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December 31, 1996
SEMI-ANNUAL REPORT TO SHAREHOLDERS
OF
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[PICTURE]
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Investment Advisor
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LETTER FROM THE PRESIDENT
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Dear Shareholder:
This is First Funds semi-annual report for the six months ending
December 31, 1996. In the following pages, you will find for each of the
Funds a comprehensive group of accounting reports, including the Portfolio of
Investments, which outlines the holdings in each Portfolio as of the end of
the period. In addition, each Portfolio Manager outlines the moves in their
particular market during the last two quarters of the year, then discusses
how they responded within their respective Portfolios.
As you will see by reading through the reports of each of the Portfolio
Managers, this six month period presented some challenges for investors.
Long-term interest rates began rising during the summer in response to
stronger-than-expected economic growth, prompting the stock market to begin
selling off. As we progressed into early fall, however, the economy's slower
pace once again enticed investors into the financial markets--but with a
somewhat more discerning eye. Quality was increasingly sought out, with
larger, well-known names attracting the lion's share of investors' attention.
The year ended with interest rates again beginning to rise, and volatility
increasing in both the stock and bond markets.
First Funds reached a milestone during the period: both the Growth &
Income and Bond Portfolios turned three years old in August. Three years of
performance history is significant for mutual funds, as they are graded on a
one-, three-, five-, and ten-year basis, and many third-party ranking
organizations will not assign a rating until a fund is able to show at least
three years of performance history. Therefore, we are delighted to have
passed this first hurdle for our flagship Funds. Tennessee Tax-Free Portfolio
is just over one year old. We have been very proud of its performance to
date, and have been gratified by shareholder response to the Fund thus far.
As always, we welcome your inquiries on our toll-free line, (800) 442-1941
or, if you prefer, please contact us in writing at 370 17th Street, Suite
2700, Denver, CO 80202. Thank you for your continued interest in the First
Funds Portfolios.
Sincerely,
[SIGCUT]
Richard C. Rantzow
President
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IMPORTANT NOTICE
FIRST FUNDS SHARES
* are NOT insured by the FDIC, the Federal Reserve
Board or any other governmental agency.
* are NOT bank deposits or other obligations of or
guaranteed by First Tennessee Bank National
Association or any of its affiliates.
* involve investment risks, including the possible
loss of the principal amount invested.
First Funds are managed by First Tennessee Bank
National Association, (First Tennessee), Highland
Capital Management Corp. and PNC Institutional
Management Corp. First Tennessee Bank National
Association and Highland Capital Management Corp.
are subsidiaries of First Tennessee National
Corporation. The Funds are sponsored and distributed
by ALPS Mutual Funds Services, Inc., member NASD.
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FIRST FUNDS GROWTH & INCOME PORTFOLIO
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GROWTH & INCOME PORTFOLIO MANAGERS - DAVID THOMPSON AND EDWARD GOLDSTEIN
Mr. Thompson, Senior Portfolio Manager and Research Analyst, received
his B.B.A. from the University of Mississippi in 1981 and his M.B.A. from the
University of North Carolina at Chapel Hill in 1986. Prior to graduate school
he was a financial analyst for Gulf Oil Corp. He has nine years of experience
as a trust investment officer for major regional banks, managing both
institutional and individual portfolios. He is a Chartered Financial Analyst.
Mr. Goldstein, Senior Portfolio Manager for Highland Capital Management,
graduated from Boston University in 1971. He received his M.B.A. from
Columbia University in 1976. He joined Goldman, Sachs & Co. in New York where
he became vice president in the international department with primary
responsibility for Japan, the Middle East and Latin America. In 1985, he
moved to Tokyo to establish a securities sales department for Goldman, Sachs.
SIX MONTHS IN REVIEW --------------------------------------------------------
PERFORMANCE
For the six months ended December 31, 1996, the First Funds Growth & Income
Portfolio gained 11.7% versus a return of 11.8% for the S&P 500 Index.
MARKET REVIEW
The third quarter began with an abrupt about face in investor sentiment. The
unrelenting investor optimism that had characterized the first half of 1996
finally gave way to fears over the strength in the economy, especially
continuing strong job growth coupled with low levels of unemployment. In the
past, this combination has generally resulted in rising inflation and the
bond market's fairly predictable response was to begin raising long-term
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Growth & Income Portfolio
Asset Type Profile as of December 31, 1996
[PIE CHART]
UTILITIES 3.9%
BASIC MATERIALS 3.0%
ENERGY & NATURAL RESOURCES 10.2%
CONSUMER SERVICES 8.8%
TECHNOLOGY 13.4%
FINANCE 15.9%
CAPITAL GOODS 14.8%
CONSUMER NON-DURABLES 21.6%
COMMERCIAL PAPER 7.7%
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COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN FIRST FUNDS GROWTH
& INCOME PORTFOLIO (CLASS I) AND THE S&P 500.
[CHART]
PLEASE NOTE: CLASS I INCEPTION IS AUGUST 2, 1993. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
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FIRST FUNDS GROWTH & INCOME PORTFOLIO
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN FIRST FUNDS
GROWTH & INCOME PORTFOLIO (CLASS II) AND THE S&P 500.
[CHART]
PLEASE NOTE: CLASS II INCEPTION IS DECEMBER 20, 1995. CLASS II IS SUBJECT
TO A 5.75% INITIAL SALES LOAD AND $9,425 IS THE NET INVESTMENT AFTER THE
SALES LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
interest rates. With fairly lofty share prices already concerning
stockholders, fear that higher interest rates might negatively affect future
corporate profits led the stock market down as well. The broad S&P 500 Index
fell 4.42% in July, down a full 10% from its high in mid-May. However,
subsequent economic reports showing inflation still under control calmed the
bond market and stocks resumed climbing to end the quarter up 3.09%.
Upward momentum continued in the fourth quarter as the stock market returned
8.34%, its best quarterly gain of the year. Economic fundamentals once again
provided the fuel as third quarter Gross Domestic Product (GDP) fell to 2.1%
from 4.7% in the second quarter, allowing inflation fears to remain on the
back burner. The market continued its love affair with technology stocks.
Other leading performers included Energy stocks, which were boosted by
surprisingly strong oil and natural gas prices, and Financials, which
benefited from the low inflation environment and subsequent strong earnings.
Pharmaceuticals also performed well, due not only to the surprising number of
new drug approvals by the FDA, but also to the industry's solid reputation as
a defensive play in a tougher market environment.
The six month period was characterized by a growing sense that the tenor of
the market's advance was changing. Volatility seemed to be increasing, and
investor focus was narrowing to encompass a more select group of issues--
most notably, large capitalization growth stocks. Sector emphasis also
reflected a somewhat more defensive tone, indicating investors were growing
less tolerant of any surprises.
GROWTH & INCOME PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
Since 1 Year Since
Inception Inception
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CLASS I 84.06% 25.61% 19.48%
CLASS II 72.43% 17.95% 17.23%
CLASS III 77.42% 24.11% 18.21%
S&P 500 80.56% 22.94% 18.88%
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31,
1996 AND REFLECT REINVESTMENT OF ALL DIVIDENDS, CAPITAL
GAINS DISTRIBUTIONS, ALL FEE WAIVERS IN EFFECT AND ANY
EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND
EXPENSE REIMBURSEMENTS, THE TOTAL RETURN FIGURES WOULD
HAVE BEEN LOWER. FUND INCEPTION DATE IS AUGUST 2, 1993.
ON DECEMBER 9, 1993, THE PORTFOLIO COMMENCED SALES OF
CLASS III SHARES, WHICH INCLUDE A HIGHER TRANSFER AGENCY
FEE, A .75% DISTRIBUTION FEE AND A .25% SHAREHOLDER
SERVICES FEE. PERFORMANCE INFORMATION PRIOR TO DECEMBER 9,
1993 FOR CLASS III IS BASED ON THE PERFORMANCE OF CLASS I
SHARES AND DOES NOT REFLECT THE EFFECTS OF THESE FEES,
WHICH, IF INCLUDED, WOULD LOWER CLASS III PERFORMANCE.
THE PORTFOLIO COMMENCED SALES OF CLASS II SHARES ON
DECEMBER 20, 1995, WHICH INCLUDE A HIGHER TRANSFER AGENCY
FEE AND A .25% SHAREHOLDER SERVICES FEE. PERFORMANCE
INFORMATION FOR CLASS II SHARES PRIOR TO THEIR INCEPTION
DATE IS BASED ON THE PERFORMANCE OF CLASS I SHARES AND
DOES NOT REFLECT THE EFFECTS OF THESE FEES WHICH, IF
INCLUDED, WOULD LOWER CLASS II PERFORMANCE. PAST
PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
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FIRST FUNDS GROWTH & INCOME PORTFOLIO
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN FIRST FUNDS GROWTH
& INCOME PORTFOLIO (CLASS III) AND THE S&P 500.
[CHART]
PLEASE NOTE: CLASS III INCEPTION IS DECEMBER 9, 1993. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
THE PORTFOLIO
This increasing emphasis on quality played very well for the Portfolio's
investment style during the period. The philosophy which drives our approach
places significant weight on a company's ability to consistently grow its
earnings--regardless of strength or weakness in the underlying economy. As
earnings are rarely "out of favor", these stocks not only tend to perform in
line with rising markets, but also frequently remain a store of value during
periods of uncertainty. Therefore, we believe firm adherence to this approach
benefits investors over time.
An excellent example of this type of company is NORWEST CORPORATION, the
Portfolio's largest holding, up 31% during the six month period. A bank
holding company based in Minneapolis, MN, this innovative financial services
company has carved out a strong niche by remaining intently focused on the
consumer. In addition to its highly-visible presence in community banking
throughout a 16-state region, Norwest is now the largest servicer of
residential mortgages in the U.S. Other operations include consumer finance,
title services, asset and investment management, and leasing; the company
currently has a presence in Asia, the Caribbean, and Latin America. Long a
consistent performer, 1996 was the eighth consecutive year of earnings
increases.
Other strong performers for the six-month period ended 12/31/96 include
Intel, up 78%, EMC, up 70%, Merck, up 24%, and Bank of Boston, up 32%.
CURRENT STRATEGY AND OUTLOOK
Looking out over the next few months, wage inflation is still a dominant
concern, so we do not anticipate any significant shifts in investors'
preferences for quality. Energy, Financials, and Healthcare should all remain
fairly strong, and the Portfolio's strong emphasis on earnings ensures that
it is generally well positioned for this environment. It seems evident that
peak earnings growth is over for this cycle and that the market will continue
to gravitate toward more traditional levels of volatility than it has
exhibited over the past two years. This type of market creates opportunities
for careful stock selection, and we believe our disciplined, bottom-up
approach will benefit. Regardless of whether the economy slows in coming
months or grows at a slow and steady pace, we feel confident that the market
will continue to gravitate to the high quality, consistent growth names
emphasized in the Portfolio.
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FIRST FUNDS BOND PORTFOLIO
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BOND PORTFOLIO MANAGERS - JAMES TURNER AND STEVEN WISHNIA
Mr. Turner is Vice President and Senior Fixed Income Portfolio Manager
with Highland Capital. He graduated from the U.S. Military Academy in 1959
and received a M.S. degree from Stanford University in 1964. He is a
Chartered Financial Analyst. Mr. Turner was an Assistant Vice President with
the Trust Investment Department of FirsTier Bank, N.A. in Omaha, Nebraska
prior to joining Highland Capital Management.
A 1972 Pace University graduate, Mr. Wishnia worked for Chase
Manhattan's trust department from 1970 to 1971 and for Delphi Capital
Management Corp., New York from 1971 to 1973. From 1973 to 1975, he was
Treasurer of S.G. Securities, a closed-end mutual fund in Boston,
Massachusetts. From August 1975 until co-founding Highland Capital Management
Corp., Mr. Wishnia worked for Highland Investment Corporation.
SIX MONTHS IN REVIEW ---------------------------------------------------------
PERFORMANCE
For the six month period ended December 31, 1996, the First Funds Bond
Portfolio returned 4.80% against a 4.88% return for the Lehman Brothers
Government/Corporate Bond Index.
MARKET REVIEW
The strength of the U.S economy continued to worry fixed income investors, as
renewed inflation could heavily impact the future value of interest payments.
With the bond market extremely sensitive to every nuance imbedded in each
release of economic data, it is not surprising that the last two quarters
were characterized by volatility. Strong economic growth early in the third
quarter was greeted with steadily rising bond market
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Bond Portfolio
Asset Type Profile as of December 31, 1996
[PIE CHART]
UTILITIES 1.7%
MORTGAGE-BACKED OBLIGATIONS 4.4%
U.S. GOVERNMENT & AGENCY OBLIGATIONS 41.7%
FOREIGN BOND 1.3%
CORPORATE BOND & NOTES 49.8%
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COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN FIRST FUNDS BOND
PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX.
[CHART]
PLEASE NOTE: CLASS I INCEPTION IS AUGUST 2, 1993. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
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FIRST FUNDS BOND PORTFOLIO
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN FIRST FUNDS BOND
PORTFOLIO (CLASS II) AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX.
[CHART]
PLEASE NOTE: CLASS II INCEPTION IS DECEMBER 20, 1995. CLASS II IS SUBJECT
TO A 3.75% SALES LOAD AND $9,625 IS THE NET INVESTMENT AFTER THE SALES LOAD
IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
yields. Intermediate-term rates rose as high as 6.98% by early September,
with longer-term 30-year bonds reaching 7.11%. Yields were subsequently
driven back later in the quarter, however, as data began to reflect a more
substainable level of growth. Both the 10-year and 30-year issues rallied
sharply and by early December, yields had dropped to 6.05% and 6.36%,
respectively. Investors were seemingly unwilling to be lulled by good news,
though; remarks made by Federal Reserve Board Chairman Alan Greenspan drew a
bearish response, and the bond market proceeded to retreat further as
year-end economic data indicated the on-again off-again acceleration of
economic growth was on again.
PORTFOLIO UPDATE
This type of environment creates challenges for portfolio managers. However,
while the bond market was fairly weak by year-end, the volatility of the
period actually provided some opportunities to enhance the Portfolio. At the
beginning of the third quarter, the Portfolio reflected management's fairly
neutral outlook on interest rates. But by mid-quarter the steady drop in bond
prices was beginning to look somewhat overdone and advantage was taken of the
market's pessimism to add some attractive corporate issues to the Portfolio.
In addition to modestly increasing yields, somewhat longer maturities also
benefited the Portfolio when bond prices did indeed begin to rise.
Credit quality of the Portfolio was AA. The most significant change was the
increase in the number of corporate issues in the Portfolio, bringing that
weighting
BOND PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
Since 1 Year Since
Inception Inception
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CLASS I 20.52% 1.91% 5.60%
CLASS II 15.19% (2.28)% 4.21%
CLASS III 15.71% .91% 4.35%
LEHMAN BROS. 21.18% 2.91% 5.78%
GOV'T/CORP
BOND INDEX
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1996 AND REFLECT
REINVESTMENT OF ALL DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, ALL FEE WAIVERS
IN EFFECT AND ANY EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND
EXPENSE REIMBURSEMENTS, THE TOTAL RETURN FIGURES WOULD HAVE BEEN LOWER. FUND
INCEPTION DATE IS AUGUST 2, 1993. ON DECEMBER 2, 1993, THE PORTFOLIO
COMMENCED SALES OF CLASS III SHARES, WHICH INCLUDE A HIGHER TRANSFER AGENCY
FEE, A .75% DISTRIBUTION FEE AND A .25% SHAREHOLDER SERVICES FEE. PERFORMANCE
INFORMATION PRIOR TO DECEMBER 2, 1993 FOR CLASS III IS BASED ON THE
PERFORMANCE OF CLASS I SHARES AND DOES NOT REFLECT THE EFFECT OF THESE FEES,
WHICH, IF INCLUDED, WOULD LOWER CLASS III PERFORMANCE. THE BOND PORTFOLIO
COMMENCED SALES OF CLASS II SHARES ON DECEMBER 20, 1995. THESE SHARES
INCLUDE A HIGHER TRANSFER AGENCY FEE AND A .25% SHAREHOLDER SERVICES FEE.
PERFORMANCE INFORMATION FOR CLASS II SHARES PRIOR TO THEIR INCEPTION DATE IS
BASED ON THE PERFORMANCE OF CLASS I SHARES AND DOES NOT REFLECT THE EFFECTS
OF THESE FEE WHICH, IF INCLUDED, WOULD LOWER CLASS II PERFORMANCE. PAST
PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
vi ---------------------------------------------------------------------------
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FIRST FUNDS GROWTH & INCOME PORTFOLIO
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN FIRST FUNDS BOND
PORTFOLIO (CLASS III) AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX.
[CHART]
PLEASE NOTE: CLASS III INCEPTION IS DECEMBER 2, 1993. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
from about 38% to 52% by year-end. Generally attractive sectors included banks
and industrials; credits of companies with stable-to-improving financial
situations were also selectively added to the Portfolio. Government and agency
issues totaled nearly 42% of the Portfolio at year end.
CURRENT STRATEGY AND OUTLOOK
Going forward, management remains cautious. With the business cycle at a fairly
mature stage, all eyes are on the Fed. Wage and employment statistics are being
closely watched for signs of inflation, as that is where pressure seems the
greatest. Until a clear direction emerges, however, management will try to
maintain an index-neutral stance in the Portfolio, taking advantage of any
sell-offs to add value.
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FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
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TENNESSEE TAX-FREE PORTFOLIO MANAGER - RALPH HERBERT
Mr. Herbert, Vice President and Portfolio Manager, has seventeen 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.
SIX MONTHS IN REVIEW --------------------------------------------------------
PERFORMANCE
For the six-month period ended December 31, 1996, the First Funds Tennessee
Tax-Free Portfolio returned 5.03%, as compared to a return of 4.66% over the
same period for the Lehman 10-Year Municipal Bond Index.
MARKET REVIEW
The municipal market ended the second half of 1996 just as it had spent most
of the year: on a down note. The economy was stronger than expected in the
third quarter, although the throttle seemed to ease off a little in the
fourth quarter. Rising inflation is the primary worry, of course, but the
underlying culprit for the market's mood is the uncertainty surrounding the
Fed's next move. Markets hate uncertainty and, although there is a wealth of
information available, statistics regarding future inflation were conflicting
over most of the period. Many pundits who had been calling for the Fed to
lower rates earlier in the year reversed themselves by year-end, instead
expecting
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Tennessee Tax-Free Portfolio
Asset Type Profile as of December 31, 1996
[PIE CHART]
MUTUAL FUNDS 5.5%
REVENUES BONDS 32.6%
GENERAL OBLIGATION BONDS 61.9%
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COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS 10-YEAR
MUNICIPAL BOND INDEX.
[CHART]
PLEASE NOTE: CLASS I INCEPTION IS DECEMBER 15, 1995. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
viii -------------------------------------------------------------------------
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FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS II) AND THE LEHMAN BROTHERS 10-YEAR
MUNICIPAL BOND INDEX.
[CHART]
PLEASE NOTE: CLASS II INCEPTION IS DECEMBR 29, 1995. CLASS II IS SUBJECT TO
A 3.75% INITIAL SALES LOAD AND $9,625 IS THE NET INVESTMENT AFTER THE SALES
LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
the Fed to tighten early in 1997. This lack of clear direction was a strong
factor in the market's drift.
Municipal bonds in general faired better than their taxable counterparts, due
primarily to less price volatility. Both 10-year and 5-year general obligation
bonds finished the year up 4.78% and 4.63%, respectively. The Lehman Municipal
Bond Index finished the year up 4.43%.
PORTFOLIO UPDATE
We took advantage of weakness wherever possible during the period; as new money
flowed into the Portfolio throughout the summer and fall, we purchased bonds
with longer maturities. This benefited the Portfolio not only by raising the
overall yield but also creates opportunities for price appreciation when yields
get pushed back down. Extension swaps--trading some of the Portfolio's existing
shorter-term issues for ones with longer maturities--were done for the same
reason. This repositioning of the Portfolio paid off well later in the fall as
the market began to rally. More importantly, perhaps, the Portfolio's
intermediate maturity structure helped to insulate it from the market's drop in
December. As well, since lower quality investments suffer the most when the
bond market begins to fall, the high quality of issues found throughout the
Portfolio assisted in retaining value.
CURRENT STRATEGY AND OUTLOOK
Inflation appears to remain in check, with the possible exception of growth in
average hourly earnings and the overall number of jobs in the economy. This, of
course, creates pressure. Higher wages mean more money is available for
spending, which tends to push up prices
TENNESSEE TAX-FREE PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
Since 1 Year Since
Inception Inception
- ------------------------------------------------------
CLASS I 4.35% 3.60% 4.14%
CLASS II 0.46% (0.16)% 0.44%
CLASS III 4.10% 3.35% 3.90%
LEHMAN BROS. 4.54% 4.54% 4.54%
10-YEAR
MUNICIPAL
BOND INDEX
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1996 AND REFLECT
REINVESTMENT OF ALL DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS, ALL FEE WAIVERS
IN EFFECT AND ANY EXPENSE REIMBURSEMENTS. WITHOUT THE FEE WAIVERS AND
EXPENSE REIMBURSEMENTS, THE TOTAL RETURN FIGURES WOULD HAVE BEEN LOWER. FUND
INCEPTION DATE IS DECEMBER 15, 1995. ON DECEMBER 15, 1995, THE PORTFOLIO
COMMENCED SALES OF CLASS III SHARES, WHICH INCLUDE A HIGHER TRANSFER AGENCY
FEE, A .50% DISTRIBUTION FEE. ON DECEMBER 29, 1995, THE PORTFOLIO COMMENCED
SALES OF CLASS II SHARES, WHICH INCLUDE A HIGHER TRANSFER AGENCY FEE. PAST
PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
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FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS III) AND THE LEHMAN BROTHER 10-YEAR
MUNICIPAL BOND INDEX.
[CHART]
PLEASE NOTE: CLASS III INCEPTION IS DECEMBER 15, 1995. PAST PERFORMANCE IS
NOT PREDICTIVE OF FUTURE RESULTS.*
throughout the economy. At present, this seems to be the most likely source
of increasing inflation. And, because inflation ultimately reduces both the
value of individual bonds and the stream of interest payments investors
receive for holding bonds, inflation is a bondholder's worst enemy. On the
positive side, the economy continues to grow. Lower mortgage rates available
during the fourth quarter meant housing remained strong and we see this
continuing into the near term.
We expect returns will be modest in 1997, much as they were in 1996. Over
the short term, the Portfolio will be positioned with somewhat shorter
duration to protect against tightening by the Fed. If it appears that the
economy is slowing after the first quarter, we will extend the average
maturity as opportunities present themselves.
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FIRST FUNDS SEMI-ANNUAL REPORT
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DEFINITION OF COMMON TERMS
GAIN (OR LOSS)
If a stock or bond appreciates in price, there is an unrealized gain; if
it depreciates there is an unrealized loss. A gain or loss is "realized" upon
the sale of a security; if a Portfolio's net gains exceed net losses, there
may be a capital gain distribution to shareholders. There could also be an
ordinary income distribution if the net gain is short term or no distribution
if there is a capital loss carryover.
DIVIDEND
Net income distributed to shareholders generated by securities in a
Portfolio. The Bond, Tennessee Tax-Free and all the Money Market Portfolios
pay dividends monthly. The Growth & Income Portfolio pays dividends quarterly.
NET ASSET VALUE (NAV)
Total market value of all securities and other assets held by a
Portfolio, minus liabilities, divided by the number of shares outstanding. It
is the value of a single share of a mutual fund on a given day. The total
market value of your investment would be the NAV multiplied by the number of
shares you own. NAV generally fluctuates daily for all the First Funds
Portfolios except the Money Market Portfolios, which seek to maintain a
stable $1.00 per share NAV.
CERTIFICATES OF PARTICIPATION
Certificates of participation (COPs), or lease-secured bonds, represent
a bondholder's proportionate interest in rental payments made under a
municipal lease contract. The payments are normally made pursuant to a lease
and trust agreement. This type of tax-exempt municipal leasing has become an
attractive alternative to traditional bond financing.
INSURED BONDS
Insured Bonds refer to municipal obligations which are covered by an
insurance policy issued by independent insurance companies. The policies
insure the payment of principal and interest of the issuer. Examples of such
companies would be MBIA (Municipal Bond Investors Assurance Corporation), or
AMBAC (American Municipal Bond Assurance Corporation). Bonds insured by
either AMBAC or MBIA are rated AAA.
GENERAL OBLIGATION BONDS
General obligation bonds (GOs) are debts backed by the general taxing
power of the issuer. Payment of the obligation may be backed by a specific
tax or the issuer's general tax fund. Examples of GOs include sidewalk bonds,
sewer bonds, street bonds and so on. These bonds are also known as FULL FAITH
AND CREDIT bonds because the debt is a general obligation of the issuer.
REVENUE BONDS
Revenue Bonds are issued to provide capital for the construction of a
revenue-producing facility. The interest and principal payments are backed to
the extent that the facility produces revenue to pay. Examples of revenue
bonds include toll bridges, roads, parking lots and ports. The municipality
is not obligated to cover debt payments on revenue bonds in default.
BOND RATINGS
The quality of bonds can, to some degree, be determined from the ratings
of the two most prominent rating services: Moody's and Standard & Poor's.
The ratings are used by the government and industry regulatory agencies, the
investing public, and portfolio managers as a guide to the relative security
and value of each bond. The ratings are not used as an absolute factor in
determining the strength of the pledge securing a particular issue. However,
since Moody's and Standard & Poor's rate bonds on a fee basis, some issuers
choose not to be rated. Many non-rated issues are sound investments. The
rating symbols of the two services are shown in the accompanying table.
- -------------------------------------------------------------------
MOODY'S INVESTORS STANDARD & POOR'S CORP.
SERVICES, INC. (PLUS (+) OR MINUS (-))
Prime Aaa AAA
Excellent Aa AA
Good A A
Average Baa BBB
Fair Ba BB
Poor B B
Marginal Caa C
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FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
DEFINITION OF COMMON TERMS (CONTINUED)
SEC YIELD
The SEC Yield was mandated by the Securities and Exchange Commission in
1988 as a standardized yield calculation intended to put performance
presentations for all bond and money market funds on a level playing field.
The SEC yield does not take into account income derived from capital gains,
option writing, futures, or return of capital. The formula also adjusts the
income from premium or discounted bonds to reflect the amortization of that
bond.
TOTAL RETURN
Total return measures a Portfolio's performance over a stated period of
time, taking into account the combination of dividends paid and the gain or
loss in the value of the securities held in the Portfolio. It may be
expressed on an average semi-annual basis or a cumulative basis (total change
over a given period).
Whenever a Portfolio, other than a Money Market Portfolio, reports any
type of performance, it must also report the average semi-annual total return
according to the standardized calculation developed by the SEC. This
standardized calculation was introduced to help investors compare different
mutual funds on an equal performance basis. The SEC average semi-annual total
return calculation includes the effects of all of the fund's fees and
expenses, and assumes the reinvestment of all dividends and capital gains.
DEFINITION OF INDICES
STANDARD & POOR'S 500 is a broad-based measurement of changes in stock market
conditions based on the average performance of 500 widely-held common stocks.
It is an unmanaged index.
LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX, an unmanaged index, is a
broad measure of bond performance, and includes reinvestment of dividends and
capital gains.
LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX, an unmanaged index, is a broad
measure of municipal bond performance and includes reinvestment of dividends
and capital gains.
xii --------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
VALUE
SHARES (NOTE 1)
------- ------------
COMMON STOCKS - 91.6%
BASIC MATERIALS - 3.0%
Morton International, Inc. 171,700 $ 6,996,775
------------
CAPITAL GOODS - 14.8%
Belden, Inc. 238,400 8,820,800
General Electric Co. 78,200 7,732,025
Grainger (W.W.), Inc. 65,800 5,280,450
WMX Technologies, Inc. 227,500 7,422,188
York International Corp. 92,600 5,174,025
------------
TOTAL CAPITAL GOODS 34,429,488
------------
CONSUMER NON-DURABLES - 21.6%
Abbott Laboratories 148,400 7,531,300
Elan Corp. ADR* 233,100 7,750,575
Merck & Co., Inc. 79,500 6,300,375
Pepsico Inc. 137,400 4,018,950
Proctor & Gamble Co. 29,550 3,176,625
Sara Lee Corp. 182,650 6,803,712
Schering-Plough Corp. 113,100 7,323,225
Sysco Corp. 222,400 7,255,800
------------
TOTAL NON-DURABLES 50,160,562
------------
CONSUMER SERVICES - 8.8%
Belo (A.H.) Corp., Class A 173,300 6,043,837
Federated Department Stores* 189,400 6,463,275
Interpublic Group of Companies, Inc. 168,800 8,018,000
------------
TOTAL CONSUMER SERVICES 20,525,112
------------
ENERGY & NATURAL RESOURCES - 10.2%
Coastal Corp. 128,300 6,270,663
Repsol S.A. ADR 160,617 6,123,523
Texaco, Inc. 56,500 5,544,063
YPF S.A. ADR 225,500 5,693,875
------------
TOTAL ENERGY & NATURAL RESOURCES 23,632,124
------------
FINANCE - 15.9%
Bank of Boston Corp. 115,000 7,388,750
Chase Manhattan Corp. 83,400 7,443,450
Federal National Mortgage Association 186,000 6,928,500
Norwest Corp. 212,700 9,252,450
UNUM Corp. 80,500 5,816,125
------------
TOTAL FINANCE 36,829,275
------------
TECHNOLOGY - 13.4%
Airtouch Communications, Inc.* 283,200 7,150,800
EMC Corp.* 195,800 6,485,875
Intel Corp. 44,600 5,837,025
Motorola, Inc. 101,600 6,235,700
Sprint Corp. 133,200 5,311,350
------------
TOTAL TECHNOLOGY 31,020,750
------------
UTILITIES - 3.9%
GTE Corp. 199,400 9,072,700
------------
TOTAL COMMON STOCKS
(Cost $158,263,160) 212,666,786
------------
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ----------- ------------
SHORT-TERM INVESTMENTS - 8.4%
COMMERCIAL PAPER - 7.7%
American Express
01/09/97 5.632% $ 2,000,000 $ 2,000,000
Commercial Credit
01/14/97 5.434% 2,000,000 2,000,000
Exxon Imperial
01/10/97 5.350% 2,000,000 1,997,325
First Chicago Corp.
01/07/97 5.320% 1,500,000 1,498,670
01/15/97 5.420% 1,500,000 1,496,838
Ford Motor Corp.
01/02/97 5.424% 2,000,000 2,000,000
GE Capital Management
01/23/97 5.414% 2,000,000 2,000,000
Merrill Lynch Co.
01/02/97 5.350% 2,000,000 1,999,703
North Shore Gas
01/09/97 5.850% 1,000,000 998,700
Wisconsin Power & Light
01/15/97 5.300% 2,000,000 1,995,878
------------
TOTAL COMMERCIAL PAPER 17,987,114
------------
MATURITY
AMOUNT
---------
REPURCHASE AGREEMENTS - 0.7%
HSBC Securities, Inc., 5.50%,
dated 12/31/96, due 01/02/97,
collateralized by $1,600,000
U.S. Treasury Note, 5.875%,
due 07/31/97 1,601,889 1,601,400
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $19,588,514) 19,588,514
------------
TOTAL INVESTMENTS - 100%
(Cost $177,851,674) $232,255,300
------------
------------
*Non-income producing security
ADR - American Depository Receipt
UNREALIZED GAINS AND LOSSES ON INVESTMENTS:
At December 31, 1996, the net unrealized appreciation
based on cost for income tax purposes of
$177,899,220 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 55,546,925
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (1,190,845)
------------
Net unrealized appreciation $ 54,356,080
------------
------------
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities,
for the six-months ended December 31, 1996 aggregated $39,156,193
and $30,764,493, respectively.
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------- 1
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ----------- ------------
U.S GOVERNMENT & AGENCY OBLIGATIONS - 41.7%
U.S. TREASURY BONDS
05/15/16 7.250% $ 13,640,000 $ 14,402,994
08/15/17 8.875% 4,055,000 5,005,391
U.S. TREASURY NOTES
05/31/98 5.375% 6,000,000 5,955,000
04/30/00 6.750% 7,335,000 7,474,827
08/15/02 6.375% 6,555,000 6,598,020
02/15/04 5.875% 8,390,000 8,169,763
08/15/05 6.500% 500,000 503,438
FEDERAL NATIONAL MORTGAGE ASSOCIATION
10/11/06 7.150% 2,000,000 2,006,458
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $50,247,514) 50,115,891
------------
CORPORATE BONDS & NOTES - 51.6%
BASIC MATERIALS - 2.8%
BHP Finance USA
03/01/06 6.690% 2,270,000 2,216,732
USX Corp.
01/21/99 8.050% 1,190,000 1,225,167
------------
TOTAL BASIC MATERIALS 3,441,889
------------
CAPITAL GOODS - 8.9%
Dover Corp.
11/15/05 6.450% 1,900,000 1,842,515
Lockheed Martin
03/15/03 6.750% 2,300,000 2,292,226
05/15/01 6.850% 2,000,000 2,018,652
Raytheon Co.
07/15/05 6.500% 2,350,000 2,277,279
Tyco International Limited
11/01/01 6.500% 2,250,000 2,227,946
------------
TOTAL CAPITAL GOODS 10,658,618
------------
CONSUMER NON-DURABLES - 5.2%
American Home Products Corp.
02/15/00 7.700% 2,000,000 2,073,712
Anheuser Busch
09/01/05 7.000% 2,300,000 2,309,651
Philip Morris
12/01/99 7.125% 1,870,000 1,897,865
------------
TOTAL CONSUMER NON-DURABLES 6,281,228
------------
CONSUMER SERVICES - 5.2%
Federal Express Corp.
03/23/10 8.400% 1,750,000 1,892,870
Price/Costco, Inc.
06/15/05 7.125% 2,275,000 2,249,140
Waste Management
10/01/02 7.700% 2,000,000 2,099,220
------------
TOTAL CONSUMER SERVICES 6,241,230
------------
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ----------- ------------
CORPORATE BONDS & NOTES (CONTINUED)
FINANCE - 22.8%
Associates Corp. of North America
09/17/99 6.680% $1,230,000 $ 1,242,216
Bankers Trust - NY Corp.
03/15/06 7.125% 2,250,000 2,238,750
Barnett Cap II 144A**
12/01/26 7.950% 2,400,000 2,402,472
CNA Financial
11/15/03 6.250% 2,215,000 2,134,225
Donaldson, Lufkin & Jenrette
02/15/16 5.625% 2,000,000 1,916,134
First Chicago
01/15/03 7.625% 1,700,000 1,767,123
Ford Capital
05/01/98 9.125% 910,000 944,043
Ford Motor Credit
09/25/01 7.000% 2,400,000 2,437,694
General Motors Acceptance Corp.
02/15/01 5.625% 2,250,000 2,167,868
Lehman Brothers, Inc.
02/01/01 6.125% 2,300,000 2,239,308
Morgan Stanley Group, Inc.
10/01/03 6.125% 2,200,000 2,106,531
Norwest Corp.
12/01/05 6.200% 2,050,000 1,963,113
Wachovia Corp.
11/15/06 6.625% 2,100,000 2,058,292
Wells Fargo Capital
12/15/26 7.960% 1,800,000 1,793,745
------------
TOTAL FINANCE 27,411,514
------------
TRAVEL & TRANSPORTATION - 3.1%
Northwest Airlines Corp.
01/02/15 7.670% 1,500,000 1,547,505
Union Pacific Corp.
01/15/04 6.125% 2,250,000 2,147,760
------------
TOTAL TRAVEL & TRANSPORTATION 3,695,265
------------
UTILITIES - 3.6%
GTE
11/01/08 6.900% 2,250,000 2,235,060
Public Service Electric & Gas
11/01/01 7.875% 2,000,000 2,075,458
------------
TOTAL UTILITIES 4,310,518
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $62,144,115) 62,040,272
------------
FOREIGN BOND - 1.2%
Fomento Economico Mexico S.A.
07/22/97 9.500% 1,500,000 1,516,875
(Cost $1,508,579)
------------
The accompanying notes are an integral part of the financial statements.
2 ----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ----------- ------------
ASSET BACKED - 0.0%
Security Pacific Home Equity Loan,
Series 1991-2 A
06/15/20 8.100% 14,533 14,533
(Cost $14,777)
------------
MORTGAGE-BACKED OBLIGATIONS - 4.4%
Federal Home Loan Mortgage Corp.,
Series 1698-E
10/15/06 6.000% $ 2,400,000 $ 2,373,768
Federal National Mortgage Association,
1994-M3, Class B
04/25/06 7.710% 2,225,000 2,292,445
Guaranteed Mortgage Corp. III,
Series L
07/20/19 9.050% 100,002 100,524
Resolution Trust Corp.,
Series 1992-8 A
12/25/26 8.250% 74,358 74,358
Resolution Trust Corp.,
Series 1992-C6
07/25/24 6.625%* 435,303 436,119
------------
TOTAL MORTGAGE-BACKED OBLIGATIONS
(Cost $5,311,486) 5,277,214
------------
MATURITY
AMOUNT
--------
REPURCHASE AGREEMENTS - 1.1%
HSBC Securities, Inc., 5.500%, dated
12/31/96, due 01/02/97, collateralized
by $1,275,000 U.S. Treasury Note, 5.875%
due 07/31/97 1,278,591 1,278,200
(Cost $1,278,200)
------------
TOTAL INVESTMENTS - 100%
(Cost $120,504,671) $120,242,985
------------
------------
*Floating or variable rate security - rate disclosed as of
December 31, 1996.
**Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1996, this security
amounted to a value of $2,402,472 or 2.0% of net assets.
UNREALIZED GAINS AND LOSSES ON INVESTMENTS:
At December 31, 1996, the net unrealized depreciation
based on cost for income tax purposes of
$120,506,453 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 878,702
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (1,142,170)
Net unrealized depreciation $ (263,468)
------------
------------
As of June 30, 1996, the Bond 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, for the
six-months ended December 31, 1996 aggregated $43,724,812 and $33,546,301,
respectively.
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------- 3
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ----------- ------------
GENERAL OBLIGATION BONDS - 61.9%
Bradley County Tennessee
03/01/08 5.200% $ 320,000 $ 321,414
Cleveland Tennessee
09/01/09 5.375% 330,000 334,151
Collierville Tennessee
11/01/10 5.300% 475,000 469,466
Grundy County Tennessee
05/01/06 5.350% 300,000 311,562
Hamilton County Tennessee
09/01/05 5.000% 300,000 306,327
Johnson City Tennessee
06/01/12 5.900% 245,000 253,891
Knox County Tennessee
04/01/08 5.100% 350,000 352,079
Knoxville Tennessee
05/01/08 5.300% 350,000 357,469
Memphis Tennessee
08/01/06 5.200% 500,000 512,520
Metropolitan Nashville
05/15/05 5.000% 350,000 356,209
07/01/13 5.125% 500,000 482,190
Oak Ridge Tennessee
07/01/10 5.550% 500,000 509,200
Putnam County Tennessee
04/01/07 5.100% 330,000 334,633
Rutherford County Tennessee
04/01/09 5.250% 500,000 503,600
Sevier County Tennessee
04/01/12 5.600% 400,000 402,684
Shelby County Tennessee
03/01/11 5.800% 400,000 411,592
State of Tennessee
03/01/07 5.400% 240,000 250,596
Weakly County Tennessee
05/01/09 5.000% 350,000 344,285
Wilson County Tennessee
06/01/13 5.500% 500,000 496,240
------------
TOTAL GENERAL OBLIGATION BONDS
(Cost $7,237,392) 7,310,108
------------
REVENUE BONDS - 32.6%
HOSPITAL - 6.1%
Jackson Hospital
04/01/10 5.500% 400,000 406,228
Knox County Tennessee Health &
Education (Ft. Sanders Hospital)
01/01/11 5.750% 300,000 307,848
------------
TOTAL HOSPITAL 714,076
------------
HOUSING - 9.4%
Tennessee Housing Development
Authority
07/01/00 4.950% 250,000 254,253
01/01/11 5.800% 400,000 409,100
------------
TOTAL HOUSING 1,109,676
------------
DUE PRINCIPAL VALUE
DATE COUPON AMOUNT (NOTE 1)
- ---- ------ ----------- ------------
REVENUE BONDS (CONTINUED)
STATE AUTHORITY - 6.4%
Tennessee State Local Development
Authority
03/01/11 5.750% $ 250,000 $ 251,758
Tennessee State School Board Authority
05/01/11 5.500% 500,000 506,215
------------
TOTAL STATE AUTHORITY 757,973
------------
UTILITY - 10.7%
Knoxville Tennessee Electric
07/01/12 5.700% 500,000 507,860
Knoxville Tennessee Gas
03/01/08 5.050% 400,000 400,312
La Follette Tennessee Electrical Systems
06/01/11 5.800% 430,000 446,323
Lawrenceburg Tennessee Electric
07/01/06 5.200% 345,000 353,842
------------
TOTAL UTILITY 1,262,014
------------
TOTAL REVENUE BONDS
(Cost $3,809,261) 3,843,739
------------
SHARES
------
MUTUAL FUNDS - 5.5%
Federated Tennessee Municipal
Cash Trust 652,686 652,686
(Cost $652,686)
------------
TOTAL INVESTMENTS - 100%
(Cost $11,699,339) $ 11,806,533
------------
------------
UNREALIZED GAINS AND LOSSES ON INVESTMENTS:
At December 31, 1996, the net unrealized depreciation
based on cost for income tax purposes of
$11,699,339 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 130,779
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (23,585)
------------
Net unrealized depreciation $ 107,194
------------
------------
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
six-months ended December 31, 1996 aggregated $10,546,262 and $7,257,236,
respectively.
The accompanying notes are an integral part of the financial statements.
4 ----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
U.S. TREASURY OBLIGATIONS - 55.4%
U.S. TREASURY NOTES
01/15/97 8.00% $ 3,000,000 $ 3,002,426
01/31/97 7.50% 2,000,000 2,002,935
02/28/97 6.75% 3,485,000 3,491,274
02/28/97 6.88% 1,000,000 1,002,299
03/31/97 6.63% 1,000,000 1,002,974
04/15/97 8.50% 1,000,000 1,008,293
04/30/97 6.50% 8,000,000 8,025,233
05/15/97 6.50% 1,775,000 1,780,627
05/15/97 8.50% 1,000,000 1,010,811
05/31/97 6.13% 1,000,000 1,002,971
07/31/97 5.88% 2,000,000 2,004,897
08/15/97 6.50% 500,000 501,376
08/31/97 6.00% 3,000,000 3,010,149
09/30/97 5.75% 2,000,000 2,003,669
10/15/97 8.75% 2,000,000 2,048,763
10/31/97 5.63% 1,000,000 1,001,147
U.S. TREASURY BILLS
01/02/97 5.06% 25,000,000 25,000,000
------------
TOTAL U.S. TREASURY OBLIGATIONS 58,899,844
------------
MATURITY
AMOUNT
-----------
REPURCHASE AGREEMENTS 44.6%
HSBC Securities Inc., 5.750%, dated
12/31/96, due 01/02/97, collateralized
by $10,910,000 U.S. Treasury Bond,
12.00%, due 08/15/13 15,814,050 15,809,000
Donaldson, Lufkin & Jenrette Securities
Corp., 6.00%, dated 12/31/96, due
01/02/97, collateralized by $15,301,000
U.S. Treasury Note, 7.13% due
02/29/00 15,814,270 15,809,000
Lehman Brothers, 6.75%, dated
12/31/96, due 01/02/97, collateralized
by $12,130,000 U.S. Treasury Bond,
10.75%, due 08/15/05 15,814,928 15,809,000
------------
TOTAL REPURCHASE AGREEMENTS 47,427,000
------------
TOTAL INVESTMENTS - 100% $106,326,844
------------
------------
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $106,326,844
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
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
U.S. TREASURY OBLIGATIONS - 12.9%
U.S TREASURY NOTES
01/31/97 7.50% $ 2,500,000 $ 2,503,730
02/28/97 6.75% 2,000,000 2,003,636
02/28/97 6.88% 1,000,000 1,002,299
05/31/97 6.75% 1,000,000 1,005,189
08/31/97 6.00% 2,000,000 2,006,291
09/30/97 5.75% 2,000,000 2,003,669
10/31/97 5.63% 1,000,000 1,001,147
10/31/97 5.75% 1,000,000 1,002,279
------------
TOTAL U.S. TREASURY OBLIGATIONS 12,528,240
------------
U.S. GOVERNMENT OBLIGATIONS - 74.6%
Federal Home Loan Bank
01/09/97 5.21% 1,000,000 998,987
01/24/97 5.48%* 5,000,000 4,996,842
02/13/97 5.25% 1,000,000 993,875
06/23/97 5.37% 1,500,000 1,461,515
Federal Home Loan Mortgage Corp.
01/23/97 5.30% 2,000,000 1,993,817
02/24/97 5.28% 2,000,000 1,984,453
Federal National Mortgage Association
01/03/97 5.40%* 5,000,000 4,996,869
01/07/97 5.32% 5,000,000 5,000,000
01/07/97 5.42%* 5,000,000 4,998,192
01/10/97 5.53% 1,000,000 998,771
01/10/97 7.60% 1,000,000 1,000,406
01/29/97 5.23% 2,500,000 2,490,193
02/20/97 5.26% 1,000,000 992,840
03/06/97 5.31%* 5,000,000 4,999,348
03/24/97 5.47% 1,000,000 987,692
04/21/97 5.18% 2,000,000 1,968,632
05/09/97 5.15% 1,955,000 1,919,481
05/29/97 5.15% 2,000,000 1,957,942
Student Loan Marketing Association
01/07/97 5.57%* 12,650,000 12,647,439
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 72,384,770
------------
MATURITY
AMOUNT
-----------
REPURCHASE AGREEMENTS 12.5%
HSBC Securities Inc., 5.75%, dated
12/31/96, due 01/02/97, collateralized
by $4,190,000 U.S. Treasury Bond, 12.00%,
due 08/15/13 6,081,942 6,080,000
Donaldson, Lufkin & Jenrette Securities
Corp., 6.00%, dated 12/31/96, due
01/02/97, collateralized by $6,253,000
U.S. Treasury Note, 5.13%, due 11/30/98 6,082,027 6,080,000
------------
TOTAL REPURCHASE AGREEMENTS 12,160,000
------------
TOTAL INVESTMENTS - 100% $ 97,073,010
------------
------------
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------- 5
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
*Floating or variable rate security - rate disclosed as of
December 31, 1996.
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $97,073,010
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
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
MUNICIPAL BONDS & NOTES - 100.0%
CALIFORNIA - 2.4%
Los Angeles County Trans
06/30/97 4.50% $ 2,000,000 $ 2,006,136
------------
COLORADO - 3.6%
Colorado Health Facilities Authority
01/07/97 4.15%* 3,000,000 3,000,000
------------
GEORGIA - 3.3%
Thomasville Georgia, Payroll
Development Authority
01/07/97 4.30%* 2,750,000 2,750,000
------------
ILLINOIS - 8.3%
Illinois Development Authority
01/07/97 4.40%* 2,200,000 2,200,000
Peoria Illinois Industrial Development
01/07/97 4.30%* 2,865,000 2,865,000
Quad Cities Economic Development
01/07/97 4.30%* 1,915,000 1,915,000
------------
6,980,000
------------
INDIANA - 14.0 %
City of Indianapolis Industrial
Gas & Utility
05/09/97 3.45% 3,000,000 3,000,000
Franklin County Economic Development
01/07/97 4.25%* 2,225,000 2,225,000
Indiana Development Finance Authority
01/07/97 4.40%* 4,900,000 4,900,000
Noblesville Industrial
Development
01/07/97 4.40%* 1,550,000 1,550,000
------------
11,675,000
------------
LOUISIANA - 1.2%
Calcasieu Parish Citgo Petroleum
01/02/97 5.10%* 600,000 600,000
West Baton Rouge Parish Dow Chemical
01/02/97 5.10%* 400,000 400,000
------------
1,000,000
------------
MASSACHUSSETS - 0.8%
Mass Industrial Finance Agency
01/24/97 3.70% 700,000 700,000
------------
NEVADA - 0.7%
Clark County Industrial Development
01/07/97 4.15%* 600,000 600,000
------------
NEW HAMPSHIRE - 2.4%
New Hampshire I.D.A., Solid Waste
03/03/97 3.75% 2,000,000 2,000,000
------------
The accompanying notes are an integral part of the financial statements.
6 -----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
MUNICIPAL BONDS & NOTES (CONTINUED)
NEW YORK - 2.5%
New York LGAC, Series 1994 B
01/07/97 4.00%* $ 600,000 $ 600,000
New York City Trans
02/12/97 4.50% 1,500,000 1,501,202
------------
2,101,202
------------
OHIO - 11.5%
Berea Bond Anticipation Notes
07/10/97 4.09% 765,000 765,532
Clermont County Hospital
Facilities Series A
01/02/97 4.20%* 900,000 900,000
Columbus Ohio, Series 1
01/07/97 4.10%* 3,000,000 3,000,000
Franklin County Hospital
01/07/97 4.15%* 3,500,000 3,500,000
Stark County Bond Anticipation Notes
06/19/97 4.12% 1,450,000 1,451,409
------------
9,616,941
------------
PENNSYLVANIA - 2.4%
Pennsylvania State Tax Anticipation Notes
06/30/97 4.50% 2,000,000 2,007,132
------------
TENNESSEE - 31.3%
Chattanooga Health and Education Housing
01/07/97 4.15%* 1,250,000 1,250,000
Chattanooga Southern Foundry IDB
01/07/97 4.25%* 1,400,000 1,400,000
Clarksville Public Building Authority
01/07/97 4.00%* 200,000 200,000
Knox County IDB
01/07/97 4.10%* 1,000,000 1,000,000
01/07/97 4.50%* 100,000 100,000
01/15/97 3.70%* 1,650,000 1,650,000
Knox County Health and Education, Hospital,
Series A
01/07/97 4.20%* 3,100,000 3,100,000
Knox County Health and Education, Mercy
Health System, Series 94B
01/01/97 4.20%* 800,000 800,000
Memphis General Obligation
01/07/97 4.10%* 700,000 700,000
Metropolitan Government Nashville,
Baptist Hospital
01/07/97 4.00%* 2,000,000 2,000,000
01/28/97 3.50% 3,500,000 3,500,000
Metropolitan Nashville Airport
01/07/97 4.10%* 800,000 800,000
Metropolitan Nashville Airport
01/07/97 4.10%* 2,805,000 2,805,000
Montgomery County Public Building
01/07/97 4.30%* 3,000,000 3,000,000
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
MUNICIPAL BONDS & NOTES (CONTINUED)
TENNESSEE (CONTINUED)
Shelby County Health and Education
08/01/97 4.05% $ 1,930,000 $ 1,930,000
South Pittsburg Industrial Development
01/07/97 4.25%* 2,000,000 2,000,000
------------
26,235,000
------------
TEXAS - 6.6%
City of Austin Utility System
05/09/97 3.50% 3,000,000 3,000,000
Dallas Area Rapid Transit
05/09/97 3.50*% 2,500,000 2,500,000
------------
5,500,000
------------
WASHINGTON - 4.9%
Washington Public Power Supply
01/07/97 4.10%* 100,000 100,000
Yakima Public Corporation
01/07/97 4.25%* 4,000,000 4,000,000
------------
4,100,000
------------
WISCONSIN - 4.1%
Wisconsin Health and Education
01/07/97 4.05%* 3,400,000 3,400,000
------------
TOTAL MUNICIPAL BONDS & NOTES 83,671,411
------------
TOTAL INVESTMENTS - 100% $ 83,671,411
------------
------------
*Floating or variable rate security - rate disclosed as of
December 31, 1996.
Total cost for Federal income tax purposes - $83,671,411
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.
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------- 7
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
CASH RESERVE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996 (Unaudited)
(Showing Percentage of Total Value of Investments)
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
CERTIFICATES OF DEPOSIT - 8.5%
Bank of Illinois
04/22/97 5.48% $ 2,000,000 $ 2,000,000
Bank of New York
03/03/97 5.63% 2,000,000 1,999,905
------------
TOTAL CERTIFICATES OF DEPOSIT 3,999,905
------------
CORPORATE NOTES - 4.2%
SECURITY BROKER/DEALERS
Bear Stearns Co.
02/06/97 5.470%* 2,000,000 2,000,000
------------
TOTAL CORPORATE NOTES 2,000,000
------------
COMMERCIAL PAPER - 73.7%
AGRICULTURAL SERVICES - 2.7%
Golden Peanut Co.
02/10/97 5.32% 1,300,000 1,292,508
------------
AUTOMOTIVE - 4.2%
Daimler-Benz North America
02/03/97 5.35% 2,000,000 1,990,489
------------
BANKS - 12.6%
Citibank
01/06/97 5.47% 1,000,000 999,392
National City Credit Corp.
02/24/97 5.34% 2,000,000 1,984,277
NationsBank Corp.
02/12/97 5.36% 1,995,000 1,982,822
Norwest Corp.
03/25/97 5.41% 1,000,000 987,677
------------
TOTAL BANKS 5,954,168
------------
BUSINESS CREDIT INSTITUTIONS - 14.8%
CIT Holdings
01/14/97 5.38% 2,000,000 1,996,413
GE Capital Corp.
04/28/97 5.34% 2,000,000 1,965,587
National Rural Utilities
01/24/97 5.29% 2,000,000 1,993,534
Paccar Financial Corp.
01/30/97 5.60% 1,000,000 995,645
------------
TOTAL BUSINESS CREDIT INSTITUTIONS 6,951,179
------------
EQUIPMENT RENT/LEASE SERVICES - 2.1%
International Lease Finance
03/07/97 5.40% 1,000,000 990,400
------------
ELECTRICAL SERVICES - 4.2%
Southern California Edison
04/15/97 5.31% 2,000,000 1,969,615
------------
ENTERTAINMENT - 4.2%
Walt Disney Co.
03/24/97 5.40% 2,000,000 1,975,700
------------
DUE DISCOUNT RATE OR PRINCIPAL VALUE
DATE COUPON RATE AMOUNT (NOTE 1)
- ---- ---------------- ----------- ------------
COMMERCIAL PAPER (CONTINUED)
FINANCE LESSORS - 8.4%
IBM Credit Corp.
04/15/97 5.37% $ 2,000,000 $ 1,969,272
Pitney Bowes Credit Corp.
03/17/97 5.55% 2,000,000 1,977,183
------------
TOTAL FINANCE LESSORS 3,946,455
------------
LIFE INSURANCE - 4.2%
Met Life Funding, Inc.
02/18/97 5.28% 2,000,000 1,986,213
------------
PERSONAL CREDIT INSTITUTIONS - 8.5%
Dean Witter Discover & Company
01/17/97 5.42% 2,000,000 1,995,483
Ford Motor Credit Corp.
02/27/97 5.28% 2,000,000 1,983,573
------------
TOTAL PERSONAL CREDIT INSTITUTIONS 3,979,056
------------
SECURITY BROKER/DEALERS - 7.8%
CS First Boston
02/03/97 5.480%* 1,700,000 1,700,000
Goldman Sachs
03/31/97 5.45% 2,000,000 1,973,355
------------
TOTAL SECURITY BROKER/DEALERS 3,673,355
------------
TOTAL COMMERCIAL PAPER 34,709,138
------------
MATURITY
AMOUNT
-----------
REPURCHASE AGREEMENT 13.6%
Donaldson, Lufkin & Jenrette Securities
Corp., 6.00%, dated 12/31/96, due
01/02/97, collateralized by $6,837,000
U.S. Treasury Bill, due 11/13/97 6,396,131 6,394,000
------------
TOTAL INVESTMENTS - 100% $47,103,043
------------
------------
*Floating or variable rate security - rate disclosed as of
December 31, 1996.
Total cost for income tax purposes - $47,103,043
The accompanying notes are an integral part of the financial statements.
8 -----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
<TABLE>
GROWTH & INCOME BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value (cost-see below)(Note 1) $232,255,300 $120,242,985 $11,806,533
Cash 21 32 0
Receivable for portfolio shares sold 97,196 0 155,644
Dividends receivable 318,175 0 0
Interest receivable 25,632 1,945,162 194,392
Due from administrator 0 0 1,652
Other assets 10,759 7,676 2,003
----------------------------------------------
Total assets 232,707,083 122,195,855 12,160,224
----------------------------------------------
LIABILITIES:
Payable for investments purchased 0 0 498,675
Accrued advisory fee 100,553 15,698 0
Accrued administration fee 27,683 16,549 0
Accrued co-administration fee 9,791 5,375 0
Dividends payable 632,933 631,760 49,204
Accrued 12b-1 fee 36,250 3,075 1,423
Accrued shareholder servicing fee 12,357 908 0
Other payables and accrued expenses 70,292 30,781 19,962
----------------------------------------------
Total liabilities 889,859 704,146 569,264
----------------------------------------------
NET ASSETS $231,817,224 $121,491,709 $11,590,960
----------------------------------------------
----------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $176,998,470 $122,071,621 $11,523,361
Over-distributed net investment income (29,733) (36,367) (5)
Accumulated net realized gain(loss) on
investments 444,861 (281,859) (39,590)
Net unrealized appreciation (depreciation)
in value of investments 54,403,626 (261,686) 107,194
----------------------------------------------
NET ASSETS $231,817,224 $121,491,709 $11,590,960
----------------------------------------------
----------------------------------------------
COST OF INVESTMENTS $177,851,674 $120,504,671 $11,699,339
----------------------------------------------
----------------------------------------------
NET ASSET VALUE PER SHARE
Net Assets
Class I $184,680,077 $117,878,292 $ 6,341,453
Class II 5,802,746 645,908 3,011,041
Class III 41,334,401 2,967,509 2,238,466
----------------------------------------------
Shares outstanding of $.001 par value capital
stock, unlimited shares authorized
Class I 12,447,014 11,921,143 638,094
Class II 390,942 65,482 302,318
Class III 2,787,662 300,751 224,944
----------------------------------------------
Net Asset Value and redemption price per
share
Class I $14.84 $9.89 $9.94
Class II 14.84 9.86 9.96
Class III 14.83 9.87 9.95
----------------------------------------------
Maximum offering price per share
Class I (no sales charge) $14.84 $9.89 $9.94
Class II (net asset value plus maximum
sales charge of 5.75%, 3.75% and 3.75%
of offering price, respectively) 15.75 10.24 10.35
Class III (no sales charge) 14.83 9.87 9.95
----------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------- 9
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
<TABLE>
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) $106,326,844 $97,073,010 $83,671,411 $47,103,043
Cash 767 390 0 189
Interest receivable 654,241 618,122 407,863 93,575
Registration and organization costs 592 1,742 334 0
Other assets 7,307 7,225 7,503 3,201
--------------------------------------------------------
Total assets 106,989,751 97,700,489 84,087,111 47,200,008
--------------------------------------------------------
LIABILITIES:
Dividends payable 472,323 417,345 252,623 198,378
Accrued management fee 9,109 8,415 7,710 4,197
Accrued administration fee 7,297 6,303 5,771 3,143
Accrued co-administration fee 2,458 2,148 2,088 1,056
Accrued 12b-1 fee 1,610 698 661 6,643
Other payables and accrued expenses 37,798 33,226 16,866 21,852
--------------------------------------------------------
Total liabilities 530,595 468,135 285,719 235,269
--------------------------------------------------------
NET ASSETS $106,459,156 $97,232,354 $83,801,392 $46,964,739
--------------------------------------------------------
--------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $106,466,072 $97,239,256 $83,804,405 $46,964,677
Accumulated net realized gain(loss) on
investments (6,916) (6,902) (3,013) 62
--------------------------------------------------------
NET ASSETS $106,459,156 $97,232,354 $83,801,392 $46,964,739
--------------------------------------------------------
--------------------------------------------------------
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 $47,427,000, $12,160,000, $0 and $6,394,000 respectively.
(2) Shares Outstanding
Net ($.001 par value, unlimited
Assets shares authorized)
------ ------------------
U.S. Treasury Money Market
Class I $ 103,095,057 103,101,758
Class III 3,364,099 3,364,314
U.S. Government Money Market
Class I 95,989,963 95,996,828
Class III 1,242,391 1,242,428
Municipal Money Market
Class I 80,799,860 80,802,895
Class III 3,001,532 3,001,510
Cash Reserve
Class I 17,849,077 17,848,948
Class III 29,115,662 29,115,729
The accompanying notes are an integral part of the financial statements.
10-----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six-Months Ended December 31, 1996 (Unaudited)
<TABLE>
GROWTH & INCOME BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,764,059 $ 0 $ 0
Interest 556,557 3,893,943 262,204
----------------------------------------------
Total investment income 2,320,616 3,893,943 262,204
----------------------------------------------
EXPENSES:
Management fee (Note 3) 693,590 326,088 25,569
Administration fee (Note 4) 160,059 88,933 7,671
Co-administration fee 53,353 29,644 2,557
Fund accounting/Transfer agent fee:
Class I 50,529 37,626 4,935
Class II 2,494 248 2,350
Class III 34,709 2,490 1,212
Blue Sky fee:
Class I 1,999 704 605
Class II 24 95 606
Class III 2,082 118 605
Distribution fee:
Class III 144,682 11,872 3,409
Shareholder servicing fee:
Class II 4,455 344 0
Class III 48,227 3,957 0
Custodian fee 27,077 13,595 2,296
Trustees fee 5,947 3,490 527
Registration fee 0 1,423 1,012
Audit 7,908 6,490 12,156
Legal 6,140 2,031 293
Reports to Shareholders 10,159 860 286
Miscellaneous 23,560 17,897 1,145
----------------------------------------------
Total expenses before waiver 1,276,994 547,905 67,234
Waiver of expenses (Note 5) (160,059) (237,155) (35,797)
Fees reimbursed by administrator 0 0 (29,686)
Custodian fees paid indirectly (528) (701) (383)
----------------------------------------------
Net expenses 1,116,407 310,049 1,368
----------------------------------------------
NET INVESTMENT INCOME 1,204,209 3,583,894 260,836
----------------------------------------------
Net realized gain(loss) on investments 5,141,132 681,573 (31,902)
Change in net unrealized appreciation/
depreciation 17,621,163 1,297,893 260,405
----------------------------------------------
Net gain on investments 22,762,295 1,979,466 228,503
----------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $23,966,504 $5,563,360 $489,339
----------------------------------------------
----------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------11
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six-Months Ended December 31, 1996 (Unaudited)
<TABLE>
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 $2,697,029 $2,559,052 $1,468,407 $1,258,509
--------------------------------------------------------
EXPENSES:
Management fee (Note 3) 125,662 117,645 102,024 57,268
Administration fee (Note 4) 37,699 35,293 30,607 17,180
Co-administration fee 25,132 23,529 20,405 11,454
Fund accounting/Transfer agent fee
Class I 22,319 22,496 23,458 7,893
Class III 921 280 980 9,787
Blue sky fee:
Class I 2,318 2,511 2,465 1,300
Class III 435 206 403 1,088
Distribution fee:
Class III 3,810 1,155 3,806 34,530
Custodian fee 22,437 15,382 6,950 11,311
Trustees fee 2,613 3,019 2,252 1,154
Amortization of organization costs 3,828 4,726 3,539 0
Registration fee 0 0 0 2,945
Audit 10,089 11,900 7,451 4,329
Legal 2,761 3,220 1,489 1,169
Reports to shareholders 3,441 4,086 2,128 1,638
Miscellaneous 5,311 4,973 5,623 3,451
--------------------------------------------------------
Total expenses before waiver 268,776 250,421 213,580 166,497
Waiver of expenses (Note 5) (87,964) (82,351) (71,417) (40,088)
Custodian fees paid indirectly (1,190) (1,724) (1,334) (556)
--------------------------------------------------------
Net expenses 179,622 166,346 140,829 125,853
--------------------------------------------------------
NET INVESTMENT INCOME 2,517,407 2,392,706 1,327,578 1,132,656
--------------------------------------------------------
Net realized loss on investments (2,971) (4,324) 0 0
--------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $2,514,436 $2,388,382 $1,327,578 $1,132,656
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
12-----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
GROWTH & INCOME BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Ended Ended For the
December 31, Year Ended December 31, Year Ended December 31, Period From
1996 June 30, 1996 June 30, 1996 December 15, 1995
(Unaudited) 1996 (Unaudited) 1996 (Unaudited) to June 30, 1996
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,204,209 $ 1,980,877 $ 3,583,894 $ 6,115,145 $ 260,836 $ 109,242
Net realized gain (loss) on
investments 5,141,132 13,237,842 681,573 423,779 (31,902) (7,688)
Change in net unrealized
appreciation/depreciation 17,621,163 19,574,675 1,297,893 (2,870,969) 260,405 (153,211)
----------------------------------------------------------------------------------------
Net increase (decrease) in
net assets from operations 23,966,504 34,793,394 5,563,360 3,667,955 489,339 (51,657)
----------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income:
Class I (1,164,401) (1,889,477) (3,497,311) (5,960,426) (167,092) (79,345)
Class II (17,039) (3,654) (7,968) (818) (59,012) (14,474)
Class III (52,502) (136,801) (78,615) (154,608) (34,737) (15,423)
Net realized gain:
Class I (9,941,252) (6,655,167) 0 0 0 0
Class II (308,554) (250) 0 0 0 0
Class III (2,213,869) (1,542,598) 0 0 0 0
----------------------------------------------------------------------------------------
Net decrease in net assets
from distributions (13,697,617) (10,227,947) (3,583,894) (6,115,852) (260,841) (109,242)
----------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 19,288,719 50,948,844 9,103,689 23,774,506 5,993,026 9,584,335
Reinvested dividends 13,003,556 9,854,367 2,742,562 5,846,105 65,549 24,578
Cost of shares redeemed (8,699,765) (20,775,834) (3,678,110) (8,318,523) (3,392,418) (751,709)
----------------------------------------------------------------------------------------
Net increase in net assets
from share transactions 23,592,510 40,027,377 8,168,141 21,302,088 2,666,157 8,857,204
----------------------------------------------------------------------------------------
Total increase in net assets 33,861,397 64,592,824 10,147,607 18,854,191 2,894,655 8,696,305
NET ASSETS:
Beginning of period 197,955,827 133,363,003 111,344,102 92,489,911 8,696,305 0
----------------------------------------------------------------------------------------
End of period* $231,817,224 $197,955,827 $121,491,709 $111,344,102 $11,590,960 $8,696,305
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
*Includes over-distributed
net investment income of $ (29,733) $ 0 $ (36,367) $ (36,367) $ (5) $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------13
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------------------------------------
Six Months Six Months
Ended Ended
December 31, Year Ended December 31, Year Ended
1996 June 30, 1996 June 30,
(Unaudited) 1996 (Unaudited) 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 2,517,407 $ 4,346,582 $ 2,392,706 $ 5,109,635
Net realized loss on investments (2,971) (6,105) (4,324) (2,691)
---------------------------------------------------------------
Net increase in net assets from
operations 2,514,436 4,340,477 2,388,382 5,106,944
---------------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Class I (2,445,867) (4,239,680) (2,370,663) (5,104,189)
Class III (71,540) (106,902) (22,043) (5,446)
---------------------------------------------------------------
Net decrease in net assets from
distributions (2,517,407) (4,346,582) (2,392,706) (5,109,635)
---------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 236,839,918 328,560,842 75,265,142 174,127,519
Reinvested dividends 71,596 87,904 15,413 10,490
Cost of shares redeemed (209,680,908) (316,787,797) (66,382,764) (173,853,608)
---------------------------------------------------------------
Net increase in net assets
from share transactions 27,230,606 11,860,949 8,897,791 284,401
---------------------------------------------------------------
Total increase in net assets 27,227,635 11,854,844 8,893,467 281,710
NET ASSETS:
Beginning of period 79,231,521 67,376,677 88,338,887 88,057,177
---------------------------------------------------------------
End of period $ 106,459,156 $ 79,231,521 $ 97,232,354 $ 88,338,887
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14-----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
MUNICIPAL CASH RESERVE
MONEY MARKET PORTFOLIO PORTFOLIO
-----------------------------------------------------------------
Six Months Six Months
Ended Ended
December 31, Year Ended December 31, Year Ended
1996 June 30, 1996 June 30,
(Unaudited) 1996 (Unaudited) 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,327,578 $ 3,375,450 $ 1,132,656 $ 1,420,633
Net realized loss on investments 0 0 0 (26)
-----------------------------------------------------------------
Net increase in net assets from
operations 1,327,578 3,375,450 1,132,656 1,420,607
-----------------------------------------------------------------
DISTRIBUTIONS:
Net investment income
Class I (1,282,142) (3,296,898) (462,175) (853,244)
Class III (45,436) (78,552) (670,481) (567,389)
-----------------------------------------------------------------
Net decrease in net assets from
distributions (1,327,578) (3,375,450) (1,132,656) (1,420,633)
-----------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 72,063,182 148,776,685 54,933,771 82,609,913
Reinvested dividends 45,249 70,601 629,919 478,625
Cost of shares redeemed (62,877,230) (168,355,382) (49,158,531) (57,988,532)
-----------------------------------------------------------------
Net increase (decrease) in net assets
from share transactions 9,231,201 (19,508,096) 6,405,159 25,100,006
-----------------------------------------------------------------
Total increase (decrease) in net assets 9,231,201 (19,508,096) 6,405,159 25,099,980
NET ASSETS:
Beginning of period 74,570,191 94,078,287 40,559,580 15,459,600
-----------------------------------------------------------------
End of period $ 83,801,392 $ 74,570,191 $ 46,964,739 $ 40,559,580
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------15
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
GROWTH & INCOME PORTFOLIO
<TABLE>
CLASS I
----------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
----------------------------------------------------
1996 1996 1995 1994**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $14.12 $12.22 $10.53 $10.00
----------------------------------------------------
Income from investment operations:
Net investment income 0.10 0.19 0.23 0.17
Net realized and unrealized gain
(loss) on investments 1.56 2.58 2.21 0.57
----------------------------------------------------
Total from investment operations 1.66 2.77 2.44 0.74
----------------------------------------------------
Distributions:
Net investment income (0.10) (0.19) (0.23) (0.17)
Net realized gain (0.84) (0.68) (0.52) (0.04)
----------------------------------------------------
Total distributions (0.94) (0.87) (0.75) (0.21)
----------------------------------------------------
Net asset value, end of period $14.84 $14.12 $12.22 $10.53
----------------------------------------------------
----------------------------------------------------
TOTAL RETURN+ 11.71%# 23.54% 24.20% 7.39%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $184,680 $159,146 $114,000 $82,751
Ratio of expenses to average daily
net assets(1) 0.83%* 0.76% 0.47% 0.34%*
Ratio of net investment income to
average net assets 1.33%* 1.40% 2.12% 1.83%*
Portfolio turnover rate 15% 41% 33% 83%*
Average commission rate ^ 0.0607 n/a n/a n/a
(1) During the period, various fees
were waived. The ratio of expenses
to average net assets had such
waivers not occurred is as follows. 0.98%* 1.00% 0.99% 1.05%*
</TABLE>
<TABLE>
CLASS II CLASS III
------------------------ -------------------------------------------
For the Six For the Six
Months Ended For the Months Ended For the
December 31, Year Ended December 31, Year Ended
(Unaudited) June 30, (Unaudited) June 30,
---------------------------------------------------------------------
1996 1996** 1996 1996 1995 1994**
---- ------ ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $14.12 $13.05 $14.11 $12.23 $10.51 $10.60
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.06 0.09 0.02 0.03 0.06 0.06
Net realized and unrealized gain
(loss) on investments 1.57 1.74 1.56 2.60 2.24 (0.05)
---------------------------------------------------------------------
Total from investment operations 1.63 1.83 1.58 2.63 2.30 0.01
---------------------------------------------------------------------
Distributions:
Net investment income (0.07) (0.08) (0.02) (0.07) (0.06) (0.06)
Net realized gain (0.84) (0.68) (0.84) (0.68) (0.52) (0.04)
---------------------------------------------------------------------
Total distributions (0.91) (0.76) (0.86) (0.75) (0.58) (0.10)
---------------------------------------------------------------------
Net asset value, end of period $14.84 $14.12 $14.83 $14.11 $12.23 $10.51
---------------------------------------------------------------------
---------------------------------------------------------------------
TOTAL RETURN+ 11.48%# 14.71%# 11.10%# 22.19% 22.61% 0.08%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $5,803 $1,918 $41,334 $36,892 $19,363 $2,094
Ratio of expenses to average daily
net assets(1) 1.15%* 1.06%* 1.95%* 1.87% 1.72% 1.83%*
Ratio of net investment income to
average net assets 1.00%* 1.10%* 0.21%* 0.29% 0.87% 0.34%*
Portfolio turnover rate 15% 41% 15% 41% 33% 83%*
Average commission rate ^ 0.0607 n/a 0.0607 n/a n/a n/a
(1) During the period, various fees
were waived. The ratio of expenses
to average net assets had such
waivers not occurred is as follows. 1.30%* 1.30%* 2.10%* 2.11% 2.26% 6.03%*
</TABLE>
^ For fiscal years beginning on or after September 1, 1995, a fund that
invests more than 10% of the value of its average net assets in equity
securities is required to disclose its average commission rate per share
for security trades on which commissions are charged.
* Annualized.
** Classes I, II and III commenced operations on August 2, 1993, December 20,
1995 and December 9, 1993, respectively.
+ 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.
16 ----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BOND PORTFOLIO
<TABLE>
CLASS I
----------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
----------------------------------------------------
1996 1996 1995 1994**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $9.73 $9.91 $9.41 $10.00
----------------------------------------------------
Income from investment operations:
Net investment income 0.30 0.60 0.57 0.45
Net realized and unrealized gain
(loss) on investments 0.16 (0.18) 0.50 (0.57)
----------------------------------------------------
Total from investment operations 0.46 0.42 1.07 (0.12)
----------------------------------------------------
Distributions:
Net investment income (0.30) (0.60) (0.57) (0.46)
Net realized gain - - - (0.01)
----------------------------------------------------
Total distributions (0.30) (0.60) (0.57) (0.47)
----------------------------------------------------
Net asset value, end of period $9.89 $9.73 $9.91 $9.41
----------------------------------------------------
----------------------------------------------------
TOTAL RETURN+ 4.79%# 4.23% 11.87% (1.38)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $117,878 $107,832 $90,574 $75,686
Ratio of expenses to average daily
net assets(1) 0.49%* 0.41% 0.35% 0.36%*
Ratio of net investment income
to average net assets 6.07%* 5.99% 6.07% 5.07%*
Portfolio turnover rate 29% 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. 0.89%* 0.91% 0.91% 0.96%*
</TABLE>
<TABLE>
CLASS II CLASS III
------------------------ -------------------------------------------
For the Six For the Six
Months Ended For the Months Ended For the
December 31, Year Ended December 31, Year Ended
(Unaudited) June 30, (Unaudited) June 30,
---------------------------------------------------------------------
1996 1996** 1996 1996 1995 1994**
---- ------ ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $9.71 $10.18 $9.71 $9.89 $9.40 $10.04
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.29 0.25 0.49 0.43 0.21
Net realized and unrealized gain
(loss) on investments 0.15 (0.47) 0.16 (0.18) 0.49 (0.62)
---------------------------------------------------------------------
Total from investment operations 0.43 (0.18) 0.41 0.31 0.92 (0.41)
---------------------------------------------------------------------
Distributions:
Net investment income (0.28) (0.29) (0.25) (0.49) (0.43) (0.22)
Net realized gain - - - - - (0.01)
---------------------------------------------------------------------
Total distributions (0.28) (0.29) (0.25) (0.49) (0.43) (0.23)
---------------------------------------------------------------------
Net asset value, end of period $9.86 $9.71 $9.87 $9.71 $9.89 $9.40
---------------------------------------------------------------------
---------------------------------------------------------------------
TOTAL RETURN+ 4.52%# (1.75)%# 4.22%# 3.11% 10.12% (4.19)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $646 $67 $2,968 $3,445 $1,916 $923
Ratio of expenses to average daily
net assets(1) 0.91%* 0.80%* 1.59%* 1.49% 1.84% 1.82%*
Ratio of net investment income
to average net assets 5.65%* 5.61%* 4.97%* 4.92% 4.58% 3.61%*
Portfolio turnover rate 29% 56% 29% 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. 1.31%* 1.30%* 1.99%* 1.99% 3.35% 6.36%*
</TABLE>
* Annualized.
** Classes I, II and III commenced operations on August 2, 1993, December 20,
1995 and December 2, 1993, respectively.
+ 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.
- ---------------------------------------------------------------------------- 17
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
TENNESSEE TAX-FREE PORTFOLIO
<TABLE>
CLASS I CLASS II CLASS III
-----------------------------------------------------------------------------
For the Six For the Six For the Six
Months Ended For the Months Ended For the Months Ended For the
December 31, Year Ended December 31, Year Ended December 31, Year Ended
(Unaudited) June 30, (Unaudited) June 30, (Unaudited) June 30,
-----------------------------------------------------------------------------
1996 1996** 1996 1996** 1996 1996**
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $9.71 $10.00 $9.73 $10.06 $9.72 $10.00
----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.25 0.23 0.25 0.21 0.25 0.19
Net realized and unrealized gain (loss)
on investments 0.23 (0.29) 0.23 (0.33) 0.23 (0.28)
----------------------------------------------------------------------------
Total from investment operations 0.48 (0.06) 0.48 (0.12) 0.48 (0.09)
----------------------------------------------------------------------------
Distributions:
Net investment income (0.25) (0.23) (0.25) (0.21) (0.25) (0.19)
Net realized gain - - - - - -
----------------------------------------------------------------------------
Total distributions (0.25) (0.23) (0.25) (0.21) (0.25) (0.19)
----------------------------------------------------------------------------
Net asset value, end of period $9.94 $9.71 $9.96 $9.73 $9.95 $9.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TOTAL RETURN+ 5.03%# (0.65)%# 5.13%# (1.25)%# 5.01%# (0.87)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $6,341 $5,925 $3,011 $1,875 $2,238 $896
Ratio of expenses to average daily
net assets(1) 0.02%* 0.50%* 0.02%* 0.49%* 0.02%* 0.98%*
Ratio of net investment income to
average net assets 2.89%* 4.31%* 2.89%* 4.32%* 2.89%* 3.83%*
Portfolio turnover rate 70% 8%* 70% 8%* 70% 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. 0.69%* 1.42%* 0.74%* 1.42%* 1.03%* 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.
18 ----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
U.S. TREASURY MONEY MARKET PORTFOLIO
<TABLE>
CLASS I CLASS III
--------------------------------------------------------- -----------------------------
For the Six For the Six
Months Ended Months Ended
December 31, For the Year December 31, For the Year
(Unaudited) Ended June 30, (Unaudited) Ended June 30,
----------------------------------------------------------------------------------------
1996 1996 1995 1994 1993** 1996 1996**
---- ---- ---- ---- ------ ---- ------
<S> <C> <C> <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 $1.00 $1.00
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.025 0.052 0.050 0.030 0.018 0.024 0.044
------------------------------------------------------------------------------------
Distributions:
Net investment income (0.025) (0.052) (0.050) (0.030) (0.018) (0.024) (0.044)
------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
TOTAL RETURN+ 2.55%# 5.30% 5.10% 3.06% 1.76%# 2.40%# 4.47%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $103,095 $75,703 $67,377 $100,868 $59,326 $3,364 $3,528
Ratio of expenses to average
net assets (1) 0.35%* 0.36% 0.36% 0.33% 0.39%* 0.64%* 0.62%*
Ratio of net investment income
to average net assets 5.02%* 5.19% 5.00% 3.04% 2.73%* 4.73%* 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. 0.53%* 0.56% 0.63% 0.60% 0.65%* 0.82%* 0.82%*
</TABLE>
* Annualized.
** Classes I and III commenced operations on November 12, 1992 and August 8,
1995, respectively.
+ 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.
- ---------------------------------------------------------------------------- 19
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<TABLE>
CLASS I CLASS III
-------------------------------------------------------- ----------------------------
For the Six For the Six
Months Ended Months Ended
December 31, For the Year December 31, For the Year
(Unaudited) Ended June 30, (Unaudited) Ended June 30,
-------------------------------------------------------- ----------------------------
1996 1996 1995 1994 1993** 1996 1996**
---- ---- ---- ---- ------ ---- ------
<S> <C> <C> <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 $1.00 $1.00
Income from investment operations:
Net investment income 0.026 0.053 0.053 0.032 0.019 0.024 0.044
-------------------------------------------------------------------------------------
Distributions:
Net investment income (0.026) (0.053) (0.053) (0.032) (0.019) (0.024) (0.044)
-------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
TOTAL RETURN+ 2.59%# 5.37% 5.39% 3.23% 1.87%# 2.44%# 4.49%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $95,990 $88,111 $88,057 $67,854 $94,903 $1,242 $228
Ratio of expenses to average net assets (1) 0.35%* 0.33% 0.31% 0.28% 0.27%* 0.65%* 0.65%*
Ratio of net investment income to average
net assets 5.09%* 5.28% 5.27% 3.18% 2.98%* 4.79%* 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%* 0.53% 0.58% 0.55% 0.55%* 0.83%* 0.85%*
* Annualized.
** Classes I and III commenced operations on November 12, 1992 and August 8,
1995, respectively.
+ 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 --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
CLASS I CLASS III
-------------------------------------------------------- ----------------------------
For the Six For the Six
Months Ended Months Ended
December 31, For the Year December 31, For the Year
(Unaudited) Ended June 30, (Unaudited) Ended June 30,
-------------------------------------------------------- ----------------------------
1996 1996 1995 1994 1993** 1996 1996**
---- ---- ---- ---- ------ ---- ------
<S> <C> <C> <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 $1.00 $1.00
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.016 0.035 0.034 0.024 0.014 0.015 0.030
-------------------------------------------------------------------------------------
Distributions:
Net investment income (0.016) (0.035) (0.034) (0.024) (0.014) (0.015) (0.030)
-------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
TOTAL RETURN+ 1.66%# 3.52% 3.48% 2.40% 1.40%# 1.51%# 3.03%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $80,800 $71,665 $94,078 $76,231 $74,362 $3,002 $2,905
Ratio of expenses to average net assets (1) 0.33%* 0.32% 0.30% 0.28% 0.31%* 0.61%* 0.58%*
Ratio of net investment income to average
net assets 3.26%* 3.50% 3.44% 2.39% 2.26%* 2.99%* 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. 0.51%* 0.52% 0.57% 0.55% 0.58%* 0.79%* 0.78%*
* Annualized.
** Classes I and III commenced operations on November 12, 1992 and July 28,
1995, respectively.
+ 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
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
CASH RESERVE PORTFOLIO
<TABLE>
CLASS I CLASS III
---------------------------------------- -----------------------------
For the Six For the Six
Months Ended Months Ended
December 31, For the Year December 31, For the Year
(Unaudited) Ended June 30, (Unaudited) Ended June 30,
---------------------------------------- -----------------------------
1996 1996 1995** 1996 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 0.025 0.053 0.042 0.024 0.047
----------------------------------------------------------------------
Distributions:
Net investment income (0.025) (0.053) (0.042) (0.024) (0.047)
----------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------
----------------------------------------------------------------------
TOTAL RETURN+ 2.58% 5.39% 4.27%# 2.47% 4.78%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $17,849 $16,369 $15,460 $29,116 $24,190
Ratio of expenses to average net assets (1) 0.41%* 0.42% 0.43%* 0.64%* 0.62%*
Ratio of net investment income to average net
assets 5.08%* 5.22% 5.48%* 4.86%* 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. 0.59%* 0.61% 0.70%* 0.82%* 0.81%*
* Annualized.
** Classes I and III commenced operations on September 26, 1994 and July 28,
1995, respectively.
+ 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 -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-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 December 31, 1996, Class II shares have been issued only for the
Growth & Income (formerly Total Return Equity), Bond (formerly 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:
GROWTH & INCOME, BOND AND TENNESSEE TAX-FREE PORTFOLIOS: Securities held in
the Growth & Income 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 Bond 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 Growth & Income and Bond 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 six months ended December
31, 1996, total Trust expenses were reduced $6,416 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 Bond Portfolio and Tennessee Tax-Free
Portfolio, distributions are declared daily and paid monthly from net
investment income. Distributions for Growth & Income 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.
- --------------------------------------------------------------------------- 23
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-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
<TABLE>
GROWTH & INCOME BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------------------
Six Months Six Months Six Months
Ended Ended Ended
December 31, Year Ended December 31, Year Ended December 31, Year Ended
1996 June 30, 1996 June 30, 1996 June 30,
(Unaudited) 1996 (Unaudited) 1996 (Unaudited) 1996*
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dollars issued and redeemed:
Class I:
Issued $ 12,123,587 $ 32,703,374 $ 8,461,961 $ 21,362,353 $ 3,213,374 $ 6,254,616
Distributions reinvested 10,434,209 8,189,401 2,677,571 5,699,923 6,105 686
Redeemed (5,340,336) (15,914,561) (3,021,279) (7,447,448) (2,951,894) (210,724)
----------------------------------------------------------------------------------------------
Net increase $ 17,217,460 $ 24,978,214 $ 8,118,253 $ 19,614,828 $ 267,585 $ 6,044,578
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Class II:**
Issued $ 3,603,689 $ 1,882,420 $ 583,858 $ 69,932 $ 1,178,076 $ 1,887,494
Distributions reinvested 321,384 3,869 4,664 656 38,064 10,271
Redeemed (164,754) (21,582) (12,444) (3,000) (130,809) (14,693)
----------------------------------------------------------------------------------------------
Net increase $ 3,760,319 $ 1,864,707 $ 576,078 $ 67,588 $ 1,085,331 $ 1,883,072
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Class III:
Issued $ 3,561,443 $ 16,363,050 $ 57,870 $ 2,342,221 $ 1,601,576 $ 1,442,225
Distributions reinvested 2,247,963 1,661,097 60,327 145,526 21,380 13,621
Redeemed (3,194,675) (4,839,691) (644,387) (868,075) (309,715) (526,292)
----------------------------------------------------------------------------------------------
Net increase $ 2,614,731 $ 13,184,456 $ (526,190) $ 1,619,672 $ 1,313,241 $ 929,554
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Shares issued and redeemed:
Class I:
Issued 845,046 2,523,867 872,731 2,117,107 327,081 631,913
Distributions reinvested 695,594 645,878 273,174 572,716 620 70
Redeemed (366,892) (1,227,208) (307,304) (747,397) (299,723) (21,867)
----------------------------------------------------------------------------------------------
Net increase 1,173,748 1,942,537 838,601 1,942,426 27,978 610,116
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Class II:**
Issued 244,725 137,126 59,347 7,145 119,053 193,243
Distributions reinvested 21,364 279 471 67 3,853 1,056
Redeemed (11,005) (1,547) (1,253) (295) (13,384) (1,503)
----------------------------------------------------------------------------------------------
Net increase 255,084 135,858 58,565 6,917 109,522 192,796
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Class III:
Issued 242,653 1,263,416 5,940 234,519 161,813 144,921
Distributions reinvested 149,428 131,783 6,175 14,645 2,162 1,390
Redeemed (218,625) (363,695) (66,122) (88,078) (31,279) (54,063)
----------------------------------------------------------------------------------------------
Net increase 173,456 1,031,504 (54,007) 161,086 132,696 92,248
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
* For Tennessee Tax-Free Portfolio, Classes I and III commenced operations on
December 15, 1995. Class II commenced operations on December 29, 1995.
** For Growth & Income and Bond Portfolios, Class II commenced operations on
December 20, 1995.
24 ---------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
<TABLE>
U.S. TREASURY U.S. GOVERNMENT
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
---------------------------------------------------------------
Six Months Six Months
Ended Ended
December 31, Year Ended December 31, Year Ended
1996 June 30, 1996 June 30,
(Unaudited) 1996* (Unaudited) 1996*
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares/Dollars issued and redeemed:
Class I:
Issued 233,689,478 319,601,543 72,341,976 173,136,867
Distributions reinvested 882 1,639 1,065 6,070
Redeemed (206,295,554) (311,270,747) (64,460,031) (173,086,183)
---------------------------------------------------------------
Net increase 27,394,806 8,332,435 7,883,010 56,754
---------------------------------------------------------------
---------------------------------------------------------------
Class III:
Issued 3,150,440 8,959,299 2,923,166 990,652
Distributions reinvested 70,714 86,265 14,348 4,420
Redeemed (3,385,354) (5,517,050) (1,922,733) (767,425)
---------------------------------------------------------------
Net increase (164,200) 3,528,514 1,014,781 227,647
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
* For U.S. Treasury Money Market and U.S. Government Money Market Portfolios,
Class III commenced operations on August 8, 1995.
<TABLE>
MUNICIPAL CASH RESERVE
MONEY MARKET PORTFOLIO PORTFOLIO
---------------------------------------------------------------
Six Months Six Months
Ended Ended
December 31, Year Ended December 31, Year Ended
1996 June 30, 1996 June 30,
(Unaudited) 1996** (Unaudited) 1996**
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares/Dollars issued and redeemed:
Class I:
Issued 67,756,953 139,423,634 14,701,349 24,743,027
Distributions reinvested 561 1,090 0 0
Redeemed (58,622,514) (161,838,128) (13,221,664) (23,833,276)
---------------------------------------------------------------
Net increase 9,135,000 (22,413,404) 1,479,685 909,751
---------------------------------------------------------------
---------------------------------------------------------------
Class III:*
Issued 4,306,229 9,353,051 40,232,422 57,866,886
Distributions reinvested 44,688 69,511 629,919 478,625
Redeemed (4,254,716) (6,517,254) (35,936,867) (34,155,256)
---------------------------------------------------------------
Net increase 96,201 2,905,308 4,925,474 24,190,255
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
** For Municipal Money Market and Cash Reserve Portfolios, Class III commenced
operations on July 28, 1995.
3. INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS
For managing its investment and business affairs, Growth & Income Portfolio,
Bond Portfolio and Tennessee Tax-Free Portfolio each pay First Tennessee Bank
National Association ('First Tennessee"), a monthly management fee at the
annual rate of .65%, .55% and .50% respectively, of its average net assets.
For managing its investment and business affairs, each of the Money Market
Portfolios pays First Tennessee 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 First Tennessee through $1
billion, and .22% on amounts greater than $1 billion. Under the Investment
Advisory and Management Agreement, First Tennessee is authorized, at its own
expense, to hire sub-advisers to provide investment advice to it and to each
Portfolio.
For the Growth & Income and Bond 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 Growth &
Income Portfolio's average net assets and .33% of Bond 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.
- --------------------------------------------------------------------------- 25
<PAGE>
- -----------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- -----------------------------------------------------------------------------
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 Growth & Income, Bond and Tennessee Tax-Free
Portfolios, a fee at the annual rate of .15% 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 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 Growth &
Income and Bond 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 of the Money Market Portfolios. The Trustees have also adopted
Shareholder Servicing Plans on behalf of Class II and III of the Growth &
Income and Bond 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
GROWTH & INCOME, BOND AND TENNESSEE TAX-FREE PORTFOLIOS:
For the six months ended December 31, 1996, First Tennessee voluntarily
agreed to waive its management fee for the Growth & Income Portfolio, Bond
Portfolio and Tennessee Tax-Free Portfolio to .50%, .15% and 0% of average
net assets, respectively. Additionally, for the six months ended December 31,
1996, First Tennessee voluntarily agreed to waive its co-administration fee
for the Tennessee Tax-Free Portfolio.
Pursuant to the voluntary waiver agreements , for the six months ended
December 31, 1996, First Tennessee waived management fees and
co-administration fees as follows:
MANAGEMENT CO-ADMINISTRATION
---------- ----------------------
Growth & Income $160,059 $ 0
Bond $237,155 $ 0
Tennessee Tax-Free $ 25,569 $2,557
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.
Effective July 29, 1996, ALPS voluntarily agreed to assume all Portfolio
expenses in order to maintain an expense ratio of 0.00% for all Classes of
the Portfolio. For the six months ended December 31, 1996, ALPS waived fees
totaling $7,671 and reimbursed the Tennessee Tax-Free Portfolio in the amount
of $29,686.
MONEY MARKET PORTFOLIOS:
Effective January 1, 1996, First Tennessee 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 six months ended
December 31, 1996, the expense waivers were as follows:
MANAGEMENT FEE CO-ADMINISTRATION FEE
-------------- ----------------------
U.S. Treasury Money Market $75,398 $12,566
U.S. Government Money Market $70,587 $11,764
Municipal Money Market $61,215 $10,202
Cash Reserve $34,361 $ 5,727
6. OTHER
As of December 31, 1996, one shareholder owned 37.5% of the Growth & Income
Portfolio and 56.9% of the Bond Portfolio. Additionally, as of December 31,
1996, two shareholders owned 35.2% and 10.2% of the U.S. Treasury Money
Market Portfolio.
26 ---------------------------------------------------------------------------
<PAGE>
[LOGO] 370 Seventeenth Street
Suite 2700
Denver, Colorado 80202
INVESTMENT ADVISER AND CO-ADMINISTRATOR
Tennessee Bank National Association
Memphis, Tennessee
SUB-ADVISER - MONEY MARKET PORTFOLIOS
PNC Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER - GROWTH & INCOME AND BOND PORTFOLIOS
Highland Capital Management Corporation
Memphis, Tennessee
OFFICERS
Richard C. Rantzow, President
James Hyatt, Secretary
Mark Pougnet, Treasurer
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, Colorado
TRANSFER AND SHAREHOLDER SERVICING AGENT
Chase Global Funds Services Company
Boston, Massachusetts
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, New York
NOT FDIC INSURED [LOGO] [LOGO]
Investment Advisor SPONSOR AND DISTRIBUTOR
