<PAGE>
December 31, 1998
SEMI-ANNUAL REPORT TO SHAREHOLDERS
OF
FIRST
FUNDS
[PHOTO]
[LOGO]
FIRST
TENNESSEE
Investment Adviser
<PAGE>
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LETTER FROM THE PRESIDENT
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Dear Shareholder:
This Year's Semi-Annual Report will take you back for review of the past
six months in the financial markets. It was a unique time period for our
country with the impeachment proceedings of President Clinton and the
military strikes aimed at Iraq. These political events, in addition to
domestic and global economic events, impact the individual investments that
are held in our mutual fund portfolios.
To learn about the performance, the markets and the current strategy and
outlook as we move closer to the end of the 20th Century, we encourage you to
read the Portfolio Manager commentaries. We also welcome you to gain insight
throughout the year by listening to our Portfolio Manager updates at
1-800-442-1941, option #3.
This report also includes illustrations to show the historical effect of
hypothetical investments into the First Funds Portfolios. The next section
includes all of the investments at the end of 1998 for each individual
Portfolio. The investment listing gives you the opportunity to understand
how our mutual funds are structured and to see how the Portfolios were
invested at the end of 1998. Following the investment listings are the
financial statements and accompanying notes.
As we move closer to the 21st Century, First Funds maintains
"Discipline, Consistency, Patience" as a commitment to you, the investor. It
is our investment approach that we believe will help guide us as we select
investments for the Portfolios in which you invest.
Thank you for allowing First Funds to help you reach your financial
goals and always feel free to suggest how we can better serve you by calling
us at 1-800-442-1941, option #1 or by visiting our web site at
www.firstfunds.com.
Sincerely,
/s/ Richard C. Rantzow
Richard C. Rantzow
President
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FIRST FUNDS
- - Are NOT insured by the FDIC 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.
- --------------------------------------------------------------------------------
i
<PAGE>
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FIRST FUNDS GROWTH & INCOME PORTFOLIO
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[PHOTO]
GROWTH & INCOME PORTFOLIO MANAGERS
EDWARD GOLDSTEIN AND DAVID THOMPSON, CFA
Mr. Goldstein is President of Highland Capital Management Corp., sub-adviser to
the Portfolio. A 1971 graduate of Boston University, he went on to receive his
MBA from Columbia University in 1976. Joining Goldman, Sachs & Co. in New York
in 1976, he became a vice president in the international department with
responsibility for Japan, the Middle East and Latin America. Mr. Goldstein
joined Highland Capital in 1989, and has been portfolio manager for the
Portfolio since July 1994.
Mr. Thompson is Senior Vice President with Highland Capital Management Corp. and
a Chartered Financial Analyst. After graduating from the University of
Mississippi in 1981, he worked as an analyst for Gulf Oil for three years, then
went on to receive his MBA from the University of North Carolina at Chapel Hill
in 1986. With ten years of experience managing both individual and
institutional investment portfolios at major regional banks, Mr. Thompson joined
Highland Capital's equity team in 1995.
SIX MONTHS IN REVIEW
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PERFORMANCE
For the six months ended December 31, 1998, the First Funds Growth & Income
Portfolio, Class I, II and III, returned 9.34%, 2.88%, and 7.76% respectively,
net of fees and sales charges, versus 9.23% for the S&P 500.
MARKET REVIEW
The second half of 1998 provided more than a little excitement for equity
investors. The market rose to new highs by mid-July and then experienced a
severe reversal where the major averages lost most of their gains for the year.
By the end of August, the average NYSE stock had fallen 37% from its 1998 high,
while the average Over-the-Counter stock had declined over 48%. As the third
quarter ended, the S&P 500 had declined 9.9%, its worst quarter since the second
quarter of 1990. There were plenty of areas of concern for the market during
that time. Fears ranged from hedge fund meltdowns, to earnings disappointments,
to the continuing spread of the "Asian Contagion" to Latin
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
GROWTH & INCOME PORTFOLIO (CLASS I) AND THE S&P 500.
[GRAPH]
PLEASE NOTE: CLASS I INCEPTION IS AUGUST 2, 1993. MINIMUM INVESTMENT FOR
CLASS I IS $100,000. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
ii
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
GROWTH & INCOME PORTFOLIO (CLASS II) AND THE S&P 500.
[GRAPH]
PLEASE NOTE: CLASS II INCEPTION IS DECEMBER 20, 1995. CLASS II IS SUBJECT TO A
MAXIMUM INITIAL FRONT-END SALES LOAD OF 5.75% AND $9,425 IS THE NET INITIAL
INVESTMENT AFTER THE SALES LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE
OF FUTURE RESULTS.*
America and to the meltdown of the Russian economy. The confluence of these
events proved to be more than the market could handle given the lofty valuations
of many indices.
The fourth quarter of 1998 proved to be as good as the third quarter was bad.
The market roared back with a gain of 21.4% in the quarter as measured by the
S&P 500. The market again exhibited great volatility while testing the markets
lows in early October. The catalyst for the move in the market was the shift in
monetary policy by the Federal Reserve from a "tightening" bias to an "easing"
bias. The Fed lowered short-term interest rates three times and provided the
liquidity needed to move the market forward. The market continued to be
dominated in terms of performance by the blue chip names. For 1998, just
fifteen stocks accounted for 50% of the S&P 500 return for the year. This
narrowness of the market is a reason for concern.
PORTFOLIO UPDATE
The Portfolio continues to be overweighted in the communication services,
financial, and health care sectors. The communication services and health care
sectors were especially beneficial to performance in 1998. We continue to be
under weighted in areas of the market that are sensitive to the economy such as
capital goods, basic industries, and transportation. Some of the better
performing stocks in the Portfolio for 1998 were EMC (up 209%), MCI Worldcom (up
137%), and Schering Plough (up 79%).
[CHART]
Growth & Income Portfolio
Asset Type Profile as of December 31, 1998
<TABLE>
<S> <C>
BASIC MATERIALS 1.8%
CAPITAL GOODS 3.0%
COMMUNICATION SERVICES 14.5%
CONSUMER CYCLICALS 7.3%
CONSUMER STAPLES 10.6%
ENERGY 8.9%
FINANCE & INSURANCE 20.0%
HEALTH CARE 16.6%
TECHNOLOGY 13.8%
SHORT-TERM INVESTMENTS 3.5%
</TABLE>
CURRENT STRATEGY AND OUTLOOK
Our strategy has not changed markedly over the last year. We continue to feel
that earnings will be the dominant driver of stock prices in 1999. While
corporate earnings have been very strong over the past few years, we expect 1999
to see a slowdown in earnings growth and only forecast the S&P 500 earnings to
iii
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
GROWTH & INCOME PORTFOLIO (CLASS III) AND THE S&P 500.
[GRAPH]
PLEASE NOTE: CLASS III INCEPTION IS DECEMBER 9, 1993. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
increase by 2 - 3% in 1999. As such, we continue to focus on names that we
believe will grow earnings well in excess of that rate, yet also sell at
reasonable valuations to the rest of the market. Therefore we continue to favor
financial, telecommunication, and health care stocks. The valuation on the
health care group is certainly not inexpensive but the companies continue to
post solid earnings growth.
The market continues to exhibit volatility and we expect this to continue
throughout 1999. While the market has now posted four straight years of 20%
plus returns, we expect that the continuation of this trend will be difficult.
Our expectations are that the market may post returns more in line with
historical averages--returns in the high single digits. In both 1997 and 1998
we found it difficult to find new stock ideas that met our criteria for earnings
growth AND valuation. We remain diligent in searching for stocks that meet our
high standards. And, we feel that our persistence in only buying stocks that
meet our criteria, helps to minimize the risk of owning stocks in a market that
is expensively valued by many measures.
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I 207.66% 22.76% 23.55% 23.01%
CLASS II 187.53% 15.32% 21.78% 21.48%
CLASS III* 190.31% 20.49% 22.04% 21.70%
S&P 500 208.76% 28.34% 24.02% 23.14%
</TABLE>
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1998 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 SHARES 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. QUOTATION OF CLASS III PERFORMANCE
REFLECTS A 1% DEFERRED SALES LOAD APPLIED TO REDEMPTIONS MADE DURING THE FIRST
YEAR AFTER PURCHASE. WITHOUT THIS LOAD, THE FIGURES QUOTED WOULD HAVE BEEN
21.49% FOR 1 YEAR. 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.
iv
<PAGE>
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FIRST FUNDS CAPITAL APPRECIATION PORTFOLIO
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[PHOTO]
CAPITAL APPRECIATION PORTFOLIO MANAGER
MARTIN J. CALIHAN, MBA, CFA
Martin J. Calihan is Vice President with Investment Advisers, Inc. (IAI) in
Minneapolis, Minnesota, co-adviser to the Portfolio. Marty received his
bachelor's degree from Amherst College in 1986, and earned his MBA in 1990 from
Dartmouth College where he was a Tuck Scholar. A Chartered Financial Analyst,
Marty's investment career began in 1986 as Research Analyst for Aetna Life &
Casualty. In 1990, he became Equity Research Analyst for State Street Research &
Management Co., then moved to Morgan Stanley in 1991 where he researched and
analyzed emerging growth stocks. Marty joined IAI in 1992, and has served as
Portfolio Manager of the Capital Appreciation Portfolio since its inception in
1997.
SIX MONTHS IN REVIEW
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PERFORMANCE
For the six months ended December 31, 1998, the Capital Appreciation Portfolio
lost 6.26%, 11.82%, and 7.82% for Class I, II, and III shares, respectively.
These returns are net of fees and sales charges and can be compared to a loss of
2.48% for the same time period on the Russell 2500 Growth Index, the Portfolio's
primary benchmark. The Portfolio invests mostly in the stocks of smaller
companies, which have recently performed poorly relative to the stocks of larger
companies as demonstrated by the gain of 9.23% on the S&P 500 Index over the
last six months.
MARKET REVIEW
The last six months have been an excellent illustration of the tug of war
between two investor emotions: fear and greed. Fear dominated late in the
summer as investors had three worries on their minds. First, domestic economic
activity seemed to be slowing and a couple of economists actually predicted a
recession in their 1999 forecasts. This led investors to be concerned about
corporate profit growth and put downward pressure on stocks. Second, foreign
financial turmoil once again reared its ugly head. This time the troubles came
from Russia, which devalued its currency and virtually defaulted on some of its
debt. Third, several Wall Street investment houses bailed out a large and
highly
COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN THE FIRST FUNDS
CAPITAL APPRECIATION PORTFOLIO (CLASS I) AND THE RUSSELL 2500 GROWTH INDEX.
[GRAPH]
PLEASE NOTE: CLASS I INCEPTION IS SEPTEMBER 2, 1997. MINIMUM INVESTMENT FOR
CLASS I IS $100,000. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
v
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
CAPITAL APPRECIATION PORTFOLIO (CLASS II) AND THE RUSSELL 2500 GROWTH INDEX.
[GRAPH]
PLEASE NOTE: CLASS II INCEPTION IS OCTOBER 2, 1997. CLASS II IS SUBJECT TO A
MAXIMUM INITIAL FRONT-END SALES LOAD OF 5.75% AND $9,425 IS THE NET INITIAL
INVESTMENT AFTER THE SALES LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE
OF FUTURE RESULTS.*
leveraged hedge fund. The Federal Reserve Bank assisted in the bailout because
of the potential damage to the financial markets that could have occurred.
Stocks started to slide in July and collapsed in August. Investors fled risky
securities across the globe and in a "flight to liquidity", put their money in
safe U.S. Treasury bonds. Small stocks were down approximately 20% in August
alone, with large stocks faring only slightly better.
Stocks began to rise in September and gained ground through the end of the year.
The catalyst for this turnaround was the Federal Reserve, which lowered short-
term interest rates three times during the fall. The Fed was in effect
signaling that it would not let the domestic economy fall into recession. With
this belief in mind, investors shed their fears of the summer and turned to
greed, pushing the markets to record highs in November. The markets even
shrugged off a House approval of two articles of impeachment against President
Clinton in December.
Throughout this market turmoil and volatility, one theme remained the same. As
has been the case for the last few years, large stocks outperformed small stocks
during the last six months. In this uncertain market environment, the stocks of
the very largest companies have been in greater demand due to their perceived
safety and higher liquidity relative to small stocks.
[CHART]
Capital Appreciation Portfolio
Asset Type Profile as of December 31, 1998
<TABLE>
<S> <C>
BASIC MATERIALS 1.2%
CAPITAL GOODS 7.3%
COMMUNICATION SERVICES 3.8%
CONSUMER CYCLICALS 20.5%
CONSUMER STAPLES 13.4%
ENERGY 2.1%
FINANCIAL 10.4%
HEALTH CARE 17.7%
TECHNOLOGY 23.6%
</TABLE>
PORTFOLIO UPDATE
One of the best performing sectors within the small cap segment of the market
was the health care sector. The Portfolio benefited from its overweight
position in health care relative to its benchmark and from superior stock
selection within the sector. Xomed Surgical Products and Respironics posted
strong gains and were two of the biggest contributors to performance. Apollo
vi
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
CAPITAL APPRECIATION PORTFOLIO (CLASS III) AND THE RUSSELL 2500 GROWTH INDEX.
[GRAPH]
PLEASE NOTE: CLASS III INCEPTION IS OCTOBER 2, 1997. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
Group and Valassis Communications were also strong performers within the
consumer sector. Unfortunately, the Portfolio's holdings in the technology and
capital goods sectors detracted from performance. Artesyn Technologies, PRT
Group, Zebra Technologies, and Advanced Lighting were the main disappointments
in these two areas. We eliminated our positions in PRT Group and Advanced
Lighting while we held on to our positions in Artesyn and Zebra due to our
conviction that their prospects will improve.
Transaction activity was slightly lower than normal as we made a series of small
investment decisions, driven by direct research and common sense. We took
advantage of stock specific inefficiencies to boost the combined weighting of
the top ten holdings to 42% of the Portfolio at the end of December, up from 32%
at the end of June. We believe this greater concentration has improved the
Portfolio.
CURRENT STRATEGY AND OUTLOOK
In these turbulent times, we simply execute our investment discipline. We
continue to invest in high quality growing companies that have sustainable
competitive advantages and we strive to pay attractive prices. In fact, we
believe the Portfolio exhibits the best combination of sustainable growth and
bargain basement prices that we have seen in recent memory.
<TABLE>
<CAPTION>
CAPITAL APPRECIATION PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
SINCE SINCE
INCEPTION 1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS I 0.68% 1.69% 0.68%
CLASS II (10.16)% (4.41)% (8.22)%
CLASS III* (5.73)% (0.52)% (4.61)%
RUSSELL 2500
GROWTH INDEX
CLASS I 1.83% 3.39% 1.37%
CLASS II 1.44% 3.39% 1.23%
CLASS III 1.44% 3.39% 1.23%
</TABLE>
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1998 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. CLASS I
INCEPTION DATE IS SEPTEMBER 2, 1997. THE PORTFOLIO COMMENCED SALES OF CLASS II
SHARES ON OCTOBER 2, 1997. THESE SHARES INCLUDE A HIGHER TRANSFER AGENCY FEE
AND A .25% SHAREHOLDER SERVICES FEE. ON OCTOBER 2, 1997, 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. QUOTATION OF CLASS
III PERFORMANCE REFLECTS A 1% DEFERRED SALES LOAD APPLIED TO REDEMPTIONS MADE
DURING THE FIRST YEAR AFTER PURCHASE. WITHOUT THIS LOAD, THE FIGURES QUOTED
WOULD HAVE BEEN 0.48% FOR 1 YEAR. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
RESULTS.
vii
<PAGE>
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FIRST FUNDS BOND PORTFOLIO
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[PHOTO]
BOND PORTFOLIO MANAGERS
JAMES TURNER AND STEVEN WISHNIA
Mr. Turner, CFA, is Senior Vice President with Highland Capital Management Corp.
A 1959 graduate of the U.S. Military Academy, he received a MS degree from
Stanford University in 1964. Mr. Turner was a vice president in the Trust
Investment Department of FirsTier Bank, N.A. in Omaha, Nebraska from 1979
through 1986. Joining First Tennessee Investment Management in 1986, he was part
of that group's merger with Highland Capital in 1994. He has co-managed the
Portfolio since its inception.
Mr. Wishnia is Chairman of the Board of Highland Capital Management Corp. A 1972
graduate of Pace University, Mr. Wishnia was Treasurer of S.G. Securities, a
closed-end mutual fund in Boston, MA from 1973 to 1975, prior to joining
Highland Investment Corporation, the predecessor firm to Highland Capital. Mr.
Wishnia was a co-founder of Highland Capital in 1987; he has co-managed the
Portfolio since its inception.
SIX MONTHS IN REVIEW
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PERFORMANCE
For the six months ended December 31, 1998, the Class I, II, and III shares of
the First Funds Bond Portfolio, returned 4.51%, 0.45%, and 2.89% respectively,
net of fees and sales charges, versus a return of 5.17% for the Lehman Brothers
Government/Corporate Bond Index.
MARKET REVIEW
The second half of 1998 was a time of considerable volatility in the bond
market. Two events were catalysts. The first occurred in August when Russia
declared a moratorium on the repayment of billions of dollars worth of debt.
While European banks were affected the most, our debt markets were impacted
significantly due to the close interconnections among the major players in the
global financial community. The resulting turmoil led to the insolvency of
several hedge funds and the near bankruptcy of another one. Since these funds
operate primarily on money BORROWED from banks and brokers, this added fuel to
the fire. The result
COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN THE FIRST FUNDS
BOND PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND
INDEX.
[GRAPH]
PLEASE NOTE: CLASS I INCEPTION IS AUGUST 2, 1993. MINIMUM INVESTMENT FOR
CLASS I IS $100,000. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
viii
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
BOND PORTFOLIO (CLASS II) AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND
INDEX.
[GRAPH]
PLEASE NOTE: CLASS II INCEPTION IS DECEMBER 20, 1995. CLASS II IS SUBJECT
TO A MAXIMUM FRONT-END INITIAL SALES LOAD OF 3.75% AND $9,625 IS THE NET
INITIAL INVESTMENT AFTER THE SALES LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
was major illiquidity in our debt markets--except Treasuries which were sought
out as a safe haven. At the peak of the buying in October, 30-year Treasury
yields dipped briefly to 4.69% (they began the period at 5.63%). The Federal
Reserve stepped in with three rate reductions to help restore stability.
Liquidity began slowly returning in November and funds began shifting from
Treasuries back into corporate and mortgage bonds. In the process, yields on
30-year Treasuries drifted upwards to close out the period at 5.09%.
Although Russia and hedge fund problems roiled the markets, bonds continued to
benefit from extremely mild inflation. Wholesale prices declined 0.1% for the
year (down the second consecutive year) and consumer prices were up only 1.6%
(the lowest level in 12 years). Global competition and an oil glut were the key
factors in keeping downward pressure on prices. This added further impetus to
the overall declines in interest rates that occurred.
PORTFOLIO UPDATE
There were no major changes in sector allocations over the last six months of
1998. Weightings of governments, mortgages and cash declined by a combined
total of only 3% of the Portfolio's holdings. The corporate bond position
increased by the same amount to end the year at 65% of the Portfolio.
[CHART]
Bond Portfolio
Asset Type Profile as of December 31, 1998
<TABLE>
<S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS 31.2%
MORTGAGE-BACKED OBLIGATIONS 3.1%
MONEY MARKET MUTUAL FUNDS 0.5%
CORPORATE BONDS 65.2%
</TABLE>
In retrospect, the Portfolio would have benefited from more exposure to
governments due to the financial crises. Governments returned 5.44% for the
period while corporate bond performance lagged with 4.25%. Fortunately,
mortgages accounted for only a small weighting in the Portfolio--they under-
performed the market with a return of 3.46%. However, mortgages were affected
by declining interest rates rather than global events. Because of rate
declines, homeowners found it attractive to refinance their mortgages.
Consequently, investors avoided buying mortgage bonds because of concern that
refinancings would cause their investments to be redeemed early.
ix
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
BOND PORTFOLIO (CLASS III) AND THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND
INDEX.
[GRAPH]
PLEASE NOTE: CLASS III INCEPTION IS DECEMBER 2, 1993. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
The structure of the Portfolio remained nearly unchanged for the period. The
average maturity increased modestly from 8.6 to 8.7 years. Duration was
unchanged at 5.6 years while the average quality moved down slightly from AA to
A+.
CURRENT STRATEGY AND OUTLOOK
As the new year starts, two factors probably hold the key to bond performance.
The first is inflation, which should be a positive influence. This stems from
an oil glut that persists plus economic weakness in Asia and South America.
Even Europe is starting to slow down and more interest rate cuts are expected
there. The second is currency-related and is very difficult to judge. As long
as our economy remains strong compared to other countries, the dollar should
fare well against the major competing currencies in Europe and Japan. This
should also attract funds into dollar-denominated assets and be good for bonds.
But currency markets tend to be very unpredictable, so only time will tell.
Meanwhile, the Portfolio reflects a moderately positive bias regarding the
outlook for interest rates. The intent is to be fully invested with a primary
emphasis on corporate bonds. As a result of the financial upheaval last fall,
they appear to constitute the best values versus governments and offer
substantially better yields. Corporates also are benefiting from continuing
improvement in liquidity. This should bode well for future performance in this
sector.
<TABLE>
<CAPTION>
BOND PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
SINCE SINCE
INCEPTION 1 YEAR 5 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS I 43.55% 9.00% 7.01% 6.89%
CLASS II 36.42% 4.47% 5.93% 5.89%
CLASS III* 34.62% 6.71% 5.66% 5.63%
LEHMAN BROS. 45.63% 9.49% 7.31% 7.19%
GOV'T/CORP.
BOND INDEX
</TABLE>
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1998 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 EFFECTS OF THESE FEES, WHICH, IF INCLUDED, WOULD
LOWER CLASS III PERFORMANCE. QUOTATION OF CLASS III PERFORMANCE REFLECTS A 1%
DEFERRED SALES LOAD APPLIED TO REDEMPTIONS MADE DURING THE FIRST YEAR AFTER
PURCHASE. WITHOUT THIS LOAD, THE FIGURES QUOTED WOULD HAVE BEEN 7.71% FOR 1
YEAR. THE 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 FEES WHICH, IF INCLUDED, WOULD LOWER CLASS II
PERFORMANCE. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
x
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS INTERMEDIATE BOND PORTFOLIO
- --------------------------------------------------------------------------------
[PHOTO]
INTERMEDIATE BOND PORTFOLIO MANAGERS
RALPH W. HERBERT AND TED L. FLICKINGER, JR.
Mr. Herbert, Vice President and Portfolio Manager for Martin & Company, is a
graduate of the University of Tennessee. In 1979, he began his career with
First American Bank and in 1987 he joined Culver Securities as a municipal debt
underwriter. Mr. Herbert became Portfolio Manager for Valley Fidelity Bank in
1989 and three years later the bank merged with First Tennessee Bank. In 1998,
Mr. Herbert joined Martin & Company as that firm became a subsidiary of First
Tennessee National Corporation and has co-managed the Intermediate Bond
Portfolio since its inception this year.
Mr. Flickinger, CFA, is Senior Vice President and Portfolio Manager for Martin &
Company. Prior to joining the firm in 1990, he was Assistant Manager of the
investment department of Home Federal Bank of Tennessee for six years. His 21-
year career includes management positions in the investment departments of The
Park National Bank and Fidelity Federal Savings and Loan of Knoxville. Mr.
Flickinger has co-managed the Intermediate Bond Portfolio since its inception.
SIX MONTHS IN REVIEW
- --------------------------------------------------------------------------------
PERFORMANCE
For the six months ended December 31, 1998, the Class I, II, and III shares of
the Intermediate Bond Portfolio returned 4.27%, 1.50%, and 2.78% respectively,
net of fees and sales charges, versus the Lehman Brothers Government/Corporate
Intermediate Bond Index return of 4.83% over the same period.
MARKET REVIEW
The bond market was influenced by the Federal Reserve's decisions to lower
interest rates on three separate occasions during the third and fourth quarters
of 1998. Agency and corporate bond markets recovered during the fourth quarter,
while Treasuries performed poorly as the aberration brought about by the "flight
to quality" during the third quarter dissipated. Interest rates fell around the
world and it remains to be seen whether these rate cuts will keep those
countries out of recession or depression.
COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN THE FIRST FUNDS
INTERMEDIATE BOND PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX.
[GRAPH]
PLEASE NOTE: CLASS I INCEPTION IS MARCH 2, 1998. MINIMUM INVESTMENT FOR
CLASS I IS $100,000. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
xi
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
INTERMEDIATE BOND PORTFOLIO (CLASS II) AND THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX.
[GRAPH]
PLEASE NOTE: CLASS II INCEPTION IS MARCH 9, 1998. CLASS II IS SUBJECT TO A
MAXIMUM INITIAL FRONT-END SALES LOAD OF 2.50% AND $9,750 IS THE NET INITIAL
INVESTMENT AFTER THE SALES LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE
OF FUTURE RESULTS.*
The U.S. economy steamed ahead with low inflation. The Consumer Price Index is
on target to come in at just over 1.5% for the year. The decline of nearly 60%
in oil prices over the past two years has certainly facilitated the current low
inflationary environment. Labor costs are perhaps one of the only components
that seems to be rising--about 3% since 1997. If oil prices rise and employment
cost continue to escalate, inflation may rise to over 2% in 1999.
The continued low unemployment rate remains positive for the economy. Demand
for people continues to increase in America's fastest growing service sector
while manufacturing production jobs have been steadily decreasing. Technology
is limiting the need for so many people in large businesses. This can only be
good for corporate balance sheets as they strive to provide new value-added
products.
There are several positives for the bond market. U.S. Government budget surplus
estimates as high as $120 billion bode well for maintaining lower interest
rates. The Fed remains in a tight posture and has room to move interest rates
lower if they continue to see the problems that arose in the third quarter begin
to affect the U.S. economy. With lower interest rates, corporate issues will
continue to seek the inexpensive capital from the debt markets. Even with the
spread contraction in corporate and agency issuers during the fourth quarter,
the supply should continue to keep these spreads at attractive levels.
[CHART]
Intermediate Bond Portfolio
Asset Type Profile as of December 31, 1998
<TABLE>
<S> <C>
CORPORATE BONDS 50.3%
U.S. GOVERNMENT & AGENCY OBLIGATIONS 46.6%
MORTGAGE-BACKED OBLIGATIONS 1.6%
MONEY MARKET MUTUAL FUNDS 1.5%
</TABLE>
PORTFOLIO UPDATE
As real returns on fixed income securities declined during the third quarter, we
reduced interest rate risk by shortening the Portfolio's duration in August and
again in September from 3.15 years to 2.85 years. Higher spreads on agency and
corporate issues made these sectors more attractive relative to Treasuries, and
the Portfolio was over-weighted in these sectors. Purchases were concentrated
in the 5- to 10-year sector. Treasuries to agency swaps were used to shorten the
Portfolio
xii
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
INTERMEDIATE BOND PORTFOLIO (CLASS III) AND THE LEHMAN BROTHERS
GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX.
[GRAPH]
PLEASE NOTE: CLASS III INCEPTION IS MAY 19, 1998. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
without reducing the yield. We ended the fourth quarter with a targeted
duration of 85% of the Lehman Bros. Intermediate Gov't/Corp. Bond Index. We
remain over-weighted in agencies and investment grade corporate bonds, which
currently offer spreads of plus .30% to 1.00 % to the corresponding Treasury.
CURRENT STRATEGY AND OUTLOOK
In early January we increased our duration to 90% of the Index's duration in
order to capture good value on the longer-end of the intermediate yield curve.
This shift allows us to take almost full advantage of yield without having to go
out to the long end. The curve remains nearly flat on maturities out to ten
years. The 2-year Treasury yields 4.53% and the 10-year Treasury yields 4.65%.
We do not believe the risk one assumes on the longer-end (10+ years) of the
yield curve justifies the potential reward. The 30-Treasury yields slightly
over 5.1%, offering too much risk (price volatility) for only a .45% increase in
yield. Slight changes in yield can dramatically impact the price of long bonds.
For example, at the end of the third quarter, the 30-year yielded 4.97%. At the
end of the fourth quarter, the 30-year yielded 5.09%. With only an increase of
.12% in yield, the total return of the long bond for the fourth quarter was
- -1.33%. By staying in the intermediate sector of the yield curve, we are able
to get most of the yield with less risk than the longer-term bond funds.
<TABLE>
<CAPTION>
INTERMEDIATE BOND PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
SINCE SINCE
INCEPTION 1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS I 6.53% N/A N/A
CLASS II 3.59% N/A N/A
CLASS III* 3.73% N/A N/A
LEHMAN BROS.
GOV'T/CORP.
INTERMEDIATE
BOND INDEX
CLASS I 7.14% N/A N/A
CLASS II 7.14% N/A N/A
CLASS III 6.27% N/A N/A
</TABLE>
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1998 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. CLASS I
INCEPTION DATE IS MARCH 2, 1998. THE PORTFOLIO COMMENCED SALES OF CLASS II
SHARES ON MARCH 9, 1998. THESE SHARES INCLUDE A HIGHER TRANSFER AGENCY FEE AND
A .25% SHAREHOLDER SERVICES FEE. ON MAY 19, 1998, 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. QUOTATION OF CLASS III
PERFORMANCE REFLECTS A 1% DEFERRED SALES LOAD APPLIED TO REDEMPTIONS MADE DURING
THE FIRST YEAR AFTER PURCHASE. WITHOUT THIS LOAD, THE FIGURES QUOTED WOULD HAVE
BEEN N/A FOR 1 YEAR. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
xiii
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS TENNESSEE TAX-FREE PORTFOLIO
- --------------------------------------------------------------------------------
[PHOTO]
TENNESSEE TAX-FREE PORTFOLIO MANAGERS
RALPH W. HERBERT AND TED L. FLICKINGER, JR.
Mr. Herbert, Vice President and Portfolio Manager for Martin & Company, is a
graduate of the University of Tennessee. In 1979, he began his career with
First American Bank and in 1987 he joined Culver Securities as a municipal debt
underwriter. Mr. Herbert became Portfolio Manager for Valley Fidelity Bank in
1989 and three years later the bank merged with First Tennessee Bank. In 1998,
Mr. Herbert joined Martin & Company as that firm became a subsidiary of First
Tennessee National Corporation and has managed/co-managed the Tennessee Tax-Free
Portfolio since its inception.
Mr. Flickinger, CFA, is Senior Vice President and Portfolio Manager for Martin &
Company. Prior to joining the firm in 1990, he was Assistant Manager of the
investment department of Home Federal Bank of Tennessee for six years. His
21-year career includes management positions in the investment departments of
The Park National Bank and Fidelity Federal Savings and Loan of Knoxville. Mr.
Flickinger has co-managed the Tennessee Tax-Free Portfolio since March, 1998.
SIX MONTHS IN REVIEW
- --------------------------------------------------------------------------------
PERFORMANCE
For the six months ended December 31, 1998, the Class I, II, and III shares of
the Tennessee Tax-Free Portfolio returned 3.37%, 0.61%, and 2.20%, respectively,
net of fees and sales charges, versus a return of 4.09% for the Lehman Brothers
10-Year Municipal Bond Index.
MARKET REVIEW
The bond market was primarily influenced in the third and fourth quarters of
1998 by the Federal Reserve's decision to lower interest rates on three separate
occasions. Interest rates fell around the world. In fact, 36 central banks
across the globe cut their rates a total of 71 times during the fourth quarter
through December 17th. Many forecasters believe that further rate cuts are
possible in the latter half of 1999.
The Consumer Price Index is on target to come in at just over 1.5% for the year.
The decline of nearly 60% in oil prices over the past two years has certainly
COMPARISON OF CHANGE IN VALUE OF A $100,000 INVESTMENT IN THE FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS I) AND THE LEHMAN BROTHERS 10-YEAR MUNICIPAL
BOND INDEX.
[GRAPH]
PLEASE NOTE: CLASS I INCEPTION IS DECEMBER 15, 1995. MINIMUM INVESTMENT FOR
CLASS I IS $100,000. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.*
xiv
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS II) AND THE LEHMAN BROTHERS 10-YEAR
MUNICIPAL BOND INDEX.
[GRAPH]
PLEASE NOTE: CLASS II INCEPTION IS DECEMBER 29, 1995. CLASS II IS SUBJECT TO A
MAXIMUM FRONT-END INITIAL SALES LOAD OF 2.50% AND $9,750 IS THE NET INITIAL
INVESTMENT AFTER THE SALES LOAD IS DEDUCTED. PAST PERFORMANCE IS NOT PREDICTIVE
OF FUTURE RESULTS.*
facilitated the current low inflationary environment. Labor costs are perhaps
one of the only components that seem to be rising--about 3% since 1997. If oil
prices rise and employment costs continue to escalate, inflation may rise to
over 2% in 1999.
Unemployment remained at the historically low level of 4.4% which is one of the
lowest rates in three decades. Manufacturing jobs is the one area where
employment is falling. Most of these job loses occurred in the nondurable
industries.
Economic, political and social problems in other parts of the world continued to
influence the U.S. economy. While there have been numerous scares that resulted
from fears of economic instability in Brazil, China, Latin America, and the
Asian markets, the markets seem to only take breathers from the ascent into
record territory.
The U.S. government appears to be on track to deliver a budget surplus that may
surprise even the most optimistic forecaster. Analysts have been busy raising
their projections for the 1999 surplus, a figure that is now estimated as high
as $120 billion.
The market for municipal bonds showed strong resilience as investors sought a
sound place to invest their capital. Municipal bond yields fell on average .30%
during the last half of 1998 and were yielding as much as 95% of the Treasury's
yield at the end of the third quarter. Some longer, lower-quality bonds actually
had higher yields than did Treasuries. This represented an attractive investment
alternative to the lower yields on the average fixed income security when
adjusted for tax-benefit.
[CHART]
Tennessee Tax-Free Portfolio
Asset Type Profile as of December 31, 1998
<TABLE>
<S> <C>
TENNESSEE REVENUE BONDS 48.3%
OTHER STATE GENERAL OBLIGATION BONDS 3.5%
OTHER STATE REVENUE BONDS 2.5%
MONEY MARKET MUTUAL FUNDS 0.2%
TENNESSEE GENERAL OBLIGATION BONDS 45.5%
</TABLE>
PORTFOLIO UPDATE
During the 3rd and 4th quarters we bought bonds with maturities in 2004 to 2009.
We were fortunate to have only a miniscule amount of bonds "called" given the
xv
<PAGE>
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE FIRST FUNDS
TENNESSEE TAX-FREE PORTFOLIO (CLASS III) AND THE LEHMAN BROTHERS 10-YEAR
MUNICIPAL BOND INDEX.
[GRAPH]
PLEASE NOTE: CLASS III INCEPTION IS DECEMBER 15, 1995. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.*
amount of bonds being refunded. The Portfolio shortened slightly over the
period.
Due to the recent scrutiny of municipal bond insurers by the rating agencies,
more bonds are being issued without insurance. In some ways this is good for
the investors of the Portfolio. We are now able to buy more bonds with higher
yields at superb credit qualities without paying the price of insurance. The
investor benefits from the higher yield that would otherwise be given to the
insurer in return for such insurance. We have and will continue to buy only
bonds with high credit ratings.
CURRENT STRATEGY AND OUTLOOK
We maintained our targeted duration from the beginning of the 3rd quarter until
the end of the year. At the beginning of the year we increased our duration in
order to take advantage of good relative valuation on the longer-end of the
curve. This shift will allow us to take nearly full advantage of yield from the
yield curve without having to go to the long end of the curve. Municipal bonds
still offer investors yields that are 90-95% of those of comparable Treasuries.
On an after-tax basis, we feel that municipals continue to offer compelling
value.
<TABLE>
<CAPTION>
TENNESSEE TAX-FREE PORTFOLIO
Cumulative Average Annual
Total Return* Total Return*
SINCE SINCE
INCEPTION 1 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS I 20.26% 6.11% 6.24%
CLASS II 17.16% 3.35% 5.33%
CLASS III* 19.41% 4.80% 5.99%
LEHMAN BROS. 22.66% 6.76% 6.85%
10-YEAR
MUNICIPAL
BOND INDEX
</TABLE>
*TOTAL RETURNS ARE FOR THE PERIOD ENDED DECEMBER 31, 1998 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. CLASS I
INCEPTION DATE IS DECEMBER 15, 1995. ON DECEMBER 15, 1995, THE PORTFOLIO ALSO
COMMENCED SALES OF CLASS III SHARES, WHICH INCLUDE A HIGHER TRANSFER AGENCY FEE
AND A .50% DISTRIBUTION FEE. ON DECEMBER 29, 1995, THE PORTFOLIO COMMENCED
SALES OF CLASS II SHARES, WHICH INCLUDE A HIGHER TRANSFER AGENCY FEE. QUOTATION
OF CLASS III PERFORMANCE REFLECTS A 1% DEFERRED SALES LOAD APPLIED TO
REDEMPTIONS MADE DURING THE FIRST YEAR AFTER PURCHASE. WITHOUT THIS LOAD, THE
FIGURES QUOTED WOULD HAVE BEEN 5.80% FOR 1 YEAR. PAST PERFORMANCE IS NOT
PREDICTIVE OF FUTURE RESULTS.
xvi
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
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 Growth & Income, Bond, Intermediate Bond, Tennessee Tax-Free, and
all the Money Market Portfolios pay dividends monthly. The Capital Appreciation
Portfolio pays dividends annually.
NET ASSET VALUE (NAV)
Total 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 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.
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/or interest of the issuer. Examples of such
companies would be MBIA (Municipal Bond Investors Assurance Corporation), or
AMBAC (American Municipal Bond Assurance Corporation).
GENERAL OBLIGATION BONDS
General Obligation Bonds (GOs) are debt 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.
<TABLE>
<CAPTION>
MOODY'S INVESTORS STANDARD & POOR'S CORP.
SERVICES, INC. (PLUS (+) OR MINUS (-))
----------------- -----------------------
<S> <C> <C>
Prime Aaa AAA
Excellent Aa AA
Good A A
Average Baa BBB
Fair Ba BB
Poor B B
Marginal Caa C
</TABLE>
xvii
<PAGE>
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 annual basis or a cumulative basis (total change over a given period).
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. This index includes only investment-grade bonds with maturities over one
year.
LEHMAN BROTHERS GOVERNMENT/CORPORATE INTERMEDIATE BOND INDEX, an unmanaged
index, is a broad measure of bond performance, and includes reinvestment of
dividends and capital gains. This index includes only investment-grade bonds
with maturities of up to ten years.
LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX, an unmanaged index, is a broad
measure of shorter-term municipal bond performance and includes reinvestment of
dividends and capital gains.
RUSSELL 2500 INDEX, an unmanaged index, measures performance of the 2,500
smallest companies in the Russell 3000 Index which represents approximately 23%
of the total market capitalization of the Russell 3000. As of the latest
reconstitution, the average market capitalization was approximately $659
million; the median market capitalization was approximately $438 million. The
largest company in the index had an approximate market capitalization of $2.6
billion.
The Russell 2500 Index is broken down further into a growth component and a
value component. The Capital Appreciation Portfolio uses the Russell 2500 Growth
Index as a benchmark.
The RUSSELL 2500 GROWTH INDEX measures the performance of those Russell 2500
companies with higher price-to-book ratios and higher forecasted growth values.
xviii
<PAGE>
GROWTH & INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ -------
<S> <C> <C>
COMMON STOCKS - 96.5%
BASIC MATERIALS - 1.8%
Morton International, Inc. 606,500 $ 14,859,250
------------
CAPITAL GOODS - 3.0%
General Electric Co. 252,900 25,811,606
------------
COMMUNICATION SERVICES - 14.5%
Airtouch Communications, Inc.* 569,250 41,057,156
GTE Corp. 419,375 27,259,375
MCI WorldCom, Inc.* 407,429 29,233,031
Sprint Corp. 291,700 24,539,263
------------
TOTAL COMMUNICATION SERVICES 122,088,825
CONSUMER CYCLICALS - 7.3%
Federated Department Stores, Inc.* 563,700 24,556,181
Interpublic Group of Companies, Inc. 462,700 36,900,325
------------
TOTAL CONSUMER CYCLICALS 61,456,506
------------
CONSUMER STAPLES - 10.6%
Belo (A.H.) Corp., Class A 973,600 19,411,150
Pepsico, Inc. 552,300 22,609,781
Sara Lee Corp. 604,800 17,047,800
Sysco Corp. 1,097,400 30,109,913
------------
TOTAL CONSUMER STAPLES 89,178,644
------------
ENERGY - 8.9%
Coastal Corp. 652,050 22,780,997
Repsol S.A. ADR 176,117 9,620,391
Texaco, Inc. 435,100 23,005,913
YPF S.A. ADR 704,650 19,686,159
------------
TOTAL ENERGY 75,093,460
------------
FINANCE & INSURANCE - 20.0%
American International Group, Inc. 261,495 25,266,954
BankBoston Corp. 638,000 24,842,125
Chase Manhattan Corp. 478,050 32,537,278
Fannie Mae 408,800 30,251,200
SunAmerica 10,210 828,286
Wells Fargo & Co.* 899,200 35,911,800
UNUM Insurance Corp. 340,700 19,888,363
------------
TOTAL FINANCE & INSURANCE 169,526,006
------------
HEALTH CARE - 16.6%
Abbott Laboratories 540,800 26,499,200
Elan Corp., plc ADR* 470,825 32,751,764
Medtronic, Inc. 351,975 26,134,144
Merck & Co., Inc. 190,100 28,075,394
Schering-Plough Corp. 481,200 26,586,300
------------
TOTAL HEALTH CARE 140,046,802
------------
TECHNOLOGY - 13.8%
Electronic Data Systems Corp. 631,900 31,752,975
EMC Corp.* 519,700 44,174,500
Grainger (W. W.), Inc. 453,260 18,866,948
Motorola, Inc. 357,750 21,845,109
------------
TOTAL TECHNOLOGY 116,639,532
------------
TOTAL COMMON STOCKS
(Cost $499,483,414) $814,700,631
------------
SHORT-TERM INVESTMENTS - 3.5%
MONEY MARKET MUTUAL FUNDS - 3.5%
Vista Cash Money Market Fund 14,773,765 14,773,765
Vista Prime Money Market Fund 14,773,765 14,773,765
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $29,547,531) 29,547,530
------------
TOTAL INVESTMENTS - 100%
(Cost $529,030,945) $844,248,161
------------
------------
*Non-income producing security
ADR - American Depository Receipt
INCOME TAX INFORMATION:
At December 31, 1998, the net unrealized appreciation based on cost for income tax
purposes of $528,983,399 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $319,038,126
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (3,868,456)
------------
Net unrealized appreciation $315,169,670
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for
the six months ended December 31, 1998 aggregated $80,891,230 and
$86,457,974, respectively.
The accompanying notes are an integral part of the financial statements
1
<PAGE>
CAPITAL APPRECIATION PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Value
Shares (Note 1)
------ --------
<S> <C> <C>
COMMON STOCKS - 100.0%
BASIC MATERIALS - 1.2%
Flanders Corp.* 75,900 $ 303,600
Minerals Technologies, Inc. 2,600 106,438
------------
TOTAL BASIC MATERIALS 410,038
------------
CAPITAL GOODS - 7.3%
Aptar Group, Inc. 11,200 314,300
JLK Direct Distribution, Inc., Class A* 35,900 365,731
MSC Industrial Direct Co., Inc., Class A* 22,500 509,063
Quanta Services, Inc.* 11,300 249,306
Superior Services, Inc.* 10,000 198,750
Zebra Technologies Corp., Class A* 31,800 914,250
------------
TOTAL CAPITAL GOODS 2,551,400
------------
COMMUNICATION SERVICES - 3.8%
Centennial Cellular Corp., Class A 5,900 241,900
Clear Channel Communications, Inc.* 13,400 730,300
Sinclair Broadcast Group, Inc.* 18,900 369,731
------------
TOTAL COMMUNICATION SERVICES 1,341,931
------------
CONSUMER CYCLICALS - 20.5%
Aftermarket Technology Corp.* 57,500 452,813
Catalina Marketing Corp.* 20,100 1,374,338
Coach USA, Inc.* 34,300 1,189,781
Lithia Motors, Inc., Class A* 9,200 149,500
Nielsen Media Research* 93,766 1,687,788
Right Management Consultants, Inc.* 37,700 541,937
Scientific Games Holding Corp.* 30,000 566,250
Service Experts, Inc.* 30,500 892,125
Watsco, Inc. 18,500 309,875
------------
TOTAL CONSUMER CYCLICALS 7,164,407
------------
CONSUMER STAPLES - 13.4%
Apollo Group, Inc., Class A* 57,900 1,957,744
Barnett, Inc.* 24,500 330,750
Strayer Education, Inc. 26,700 937,837
Valassis Communications, Inc.* 28,000 1,445,500
------------
TOTAL CONSUMER STAPLES 4,671,831
------------
ENERGY - 2.1%
Noble Affiliates, Inc.* 10,400 256,100
Nuevo Energy Co.* 7,300 83,950
Petroleum Geo-Services ASA-ADR* 26,400 415,800
------------
TOTAL ENERGY 755,850
------------
FINANCIAL - 10.4%
Amerin Corp.* 26,900 652,325
Billing Concepts Corp.* 26,100 287,100
CMAC Investment Corp. 27,100 1,244,906
Enhance Financial Services Group, Inc. 19,400 582,000
Federated Investors, Inc., Class B 24,900 451,312
HomeGold Financial, Inc.* 20,100 10,050
MBIA, Inc. 2,607 170,921
UniCapital Corp.* 31,800 234,525
------------
TOTAL FINANCIAL 3,633,139
------------
HEALTH CARE- 17.7%
Cardinal Health, Inc. 9,832 746,003
First Commonwealth, Inc.* 17,300 225,981
IMPATH, Inc.* 4,100 108,394
Mentor Corp. 53,000 1,238,875
Patterson Dental Co.* 13,900 602,913
Perclose, Inc.* 9,700 320,100
Respironics, Inc.* 81,500 1,630,000
Xomed Surgical Products, Inc.* 40,800 1,303,050
------------
TOTAL HEALTH CARE 6,175,316
------------
TECHNOLOGY - 23.6%
American Management Systems, Inc.* 41,600 1,664,000
Artesyn Technologies, Inc.* 90,694 1,269,716
The BISYS Group, Inc.* 13,900 715,850
Black Box Corp.* 37,200 1,392,675
CCC Information Services Group, Inc.* 75,500 1,283,500
INSpire Insurance Solutions,Inc.* 7,100 129,575
International Telecommunication Data
Systems, Inc.* 7,700 111,169
Mastech Corp.* 30,700 867,275
PPT Vision, Inc.* 20,000 100,000
Tollgrade Communications,Inc.* 15,400 300,300
UBICS, Inc.* 36,300 190,575
Ziff-Davis, Inc.* 14,100 222,956
------------
TOTAL TECHNOLOGY 8,247,591
------------
TOTAL COMMON STOCKS
(Cost $33,376,743) 34,951,503
------------
TOTAL INVESTMENTS - 100%
(Cost $33,376,743) $ 34,951,503
------------
------------
*Non-income producing security
ADR - American Depository Receipt
INCOME TAX INFORMATION:
At December 31, 1998, the net unrealized appreciation based on cost for income tax
purposes of $33,255,516 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $ 5,630,015
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (4,176,482)
------------
Net unrealized appreciation $ 1,453,533
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for
the six months ended December 31, 1998 aggregated $8,898,753 and $8,880,746,
respectively.
The accompanying notes are an integral part of the financial statements
2
<PAGE>
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Principal Value
Date Coupon Amount (Note 1)
- ---- ------ --------- -------
<S> <C> <C> <C>
U.S GOVERNMENT & AGENCY OBLIGATIONS - 31.2%
U.S. TREASURY BONDS - 14.8%
05/15/16 7.250% $ 12,120,000 $ 14,703,075
08/15/23 6.250% 17,050,000 19,074,687
------------
33,777,762
------------
U.S. TREASURY NOTES - 11.5%
04/30/00 6.750% 1,000,000 1,026,250
05/31/01 6.500% 4,880,000 5,082,827
02/28/02 6.250% 1,100,000 1,149,500
08/15/02 6.375% 2,945,000 3,106,056
10/31/02 5.750% 1,000,000 1,035,938
08/15/03 5.750% 3,750,000 3,914,062
02/15/04 5.875% 2,915,000 3,076,237
02/15/06 5.625% 4,930,000 5,199,612
08/15/07 6.125% 1,150,000 1,256,735
02/15/08 5.500% 1,240,000 1,314,400
------------
26,161,617
------------
FEDERAL HOME LOAN BANK - 1.9%
11/06/02 6.250% 2,200,000 2,238,786
11/19/02 6.220% 2,225,000 2,241,903
------------
4,480,689
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.1%
12/14/01 4.750% 2,500,000 2,477,380
11/12/02 6.340% 1,100,000 1,109,915
11/20/02 6.170% 1,100,000 1,117,754
------------
4,705,049
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.9%
10/11/06 7.150% 2,000,000 2,096,600
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $66,915,843) 71,221,717
------------
CORPORATE BONDS & NOTES - 65.2%
BANKS - 4.0%
Barnett Cap II
12/01/26 7.950% 3,125,000 3,295,700
First Chicago Corp.
01/15/03 7.625% 3,250,000 3,478,738
First Empire Cap Tr I
02/01/27 8.234% 2,200,000 2,379,652
-----------
TOTAL BANKS 9,154,090
------------
BASIC MATERIALS - 0.8%
USX Corp.
01/21/99 8.050% 1,765,000 1,766,244
------------
BROKER/DEALERS - 7.6%
Bear Stearns Co.
08/01/02 6.500% 3,000,000 3,069,735
Donaldson, Lufkin & Jenrette, Inc.
07/15/03 6.170% 3,000,000 2,986,173
11/01/05 6.875% 1,000,000 1,030,029
02/15/16 5.625% 2,000,000 1,963,838
Lehman Brothers, Inc.
02/26/01 6.000% 2,500,000 2,481,760
04/15/03 7.250% 3,500,000 3,605,206
Merrill Lynch, Inc.
01/15/07 7.000% 2,125,000 2,157,447
------------
TOTAL BROKER/DEALERS 17,294,188
------------
CAPITAL GOODS - 10.6%
Arrow Electronics, Inc.
01/15/07 7.000% 3,150,000 3,339,306
Dover Corp.
11/15/05 6.450% 3,525,000 3,734,142
Lockheed Martin Corp.
05/15/01 6.850% 2,250,000 2,322,034
03/15/03 6.750% 3,500,000 3,636,507
Raytheon Co.
08/15/00 6.300% 2,500,000 2,539,795
07/15/05 6.500% 3,525,000 3,706,330
Tyco International Limited
11/01/01 6.500% 2,550,000 2,603,989
06/15/28 7.000% 2,300,000 2,372,984
------------
TOTAL CAPITAL GOODS 24,255,087
------------
CONSUMER NON-DURABLES - 3.6%
Anheuser Busch, Inc.
06/01/05 6.750% 1,000,000 1,032,500
09/01/05 7.000% 2,400,000 2,506,730
Coca-Cola Enterprises, Inc.
10/15/36 6.700% 2,250,000 2,352,197
Philip Morris, Inc.
12/01/99 7.125% 2,200,000 2,234,038
------------
TOTAL CONSUMER NON-DURABLES 8,125,465
------------
CONSUMER SERVICES - 13.6%
Airtouch Communications, Inc.
05/01/08 6.650% 4,450,000 4,720,088
Belo (AH) Corp.
06/01/02 6.875% 3,750,000 3,856,552
MCI WorldCom, Inc.
04/15/02 6.125% 4,425,000 4,495,822
Price/Costco, Inc.
06/15/05 7.125% 3,600,000 3,870,418
USA Waste Services, Inc.
10/01/04 7.000% 3,000,000 3,136,956
WMX Technologies, Inc.
10/15/00 6.250% 3,100,000 3,119,797
Wal-Mart Stores, Inc.
02/01/10 5.650% 3,800,000 3,822,112
Waste Management Step Bond
10/01/02 7.700% 3,800,000 4,026,225
------------
TOTAL CONSUMER SERVICES 31,047,970
------------
FINANCIAL SERVICES - 14.3%
Aon Capital Trust
01/01/27 8.205% 2,700,000 3,078,661
Associates Corp. of North America
09/17/99 6.680% 1,905,000 1,921,730
10/15/02 6.375% 1,000,000 1,026,736
05/15/37 5.960% 1,500,000 1,538,981
BHP Finance USA
03/01/06 6.690% 3,350,000 3,417,908
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Principal Value
Date Coupon Amount (Note 1)
- ---- ------ --------- -------
<S> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
CNA Financial Corp.
04/15/05 6.500% $ 2,725,000 $ 2,741,565
Countrywide Home Loans, Inc.
10/22/04 6.840% 2,500,000 2,565,275
Ford Motor Credit Co.
09/25/01 7.000% 3,345,000 3,475,412
General Motors Acceptance Corp.
12/07/01 5.350% 3,500,000 3,487,771
Mellon Financial
02/15/10 6.375% 2,500,000 2,607,055
Nationwide Mutual Insurance Co.
02/15/04 6.500% 1,000,000 1,033,150
Provident Companies, Inc.
03/15/28 7.250% 2,600,000 2,704,949
Sun Canada Financial Co. 144A*
12/15/07 6.625% 2,850,000 2,999,936
------------
TOTAL FINANCIAL SERVICES 32,599,129
------------
TRAVEL & TRANSPORTATION - 5.2%
Continental Airlines, Inc., Series 974B
01/02/17 6.900% 3,000,000 3,051,840
Norfolk Southern Corp.
02/15/04 7.875% 2,400,000 2,637,562
Northwest Airlines Corp.
01/02/15 7.670% 2,244,889 2,392,939
Union Pacific Corp.
01/15/04 6.125% 3,725,000 3,712,532
------------
TOTAL TRAVEL & TRANSPORTATION 11,794,873
------------
UTILITIES - 5.5%
BellSouth Corp.
06/01/28 6.375% 2,225,000 2,330,665
GTE Corp.
04/15/06 6.360% 4,400,000 4,626,552
11/01/08 6.900% 3,200,000 3,495,914
Public Service Electric & Gas Co.
11/01/01 7.875% 2,000,000 2,122,136
------------
TOTAL UTILITIES 12,575,267
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $143,766,577) 148,612,313
------------
MORTGAGE-BACKED OBLIGATIONS - 3.1%
Federal National Mortgage Association,
1994-M3, Class B
04/25/06 7.710% 1,084,642 1,090,743
Federal National Mortgage Association,
1997-M5, Class C
08/25/07 6.740% 3,400,000 3,591,794
Federal National Mortgage Association,
Pool #250885
04/01/27 7.500% 2,294,279 2,355,222
Government National Mortgage Association,
Pool #26825
09/15/08 9.000% 81,916 87,394
------------
TOTAL MORTGAGE-BACKED OBLIGATIONS
(Cost $6,936,814) 7,125,153
------------
<CAPTION>
Value
(Note 1)
-------
<S> <C> <C>
MONEY MARKET MUTUAL FUNDS - 0.5%
Vista Cash Money Market Fund 582,679 $ 582,679
Vista Prime Money Market Fund 582,679 582,679
------------
TOTAL MONEY MARKET MUTUAL FUNDS 1,165,358
(Cost $1,165,358) ------------
TOTAL INVESTMENTS - 100%
(Cost $218,784,592) $228,124,541
------------
------------
*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, 1998, this security
amounted to a value of $2,999,936 or 1.3% of net assets.
INCOME TAX INFORMATION:
At December 31, 1998, the net unrealized appreciation based on cost for income tax
purposes of $218,782,810 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 9,471,639
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (133,472)
------------
Net unrealized appreciation $ 9,338,167
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for
the six months ended December 31, 1998 aggregated $31,594,806 and $24,868,222,
respectively. Purchases and sales of U.S. Government and Agency securities,
other than short-term securities, for the six months ended December 31, 1998
aggregated $12,379,590 and $16,212,205, respectively.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
INTERMEDIATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Principal Value
Date Coupon Amount (Note 1)
- ---- ------ --------- -------
<S> <C> <C> <C>
U.S GOVERNMENT & AGENCY OBLIGATIONS - 46.6%
U.S. TREASURY NOTES - 26.0%
03/31/99 6.250% $ 1,000,000 $ 1,003,750
04/30/99 6.500% 1,700,000 1,710,095
09/30/99 7.125% 4,000,000 4,071,252
02/15/00 5.875% 1,000,000 1,012,813
02/29/00 7.125% 1,500,000 1,540,782
04/30/00 6.750% 7,000,000 7,183,750
05/15/00 6.375% 1,000,000 1,022,500
05/31/00 6.250% 6,000,000 6,127,500
06/30/00 5.875% 5,000,000 5,087,500
08/31/00 6.250% 3,000,000 3,075,939
10/31/00 5.750% 3,000,000 3,057,189
04/30/01 6.250% 2,000,000 2,070,626
08/31/01 6.500% 8,000,000 8,362,504
10/31/01 6.250% 5,000,000 5,207,815
05/31/02 6.500% 2,000,000 2,111,876
08/15/02 6.375% 1,000,000 1,054,688
10/31/02 5.750% 2,000,000 2,071,876
------------
55,772,455
------------
FEDERAL HOME LOAN BANK - 4.7%
09/20/00 6.125% 3,000,000 3,054,201
11/06/02 6.250% 600,000 610,578
11/19/02 6.220% 1,400,000 1,410,636
09/02/03 5.575% 5,000,000 5,072,875
-------------
10,148,290
------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.0%
01/07/99 5.220% 5,000,000 4,997,865
11/12/02 6.340% 700,000 706,310
11/20/02 6.170% 700,000 711,298
------------
6,415,473
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 8.7%
09/20/00 6.110% 2,000,000 2,036,390
03/15/01 5.625% 5,000,000 5,070,420
01/15/03 5.250% 5,000,000 5,039,890
06/28/04 6.48% 4,000,000 4,232,164
11/13/06 6.950% 2,100,000 2,186,276
------------
18,565,140
------------
STUDENT LOAN MARKETING ASSOCIATION - 2.3%
02/10/99 5.400% 5,000,000 4,999,860
------------
TENNESSEE VALLEY AUTHORITY - 1.9%
11/01/00 6.000% 4,000,000 4,074,676
------------
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost $98,646,233) 99,975,894
------------
CORPORATE BONDS & NOTES - 50.3%
BANKS - 5.3%
BancOne Corp.
05/01/07 7.600% 725,000 809,948
Bank One Texas
02/15/08 6.250% 5,000,000 5,168,650
First Chicago Corp.
01/15/03 7.625% 1,525,000 1,632,331
National City Corp.
03/01/04 6.625% 1,650,000 1,730,551
Wachovia Corp.
02/20/01 5.400% 2,000,000 1,995,944
------------
TOTAL BANKS 11,337,424
------------
BASIC MATERIALS - 4.0%
Aluminum Co. of America
02/01/01 5.750% 2,000,000 2,023,066
E.I. du Pont de Nemours & Co.
10/11/00 6.210% 2,000,000 2,033,082
09/01/02 6.500% 3,000,000 3,142,443
USX Corp.
01/21/99 8.050% 1,425,000 1,426,005
------------
TOTAL BASIC MATERIALS 8,624,596
------------
BROKER/DEALERS - 5.0%
Merrill Lynch & Co., Inc.
02/12/03 6.000% 4,000,000 4,037,116
08/01/04 6.550% 1,400,000 1,451,090
Morgan Stanley Group, Inc.
03/01/07 6.875% 5,000,000 5,307,800
------------
TOTAL BROKER/DEALERS 10,796,006
------------
CAPITAL GOODS - 2.6%
Lockheed Martin Corp.
05/15/01 6.850% 650,000 670,810
03/15/03 6.750% 1,300,000 1,350,703
Raytheon Co.
08/15/02 6.450% 1,350,000 1,389,194
Rockwell International
09/15/02 6.750% 2,000,000 2,091,834
------------
TOTAL CAPITAL GOODS 5,502,541
------------
CONSUMER NON-DURABLES - 3.0%
J C Penney & Company, Inc.
06/15/99 6.875% 2,000,000 2,009,954
Nike, Inc.
06/16/00 6.510% 2,000,000 2,021,602
Philip Morris, Inc.
01/01/01 9.000% 1,250,000 1,331,110
Sara Lee Corp.
10/18/99 6.400% 1,000,000 1,007,183
------------
TOTAL CONSUMER NON-DURABLES 6,369,849
------------
CONSUMER SERVICES - 9.3%
Belo (AH) Corp.
06/01/02 6.875% 1,650,000 1,696,883
CPC International, Inc.
09/19/00 6.200% 2,000,000 2,034,992
Pitney Bowes, Inc.
07/16/01 6.780% 1,000,000 1,033,129
02/01/05 5.950% 5,000,000 5,162,795
Price/Costco, Inc.
06/15/05 7.125% 1,375,000 1,478,285
Safeway, Inc.
09/15/04 6.850% 1,400,000 1,464,081
Walt Disney Co.
12/15/03 5.125% 5,000,000 4,955,850
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
INTERMEDIATE BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Principal Value
Date Coupon Amount (Note 1)
- ---- ------ --------- -------
<S> <C> <C> <C>
CORPORATE BONDS & NOTES (CONTINUED)
CONSUMER SERVICES (CONTINUED)
Wal-Mart Stores, Inc.
05/15/02 6.750% $ 2,000,000 $ 2,107,515
------------
TOTAL CONSUMER SERVICES 19,933,530
------------
FINANCIAL SERVICES - 11.1%
BHP Finance USA
03/01/06 6.690% 1,350,000 1,377,366
CNA Financial Corp.
11/15/03 6.250% 2,000,000 2,002,094
Capital Holdings Corp.
10/21/99 8.900% 1,450,000 1,487,971
Cigna Corp.
01/15/06 6.375% 1,350,000 1,355,866
Dow Jones & Co., Inc.
12/01/00 5.750% 1,000,000 1,011,650
Ford Motor Credit Co.
11/08/00 6.250% 2,000,000 2,029,724
09/25/01 7.000% 1,000,000 1,038,987
General Electric Capital Corp.
12/15/01 6.290% 5,000,000 5,097,585
04/15/02 7.450% 2,000,000 2,121,460
05/01/18 6.660% 2,000,000 2,035,046
Household Finance Corp.
06/30/00 6.375% 250,000 252,806
International Lease Finance
11/01/99 6.125% 2,000,000 2,009,188
Norwest Corp.
04/01/00 7.125% 2,000,000 2,038,298
------------
TOTAL FINANCIAL SERVICES 23,858,041
------------
TRAVEL & TRANSPORTATION - 2.0%
Norfolk Southern Corp.
05/15/07 7.350% 3,800,000 4,187,015
------------
UTILITIES - 8.0%
Duke Energy Corp.
11/01/99 8.000% 1,000,000 1,022,913
GTE Corp.
11/01/08 6.900% 3,500,000 3,823,655
Kentucky Utilities Co.
06/15/00 5.950% 2,000,000 2,019,934
National Rural Utilities
04/01/01 6.450% 2,000,000 2,049,844
New York Telephone
02/15/04 6.250% 875,000 908,438
Texas Utilities Co.
10/01/02 6.200% 2,000,000 2,064,004
U.S. WEST CAPITAL FUNDING, INC.
07/15/05 6.250% 5,000,000 5,215,315
------------
TOTAL UTILITIES 17,104,103
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $104,711,023) 107,713,105
------------
MORTGAGE-BACKED OBLIGATIONS - 1.6%
Federal Home Loan Mortgage Corporation
Series 1665 Class KA
07/15/00 6.500% 138,083 138,884
Federal Home Loan Mortgage Corporation
1698
10/15/06 6.000% 3,000,000 3,014,520
Federal National Mortgage Association
Series 1994-27, Class PK
06/25/00 6.500% 267,239 266,740
------------
TOTAL MORTGAGE-BACKED OBLIGATIONS
(Cost $3,403,230) 3,420,144
------------
MONEY MARKET MUTUAL FUNDS - 1.5%
Vista U.S. Government
Money Market Fund 3,135,179 3,135,179
------------
TOTAL MONEY MARKET MUTUAL FUNDS 3,135,179
(Cost $3,135,179) ------------
TOTAL INVESTMENTS - 100%
(Cost $209,895,665) $214,244,322
------------
------------
INCOME TAX INFORMATION:
At December 31, 1998, the net unrealized appreciation based on cost for income tax
purposes of $209,895,665 was as follows:
Aggregate gross unrealized appreciation for
all investments in which there was an excess
of value over tax cost $ 4,719,563
Aggregate gross unrealized depreciation for
all investments in which there was an excess
of tax cost over value (370,906)
------------
Net unrealized appreciation $ 4,348,657
------------
------------
</TABLE>
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the
six months ended December 31, 1998 aggregated $53,368,078 and $42,647,357,
respectively. Purchases and sales of U.S. Government and Agency securities,
other than short-term securities, for the six months ended December 31, 1998
aggregated $5,020,313 and $6,389,688, respectively.
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Bond Rating Principal Value
Date Coupon Moody/S&P Amount (Note 1)
- ---- ------ ----------- --------- -------
<S> <C> <C> <C> <C>
TENNESSEE MUNICIPAL OBLIGATIONS - 93.8%
GENERAL OBLIGATION BONDS - 45.5%
Anderson County
Refunding & Improvement -
Rural Elementary School
03/01/08 5.150%, FGIC Aaa/AAA $ 500,000 $ 522,063
Chattanooga
09/01/02 5.000% Aa3/AA 1,900,000 1,985,863
11/01/06 5.600% Aa3/AA 500,000 537,288
05/01/08 5.400%, FSA Aaa/AAA 500,000 530,637
Crockett County
04/01/11 5.000%, AMBAC Aaa/NR 500,000 514,604
Franklin City
Special School District
06/01/12 5.100% Aa3/NR 2,500,000 2,601,625
Franklin County
03/01/13 5.250%, MBIA Aaa/AAA 750,000 779,892
Gatlinburg
11/01/04 4.500%, FGIC Aaa/NR 3,000,000 3,096,123
Grundy County
05/01/06 5.350%, FGIC Aaa/AAA 300,000 323,483
Hamilton County
07/01/03 5.200% Aa2/NR 1,000,000 1,054,448
07/01/05 5.400% Aa2/NR 500,000 539,126
Jackson
Refunding & Improvement
03/01/14 5.125%, MBIA Aaa/NR 3,100,000 3,170,370
Johnson City
03/01/04 6.500% A1/NR 250,000 263,672
06/01/07 4.350%, FGIC Aaa/AAA 3,000,000 3,061,413
06/01/08 5.600%, FSA Aaa/AAA 500,000 544,160
06/01/12 5.900%, FSA Aaa/AAA 245,000 270,192
05/01/14 5.500%, FGIC Aaa/AAA 2,250,000 2,382,050
Kingsport
09/01/02 5.500% A1/NR 1,000,000 1,059,376
09/01/07 5.900% A1/A+ 1,000,000 1,082,508
Knox County
04/01/08 5.100% Aa/AA 2,000,000 2,097,916
02/01/12 5.000% Aa3/AA 2,000,000 2,050,248
Knoxville
Refunding & Improvement
05/01/01 5.150% Aa3/AA 1,000,000 1,021,560
05/01/07 5.250%, MBIA Aaa/AAA 3,000,000 3,216,408
05/01/08 5.300%, MBIA Aaa/AAA 1,350,000 1,434,059
Lawrence County
08/01/99 5.900%, AMBAC Aaa/AAA 1,000,000 1,014,925
Maury County
04/01/07 5.125%, AMBAC Aaa/AAA 2,000,000 2,106,836
Memphis
08/01/06 5.200% Aa/AA 500,000 522,462
11/01/10 5.200% Aa/AA 1,000,000 1,052,463
07/01/12 5.250% Aa/AA 3,000,000 3,124,596
11/01/13 5.250% Aa/AA 1,000,000 1,038,285
Metropolitan Nashville & Davidson
12/01/06 6.600% Aa/AA 1,350,000 1,419,341
05/15/07 5.700% Aa/AA 1,000,000 1,068,285
12/01/07 5.000% Aa/AA 1,000,000 1,068,158
11/15/10 5.125% Aa2/AA 500,000 526,917
11/15/11 5.125% Aa2/AA 1,000,000 1,048,388
Monroe County
05/01/03 5.200%, AMBAC Aaa/AAA 500,000 521,239
Montgomery County
04/01/02 6.900% Aaa/AAA 500,000 531,175
Murfreesboro
05/01/00 6.250% A1/NR 250,000 258,600
08/01/04 5.500% A1/NR 1,000,000 1,054,487
Oak Ridge
07/01/08 5.400% Aa/A+ 1,000,000 1,057,319
07/01/10 5.550% Aa/A+ 500,000 527,553
Putnam County, MBIA
04/01/05 5.250% Aaa/AAA 3,000,000 3,199,398
04/01/07 5.100% Aaa/AAA 1,540,000 1,626,662
Rutherford County
04/01/08 5.200% Aa3/AA- 2,000,000 2,099,950
04/01/09 5.250% Aa3/AA- 500,000 531,846
Sevier County
04/01/08 5.250%, FGIC Aaa/AAA 750,000 790,960
Shelby County
04/01/03 5.000% Aa2/AA+ 500,000 523,514
03/01/04 5.550% Aa2/AA+ 1,000,000 1,038,476
04/01/09 5.500% Aa2/AA+ 1,500,000 1,611,687
06/01/09 5.625% Aa2/AA+ 1,000,000 1,087,659
11/01/09 5.300% Aa2/AA+ 3,000,000 3,199,602
04/01/10 5.500% Aa2/AA+ 750,000 793,416
04/01/14 5.625% Aa2/AA+ 2,000,000 2,118,082
Tennessee State
06/01/05 6.700% Aaa/AAA 1,000,000 1,083,887
03/01/06 5.300% Aaa/AAA 2,500,000 2,677,130
05/01/06 5.000% Aaa/AAA 600,000 636,602
03/01/07 5.400% Aaa/AAA 1,740,000 1,878,099
05/01/08 5.000% Aaa/AAA 5,000,000 5,357,820
05/01/09 4.750% Aaa/AAA 2,000,000 2,067,426
05/01/13 5.300% Aaa/AAA 750,000 799,028
Tipton County
04/01/12 5.250%, AMBAC Aaa/NR 500,000 525,922
Weakley County
05/01/09 5.000%, FGIC Aaa/AAA 350,000 361,868
White House
02/01/12 5.300%, MBIA Aaa/AAA 1,000,000 1,030,911
Williamson County
04/01/06 5.500% Aa1/NR 2,000,000 2,121,672
05/01/10 4.800% Aa1/NR 1,000,000 1,014,219
Wilson County
03/30/07 5.000%, FSA Aaa/NR 2,000,000 2,103,308
04/01/07 5.250% A1/NR 1,000,000 1,062,415
06/01/13 5.500%, FGIC Aaa/AAA 500,000 523,992
-----------
TOTAL GENERAL OBLIGATION BONDS 93,945,664
-----------
REVENUE BONDS - 48.3%
AIRPORT AUTHORITY - 1.3%
Memphis - Shelby County
09/01/12 5.350% Baa2/BBB 500,000 524,734
Metropolitan Nashville
07/01/08 4.600%, FGIC Aaa/AAA 2,000,000 2,055,822
-----------
TOTAL AIRPORT AUTHORITY 2,580,556
-----------
HEALTH & EDUCATION - 18.5%
Anderson County
Methodist Medical Center
07/01/05 5.500% A1/NR 1,400,000 1,468,688
07/01/08 5.700% A1/NR 1,000,000 1,048,885
Blount County
07/01/09 5.250% Baa1/NR 2,765,000 2,874,007
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Bond Rating Principal Value
Date Coupon Moody/S&P Amount (Note 1)
- ---- ------ ----------- --------- --------
<S> <C> <C> <C> <C>
TENNESSEE MUNICIPAL OBLIGATIONS (CONTINUED)
REVENUE BONDS (CONTINUED)
HEALTH & EDUCATION (CONTINUED)
Bradley County
03/01/06 5.300%, MBIA Aaa/AAA $ 500,000 $ 515,072
Bristol
Memorial Hospital
09/01/13 5.125%, FGIC Aaa/AAA 1,500,000 1,530,440
Chattanooga-Hamilton
10/01/04 5.375%, FSA Aaa/AAA 2,000,000 2,131,970
Franklin
09/01/09 4.750% NR/A+ 2,150,000 2,220,795
Jackson
04/01/06 5.300% A1/A+ 1,000,000 1,059,098
04/01/07 5.300% A1/A+ 2,000,000 2,133,244
04/01/10 5.500%, AMBAC Aaa/AAA 400,000 427,000
Johnson City
07/01/09 5.125%, MBIA NR/AAA 5,705,000 6,027,766
Knox County
Ft. Sanders
01/01/04 7.000%, MBIA Aaa/AAA 500,000 527,271
Knox County
Baptist Health
04/15/02 4.600%, AMBAC Aaa/AAA 500,000 511,765
04/15/11 5.500%, CONLEE NR/AAA 3,000,000 3,232,737
Metropolitan Nashville & Davidson
Baptist Hospital
11/01/05 5.000%, MBIA Aaa/AAA 1,000,000 1,047,644
Metropolitan Nashville & Davidson
Meharry
12/01/04 7.875% Aaa/NR 225,000 252,209
Shelby County
Methodist Healthcare, MBIA
04/01/02 5.000% Aaa/AAA 2,700,000 2,796,352
04/01/03 5.000% Aaa/AAA 2,000,000 2,079,714
08/01/06 4.350% NR/AAA 2,335,000 2,366,562
08/01/12 5.500% Aaa/AAA 2,000,000 2,119,102
Sullivan County
Holston Valley Healthcare, MBIA
02/15/09 7.200% Aaa/AAA 750,000 795,609
02/15/13 5.750% Aaa/AAA 1,000,000 1,058,095
-----------
TOTAL HEALTH & EDUCATION 38,224,025
-----------
HOUSING - 1.0%
Metropolitan Nashville & Davidson
Multi-Family Housing
02/01/21 5.200%, FSA NR/AAA 1,000,000 1,033,307
Tennessee Housing
Development Agency
07/01/03 6.700% Aa2/AA 190,000 199,852
01/01/11 5.800% Aa2/AA 400,000 427,084
07/01/13 5.800% Aa2/AA 350,000 365,771
-----------
TOTAL HOUSING 2,026,014
-----------
INDUSTRIAL DEVELOPMENT - 0.8%
Hamilton County
09/01/01 5.300%, FGIC Aaa/AAA 1,000,000 1,038,675
Memphis-Shelby County
03/15/05 5.400% NR/AA- 650,000 701,011
-----------
TOTAL INDUSTRIAL DEVELOPMENT 1,739,686
-----------
PUBLIC BUILDING AUTHORITY - 1.4%
Gatlinburg
12/01/01 6.500%, AMBAC Aaa/AAA 500,000 538,208
Johnson City
09/01/14 5.000%, MBIA Aaa/AAA 1,000,000 1,019,134
Sevier County, AMBAC
09/01/06 5.500% Aaa/AAA 775,000 834,749
09/01/10 5.400% Aaa/NR 500,000 530,417
-----------
TOTAL PUBLIC BUILDING AUTHORITY 2,922,508
-----------
STATE AUTHORITY - 4.1%
Tennessee State Local
Development Authority
03/01/02 6.600% A2/AA- 250,000 269,892
10/01/02 5.600% NR/A 400,000 426,214
03/01/03 6.700% A2/AA- 750,000 811,223
03/01/05 5.500% A2/AA- 2,500,000 2,696,895
03/01/14 5.125%, MBIA Aaa/AAA 2,000,000 2,057,342
10/01/14 6.450% NR/A 1,000,000 1,092,428
Tennessee State School
Board Authority
05/01/11 5.500% A1/AA 500,000 540,555
05/01/11 6.875% A1/AA 500,000 529,705
-----------
TOTAL STATE AUTHORITY 8,424,254
-----------
UTILITY - 21.2%
Clarksville
Water, Sewer & Gas, MBIA
02/01/01 5.500% Aaa/AAA 500,000 517,564
02/01/10 5.300% Aaa/NR 900,000 959,315
Dickson
Electric
09/01/11 5.625%, MBIA Aaa/AAA 1,000,000 1,104,943
Fayetteville
Electric
04/01/11 5.250% A/NR 1,750,000 1,822,611
Franklin
Water & Sewer
09/01/11 5.000% Aa2/NR 750,000 773,962
Harpeth Valley
Utility District
09/01/03 5.250% A1/A 1,000,000 1,057,474
09/01/06 5.500% A1/A 500,000 537,702
09/01/11 5.500% A1/A 1,650,000 1,738,189
Johnson City
Electric
05/01/10 5.400%, MBIA Aaa/AAA 500,000 529,733
05/01/12 5.100%, MBIA Aaa/AAA 1,500,000 1,553,993
Knox Chapman
Water & Sewer
01/01/04 5.500%, MBIA Aaa/AAA 605,000 645,194
Knoxville
Electric
07/01/12 5.700% Aa3/AA 500,000 536,434
Knoxville
Gas
03/01/03 5.300% Aa3/AA 1,000,000 1,052,944
03/01/14 5.350% Aa3/AA 2,760,000 2,841,492
Knoxville
Waste Water
04/01/01 4.375% Aa3/AA 2,000,000 2,027,280
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Bond Rating Principal Value
Date Coupon Moody/S&P Amount (Note 1)
- ---- ------ ----------- --------- --------
<S> <C> <C> <C> <C>
TENNESSEE MUNICIPAL OBLIGATIONS (CONTINUED)
REVENUE BONDS (CONTINUED)
UTILITY (CONTINUED)
La Follette
Electric, AMBAC
06/01/11 5.800% Aaa/AAA $ 430,000 $ 471,345
03/01/15 5.250% Aaa/NR 1,000,000 1,041,008
La Vergne
Water & Sewer
03/01/14 5.400% A1/NR 500,000 521,178
Lawrenceburg
Electric
07/01/06 5.200%, MBIA Aaa/AAA 345,000 367,914
Lenoir City
Electric
06/01/07 5.000%, AMBAC Aaa/NR 2,000,000 2,124,042
Madison
Utility District
02/01/10 5.600%, MBIA Aaa/AAA 500,000 542,948
Memphis
Electric
01/01/03 5.800% Aa/AAA 1,000,000 1,068,978
01/01/10 5.000% Aa/AAA 1,000,000 1,030,532
Memphis
Sanitation Sewer System
01/01/05 5.250% Aa2/AA+ 2,250,000 2,396,246
Memphis
Water
01/01/01 6.900% Aa/AA 250,000 251,250
Metropolitan Nashville & Davidson
Electric
05/15/06 4.700% Aa3/AA 2,000,000 2,048,722
Metropolitan Nashville & Davidson
Water & Sewer
01/01/08 5.000%, FGIC Aaa/AAA 4,000,000 4,234,700
01/01/13 5.200%, FGIC Aaa/AAA 1,500,000 1,603,356
01/01/15 5.750%, AMBAC Aaa/AAA 1,000,000 1,074,438
Rutherford County
Water Works
02/01/11 5.100%, FGIC Aaa/NR 500,000 519,878
Sevier County
Gas
05/01/11 5.400%, AMBAC Aaa/NR 1,000,000 1,054,792
Sumner County
Solid Waste
08/01/04 5.125%, AMBAC Aaa/AAA 1,500,000 1,585,576
Tennessee
Energy Acquisitions
09/01/05 4.400%, AMBAC Aaa/AAA 4,000,000 4,055,192
------------
TOTAL UTILITY 43,690,925
------------
TOTAL REVENUE BONDS 99,607,968
------------
TOTAL TENNESSEE MUNICIPAL OBLIGATIONS
(Cost $186,126,903) 193,553,632
------------
OTHER STATE MUNICIPAL OBLIGATIONS - 6.0%
GENERAL OBLIGATION BONDS - 3.5%
Austin, Texas
09/01/06 7.000% Aa/AA 750,000 793,468
FLORIDA STATE
BOARD OF EDUCATION
06/01/09 7.000% AAA/AA+ 600,000 642,001
Harris County, Texas
08/15/15 6.500% NR/NR 300,000 333,144
08/15/15 6.500% Aa2/AA 785,000 854,936
Huntsville, Alabama
02/01/10 6.750% Aa/NR 500,000 527,400
Illinois State
06/01/05 6.750% Aa2/AA 500,000 532,635
Indiana
02/01/04 5.500% NR/AAA 500,000 537,026
King County, Washington
12/01/06 7.000% NR/NR 500,000 533,204
Las Vegas, Nevada
10/01/09 6.600%, FGIC Aaa/AAA 1,000,000 1,104,417
Louisiana State
05/01/07 6.500%, AMBAC Aaa/AAA 1,250,000 1,379,194
------------
TOTAL GENERAL OBLIGATIONS BONDS 7,237,425
------------
REVENUE BONDS - 2.5%
HEALTH & EDUCATION - 0.5%
Wisconsin State
Health & Education Facilities
11/15/10 6.250% NR/AA+ 1,000,000 1,085,030
------------
TRANSPORTATION - 0.5%
Indianapolis
Public Improvement Transportation
07/01/10 6.000% Aa/AA- 950,000 1,023,424
------------
UTILITY - 1.5%
Washington State
Public Power Supply
07/01/01 7.000%, FGIC Aaa/AAA 1,250,000 1,344,234
07/01/04 4.800%, MBIA Aaa/AAA 500,000 516,581
Wisconsin State
Clean Water
06/01/05 6.700% NR/AA+ 1,000,000 1,088,470
------------
TOTAL UTILITY 2,949,285
------------
TOTAL REVENUE BONDS 5,057,739
------------
TOTAL OTHER STATE MUNICIPAL OBLIGATIONS
(Cost $11,322,932) 12,295,164
------------
<CAPTION>
Shares
------
<S> <C> <C>
MONEY MARKET MUTUAL FUNDS - 0.2%
Federated Tennessee Municipal
Cash Trust 489,324 489,324
(Cost $489,324) ------------
TOTAL INVESTMENTS - 100%
(Cost $197,939,159) $206,338,120
------------
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
TENNESSEE TAX-FREE PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
The Portfolio had the following insurance concentration greater than 10% at
December 31, 1998 (as a percentage of net assets):
MBIA 21.1%
FGIC 11.9%
INCOME TAX INFORMATION:
At December 31, 1998, the net unrealized appreciation based on cost for income
tax purposes of $197,939,159 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $8,403,225
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value (4,264)
----------
Net unrealized appreciation $8,398,961
----------
----------
OTHER INFORMATION:
Purchases and sales of securities, other than short-term securities, for the six
months ended December 31, 1998 aggregated $48,579,730 and $38,875,140,
respectively.
RATINGS:
The Moody's and S&P ratings are believed to be the most recent ratings at
December 31, 1998.
UNAUDITED INCOME TAX INFORMATION:
Tennessee Tax-Free Portfolio had designated all dividends paid during the year
as exempt-interest dividends. Thus, 100% of these distributions are exempt from
Federal income tax.
U.S. TREASURY MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- -------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS - 66.2%
U.S. TREASURY NOTES - 27.3%
02/15/99 8.88% $ 1,000,000 $ 1,003,698
02/28/99 5.88% 2,000,000 2,000,939
04/30/99 6.38% 2,300,000 2,306,034
05/31/99 6.25% 5,000,000 5,034,000
06/30/99 6.00% 3,000,000 3,006,388
07/31/99 5.88% 1,000,000 1,001,951
11/15/99 5.88% 1,000,000 1,009,515
11/30/99 5.63% 4,000,000 4,031,877
-----------
19,394,402
-----------
U.S. TREASURY BILLS - 38.9%
01/21/99 4.47% 25,000,000 24,948,115
01/28/99 4.19% 2,677,000 2,669,593
-----------
27,617,708
-----------
TOTAL U.S. TREASURY OBLIGATIONS 47,012,110
-----------
<CAPTION>
Maturity
Amount
--------
<S> <C>
REPURCHASE AGREEMENTS - 33.8%
BZW, 4.75%, dated 12/31/98, due
01/04/99, collateralized by $12,800,000
U.S. Treasury Bond, 6.00% due
02/15/26 14,007,389 14,000,000
Greenwich Capital Markets, 4.55%, dated
12/31/98, due 01/04/99, collateralized
by $9,417,000 U.S. Treasury Note,
8.00%, due 05/15/01 10,005,056 10,000,000
-----------
TOTAL REPURCHASE AGREEMENTS 24,000,000
-----------
TOTAL INVESTMENTS - 100% $71,012,110
-----------
-----------
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $71,012,110
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- -------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 100.0%
FEDERAL HOME LOAN BANK - 13.4%
01/19/99 4.75% $ 1,160,000 $ 1,157,704
01/22/99 5.39% 2,000,000 1,999,797
01/29/99 6.12% 3,000,000 3,002,322
03/12/99 5.61% 3,000,000 2,999,814
03/23/99 5.55% 1,030,000 1,029,734
07/15/99 5.54% 1,000,000 999,694
07/15/99 5.54% 1,000,000 999,682
-----------
12,188,747
-----------
FEDERAL HOME LOAN MORTGAGE CORP. - 27.4%
02/03/99 4.95% 10,000,000 9,958,750
02/18/99 4.80% 5,000,000 4,970,000
02/26/99 5.08% 10,000,000 9,925,211
-----------
24,853,961
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 42.2%
01/04/99 4.74%* 10,000,000 9,996,914
01/05/99 4.70%* 5,000,000 5,000,000
01/17/99 5.33%* 10,000,000 9,999,055
03/05/99 4.83% 8,000,000 7,934,667
03/10/99 9.55% 1,000,000 1,006,681
03/23/99 4.75% 1,385,000 1,370,746
05/26/99 5.65% 3,000,000 3,006,225
-----------
38,314,288
-----------
STUDENT LOAN MARKETING ASSOCIATION - 15.4%
01/05/99 5.01%* 10,000,000 9,999,613
06/30/99 5.63% 1,000,000 999,712
06/30/99 4.60% 3,000,000 2,932,149
-----------
13,931,474
-----------
TENNESSEE VALLEY AUTHORITY - 1.6%
01/21/99 4.75% 1,445,000 1,441,759
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 90,730,229
-----------
TOTAL INVESTMENTS - 100% $90,730,229
-----------
-----------
</TABLE>
*Floating or variable rate security - rate disclosed as of
December 31, 1998. Maturity date represents the next interest
reset date.
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $90,730,229
MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- -------
<S> <C> <C> <C>
MUNICIPAL BONDS & NOTES - 100.0%
ALASKA - 3.3%
City of Valdez
02/12/99 3.15% 1,500,000 1,500,000
-----------
ARIZONA - 3.3%
Maricopa County, Pollution Control
01/19/99 3.00% 1,500,000 1,500,000
-----------
CALIFORNIA - 0.2%
California Pollution Control,
Shell Oil
01/04/99 5.10%* 100,000 100,000
-----------
FLORIDA - 3.1%
Sunshine State Government
Finance Commission
01/15/99 3.55% 1,400,000 1,400,000
-----------
GEORGIA - 10.0%
Burke County
Development Authority, Pollution Control
05/28/99 3.40%* 2,100,000 2,100,000
Cobb County Housing Authority
Post Bridge Project
01/07/99 4.00%* 550,000 550,000
Georgia
Municipal Gas Authority
01/07/99 4.15%* 1,000,000 1,000,000
Putnam County
Development Authority, Pollution Control
01/04/99 5.05%* 200,000 200,000
Smyrna Housing Authority
Post Valley Project
01/07/99 4.00%* 700,000 700,000
-----------
4,550,000
-----------
INDIANA - 1.3%
Indiana
Municipal Power Agency
01/06/99 3.95%* 600,000 600,000
-----------
KANSAS - 2.2%
City of Burlington
Electric
03/11/99 3.05% 1,000,000 1,000,000
-----------
KENTUCKY - 5.5%
Clark County
Pollution Control
04/15/99 3.10%* 1,500,000 1,500,000
Kentucky
Interlocal School Transportation
06/30/99 3.90% 1,000,000 1,001,215
-----------
2,501,215
-----------
LOUISIANA - 1.5%
East Baton Rouge
Parish
01/04/99 5.05%* 100,000 100,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- -------
<S> <C> <C> <C>
MUNICIPAL BONDS & NOTES (CONTINUED)
LOUISIANA (CONTINUED)
St. Charles
Parish
01/04/99 5.00%* $ 600,000 $ 600,000
----------
700,000
----------
MARYLAND - 2.2%
Montgomery County
Development Authority, Pollution Control
01/07/99 3.29%* 1,000,000 1,000,000
----------
MICHIGAN - 3.3%
Michigan
08/27/99 4.25% 1,000,000 1,004,159
Royal Oak
Hospital Finance Authority
01/04/99 5.00%* 500,000 500,000
----------
1,504,159
----------
MISSOURI - 4.4 %
Kansas City
Industrial Development
01/07/99 4.25%* 1,200,000 1,200,000
Missouri State
Environmental Improvement
01/07/99 4.25%* 800,000 800,000
----------
2,000,000
----------
NEVADA - 2.1%
Clark County, Airport Authority
01/07/99 3.85%* 980,000 980,000
----------
NEW JERSEY - 3.3%
New Jersey
Sports & Expo
01/07/99 3.65%* 500,000 500,000
South Jersey
Transportation Authority
11/03/99 2.95% 1,000,000 1,000,000
----------
1,500,000
----------
NEW YORK - 7.4%
New York
Assistance Corp.
01/07/99 3.80%* 2,200,000 2,200,000
New York
Metropolitan Transportation Authority
01/15/99 3.10% 1,000,000 1,000,000
New York City
01/04/99 5.00%* 100,000 100,000
New York City
Water & Sewer System
01/04/99 5.20%* 100,000 100,000
----------
3,400,000
----------
NORTH CAROLINA - 8.0%
Greensboro
Public Improvement
01/07/99 3.95%* 1,850,000 1,850,000
North Carolina
Medical Care
01/07/99 4.00%* 1,800,000 1,800,000
----------
3,650,000
----------
OHIO - 3.9%
Medina County Housing
Oaks at Medina
01/07/99 4.05%* 1,800,000 1,800,000
----------
SOUTH CAROLINA - 5.0%
Piedmont
Power Agency
01/07/99 3.85%* 100,000 100,000
South Carolina
Economic Development
01/07/99 3.90%* 2,200,000 2,200,000
----------
2,300,000
----------
TENNESSEE - 18.6%
Chattanooga Health, Education & Housing
Baylor
01/07/99 4.00%* 1,225,000 1,225,000
Clarksville Public Building Authority
01/07/99 4.05%* 1,310,000 1,310,000
Knox County
Industrial Development
01/15/99 3.44%* 1,400,000 1,400,000
Memphis
01/06/99 4.30%* 200,000 200,000
01/07/99 4.30%* 700,000 700,000
Metro. Gov't Nashville
Airport
01/07/99 4.00%* 800,000 800,000
Metro. Gov't Nashville & Davidson
01/07/99 4.00%* 1,700,000 1,700,000
Washington County
Industrial Development Springbrook
Property
01/07/99 4.00%* 1,150,000 1,150,000
----------
8,485,000
----------
TEXAS - 3.3%
University of Texas
Board of Regents
02/19/99 3.20% 1,500,000 1,500,360
----------
UTAH - 3.3%
Intermountain Power Agency
01/13/99 3.35% 1,000,000 1,000,000
Salt Lake City
01/07/99 3.95%* 500,000 500,000
----------
1,500,000
----------
WASHINGTON - 2.8%
Snohomish County
Public Utilities
01/07/99 3.85%* 1,300,000 1,300,000
----------
WYOMING - 2.0%
Lincoln County
Pollution Control, Exxon
01/04/99 5.05%* 300,000 300,000
01/04/99 5.05%* 400,000 400,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
MUNICIPAL MONEY MARKET PORTFOLIO
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- --------
<S> <C> <C> <C>
MUNICIPAL BONDS & NOTES (CONTINUED)
WYOMING (CONTINUED)
Sublette County
Pollution Control, Exxon
01/04/99 5.05%* $ 200,000 $ 200,000
-----------
900,000
-----------
TOTAL MUNICIPAL BONDS & NOTES 45,670,374
-----------
TOTAL INVESTMENTS - 100% $45,670,374
-----------
-----------
</TABLE>
*Floating or variable rate security - rate disclosed as of
December 31, 1998. Maturity date represents the next interest
rate reset.
INCOME TAX INFORMATION:
Total cost for Federal income tax purposes - $45,670,374
UNAUDITED INCOME TAX INFORMATION:
Municipal Money Market Portfolio had designated all dividends paid during the
year as exempt-interest dividends. Thus, 100% of these distributions are exempt
from Federal income tax.
CASH RESERVE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- --------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 10.2%
Federal Home Loan Mortgage
01/04/99 4.70% $8,997,000 $ 8,997,000
-----------
COMMERCIAL PAPER - 62.7%
AGRICULTURAL SERVICES - 4.5%
Archer Daniels Midland
02/12/99 5.10% 4,000,000 3,977,900
-----------
ASSET-BACKED SECURITIES - 14.6%
Barton Capital Corp.
02/10/99 5.39% 2,037,000 2,025,715
CC USA, Inc.
03/22/99 5.20% 3,000,000 2,966,633
CXC, Inc.
03/15/99 5.05% 4,000,000 3,960,722
Enterprise Funding Corp.
01/27/99 5.22% 4,000,000 3,986,660
-----------
12,939,730
-----------
BUSINESS CREDIT INSTITUTIONS - 9.0%
General Electric Capital Corp.
03/16/99 4.94% 4,000,000 3,961,029
JC Penney Co., Inc.
01/14/99 5.15% 4,000,000 3,994,278
-----------
7,955,307
-----------
CHEMICAL & ALLIED PRODUCTS - 4.5%
Great Lakes Chemical, Co.
01/04/99 5.10% 4,000,000 4,000,000
-----------
FARM MACHINERY & EQUIPMENT - 4.4%
Deere & Co.
05/14/99 4.89% 4,000,000 3,929,367
-----------
INSURANCE - 4.5%
American General Corp.
02/16/99 5.23% 4,000,000 3,975,012
-----------
MOTORS VEHICLES & CAR BODIES - 4.5%
Daimler Benz
05/03/99 4.90% 2,000,000 1,967,605
05/21/99 4.96% 2,000,000 1,962,249
-----------
3,929,854
-----------
PERSONAL CREDIT INSTITUTIONS - 12.3%
American Express Credit Corp.
02/25/99 5.32% 4,000,000 3,969,262
Associates Corp. of North America
04/23/99 4.75% 4,000,000 3,942,472
Ford Motor Credit Corp.
06/22/99 4.85% 3,000,000 2,931,696
-----------
10,843,430
-----------
PHARMACEUTICAL PREPARATIONS - 3.3%
Johnson & Johnson
05/06/99 4.75% 3,000,000 2,951,708
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
CASH RESERVE PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1998 (Unaudited)
(Showing Percentage of Total Value of Investments)
<TABLE>
<CAPTION>
Due Discount Rate or Principal Value
Date Coupon Rate Amount (Note 1)
- ---- ----------- --------- --------
<S> <C> <C> <C>
COMMERCIAL PAPER (CONTINUED)
SERVICE EQUIPMENT RENT/LEASE - 1.1%
International Lease Finance
03/11/99 5.20% $ 1,000,000 $ 990,467
-----------
TOTAL COMMERCIAL PAPER 55,492,775
-----------
CERTIFICATES OF DEPOSIT - 4.5%
Fleet National Bank
04/09/99 5.07% 4,000,000 4,000,000
-----------
VARIABLE RATE NOTES - 22.6%
BEVERAGES - 4.5%
Pepsico, Inc.
02/19/99 5.21%* 4,000,000 3,995,486
-----------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS - 3.4%
Caterpillar Financial Services
03/01/99 5.27%* 3,000,000 2,998,794
-----------
FINANCIAL SERVICES - 7.9%
BancOne Corp.
03/18/99 5.17%* 3,000,000 2,999,979
First National Bank Chicago
01/27/99 5.50%* 4,000,000 3,998,679
-----------
6,998,658
-----------
PERSONAL CREDIT INSTITUTIONS - 6.8%
American Honda Finance
01/16/99 5.34%* 3,000,000 3,000,000
Beneficial Corp.
02/04/99 5.21%* 3,000,000 2,999,916
-----------
5,999,916
-----------
TOTAL VARIABLE RATE NOTES 19,992,854
-----------
TOTAL INVESTMENTS - 100% $88,482,629
-----------
-----------
</TABLE>
*Floating or variable rate security - rate disclosed as of
December 31, 1998. Maturity date represents the next interest
rate reset.
INCOME TAX INFORMATION:
Total cost for income tax purposes - $88,482,629
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
GROWTH & INCOME CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
-------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (cost-see below)(Note 1) $ 844,248,161 $ 34,951,503
Receivable for investments sold 0 1,275,647
Receivable for portfolio shares sold 325,543 9,987
Dividends receivable 671,358 2,412
Interest receivable 150,897 5,218
Other assets 66,941 1,176
-------------------------------------------
Total assets 845,462,900 36,245,943
-------------------------------------------
LIABILITIES:
Overdraft - due to Custodian 0 811,966
Payable for investments purchased 0 69,999
Payable for portfolio shares redeemed 607,252 6,458
Accrued management fee 348,061 20,159
Accrued administration fee 101,935 4,327
Accrued co-administration fee 34,542 1,509
Dividends payable 8,711,230 32,971
Accrued 12b-1 fee 102,087 489
Accrued shareholder servicing fee 57,272 823
Other payables and accrued expenses 212,242 33,245
-------------------------------------------
Total liabilities 10,174,621 981,946
-------------------------------------------
NET ASSETS $ 835,288,279 $ 35,263,997
-------------------------------------------
-------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $ 512,950,371 $ 37,594,469
Undistributed net investment income (290,775) (159,019)
Accumulated net realized gain (loss) on
investments 7,330,467 (3,746,213)
Net unrealized appreciation
in value of investments 315,217,216 1,574,760
-------------------------------------------
NET ASSETS $ 835,288,279 $ 35,263,997
-------------------------------------------
-------------------------------------------
COST OF INVESTMENTS $ 529,030,945 $ 33,376,743
-------------------------------------------
-------------------------------------------
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 689,148,314 $ 33,219,412
Class II $ 61,858,306 $ 1,596,899
Class III $ 84,281,659 $ 447,687
-------------------------------------------
Shares outstanding of $.001 par value capital
stock, unlimited shares authorized
Class I 30,106,448 3,384,403
Class II 2,698,754 163,372
Class III 3,706,776 46,327
-------------------------------------------
Net Asset Value and redemption price per
share
Class I $22.89 $9.82
Class II $22.92 $9.77
Class III $22.74 $9.66
-------------------------------------------
Maximum offering price per share
Class I (no sales charge) $22.89 $9.82
Class II (net asset value plus maximum
sales charge of 5.75% of offering price) $24.32 $10.37
Class III (no sales charge) $22.74 $9.66
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
BOND INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Cash $ 0 $ 0 $ 258,375
Investments, at value (cost-see below) (Note 1) 228,124,541 214,244,322
206,338,120
Receivable for portfolio shares sold 87,530 214,006 226,369
Interest receivable 3,808,946 3,093,659 3,047,278
Other assets 13,720 12,985 9,169
----------------------------------------------------------------
Total assets 232,034,737 217,564,972 209,879,311
----------------------------------------------------------------
LIABILITIES:
Payable for portfolio shares redeemed 10,688 3,556 50,082
Accrued management fee 32,611 0 0
Accrued administration fee 33,463 30,865 26,899
Accrued co-administration fee 11,150 10,273 9,817
Dividends payable 1,141,105 992,894 1,294,442
Accrued 12b-1 fee 2,334 419 7,749
Accrued shareholder servicing fee 2,284 1,348 1,046
Other payables and accrued expenses 72,519 60,876 30,934
----------------------------------------------------------------
Total liabilities 1,306,154 1,100,231 1,420,969
----------------------------------------------------------------
NET ASSETS $ 230,728,583 $ 216,464,741 $ 208,458,342
----------------------------------------------------------------
----------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $ 221,260,919 $ 211,961,285 $ 199,970,348
(Over) Undistributed net investment income (78,039) 135,047 32,059
Accumulated net realized gain on
investments 205,754 19,752 56,974
Net unrealized appreciation in value of
investments 9,339,949 4,348,657 8,398,961
----------------------------------------------------------------
NET ASSETS $ 230,728,583 $ 216,464,741 $ 208,458,342
----------------------------------------------------------------
----------------------------------------------------------------
COST OF INVESTMENTS $ 218,784,592 $ 209,895,665 $ 197,939,159
----------------------------------------------------------------
----------------------------------------------------------------
NET ASSET VALUE PER SHARE
Net Assets
Class I $ 224,560,926 $ 213,057,786 $ 181,467,501
Class II $ 3,395,599 $ 2,782,958 $ 11,323,639
Class III $ 2,772,058 $ 623,997 $ 15,667,203
----------------------------------------------------------------
Shares outstanding of $.001 par value capital
stock, unlimited shares authorized
Class I 21,679,465 21,033,950 17,465,500
Class II 328,569 274,725 1,087,640
Class III 268,113 61,611 1,506,328
----------------------------------------------------------------
Net Asset Value and redemption price per
share
Class I $10.36 $10.13 $10.39
Class II $10.33 $10.13 $10.41
Class III $10.34 $10.13 $10.40
----------------------------------------------------------------
Maximum offering price per share
Class I (no sales charge) $10.36 $10.13 $10.39
Class II (net asset value plus maximum
sales charge of 3.75%, 2.50% and 2.50%,
respectively, of offering price) $10.73 $10.39 $10.68
Class III (no sales charge) $10.34 $10.13 $10.40
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. TREASURY U.S. GOVERNMENT MUNICIPAL CASH
MONEY MARKET MONEY MARKET MONEY MARKET RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value (1)(Note 1) $ 71,012,110 $ 90,730,229 $ 45,670,374 $ 88,482,629
Cash 8,914 18,029 21,682 0
Interest receivable 200,934 480,434 245,185 185,082
Other assets 4,708 5,989 4,187 4,435
----------------------------------------------------------------------------------
Total assets 71,226,666 91,234,681 45,941,428 88,672,146
----------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 279,728 397,503 128,425 408,165
Accrued management fee 5,992 8,489 4,168 8,995
Accrued administration fee 4,959 6,359 3,114 6,742
Accrued co-administration fee 1,679 2,167 1,202 2,256
Accrued 12b-1 fee 24,104 875 894 25,117
Other payables and accrued expenses 28,486 54,187 38,316 10,730
----------------------------------------------------------------------------------
Total liabilities 344,948 469,580 176,119 462,005
----------------------------------------------------------------------------------
NET ASSETS $ 70,881,718 $ 90,765,101 $ 45,765,309 $ 88,210,141
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $ 70,900,840 $ 90,772,590 $ 45,769,219 $ 88,209,902
Undistributed net investment income 80 331 0 22
Accumulated net realized gain (loss)
on investments (19,202) (7,820) (3,910) 217
----------------------------------------------------------------------------------
NET ASSETS $ 70,881,718 $ 90,765,101 $ 45,765,309 $ 88,210,141
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
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 $24,000,000, $0, $0 and $0 respectively.
<TABLE>
<CAPTION>
(2) Shares Outstanding
Net ($.001 par value, unlimited
Assets Shares Authorized)
------ ------------------
<S> <C> <C>
U.S. Treasury Money Market
Class I $18,246,137 18,258,293
Class III 52,635,581 52,642,547
U.S. Government Money Market
Class I 89,336,018 89,343,620
Class III 1,429,083 1,428,971
Municipal Money Market
Class I 42,838,978 42,842,900
Class III 2,926,331 2,926,319
Cash Reserve
Class I 31,333,015 31,332,442
Class III 56,877,126 56,877,460
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
GROWTH & INCOME CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
----------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,776,160 $ 23,063
Interest 776,473 32,594
----------------------------------------------------
Total investment income 5,552,633 55,657
----------------------------------------------------
EXPENSES:
Management fee (Note 3) 2,481,307 142,233
Administration fee (Note 4) 572,609 25,100
Co-administration fee (Note 4) 190,870 8,367
Fund accounting/Transfer agent fee:
Class I 170,026 14,711
Class II 25,791 1,501
Class III 49,804 334
Blue Sky fee:
Class I 5,771 4,151
Class II 2,560 279
Class III 1,388 231
12b-1 fee:
Class III 287,935 1,565
Shareholder servicing fee:
Class II 65,288 1,686
Class III 95,979 522
Custodian fee 77,015 14,692
Trustees fee 16,226 1,084
Registration fee 57,314 5,561
Audit 14,801 12,569
Legal 9,508 434
Reports to Shareholders 36,176 1,375
Miscellaneous 16,189 3,381
----------------------------------------------------
Total expenses before waiver 4,176,557 239,776
Waiver of expenses (Note 5) (572,609) (25,100)
----------------------------------------------------
Net expenses 3,603,948 214,676
----------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,948,685 (159,019)
----------------------------------------------------
Net realized gain (loss) on investments 21,940,452 (3,676,008)
Change in net unrealized appreciation/
depreciation 47,979,323 1,368,688
----------------------------------------------------
Net gain (loss) on investments 69,919,775 (2,307,320)
----------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 71,868,460 $ (2,466,339)
----------------------------------------------------
----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
BOND INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME $ 7,273,911 $ 6,531,301 $ 5,105,641
----------------------------------------------------------------
EXPENSES:
Management fee (Note 3) 649,254 535,074 524,484
Administration fee (Note 4) 177,069 160,522 157,345
Co-administration fee (Note 4) 59,023 53,507 52,449
Fund accounting/Transfer agent fee:
Class I 70,939 63,073 62,562
Class II 1,250 787 4,695
Class III 3,396 153 7,632
Blue Sky fee:
Class I 4,242 2,751 508
Class II 1,351 547 508
Class III 574 55 508
12b-1 fee:
Class III 8,065 1,347 51,701
Shareholder servicing fee:
Class II 3,921 2,468 1,046
Class III 3,073 521 0
Custodian fee 21,143 18,387 21,805
Trustees fee 4,891 7,150 4,022
Registration fee 21,280 26,900 34,055
Audit 14,099 29,205 12,694
Legal 1,535 11,377 11,614
Reports to Shareholders 11,998 9,910 7,178
Miscellaneous 5,837 10,318 7,169
----------------------------------------------------------------
Total expenses before waiver 1,062,940 934,052 961,975
Waiver of expenses (Note 5) (472,185) (537,941) (541,718)
Fees reimbursed by administrator (Note 5) 0 0 (15,103)
----------------------------------------------------------------
Net expenses 590,755 396,111 405,154
----------------------------------------------------------------
NET INVESTMENT INCOME 6,683,156 6,135,190 4,700,487
----------------------------------------------------------------
Net realized gain on investments 511,185 289,993 153,398
Change in net unrealized appreciation/
depreciation 3,050,177 2,417,451 1,912,756
----------------------------------------------------------------
Net gain on investments 3,561,362 2,707,444 2,066,154
----------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 10,244,518 $ 8,842,634 $ 6,766,641
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
U.S. TREASURY U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET CASH RESERVE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 1,888,482 $ 2,458,024 $ 762,562 $ 2,612,424
-------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 3) 90,514 115,701 56,911 119,544
Administration fee (Note 4) 27,154 34,710 17,073 35,863
Co-administration fee (Note 4) 18,103 23,140 11,382 23,909
Fund accounting/Transfer agent fee
Class I 7,180 20,699 10,394 11,357
Class III 14,600 1,203 2,173 21,998
Blue sky fee:
Class I 1,058 3,045 2,696 1,618
Class III 2,993 1,151 1,381 2,466
12b-1 fee:
Class III 66,251 3,604 4,943 71,387
Custodian fee 43,693 44,655 9,079 21,194
Trustees fee 1,122 1,358 437 1,723
Registration fee 2,739 0 600 3,500
Audit 9,328 12,320 3,714 19,051
Legal 503 0 135 22
Reports to shareholders 2,748 3,170 0 2,768
Miscellaneous 7,648 3,426 2,278 3,454
-------------------------------------------------------------------------------
Total expenses before waiver 295,634 268,182 123,196 339,854
Waiver of expenses (Note 5) (63,361) (80,991) (39,839) (83,681)
-------------------------------------------------------------------------------
Net expenses 232,273 187,191 83,357 256,173
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,656,209 2,270,833 679,205 2,356,251
-------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,495 0 0 3,447
-------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS $ 1,657,704 $ 2,270,833 $ 679,205 $ 2,359,698
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH & INCOME CAPITAL APPRECIATION
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------
For the Period
For the Six Months For the Year For the Six Months September 2, 1997
Ended December 31, Ended June 30, Ended December 31, to June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income (loss) $ 1,948,685 $ 3,015,742 $ (159,019) $ (125,902)
Net realized gain (loss) on
investments 21,940,452 10,927,323 (3,676,008) 884,892
Change in net unrealized
appreciation/depreciation 47,979,323 103,659,235 1,368,688 206,072
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 71,868,460 117,602,300 (2,466,339) 965,062
--------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (2,099,492) (2,843,865) 0 0
Class II (70,128) (160,717) 0 0
Class III 0 0 0 0
From net realized gain:
Class I (18,142,545) (10,122,599) (780,800) 0
Class II (1,602,790) (1,037,908) (37,718) 0
Class III (2,209,366) (2,240,676) (10,677) 0
--------------------------------------------------------------------------------------
Net decrease in net assets
from distributions (24,124,321) (16,405,765) (829,195) 0
--------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 53,275,645 137,051,702 1,268,732 38,987,569
Proceeds from shares issued in
connection with common trust
fund and collective investment
pool conversion (Note 6) 0 336,944,637 0 0
Reinvested dividends 15,014,650 14,882,981 796,224 0
Cost of shares redeemed (58,331,562) (100,318,257) (2,510,195) (947,861)
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from share transactions 9,958,733 388,561,063 (445,239) 38,039,708
--------------------------------------------------------------------------------------
Total increase (decrease) in
net assets 57,702,872 489,757,598 (3,740,773) 39,004,770
NET ASSETS:
Beginning of period 777,585,407 287,827,809 39,004,770 0
--------------------------------------------------------------------------------------
End of period* $ 835,288,279 $ 777,585,407 $ 35,263,997 $ 39,004,770
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
*Includes (over) undistributed
net investment income of $ (209,775) $ 11,160 $ (159,019) $ 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
BOND INTERMEDIATE BOND
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------
For the Period
For the Six Months For the Year For the Six Months March 2, 1998
Ended December 31, Ended June 30, Ended December 31, to June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 6,683,156 $ 9,618,610 $ 6,135,190 $ 3,773,291
Net realized gain on investments 511,185 2,329,047 289,993 351,280
Change in net unrealized
appreciation/depreciation 3,050,177 4,587,848 2,417,451 16,917
------------------------------------------------------------------------------------
Net increase in net assets
from operations 10,244,518 16,535,505 8,842,634 4,141,488
------------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (6,595,408) (9,451,778) (6,070,678) (3,758,861)
Class II (85,626) (82,660) (54,430) (14,367)
Class III (55,944) (112,904) (10,078) (63)
From net realized gain:
Class I (1,953,421) 0 (478,824) 0
Class II (29,521) 0 (6,249) 0
Class III (23,542) 0 (1,405) 0
------------------------------------------------------------------------------------
Net decrease in net assets
from distributions (8,743,462) (9,647,342) (6,621,664) (3,773,291)
------------------------------------------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 12,232,284 49,650,869 26,202,960 29,636,640
Proceeds from shares issued in
connection with common trust
fund and collective investment
pool conversion (Note 6) 0 48,681,990 0 184,904,888
Reinvested dividends 5,801,186 7,562,651 2,745,133 1,629,713
Cost of shares redeemed (11,807,309) (16,361,008) (15,516,785) (15,726,975)
------------------------------------------------------------------------------------
Net increase in net assets
from share transactions 6,226,161 89,534,502 13,431,308 200,444,266
------------------------------------------------------------------------------------
Total increase in net assets 7,727,217 96,422,665 15,652,278 200,812,463
NET ASSETS:
Beginning of period 223,001,366 126,578,701 200,812,463 0
------------------------------------------------------------------------------------
End of period* $ 230,728,583 $ 223,001,366 $ 216,464,741 $ 200,812,463
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
*Includes (over) undistributed
net investment income of $ (78,039) $ (24,216) $ 135,047 $ 135,043
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TENNESSEE TAX-FREE
PORTFOLIO
-------------------------------------------------
For the Six Months For the Year
Ended December 31, Ended June 30,
1998 (Unaudited) 1998
-------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income $ 4,700,487 $ 3,738,480
Net realized gain on investments 153,398 560,943
Change in net unrealized
appreciation/depreciation 1,912,756 286,177
-------------------------------------------------
Net increase in net assets
from operations 6,766,641 4,585,600
-------------------------------------------------
DISTRIBUTIONS:
From net investment income:
Class I (4,180,772) (3,130,378)
Class II (233,530) (344,269)
Class III (286,185) (263,833)
From net realized gain:
Class I (513,688) 0
Class II (31,953) 0
Class III (44,141) 0
-------------------------------------------------
Net decrease in net assets
from distributions (5,290,269) (3,738,480)
-------------------------------------------------
SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares 27,705,079 46,234,728
Proceeds from shares issued in
connection with common trust
fund and collective investment
pool conversion (Note 6) 0 148,766,645
Reinvested dividends 529,250 521,092
Cost of shares redeemed (16,379,511) (21,869,114)
-------------------------------------------------
Net increase in net assets
from share transactions 11,854,818 173,653,351
-------------------------------------------------
Total increase in net assets 13,331,190 174,500,471
NET ASSETS:
Beginning of period 195,127,152 20,626,681
-------------------------------------------------
End of period* $ 208,458,342 $ 195,127,152
-------------------------------------------------
-------------------------------------------------
*Includes undistributed
net investment income of $ 32,059 $ 32,059
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
U.S. TREASURY MONEY U.S. GOVERNMENT MONEY
MARKET PORTFOLIO MARKET PORTFOLIO
----------------------------------------------------------------------------------
For the Six Months For the Year For the Six Months For the Year
Ended December 31, Ended June 30, Ended December 31, Ended June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,656,209 $ 2,730,276 $ 2,270,833 $ 4,997,553
Net realized gain (loss) on
investments 1,495 (8,602) 0 (104)
----------------------------------------------------------------------------------
Net increase in net assets from
operations 1,657,704 2,721,674 2,270,833 4,997,449
----------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (461,122) (418,272) (2,203,972) (4,772,745)
Class III (1,195,087) (2,311,924) (66,861) (224,807)
----------------------------------------------------------------------------------
Net decrease in net assets from
distributions (1,656,209) (2,730,196) (2,270,833) (4,997,552)
----------------------------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 109,716,289 195,269,967 83,087,511 178,096,113
Reinvested dividends 199,890 168,849 56,457 212,777
Cost of shares redeemed (100,637,970) (201,103,688) (83,147,391) (185,567,585)
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
from share transactions 9,278,209 (5,664,872) (3,423) (7,258,695)
----------------------------------------------------------------------------------
Total increase (decrease) in
net assets 9,279,704 (5,673,394) (3,423) (7,258,798)
NET ASSETS:
Beginning of period 61,602,014 67,275,408 90,768,524 98,027,322
----------------------------------------------------------------------------------
End of period* $ 70,881,718 $ 61,602,014 $ 90,765,101 $ 90,768,524
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
*Includes undistributed net
investment income of $ 80 $ 80 $ 331 $ 331
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY CASH RESERVE
MARKET PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------
For the Six Months For the Year For the Six Months For the Year
Ended December 31, Ended June 30, Ended December 31, Ended June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 679,205 $ 1,700,829 $ 2,356,251 $ 3,441,382
Net realized gain (loss) on
investments 0 578 3,447 (3,292)
----------------------------------------------------------------------------------
Net increase in net assets from
operations 679,205 1,701,407 2,359,698 3,438,090
----------------------------------------------------------------------------------
DISTRIBUTIONS:
From net investment income
Class I (626,964) (1,422,183) (979,780) (997,201)
Class III (52,241) (278,646) (1,376,471) (2,444,181)
----------------------------------------------------------------------------------
Net decrease in net assets from
distributions (679,205) (1,700,829) (2,356,251) (3,441,382)
----------------------------------------------------------------------------------
SHARE TRANSACTIONS AT NET ASSET VALUE
OF $1.00 PER SHARE (NOTE 2):
Proceeds from sales of shares 43,102,191 92,913,367 91,964,267 214,585,155
Reinvested dividends 43,617 273,909 1,131,067 2,394,995
Cost of shares redeemed (37,589,470) (111,853,446) (103,373,810) (168,324,452)
----------------------------------------------------------------------------------
Net increase (decrease) in net assets
from share transactions 5,556,338 (18,666,170) (10,278,476) 48,655,698
----------------------------------------------------------------------------------
Total increase (decrease)
in net assets 5,556,338 (18,665,592) (10,275,029) 48,652,406
NET ASSETS:
Beginning of period 40,208,971 58,874,563 98,485,170 49,832,764
----------------------------------------------------------------------------------
End of period* $ 45,765,309 $ 40,208,971 $ 88,210,141 $ 98,485,170
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
*Includes undistributed net investment
income of $ 0 $ 0 $ 22 $ 22
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH & INCOME PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-----------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994**
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $21.56 $17.03 $14.12 $12.22 $10.53 $10.00
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07 0.17 0.18 0.19 0.23 0.17
Net realized and unrealized gain on investments 1.94 5.25 3.75 2.58 2.21 0.57
-----------------------------------------------------------------------------
Total from investment operations 2.01 5.42 3.93 2.77 2.44 0.74
-----------------------------------------------------------------------------
Distributions:
Net investment income (0.07) (0.17) (0.18) (0.19) (0.23) (0.17)
Net realized gain (0.61) (0.72) (0.84) (0.68) (0.52) (0.04)
-----------------------------------------------------------------------------
Total distributions (0.68) (0.89) (1.02) (0.87) (0.75) (0.21)
-----------------------------------------------------------------------------
Net asset value, end of period $22.89 $21.56 $17.03 $14.12 $12.22 $10.53
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
TOTAL RETURN+ 9.34%# 32.55% 28.83% 23.54% 24.20% 7.39%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $689,148 $651,363 $221,136 $159,146 $114,000 $82,751
Ratio of expenses to average daily net assets(1) 0.80%* 0.82% 0.83% 0.76% 0.47% 0.34%*
Ratio of net investment income to average net assets 0.63%* 0.78% 1.19% 1.40% 2.12% 1.83%*
Portfolio turnover rate 22%* 7% 25% 41% 33% 83%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.95%* 0.97% 0.98% 1.00% 0.99% 1.05%*
</TABLE>
<TABLE>
<CAPTION>
CLASS II
-------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $21.58 $17.05 $14.12 $13.05
-------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.03 0.10 0.13 0.09
Net realized and unrealized gain on investments 1.95 5.27 3.76 1.74
-------------------------------------------------------------------------
Total from investment operations 1.98 5.37 3.89 1.83
-------------------------------------------------------------------------
Distributions:
Net investment income (0.03) (0.12) (0.12) (0.08)
Net realized gain (0.61) (0.72) (0.84) (0.68)
-------------------------------------------------------------------------
Total distributions (0.64) (0.84) (0.96) (0.76)
-------------------------------------------------------------------------
Net asset value, end of period $22.92 $21.58 $17.05 $14.12
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL RETURN+*** 9.18%# 32.17% 28.48% 14.71%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $61,858 $46,863 $16,514 $1,918
Ratio of expenses to average daily net assets(1) 1.10%* 1.13% 1.14% 1.06%*
Ratio of net investment income to average net assets 0.33%* 0.47% 0.88% 1.10%*
Portfolio turnover rate 22%* 7% 25% 41%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.24%* 1.28% 1.29% 1.30%*
</TABLE>
* Annualized.
** Classes I and II commenced operations on August 2, 1993 and
December 20, 1995, respectively.
*** Class II total return does not include the one time front-end sales charge.
+ 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.
26
<PAGE>
FINANCIAL HIGHLIGHTS
GROWTH & INCOME PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994**
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $21.47 $16.99 $14.11 $12.23 $10.51 $10.60
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.04) 0.02 0.03 0.06 0.06
Net realized and unrealized gain (loss) on
investments 1.93 5.24 3.74 2.60 2.24 (0.05)
---------------------------------------------------------------------------------
Total from investment operations 1.88 5.20 3.76 2.63 2.30 0.01
---------------------------------------------------------------------------------
Distributions:
Net investment income - - (0.04) (0.07) (0.06) (0.06)
Net realized gain (0.61) (0.72) (0.84) (0.68) (0.52) (0.04)
---------------------------------------------------------------------------------
Total distributions (0.61) (0.72) (0.88) (0.75) (0.58) (0.10)
---------------------------------------------------------------------------------
Net asset value, end of period $22.74 $21.47 $16.99 $14.11 $12.23 $10.51
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
TOTAL RETURN+ 8.76%# 31.16% 27.44% 22.19% 22.61% 0.08%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $84,282 $79,360 $50,178 $36,892 $19,363 $2,094
Ratio of expenses to average daily net assets(1) 1.86%* 1.87% 1.94% 1.87% 1.72% 1.83%*
Ratio of net investment income to average net assets (0.43)% (0.28)% 0.08% 0.29% 0.87% 0.34%*
Portfolio turnover rate 22%* 7% 25% 41% 33% 83%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.00%* 2.02% 2.09% 2.11% 2.26% 6.03%*
</TABLE>
* Annualized.
** Class III commenced operations on December 9, 1993.
+ 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.
27
<PAGE>
FINANCIAL HIGHLIGHTS
CAPITAL APPRECIATION PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
----------------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,
----------------------------------------------------
1998 1998**
---- ----
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $10.74 $10.00
----------------------------------------------------
Income from investment operations:
Net investment loss (0.04) (0.03)
Net realized and unrealized gain (loss) on
investments (0.64) 0.77
----------------------------------------------------
Total from investment operations (0.68) 0.74
----------------------------------------------------
Distributions:
Net realized gain (0.24) -
----------------------------------------------------
Net asset value, end of period $9.82 $10.74
----------------------------------------------------
----------------------------------------------------
TOTAL RETURN+ (6.26)%# 7.40%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $33,219 $37,014
Ratio of expenses to average daily net assets(1) 1.23%* 1.16%*
Ratio of net investment loss to average net assets (0.90)%* (0.54)%*
Portfolio turnover rate 54%* 44%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.38%* 1.36%*
</TABLE>
<TABLE>
<CAPTION>
CLASS II
----------------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,
----------------------------------------------------
1998 1998
---- ----
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $10.71 $10.51
----------------------------------------------------
Income from investment operations:
Net investment loss (0.05) (0.05)
Net realized and unrealized gain (loss) on
investments (0.65) 0.25
----------------------------------------------------
Total from investment operations (0.70) 0.20
----------------------------------------------------
Distributions:
Net realized gain (0.24) -
----------------------------------------------------
Net asset value, end of period $9.77 $10.71
----------------------------------------------------
----------------------------------------------------
TOTAL RETURN+*** (6.47)%# 1.90%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $1,597 $1,400
Ratio of expenses to average daily net assets(1) 1.62%* 1.52%*
Ratio of net investment loss to average net assets (1.29)%* (0.90)%*
Portfolio turnover rate 54%* 44%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.76%* 1.72%*
</TABLE>
* Annualized.
** Class I commenced operations on September 2, 1997 and Classes II commenced
operations on October 2, 1997.
*** Class II total return does not include the one time sales charge.
+ 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.
28
<PAGE>
FINANCIAL HIGHLIGHTS
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CLASS III
----------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,
----------------------------------------------
1998 1998
---- ----
<S> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period $10.64 $10.51
----------------------------------------------
Income from investment operations:
Net investment loss (0.11) (0.10)
Net realized and unrealized gain (loss) on
investments (0.63) 0.23
----------------------------------------------
Total from investment operations (0.74) 0.13
----------------------------------------------
Distributions:
Net realized gain (0.24) -
----------------------------------------------
Net asset value, end of period $9.66 $10.64
----------------------------------------------
----------------------------------------------
TOTAL RETURN+ (6.89)%# 1.24%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $448 $590
Ratio of expenses to average daily net assets(1) 2.37%* 2.28%*
Ratio of net investment loss to average net assets (2.04)%* (1.65)%*
Portfolio turnover rate 54%* 44%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.52%* 2.47%*
</TABLE>
* Annualized.
** Class III commenced operations on October 2, 1997.
+ 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.
29
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
BOND PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994**
---- ---- ---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.29 $9.84 $9.73 $9.91 $9.41 $10.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.30 0.61 0.61 0.60 0.57 0.45
Net realized and unrealized gain (loss) on
investments 0.16 0.45 0.11 (0.18) 0.50 (0.57)
---------------------------------------------------------------------------
Total from investment operations 0.46 1.06 0.72 0.42 1.07 (0.12)
---------------------------------------------------------------------------
Distributions:
Net investment income (0.30) (0.61) (0.61) (0.60) (0.57) (0.46)
Net realized gain (0.09) - - - - (0.01)
---------------------------------------------------------------------------
Total distributions (0.39) (0.61) (0.61) (0.60) (0.57) (0.47)
---------------------------------------------------------------------------
Net asset value, end of period $10.36 $10.29 $9.84 $9.73 $9.91 $9.41
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN+ 4.51%# 11.02% 7.58% 4.23% 11.87% (1.38)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $224,561 $219,088 $123,184 $107,832 $90,574 $75,686
Ratio of expenses to average daily net assets (1) 0.48%* 0.49% 0.49% 0.41% 0.35% 0.36%*
Ratio of net investment income to average net assets 5.68%* 5.98% 6.20% 5.99% 6.07% 5.07%*
Portfolio turnover rate 22%* 26% 56% 56% 23% 36%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.88%* 0.89% 0.89% 0.91% 0.91% 0.96%*
<CAPTION>
CLASS II
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.26 $9.81 $9.71 $10.18
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.57 0.57 0.29
Net realized and unrealized gain (loss) on
investments 0.16 0.46 0.10 (0.47)
---------------------------------------------------------------------------
Total from investment operations 0.44 1.03 0.67 (0.18)
---------------------------------------------------------------------------
Distributions:
Net investment income (0.28) (0.58) (0.57) (0.29)
Net realized gain (0.09) - - -
---------------------------------------------------------------------------
Total distributions (0.37) (0.58) (0.57) (0.29)
---------------------------------------------------------------------------
Net asset value, end of period $10.33 $10.26 $9.81 $9.71
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN+*** 4.37%# 10.72% 7.12% (1.75)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $3,396 $1,801 $841 $67
Ratio of expenses to average daily net assets(1) 0.83%* 0.84% 0.90% 0.80%*
Ratio of net investment income to average net assets 5.33%* 5.63% 5.79% 5.61%*
Portfolio turnover rate 22%* 26% 56% 56%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.23%* 1.24% 1.30% 1.30%*
</TABLE>
* Annualized.
** Classes I and II commenced operations on August 2, 1993 and December 20,
1995, respectively.
*** Class II total return does not include the one time sales charge.
+ 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.
30
<PAGE>
FINANCIAL HIGHLIGHTS
BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994**
---- ---- ---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.27 $9.82 $9.71 $9.89 $9.40 $10.04
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.48 0.49 0.49 0.43 0.21
Net realized and unrealized gain (loss) on
investments 0.16 0.46 0.11 (0.18) 0.49 (0.62)
---------------------------------------------------------------------------
Total from investment operations 0.40 0.94 0.60 0.31 0.92 (0.41)
---------------------------------------------------------------------------
Distributions:
Net investment income (0.24) (0.49) (0.49) (0.49) (0.43) (0.22)
Net realized gain (0.09) - - - - (0.01)
---------------------------------------------------------------------------
Total distributions (0.33) (0.49) (0.49) (0.49) (0.43) (0.23)
---------------------------------------------------------------------------
Net asset value, end of period $10.34 $10.27 $9.82 $9.71 $9.89 $9.40
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN+ 3.89%# 9.72% 6.37% 3.11% 10.12% (4.19)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $2,722 $2,113 $2,553 $3,445 $1,916 $923
Ratio of expenses to average daily net assets(1) 1.65%* 1.67% 1.63% 1.49% 1.84% 1.82%*
Ratio of net investment income to average net assets 4.52%* 4.80% 5.07% 4.92% 4.58% 3.61%*
Portfolio turnover rate 22%* 26% 56% 56% 23% 36%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 2.05%* 2.07% 2.03% 1.99% 3.35% 6.36%*
</TABLE>
* Annualized.
** Class III commenced operations on December 2, 1993.
+ 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.
31
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,
---------------------------------------------------------------------------
1998 1998**
---- ------
SELECTED PER-SHARE DATA
<S> <C> <C>
Net asset value, beginning of period $10.02 $10.00
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29 0.19
Net realized and unrealized gain on
investments 0.13 0.02
---------------------------------------------------------------------------
Total from investment operations 0.42 0.21
---------------------------------------------------------------------------
Distributions:
Net investment income (0.29) (0.19)
Net realized gain (0.02) -
---------------------------------------------------------------------------
Total distributions (0.31) (0.19)
---------------------------------------------------------------------------
Net asset value, end of period $10.13 $10.02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN+ 4.27%# 2.17%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $213,058 $199,872
Ratio of expenses to average daily net assets(1) 0.37%* 0.37%*
Ratio of net investment income to average net assets 5.74%* 5.87%*
Portfolio turnover rate 42%* 9%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.87%* 0.87%*
<CAPTION>
CLASS II
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,**
---------------------------------------------------------------------------
1998 1998**
---- ------
SELECTED PER-SHARE DATA
<S> <C> <C>
Net asset value, beginning of period $10.02 $9.99
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28 0.18
Net realized and unrealized gain on
investments 0.13 0.03
---------------------------------------------------------------------------
Total from investment operations 0.41 0.21
---------------------------------------------------------------------------
Distributions:
Net investment income (0.28) (0.18)
Net realized gain (0.02) -
---------------------------------------------------------------------------
Total distributions (0.30) (0.18)
---------------------------------------------------------------------------
Net asset value, end of period $10.13 $10.02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN+*** 4.13%# 2.07%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $2,783 $923
Ratio of expenses to average daily net assets(1) 0.69%* 0.65%*
Ratio of net investment income to average net assets 5.42%* 5.59%*
Portfolio turnover rate 42%* 9%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.19%* 1.16%*
</TABLE>
* Annualized.
** Class I commenced operations on March 2, 1998 and Classes II commenced
operations on March 9, 1998.
*** Class II total return does not include the one time sales charge.
+ 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.
32
<PAGE>
FINANCIAL HIGHLIGHTS
INTERMEDIATE BOND PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Period
(Unaudited) Ended June 30,
---------------------------------------------------------------------------
1998 1998**
---- ------
SELECTED PER-SHARE DATA
<S> <C> <C>
Net asset value, beginning of period $10.02 $9.99
---------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.24 0.06
Net realized and unrealized gain on
investments 0.14 0.03
---------------------------------------------------------------------------
Total from investment operations 0.38 0.09
---------------------------------------------------------------------------
Distributions:
Net investment income (0.24) (0.06)
Net realized gain (0.02) 0.00
---------------------------------------------------------------------------
Total distributions (0.27) (0.06)
---------------------------------------------------------------------------
Net asset value, end of period $10.13 $10.02
---------------------------------------------------------------------------
---------------------------------------------------------------------------
TOTAL RETURN+ 3.36%# 0.92%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $624 $17
Ratio of expenses to average daily net assets(1) 1.29%* 1.35%*
Ratio of net investment income to average net assets 4.81%* 4.89%*
Portfolio turnover rate 42%* 9%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.80%* 1.86%*
</TABLE>
* Annualized.
** Class III commenced operations on May 19, 1998.
+ 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.
33
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
TENNESSEE TAX-FREE PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
-------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.31 $9.99 $9.71 $10.00
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23 0.48 0.50 0.23
Net realized and unrealized gain (loss) on
investments 0.11 0.32 0.28 (0.29)
-------------------------------------------------------------------------------
Total from investment operations 0.34 0.80 0.78 (0.06)
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.23) (0.48) (0.50) (0.23)
Net realized gain (0.03) - - -
-------------------------------------------------------------------------------
Total distributions (0.26) (0.48) (0.50) (0.23)
-------------------------------------------------------------------------------
Net asset value, end of period $10.39 $10.31 $9.99 $9.71
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+ 3.37%# 8.16% 8.26% (0.65)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $181,468 $176,884 $8,935 $5,925
Ratio of expenses to average daily net assets (1) 0.36%* 0.31% 0.07% 0.50%*
Ratio of net investment income to average net assets 4.50%* 4.71% 5.09% 4.31%*
Portfolio turnover rate 38%* 15% 122% 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. 0.86% 0.85% 1.14% 1.42%*
<CAPTION>
CLASS II
-------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.34 $10.01 $9.73 $10.06
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23 0.48 0.51 0.21
Net realized and unrealized gain (loss) on
investments 0.10 0.33 0.28 (0.33)
-------------------------------------------------------------------------------
Total from investment operations 0.33 0.81 0.79 (0.12)
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.23) (0.48) (0.51) (0.21)
Net realized gain (0.03) - - -
-------------------------------------------------------------------------------
Total distributions (0.23) (0.48) (0.51) (0.21)
-------------------------------------------------------------------------------
Net asset value, end of period $10.41 $10.34 $10.01 $9.73
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+*** 3.24%# 8.22% 8.37% (1.25)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $11,324 $8,973 $5,941 $1,875
Ratio of expenses to average daily
net assets (1) 0.41%* 0.37% 0.12% 0.49%*
Ratio of net investment income to average net assets 4.45%* 4.65% 5.03% 4.32%*
Portfolio turnover rate 38%* 15% 122% 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. 0.91%* 0.91% 1.14% 1.42%*
</TABLE>
* Annualized.
** Class I commenced operations on December 15, 1995. Class II commenced
operations on December 29, 1995.
*** Class II total return does not include the one time sales charge.
+ 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.
34
<PAGE>
FINANCIAL HIGHLIGHTS
TENNESSEE TAX-FREE PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
CLASS III
-------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.32 $10.00 $9.72 $10.00
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.22 0.45 0.50 0.19
Net realized and unrealized gain (loss) on
investments 0.11 0.32 0.28 (0.28)
-------------------------------------------------------------------------------
Total from investment operations 0.33 0.77 0.78 (0.09)
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.22) (0.45) (0.50) (0.19)
Net realized gain (0.03) - - -
-------------------------------------------------------------------------------
Total distributions (0.25) (0.45) (0.50) (0.19)
-------------------------------------------------------------------------------
Net asset value, end of period $10.40 $10.32 $10.00 $9.72
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+ 3.20%# 7.86% 8.20% (0.87)%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $15,667 $9,270 $5,750 $896
Ratio of expenses to average daily
net assets (1) 0.69%* 0.61% 0.23% 0.98%*
Ratio of net investment income to average net assets 4.17%* 4.41% 4.93% 3.83%*
Portfolio turnover rate 38%* 15% 122% 8%*
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 1.66%* 1.65% 1.91% 1.91%*
</TABLE>
* Annualized.
** Class III commenced operations on December 15, 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.
35
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
U.S. TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
---------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.024 0.051 0.050 0.052 0.050 0.030
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.024) (0.051) (0.050) (0.052) (0.050) (0.030)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+ 2.41%# 5.19% 5.09% 5.30% 5.10% 3.06%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $18,246 $19,314 $6,141 $75,703 $67,377 $100,868
Ratio of expenses to average net assets (1) 0.47%* 0.45% 0.37% 0.36% 0.36% 0.33%
Ratio of net investment income to average net assets 4.75%* 5.09% 5.01% 5.19% 5.00% 3.04%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.65%* 0.63% 0.55% 0.56% 0.63% 0.60%
<CAPTION>
CLASS III
-------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.023 0.049 0.047 0.044
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.023) (0.049) (0.047) (0.044)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+ 2.29%# 5.03% 4.84% 4.47%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $52,636 $42,288 $61,135 $3,528
Ratio of expenses to average net assets (1) 0.70%* 0.62% 0.62% 0.62%*
Ratio of net investment income to average net assets 4.52%* 4.92% 4.76% 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. 0.88%* 0.80% 0.80% 0.82%*
</TABLE>
* Annualized.
** Class III commenced operations on August 8, 1995.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
36
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
-----------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-----------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.025 0.052 0.051 0.053 0.053 0.032
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.025) (0.052) (0.051) (0.053) (0.053) (0.032)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+ 2.49%# 5.37% 5.23% 5.37% 5.39% 3.23%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $89,336 $88,255 $94,541 $88,111 $88,057 $67,854
Ratio of expenses to average net assets (1) 0.39%* 0.35% 0.35% 0.33% 0.31% 0.28%
Ratio of net investment income to average net assets 4.92%* 5.24% 5.11% 5.28% 5.27% 3.18%
(1) During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.57%* 0.52% 0.53% 0.53% 0.58% 0.55%
<CAPTION>
CLASS III
-------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
-------------------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
SELECTED PER-SHARE DATA
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.023 0.049 0.048 0.044
-------------------------------------------------------------------------------
Distributions:
Net investment income (0.023) (0.049) (0.048) (0.044)
-------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
TOTAL RETURN+ 2.28%# 5.05% 4.91% 4.49%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $1,429 $2,513 $3,486 $228
Ratio of expenses to average net assets (1) 0.75%* 0.65% 0.65% 0.65%*
Ratio of net investment income to average net assets 4.56%* 4.94% 4.81% 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. 0.93%* 0.82% 0.83% 0.85%*
</TABLE>
* Annualized.
** Class III commenced operations on August 8, 1995.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
37
<PAGE>
- --------------------------------------------------------------------------------
FIRST FUNDS SEMI-ANNUAL REPOT
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
MUNICIPAL MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
------------------------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <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
------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.015 0.033 0.033 0.035 0.034 0.024
------------------------------------------------------------------------------------
Distributions:
Net investment income (0.015) (0.033) (0.033) (0.035) (0.034) (0.024)
------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
TOTAL RETURN+ 1.52%# 3.33% 3.32% 3.52% 3.48% 2.40%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $42,839 $36,279 $45,988 $71,665 $94,078 $76,231
Ratio of expenses to average net
assets (1) 0.33%* 0.38% 0.35% 0.32% 0.30% 0.28%
Ratio of net investment income to
average net assets 3.02%* 3.28% 3.25% 3.50% 3.44% 2.39%
(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%* 0.56% 0.53% 0.52% 0.57% 0.55%
</TABLE>
<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.013 0.030 0.030 0.030
---------------------------------------------------------------------
Distributions:
Net investment income (0.013) (0.030) (0.030) (0.030)
---------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
---------------------------------------------------------------------
TOTAL RETURN+ 1.33%# 3.06% 3.03% 3.03%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $2,926 $3,929 $12,886 $2,905
Ratio of expenses to average net assets (1) 0.70%* 0.63% 0.62% 0.58%*
Ratio of net investment income to average
net assets 2.65%* 3.03% 2.98% 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. 0.88%* 0.81% 0.79% 0.78%*
</TABLE>
* Annualized.
** Class III commenced operations on July 28, 1995.
+ Total return would have been lower had various fees not been waived during
the period.
# Total return for periods of less than one year are not annualized.
The accompanying notes are an integral part of the financial statements.
38
<PAGE>
FINANCIAL HIGHLIGHTS
CASH RESERVE PORTFOLIO
<TABLE>
<CAPTION>
CLASS I
----------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
----------------------------------------------------------------------
1998 1998 1997 1996 1995**
---- ---- ---- ---- ------
<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 0.026 0.053 0.051 0.053 0.042
----------------------------------------------------------------------
Distributions:
Net investment income (0.026) (0.053) (0.051) (0.053) (0.042)
----------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------
----------------------------------------------------------------------
TOTAL RETURN+ 2.58%# 5.46% 5.23% 5.39% 4.27%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $31,333 $40,242 $14,241 $16,369 $15,460
Ratio of expenses to average net assets (1) 0.38%* 0.36% 0.40% 0.42% 0.43%*
Ratio of net investment income to average net assets 5.08%* 5.33% 5.13% 5.22% 5.48%*
(1)During the period, various fees were waived.
The ratio of expenses to average net assets had
such waivers not occurred is as follows. 0.55%* 0.54% 0.57% 0.61% 0.70%*
</TABLE>
<TABLE>
<CAPTION>
CLASS III
---------------------------------------------------------------------
For the Six Months
Ended December 31, For the Year
(Unaudited) Ended June 30,
---------------------------------------------------------------------
1998 1998 1997 1996**
---- ---- ---- ------
<S> <C> <C> <C> <C>
SELECTED PER - SHARE DATA
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Income from investment operations:
Net investment income 0.024 0.051 0.049 0.047
---------------------------------------------------------------------
Distributions:
Net investment income (0.024) (0.051) (0.049) (0.047)
---------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
---------------------------------------------------------------------
TOTAL RETURN+ 2.44%# 5.21% 5.00% 4.78%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands) $56,877 $58,243 $35,592 $24,190
Ratio of expenses to average net assets (1) 0.64%* 0.60% 0.64% 0.62%*
Ratio of net investment income to average
net assets 4.82%* 5.09% 4.88% 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. 0.82%* 0.77% 0.82% 0.81%*
</TABLE>
* 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.
39
<PAGE>
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 nine 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, 1998, Class II shares have not been issued for the
Money Market 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/fund accounting 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, CAPITAL APPRECIATION, BOND, INTERMEDIATE BOND AND TENNESSEE
TAX-FREE PORTFOLIOS: Securities held in the Growth & Income and Capital
Appreciation Portfolios 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,
Intermediate 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.
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 advisers 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.
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 Intermediate Bond,
Tennessee Tax-Free and Municipal Money Market Portfolios, accretion of market
discount represents unrealized gain until realized at the time of security
disposition or maturity. For the Intermediate Bond Portfolio, amortization of
market premium represents unrealized loss 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.
DISTRIBUTIONS TO SHAREHOLDERS: For the Money Market Portfolios, Bond Portfolio,
Intermediate Bond Portfolio and Tennessee Tax-Free Portfolio, distributions are
declared daily and paid monthly from net investment income. Distributions for
the Growth & Income Portfolio are declared and paid quarterly. Distributions
for the Capital Appreciation Portfolio are declared and paid annually. Any net
capital gains earned by each Portfolio are distributed at least annually 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.
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.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
<TABLE>
<CAPTION>
GROWTH & INCOME PORTFOLIO CAPITAL APPRECIATION PORTFOLIO
------------------------------------------------------------------------------
For the Six Months For the Year For the Six Months For the Period
Ended December 31, Ended June 30, Ended December 31, Ended June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dollars issued and redeemed:
Class I:*
Issued $ 31,509,259 $ 86,107,454 $ 685,659 $ 36,806,365
Conversion (Note 6) 0 336,944,637 0 0
Distributions reinvested 11,224,028 11,495,391 749,183 0
Redeemed (44,393,605) (84,830,917) (2,061,424) (664,722)
------------------------------------------------------------------------------
Net increase (decrease) $ (1,660,318) $ 349,716,565 $ (626,582) $ 36,141,643
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class II:**
Issued $ 14,456,017 $ 28,599,520 $ 421,492 $ 1,442,812
Distributions reinvested 1,647,087 1,190,189 36,493 0
Redeemed (5,041,118) (5,829,163) (184,973) (90,116)
------------------------------------------------------------------------------
Net increase $ 11,061,986 $ 23,960,546 $ 273,012 $ 1,352,696
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class III:**
Issued $ 7,310,369 $ 22,344,728 $ 161,581 $ 738,392
Distributions reinvested 2,143,535 2,197,401 10,548 0
Redeemed (8,896,839) (9,658,177) (263,798) (193,023)
------------------------------------------------------------------------------
Net increase (decrease) $ 557,065 $ 14,883,952 $ (91,669) $ 545,369
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Shares issued and redeemed:
Class I:*
Issued 1,525,148 4,294,210 78,707 3,510,847
Conversion (Note 6) 0 16,404,315 0 0
Distributions reinvested 492,209 597,853 79,956 0
Redeemed (2,116,270) (4,074,239) (221,214) (63,893)
------------------------------------------------------------------------------
Net increase (decrease) (98,913) 17,222,139 (62,551) 3,446,954
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class II:**
Issued 698,349 1,425,388 48,657 139,460
Distributions reinvested 71,973 61,918 3,911 0
Redeemed (242,713) (284,427) (19,963) (8,694)
------------------------------------------------------------------------------
Net increase 527,609 1,202,879 32,605 130,766
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class III:**
Issued 352,736 1,117,289 15,745 73,185
Distributions reinvested 94,056 114,866 1,143 0
Redeemed (436,432) (489,406) (26,042) (17,704)
------------------------------------------------------------------------------
Net increase (decrease) 10,360 742,749 (9,154) 55,481
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
* Capital Appreciation Portfolio Class I commenced operations on September 2,
1997.
** Capital Appreciation Portfolio Class II and III commenced operations on
October 2, 1997.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
<TABLE>
<CAPTION>
BOND INTERMEDIATE BOND TENNESSEE TAX-FREE
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------
For the For the For the For the For the For the
Six Months Ended Year Ended Six Months Ended Period Ended Six Months Ended Year Ended
December 31, June 30, December 31, June 30, December 31, Ended June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998 1998 (Unaudited) 1998
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dollars issued
and redeemed:
Class I:*
Issued $ 9,493,335 $ 46,340,246 $ 23,271,308 $ 28,713,805 $ 15,866,180 $ 33,623,138
Conversion
(Note 6) 0 48,681,990 0 184,904,888 0 148,766,645
Distributions
reinvested 5,620,805 7,380,447 2,680,301 1,616,030 34,374 40,522
Redeemed (11,121,805) (13,222,635) (14,976,535) (15,726,975) (12,651,287) (14,953,896)
-------------------------------------------------------------------------------------------------------------
Net increase $ 3,992,335 $ 89,180,048 $ 10,975,074 $ 199,507,748 $ 3,249,267 $ 167,476,409
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Class II:**
Issued $ 1,781,589 $ 2,812,425 $ 1,945,800 $ 906,154 $ 2,568,467 $ 3,978,499
Distributions
reinvested 106,681 76,219 57,474 13,622 209,759 256,834
Redeemed (310,977) (1,986,006) (149,919) 0 (497,998) (1,411,935)
-------------------------------------------------------------------------------------------------------------
Net increase $ 1,577,293 $ 902,638 $ 1,853,355 $ 919,776 $ 2,280,228 $ 2,823,398
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Class III:***
Issued $ 957,360 $ 498,198 $ 985,852 $ 16,681 $ 9,270,432 $ 8,633,091
Distributions
reinvested 73,700 105,985 7,358 61 285,117 223,736
Redeemed (374,527) (1,152,367) (390,331) 0 (3,230,226) (5,503,283)
-------------------------------------------------------------------------------------------------------------
Net increase
(decrease) $ 656,533 $ (548,184) $ 602,879 $ 16,742 $ 6,325,323 $ 3,353,544
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Shares issued
and redeemed:
Class I:*
Issued 913,690 4,572,530 2,301,463 2,872,017 1,527,781 3,276,947
Conversion
(Note 6) 0 4,782,121 0 18,490,489 0 14,429,355
Distributions
reinvested 540,298 727,742 264,380 161,641 3,307 3,956
Redeemed (1,069,699) (1,308,146) (1,482,972) (1,573,067) (1,215,125) (1,455,374)
-------------------------------------------------------------------------------------------------------------
Net increase 384,289 8,774,247 1,082,871 19,951,080 315,963 16,254,884
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Class II:**
Issued 172,816 278,620 191,640 90,798 247,227 387,208
Distributions
reinvested 10,166 7,526 5,660 1,362 20,137 25,004
Redeemed (29,874) (196,406) (14,735) 0 (47,875) (137,427)
-------------------------------------------------------------------------------------------------------------
Net increase 153,108 89,740 182,565 92,160 219,489 274,785
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Class III:***
Issued 91,227 49,250 97,920 1,665 891,307 840,009
Distributions
reinvested 7,102 10,482 724 6 27,394 21,795
Redeemed (36,026) (113,964) (38,704) 0 (310,212) (538,938)
-------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 62,303 (54,232) 59,940 1,671 608,489 322,866
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
* Intermediate Bond Portfolio Class I commenced operations on March 2, 1998.
** Intermediate Bond Portfolio Class II commenced operations on March 9, 1998.
*** Intermediate Bond Portfolio Class III commenced operations on May 19, 1998.
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET PORTFOLIO U.S. GOVERNMENT MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
For the Six Months For the Year For the Six Months For the Period
Ended December 31, Ended June 30, Ended December 31, Ended June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares/Dollars issued and redeemed:
Class I:
Issued $ 7,619,238 $ 28,322,040 $ 57,075,973 $ 149,805,484
Distributions reinvested 114 4,022 6 351
Redeemed (8,687,594) (15,151,653) (55,995,024) (156,091,631)
------------------------------------------------------------------------------
Net increase (decrease) $ (1,068,242) $ 13,174,409 $ 1,080,955 $ (6,285,796)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class III:
Issued $ 102,097,051 $ 166,947,927 $ 26,011,538 $ 28,290,629
Distributions reinvested 199,776 164,827 56,451 212,426
Redeemed (91,950,376) (185,952,035) (27,152,367) (29,475,954)
------------------------------------------------------------------------------
Net increase (decrease) $ 10,346,451 $ (18,839,281) $ (1,084,378) $ (972,899)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO CASH RESERVE PORTFOLIO
------------------------------------------------------------------------------
For the Six Months For the Year For the Six Months For the Period
Ended December 31, Ended June 30, Ended December 31, Ended June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares/Dollars issued and redeemed:
Class I:
Issued $ 37,877,671 $ 78,625,128 $ 27,317,615 75,241,145
Distributions reinvested 9 159 0 0
Redeemed (31,318,175) (88,334,438) (36,228,537) (49,239,160)
------------------------------------------------------------------------------
Net increase (decrease) $ 6,559,505 $ (9,709,151) $ (8,910,922) $ 26,001,985
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Class III:
Issued $ 5,224,520 $ 14,288,239 $ 64,646,652 139,344,010
Distributions reinvested 43,608 273,750 1,131,067 2,394,995
Redeemed (6,271,295) (23,519,008) (67,145,273) (119,085,292)
------------------------------------------------------------------------------
Net increase (decrease) $ (1,003,167) $ (8,957,019) $ (1,367,554) $ 22,653,713
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
3. INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS
For managing its investment and business affairs, the Growth & Income Portfolio,
Bond Portfolio, Intermediate 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%, .50% 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.
First Tennessee and Investment Advisers, Inc. ("IAI") serve as co-advisers of
the Capital Appreciation Portfolio pursuant to the authority granted to them
under their respective Co-Advisory Agreements with the Portfolio. The Capital
Appreciation Portfolio is obligated to pay First Tennessee monthly management
fees at the annual rate of .15% of its average net assets. The Capital
Appreciation Portfolio is obligated to pay IAI monthly management fees at the
annual rate of .70% for the first $50 million of the Portfolio's average net
assets and .65% on average net assets of the Portfolio in excess of $50 million.
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 Intermediate Bond and Tennessee Tax-Free Portfolios, Martin & Company,
Inc. ("Martin") serves as sub-adviser of each Portfolio pursuant to the
authority granted to it under its Sub-Advisory Agreement with First Tennessee.
Martin is an affiliate of First Tennessee and is a wholly-owned subsidiary of
First Tennessee National Corporation. Martin is paid by First Tennessee a
monthly sub-advisory fee at the annual rate of .30% of each Portfolio's average
net assets.
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENT ADVISORY AND MANAGEMENT AND SUB-ADVISORY AGREEMENTS (CONTINUED)
For the Money Market Portfolios, BlackRock Institutional Management Corporation
("BlackRock") (formerly PNC Institutional Management Corporation) serves as the
sub-adviser of each Portfolio pursuant to the authority granted to it under its
Sub-Advisory Agreement with First Tennessee. BlackRock is a wholly-owned
subsidiary of PNC Bank National Association. BlackRock is paid by First
Tennessee a monthly sub-advisory fee at the annual rate of .08% of each
Portfolio's average net assets through $500 million, .06% of the next $500
million, and .05% of net assets greater than $1 billion.
4. ADMINISTRATOR, CO-ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc. serves as Administrator and Distributor for
the Trust under separate Administration and General Distribution Agreements.
ALPS' duties include distribution services, providing office space and
various legal and accounting services in connection with the regulatory
requirements applicable to each Portfolio. ALPS is entitled to receive
administration fees from each of the Money Market Portfolios at the annual
rate of .075% of average net assets and, from the Growth & Income, Capital
Appreciation, Bond, Intermediate Bond and Tennessee Tax-Free Portfolios, 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 co-administration fees 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 up to .75% of the average net assets of Class III of the Growth &
Income, Capital Appreciation, Bond, Intermediate Bond and Tennessee Tax-Free
Portfolios, 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, Capital Appreciation,
Bond, Intermediate Bond and Tennessee Tax-Free 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, CAPITAL APPRECIATION, BOND AND INTERMEDIATE BOND PORTFOLIOS:
For the six months ended December 31, 1998, First Tennessee voluntarily agreed
to waive its management fee for the Growth & Income, Capital Appreciation, Bond
and Intermediate Bond Portfolios to .50%, .00%, .15% and .00% of average net
assets, respectively. Pursuant to the voluntary waiver agreement, for the six
months ended December 31, 1998, First Tennessee waived management fees of
$572,609, $25,100, $472,185 and $535,074 for the Growth & Income, Capital
Appreciation, Bond and Intermediate Bond Portfolios, respectively.
TENNESSEE TAX-FREE PORTFOLIO:
Since the Portfolio's inception, First Tennessee, as Investment Adviser, has
voluntarily agreed to waive its entire management fee.
For the six months ended December 31, 1998, the 12b-1 fee charged by Class III
of the Tennessee Tax-Free Portfolio was waived to .50% of average net assets.
For the period July 1, 1998 through November 30, 1998, ALPS agreed to
voluntarily reimburse Class III of the Tennessee Tax-Free Portfolio for half of
the 0.50% 12b-1 fee charged by that Class or 0.25% of that Class' average net
assets. After November 30, 1998, ALPS agreed to voluntarily reimburse Class III
of the Tennessee Tax-Free Portfolio for .10% of the .50% 12b-1 fee charged by
that Class.
Pursuant to the voluntary waiver and reimbursement agreements, for the six
months ended December 31, 1998, fees were waived and reimbursed for the
Tennessee Tax-Free Portfolio as follows:
<TABLE>
<C> <C>
Management fees waived $524,484
Reimbursement by administrator $ 15,103
12b-1 fees waived $ 17,234
</TABLE>
MONEY MARKET PORTFOLIOS:
For the six months ended December 31, 1998, 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, 1998, the expense waivers were as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEE CO-ADMINISTRATION FEE
<S> <C> <C>
U.S. Treasury Money Market $54,309 $9,052
U.S. Government Money Market $69,421 $11,570
Municipal Money Market $34,147 $5,692
Cash Reserve $71,727 $11,954
</TABLE>
44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERSION OF COMMON TRUST FUNDS AND COLLECTIVE INVESTMENT POOLS
On March 2, 1998, the Growth & Income Portfolio issued shares in a tax-free
conversion to acquire the net assets of the Common Stock - Total Return Fund,
the Common Stock - Stable Value Fund and the Common Trust Fund 1 of First
Tennessee Bank. The following is a summary of shares issued, net assets
acquired, net asset value per share and unrealized appreciation as of the date
acquired.
<TABLE>
<S> <C>
Shares issued 11,062,850
Net assets acquired $ 227,230,934
Net asset value $ 20.54
Unrealized appreciation $ 83,270,056
</TABLE>
On March 2, 1998, the Growth & Income Portfolio issued shares in a taxable
conversion to acquire the net assets of the Pooled Equity Fund and the Common
Trust Fund 3 of First Tennessee Bank. The following is a summary of shares
issued, net assets acquired and net asset value per share. Because the
conversion was taxable, no unrealized appreciation was acquired.
<TABLE>
<S> <C>
Shares issued 5,341,465
Net assets acquired $ 109,713,703
Net asset value $ 20.54
</TABLE>
On March 2, 1998, the Bond Portfolio issued shares in a tax-free conversion to
acquire the net assets of the Common Fixed Income - Total Return Fund of First
Tennessee Bank. The following is a summary of shares issued, net assets
acquired, net asset value per share and unrealized appreciation as of the date
acquired.
<TABLE>
<S> <C>
Shares issued 4,782,121
Net assets acquired $ 48,681,990
Net asset value $ 10.18
Unrealized appreciation $ 2,173,653
</TABLE>
On March 2, 1998, the Intermediate Bond Portfolio issued shares in a tax-free
conversion to acquire the net assets of the Common Fixed Income - Stable Value
Fund, the Pooled Intermediate Bond Fund, the Common Trust Fund 2 and the Common
Trust Fund 4 of First Tennessee Bank. The following is a summary of shares
issued, net assets acquired, net asset value per share and unrealized
appreciation as of the date acquired.
<TABLE>
<S> <C>
Shares issued 18,490,489
Net assets acquired $ 184,904,888
Net asset value $ 10.00
Unrealized appreciation $ 1,914,289
</TABLE>
6. CONVERSION OF COMMON TRUST FUNDS AND COLLECTIVE INVESTMENT POOLS (CONTINUED)
On March 2, 1998, the Tennessee Tax-Free Portfolio issued shares in a tax-free
conversion to acquire the net assets of the Common Tax-Exempt - Total Return
Fund, the Common Tax-Exempt - Stable Value Fund and the Common Trust Fund 5 of
First Tennessee Bank. The following is a summary of shares issued, net assets
acquired, net asset value per share and unrealized appreciation as of the date
acquired.
<TABLE>
<S> <C>
Shares issued 14,429,355
Net assets acquired $ 148,766,645
Net asset value $ 10.31
Unrealized appreciation $ 5,930,274
</TABLE>
7. OTHER
As of December 31, 1998, one shareholder owned 14% of the Growth & Income
Portfolio, 85% of the Capital Appreciation Portfolio and 43% of the Bond
Portfolio. Additionally, as of December 31, 1998, one shareholder owned 15% of
the U.S. Treasury Money Market Portfolio, one shareholder owned 14% of the U.S.
Government Money Market Portfolio and two shareholders owned 62% of the Cash
Reserve Portfolio.
The Trustees of the Trust receive an annual Trustees fee of $6,000 and an
additional fee for each Trustee's meeting attended.
45
<PAGE>
FIRST 370 Seventeenth Street
FUNDS Suite 3100
Denver, Colorado 80202
www.firstfunds.com
INVESTMENT ADVISER - All Portfolios except Capital Appreciation Portfolio
First Tennessee Bank National Association
Memphis, Tennessee
CO-INVESTMENT ADVISERS - Capital Appreciation Portfolio
First Tennessee Bank National Association
Memphis, Tennessee
Investment Advisers, Inc.
Minneapolis, Minnesota
SUB-ADVISER - Money Market Portfolios
BlackRock Institutional Management Corporation
Wilmington, Delaware
SUB-ADVISER - Growth & Income and Bond Portfolios
Highland Capital Management Corporation
Memphis, Tennessee
SUB-ADVISER - Intermediate Bond and Tennessee Tax-Free Portfolios
Martin & Company, Inc.
Knoxville, Tennessee
ADMINISTRATOR AND DISTRIBUTOR
ALPS Mutual Funds Services, Inc.
Denver, Colorado
CO-ADMINISTRATOR
First Tennessee Bank National Association
Memphis, Tennessee
TRANSFER AND SHAREHOLDER SERVICING AGENT
Chase Global Funds Services Company
Boston, Massachusetts
CUSTODIAN
Chase Manhattan Bank, N.A.
New York, New York
OFFICERS
Richard C. Rantzow, President
James Hyatt, Secretary
Jeremy May, Treasurer
TRUSTEES
Thomas M. Batchelor
John A. DeCell
J.R. Jalenak, Jr.
Larry W. Papasan
Richard C. Rantzow
NOT FDIC INSURED [LOGO] [LOGO]
FIRST TENNESSEE ALPS MUTUAL FUNDS SERVICES
Investment Adviser -------------------------
Sponsor and Distributor
