plus sales
charge of 3.75% of offering price) $10.11
------
------
CLASS III:
Net Asset Value, offering price and redemption
price per share ($896,407/92,248 shares
outstanding of $.001 par value capital stock,
unlimited shares authorized) $ 9.72
------
------

The accompanying notes are an integral part of the financial statements.

11 --------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>
U.S. TREASURY U.S. GOVERNMENT MUNICIPAL CASH
MONEY MARKET MONEY MARKET MONEY MARKET RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (1)(Note 1) $79,104,995 $87,890,540 $74,192,880 $40,662,784
Cash 534 495 111,090 93
Interest receivable 507,885 853,060 509,442 81,062
Registration and organization costs 4,420 6,468 3,873 0
Other assets 1,971 2,237 2,750 374
----------------------------------------------------
Total assets 79,619,805 88,752,800 74,820,035 40,744,313
----------------------------------------------------
LIABILITIES:
Dividends payable 321,932 353,520 195,733 147,655
Accrued management fee 14,253 15,019 13,451 6,739
Accrued administration fee 5,251 5,469 4,735 2,477
Accrued co-administration fee 1,776 1,871 1,743 834
Accrued 12b-1 fee 2,709 227 984 6,056
Other payables and accrued expenses 42,363 37,807 33,198 20,972
----------------------------------------------------
Total liabilities 388,284 413,913 249,844 184,733
----------------------------------------------------
NET ASSETS $79,231,521 $88,338,887 $74,570,191 $40,559,580
----------------------------------------------------
----------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $79,235,466 $88,341,465 $74,573,204 $40,559,518
Accumulated net realized gain(loss) on
investments (3,945) (2,578) (3,013) 62
----------------------------------------------------
NET ASSETS $79,231,521 $88,338,887 $74,570,191 $40,559,580
----------------------------------------------------
----------------------------------------------------
NET ASSET VALUE, offering price and
redemption price per share (2) $1.00 $1.00 $1.00 $1.00
----------------------------------------------------
----------------------------------------------------
</TABLE>

(1) Including repurchase agreements for the U.S. Treasury Money Market, U.S.
Government Money Market, Municipal Money Market, and Cash Reserve Portfolios
in the amounts of $35,437,000, $8,941,000, $0 and $4,575,000 respectively.

(2) SHARES OUTSTANDING
NET ($.001 PAR VALUE, UNLIMITED
ASSETS SHARES AUTHORIZED)
------ ------------------
U.S. Treasury Money Market
Class I $75,703,114 75,706,952
Class III 3,528,407 3,528,514
U.S. Government Money Market
Class I 88,111,264 88,113,818
Class III 227,623 227,647
Municipal Money Market
Class I 71,664,860 71,667,895
Class III 2,905,331 2,905,309
Cash Reserve
Class I 16,369,393 16,369,263
Class III 24,190,187 24,190,255

The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------12

<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------
TOTAL RETURN FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996

INTEREST INCOME $ 6,574,322
-----------
EXPENSES:
Management fee (Note 3) 563,748
Administration fee (Note 4) 153,749
Co-administration fee 51,198
Fund accounting/Transfer agent fee:
Class I 68,107
Class II 17
Class III 2,950
Blue Sky fee:
Class I 3,604
Class II 14
Class III 1,897
Distribution fee:
Class III 23,789
Shareholder servicing fee:
Class II 36
Class III 7,930
Custodian fee 26,793
Trustees fee 5,303
Registration fee 11,176
Audit 20,571
Legal 6,692
Reports to Shareholders 6,251
Miscellaneous 14,317
-----------
Total expenses before waiver 968,142
Waiver of expenses (Note 5) (506,441)
Custodian fees paid indirectly (2,524)
-----------
Net expenses 459,177
-----------
Net investment income 6,115,145
-----------
Net realized gain on investments 423,779
Change in net unrealized appreciation/
depreciation (2,870,969)
-----------
Net loss on investments (2,447,190)
-----------
Net increase in net assets from operations $ 3,667,955
-----------
-----------
TOTAL RETURN EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996

INVESTMENT INCOME:
Dividends $ 2,533,190
Interest 1,046,761
-----------
Total investment income 3,579,951
-----------
EXPENSES:
Management fee (Note 3) 1,076,198
Administration fee (Note 4) 248,353
Co-administration fee 82,965
Fund accounting/Transfer agent fee:
Class I 85,576
Class II 467
Class III 49,582
Blue Sky fee:
Class I 3,778
Class II 19
Class III 4,340
Distribution fee:
Class III 226,023
Shareholder servicing fee:
Class II 989
Class III 75,107
Custodian fee 40,307
Trustees fee 8,132
Registration fee 21,932
Audit 23,147
Legal 9,382
Reports to Shareholders 12,983
Miscellaneous 23,229
-----------
Total expenses before waiver 1,992,509
Waiver of expenses (Note 5) (392,889)
Custodian fees paid indirectly (546)
-----------
Net expenses 1,599,074
-----------
Net investment income 1,980,877
-----------
Net realized gain on investments 13,237,842
Change in net unrealized appreciation/
depreciation 19,574,675
-----------
Net gain on investments 32,812,517
-----------
Net increase in net assets from operations $34,793,394
-----------
-----------

The accompanying notes are an integral part of the financial statements.
13--------------------------------------------------------------------------

<PAGE>

INTEREST INCOME $ 124,081
-----------
EXPENSES:
Management fee (Note 3) 12,692
Administration fee (Note 4) 3,755
Co-administration fee 1,252
Fund accounting/Transfer agent fee:
Class I 4,292
Class II 766
Class III 911
Blue Sky fee:
Class I 72
Class II 68
Class III 11
Distribution fee:
Class III 2,032
Shareholder servicing fee:
Class II 7
Class III 78
Audit 6,854
Registration fee 3,500
Custodian fee 1,450
Trustees fee 132
Legal 175
Miscellaneous 547
-----------
Total expenses before waiver 38,594
Waiver of expenses (Note 5) (17,699)
Fees reimbursed by administrator (5,310)
Custodian fees paid indirectly (746)
-----------
Net expenses 14,839
-----------
Net investment income 109,242
-----------
Net realized loss on investments (7,688)
Change in net unrealized appreciation/
depreciation (153,211)
-----------
Net loss on investments (160,899)
-----------
Net decrease in net assets from operations $ (51,657)
-----------
-----------

The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------14

<PAGE>

<TABLE>
<CAPTION>
U.S. TREASURY U.S. GOVERNMENT MUNICIPAL CASH
MONEY MARKET MONEY MARKET MONEY MARKET RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME $4,654,965 $5,430,552 $3,687,176 $1,559,959
--------------------------------------------------------
EXPENSES:
Management fee (Note 3) 209,632 241,977 241,730 69,195
Administration fee (Note 4) 62,889 72,593 72,519 20,758
Co-administration fee 41,850 48,327 48,285 13,808
Fund accounting/Transfer agent fee
Class I 38,422 45,160 48,913 14,444
Class III 1,265 82 1,501 6,050
Blue sky fee:
Class I 3,186 3,479 3,420 2,192
Class III 87 48 122 564
Distribution fee:
Class III 5,572 280 6,207 28,939
Custodian fee 40,402 38,584 27,469 14,995
Trustees fee 4,196 5,242 5,600 1,335
Amortization of organization costs 9,831 10,614 9,410 0
Registration fee 14,053 910 0 7,528
Audit 18,219 16,464 17,640 4,545
Legal 4,863 6,710 7,003 1,246
Reports to shareholders 6,325 8,317 7,638 2,190
Miscellaneous 11,940 14,960 13,666 4,550
--------------------------------------------------------
Total expenses before waiver 472,732 513,747 511,123 192,339
Waiver of expenses (Note 5) (164,237) (191,542) (192,737) (52,537)
Custodian fees paid indirectly (112) (1,288) (6,660) (476)
--------------------------------------------------------
Net expenses 308,383 320,917 311,726 139,326
--------------------------------------------------------
Net investment income 4,346,582 5,109,635 3,375,450 1,420,633
Net realized loss on investments (6,105) (2,691) 0 (26)
--------------------------------------------------------
Net increase in net assets from operations $4,340,477 $5,106,944 $3,375,450 $1,420,607
--------------------------------------------------------
--------------------------------------------------------

</TABLE>

The accompanying notes are an integral part of the financial statements.
15--------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------
TOTAL RETURN FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
-------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,115,145 $ 4,915,474
Net realized gain (loss) on
investments 423,779 (966,627)
Change in net unrealized
appreciation/depreciation (2,870,969) 5,585,727
------------------------------
Net increase in net assets
from operations 3,667,955 9,534,574
------------------------------
DISTRIBUTIONS:
Net investment income:
Class I (5,960,426) (4,863,070)
Class II (818) 0
Class III (154,608) (59,489)
------------------------------
Net decrease in net assets
from distributions (6,115,852) (4,922,559)
------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 23,774,506 11,459,258
Reinvested dividends 5,846,105 4,875,148
Cost of shares redeemed (8,318,523) (5,065,035)
------------------------------
Net increase in net assets
from share transactions 21,302,088 11,269,371
------------------------------
Total increase in net assets 18,854,191 15,881,386
NET ASSETS:
Beginning of period 92,489,911 76,608,525
------------------------------
End of period (including
overdistributed net
investment income
of $36,367 and $0,
respectively) $111,344,102 $ 92,489,911
------------------------------
------------------------------
TOTAL RETURN EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
-------------------------------
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,980,877 $ 2,115,923
Net realized gain on
investments 13,237,842 3,359,339
Change in net unrealized
appreciation/depreciation 19,574,675 18,052,964
------------------------------
Net increase in net assets
from operations 34,793,394 23,528,226
------------------------------
DISTRIBUTIONS:
Net investment income:
Class I (1,889,477) (2,004,637)
Class II (3,654) 0
Class III (136,801) (80,975)
Net realized gain:
Class I (6,655,167) (4,306,191)
Class II (250) 0
Class III (1,542,598) (239,881)
------------------------------
Net decrease in net assets
from distributions (10,227,947) (6,631,684)
------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 50,948,844 31,506,867
Reinvested dividends 9,854,367 6,552,112
Cost of shares redeemed (20,775,834) (6,437,332)
------------------------------
Net increase in net assets
from share transactions 40,027,377 31,621,647
------------------------------
Total increase in net assets 64,592,824 48,518,189
NET ASSETS:
Beginning of period 133,363,003 84,844,814
------------------------------
End of period (including
undistributed net
investment income of $0
and $49,055, respectively) $197,955,827 $ 133,363,003
------------------------------
------------------------------

The accompanying notes are an integral part of the financial statements.
--------------------------------------------------------------------------16

<PAGE>

- ----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- ----------------------------------------------------------------------------

TENNESSEE TAX-FREE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 15, 1995 TO
JUNE 30, 1996
--------------------
<S> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 109,242
Net realized loss on investments (7,688)
Change in net unrealized
appreciation/depreciation (153,211)
-----------
Net decrease in net assets
from operations (51,657)
-----------
DISTRIBUTIONS:
Net investment income:
Class I (79,345)
Class II (14,474)
Class III (15,423)
-----------
Net decrease in net assets
from distributions (109,242)
-----------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 9,584,335
Reinvested dividends 24,578
Cost of shares redeemed (751,709)
-----------
Net increase in net assets
from share transactions 8,857,204

Total increase in net assets 8,696,305

NET ASSETS:
Beginning of period 0
-----------
End of period $ 8,696,305
-----------
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

17 ---------------------------------------------------------------------------

<PAGE>

- ------------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- ------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
U.S. TREASURY MONEY U.S. GOVERNMENT MONEY
MARKET PORTFOLIO MARKET PORTFOLIO
----------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:

Net investment income $ 4,346,582 $ 2,556,300 $ 5,109,635 $ 4,355,151
Net realized gain (loss) on investments (6,105) 1,775 (2,691) 375
----------------------------------------------------------
Net increase in net assets from
operations 4,340,477 2,558,075 5,106,944 4,355,526
----------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Class I (4,239,680) (2,556,300) (5,104,189) (4,355,151)
Class III (106,902) -- (5,446) --
----------------------------------------------------------
Net decrease in net assets from
distributions (4,346,582) (2,556,300) (5,109,635) (4,355,151)
----------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE:
Proceeds from sales of shares 328,560,842 375,237,481 174,127,519 128,356,448
Reinvested dividends 87,904 1,790 10,490 1,952
Cost of shares redeemed (316,787,797) (408,732,664) (173,853,608) (108,155,888)
----------------------------------------------------------
Net increase (decrease) in net assets
from share transactions 11,860,949 (33,493,393) 284,401 20,202,512
----------------------------------------------------------
Total increase (decrease) in net
assets 11,854,844 (33,491,618) 281,710 20,202,887

NET ASSETS:
Beginning of year 67,376,677 100,868,295 88,057,177 67,854,290
----------------------------------------------------------
End of year $ 79,231,521 $ 67,376,677 $ 88,338,887 $ 88,057,177
----------------------------------------------------------
----------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------- 18
<PAGE>

- -------------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
----------------------------- -----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1995*
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:

Net investment income $ 3,375,450 $ 2,808,987 $ 1,420,633 $ 695,324
Net realized gain (loss) on investments 0 0 (26) 88
----------------------------------------------------------
Net increase in net assets from
operations 3,375,450 2,808,987 1,420,607 695,412
----------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Class I (3,296,898) (2,808,987) (853,244) (695,324)
Class III (78,552) -- (567,389) --
----------------------------------------------------------
Net decrease in net assets from
distributions (3,375,450) (2,808,987) (1,420,633) (695,324)
----------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE:
Proceeds from sales of shares 148,776,685 159,708,408 82,609,913 44,752,641
Reinvested dividends 70,601 1,211 478,625 0
Cost of shares redeemed (168,355,382) (141,861,897) (57,988,532) (29,293,129)
----------------------------------------------------------
Net increase (decrease) in net assets
from share transactions (19,508,096) 17,847,722 25,100,006 15,459,512
----------------------------------------------------------
Total increase (decrease) in net
assets (19,508,096) 17,847,722 25,099,980 15,459,600

NET ASSETS:
Beginning of year 94,078,287 76,230,565 15,459,600 0
----------------------------------------------------------
End of year $ 74,570,191 $ 94,078,287 $ 40,559,580 $ 15,459,600
----------------------------------------------------------
----------------------------------------------------------
</TABLE>

* Fund commenced operations on September 26, 1994.

The accompanying notes are an integral part of the financial statements.
19 ----------------------------------------------------------------------------

<PAGE>

- -------------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
TOTAL RETURN FIXED INCOME PORTFOLIO

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
-------------------------- ------------- ------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
-------------------------- ------------- ------------------------
1996 1995 1994** 1996**** 1996 1995 1994***
---- ---- ------ -------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $ 9.91 $ 9.41 $10.00 $10.18 $ 9.89 $ 9.40 $10.04
--------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.60 0.57 0.45 0.29 0.49 0.43 0.21
Net realized and unrealized gain (loss)
on investments (0.18) 0.50 (0.57) (0.47) (0.18) 0.49 (0.62)
--------------------------------------------------------------------------

Total from investment operations 0.42 1.07 (0.12) (0.18) 0.31 0.92 (0.41)
--------------------------------------------------------------------------
Distributions:
Net investment income (0.60) (0.57) (0.46) (0.29) (0.49) (0.43) (0.22)
Net realized gain - - (0.01) - - - (0.01)
--------------------------------------------------------------------------
Total distributions (0.60) (0.57) (0.47) (0.29) (0.49) (0.43) (0.23)
--------------------------------------------------------------------------
Net asset value, end of period $ 9.73 $ 9.91 $ 9.41 $ 9.71 $ 9.71 $ 9.89 $ 9.40
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total Return+ 4.23% 11.87% (1.38)%# (1.75)%# 3.11% 10.12% (4.19)%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $107,832 $90,574 $75,686 $ 67 $3,445 $1,916 $ 923
Ratio of expenses to average daily
net assets(1) 0.41% 0.35% 0.36%* 0.80%* 1.49% 1.84% 1.82%*
Ratio of net investment income to average
net assets 5.99% 6.07% 5.07%* 5.61%* 4.92% 4.58% 3.61%*
Portfolio turnover rate 56% 23% 36%* 56% 56% 23% 36%*

(1) During the period, various fees were
waived. The ratio of expenses to
average net assets had such waivers
not occurred is as follows 0.91% 0.91% 0.96%* 1.30%* 1.99% 3.35% 6.36%*
</TABLE>

* Annualized.
** Class commenced operations on August 2, 1993.
*** Class commenced operations on December 2, 1993.
**** Class commenced operations on December 20,1995.
+ Total return would have been lower had various
fees not been waived during the period.
# Total return for periods of less than one year are
not annualized.

The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------- 20

<PAGE>

- -------------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
TOTAL RETURN EQUITY PORTFOLIO

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
-------------- ---------------- --------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
-------------- ---------------- --------------------------
1996 1995 1994** 1996**** 1996 1995 1994***
---- ---- ------ -------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $12.22 $10.53 $10.00 $13.05 $12.23 $10.51 $10.60
-----------------------------------------------------------------------
Income from investment operations:
Net investment income 0.19 0.23 0.17 0.09 0.03 0.06 0.06
Net realized and unrealized gain (loss)
on investments 2.58 2.21 0.57 1.74 2.60 2.24 (0.05)
-----------------------------------------------------------------------
Total from investment operations 2.77 2.44 0.74 1.83 2.63 2.30 0.01
-----------------------------------------------------------------------
Distributions:
Net investment income (0.19) (0.23) (0.17) (0.08) (0.07) (0.06) (0.06)
Net realized gain (0.68) (0.52) (0.04) (0.68) (0.68) (0.52) (0.04)
-----------------------------------------------------------------------
Total distributions (0.87) (0.75) (0.21) (0.76) (0.75) (0.58) (0.10)
-----------------------------------------------------------------------
Net asset value, end of period $14.12 $12.22 $10.53 $14.12 $14.11 $12.23 $10.51
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Total Return+ 23.54% 24.20% 7.39%# 14.71%# 22.19% 22.61% 0.08%#

(1) During the period, various fees
were waived. The ratio of expenses
to average net assets had such
waivers not occurred is as follows 1.00% 0.99% 1.05%* 1.30%* 2.11% 2.26% 6.03%*
</TABLE>
* Annualized.
** Class commenced operations on August 2, 1993.
*** Fund commenced operations on December 9, 1993.
**** Class commenced operations on December 20,1995.
+ Total return would have been lower had
various fees not been waived during the
period.
# Total return for periods of less than one year
are not annualized.

The accompanying notes are an integral part of the financial statements.
21 ----------------------------------------------------------------------------

<PAGE>

- -------------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
TENNESSEE TAX-FREE PORTFOLIO

<TABLE>
<CAPTION>
CLASS I CLASS II CLASS III
--------------- --------------- ---------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1996** JUNE 30, 1996** JUNE 30, 1996**
--------------- --------------- ---------------
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period $10.00 $10.06 $10.00
-----------------------------------------
Income from investment operations:
Net investment income 0.23 0.21 0.19
Net realized and unrealized gain (loss)
on investments (0.29) (0.33) (0.28)
-----------------------------------------
Total from investment operations (0.06) (0.12) (0.09)
-----------------------------------------
Distributions:
Net investment income (0.23) (0.21) (0.19)
Net realized gain - - -
-----------------------------------------
Total distributions (0.23) (0.21) (0.19)
-----------------------------------------
Net asset value, end of period $9.71 $9.73 $9.72
-----------------------------------------
-----------------------------------------

Total Return+ (0.65)%# (1.25)%# (0.87)%#

(1) During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows 1.42% 1.42% 1.91%
</TABLE>

* Annualized.
** Class I and III commenced operations on December 15, 1995.
Class II commenced operations on December 29, 1995.
+ Total return would have been lower had various
fees not been waived during the period.
# Total return for periods of less than one year are
not annualized.

The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------- 22
<PAGE>
- ----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- ----------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
U.S. TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
CLASS I CLASS III
----------------------------------- ---------------
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- ---------------
1996 1995 1994 1993** 1996***
----- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 1.00 $1.00 $1.00 $1.00
--------------------------------------------------
Income from investment operations:
Net investment income 0.052 0.050 0.030 0.018 0.044

Distributions:
Net investment income (0.052) (0.050) (0.030) (0.018) (0.044)
--------------------------------------------------

Net asset value, end of period $1.00 1.00 $1.00 $1.00 $1.00
--------------------------------------------------
--------------------------------------------------

TOTAL RETURN+ 5.30% 5.10% 3.06% 1.76%# 4.47%#

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) 75,703 $67,377 $100,868 $59,326 $3,528
Ratio of expenses to average net assets (1) 0.36% 0.36% .0.33% 0.39%* 0.62%*
Ratio of net investment income to
average net assets 5.19% 5.00% 3.04% 2.73%* 4.93%*

(1) During the period, various fees were
waived. The ratio of expenses to
average net assets had such waivers
not occurred is as follows 0.56% 0.63% 0.60% 0.65%* 0.82%*

</TABLE>

* Annualized.
** Class commenced operations on November 12, 1992.
*** Class commenced operations on August 8, 1995.
+ Total return would have been lower had various fees
not been waived during the period.
# Total return for periods of less than one year are not annualized.

The accompanying notes are an integral part of the financial statements.

23 -------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- ----------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO

SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 1.00 $1.00 $1.00 $1.00
--------------------------------------------------
Income from investment operations:
Net investment income 0.053 0.053 0.032 0.019 0.044
--------------------------------------------------
Distributions:
Net investment income (0.053) (0.053) (0.032) (0.019) (0.044)
--------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------
--------------------------------------------------

TOTAL RETURN+ 5.37% 5.39% 3.23% 1.87%# 4.49%#

(1)During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.53% 0.58% 0.55% 0.55%* 0.85%*

</TABLE>

* Annualized.
** Class commenced operations on November 12, 1992.
*** Class commenced operations on August 8, 1995.
+ Total return would have been lower had various fees
not been waived during the period.
# Total return for periods of less than one year are not annualized.

The accompanying notes are an integral part of the financial statements.
- ------------------------------------------------------------------------- 24

<PAGE>
- ----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- ----------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
MUNICIPAL MONEY MARKET PORTFOLIO

<TABLE>
<CAPTION>
CLASS I CLASS III
----------------------------------- ---------------
FOR THE YEAR FOR THE YEAR
ENDED JUNE 30, ENDED JUNE 30,
----------------------------------- ---------------
1996 1995 1994 1993** 1996***
----- ------ -------- -------- -------
<S> <C> <C> <C> <C> <C>
SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 1.00 $1.00 $1.00 $1.00
--------------------------------------------------
Income from investment operations:
Net investment income 0.035 0.034 0.024 0.014 0.030
Distributions:
Net investment income (0.035) (0.034) (0.024) (0.014) (0.030)
--------------------------------------------------

Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------
--------------------------------------------------

TOTAL RETURN+ 3.52% 3.48% 2.40% 1.40%# 3.03%#

(1)During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.52% 0.57% 0.55% 0.58%* .0.78%*

</TABLE>

* Annualized.
** Class commenced operations on November 12, 1992.
*** Class commenced operations on July 28, 1995.
+ Total return would have been lower had various fees
not been waived during the period.
# Total return for periods of less than one year are not annualized.

The accompanying notes are an integral part of the financial statements.
25 -------------------------------------------------------------------------

<PAGE>
- ----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- ----------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
CASH RESERVE PORTFOLIO

CLASS I CLASS III
------------------ --------------
FOR THE YEAR FOR YEAR
ENDED JUNE 30, ENDED JUNE 30,
------------------ --------------
1996 1995** 1996***
---- ------ -------
<S> <C> <C> <C>

SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 1.00 $1.00
--------------------------------------------------
Income from investment operations:
Net investment income 0.053 0.042 0.047
--------------------------------------------------

Distributions:
Net investment income. (0.053) (0.042) (0.047)
--------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00
--------------------------------------------------
--------------------------------------------------

TOTAL RETURN+ 5.39% 4.27%# 4.78%#

Ratios and Supplemental Data
Net assets, end of period (thousands) $16,369 $15,460 $24,190
Ratio of expenses to average net assets (1) 0.42% 0.43%* 0.62%*
Ratio of net investment income to average net
assets 5.22% 5.48%* 5.02%*

(1)During the period, various fees were
waived. The ratio of expenses to average
net assets had such waivers not occurred
is as follows. 0.61% 0.70%* 0.81%*

</TABLE>

The accompanying notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------- 26

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES

First Funds (the Trust) is registered under the Investment Company Act of
1940, as amended (the 1940 Act), as an open-ended management investment
company organized as a Massachusetts business trust by a Declaration of Trust
dated March 6, 1992, as amended and restated on September 4, 1992.

The Trust currently has seven active investment portfolios (each referred to
as a "Portfolio"). The Trust's financial statements are prepared in
accordance with generally accepted accounting principles. This requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.

The following summarizes the significant accounting policies for the Trust.

Each Portfolio may offer three classes of shares (Class I, Class II and Class
III). As of June 30, 1996, Class II shares have been issued only for the
Total Return Equity, Total Return Fixed Income, and Tennessee Tax-Free
Portfolios. Class I and Class III shares have been issued for all Portfolios.
Each Class of shares has equal rights as to earnings, assets and voting
privileges except that each Class bears different distribution, shareholder
service, transfer agent and blue sky expenses. Each Class has exclusive
voting rights with respect to its Distribution Plans and Shareholder
Servicing Plans. Income, expenses (other than expenses incurred under each
Class Distribution and Service Plans and other class specific expenses) and
realized and unrealized gains or losses on investments are allocated to each
Class of shares based upon their relative net assets or dividend assets.

SECURITY VALUATION:

TOTAL RETURN EQUITY, TOTAL RETURN FIXED INCOME AND TENNESSEE TAX-FREE
PORTFOLIOS: Securities held in the Total Return Equity Portfolio for which
exchange quotations are readily available are valued at the last sale price,
or if no sale price or if traded on the over-the-counter market, at the
closing bid price. Securities held in the Total Return Fixed Income and
Tennessee Tax-Free Portfolios are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider market
transactions and dealer-supplied valuations. Securities for which quotations
are not readily available are valued using dealer-supplied valuations or at
the fair value as determined in good faith under consistently applied
procedures under the general supervision of the Board of Trustees.
Short-term securities maturing within sixty days are valued at amortized cost
or original cost plus accrued interest, both of which approximate current
value.

MONEY MARKET PORTFOLIOS: Each of the Money Market Portfolios values
securities utilizing the amortized cost method of valuation under Rule 2a-7
of the 1940 Act, pursuant to which each Money Market Portfolio must adhere to
certain conditions. Under this method, investments are valued initially at
cost and thereafter assume a constant amortization to maturity of any
discount or premium.

ORGANIZATIONAL COSTS: Costs incurred by the Trust in connection with its
initial share registration were deferred and are being amortized on a
straight-line basis over 5 years.

REPURCHASE AGREEMENTS: Each Portfolio, through its custodian, receives
delivery of underlying securities, whose market value, including interest,
is required to be at least equal to 102% of the resale price. The Trust's
sub-advisers, under the supervision of the investment adviser, Garland
Capital Management (Garland), are responsible for determining that the value
of these underlying securities remains at least equal to 102% of the resale
price. If the seller defaults, each Portfolio would suffer a loss to the
extent that the proceeds from the sale of the underlying securities were
less than the repurchase price.

OPTIONS CONTRACTS: Each of the Total Return Equity and Total Return Fixed
Income Portfolios may purchase or write options contracts to manage their
exposure to changing interest rates and security prices. Options involve to
varying degrees, elements of market risk and risks possibly in excess of the
amount recognized in the Statement of Assets and Liabilities. Risks may be
caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities and interest rates.
Risks also may arise if there is an illiquid secondary market for the
instruments, or due to the inability of counterparties to perform. The risk
of loss from purchasing options is limited to initial amounts invested, while
the risk of loss from writing options may be unlimited.

INCOME TAXES: As a qualified regulated investment company under Subchapter M
of the Internal Revenue Code, each Portfolio is not subject to income taxes
to the extent that it distributes all of its taxable income for its fiscal
year.

INTEREST INCOME: Interest income, which includes amortization of premium and
accretion of discount, is accrued as earned. For the Municipal Money Market
Portfolio, accretion of market discount represents unrealized gain until
realized at the time of security disposition or maturity. Dividend income
is recorded on the ex-dividend date.

EXPENSES: Most expenses of the Trust can be directly attributed to a
Portfolio. Expenses which cannot be directly attributed are apportioned among
the Portfolios based on average net assets. For the year ended June 30, 1996,
total Trust expenses were reduced $12,352 under expense offset arrangements
with the Custodian. The Trust could have invested a portion of the assets
utilized in connection with the offset arrangements in an income producing
asset.

DISTRIBUTIONS TO SHAREHOLDERS: For Total Return Fixed Income Portfolio and
Tennessee Tax-Free Portfolio, distributions are declared daily and paid
monthly from net investment income. Distributions for Total Return Equity
Portfolio are declared and paid monthly. For the Money Market Portfolios,
distributions are declared daily and paid monthly from net investment income.
Any net capital gains earned by each Portfolio are normally distributed to
the extent necessary to avoid federal income and excise taxes.

Income and capital gains to be distributed are determined in accordance with
income tax regulations which may differ from income and gains reported under
generally accepted accounting principles. For the year ended June 30, 1996,
the effects of certain differences were reclassified by the Total Return
Fixed Income Portfolio to reflect an increase in accumulated net investment
loss of $35,660, a decrease in accumulated net realized loss on investments
of $27,690 and an increase in Paid in capital of $7,970.

27 --------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES (CONTINUED)

OTHER: Investment security transactions are accounted for as of trade date.
Realized gains and losses from securities transactions are determined using
the identified cost basis for both financial reporting and income tax purposes

2. SHARES OF BENEFICIAL INTEREST

TOTAL RETURN FIXED INCOME PORTFOLIO

FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Dollars issued and redeemed:
Class I:
Issued $21,362,353 $10,127,222
Distributions reinvested 5,699,923 4,820,882
Redeemed (7,447,448) (4,586,423)
Net increase $19,614,828 $10,361,681
----------- -----------
----------- -----------
Class II:*
Issued $ 69,932 -
Distributions reinvested 656 -
Redeemed (3,000) -
----------- -----------
Net increase $ 67,588 -
----------- -----------
----------- -----------
Class III:
Issued $ 2,342,221 $ 1,332,036
Distributions reinvested 145,526 54,266
Redeemed (868,075) (478,612)
----------- -----------
Net increase $ 1,619,672 $ 907,690
----------- -----------
----------- -----------

Shares issued and redeemed:
Class I:
Issued 2,117,107 1,072,781
Distributions reinvested 572,716 509,715
Redeemed (747,397) (485,578)
----------- -----------
Net increase 1,942,426 1,096,918
----------- -----------
----------- -----------
Class II:*
Issued 7,145 -
Distributions reinvested 67 -
Redeemed (295) -
----------- -----------
Net increase 6,917 -
----------- -----------
----------- -----------
Class III:
Issued 234,519 139,777
Distributions reinvested 14,645 5,738
Redeemed (88,078) (50,053)
----------- -----------
Net increase 161,086 95,462
----------- -----------
----------- -----------

* Class II commenced operations on December 20, 1995.

TOTAL RETURN EQUITY PORTFOLIO

FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Dollars issued and redeemed:
Class I:
Issued $ 32,703,374 $14,418,937
Distributions reinvested 8,189,401 6,234,194
Redeemed (15,914,561) (4,343,748)
------------ -----------
Net increase $ 24,978,214 $16,309,383
------------ -----------
------------ -----------
Class II:*
Issued $ 1,882,420 -
Distributions reinvested 3,869 -
Redeemed (21,582) -
------------ -----------
Net increase $ 1,864,707 -
------------ -----------
------------ -----------
Class III:
Issued $ 16,363,050 $17,087,930
Distributions reinvested 1,661,097 317,918
Redeemed (4,839,691) (2,093,584)
------------ -----------
Net increase $ 13,184,456 $ 15,312,264
------------ -----------
------------ -----------

Shares issued and redeemed:
Class I:
Issued 2,523,867 1,298,257
Distributions reinvested 645,878 571,838
Redeemed (1,227,208) (396,451)
------------ -----------
Net increase 1,942,537 1,473,644
------------ -----------
------------ -----------
Class II:*
Issued 137,126 -
Distributions reinvested 279 -
Redeemed (1,547) -
------------ -----------
Net increase 135,858 -
------------ -----------
------------ -----------
Class III:
Issued 1,263,416 1,543,982
Distributions reinvested 131,783 28,855
Redeemed (363,695) (189,309)
------------ -----------
Net increase 1,031,504 1,383,528
------------ -----------
------------ -----------

* Class II commenced operations on December 20, 1995.

- -------------------------------------------------------------------------- 28

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

2. SHARES OF BENEFICIAL INTEREST (CONTINUED)

TENNESSEE TAX-FREE PORTFOLIO

FOR THE
YEAR ENDED
JUNE 30, 1996
-------------
Dollars issued and redeemed:
Class I:*
Issued $6,254,616
Distributions reinvested 686
Redeemed (210,724)
----------
Net increase $6,044,578
----------
----------
Class II:**
Issued $1,887,494
Distributions reinvested 10,271
Redeemed (14,693)
----------
Net increase $1,883,072
----------
----------
Class III:*
Issued $1,442,225
Distributions reinvested 13,621
Redeemed (526,292)
----------
Net increase $ 929,554
----------
----------

Shares issued and redeemed:
Class I:*
Issued 631,913
Distributions reinvested 70
Redeemed (21,867)
----------
Net increase 610,116
----------
----------
Class II:**
Issued 193,243
Distributions reinvested 1,056
Redeemed (1,503)
----------
Net increase 192,796
----------
----------
Class III:*
Issued 144,921
Distributions reinvested 1,390
Redeemed (54,063)
----------
Net increase 92,248
----------
----------

* Class I and III commenced operations on December 15, 1995.
** Class II commenced operations on December 29, 1995.

U.S. TREASURY MONEY MARKET PORTFOLIO

FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Shares/Dollars issued and redeemed:
Class I:*
Issued 319,601,543 375,237,481
Distributions reinvested 1,639 1,790
Redeemed (311,270,747) (408,732,664)
------------ ------------
Net increase 8,332,435 (33,493,393)
------------ ------------
------------ ------------
Class III:*
Issued 8,959,299 -
Distributions reinvested 86,265 -
Redeemed (5,517,050) -
------------ ------------
Net increase 3,528,514 -
------------ ------------
------------ ------------

* Class III commenced operations on August 8, 1995.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Shares/Dollars issued and redeemed:
Class I:
Issued 173,136,867 128,356,448
Distributions reinvested 6,070 1,952
Redeemed (173,086,183) (108,155,888)
------------ ------------
Net increase 56,754 20,202,512
------------ ------------
------------ ------------
Class III:*
Issued 990,652 -
Distributions reinvested 4,420 -
Redeemed (767,425) -
------------ ------------
Net increase 227,647 -
------------ ------------
------------ ------------

* Class III commenced operations on August 8, 1995.

MUNICIPAL MONEY MARKET PORTFOLIO

FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Shares/Dollars issued and redeemed:
Class I:
Issued 139,423,634 159,708,408
Distributions reinvested 1,090 1,211
Redeemed (161,838,128) (141,861,897)
------------ ------------
Net increase (22,413,404) 17,847,722
------------ ------------
------------ ------------
Class III:*
Issued 9,353,051 -
Distributions reinvested 69,511 -
Redeemed (6,517,254) -
------------ ------------
Net increase 2,905,308 -
------------ ------------
------------ ------------

* Class III commenced operations on July 28, 1995.

CASH RESERVE PORTFOLIO

FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Shares/Dollars issued and redeemed:
Class I:*
Issued 24,743,027 44,752,641
Distributions reinvested 0 0
Redeemed (23,833,276) (29,293,129)
------------ ------------
Net increase 909,751 15,459,512
------------ ------------
------------ ------------
Class III:**
Issued 57,866,886 -
Distributions reinvested 478,625 -
Redeemed (34,155,256) -
------------ ------------
Net increase 24,190,255 -
------------ ------------
------------ ------------

* Class I commenced operations on September 26, 1994.
** Class III commenced operations on July 28, 1995.

29 --------------------------------------------------------------------------

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS

For managing its investment and business affairs, Total Return Equity
Portfolio and Total Return Fixed Income Portfolio each pay Garland, a
division of First Tennessee Bank National Association ("First Tennessee"), a
monthly management fee at the annual rate of .65% and .55%, respectively, of
its average net assets. For managing its investment and business affairs,
Tennessee Tax Free Portfolio pays First Tennessee a monthly management fee at
the annual rate of .50% of its average net assets. For managing its
investment and business affairs, each of the Money Market Portfolios pays
Garland its pro-rated portion of a monthly management fee at the annual rate
of .25% of aggregate average monthly net assets of all Money Market
Portfolios of the Trust managed by Garland through $1 billion, and .22% on
amounts greater than $1 billion. Under the Investment Advisory and
Management Agreement, Garland is authorized, at its own expense, to hire
sub-advisers to provide investment advice to it and to each Portfolio.

For the Total Return Equity and Total Return Fixed Income Portfolios,
Highland Capital Management Corp. (Highland) serves as the sub-adviser of
each Portfolio pursuant to the authority granted to it under its Sub-Advisory
Agreement with First Tennessee. Highland is an affiliate of First Tennessee
and is a wholly-owned subsidiary of First Tennessee National Corporation.
Highland is paid by First Tennessee a monthly sub-advisory fee at the annual
rate of .38% of Total Return Equity Portfolio's average net assets and .33%
of Total Return Fixed Income Portfolio's average net assets. For the Money
Market Portfolios, PNC Institutional Management Corporation (PIMC) serves as
the sub-adviser of each Portfolio pursuant to the authority granted to it
under its Sub-Advisory Agreement with the Adviser. PIMC is a wholly-owned
subsidiary of PNCBank National Association. PIMC is paid by the Adviser a
monthly sub-advisory fee at the annual rate of .08% of each Portfolio's
average net assets through $500 million, .06% of the next $500 million, and
.05% of net assets greater than $1 billion.

4. ADMINISTRATOR, CO-ADMINISTRATOR AND DISTRIBUTOR

ALPS Mutual Funds Services, Inc. serves as Administrator and Distributor for
the Trust under separate Administration and General Distribution Agreements.
ALPS' duties include distribution services, providing office space and
various legal and accounting services in connection with the regulatory
requirements applicable to each Portfolio. ALPS is entitled to receive from
each of the Money Market Portfolios, a fee at the annual rate of .075% of
average net assets and, from the Total Return Equity, Total Return Fixed
Income and Tennessee Tax-Free Portfolios, a fee at the annual rate of .15% of
average net assets.

Garland serves as the Co-Administrator for each Portfolio. As the
Co-Administrator, Garland assists in each Portfolio's operation, including
but not limited to, providing non-investment related research and statistical
data and various operational and administrative services. Garland is
entitled to receive a fee from each Portfolio at the annual rate of .05% of
average net assets.

The Trustees have adopted a Distribution Plan on behalf of Class III of each
Portfolio pursuant to Rule 12b-1 under the Investment Company Act of 1940, as
amended. Each Distribution Plan provides for payment of a fee to ALPS at the
annual rate of .75% of the average net assets of Class III of the Total
Return Equity and Total Return Fixed Income Portfolios, .50% of the average
net assets of Class III of the Tennessee Tax-Free Portfolio, and .25% of the
average net assets of Class III of each money market portfolio. The Trustees
have also adopted Shareholder Servicing Plans on behalf of Class II and III
of the Total Return Equity and Total Return Fixed Income Portfolios under
which Investment Professionals are paid at the annual rate of .25% of each
Class' average net assets for shareholder services and account maintenance.

5. WAIVER OF FEES

TOTAL RETURN EQUITY, TOTAL RETURN FIXED INCOME AND TENNESSEE TAX-FREE
PORTFOLIOS:
For the period from July 1, 1995 to December 31, 1995, Garland voluntarily
agreed to waive its management fee for the Total Return Equity Portfolio to
.35% of average net assets. Effective January 1, 1996, Garland voluntarily
agreed to waive its management fee to .50% of average net assets.

For the six months ended December 31, 1995, Garland agreed to waive its
entire management fee for the Total Return Fixed Income Portfolio. Effective
January 1, 1996, Garland voluntarily agreed to waive its management fee to
.15% of average net assets.

From inception of the Fund to June 30, 1996, First Tennessee agreed to waive
its entire management fee for the Tennessee Tax-Free Portfolio.

For the six months ended December 31, 1995, Garland voluntarily agreed to
waive its full co-administration fee for Class I of the Total Return Equity
and Total Return Fixed Income Portfolios. For the period from July 1, 1995
to November 7, 1995, Garland voluntarily agreed to waive its full
co-administration fee for Class II and III of the Total Return Equity and
Total Return Fixed Income Portfolios. From the inception of the Fund to June
30, 1996, Garland voluntarily agreed to waive its co-administration fee for
all classes of the Tennessee Tax-Free Portfolio.

Pursuant to the voluntary waiver agreements , for the year ended June 30,
1996, Garland and First Tennessee waived management fees and
co-administration fees as follows:

MANAGEMENT CO-ADMINISTRATION
---------- -----------------
Total Return Equity $358,250 $34,639
Total Return Fixed Income $482,559 $23,882
Tennessee Tax-Free $ 12,692 $ 1,252

From inception of the Tennessee Tax-Free Portfolio, ALPS voluntarily agreed
to waive its administration fee. Effective January 1, 1996, ALPS voluntarily
agreed to reimburse the Tennessee Tax-Free Portfolio for fund
accounting/transfer agent fees as well as Custody out-of-pocket fees. For the
period ended June 30, 1996, ALPS waived fees totaling $3,755 and reimbursed
the Tennessee Tax-Free Portfolio in the amount of $5,310.

- -------------------------------------------------------------------------- 30

<PAGE>

- -----------------------------------------------------------------------------
FIRST FUNDS ANNUAL REPORT
- -----------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. WAIVER OF FEES (CONTINUED)

MONEY MARKET PORTFOLIOS:
For the six months ended December 31, 1995, Garland agreed to waive a portion
of its management fee payable by each of the Money Market Portfolios so that
each Money Market Portfolio paid .08% of its average net assets.
Additionally, for the six months ended December 31, 1995, Garland agreed to
waive its full co-administration fee for the Money Market Portfolios.
Effective January 1, 1996, Garland voluntarily agreed to waive a portion of
its management and co-administration fees payable by each of the Money Market
Portfolios so that each Money Market Portfolio pays .10% and .025%,
respectively, of its average net assets. For the year ended June 30, 1996,
the expense waivers were as follows:

MANAGEMENT FEE CO-ADMINISTRATION FEE
-------------- ---------------------
U.S. Treasury Money Market $133,588 $30,649
U.S. Government Money Market $155,065 $36,477
Municipal Money Market $155,521 $37,216
Cash Reserve $ 43,354 $ 9,183

6. OTHER

As of June 30, 1996, one shareholder owned 47.0% of the Total Return Equity
Portfolio and 62.8% of the Total Return Fixed Income Portfolio. Additionally,
as of June 30, 1996, one shareholder owned 12.0% of the Tennessee Tax-Free
Portfolio and one shareholder owned 21.0% of the Treasury Money Market
Portfolio.

31 --------------------------------------------------------------------------
<PAGE>

PART C. OTHER INFORMATION

Item 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements for the fiscal year ended June 30, 1996 for each
applicable Portfolio are filed herein as Item 24.

(b) Exhibits:

(1) (a) Declaration of Trust dated as of March 6, 1992 is incorporated
herein by reference to Exhibit 1 to the Trust's Registration
Statement.

(b) Supplement to the Declaration of Trust effective April 24, 1992 is
incorporated herein by reference to Exhibit 1(b) to Pre-Effective
Amendment No. 1 to the Trust's Registration Statement.

(c) Amended and Restated Declaration of Trust dated as of September 4,
1992 is incorporated herein by reference to Exhibit 1 (c) to
Post-Effective Amendment No. 1 to the Trust's Registration
Statement.

(d) Supplement to The Declaration of Trust effective August 1, 1993
is incorporated herein by reference to Exhibit 1 (d) to Post-
Effective Amendment No. 4 to the Trust's Registration Statement.

(2) (a) Bylaws of the Trust are incorporated herein by reference to
Exhibit 2 to Post-Effective Amendment No. 1 to the Trust's
Registration Statement.

(b) Amendment to the Bylaws dated November 17, 1992 is incorporated
herein by reference to Exhibit 2(a) to Post-Effective Amendment
No. 1 to the Trust's Registration Statement.

(3) Not Applicable.

(4) Not Applicable.

(5) (a) Investment Advisory and Management Agreements between the First
Funds on behalf of U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, and Municipal Money Market
Portfolio, and First Tennessee Bank National Association dated
September 4, 1992 are incorporated herein by reference to
Exhibit 5(a) to Post-Effective Amendment No. 1 to the Trust's
Registration Statement.

(b) Sub-Advisory Agreements between Provident Institutional
Management Corporation and First Tennessee Bank National
Association on behalf of U.S. Treasury Money Market Portfolio,
U.S. Government Money Market Portfolio, and Municipal Money
Market Portfolio, dated September 4, 1992 are incorporated
herein by reference to Exhibit 5(b) to Post-Effective Amendment
No. 1 to the Trust's Registration Statement.

(c) Investment Advisory and Management Agreement between the First
Funds on behalf of Cash Reserve Portfolio, Total Return Equity
Portfolio, and Total Return Fixed Income Portfolio, and First
Tennessee Bank National Association dated February 15, 1993 are
incorporated herein by reference to Exhibit 5(c) to Post-
Effective Amendment No. 3 to the Trust's Registration
Statement.

(d) Sub-Advisory Agreements between First Tennessee Investment
Management, Inc. and First Tennessee Bank National Association
on behalf of Total Return Equity Portfolio and Total Return
Fixed Income Portfolio, dated May 4, 1993 are incorporated herein
by reference to Exhibit 5(d) to Post-Effective Amendment No. 5
to the Trust's Registration Statement.

(e) Investment Advisory and Management Agreement between First Funds
on behalf of Tennessee Tax-

<PAGE>

Free Portfolio and First Tennessee Bank National Association
dated October 25, 1995 is filed herein as Exhibit 5(e).

(6) (a) General Distribution Agreement between First Funds on behalf of
all Portfolios, and ALPS Mutual Funds Services, Inc., dated
July 1, 1995 is incorporated herein by reference to Exhibit 6(a)
to Post-Effective Amendment No. 8 to the Trust's Registration
Statement.

(b) Administration Agreement between First Funds on behalf of all
Portfolios, and ALPS Mutual Funds Services, Inc., dated July 1,
1995 is incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 8 to the Trust's Registration
Statement.

(c) Co-Administration Agreement between First Funds on behalf of
all Portfolios, and First Tennessee Bank National Association,
dated July 1, 1995 is filed herein as Exhibit 6(c)

(d) Form of Servicing Agreement between ALPS Mutual Funds Services,
Inc. and an Agency Institution is incorporated herein by
reference to Exhibit 6(d) to Post-Effective Amendment No. 8 to
the Trust's Registration Statement.

(7) Not Applicable.

(8) (a) Mutual Fund Custody Agreement between the First Funds and Chase
Manhattan Bank of New York dated October 12, 1992 is incorporated
herein by reference to Exhibit 8(a) to Post-Effective Amendment
No.1 to the Trust's Registration Statement.

(b) Mutual Fund Transfer Agency Agreement between the First Funds and
United States Trust Company of New York dated November 10, 1992
is incorporated herein by reference to Exhibit 8(b) to Post-
Effective Amendment No. 1 to the Trust's Registration Statement.

(c) Amendment to Exhibit 8(b) above dated July 28, 1995 is
incorporated herein by reference to Exhibit 8(c) to Post-
Effective Amendment No. 8 to the Trust's Registration Statement.

(d) Amendment to Exhibit 8(b) above dated December 7, 1995 is filed
herein as Exhibit 8(d).

(9) (a) Fund Accounting and Pricing Services Agreement between the First
Funds and Chase Manhattan Bank of New York dated November 10,
1992 is incorporated herein by reference to Exhibit 9 to Post-
Effective Amendment No. 1 to the Trust's Registration Statement.

(b) Amendment to Exhibit 9(a) above dated July 28, 1995 is
incorporated herein by reference to Exhibit 9(b) to Post-
Effective Amendment No. 8 to the Trust's Registration Statement.

(10) Opinion and Consent of Legal Counsel is filed herein as Exhibit
10.

(11) Opinion and Consent of Price Warehouse LLP, independent
accountants is filed herein as Exhibit 11.

(12) Not Applicable

(13) Written assurances that purchase representing initial capital
was made for investment purposes without any present intention
of redeeming or reselling is incorporated herein by reference
to Exhibit 13 to Pre-Effective Amendment No. 2 to the Trust's
Registration Statement.

(14) Not Applicable.
<PAGE>

(15) (a) Distribution and Service Plan Agreements on behalf of all
Portfolios, are incorporated herein by reference to Exhibit 15(a)
to Post-Effective Amendment No. 8 to the Trust's Registration
Statement.

(b) Shareholder Servicing Plan on behalf of Class II and III of each
Portfolio, dated March 20, 1993, is incorporated herein by
reference to Exhibit 15(b) to Post-Effective Amendment No. 8
to the Trust's Registration Statement.

(16) Schedule of Yield Computations is incorporated herein by
reference to Exhibit 16 to Post-Effective Amendment No. 1 to the
Trust's Registration Statement.

(17) Financial Data Schedules

(18) Plan Providing for Multiple Classes of Shares pursuant to Rule
18f-3 is incorporated herein by reference to Exhibit (12) to
Post-Effective Amendment No. 8 to the Trust's Registration
Statement.

Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Not Applicable.

Item 26. NUMBER OF HOLDERS OF SECURITIES

August 31, 1996

Title of Class: Shares of Beneficial Interest Number of Recordholders
- --------------------------------------------- -----------------------

Class I
- -------

U.S. Treasury Money Market Portfolio 4
U.S. Government Money Market Portfolio 4
Municipal Money Market Portfolio 3
Cash Reserve Portfolio 2
Growth & Income Portfolio 6
Bond Portfolio 3
Tennessee Tax-Free Portfolio 2

Class II
- ---------

Growth & Income Portfolio 236
Bond Portfolio 12
Tennessee Tax-Free Portfolio 59

Class III
- ---------

Growth & Income Portfolio 2,154
Bond Portfolio 262
Tennessee Tax-Free Portfolio 37
Treasury Money Market Portfolio 18
Government Money Market Portfolio 10
Municipal Money Market Portfolio 11
Cash Reserve Portfolio 64

<PAGE>
Item 27. INDEMNIFICATION

Article XI, Section 2 of the Declaration of Trust sets forth the reasonable
and fair means for determining whether indemnification shall be provided to
any past or present Trustee or officer. It states that the Registrant shall
indemnify any present or past Trustee, or officer to the fullest extent
permitted by law against liability and all expenses reasonably incurred by
him in connection with any claim, action suit or proceeding in which he is
involved by virtue of his service as a trustee, officer, or both.
Additionally, amounts paid or incurred in settlement of such matters are
covered by this indemnification. Indemnification will not be provided in
certain circumstances, however. These include instances of willful
misfeasance, bad faith, gross negligence, and reckless disregard of the
duties involved in the conduct of the particular office involved.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy is expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT MANAGER

First Tennessee Bank National Association serves as Investment Adviser to the
Registrant on behalf of each Portfolio. The directors and officers of the
Adviser have held, during the past two fiscal years, the following positions
of a substantial nature:
<PAGE>

First Tennessee Bank National Association (FTB) - Investment Adviser

Position Other Business Type of
with FTB Name Connections* Business
- -------- ---- ------------ --------

<S> <C> <C> <C>
Director Robert C. Blattberg Polk Brothers Distinguished Education
Professor of Retailing
J.L. Kellogg Graduate School
of Management
Northwestern University(1)

Director Carlos H. Cantu President, Chief Executive Consumer services and
Officer, ServiceMaster Company, supportive management
L.P. (2) services

Director, Midland Financial Group(3) Finance Company

Director, Haggar Apparel Company(4) Apparel

Director George E. Cates Chairman of the Board and Chief Real estate investment
Executive Officer, Mid-America trust
Apartment Communities, Inc.(5)

Director James H. Haslam, III Chief Executive and Chief Operating Retail operator of
Officer, Pilot Corporation(6) convenience stores and
travel centers

President, Ralph Horn President, Chairman of the Board, Bank holding company
Chairman of the Chief Executive Officer
Board, Chief and Director, FTNC(7)
Executive Officer
and Director

Vice President and Director, National bank
First Tennessee Bank National
Association Mississippi(8)

Director, Harrah's Entertainment, Casino entertainment
Inc. (9)

Director Joseph Orgill, III Chairman of the Board, Distributor and
West Union Corporation(10) manufacturer for
construction industry

Director R. Brad Martin Chairman of the Board, Chief Retail
Executive Officer and President,
Profitt's Inc.(11)

Director, Sports and Recreation, Retail
Inc. (12)

<PAGE>

Position Other Business Type of
with FTB Name Connections* Business
- -------- ---- ------------ --------
Director Vicki G. Roman Corporate Vice President of Bottler of soft drink
Coca Cola Enterprises, Inc.(13) products

Director Michael D. Rose Chairman of the Board, Harrah's Casino entertainment
Entertainment, Incorporated(9)

Director, General Mills, Inc.(15) Food processing

Director, Ashland Oil, Inc. (16) Oil Company

Director, Larden Restaurants, Restaurant
Inc. (17)

Director William B. Sansom Chairman of the Board and Chief Wholesale distributor
Executive Officer, The H.T.
Hackney Company(18)

Director, Martin Marietta Construction aggregate
Materials(19) materials producer

Director Gordon P. Street, Jr. Chairman of the Board, Chief Manufacturing
Executive Officer and President,
North American Royalties, Inc.(20)

Executive Vice Susan Schmidt Bies Executive Vice President, FTNC(7) Bank holding company
President

President- J. Kenneth Glass Executive Vice President, FTNC(7) Bank holding company
Tennessee
Banking Group
Director, Norlen Life Insurance Credit life insurance
Company(7)

Director, FT Mortgage Companies(21) Mortgage company

Director, FTB Mortgage Services,
Inc.(22) Mortgage company

Director, FT Mortgage Holding Mortgage company
Corporation(23)

Director, Highland Capital Management Investment Advisor
Corporation(24)

Chairman and Director, "A" PLUS Consumer access/discount
Strategic Alliances, Inc.(25) card program and finder

<PAGE>

Director, Corona National Life Insurance(26) Life insurance

Director, First Tennessee Merchant processing
Merchant Services, Inc.(31)

Director, First Tennessee Merchant processing
Merchant Equipment, Inc.(32)

<PAGE>

Position Other Business Type of
with FTB Name Connections* Business
- -------- ---- ------------ --------
Executive Vice Harry A. Johnson, III Executive Vice President Bank holding company
President and General and General Counsel of FTNC(7)
Counsel

President-Memphis John C. Kelley, Jr. Executive Vice President, FTNC (7) Bank holding company
Banking Group

Director, Check Consultants, Inc.(7) Check processing and
related services

Director, Check Consultants Check processing and
Company of Tennessee, lnc.(7) related services

Director, First Tennessee National bank
Bank National Association
Mississippi(8)

Director, First Tennessee Finance
Equipment Finance Corporation(27)

Executive Vice George Perry Lewis Director, First Tennessee Broker Dealer
President-Group Brokerage, Inc.(28)
Manager, Money
Management
Director, Highland Capital
Management, Corp.(24) Investment Advisor

Director, Hickory Venture Venture Capital
Capital Corporation(29)

Director, Hickory Capital Venture Capital
Corporation(30)

Executive Vice John P. O'Connor, Jr. Executive Vice President of FTNC(7) Bank holding company
President and
Chief Credit Officer

Executive Vice G. Robert Vezina Executive Vice President of Bank holding company
President FTNC(7)

Executibe Vice President, Elbert L. Thomas, Jr. Executive Vice President and Chief Bank holding company
Chief Financial Officer Financial Officer of FTNC(7)

Executive Vice E. Kelton Morris Director, Highland Capital Investment Advisor
President Management Corp.(24)

Executive Vice David L. Berry None
President

Executive Vice Carey H. Brown None
President

Executive Vice President Robert Killefer, Jr. None

Senior Vice President James F. Keen Senior Vice President and Bank holding company
Controller of FTNC(7)

</TABLE>

<PAGE>

Insert Additional Items Attached.

<PAGE>

<TABLE>

Position Other Business Type of
with FTB Name connections* Business
- -------- ---- -------------- --------
<S> <C> <C> <C>

Senior Vice President Charles Burkett None

Senior Vice President Wayne C. Marsh None

Senior Vice President Deborah McDonald None

Senior Vice President Yvonne Watson None

<PAGE>

Position Other Business Type of
with FTB Name connections* Business
- -------- ---- -------------- --------
<S> <C> <C> <C>
Senior Vice President C. Douglas Kelso None

Senior Vice President David M. Taylor None

Senior Vice President Joe Hildreth None

Senior Vice President David B. Lantz None

Senior Vice President William E. Woodson None

Senior Vice President Steven J. McNally None

Senior Vice President Scott Bovee None

Senior Vice President Gary L. Hoemann None

Vice President William J. Branta None

Vice President Suzanne Donaldson None

Vice President O. Norris Avey None

Vice President Edward C. Dellinger None

Vice President Otis M. Clayton None

Vice President Ralph W. Herbert None

Vice President John C. Miller None

Vice President Claudette S. Sanders None

Vice President Ashley Stamper None

Vice President Rosemary Manning None

Vice President Kenneth Koster None

Securities Sales and Chris Kimler None
Support Officer

Investment Analyst Karen Kruse None

Trust Officer John Barringer None

Investment Officer Jeff Smith None

Chairman and CEO Larry B. Martin None
First Tennessee Bank-Knoxville

President, First Lew Weems None
Tennessee Bank-Knoxville

President, First J. Kenneth Youngblood None
Tennessee Bank-Maryville

<PAGE>

Position Other Business Type of
with FTB Name connections* Business
- -------- ---- -------------- --------
<S> <C> <C> <C>
President, First Anderson L. Smith None
Tennessee Bank-Morristown
</TABLE>

<PAGE>

NOTES:

* All directors of FTB are also directors of its parent, First Tennessee
National Corporation, which controls FTB. Messrs. Glass, Horn, Johnson,
Keen, Kelley, Lewis, O'Connor, Thomas and Vezina and Ms. Bies are
considered executive officers of FTNC.

(1) 875 N. Michigan Ave., Suite 2945, Chicago, IL 60611

(2) ServiceMaster Company, L.P., One ServiceMaster Way, Downers Grove, IL 30515

(3) Midland Financial Group, 825 Crossover Lane, Memphis, TN 38117

(4) Haggar Apparel Company, 6113 Lemmon Ave., Dallas, TX 75209

(5) Mid-America Apartment Communities, Inc., 6584 Poplar Ave., Ste. 340,
Memphis, TN 38138

(6) Pilot Corporation, 5508 Lonas Road, Knoxville, TN 37909

(7) First Tennessee Bank National Assocation and First Tennessee National
Corporation, 165 Madison Avenue, Memphis, TN 38103

(8) First Tennessee Bank National Association Mississippi, 579 Goodman Road
East, Southaven, MS 38671

(9) Harrah's Entertainment, Inc., 1023 Cherry Road, Memphis, TN 38117

(10) West Union Corporation, 35 Union Avenue, Suite 300, P.O. Box 3177
(38173-0177), Memphis, TN 38103

(11) Profitt's Inc., 5810 Shelby Oaks Drive, Memphis, TN 38134

(12) Sports and Recreation, Inc., 4701 West Hillsborough, Tampa, FL 33614

(13) Coca Cola Enterprises, Inc., 2500 Windy Ridge Pkwy, Marietta, GA 30067

(14) Promus Companies, Inc., 1023 Cherry Road, Memphis, TN 38117

(15) General Mills, Inc., 9200 Wayzata Blvd., Minneapolis, MN 55426

(16) Ashland Oil Co., 2351 Channel Ave., Memphis, TN

(17) Darden Restaurants, Inc., 5900 Lake Ellenor Drive, Orlando, FL 32809

(18) The H. T. Hackney Company, Fidelity Bldg., 502 S. Gay Street, Suite 300,
Knoxville, TN 37902

(19) Martin Marietta Materials, P.O. Box 30013, Raleigh, NC ###-##-####

(20) North American Royalties, 200 E. 8th Street, Chattanooga, TN 37402

(21) FT Mortgage Companies, 2974 LBJ Freeway, Dallas, TX 75234

(22) FTB Mortgage Services, Inc., 8001 Stemmons Freeway, Dallas, TX 75247

(23) FT Mortgage Holding Corporation, 165 Madison Ave., Memphis, TN 38103

(24) Highland Capital Management Corp., 6077 Primacy Parkway, Suite 228,
Memphis, TN 38117

(25) "A" PLUS Strategic Alliances, Inc., 1700 Rambling Road, Richmond, VA 23235

(26) Corona National Life Insurance, 1421 E. Thomas Road, Phoenix, AZ 85014

(27) FT Equipment Finance Corporation, P.O. Box 84, Memphis, TN 38101

(28) First Tennessee Brokerage, Inc., 5100 Poplar Avenue, Memphis, TN 38117

<PAGE>

(29) Hickory Venture Capital Corporation, 200 West Court Square, Suite 100,
Huntsville, AL 35801

(30) Hickory Capital Corporation, 200 West Court Square, Suite 100,
Huntsville, AL 35801

(31) First Tennessee Merchant Services, Inc., 300 Court Ave., Memphis, TN 38103

(32) First Tennessee Merchant Equipment, Inc., 300 Court Ave., Memphis, TN 38103

<PAGE>

Highland Capital Management Corp. (Highland)
6077 Primacy Parkway, Memphis, TN

<TABLE>
Position Other Business
with Highland Name Connections
- ------------- ---- --------------
<S> <C> <C>
Director, President Charles Thomas Whitman (1) Director,
NexAir, LLC

Director, Chairman of the Board Steven Wishnia (1) None

Director, Executive Vice President,
Secretary James M. Weir (1) None

Director, Executive Vice President,
Treasurer Paul H. Berz (1) None

Director, Executive Vice President Edward J. Goldstein (1) None

Director J. Kenneth Glass see FTB listing

Director E. Kelton Morris see FTB listing

Director George Perry Lewis see FTB listing

Senior Vice President Steven T. Ashby None

Senior Vice President David L. Thompson None

Senior Vice President James R. Turner None

Vice President Donald J. Norsworthy None
</TABLE>

(1) Previously, Managing Director of Highland Capital Management Corp.,
6077 Primacy Parkway, Memphis, TN 38119

(2) NexAir, LLC, 1385 Corporate Avenue, Memphis, TN 38186-1182, distributor
of industrial gases, welding supplies and medical products

<PAGE>

Item 29. PRINCIPAL UNDERWRITERS

(a) The sole principal underwriter for the Fund is ALPS Mutual Funds
Services, Inc. which acts as distributor for the Registrant and the
following other funds: Westcore Trust, FGIC Public Trust, Countrybasket
Index Fund, Inc. and Sefton Funds Trust.

(b) To the best of Registrant's knowledge, the directors and executive
officers of ALPS Mutual Funds Services, Inc., the distributor for
Registrant, are as follows:

NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH REGISTRANT WITH UNDERWRITER
- ---------------------- --------------------- ----------------------------
W. Robert Alexander None Chairman and Chief Executive
Officer

Arthur J.L. Lucey None President and Secretary

Mark A. Pougnet Treasurer Chief Financial Officer

Edmund J. Burke None Senior Vice President

William N. Paston None Vice President

James V. Hyatt Secretary General Counsel

John W. Hannon, Jr. None Director

Rick A. Pederson None Director

Asa W. Smith None Director

W. Gordon Hobgood, Jr. None Director

Steve J. Bettcher None Director

<PAGE>

Mary Anstine None Director

Chris Woessner None Director

* All addresses are 370 Seventeenth Street, Suite 2700, Denver, Colorado 80202.

Item 30. LOCATION OF ACCOUNTS AND RECORDS

Garland Capital Management, First Tennessee Bank National Association, and
Highland Capital Management Corporation, all located at 4990 Poplar Avenue,
Memphis, Tennessee, and PNC Institutional Management Corporation, 103
Bellevue Parkway, Wilmington, Delaware, will maintain physical possession
of each such account, book or other documents of the Trust, except for those
documents relating to the custodial functions maintained by the Trust's
Custodian, Chase Manhattan Bank of New York, 114 West 47th Street, New York,
New York, and those transfer agent, pricing and bookkeeping and general
accounting records maintained by the Trust's Transfer Agent and Pricing and
Accounting Agent, Chase Global Funds Services Company, a wholly owned
subsidiary of Chase Manhattan Bank of New York, 73 Tremont Street, Boston,
Massachusetts.

Item 31. MANAGEMENT SERVICES

Not applicable.

Item 32. UNDERTAKINGS.

(a) The Registrant, on behalf of each Portfolio undertakes, provided the
information required by Item 5A is contained in the annual report, to
furnish each person to whom a prospectus has been delivered, upon their
request and without charge, a copy of the Registrant's latest annual
report to shareholders.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all the
requirements for the effectiveness of this Registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 9 to the Registration Statement to be signed on
its behalf by the undersigned, hereunto duly authorized, in the City of
Memphis, and State of Tennessee, on the 25th day of October, 1996.

FIRST FUNDS

By /c/ RICHARD C. RANTZOW, President*
----------------------------------
Richard C. Rantzow, President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.

/c/ RICHARD C. RANTZOW* President and Trustee October 25, 1996
- ---------------------------
Richard C. Rantzow

/c/ MARK A. POUGNET Treasurer October 25, 1996
- ---------------------------
Mark A. Pougnet

/c/ THOMAS M. BATCHELOR* Trustee October 25, 1996
- ---------------------------
Thomas M. Batchelor

/c/ JOHN A. DeCELL* Trustee October 25, 1996
- ---------------------------
John A. DeCell

/c/ LARRY W. PAPASAN* Trustee October 25, 1996
- ---------------------------
Larry W. Papasan

*Signature affixed by Daniel B. Hatzenbuehler pursuant to a power of attorney
dated June 22, 1992 and filed herewith.

<PAGE>
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

- -------------------------------------------------------------------------------

EXHIBITS

FORM N-1A

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

AND

THE INVESTMENT COMPANY ACT OF 1940

- -------------------------------------------------------------------------------

FIRST FUNDS

<PAGE>
EXHIBIT INDEX

EXHIBIT
NUMBER DOCUMENT
- ------- --------

5(e) Investment Advisory and Management Agreement between First Funds
on behalf of Tennessee Tax-Free Portfolio and First Tennessee
Bank National Association dated October 25, 1995

6(c) Co-Administration Agreement between First Funds on behalf of all
Portfolios, and First Tennessee Bank National Association, dated
July 1, 1995

8(d) Amendment to Mutual Fund Transfer Agency Agreement between the
First Funds and United States Trust Company of New York, dated
December 7, 1995

9(c) Amendment to Fund Accounting and Pricing Services Agreement
between the First Funds and Chase Manhattan Bank of New York,
dated December 7, 1995

10 Consent of Baker, Donelson, Bearman & Caldwell, counsel to
Registrant.

11 Consent of Price Warehouse, LLP, Independent Public Accountants

27 Financial Data Schedule

a) Total Return Equity Portfolio, Class I
b) Total Return Equity Portfolio, Class II
c) Total Return Equity Portfolio, Class III
d) Total Return Fixed Income Portfolio, Class I
e) Total Return Fixed Income Portfolio, Class II
f) Total Return Fixed Income Portfolio, Class III
g) U.S. Treasury Money Market Portfolio, Class I
h) U.S. Treasury Money Market Portfolio, Class III
i) U.S. Government Money Market Portfolio, Class I
j) U.S. Government Money Market Portfolio, Class III
k) Municipal Money Market Portfolio, Class I
l) Municipal Money Market Portfolio, Class III
m) Cash Reserve Portfolio, Class I
n) Cash Reserve Portfolio, Class III
o) Tennessee Tax-Free Portfolio, Class I
p) Tennessee Tax-Free Portfolio, Class II
q) Tennessee Tax-Free Portfolio, Class III

<PAGE>

Exhibit 5(e)
<PAGE>

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

THIS INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT is made as of this
25th day of October, 1995, between FIRST FUNDS, a business trust organized
under the laws of the Commonwealth of Massachusetts (the "Trust"), on behalf
of its Tennessee Tax-Free Portfolio, (the "Portfolio") and FIRST TENNESSEE
BANK NATIONAL ASSOCIATION, a national banking association (the "Investment
Adviser").

WHEREAS, the Trust has been organized to operate as an investment
company registered under the Investment Company Act of 1940 (the 111940 Act")
with multiple series of shares ( hereinafter referred to as Classes) having
varying preferences, limitations and relative rights, and to invest and
reinvest the assets of the Portfolio in securities pursuant to investment
objectives and policies for the Portfolio;

WHEREAS, the Portfolio desires to avail itself of the services,
information, advice, assistance and facilities of an investment adviser and
to have an investment adviser provide or perform for it various investment
advisory, statistical, research, portfolio investment adviser selection and
other services as set forth more fully herein;

NOW, THEREFORE, Trust, on behalf of the Portfolio, and Investment
Adviser agree as follows:

1. EMPLOYMENT OF THE INVESTMENT ADVISER. The Trust hereby employs the
Investment Adviser to provide investment advice and to manage the investment
and reinvestment of the Portfolio I s assets in the manner set forth in
Section 2A of this Agreement, subject to the direction of the Trustees, for
the period, in the manner, and on the terms hereinafter set forth. The
Investment Adviser hereby accepts such employment and agrees during such
period to render the services and to assume the obligations herein set forth.
The investment Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for represent the
Trust in any way or otherwise be deemed an agent of the Trust.

2. OBLIGATION OF AND SERVICES TO BE PROVIDED BY THE INVESTMENT ADVISER.
The Investment Adviser undertakes to provide the services hereinafter set
forth and to assume the following obligations:

A. Investment Advisory Services.

(a) The Investment Adviser shall have overall responsibility for the
day-to-day management and investment of the Portfolio's assets and
securities portfolio subject to and in accordance with the
investment objectives and policies of the Portfolio, and any
directions which the Trustees and officers of the Trust may issue
to the Investment Adviser from time to time, and shall perform the
following services: provide or cause to be provided investment
research and credit analysis concerning the Portfolio's
investments, (ii) conduct or cause to be conducted a continual
program of investment of the Portfolio's assets, (iii) place or
cause to be placed orders for all purchases and sales of the
investments made for the Portfolio, and (iv) maintain or cause
to be maintained the books and records required in connection
with its duties hereunder.

<PAGE>

(b) The Investment Adviser shall advise the Trustees of the Trust
regarding overall investment programs and strategies for the
Portfolio, revision of such programs as necessary, and shall
monitor and report periodically to the Trustees concerning the
implementation of such programs and strategies.

(c) The Investment Adviser, with the prior approval of the Trustees
(and the shareholders to the extent required by applicable law)
as to particular appointments, shall be permitted to (i) engage
one or more persons or companies ("Sub-Advisers"), which may have
full investment discretion to make all determinations with
respect to the investment and reinvestment of all or any portion
of the Portfolio's assets and the purchase and sale of all or any
portion of the Portfolio securities, subject to the terms and
conditions of this Agreement and the written agreement with any
Sub-Adviser; and (ii) take such steps as may be necessary to
implement such appointment.

(d) The Investment Adviser shall be solely responsible for paying
the fees and expenses of any Sub-Adviser for its services to the
Investment Adviser and the Portfolio. Except for instructions or
advice given to the Sub-Adviser by the Investment Adviser, the
Investment Adviser shall not be responsible or liable for the
investment merits of any decision by the Sub-Adviser to purchase,
hold or sell a security for the Portfolio.

(e) In the event one or more Sub-Advisers is appointed pursuant to
subparagraph (c) hereof, the Investment Adviser shall (i) monitor
and evaluate the investment performance of each Sub-Adviser
employed by the Investment Adviser for the Portfolio; (ii)
allocate the portion of the Portfolio's assets to be managed by
each Sub-Adviser; (iii) recommend changes in or additional
Sub-Advisers when appropriate; and (iv) compensate each Sub-
Adviser.

(f) The Investment Adviser shall render such reports to the Trustees,
at regular meetings thereof, as the Trustees may reasonably
request regarding, among other things, the investment performance
of the Portfolio, including, if any Sub-Adviser has been
appointed, the investment performance of each Sub-Adviser.

(g) The Investment Adviser will monitor and coordinate, to the extent
necessary, the activities of the custodian, transfer agent,
distributor, administrator and pricing agent insofar as their
respective activities relate to the duties and obligations of the
Investment Adviser hereunder.

B. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials.

The Investment Adviser will make available and provide such financial,
accounting and statistical information related to its duties and
responsibilities hereunder as required by the Trustees and necessary
for the preparation of registration statement, reports and other
documents required by federal and state securities laws and such
other information as the Trustees may reasonably request for use by
the Trust and its distributor for the underwriting and distribution
of the Portfolio's shares.

C. Other Obligations and Services.
<PAGE>

The Investment Adviser agrees to make available its officers and
employees to the Trustees and officers of the Trust for consultation and
discussions regarding the investment advisory activities of the Portfolio.

3. COVENANTS BY INVESTMENT ADVISER. The Investment Adviser agrees with
respect to the services provided to the Portfolio that it:

(a) will conform with all applicable rules and regulations
of the Securities and Exchange Commission ("SEC") and will in
addition conduct its activities under this Agreement in
accordance with applicable regulations of the Office of the
Comptroller of the Currency pertaining to the investment
advisory activities of national banks which are applicable
to the Investment Adviser;

(b) will not make loans to any person for the purpose of
purchasing or carrying Portfolio shares, or make loans to
the Trust;

(d) will maintain all books and records with respect to the
securities transactions of the Portfolio and furnish the
Trustees such periodic and special reports as the Trustees
may request with respect to the Portfolio;

(e) will treat confidentially and as proprietary information
of the Trust all records and other information relative to
the Trust and the Portfolio and prior, present or potential
shareholders (other than any information which Investment
Adviser may have obtained about shareholders from other
business relationships with such shareholders), and will
not use such records and information for any purpose other
than performance of its responsibilities and duties
hereunder (except after prior notification to and approval
in writing by the Trust, which approval shall not be
unreasonably withheld and may not be withheld and will be
deemed granted where the Investment Adviser may be exposed
to civil or criminal contempt proceedings for failure to
comply, when requested to divulge such information by duly
constituted authorities, when so requested by the Trust or
when otherwise required or permitted by law); and

(f) will immediately notify the Trust of the occurrence of
any event which would disqualify Investment Adviser or any
Sub-Adviser from serving as investment adviser of an
investment company.

4. TRANSACTION PROCEDURES. All investment transactions on behalf of the
Portfolio will be compensated by payment to or delivery by the custodian for the
Portfolio duly appointed by the Trustees of the Trust (the "Custodian"), or such
approved depositories or agents duly appointed by the Trustees and as may be
designated by the Custodian in writing, as custodian for the Portfolio, of all
cash and/or securities due to or from the Portfolio, and neither Investment
Adviser nor any Sub-Adviser shall have possession or custody thereof or any
responsibility or liability with respect thereto. The Investment

<PAGE>

Adviser or any Sub-Adviser effecting transactions on behalf of the Portfolio
shall advise the Custodian of all investment orders for the Portfolio placed
by it with brokers, dealers, banks and other parties ("Brokers"). The
Trustees shall issue, or cause to be issued, to the Custodian such
instructions as may be appropriate in connection with the settlement of any
transaction initiated by the Investment Adviser or any Sub-Adviser. The
Portfolio shall be responsible for all custodial arrangements and the payment
of all custodial charges and fees, and, upon the giving of proper
instructions to the Custodian, Investment Adviser shall have no
responsibility or liability with respect to custodian arrangements or the
acts, omissions or other conduct of the Custodian, except that it shall be
the responsibility of the Investment Adviser or any Sub-Adviser to take
appropriate action if the Custodian fails properly to confirm execution of
the instructions to the Investment Adviser or any Sub-Adviser in a written
form duly agreed upon by the Custodian and the Investment Adviser or any
Sub-Adviser.

5. EXECUTION AND ALLOCATION OF PORTFOLIO BROKERAGE. The Investment
Adviser shall place, or shall cause each Sub-Adviser to place, subject to the
limitations contained in this paragraph 5, on behalf of the Portfolio, orders
for the execution of the Portfolio's securities transactions. Neither the
Investment Adviser nor any Sub-Adviser is authorized by the Trust to take any
action, including the purchase or sale of securities for the account of the
Portfolio, (a) in contravention of (i) any investment restrictions set forth
in the 1940 Act and the rules thereunder; (ii) specific instructions adopted
by the Trustees and communicated to the Investment Adviser; (iii) the
investment objectives, policies and restrictions of the Portfolio as set
forth in the Trust's current registration statement, as amended from time to
time; or (iv) instructions from the Trustees to the Investment Adviser or
from the Investment Adviser to any Sub-Adviser, or (b) which would have the
effect of causing the Trust to f ail to qualify or to cease to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended, or any succeeding statute.

The Investment Adviser or, if any Sub-Adviser shall be appointed, then
the Sub-Adviser, may place orders pursuant to its investment determinations f
or the Portfolio either directly with the issuer or with any Brokers. In
placing orders with any Broker, the Investment Adviser or any Sub-Adviser
will consider the experience and skill of a Broker's securities traders as
well as the Broker's financial responsibility and administrative efficiency.
The Investment Adviser or any Sub-Adviser will attempt to obtain the best
price and the most favorable execution of its orders with any Brokers;
however, in so doing, the Investment Adviser or any Sub-Adviser may consider,
subject to the approval of the Trustees, the research, statistical, and
related brokerage services provided or to be provided by such Broker to the
Portfolio. A commission paid to such Brokers may be higher than that which
another Broker would have charged for effecting the same transaction,
provided that the Investment Adviser or any Sub-Adviser determines in good
faith that such commission is reasonable in relation to the value of the
brokerage and research services provided by such Broker when viewed in terms
of either the particular transaction or the overall responsibilities of the
Investment Adviser or any Sub-Adviser with respect to the accounts as to
which it exercises investment discretion. It is understood that neither the
Investment Adviser nor any Sub-Adviser has adopted a formula for selection of
Brokers for the execution of the Portfolio's investment transactions on
occasions when either the Investment Adviser or any Sub-Adviser deems the
purchase or sale of a security to be in the best interest of the Portfolio as
well as other clients, the Investment Adviser or Sub-Adviser, to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be sold or purchased in order to
obtain the most favorable price or lower brokerage commissions and efficient
execution. In such event, allocation of the securities so purchased or sold,
as well as expenses incurred in the transaction, will be made by the
Investment Adviser or Sub-Advisor in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Portfolio and
to such other clients.

<PAGE>

The Investment Adviser will not, and will cause each Sub-Adviser not to,
execute any Portfolio transactions for the account of the Portfolio with a
Broker which is an "affiliated person" (as defined in the 1940 Act) of the
Trust, the Trust's distributor, the Investment Adviser or any Sub-Adviser
except in accordance with applicable laws, rules, regulations or effective
exemption orders issued by the SEC pursuant to the 1940 Act without the prior
written approval of the Trustees. The Trust agrees to provide the Investment
Adviser, and the Investment Adviser agrees to furnish to each Sub-Adviser, a
list of brokers and dealers which are "affiliated persons" of the Trust. The
Investment Adviser likewise agrees to furnish, and to cause each Sub-Adviser
to furnish, to the Trust, with respect to such Sub-Adviser, a list of Brokers
which are "affiliated persons" of the Investment Adviser and each
Sub-Adviser. In no instance will Portfolio securities be purchased from
or sold to the Trust's principal distributor, Investment Adviser, any
Sub-Adviser or any affiliate thereof, except to the extent permitted by an
exemption order issued by the SEC or by applicable law.

The Investment Adviser shall render regular reports to the Trustees of
the total brokerage business placed by it and any Sub-Adviser(s) and the
manner in which the allocation of such brokerage has been accomplished.

6. EXPENSES OF THE PORTFOLIO. The Portfolio or Trust will pay, or will
enter into arrangements that require third parties to pay, all expenses other
than those expressly assumed by the Investment Adviser herein, which expenses
payable by the Portfolio or Trust shall include:

(a) Expenses of all audits by independent public accountants;

(b) Expenses of transfer agent, registrar, dividend disbursing
agent and shareholder recordkeeping services;

(d) Expenses of obtaining quotations for calculating the value
of the Portfolio's net assets;

(e) Salaries and other compensation of any of its executive
officers or employees, if any, who are not officers,
directors, stockholders or employees of the Investment
Adviser, the Administrator or the Distributor;

(f) Taxes levied against the Portfolio;

(g) Brokerage fees and commissions in connection with the
purchase and sale of portfolio securities for the Portfolio;

(h) Costs, including the interest expense, of borrowing money;

(i) Costs and/or fees incident to Trustees and shareholder
meetings of the Trust and the Portfolio, the preparation
and mailings of prospectuses and reports of the Portfolio
to its existing shareholders, the filing of reports with
regulatory bodies, the maintenance of the Portfolio's
legal existence, and the registration of shares with
federal and state securities authorities;

<PAGE>

(j) Legal fees, including the legal fees related to the
registration and continued qualification of the Portfolio's
shares for sale;

(k) Costs of printing any share certificates representing
shares of the Portfolio;

(l) Fees and expenses of Trustees who are not affiliated persons,
as defined in the 1940 Act, of the Investment Adviser, any
Sub-Adviser, the Distributor or any of their affiliates; and

(m) Its pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or of other insurance premiums.

7. ACTIVITIES AND AFFILIATES OF THE INVESTMENT ADVISER. The Trustees
acknowledge that Investment Adviser or any Sub-Adviser, or one or more of its
affiliates, may have investment responsibilities or render investment advice
to or perform other investment advisory services for other individuals or
entities and that Investment Adviser or any Sub-Adviser, its affiliates or
any of its or their directors, officers, agents or employees may buy, sell or
trade in any securities for its or their respective accounts (such
individuals, entities and accounts hereinafter referred to as Affiliated
Accounts). Subject to the provisions of paragraph 2 hereof, the Trustees
agree that Investment Adviser or its affiliates and any Sub-Adviser(s) or its
affiliates, may give advice or exercise investment responsibility and take
such other action with respect to other Affiliated Accounts which may differ
from the advice given or the timing or nature of action taken with respect to
the Portfolio, provided that Investment Adviser or Sub-Adviser acts in good
faith and in accordance with applicable law or as permitted by an exemption
order issued by the SEC, and provided further, that it is Investment
Adviser's and Sub-Adviser's policy to allocate within its reasonable
discretion, investment opportunities to the Portfolio over a period of time
on a fair and equitable basis relative to the Affiliated Accounts, taking
into account the investment objectives and policies of the Portfolio and any
specific investment restrictions applicable thereto. The Trust acknowledges
that one or more of the Affiliated Accounts may at any time hold, acquire,
increase, decrease, dispose of or otherwise deal with positions in
investments in which the Portfolio may have an interest from time to time,
whether in transactions which involve the Portfolio or otherwise. Neither the
Investment Adviser nor any Sub-Adviser shall have any obligation to acquire
for the Portfolio a position in any investment which any Affiliated Account
may acquire, and the Portfolio shall have no first refusal, coinvestment or
other rights in respect of any investment, either for the Portfolio or
otherwise.

8. COMPENSATION OF THE INVESTMENT ADVISER. (a) For all services
provided to the Portfolio pursuant to this Agreement, the Trust shall pay the
Investment Adviser, and the Investment Adviser agrees to accept as full
compensation therefor, an investment advisory fee, payable as soon as
practicable after the last day of each month, calculated using an annual rate
of .50% (the "Annual Rate"). The monthly investment advisory fee to be paid
by the Trust to the Investment Adviser shall be determined as of the close of
business on the last business day of each month by multiplying one-twelfth of
the Annual Rate by the Average Portfolio Net Assets (hereinafter defined),
calculated monthly as of such day.

(b) For purposes of this paragraph 8, the "Average Portfolio Net Assets"
shall be calculated monthly as of the last business day of each month and shall
mean the sum of the net assets of the Portfolio calculated each business day
during the month divided by the number of business days in the month (such net
assets to be determined as of the close of business each business day and
computed in the manner set forth in the Declaration of Trust of the Trust) .

(c) The Investment Adviser agrees that its compensation for any fiscal
year shall be reduced by the amount, if any, by which the expenses of the
Portfolio for such fiscal year exceed the most

<PAGE>

restrictive state Blue Sky expense limitation in effect from time to time, to
the extent required by such limitation. The Investment Adviser shall refund
to the Portfolio the amount of any reduction of the Investment Adviser's
compensation pursuant to this paragraph 8, reduced by the amount of any
rebate paid directly to the Portfolio by any Sub-Adviser engaged by
Investment Adviser, as promptly as practicable after the end of such fiscal
year, provided that the Investment Adviser will not be required to pay the
Portfolio an amount greater than the fee paid to the Investment Adviser in
respect of such year pursuant to this Agreement. As used in this paragraph
8, "expenses" shall mean those expenses included in the most restrictive
state Blue Sky limitation, having the broadest specification in such state's
Blue Sky statute, and "expense limitation" means a limit on the maximum
annual expenses which may be incurred by an investment company determined by
multiplying a fixed percentage by the average, or by multiplying more than
one such percentage by different specified amounts of the average, of the
values of an investment company's net assets for a fiscal year. The words
"most restrictive state Blue Sky expense limitation" shall be construed to
result in the largest reduction of the Investment Adviser I s compensation f
or any fiscal year of the Portfolio; provided, however, that nothing in this
Agreement shall require the Investment Adviser to reduce its fees if not
required by an applicable statute or regulation referred to above in this
paragraph 8.

9 . PROXIES. The Trustees Will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Portfolio may be
invested from time to time, unless the Trustees delegate such right to the
Investment Adviser.

10. LIABILITIES OF THE INVESTMENT ADVISER.

(a) The Investment Adviser will not be liable for any error or
judgment or mistake of law or for any 10SB Buffered by the
Portfolio or the Trust in connection with the matters to
which this Agreement relates, except that the Investment
Adviser shall be liable to the Portfolio and the Trust for
a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the
performance of duties or reckless disregard by it of its
obligations or duties under this Agreement.

(b) The Investment Adviser shall indemnify and hold harmless the
Portfolio from any loss, cost, expense or damage resulting
from the failure of any Sub-Adviser to comply with (i) any
statement included in the Trust's registration statement
furnished by Investment Adviser for inclusion therein,
or (ii) instructions given by the Investment Adviser to
any Sub-Adviser for the purpose of ensuring the Portfolio's
compliance with the applicable requirements of the 1940 Act
or of the requirements of the Internal Revenue Code of 1986
applicable to regulated investment companies, or of successor
statutes; provided, however, that the indemnification
provided by this subparagraph 10(b) shall apply only to the
extent that the Sub-Adviser is liable to the Trust and,
after demand by the Trust, is unable or refuses to
discharge its obligation to the Portfolio.

(c) No provision of this Agreement shall be construed to protect
any Trustee or officer of the Trust, or the Investment Adviser,
from liability in violation of Sections 17(h) and (i) of the
1940 Act.

11. RENEWAL, AMENDMENT AND TERMINATION.

<PAGE>

(a) This Agreement shall become effective on the date first
written above and shall remain in force for a period of
two (2) years from such date and from year to year
thereafter but only so long as such continuance is
specifically approved at least annually (i) by the
vote of a majority of the Trustees who are not interested
persons of the Portfolio or the Investment Adviser,
cast in person at a meeting called for the purpose of
voting on such approval and by a vote of the Board of
Trustees or (ii) by the vote of a majority of the
outstanding voting securities of the Portfolio. The
aforesaid provision that this Agreement may be continued
"annually" shall be construed in a manner consistent
with the 1940 Act and the rules and regulations thereunder.

(b) This Agreement may be amended at any time, but only by
written agreement between the Trust and the Investment
Adviser, which amendment is subject to the approval of
the Trustees and the shareholders of the Trust in the
manner required by the 1940 Act, subject to any applicable
exemption order of the SEC modifying the provisions of
the 1940 Act with respect to approval of amendments to
this Agreement.

(i) may at any time be terminated without the payment
of any penalty either by vote of the Trustees or
by vote of a majority of the outstanding voting
securities of the Portfolio, on sixty (60) days'
written notice to the Investment Adviser;

(ii) shall immediately terminate in the event of its
assignment; and

(iii) may be terminated by the Investment Adviser on
sixty (60) days' written notice to the Trust.

(d) As used in this Section 11, the terms "assignment",
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings
set forth in the 1940 Act and the rules and regulations
thereunder, subject to any applicable orders of
exemption issued by the SEC.

12. BOOKS AND RECORDS. (a) The Trustees shall provide to the Investment
Adviser copies of the Trust I s most recent prospectus and statement of
additional information (as each may be amended or supplemented from time to
time) which relate to any class of shares representing interests in the
Portfolio.

(b) In compliance with the requirements of Rule 3la-3 of the rules
promulgated under the 1940 Act ("Rules"), the Investment Adviser hereby agrees
that all records which it maintains for the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any such records upon the
Trust's request. The Investment Adviser further agrees to preserve for the
periods prescribed by Rule 3la-2, the records required to be maintained by the
Investment Adviser hereunder pursuant to Rule 3la-1 of the
Rules.

<PAGE>

13. NOTICES. All notices, requests, demands or other communications
hereunder shall be in writing and shall be deemed given, if delivered
personally, on the day delivered or if mailed, by certified or registered mail,
postage prepaid, return receipt requested, three (3) days after placement in the
United States mail, to the addresses below:

If to Trust: First Funds
c/o James V. Hyatt
ALPS Mutual Fund Services, Inc.
Suite 2700
Denver, Colorado 80202

With a copy to: Daniel B. Hatzenbuehler, Esq.
Baker, Donelson, Bearman, Caldwell, P.C.
165 Madison Avenue, 21st Floor
Memphis, TN 38103

If to Investment Adviser: First Tennessee Bank National Association
c/o C. Douglas Kelso, III
Senior Vice President and Manager
4990 Poplar Avenue, Third Floor
Memphis, TN 38117

With a copy to: Lee Welch, Esq.
Martin, Tate, Morrow & Marston, P.C.
22 N. Front Street, llth Floor
Memphis, TN 38103

14. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.

15. LIMITATION ON LIABILITY. Investment Adviser is hereby expressly put
on notice of the limitation of shareholder liability as set forth in the
Declaration of Trust and agrees that obligations assumed by the Portfolio
pursuant to this Agreement shall be limited in all cases to the Portfolio and
its assets. Investment Adviser agrees that it shall not seek satisfaction of
any such obligation from the shareholders or any individual shareholder of the
Portfolio, nor from the Trustees or any individual Trustee of the Portfolio.

16. GOVERNING LAW. To the extent that state law has not been preempted by
the provisions of any law of the United States heretofore or hereafter enacted,
as the same may be amended from time to time, this Agreement shall be
administered, construed and enforced according to the laws of the State of
Tennessee without giving effect to the choice of laws provisions thereof.
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, as of the day and year first written above.

FIRST FUNDS

By:
------------------------------------------
Richard C. Rantzow, President

FIRST TENNESSEE BANK NATIONAL ASSOCIATION

By:
--------------------------------------------
C. Douglas Kelso, III, Senior Vice President
and Manager

<PAGE>

Exhibit 6(c)

<PAGE>
ADMINISTRATION AGREEMENT
CO-ADMINISTRATOR

AGREEMENT dated as of July 1, 1995 between First Funds, a Massachusetts
business trust which may issue one or more series of shares of beneficial
interest (the "Trust"), with respect to the separate series of the Trust as
listed in Appendix A (the "Portfolios"), and First Tennessee Bank National
Association, a national banking association with its principal office in
Memphis, Tennessee (the "Co-Administrator").

WHEREAS, the Trust wishes to employ the services of the Co-Administrator;
and

WHEREAS, the Co-Administrator wishes to provide such services under the
conditions set forth below.

NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement, the Trust and the Co-Administrator agree as
follows:

1. APPOINTMENT. The Trust hereby appoints and employs the
Co-Administrator and the Co-Administrator accepts the appointment AS agent to
perform the services described herein.

2. TRUST ADMINISTRATION. Subject to the direction and control of the
Board of Trustees of the Trust, the Co-Administrator shall:

(i) coordinate document preparation and review for compliance with
requirements of the Office of Comptroller of the Currency ("OCC")
and other bank regulatory agencies with respect to marketing and
advertising materials, annual prospectus filings, annual and semi-
annual reports, exemptive applications, proxy statements, and other
regulatory filings and related activities;

(ii) assist the Trust in the management and monitoring of the expense
ratio budgets of all Portfolios, including the marketing budget of
the distributor;

(iii) assist the Trust with non-investment related research and statistical
data;

(iv) provide information and coordinate service provider responses to
governmental or regulatory inquiries;

(v) assist in scheduling meetings and provide facilities and clerical
assistance in connection with presentations to brokers and service
providers; participate in meetings to present information concerning
administrative services;

(vi) provide facilities, clerical assistance, and other resources to
facilitate Board of Trustees meetings;

<PAGE>

(vii) provide general consultation with service providers, fund counsel
and Trustees for the proper and efficient management of the Trust;
and

(viii) assist the Trust with such other administrative activities as may
be requested by the Trustees to the extent such activities are
permitted to be performed by banking organizations.

In compliance with requirements of Rule 3la-3 under the Investment
Company Act of 1940 (the "1940 Act"), the Co-Administrator hereby agrees
that all records which it maintains with respect to the Portfolios for the
Trust are the property of the Trust and further agrees to surrender promptly
to the Trust any of such records upon the Trust's request. Co-Administrator
further agrees to preserve for the periods prescribed by Rule 3la-2 under the
1940 Act the records subject to Rule 3la-1 under the 1940 Act that are
maintained by the Co-Administrator.

In performing its services as Co-Administrator, Co-Administrator shall
comply with all laws, rules and regulations, including without limitation all
rules and regulations made or adopted pursuant to the Securities Act of 1933,
as amended ("1933 Act"), or the 1940 Act, or by the SEC, the National
Association of Securities Dealers, Inc. ("NASD"), or state securities
commissions, applicable to such services.

3. FEES. As compensation for the services, facilities and personnel
which the Co-Administrator is to provide or cause to be provided pursuant to
Paragraph 2, each Portfolio of the Trust shall pay to the Co-Administrator
out of the Portfolio's assets an annual fee, which shall be computed and
accrued daily and paid in arrears on the first business day of every month,
at the annual rate of 0.05% of the average net assets of the Portfolio.

For the purpose of determining fees payable to the Co-Administrator, the
value of the net assets of the Portfolio of the Trust shall be computed in
the manner described in the Portfolio's Prospectus and Statement of
Additional Information from time to time in effect. The fee for any partial
month under this Agreement shall be calculated on a proportional basis.

The Co-Administrator may from time to time employ or associate with
itself such person or persons as it may believe to be particularly fitted to
assist it in the performance of this Agreement. Such persons or person may
be officers or employees who may be employed by the Co-Administrator or any
of its affiliates and the Trust. The compensation of such person or persons
shall be paid by the Co-Administrator or its affiliates.

The services of the Co-Administrator provided hereunder are not to be
deemed exclusive and the Co-Administrator shall be free to render similar
services to others and engage in other activities. To the extent permitted
by applicable law, the Co-Administrator or its affiliates shall be free to
enter other agreements with the Portfolios or the Trust for providing
additional services to the Portfolios or the Trust which are not covered by
this Agreement, and to receive additional

<PAGE>

compensation for such services. Such services may include, but are not
limited to, investment adviser, pricing and bookkeeping and transfer agent
services.

4. EXPENSES. The Co-Administrator shall bear all expenses in
connection with its performance of services hereunder. The Portfolios will
pay, or contract with persons not parties to this Agreement to pay, for all
Portfolio expenses other than those expressly stated to be payable by the
Co-Administrator hereunder, which expenses payable by the Portfolios shall
include, without limitation:

(i) interest and taxes;

(ii) brokerage commissions and other costs in connection with the
purchase or sale of securities and other investment instruments;

(iii) fees and expenses of the Trustees;

(iv) audit expenses, and legal expenses (other than legal fees and
expenses which the Co-Administrator at its sole discretion may
incur from time to time in utilizing outside law firms in fulfillment
of its duties of Co-Administration hereunder);

(v) custodian, pricing and bookkeeping, registrar and transfer fees and
expenses;

(vi) state and jurisdiction registration fees, sales report fees,
fees (if any) for filing of Prospectuses and/or Statements of
Additional Information related to Blue Sky registration and
qualification of the Trust's and the Portfolios, shares for
distribution under state and federal securities laws;

(vii) expenses of printing and mailing proxy material to shareholders
of the Portfolios;

(viii) all other expenses incidental to holding meetings of the Portfolios,
shareholders, including proxy solicitations therefor;

(ix) expenses of typesetting Prospectuses and Statements of Additional
Information and supplements thereto;

(x) expenses of printing and mailing Prospectuses and Statements of
Additional Information and supplements thereto sent to existing
shareholders;

(xi) insurance premiums for fidelity bonds and other coverage to the extent
approved by the Trustees;

(xii) association membership dues authorized by the Trustees; and

(xiii) such non-recurring or extraordinary expenses as may arise, including
those relating to actions, suits or proceedings to which the Trust
is a party or to which

<PAGE>
the Portfolios, assets are subject, and those relating to the legal
obligation which the Trust may have to indemnify the Trustees and
officers with respect thereto.

The Co-Administrator has no obligation to reimburse the Trust or its
Portfolios for (or to have deducted from its fees) any Trust or Portfolio
expense in excess of expense limitations, if any, imposed by state securities
authorities having jurisdiction over the Trust.

5. LIMITATION OF LIABILITY. The Co-Administrator shall not be liable
for any damages or loss suffered by the Trust in connection with the matters
to which this Agreement relates, except for a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance, or
reckless disregard, of its duties under this Agreement. Any person, even
though also an officer, Trustee, employee or agent of the Co-Administrator,
who may be or become an officer, Trustee, employee or agent of the Trust,
shall be deemed, when rendering services to or acting on any business of the
Trust in any such capacity (other than services or business in connection
with the Co-Administrator's duties under this Agreement), to be rendering
such service to or acting solely for the Trust, and not as an officer,
director, employee, or agent or one under the control or direction of the
Co-Administrator even though paid by it.

6. PROPRIETARY AND CONFIDENTIAL INFORMATION. Co-Administrator agrees
on behalf of itself and its employees to treat confidentially and as
proprietary information of the Trust all records and other information
relative to the Trust and prior, present, or potential shareholders, and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder. If the Co-Administrator is
requested or required by, but not limited to, oral questions,
interrogatories, request for information or documents, subpoena, civil
investigation, demand or other action, proceeding or process or as otherwise
required by law, statute, regulation, writ, decree, or the like to disclose
such information, the Co-Administrator will provide the Trust with prompt
written notice of any such request or requirement so that the Trust may seek
an appropriate protective order or other appropriate remedy and/or waive
compliance with this provision. If such order or other remedy is not sought,
or obtained, or waiver not received, the Co-Administrator may without
liability hereunder, disclose to the person, entity or agency requesting or
requiring the information, that portion of the information that is legally
required in the opinion of Co-Administrator's counsel.

7. TERM. This Agreement shall become effective on July 1, 199S, or
such later date as may be agreed upon by the parties hereto, and shall
continue for one year after the effective date, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually:

(i) by the Trust's Board of Trustees or;

(ii) by a vote of a majority of outstanding shares (as defined in the 1940
Act) of each Portfolio, provided in either event the continuance
is also approved by the majority of the Trust's Trustees who are
not parties to the Agreement or interested persons (as defined in
the 1940 Act) of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such
approval.

<PAGE>

This Agreement is terminable without penalty on not less than sixty days,
notice by the Trust's Board of Trustees, by vote of a majority of the
outstanding shares (as defined by the 1940 Act) of each Portfolio or by the
Co-Administrator.

8. GOVERNING LAW, SHAREHOLDER AND TRUSTEE LIMITATION OF LIABILITY.
This Agreement shall be governed by the law of the State of Tennessee. The
Co-Administrator is hereby expressly put on notice of the limitations of
shareholder and Trustee liability as set forth in the Declaration of Trust of
the Trust and agrees that obligations assumed by the Trust pursuant to this
Agreement shall be limited in all cases to the Trust and its assets. The
Co-Administrator agrees that it shall not seek satisfaction of any such
obligation from the shareholders or any individual shareholder of the Trust,
nor from the Trustees or any individual Trustee of the Trust. The
Co-Administrator understands that the rights and obligations of each series
of the Trust under the Trust's Declaration of Trust are separate and distinct
from those of any and all other series.

The captions in this Agreement are included for the convenience of
reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.

FIRST TENNESSEE BANK
NATIONAL ASSOCIATION

By:
--------------------------------

Title:
-----------------------------

FIRST FUNDS

By:
--------------------------------

Title:
------------------------------

<PAGE>

APPENDIX A

Effective July 1, 1995

FIRST FUNDS

Cash Reserve Portfolio
Municipal Money Market Portfolio
Tennessee Tax-Free Portfolio
Total Return Equity Portfolio
Total Return Fixed Income Portfolio
U.S. Government Money Market Portfolio
U.S. Treasury Money market Portfolio

<PAGE>

Exhibit 8(d)

<PAGE>

THE CHASE MANHATTAN BANK, N.A.
CHASE GLOBAL FUNDS SERVICES COMPANY
73 Tremont Street
Boston, Massachusetts 02108

CHASE

VIA OVERNIGHT MAIL

December 7, 1995

C. Douglas Kelso, III
Senior Vice President
First Tennessee Bank
4990 Poplar Avenue
Memphis, Tennessee 38117

Dear Mr. Kelso:

This is to confirm that the Transfer Agency and Shareholder Services
Agreement ("Agreement") between The First Funds (formerly, The Masters Group
of Funds) and Chase Global Funds Services Company ("Chase", formerly, United
States Trust Company of New York) dated November 10, 1992 is hereby amended
to include a new Portfolio entitled the Tennessee Tax-Free Portfolio. Chase
will commence providing services for this Portfolio on December 8, 1995. In
all other respects, the Agreement and any Amendments thereto are confirmed
and shall continue to be effective.

Please indicate your approval by signing below and returning one original to
my attention. Thank you for your cooperation.

Very truly yours,

Helen A. Robichaud

cc: Julia M. Kearns Abbott
Frank Arren
Patricia Frey
Lynda Kaplan

THE FIRST FUNDS CHASE GLOBAL FUNDS
SERVICES COMPANY

By: By:
---------------------------- ------------------------------
Title: Title:
------------------------- ---------------------------

<PAGE>

Exhibit 9(c)

<PAGE>

THE CHASE MANHATTAN BANK, N.A.
CHASE GLOBAL FUNDS SERVICES COMPANY
73 Tremont Street
Boston, Massachusetts 02108

CHASE

VIA OVERNIGHT MAIL

December 7, 1995

C. Douglas Kelso, III
Senior Vice President
First Tennessee Bank
4990 Poplar Avenue
Memphis, Tennessee 38117

Dear Mr. Kelso:

This is to confirm that the Fund Accounting and Pricing Services
Agreement ("Agreement") between The First Funds (formerly, The Masters Group
of Funds) and Chase Global Funds Services Company ("Chase", formerly, United
States Trust Company of New York) dated November 10, 1992 is hereby amended
to include a new Portfolio entitled the Tennessee Tax-Free Portfolio. Chase
will commence providing services for this Portfolio on December 8, 1995. In
all other respects, the Agreement and any Amendments thereto are confirmed
and shall continue to be effective.

Please indicate your approval by signing below and returning one original to
my attention. Thank you for your cooperation.

Very truly yours,

Helen A. Robichaud

cc: Julia M. Kearns Abbott
Frank Arren
Raymond Edelman
Patricia Frey

THE FIRST FUNDS CHASE GLOBAL FUNDS
SERVICES COMPANY

By: By:
---------------------------- ------------------------------
Title: Title:
------------------------- --------------------------

<PAGE>

[LETTERHEAD]

October 24, 1996

Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549

Re: FIRST FUNDS (THE TRUST): U.S. GOVERNMENT MONEY MARKET PORTFOLIO;
U.S. TREASURY MONEY MARKET PORTFOLIO; MUNICIPAL MONEY MARKET PORTFOLIO;
CASH RESERVE PORTFOLIO; GROWTH AND INCOME PORTFOLIO (FORMERLY TOTAL
RETURN EQUITY PORTFOLIO); BOND PORTFOLIO (FORMERLY TOTAL RETURN FIXED
INCOME PORTFOLIO) AND TENNESSEE TAX-FREE PORTFOLIO (EACH, A PORTFOLIO)

File No. 33-46374
Post-Effective Amendment No. 9

Dear Sirs:

We serve as counsel to the above-referenced Trust. In that capacity, we
have reviewed the Post-Effective Amendment No. 9 to the Trust's Registration
Statement on Form N-1A which accompanies this letter ("Amendment"), including
the covering letter thereto. The Amendment was prepared by ALPS Mutual Fund
Services, Inc. ("ALPS"), the Trust's Administrator, and, as stated in the
covering letter to the Amendment, is being filed for the principal purpose of
making certain editorial and other changes in the disclosures contained in
the Trust's most recent post-effective amendment. The changes are noted in the
covering letter to the Amendment, and ALPS has advised us that all such
changes are marked in the body of the Amendment. Pursuant to paragraph (e) of
Rule 485, we represent that, to the best of our knowledge based upon the
statements of

<PAGE>

Securities and Exchange Commission
October 24, 1996
Page 2

ALPS contained in the covering letter to the Amendment and our review of the
Amendment and the changes as marked therein, the Amendment does not contain
disclosure which would render it ineligible to become effective pursuant to
Rule 485(b).

Further, we consent to the use of our name in the Registration Statement
under the caption of the prospectus for the Tennessee Tax-Free Portfolio
entitled "What is the Effect of Income Tax On This Investment?" and elsewhere
it may appear.

Very truly yours,

/s/ DANIEL B. HATZENBUEHLER
--------------------------------
Daniel B. Hatzenbuehler

DBH:jaw

<PAGE>

Exhibit 11

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this
Post-Effective Amendment No. 9 to the registration statement on Form N-1A
(the "Registration Statement") of our report dated August 12, 1996, relating
to the financial statements and financial highlights appearing in the June 30,
1996 Annual Report to Shareholders of the First Funds, which are also
incorporated by reference into the Registration Statement. We also consent
to the references to us under the heading "Financial Highlights" in the
Prospectuses and under the heading "Independent Accountants" in the
Statements of Additional Information

Price Warehouse LLP
Boston, Massachusetts
October 24, 1996

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TOTAL RETURN EQUITY PORTFOLIO
<SERIES>
<NUMBER> 41
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 157904383
<INVESTMENTS-AT-VALUE> 194686846
<RECEIVABLES> 3661143
<ASSETS-OTHER> 5162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198353151
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 397324
<TOTAL-LIABILITIES> 397324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153405960
<SHARES-COMMON-STOCK> 11273266
<SHARES-COMMON-PRIOR> 9330729
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7767404
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36782463
<NET-ASSETS> 197955827
<DIVIDEND-INCOME> 2533190
<INTEREST-INCOME> 1046761
<OTHER-INCOME> 0
<EXPENSES-NET> (1599074)
<NET-INVESTMENT-INCOME> 1980877
<REALIZED-GAINS-CURRENT> 13237842
<APPREC-INCREASE-CURRENT> 19574675
<NET-CHANGE-FROM-OPS> 34793394
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1889477)
<DISTRIBUTIONS-OF-GAINS> (6655167)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2523867
<NUMBER-OF-SHARES-REDEEMED> (1227208)
<SHARES-REINVESTED> 645878
<NET-CHANGE-IN-ASSETS> 64592824
<ACCUMULATED-NII-PRIOR> 49055
<ACCUMULATED-GAINS-PRIOR> 2727576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1076198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1992509
<AVERAGE-NET-ASSETS> 135266043
<PER-SHARE-NAV-BEGIN> 12.22
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> 2.58
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> (0.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.12
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TOTAL RETURN EQUITY PORTFOLIO
<SERIES>
<NUMBER> 42
<NAME> CLASS II

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 157904383
<INVESTMENTS-AT-VALUE> 194686846
<RECEIVABLES> 3661143
<ASSETS-OTHER> 5162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198353151
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 397324
<TOTAL-LIABILITIES> 397324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153405960
<SHARES-COMMON-STOCK> 135858
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7767404
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36782463
<NET-ASSETS> 197955827
<DIVIDEND-INCOME> 2533190
<INTEREST-INCOME> 1046761
<OTHER-INCOME> 0
<EXPENSES-NET> (1599074)
<NET-INVESTMENT-INCOME> 1980877
<REALIZED-GAINS-CURRENT> 13237842
<APPREC-INCREASE-CURRENT> 19574675
<NET-CHANGE-FROM-OPS> 34793394
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3654)
<DISTRIBUTIONS-OF-GAINS> (250)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 137126
<NUMBER-OF-SHARES-REDEEMED> (1547)
<SHARES-REINVESTED> 279
<NET-CHANGE-IN-ASSETS> 64592824
<ACCUMULATED-NII-PRIOR> 49055
<ACCUMULATED-GAINS-PRIOR> 2727576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1076198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1992509
<AVERAGE-NET-ASSETS> 403878
<PER-SHARE-NAV-BEGIN> 13.05
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 1.74
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.12
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TOTAL RETURN EQUITY PORTFOLIO
<SERIES>
<NUMBER> 43
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 157904383
<INVESTMENTS-AT-VALUE> 194686846
<RECEIVABLES> 3661143
<ASSETS-OTHER> 5162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198353151
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 397324
<TOTAL-LIABILITIES> 397324
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 153405960
<SHARES-COMMON-STOCK> 2614206
<SHARES-COMMON-PRIOR> 1582702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7767404
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 36782463
<NET-ASSETS> 197955827
<DIVIDEND-INCOME> 2533190
<INTEREST-INCOME> 1046761
<OTHER-INCOME> 0
<EXPENSES-NET> (1599074)
<NET-INVESTMENT-INCOME> 1980877
<REALIZED-GAINS-CURRENT> 13237842
<APPREC-INCREASE-CURRENT> 19574675
<NET-CHANGE-FROM-OPS> 34793394
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (136801)
<DISTRIBUTIONS-OF-GAINS> (1542598)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1263416
<NUMBER-OF-SHARES-REDEEMED> (363695)
<SHARES-REINVESTED> 131783
<NET-CHANGE-IN-ASSETS> 64592824
<ACCUMULATED-NII-PRIOR> 49055
<ACCUMULATED-GAINS-PRIOR> 2727576
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1076198
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1992509
<AVERAGE-NET-ASSETS> 30215957
<PER-SHARE-NAV-BEGIN> 12.23
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 2.60
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.68)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.11
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TOTAL RETURN FIXED INCOME PORTFOLIO
<SERIES>
<NUMBER> 51
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 113068270
<INVESTMENTS-AT-VALUE> 111508691
<RECEIVABLES> 3232292
<ASSETS-OTHER> 1899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114742882
<PAYABLE-FOR-SECURITIES> 3164072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 234708
<TOTAL-LIABILITIES> 3398780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113903480
<SHARES-COMMON-STOCK> 11082542
<SHARES-COMMON-PRIOR> 91401163
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (36367)
<ACCUMULATED-NET-GAINS> (963432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1559579)
<NET-ASSETS> 111344102
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6574322
<OTHER-INCOME> 0
<EXPENSES-NET> (459177)
<NET-INVESTMENT-INCOME> 6115145
<REALIZED-GAINS-CURRENT> 423779
<APPREC-INCREASE-CURRENT> (2870969)
<NET-CHANGE-FROM-OPS> 3667955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5960426)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2117107
<NUMBER-OF-SHARES-REDEEMED> (747397)
<SHARES-REINVESTED> 572716
<NET-CHANGE-IN-ASSETS> 18854191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1414901)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 563748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 968142
<AVERAGE-NET-ASSETS> 99397029
<PER-SHARE-NAV-BEGIN> 9.91
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> U.S. TREASURY MONEY MARKET PORTFOLIO
<SERIES>
<NUMBER> 11
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 79104995
<INVESTMENTS-AT-VALUE> 79104995
<RECEIVABLES> 507885
<ASSETS-OTHER> 6925
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79619805
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 388284
<TOTAL-LIABILITIES> 388284
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79235466
<SHARES-COMMON-STOCK> 75706952
<SHARES-COMMON-PRIOR> 67374517
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3945)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 79231521
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4654965
<OTHER-INCOME> 0
<EXPENSES-NET> (308383)
<NET-INVESTMENT-INCOME> 4346582
<REALIZED-GAINS-CURRENT> (6105)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4340477
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4239680)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 319601543
<NUMBER-OF-SHARES-REDEEMED> (311270747)
<SHARES-REINVESTED> 1639
<NET-CHANGE-IN-ASSETS> 11854844
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 209632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 472732
<AVERAGE-NET-ASSETS> 81582169
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.052
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.052)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TOTAL RETURN FIXED INCOME PORTFOLIO
<SERIES>
<NUMBER> 53
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 113068270
<INVESTMENTS-AT-VALUE> 111508691
<RECEIVABLES> 3232292
<ASSETS-OTHER> 1899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114742882
<PAYABLE-FOR-SECURITIES> 3164072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 234708
<TOTAL-LIABILITIES> 3398780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113903480
<SHARES-COMMON-STOCK> 354758
<SHARES-COMMON-PRIOR> 193672
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (36367)
<ACCUMULATED-NET-GAINS> (963432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1559579)
<NET-ASSETS> 111344102
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6574322
<OTHER-INCOME> 0
<EXPENSES-NET> (459177)
<NET-INVESTMENT-INCOME> 6115145
<REALIZED-GAINS-CURRENT> 423779
<APPREC-INCREASE-CURRENT> (2870969)
<NET-CHANGE-FROM-OPS> 3667955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (154608)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 234519
<NUMBER-OF-SHARES-REDEEMED> (88078)
<SHARES-REINVESTED> 14645
<NET-CHANGE-IN-ASSETS> 18854191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1414901)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 563748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 968142
<AVERAGE-NET-ASSETS> 3180313
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> (0.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 1.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TOTAL RETURN FIXED INCOME PORTFOLIO
<SERIES>
<NUMBER> 52
<NAME> CLASS II

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 113068270
<INVESTMENTS-AT-VALUE> 111508691
<RECEIVABLES> 3232292
<ASSETS-OTHER> 1899
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114742882
<PAYABLE-FOR-SECURITIES> 3164072
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 234708
<TOTAL-LIABILITIES> 3398780
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113903480
<SHARES-COMMON-STOCK> 6917
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (36367)
<ACCUMULATED-NET-GAINS> (963432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1559579)
<NET-ASSETS> 111344102
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6574322
<OTHER-INCOME> 0
<EXPENSES-NET> (459177)
<NET-INVESTMENT-INCOME> 6115145
<REALIZED-GAINS-CURRENT> 423779
<APPREC-INCREASE-CURRENT> (2870969)
<NET-CHANGE-FROM-OPS> 3667955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (818)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7145
<NUMBER-OF-SHARES-REDEEMED> (295)
<SHARES-REINVESTED> 67
<NET-CHANGE-IN-ASSETS> 18854191
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1414901)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 563748
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 968142
<AVERAGE-NET-ASSETS> 14583
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.47)
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> U.S. TREASURY MONEY MARKET PORTFOLIO
<SERIES>
<NUMBER> 13
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 79104995
<INVESTMENTS-AT-VALUE> 79104995
<RECEIVABLES> 507885
<ASSETS-OTHER> 6925
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 79619805
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 388284
<TOTAL-LIABILITIES> 388284
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79235466
<SHARES-COMMON-STOCK> 3528514
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3945)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 79231521
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4654965
<OTHER-INCOME> 0
<EXPENSES-NET> (308383)
<NET-INVESTMENT-INCOME> 4346582
<REALIZED-GAINS-CURRENT> (6105)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4340477
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (106902)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8959299
<NUMBER-OF-SHARES-REDEEMED> (5517050)
<SHARES-REINVESTED> 86265
<NET-CHANGE-IN-ASSETS> 11854844
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 209632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 472732
<AVERAGE-NET-ASSETS> 81582169
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.044
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.044)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<SERIES>
<NUMBER> 21
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 87890540
<INVESTMENTS-AT-VALUE> 87890540
<RECEIVABLES> 853060
<ASSETS-OTHER> 9200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88752800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 413913
<TOTAL-LIABILITIES> 413913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88341465
<SHARES-COMMON-STOCK> 88113818
<SHARES-COMMON-PRIOR> 88057064
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2578)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 88338887
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5430552
<OTHER-INCOME> 0
<EXPENSES-NET> (320917)
<NET-INVESTMENT-INCOME> 5109635
<REALIZED-GAINS-CURRENT> (2691)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5106944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5104189)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 173136867
<NUMBER-OF-SHARES-REDEEMED> (173086183)
<SHARES-REINVESTED> 6070
<NET-CHANGE-IN-ASSETS> 281710
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 241977
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 513747
<AVERAGE-NET-ASSETS> 96679542
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.053)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<SERIES>
<NUMBER> 23
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 87890540
<INVESTMENTS-AT-VALUE> 87890540
<RECEIVABLES> 853060
<ASSETS-OTHER> 9200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88752800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 413913
<TOTAL-LIABILITIES> 413913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88341465
<SHARES-COMMON-STOCK> 227647
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2578)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 88338887
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5430552
<OTHER-INCOME> 0
<EXPENSES-NET> (320917)
<NET-INVESTMENT-INCOME> 5109635
<REALIZED-GAINS-CURRENT> (2691)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5106944
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5446)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 990652
<NUMBER-OF-SHARES-REDEEMED> (767425)
<SHARES-REINVESTED> 4420
<NET-CHANGE-IN-ASSETS> 281710
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 241977
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 513747
<AVERAGE-NET-ASSETS> 112367
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.044
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.044)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> MUNICIPAL MONEY MARKET PORTFOLIO
<SERIES>
<NUMBER> 31
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 74192880
<INVESTMENTS-AT-VALUE> 74192880
<RECEIVABLES> 509442
<ASSETS-OTHER> 117713
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 74,820,035
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 249844
<TOTAL-LIABILITIES> 249844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74573204
<SHARES-COMMON-STOCK> 71667895
<SHARES-COMMON-PRIOR> 94081300
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3013)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 74570191
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,687,176
<OTHER-INCOME> 0
<EXPENSES-NET> (311726)
<NET-INVESTMENT-INCOME> 3375450
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3375450
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3296898)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 139,423,634
<NUMBER-OF-SHARES-REDEEMED> (161838128)
<SHARES-REINVESTED> 1090
<NET-CHANGE-IN-ASSETS> (19508096)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 241730
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511123
<AVERAGE-NET-ASSETS> 94,211,416
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.035
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.035)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.032
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> MUNICIPAL MONEY MARKET PORTFOLIO
<SERIES>
<NUMBER> 33
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 74192880
<INVESTMENTS-AT-VALUE> 74192880
<RECEIVABLES> 509442
<ASSETS-OTHER> 117713
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 74,820,035
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 249844
<TOTAL-LIABILITIES> 249844
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 74,573,204
<SHARES-COMMON-STOCK> 2905309
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3013)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 74,570,191
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,687,176
<OTHER-INCOME> 0
<EXPENSES-NET> (311726)
<NET-INVESTMENT-INCOME> 3375450
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3375450
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (78552)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9353051
<NUMBER-OF-SHARES-REDEEMED> (6517254)
<SHARES-REINVESTED> 69511
<NET-CHANGE-IN-ASSETS> (19508096)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 241,730
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 511123
<AVERAGE-NET-ASSETS> 2482781
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.030
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.030)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> CASH RESERVE PORTFOLIO
<SERIES>
<NUMBER> 61
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 40662784
<INVESTMENTS-AT-VALUE> 40662784
<RECEIVABLES> 81062
<ASSETS-OTHER> 467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40744313
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 184733
<TOTAL-LIABILITIES> 184733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40559518
<SHARES-COMMON-STOCK> 16369263
<SHARES-COMMON-PRIOR> 15459512
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 40559580
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1559959
<OTHER-INCOME> 0
<EXPENSES-NET> (139326)
<NET-INVESTMENT-INCOME> 1420633
<REALIZED-GAINS-CURRENT> (26)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1420607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (853244)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24743027
<NUMBER-OF-SHARES-REDEEMED> (23833276)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25099980
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192339
<AVERAGE-NET-ASSETS> 16102502
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.053)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> CASH RESERVE PORTFOLIO
<SERIES>
<NUMBER> 63
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 40662784
<INVESTMENTS-AT-VALUE> 40662784
<RECEIVABLES> 81062
<ASSETS-OTHER> 467
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40744313
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 184733
<TOTAL-LIABILITIES> 184733
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40559518
<SHARES-COMMON-STOCK> 24190255
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 40559580
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1559959
<OTHER-INCOME> 0
<EXPENSES-NET> (139326)
<NET-INVESTMENT-INCOME> 1420633
<REALIZED-GAINS-CURRENT> (26)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1420607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (567389)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 57866886
<NUMBER-OF-SHARES-REDEEMED> (34155256)
<SHARES-REINVESTED> 478625
<NET-CHANGE-IN-ASSETS> 25099980
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 69195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192339
<AVERAGE-NET-ASSETS> 11575444
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.047
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.047)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TENNESSEE TAX-FREE PORTFOLIO
<SERIES>
<NUMBER> 71
<NAME> CLASS I

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 9144949
<INVESTMENTS-AT-VALUE> 8991738
<RECEIVABLES> 234314
<ASSETS-OTHER> 5632
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9231684
<PAYABLE-FOR-SECURITIES> 411213
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 124166
<TOTAL-LIABILITIES> 535379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8857204
<SHARES-COMMON-STOCK> 610116
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7688)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (153211)
<NET-ASSETS> 8696305
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 124081
<OTHER-INCOME> 0
<EXPENSES-NET> (14839)
<NET-INVESTMENT-INCOME> 109242
<REALIZED-GAINS-CURRENT> (7688)
<APPREC-INCREASE-CURRENT> (153211)
<NET-CHANGE-FROM-OPS> (51657)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (79345)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 631913
<NUMBER-OF-SHARES-REDEEMED> (21867)
<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> 8696305
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12692
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38594
<AVERAGE-NET-ASSETS> 2043902
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> (0.29)
<PER-SHARE-DIVIDEND> (0.23)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TENNESSEE TAX-FREE PORTFOLIO
<SERIES>
<NUMBER> 72
<NAME> CLASS II

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 9144949
<INVESTMENTS-AT-VALUE> 8991738
<RECEIVABLES> 234314
<ASSETS-OTHER> 5632
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9231684
<PAYABLE-FOR-SECURITIES> 411213
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 124166
<TOTAL-LIABILITIES> 535379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8857204
<SHARES-COMMON-STOCK> 192796
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7688)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (153211)
<NET-ASSETS> 8696305
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 124081
<OTHER-INCOME> 0
<EXPENSES-NET> (14839)
<NET-INVESTMENT-INCOME> 109242
<REALIZED-GAINS-CURRENT> (7688)
<APPREC-INCREASE-CURRENT> (153211)
<NET-CHANGE-FROM-OPS> (51657)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14474)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 193243
<NUMBER-OF-SHARES-REDEEMED> (1503)
<SHARES-REINVESTED> 1056
<NET-CHANGE-IN-ASSETS> 8696305
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12692
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38594
<AVERAGE-NET-ASSETS> 385673
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> (0.21)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.73
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000885092
<NAME> TENNESSEE TAX-FREE PORTFOLIO
<SERIES>
<NUMBER> 73
<NAME> CLASS III

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 9144949
<INVESTMENTS-AT-VALUE> 8991738
<RECEIVABLES> 234314
<ASSETS-OTHER> 5632
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9231684
<PAYABLE-FOR-SECURITIES> 411213
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 124166
<TOTAL-LIABILITIES> 535379
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8857204
<SHARES-COMMON-STOCK> 92248
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7688)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (153211)
<NET-ASSETS> 8696305
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 124081
<OTHER-INCOME> 0
<EXPENSES-NET> (14839)
<NET-INVESTMENT-INCOME> 109242
<REALIZED-GAINS-CURRENT> (7688)
<APPREC-INCREASE-CURRENT> (153211)
<NET-CHANGE-FROM-OPS> (51657)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15423)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 144921
<NUMBER-OF-SHARES-REDEEMED> (54063)
<SHARES-REINVESTED> 1390
<NET-CHANGE-IN-ASSETS> 8696305
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12692
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38594
<AVERAGE-NET-ASSETS> 465627
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.19
<PER-SHARE-GAIN-APPREC> (0.28)
<PER-SHARE-DIVIDEND> (0.19)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.72
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>