FIRST FUNDS, 485BPOS, 1999-07-30

FIRST FUNDS
485BPOS, 1999-07-30

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<PAGE>

As filed with the Securities and Exchange Commission on JULY 30, 1999
FILE NOs. 811-6589
33-46374

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 _
Pre-Effective Amendment No. __ _
Post-Effective Amendment No. 19 x
--- -

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. __ x
-

(Check appropriate box or boxes.)

FIRST FUNDS
(Exact name of Registrant as Specified in Charter)

370 17th Street, Suite 3100
Denver, CO 80202
(Address of principal executive offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (800) 442-1941

Russell C. Burk, Secretary
First Funds
370 17th Street, Suite 3100
DENVER, CO 80202
(Name and Address of Agent of Service)

Copy to:

Charles T. Tuggle, Jr., Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue, Suite 2100
Memphis, TN 38103

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Amendment

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

x immediately upon filing pursuant to paragraph (b)
_ on _____________, pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a) (1)
_ on ____________, pursuant to paragraph (a) (1)
_ 75 days after filing pursuant to paragraph (a) (2)
_ on (date) pursuant to paragraph (a) (2)

If appropriate, check the following box:

_ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Beneficial Interest

Growth & Income, Capital Appreciation and Tennessee Tax-Free Portfolios

<PAGE>

FIRST
FUNDS

GROWTH & INCOME PORTFOLIO

PROSPECTUS
Dated July 30, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOTO]

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus. Any
representation to the contrary is a criminal offense.

<PAGE>

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

PAGE

Investment Objective and Primary Risks ........................................1

Performance ...................................................................2

Fees and Expenses of the Portfolio ............................................3

More Information about Investment Objectives, Strategies and Risks ............4

Who Manages the Portfolio? ....................................................6

Portfolio Managers ............................................................6

How to Invest in the Portfolio ................................................6

Distribution Plans and Shareholders Servicing Plans ..........................15

Financial Highlights .........................................................16

Appendix ....................................................................A-1

Additional Information about the Portfolio ...........................Back Cover
- --------------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT OBJECTIVE -- The objective of the Growth & Income ----------------------------------------------
Portfolio (the "Portfolio") is to achieve maximum total FUND FACTS
return through a combination of capital appreciation and
dividend income by investing at least 65% of its total GOAL:
assets in equity securities. Maximum current total return through-
- Capital Appreciation
PRINCIPAL INVESTMENT STRATEGY -- Under normal market - Dividend Income
conditions, the Investment Adviser and Sub-Adviser currently
intend to invest at least 80% of the Portfolio's assets in PRINCIPAL INVESTMENTS:
common stock and American Depositary Receipts (ADRs) of U.S. - Common Stocks
and international companies that are traded on major - ADRs
domestic securities exchanges (NYSE, ASE, NASDAQ). The - Convertible Securities
Portfolio may also invest in convertible preferred stock,
bonds, and debentures that are convertible into common CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
stock. - Class I
- Class II
PRIMARY RISKS -- You may be interested in the Portfolio if - Class III
you are comfortable with the risks of equity and - Class IV
fixed-income investing and intend to make a long-term
investment commitment. Like all managed funds, there is a INVESTMENT ADVISER:
risk that the Investment Adviser's strategy for managing the - First Tennessee Bank National Association
Portfolio may not achieve the desired results. In addition, ("First Tennessee" or "Adviser")
the price of common stock moves up and down in response to
corporate earnings and developments, interest rate INVESTMENT SUB-ADVISER:
movements, economic and market conditions and anticipated - Highland Capital Management Corporation
events. As a result, th price of the Portfolio's investments ("Highland" or "Sub-Adviser")
may go down and you could lose money on your investment.
PORTFOLIO MANAGERS:
For more information about the risk factors identified - Edward J. Goldstein
above, please refer to the section entitled "Principal - David L. Thompson
Investments" later in this prospectus. The Statement of
Additional Information ("SAI") contains additional DISTRIBUTOR:
information about the risks associated with investing in the - ALPS Mutual Funds Services, Inc. ("ALPS")
Portfolio. ----------------------------------------------
</TABLE>

THE VALUE OF THE PORTFOLIO'S SHARES, LIKE STOCK PRICES GENERALLY, WILL FLUCTUATE
WITHIN A WIDE RANGE. AN INVESTOR IN THE PORTFOLIO COULD LOSE MONEY OVER SHORT OR
EVEN LONG PERIODS OF TIME.

PLEASE REMEMBER THAT THERE IS NO GUARANTEE THAT THE PORTFOLIO WILL ACHIEVE ITS
INVESTMENT OBJECTIVE, AND AN INVESTMENT IN THE PORTFOLIO IS NOT A DEPOSIT OR
ANY OTHER OBLIGATION OF A BANK, IS NOT INSURED, ENDORSED, OR GUARANTEED BY THE
FDIC, A BANK OR ANY GOVERNMENT AGENCY, AND INVOLVES INVESTMENT RISK INCLUDING
THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

SHOULD I INVEST IN THE GROWTH & INCOME PORTFOLIO?

The Portfolio may be appropriate for you if:

- - You can tolerate the price fluctuations and volatility that are inherent
in investing in a broad-based stock mutual fund.

- - You are seeking an investment that seeks to provide long-term growth as
well as some dividend income.

- - You wish to add a growth and income stock fund to your existing
investment portfolio. (REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN
EFFECTIVE, BALANCED INVESTMENT PLAN.)

- - You are seeking growth of capital and income over a long-term investment
time horizon--at least five years.

1
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
The following bar chart and table can help you evaluate ---------------------------------------------------------
the potential risks of investing in the Portfolio. Both WHAT IS THE S&P 500 INDEX?
the bar chart and the table show the variability the
Portfolio has experienced in its performance in the The S&P 500 Index is an unmanaged index tracking the
past. THE PAST PERFORMANCE OF THE PORTFOLIO DOES NOT performance of 500 publicly traded U.S. stocks and is
INDICATE HOW IT WILL PERFORM IN THE FUTURE AND IS often used to indicate the performance of the overall
INTENDED TO BE USED FOR PURPOSES OF COMPARISON ONLY. domestic stock market. The S&P 500 is not a mutual fund,
and you cannot invest in it directly. Also, the
The performance of the Class I shares shown in the bar performance of the S&P 500 does not reflect the costs
chart reflects the expenses associated with those shares associated with operating a mutual fund, such as buying,
from year to year. selling, and holding securities.
---------------------------------------------------------
</TABLE>

YEAR-BY-YEAR TOTAL RETURN (CLASS I)
- --------------------------------------------------------------------------------
<TABLE>

Best Quarter (quarter ended December 31, 1998) -- 20.60%
Worst Quarter (quarter ended September 30, 1998) -- (9.33)%
- --------------------------------------------------------------------------------

The following table lists the Portfolio's average year-by-year return by class
over the past one and five year periods and since the inception of each class of
shares. The table also compares the average annual total returns of each class
of shares of the Portfolio for the periods shown to the performance of the S&P
500 Index.

AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)
<TABLE>
<CAPTION>
INCEPTION DATE 1 YEAR 5 YEARS SINCE INCEPTION
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
CLASS I 8/2/93 22.76% 23.46% 23.06%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS II 12/20/95 15.32% N/A 37.31%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS III 12/9/93 20.49% 22.05% 23.31%
- ---------------------------------------------------------------------------------------------------------------------------
CLASS IV*/ N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
S&P 500 28.34% 24.02% 23.14%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

*/Information for the Class IV shares is not included in the table because the
Class has not been in existence for one full calendar year. Once the Class IV
shares have been in existence for one full calendar year, the performance of the
Class IV shares will be included in the table along with the other classes of
shares.

2
<PAGE>

- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE PORTFOLIO
- --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment) CLASS I CLASS II CLASS III CLASS IV
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on None 5.75% None None
purchases as a percentage of offering price
- ---------------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None 1.00%*/ 5.00%
(as a percentage of original purchase price
or redemption proceeds, as applicable)
- ---------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
(FOR THE YEAR ENDED JUNE 30, 1998)
- ---------------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES**/ .65% .65% .65% .65%
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION (12b-1) FEES .00% .00% .75% 1.00%
- ---------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES .28% .63% .62% .37%***/
---- ---- ---- ----
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES .93% 1.28% 2.02% 2.02%
---- ----- ----- -----
---- ----- ----- -----
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE -- The following example is intended to help you compare the cost of
investing in the Portfolio to the cost of investing in other mutual funds with
similar investment objectives. The example shows the cumulative amount of
portfolio expenses you would pay on a hypothetical investment of $10,000 in each
class of shares offered by the Portfolio. The example assumes a 5% average
annual return and that you reinvest all of your dividends. Your actual costs may
be higher or lower.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSUMING REDEMPTION ASSUMING NO
AT END OF PERIOD REDEMPTION
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS I CLASS II CLASS III CLASS IV*/ CLASS III CLASS IV*/
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
After 1 year $95 $698 $305 $705 $205 $205
- ---------------------------------------------------------------------------------------------------------------------------------
After 3 years $296 $957 $633 $933 $633 $633
- ---------------------------------------------------------------------------------------------------------------------------------
After 5 years $514 $1,237 $1,087 $1,287 $1,087 $1,087
- ---------------------------------------------------------------------------------------------------------------------------------
After 10 years $1,142 $2,030 $2,345 $2,155 $2,345 $2,155
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*/ The Class IV example reflects the conversion of Class IV shares to Class II
shares after eight years from the date of purchase of the Class IV shares.

3
<PAGE>

OUR INVESTMENT STRATEGY -- The objective of the Portfolio is to achieve maximum
total return through a combination of capital appreciation and dividend income
by investing at least 65% of its total net assets in equity securities.

In selecting investments for the Portfolio, Highland analyzes the fundamentals
of individual companies. Fundamental analysis considers a company's essential
soundness and future prospects, as well as overall industry outlook. Highland
believes that companies with superior financial characteristics bought at
attractive valuation levels have produced superior results over time. To find
such characteristics, Highland's analysts search for companies producing
consistent earnings and growth over a full market cycle. The portfolio managers,
in turn, use this research to select stocks for purchase or sale by the
Portfolio.

PRINCIPAL INVESTMENTS -- The following table describes the securities in which
the Portfolio typically invests and the principal risks associated with those
securities.

- ---------------------------------------------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS: Securities that represent shares of MARKET RISK -- The risk that the market value of a
ownership in a corporation. Stockholders participate security may increase or decrease, sometimes rapidly
in the corporation's profits and losses, and unpredictably. This risk is common to all stocks
proportionate to the number of shares they own. and bonds and the mutual funds that invest in them.

- ---------------------------------------------------------------------------------------------------------------------
AMERICAN DEPOSITARY RECEIPTS: Certificates issued by FOREIGN RISK -- The risk that foreign securities may
a U.S. bank which represent a stated number of be adversely affected by political instability of
shares of a foreign corporation that the bank holds the issuer's country, changes in currency exchange
in its vault. An ADR entitles the holder to all rates, foreign economic conditions, or regulatory
dividends and capital gains earned by the underlying and reporting standards that are less stringent than
foreign shares. While ADRs represent a stated number those of the United States.
of shares of a foreign corporation, ADRs are traded
on domestic securities exchanges. MARKET RISK

VALUATION RISK

- ---------------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES: Convertible securities are CREDIT RISK -- The risk that the issuer of a
preferred stock or debt obligations that pay a fixed security, or a party to a contract, will default or
dividend or interest payment and are convertible otherwise not honor a financial obligation.
into common stock at a specified price or conversion
ratio. INTEREST RATE RISK -- The risk of a decline in
market value of an interest bearing instrument due
to changes in interest rates. For example, a rise in
interest rates typically will cause the value of a
fixed rate security to fall. On the other hand, a
decrease in interest rates will cause the value of a
fixed rate security to increase.

MARKET RISK

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

4
<PAGE>

<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
- ---------------------------------------------------------------------------------------------------------------------

REPURCHASE AGREEMENTS AND REVERSE REPURCHASE CREDIT RISK
AGREEMENTS: Repurchase agreements involve the
purchase of a security by a purchaser and a
simultaneous agreement by the seller (generally a
bank or dealer) to repurchase the security from the
purchaser at a specified date or on demand. This
technique offers a method of earning income on idle
cash. Reverse repurchase agreements involve the sale
of a security to another party (generally a bank or
dealer) in return for cash and an agreement to buy
the security back at a specified price and time.

- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following investment practices or techniques:

BORROWING FROM BANKS. The Portfolio may borrow money from banks (up to 33 1/3%
of the Portfolio's total assets) for temporary or emergency purposes.

DERIVATIVE INSTRUMENTS. The Portfolio WHAT IS A DERIVATIVE INSTRUMENT?
may invest in instruments and securities
generally known as derivative investments A derivative is a finanical
for hedging purposes only. These contract whose value is based on
investments may include the use of forward (or "derived" from) a traditional
currency contracts, put and call option security (such as a stock or bond),
contracts, zero coupon bonds, and stripped an asset (such as a commodity like
fixed-income obligations. gold), or a market index (such as
the S&P 500 Index). Futures and
Highland may not buy any of these options are derivatives that have
instruments or use any of these been traded on regulated exchanges
techniques unless it believes that for more than two decades.
doing so will help the Portfolio achieve
its investment objective. Use of these instruments and techniques can alter the
risk and return characteristics of the Portfolio. They may increase the
Portfolio's volatility and may involve the investment of a small amount of cash
relative to the magnitude of the risk assumed. They also may result in a loss of
principal if Highland judges market conditions incorrectly or employs a strategy
that does not correlate well with the investment strategy of the Portfolio.
Positions in options involve the risk that such options may fail as a hedging
technique and that closing transactions may not be effected where a liquid
secondary market does not exist.

LENDING SECURITIES. The Portfolio may temporarily lend up to 33 1/3% of its
portfolio securities to broker-dealers and institutions, but only when the loans
are fully collateralized.

TEMPORARY DEFENSIVE POSITION. In response to adverse economic or market
conditions, the Portfolio may invest without limit in short-term money market
securities including, but not limited to, U.S. Government obligations,
commercial paper, and certificates of deposit. This strategy is inconsistent
with the investment objective and principal investment strategies of the
Portfolio, and if employed, could result in the Portfolio achieving a lower
return than it might have achieved under normal market conditions.

For more information about the securities in which the Portfolio invests, please
refer to the Appendix to this Prospectus and the SAI.

YEAR 2000 AND EURO READINESS. Mutual funds and businesses around the world could
be adversely affected if computers do not properly process date-related
information with respect to the Year 2000. Similar adverse affects could result
if computers do not properly process information based on the conversion of the
Euro, the new currency of the European Union which took effect on January 1,
1999. The Portfolio has received reasonable assurances from its service
providers that they are addressing these issues to preserve smooth trading,
pricing, shareholder account, custodial and other operations. There can be no
assurances, however, that all problems will be avoided.

These computer problems could also adversely affect the Portfolio's investments.
Improperly functioning computers may disrupt securities markets generally or
result in overall economic uncertainty. Individual companies may also be
adversely affected by the cost of fixing their computers.

5
<PAGE>

- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO?
- --------------------------------------------------------------------------------

First Tennessee, 530 Oak Court Dr., Memphis, Tennessee, serves as Investment
Adviser to the Portfolio and, with the prior approval of the Board of Trustees
of First Funds (the "Trustees"), has engaged Highland to act as Sub-Adviser to
the Portfolio. Subject to First Tennessee's supervision, Highland is responsible
for the day-to-day investment management of the Portfolio, including providing
investment research and credit analysis concerning portfolio investments and
conducting a continuous program of investment of portfolio assets in accordance
with the investment policies and objectives of the Portfolio.

For managing its investment and business affairs, the Portfolio is obligated to
pay First Tennessee a monthly management fee at the annual rate of .65% of its
average net assets. First Tennessee has voluntarily agreed to limit its advisory
fees to .50% of the Portfolio's average net assets. First Tennessee serves as an
investment adviser to individual, corporate and institutional advisory clients,
pension plans and collective investment funds, with approximately $16 billion in
assets under administration (including nondiscretionary accounts) and $4 billion
in assets under management as of June 30, 1998, as well as experience in
supervising sub-advisers.

Highland, 6077 Primacy Parkway, Memphis, TN, serves as the Sub-Adviser for the
Portfolio subject to the supervision of First Tennessee and pursuant to the
authority granted to it under its Sub-Advisory Agreement with First Tennessee.
On March 1, 1994, Highland merged with and into First Tennessee Investment
Management, Inc. ("FTIM"), an affiliate of First Tennessee, and changed its name
to Highland Capital Management Corp.

FTIM (now Highland), has been a wholly-owned subsidiary of First Tennessee
National Corporation since 1972. First Tennessee and Highland have a history of
investment management that dates back to 1929. Highland has a total of $4.3
billion in assets under management as of June 30, 1998. First Tennessee is
obligated to pay Highland a monthly sub-advisory fee at the annual rate of .38%
of the Portfolio's average net assets. Highland is currently waiving some or all
of its sub-advisory fee.

- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

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

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

- --------------------------------------------------------------------------------
HOW TO INVEST IN THE PORTFOLIO
- --------------------------------------------------------------------------------

CLASS I

WHO MAY INVEST?

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

HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?

6
<PAGE>

be completed and signed before the investment can be implemented. The
Institutional Investor may require that certain documents be provided prior to
making a redemption from the Portfolio.

Institutional Investors may charge fees in addition to those described herein.
Fee schedules for Institutional Accounts are available upon request from the
Institutional Investor and are detailed in the agreements by which each client
opens an account with an Institutional Investor.

HOW ARE INVESTMENTS MADE?

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

MINIMUM INVESTMENT AND ACCOUNT BALANCE. The minimum initial investment for each
Institutional Investor is $750,000. Institutional Investors may satisfy the
minimum investment by aggregating their Institutional Accounts within the
Portfolio. Subsequent investments may be in any amount. If an Institutional
Investor's Class I account falls below $375,000 due to redemption, the Portfolio
may close the account. An Institutional Investor may be notified if the minimum
balance is not being maintained and will be allowed 30 days to make additional
investments before the account is closed. Shares will be redeemed at the NAV on
the day the account is closed, and proceeds will be sent to the address of
record.

Should an Institutional Investor or a beneficial owner of Class I shares cease
to be eligible to participate in this Class, Class I shares held in an
Institutional Account may be converted to Class II, Class III or Class IV
shares. Any such conversion will be made on the basis of the relative NAVs of
the two Classes without the imposition of any sales load, fee or other charge.
Institutional Investors or beneficial owners will receive at least 30 days prior
notice of any proposed conversion.

WHAT CLASSES OF SHARES DOES THE GROWTH & INCOME PORTFOLIO OFFER?

The Portfolio offers investors four different classes of shares. The different
classes of shares represent investments in the same portfolio of securities;
however, each class is subject to different expenses and likely will have
different share prices. When you buy shares, be sure to tell us the class of
shares in which you would like to invest.

CLASS I SHARES. Class I shares are offered to institutional investors
exclusively. Class I shares are not subject to any sales loads and do not incur
distribution or shareholder servicing fees.

CLASS II SHARES. Class II shares are offered to investors subject to an up-front
sales load. Under certain circumstances described later in this prospectus, the
sales load may be waived. The sales load is reflected in the offering price of
the Class II shares. Class II shares also incur shareholder servicing fees.

CLASS III SHARES. Class III shares are offered to Investors without the
imposition of any up-front sales load; however, you will pay a contingent
deferred sales charge ("CDSC") of 1.00% if you redeem the shares within one year
from the date of purchase. The Class III shares also incur distribution and
shareholder servicing fees.

CLASS IV SHARES. Class IV shares are offered to investors without the imposition
of any up-front sales load; however, Class IV shares are subject to a CDSC of up
to 5.00%. The CDSC is phased out over a period of six years. After eight years
from the date of purchase, Class IV shares automatically convert to Class II
shares. Class IV shares also incur distribution fees.

HOW ARE REDEMPTIONS MADE?

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

7
<PAGE>

Institutional Investors may make redemptions by wire provided they have
established a wire account with the Transfer Agent. Please call 1-800-442-1941
(option 2), to advise the Transfer Agent of the wire. If telephone instructions
are received before 4:00 p.m. Eastern Time on any Business Day, proceeds of the
redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. The Institutional Investor may
change the bank account designated to receive an amount redeemed at any time by
sending a letter of instruction with a signature guarantee to the Transfer Agent
at P.O. Box 8050, Boston, MA, 02266.

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

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

ADDITIONAL INFORMATION

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

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

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

CLASS II, III, AND IV

WHO MAY INVEST?

Class II, III, and IV shares are designed for individuals and other investors
who seek mutual fund investment convenience plus a lower investment minimum.
These classes offer investors differing expense and sales load structures to
choose between. See "Fees and Expenses" of the Growth & Income Portfolio.

INVESTMENT REQUIREMENTS

The minimum initial investment in Class II, III, and IV shares is $1,000.
Subsequent investments may be in any amount greater than $100. If you
participate in the Systematic Investing Program (see "Systematic Investing
Program" below) or the "A Plus/First Horizon Card Program" (a consumer discount
card program provided by First Horizon Strategic Alliances, Inc., a subsidiary
of First Tennessee), the minimum initial investment is $250, and subsequent
investments may be in any amount of $25 or greater.

If you are an employee of First Tennessee or any of its affiliates and you
participate in the Systematic Investing Program, the minimum initial investment
is $50, and subsequent investments may be in any amount of $25 or greater. If
your balance in the Portfolio falls below the applicable minimum investment
requirement due to redemption, you may be given 30 days notice to reestablish
the minimum balance. If you do not re-establish the minimum balance, your
account may be closed and the proceeds mailed to you at the address on record.
Shares will be redeemed on the day the account is closed.

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

8
<PAGE>

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

HOW DO I SET UP AN ACCOUNT?

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

HOW DO I INVEST DIRECTLY?

When opening a new account directly, you must complete and sign an account
application and send it to First Funds, c/o Boston Financial Data Services, P.O.
Box 8050, Boston, MA 02266-8050. Telephone representatives are available at
1-800-442-1941 (option 2), between the hours of 8:00 a.m. to 4:00 p.m. Central
Time (9:00 a.m. to 5:00 p.m. Eastern Time), Monday through Friday.

Investments may be made in several ways:

BY MAIL: Make your check payable to FIRST FUNDS GROWTH & INCOME PORTFOLIO, and
mail it, along with the application, to the address indicated on the
application. Your account will be credited on the business day that the Transfer
Agent receives your application in good order.

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

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

State Street Bank and Trust Company
ABA #011000028
First Funds
Account #9905-440-5
(Account Registration)
(Account Number)
(Wire Control Number) *See Below*

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

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

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

You may redeem shares in several ways:

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

9
<PAGE>

if the check is not being mailed to the address on your account; if the check is
not being made out to the account owner; or if the redemption proceeds are being
transferred to another First Funds account with a different registration. The
following institutions should be able to provide you with a signature guarantee:
banks, brokers-dealers, credit unions (if authorized under state law),
securities exchanges and associations, clearing agencies, and savings
associations. A signature guarantee may not be provided by a notary public.

BY PHONE: Provided you have elected this option in advance, you may request a
redemption of Portfolio shares by calling the Transfer Agent at 1-800-442-1941
(option 2). Your redemption proceeds can be sent to you in the mail or, as more
fully described below, the proceeds can be sent directly to a bank account you
designate by bank transfer or wire. For your protection, all telephone calls are
recorded. Also, neither First Funds, First Tennessee, Highland, nor the Transfer
Agent or any of their agents will be responsible for acting on telephone
instructions they believe are genuine. For more information about telephone
redemptions, please call 1-800-442-1941 (option 2).

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

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

ADDITIONAL REDEMPTION REQUIREMENTS: The Portfolio may hold payment on
redemptions until it is reasonably satisfied that investments made by check have
been collected, which can take up to seven days. Also, when the NYSE is closed
(or when trading is restricted) for any reason other than its customary weekend
or holiday closings, or under any emergency circumstances as determined by the
SEC to merit such action, the right of redemption may be suspended or the date
of payment postponed for a period of time that may exceed seven days. To the
extent that Portfolio securities are traded in other markets on days when either
the NYSE or the New York Federal Reserve is closed, the Portfolio's NAV may be
affected on days when investors do not have access to the Portfolio to purchase
or redeem shares. If you are unable to reach the Transfer Agent by telephone
(for example, during times of unusual market activity), consider placing your
order by mail directly to the Transfer Agent. In case of suspension of the right
of redemption, you may either withdraw your request for redemption or you will
receive payment based on the next determined NAV after the termination of the
suspension.

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

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

SYSTEMATIC INVESTING PROGRAM

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

SYSTEMATIC WITHDRAWAL PLAN

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

10
<PAGE>

ADDITIONAL INFORMATION

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

CLASS II

SALES LOADS

The public offering price for Class II shares is the sum of the NAV plus a sales
load. As indicated below, a portion of this load may be reallowed to a
broker-dealer which has entered into an agreement with ALPS, the Portfolio's
Distributor. You may calculate your sales load as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TOTAL SALES LOAD FOR CLASS II SHARES
- -----------------------------------------------------------------------------------------------------
AS A % OF OFFERING BROKER-DEALER
AMOUNT OF TRANSACTION PRICE PER SHARE AS A % OF NAV REALLOWANCE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
- -----------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.50 4.71 4.00
- -----------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50 3.63 3.00
- -----------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50 2.56 2.25
- -----------------------------------------------------------------------------------------------------
$500,000 to $999,999 1.50 1.52 1.25
- -----------------------------------------------------------------------------------------------------
$1,000,000 and over 0.50 0.50 0.40
- -----------------------------------------------------------------------------------------------------
</TABLE>

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

You may purchase Class II shares without a sales load if the purchase will be:

(A) through an IRA, 401(k) Plan, 403(b) Plan or directed agency account
if the trustee, custodian, or agent thereof is a direct or indirect subsidiary
or franchisee bank of First Tennessee or its affiliates;

(B) by registered representatives, directors, advisory directors,
officers and employees (and their immediate families) of First Tennessee or its
affiliates;

(C) by a current or former Trustee, officer or employee of First Funds;
the spouse of a First Funds Trustee, officer or employee; a First Funds Trustee
acting as a custodian for a minor child or grandchild of a First Funds Trustee,
officer or employee; or the child or grandchild of a current or former Trustee,
officer or employee of First Funds who has reached the age of majority;

(D) by a charitable remainder trust or life income pool established for
the benefit of a charitable organization (as defined in Section 501(c)(3) of the
Internal Revenue Code);

(E) for use in a financial institution or investment adviser managed
account for which a management or investment advisory fee is charged;

(F) with redemption proceeds from other mutual fund complexes on which
the investor has paid a front-end sales charge within the past 60 days upon
presentation of purchase verification information; or

(G) through certain promotions where the load is waived for investors.

In addition, you will not pay a sales load on the reinvestment of dividends or
distributions in the Portfolio or any other First Funds Portfolio, or in
connection with certain share exchanges as described under "How are Exchanges
Made?" Further, you generally will not pay a sales load on Class II shares of
the Portfolio which you buy using proceeds from the redemption of a First Funds
Portfolio which does not charge a front-end load, if you obtained such shares
through an exchange for Class II shares which you purchased with a sales load. A
sales load will apply to your purchase of Class II shares in the

11
<PAGE>

foregoing situation only to the extent that the Portfolio's sales load exceeds
the sales load you paid in the prior purchase of the Class II shares.

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

QUANTITY DISCOUNTS

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

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

RIGHT OF ACCUMULATION. The sales charge schedule under the heading "Sales Loads"
shows that the sales load you will pay on Class II shares is reduced as your
aggregate investment increases. The Right of Accumulation allows you to combine
certain First Funds investments to determine your aggregate investment and the
applicable reduced sales load. You may combine the amount of your investment in
the Portfolio's Class II shares with the value of your investment in Class II of
any other First Funds Portfolio you own and on which you paid a sales load.

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

LETTER OF INTENT. A Letter of Intent allows you to purchase Class II shares over
a 13-month period at a reduced sales charge. The sales charge is based on the
total amount you intend to purchase plus the total net asset value of Class II
shares which you already own on which you have paid a sales load. If you are a
participant in a First Funds IRA or if you are a trustee or custodian of another
type of First Funds retirement plan, you may also credit towards completion of
your Letter of Intent any Class II shares held through the IRA or in the plan,
even if a load was not paid. Each investment you make during the period may be
made at the reduced sales charge that would apply to the total amount you intend
to invest. The reduced sales load applies only to new purchases.

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

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

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

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

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

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

12
<PAGE>

OTHER. Class II shares also incur Shareholder Servicing Fees. See discussion
under "Distribution Plans and Shareholder Servicing Plans."

CLASS III

Class III shares are bought with no front-end load. Therefore, the offering
price for such shares will be at their NAV. Class III shares incur Distribution
Fees and Shareholder Servicing Fees. See discussion under "Distribution Plans
and Shareholder Servicing Plans."

DEFERRED SALES CHARGES. A contingent deferred sales charge (CDSC) of 1.00% is
imposed on redemptions of Class III shares within the first year after purchase,
based on the lower of the shares' cost and the current net asset value. Any
shares acquired by reinvestment of distributions will be redeemed without a
CDSC. In addition, any shares purchased in accounts established prior to
November 2, 1998 are not subject to the CDSC.

CLASS IV

Class IV shares are bought with no front-end load. Therefore, the offering price
for such shares will be at their NAV. Class IV shares incur Distribution Fees.
See discussion under "Distribution Plans and Shareholder Servicing Plans."

DEFERRED SALES CHARGES. A CDSC of up to 5.00% is imposed on redemptions of Class
IV shares. As shown in the table below, the CDSC associated with the Class IV
shares is phased out over a period of six years. Any shares acquired by
reinvestment of dividends will be redeemed without the imposition of any CDSC.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5 6
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5% 4% 3% 3% 2% 1%
- ----------------------------------------------------------------
</TABLE>

AUTOMATIC CONVERSION. After eight years from the date of purchase, Class IV
shares will automatically convert to Class II shares.

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

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

The Portfolio is open for business each date that both the NYSE and the New York
Federal Reserve are open (a "Business Day"). The NAV is calculated at the close
of the Portfolio's business day, which coincides with the close of regular
trading of the NYSE (normally 4:00 p.m. Eastern Time). Share price is not
calculated on the days that the NYSE is closed.

When the Portfolio calculates the share price for each share Class, it values
the securities it holds at market value. Sometimes market quotes from some
securities are not available or are not representative of market value. Examples
would be when events occur that materially affect the value of a security at a
time when the security is not trading or when the securities are illiquid. In
that case, securities may be valued in good faith at fair value, using
consistently applied procedures decided on by the Trustees of First Funds.

WHAT ARE MY DISTRIBUTION OPTIONS?

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

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

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

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

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

HOW ARE EXCHANGES MADE?

13
<PAGE>

shares may be exchanged for the same Class shares of other First Funds
Portfolios. The redemption and purchase will be made at the NAV next determined
after the exchange request is received and accepted by the Transfer Agent. You
may execute exchange transactions by calling the Transfer Agent at
1-800-442-1941 (option 2) prior to 4:00 p.m. Eastern Time on any Business Day.

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

If you exchange shares subject to a CDSC the transaction will not be subject to
the CDSC. However, when you redeem the shares acquired through the exchange, the
redemption may be subject to the CDSC, depending upon when you originally
purchased the shares. The CDSC will be computed using the schedule of any
Portfolio into or from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares.

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

Each exchange may produce a gain or loss for tax purposes. In order to protect
the Portfolio's performance and its shareholders, First Tennessee and Highland
discourage frequent exchange activity by investors in response to short-term
market fluctuations. The Portfolio reserves the right to refuse any specific
purchase order, including certain purchases by exchange if, in Highland's
opinion, the Portfolio would be unable to invest effectively in accordance with
its investment objective and policies, or would otherwise be affected adversely.
Exchanges or purchase orders may be restricted or refused if the Portfolio
receives or anticipates individual or simultaneous orders affecting significant
portions of the Portfolio's assets. Although the Portfolio will attempt to give
prior notice whenever it is reasonably able to do so, it may impose these
restrictions at any time. The Portfolio reserves the right to modify or withdraw
the exchange privilege upon 60 days notice and to suspend the offering of shares
in any Class without notice to shareholders. You or your Institutional Investor,
if you are invested in Class I, will receive written confirmation of each
exchange transaction.

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

STATEMENTS AND REPORTS

You, or if Class I, the Institutional Investor, will receive a monthly statement
and a confirmation after every transaction that affects the share balance or the
account registration. A statement with tax information will be mailed by January
31 of each tax year and also will be filed with the IRS. At least twice a year,
you, or if Class I, the Institutional Investor, will receive the Portfolio's
financial statements. To reduce expenses, only one copy of the Portfolio's
reports (such as the Prospectus and Annual Report) will be mailed to each
investor or, if Class I, each Institutional Investor. Please write to First
Funds at 370 17th Street, Suite 3100, Denver, Colorado 80202 to request
additional copies.

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

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

FEDERAL TAXES. Distributions of gains from the sale of assets held by the
Portfolio for more than one year generally are taxable to shareholders at the
applicable long-term capital gains rate, regardless of how long they have owned
their Portfolio shares. Distributions from other sources generally are taxed as
ordinary income. A portion of the Portfolio's dividends may qualify for the
dividends-received deduction for corporations.

When paid, dividends are taxable, whether taken in cash or reinvested in
additional shares, except that distributions declared in October, November or
December and paid in January are taxable as if paid on December 31. The
Portfolio will send each investor or, if Class I, each Institutional Investor,
an IRS Form 1099-DIV by January 31 of each year.

REDEMPTIONS AND EXCHANGES. A capital gain or loss may be realized when shares of
the Portfolio are redeemed or exchanged. For most types of accounts, the
Portfolio will report the proceeds of redemptions to each shareholder or, if
Class I, the Institutional Investor, and the IRS annually. However, the tax
treatment also depends on the purchase price and your personal tax position.

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

14
<PAGE>

OTHER TAX INFORMATION. The information above is only a summary of some of the
federal tax consequences generally affecting the Portfolio and its shareholders,
and no attempt has been made to discuss individual tax consequences. In addition
to federal tax, distributions may be subject to state or local taxes.

Institutional Investors and other shareholders should consult their tax advisers
for details and up-to-date information on the tax laws in your state to
determine whether the Portfolio is suitable given your particular tax situation.
It is not anticipated that the Portfolio's distributions will be exempt from
Tennessee personal income tax, except to the extent that any distributions of
income are attributable to interest on bonds or securities of the U.S.
Government or any of its agencies or instrumentalities.

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

- --------------------------------------------------------------------------------
DISTRIBUTION PLANS AND SHAREHOLDER SERVICING PLANS
- --------------------------------------------------------------------------------

The Trustees have adopted a plan of distribution pursuant to Rule 12b-1 under
the 1940 Act for both the Class III and Class IV shares of the Portfolio (each a
"Distribution Plan" and together the "Distribution Plans"). Both Distribution
Plans permit the use of portfolio assets to compensate ALPS for its services and
costs in distributing Class III and Class IV shares and servicing shareholder
accounts.

Under the Distribution Plans, ALPS receives an amount equal to .75% of the
average net assets of the Portfolio that are attributable to Class III shares
and an amount equal to 1.00% of the average net assets of the Portfolio that are
attributable to Class IV shares. All or a portion of the fees paid to ALPS under
the Distribution Plans will, in turn, be paid to certain broker-dealers,
investment advisers, and other third parties (each an "Investment Professional"
and collectively "Investment Professionals") as compensation for selling Class
III and IV shares and for providing ongoing sales support services.

Because the fees paid under the Distribution and the Shareholder Servicing Plans
are paid out of portfolio assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than other types of
sales charges.

15
<PAGE>

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

The Financial Highlights Table is presented to help you understand the
Portfolio's financial performance for the past five years. Certain information
reflects financial results for a single Portfolio share. This information has
been audited by PricewaterhouseCoopers LLP, whose report, along with the
Portfolio's financial statements, is included in the Portfolio's annual report,
which is available upon request by calling First Funds at 1-800-442-1941 (option
1).

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.

16
<PAGE>

FINANCIAL HIGHLIGHTS (CONTINUED)
GROWTH & INCOME PORTFOLIO
<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.

17
<PAGE>

- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------

ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

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

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

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

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

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

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

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

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

A-1
<PAGE>

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

OPTIONS CONTRACTS. An option is a contract that gives the owner the right, but
not the obligation, to either buy (call option) or sell (put option) an
underlying security or currency at a fixed price for a specified period of time.
The Portfolio may buy and sell (write) put and call options contracts to manage
its exposure to changing interest rates and security prices.

To the extent it invests in securities denominated in foreign currencies, the
Portfolio may also buy and sell options contracts to manage exposure to currency
exchange rates. Some option strategies, including buying puts and writing calls,
tend to hedge the Portfolio's investments against price fluctuations. Other
strategies, including writing puts and buying calls, tend to increase market
exposure. Options may be combined with each other in order to adjust the risk
and return characteristics of the overall strategy. The Portfolio may enter into
forward contracts for settlement or hedging purposes. The Portfolio may invest
in options based on any type of security, index, or currency, including options
traded on foreign exchanges and options not traded on exchanges.

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

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

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

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

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

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

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

A-2
<PAGE>

FIRST 370 Seventeenth Street
FUNDS Suite 3100
Denver, Colorado 80202
www.firstfunds.com

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE PORTFOLIO
- --------------------------------------------------------------------------------

If you would like more information about the Portfolio, the following documents
are available free upon request.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI contains additional information about all aspects of the Portfolio. A
current SAI has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated herein by reference. For a copy of the SAI, write or
call the Portfolio at the address or phone number listed below.

Information about the Portfolio (including the SAI) also may be reviewed and
copied, upon payment of a duplicating fee, at the SEC's Public Reference Room in
Washington, D.C. You also can obtain this information, upon payment of a
duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.

The SEC also maintains a Web site located at http://www.sec.gov that contains
the SAI, material incorporated herein by reference, and other information
regarding the Portfolio. For more information about the operation of the Public
Reference Room, please call the SEC at 1-800-SEC-0330.

ANNUAL AND SEMI-ANNUAL REPORTS

The Portfolio's annual and semi-annual reports provide additional information
about the Portfolio's investments. The annual report contains a discussion of
the market conditions and investment strategies that significantly affected the
Portfolio's performance during the last fiscal year.

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

TO OBTAIN THE SAI OR THE MOST RECENT ANNUAL OR SEMI-ANNUAL REPORT FOR THE
PORTFOLIO FREE OF CHARGE, OR TO OBTAIN OTHER INFORMATION ABOUT THE PORTFOLIO,
YOU MAY WRITE TO FIRST FUNDS AT 370 17th STREET, SUITE 3100, DENVER,
COLORADO 80202 OR CALL FIRST FUNDS AT 1-800-442-1941 (OPTION 1).

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

Investment Company Act File No. 811-6589

[LOGO] ------------------------------
Investment Adviser FIRST FUNDS

[LOGO] - Are NOT insured by the FDIC or
Sponsor and Distributor 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.

<PAGE>

FIRST
FUNDS

CAPITAL APPRECIATION PORTFOLIO

PROSPECTUS
Dated July 30, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOTO]

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy of this prospectus. Any
representation to the contrary is a criminal offense.

<PAGE>

- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
Investment Objective and Primary Risks ........................................1

Performance ...................................................................2

Fees and Expenses of the Portfolio ............................................3

More Information about Investment Objectives, Strategies and Risks ............4

Who Manages the Portfolio? ....................................................6

Portfolio Managers ............................................................7

How to Invest in the Portfolio ................................................7

Distribution Plans and Shareholders Servicing Plans ..........................15

Financial Highlights .........................................................16

Appendix ....................................................................A-1

Additional Information about the Portfolio ...........................Back Cover
- --------------------------------------------------------------------------------

<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE AND PRIMARY RISKS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT OBJECTIVE -- The objective of the Capital ----------------------------------------------------
Appreciation Portfolio (the "Portfolio") is to seek long-term FUND FACTS
capital appreciation by investing at least 65% of its total
assets in equity securities of medium and smaller capitalization GOAL:
companies. Long-term capital appreciation.

PRINCIPAL INVESTMENT STRATEGIES -- Under normal market PRINCIPAL INVESTMENTS:
conditions, IAI currently intends to invest at least 80% of the - Common Stocks
Portfolio's total assets in equity securities of companies with - Small Company Stocks
market capitalizations generally between $100 million and $1
billion. The Portfolio also may invest in preferred stock, bonds CLASSES OF SHARES OFFERED IN THIS PROSPECTUS:
and debentures convertible into common stock of U.S. based - Class I
companies of all sizes, industries, and geographical markets. - Class II
The Portfolio may also invest in securities of foreign issuers. - Class III
- Class IV
PRIMARY RISKS -- You may be interested in the Portfolio if you
are comfortable with above-average risk and intend to make a INVESTMENT ADVISER:
long-term investment commitment. Like all managed funds, there - First Tennessee Bank National Association
is a risk that the Investment Adviser's strategy for managing ("First Tennessee")
the Portfolio may not achieve the desired results. In addition,
the price of common stock moves up and down in response to CO-INVESTMENT ADVISER:
corporate earnings and developments, interest rate movements, - Investment Advisers, Inc. ("IAI" or "Adviser")
economic and market conditions and anticipated events. As a
result, the price of the Portfolio's investments may go down and PORTFOLIO MANAGERS:
you could lose money on your investment. - Curt D. McLeod
- Scott Billeadeau
The Portfolio's share price may fluctuate more than that of - Robert E. Scott
funds primarily invested in stocks of large companies. - Robert J. Minarik
Occasionally, small company securities may under perform as
compared to the securities of larger companies. They may also DISTRIBUTOR:
pose greater risk due to narrow product lines, limited financial - ALPS Mutual Funds Services, Inc. ("ALPS")
resources, less depth in management or a limited trading market ---------------------------------------------------
for their stocks.
</TABLE>

For more information about the risk factors identified above, please refer to
the section entitled "Principal Investments" later in this prospectus. The
Statement of Additional Information ("SAI") contains additional information
about the risks associated with investing in the Portfolio.

THE VALUE OF THE PORTFOLIO'S SHARES, LIKE STOCK PRICES, GENERALLY WILL FLUCTUATE
WITHIN A WIDE RANGE. AN INVESTOR IN THE PORTFOLIO COULD LOSE MONEY OVER SHORT OR
EVEN LONG PERIODS OF TIME.

PLEASE REMEMBER THAT THERE IS NO GUARANTEE THAT THE PORTFOLIO WILL ACHIEVE ITS
INVESTMENT OBJECTIVE, AND AN INVESTMENT IN THE PORTFOLIO IS NOT A DEPOSIT OR ANY
OTHER OBLIGATION OF A BANK, IS NOT INSURED, ENDORSED, OR GUARANTEED BY THE FDIC,
A BANK OR ANY GOVERNMENT AGENCY, AND INVOLVES INVESTMENT RISK INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.

Should I invest in the Capital Appreciation Portfolio?

The Portfolio may be appropriate for you if:

- - You can tolerate the price fluctuations and volatility that are inherent in
investing in a stock mutual fund that invests in small and
medium-capitalization companies.

- - You are seeking long-term capital appreciation in your investment.

- - You wish to add an aggressive growth oriented stock fund to your existing
investment portfolio. (REMEMBER, NO SINGLE INVESTMENT CAN PROVIDE AN
EFFECTIVE, BALANCED INVESTMENT PLAN.)

- - You are not seeking current income or the preservation of capital.

1
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
The following bar chart and table can help you WHAT IS THE RUSSELL 2500-TM- GROWTH INDEX?
evaluate the potential risks of investing in the
Portfolio. Both the bar chart and the table show The Russell 2500-TM- Growth Index measures the
the variability the Portfolio has experienced in performance of those Russell 2500-TM- Index
its performance in the past. THE PAST companies with higher price-to-book ratios and
PERFORMANCE OF THE PORTFOLIO DOES NOT INDICATE higher forecasted growth values. The Russell 2500-TM-
HOW IT WILL PERFORM IN THE FUTURE AND IS Growth Index is not a mutual fund and you cannot
INTENDED TO BE USED FOR PURPOSES OF COMPARISON invest in it directly. Also, the performance of the
ONLY. Russell 2500-TM- Grwoth Index does not reflect the
costs associated with operating a mutual fund, such
The performance of the Class I shares shown in as buying, selling, and holding securities.
the bar chart reflects the expenses associated
with those shares from year to year.
</TABLE>

YEAR-BY-YEAR TOTAL RETURN (CLASS I)
<TABLE>
<S> <C>
12/31/98 1.59%
</TABLE>

Best Quarter (quarter ended December 31, 1998) - 23.40%
Worst Quarter (quarter ended September 30, 1998) - (24.12)%

The following table lists the Portfolio's average year-by-year return by class
over the past one year period and since the inception of each class of shares.
The table also compares the average annual total returns of each class of shares
of the Portfolio for the periods shown to the performance of the Russell 2500TM
Growth Index.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(for the period ended December 31, 1998)
- -----------------------------------------------------------------------------------------------------------------------------
INCEPTION DATE 1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS I 9/2/97 1.59% 0.43%
- -----------------------------------------------------------------------------------------------------------------------------
CLASS II 10/2/97 (4.41)% (8.23)%
- -----------------------------------------------------------------------------------------------------------------------------
CLASS III 10/2/97 (0.52)% (4.63)%
- -----------------------------------------------------------------------------------------------------------------------------
CLASS IV*/ N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
RUSSELL 2500TM GROWTH 3.39% 1.37%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

2
<PAGE>

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES
(fees paid directly from your investment) CLASS I CLASS II CLASS III CLASS IV
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on None 5.75% None None
purchases as a percentage of offering price
- -----------------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) None None 1.00%*/ 5.00%
(as a percentage of original purchase price
or redemption proceeds, as applicable)
- -----------------------------------------------------------------------------------------------------------------------------
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from portfolio assets)
(FOR THE YEAR ENDED JUNE 30, 1998)
- -----------------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES**/ .85% .85% .85% .85%
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION (12B-1) FEES .00% .00% .75% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES .46% .82% .83% .58%***/
---- ---- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO OPERATING EXPENSES 1.31% 1.67% 2.43% 2.43%
----- ----- ----- -----
----- ----- ----- -----
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE -- The following example is intended to help you compare the cost of
investing in the Portfolio to the cost of investing in other mutual funds with
similar investment objectives. The example shows the cumulative amount of
portfolio expenses you would pay on a hypothetical investment of $10,000 in each
class of shares offered by the Portfolio. The example assume a 5% average annual
return and that you reinvest all of your dividends. Your actual costs may be
higher or lower.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ASSUMING REDEMPTION ASSUMING NO
AT END OF PERIOD REDEMPTION
- --------------------------------------------------------------------------------------------------------------------------------
CLASS I CLASS II CLASS III CLASS IV*/ CLASS III CLASS IV*/
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
After 1 year $133 $735 $346 $746 $246 $246
- --------------------------------------------------------------------------------------------------------------------------------
After 3 years $415 $1,071 $757 $1,057 $757 $757
- --------------------------------------------------------------------------------------------------------------------------------
After 5 years $718 $1,430 $1,295 $1,495 $1,295 $1,295
- --------------------------------------------------------------------------------------------------------------------------------
After 10 years $1,577 $2,435 $2,762 $2,575 $2,762 $2,575
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*/The Class IV example reflects the conversion of Class IV shares to Class II
shares after eight years from the date of purchase of the Class IV shares.

3
<PAGE>

- --------------------------------------------------------------------------------
MORE INFORMATION ABOUT INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
- --------------------------------------------------------------------------------
OUR INVESTMENT STRATEGY -- The objective of the Portfolio is to seek long-term
capital appreciation by investing at least 65% of its total net assets in equity
securities of medium and smaller capitalization companies.

In selecting investments for the Portfolio, IAI analyzes the fundamental values
of individual companies as well as particular industries. In particular, a
company is evaluated by visiting management and through assessing other levels
of the company, its competitors, its customers, and its vendors. Fundamental
analysis considers a company's essential soundness and future prospects, as well
as overall industry outlook. The Portfolio also may invest in foreign securities
that IAI believes possess unusual values.

PRINCIPAL INVESTMENTS -- The following table describes the securities in which
the Portfolio typically invests and the principal risks associated with those
securities.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
- ------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS: Securities that represent shares MARKET RISK -- The risk that the market value of
of ownership in a corporation. Stockholders a security may increase or decrease, sometimes
participate in the corporation's profits and rapidly and unpredictably. This risk is common
losses, proportionate to the number of shares to all stocks and bonds and the mutual funds
they own. that invest in them.

VALUATION RISK -- The risk that the Portfolio
has valued certain securities at a higher price
than it can sell them for. This risk is common
where the security is from a relatively new
issuer with little or no previous market history
and a mutual fund's management is called upon to
assign a value to the security.
- ------------------------------------------------------------------------------------------------------------
SMALL COMPANY STOCKS: Common stocks issued by LIQUIDITY RISK -- The risk that certain
companies with smaller market capitalizations. securities or other investments may be difficult
or impossible to sell at the time the Portfolio
would like to sell them. It may be difficult for
the Portfolio to sell the investment for the
value the Portfolio has placed on it.

MARKET RISK

SMALL COMPANY STOCK RISK -- Small capitalization
stocks involve greater risk than those
associated with larger, more established
companies. Small company stocks may be subject
to abrupt or erratic price movements.

VALUATION RISK
- ------------------------------------------------------------------------------------------------------------
CONVERTIBLE SECURITIES: Convertible securities CREDIT RISK -- The risk that the issuer of a
are preferred stock or debt obligations that pay security, or a party to a contract, will default
a fixed dividend or interest payment and are or otherwise not honor a financial obligation.
convertible into common stock at a specified
price or conversion ratio. INTEREST RATE RISK -- The risk of a decline in
market value of an interest bearing instrument
due to changes in interest rates. For example, a
rise in interest rates typically will cause the
value of a fixed rate security to fall. On the
other hand, a decrease in interest rates will
cause the value of a fixed rate security to
increase.

MARKET RISK

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

4
<PAGE>

- ------------------------------------------------------------------------------------------------------------
SECURITIES PRINCIPAL RISKS ASSOCIATED WITH THE SECURITY
- ------------------------------------------------------------------------------------------------------------

SECURITIES OF FOREIGN ISSUERS: Securities issued FOREIGN INVESTMENT RISK -- The risk that foreign
by: (1) companies organized outside the United securities may be adversely affected by
States, (2) companies whose securities are political instability of the issue's country,
principally traded outside of the United States, changes in currency exchange rates, foreign
and (3) foreign governments and agencies or economic conditions, or regulatory and reporting
instrumentalities of foreign governments. standards that are less stringent than those of
Securities of foreign issuers includes American the United States. Foreign investment risks will
Depositary Receipts (ADRs), which are U.S. normally be greatest when a Fund invests in
dollar-denominated securities. issuers located in emerging countries.

LIQUIDITY RISK

MARKET RISK

VALUATION RISK
- ------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS AND REVERSE REPURCHASE CREDIT RISK
AGREEMENTS: Repurchase agreements involve the
purchase of a security by a purchaser and a
simultaneous agreement by the seller (generally
a bank or dealer) to repurchase the security
from the purchaser at a specified date or on
demand. This technique offers a method of
earning income on idle cash. Reverse repurchase
agreements involve the sale of a security to
another party (generally a bank or dealer) in
return for cash and an agreement to buy the
security back at a specified price and time.
- ------------------------------------------------------------------------------------------------------------
</TABLE>

In addition to the securities identified above, the Portfolio may, from time to
time, engage in the following investment practices or techniques:

BORROWING FROM BANKS. The Portfolio may borrow money from banks (up to 33 1/3%
of the Portfolio's total assets) for temporary or emergency purposes.

<TABLE>
<S> <C>
DERIVATIVE INSTRUMENTS. The Portfolio may invest -------------------------------------------------
in instruments and securities generally known as WHAT IS A DERIVATIVE INSTRUMENT?
derivative investments. These investments may
include the use of forward currency contracts, A derivative is a financial contract whose value
put and call option contracts, zero coupon is based on (or "derived" from) a traditional
bonds, and stripped fixed-income obligations. security (such as a stock or bond), an asset
(such as as commodity like gold), or market
IAI may not buy any of these instruments or use index (such as the S&P 500 Index). Futures and
any of these techniques unless they believe options are derivatives that have been traded on
that doing so will help the Portfolio achieve its regulated exchanges for more than two decades.
investment objective. Use of these instruments -------------------------------------------------
</TABLE>

and techniques can alter the risk and return characteristics of the Portfolio.
They may increase the Portfolio's volatility and may involve the investment of a
small amount of cash relative to the magnitude of the risk assumed. This is
called leverage. They also may result in a loss of principal if IAI judges
market conditions incorrectly or employs a strategy that does not correlate well
with the investment strategy of the Portfolio. Positions in options involve the
risk that such options may fail as a hedging technique and that closing
transactions may not be effected where a liquid secondary market does not exist.

LENDING SECURITIES. The Portfolio may temporarily lend up to 33 1/3% of its
portfolio securities to broker-dealers and institutions, but only when the loans
are fully collateralized.

5
<PAGE>

For more information about the securities in which the Portfolio invests and
their risks, please refer to the Appendix to this Prospectus and the SAI.

- --------------------------------------------------------------------------------
WHO MANAGES THE PORTFOLIO?
- --------------------------------------------------------------------------------

First Tennessee, 530 Oak Court Drive, Memphis, Tennessee, and IAI serve as
Co-Investment Advisers to the Portfolio. First Tennessee, among other things,
provides investment management evaluations to the Board of Trustees of First
Funds (the "Trustees"), monitors the activities of IAI, including IAI's
Portfolio transactions, and coordinates IAI's activities with the Portfolio's
custodian, transfer agent, administrator, and independent accountants. IAI is
responsible for the day-to-day investment management of the Portfolio, including
providing investment research and credit analysis concerning portfolio
investments and conducting a continuous program of investment of portfolio
assets in accordance with the investment policies and objective of the
Portfolio.

The Portfolio is obligated to pay First Tennessee a monthly management fee at
the annual rate of 0.15% of its average net assets for the investment advisory
services First Tennessee provides. First Tennessee has voluntarily agreed to
waive its entire management fee for the current fiscal year.

First Tennessee serves as an investment adviser to individual, corporate and
institutional advisory clients, pension plans and collective investment funds,
with approximately $16 billion in assets under administration (including
nondiscretionary accounts) and $4 billion in assets under management as of June
30, 1998, as well as experience in supervising sub-advisers.

IAI is responsible for the day-to-day investment and reinvestment of the
Portfolio's assets in accordance with its investment objective and policies. IAI
is obligated to provide a continual program of investment of portfolio assets,
to conduct investment research and credit analysis concerning portfolio
investments, and to place orders for all purchases and sales of investments on
behalf of the Portfolio.

As compensation for the services it provides, IAI is entitled to receive from
the Portfolio a monthly management fee at the annual rate of 0.70% for the first
$50 million of the Portfolio's average net assets and .65% on average daily net
assets of the Portfolio in excess of $50 million.

IAI also furnishes investment advice to other concerns including other
investment companies, pension and profit sharing plans, foundations, religious,
educational and charitable institutions, trusts, municipalities and individuals,
having total assets in excess of $7 billion as of June 30, 1998. IAI's ultimate
corporate parent is Lloyds TSB Group plc, a publicly-held financial services
organization headquartered in London, England. Lloyds TSB Group plc is one of
the largest personal and corporate financial services groups in the United
Kingdom and is engaged in a wide range of activities including commercial and
retail banking. The address of IAI is P.O. Box 357, Minneapolis, Minnesota
55440-0357.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------

Curt D. McLeod is Vice President for IAI and joined the company in 1997.
Previously, he worked as a portfolio manager for 11 years with Piper Jaffray
Companies. Mr. McLeod is a Chartered Financial Analyst and has a Bachelor of
Arts in finance from the University of St. Thomas.

6
<PAGE>

Scott Billeadeau is Vice President for IAI and joined the company in 1999. Prior
to joining IAI he was a senior portfolio manager for TradeStreet Investment
Associates, Inc. Mr. Billeadeau is a Chartered Financial Analyst and has an
Economics degree from Princeton University.

Robert E. Scott is Associate Vice President for IAI and joined the company in
1994. Previously, Mr. Scott was a research specialist for the American Embassy
in Tokyo, Japan. He is a Chartered Financial Analyst and graduated from Harvard
University.

Robert J. Mlnarik is Associate Vice President for IAI and joined the company in
1996 and prior to that was a Major in the United States Marine Corps. Mr.
Mlnarik graduated from the University of Michigan with a Bachelor of Science.

<TABLE>
- --------------------------------------------------------------------------------------------------------------------
HOW TO INVEST IN THE PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
CLASS I --------------------------------------------------------
WHAT CLASSES OF SHARES DOES THE GROWTH & INCOME
WHO MAY INVEST? PORTFOLIO OFFER?

Class I shares are designed exclusively for investment The Portfolio offers investors four different classes of
of monies held in non-retail trust, advisory, agency, shares. The different classes of shares represent
custodial or similar accounts ("Institutional investments in the same portfolio of securities;
Accounts"). Class I shares may be purchased for however, each class is subject to different expenses and
Institutional Accounts by financial institutions, likely will have different share prices. When you buy
business organizations, corporations, municipalities, shares, be sure to tell us the class of shares in which
non-profit institutions, and other entities serving in a you would like to invest.
trust, advisory, agency, custodial or similar capacity
(each an "Institutional Investor" and collectively CLASS I SHARES. Class I shares are offered to
"Institutional Investors") who meet the investment institutional investors exclusively. Class I shares are
threshold for this Class of shares. not subject to any sales loads and do not incur
distribution or shareholder servicing fees.
HOW IS AN INSTITUTIONAL ACCOUNT ESTABLISHED?
CLASS II SHARES. Class II shares are offered to
An initial investment must be preceded by or made in investors subject to an up-front sales load. Under
conjunction with the establishment of an Institutional certain circumstances described later in this
Account with an Institutional Investor. Establishment of prospectus, the sales load may be waived. The sales load
an Institutional Account may require that documents and is reflected in the offering price of the Class II
applications be completed and signed before the shares. Class II shares also incur shareholder servicing
investment can be implemented. The Institutional fees.
Investor may require that certain documents be provided
prior to making a redemption from the Portfolio. CLASS III SHARES. Class III shares are offered to
investors without the imposition of any up-front sales
Institutional Investors may charge fees in addition to load; however, you will pay a contingent deferred sales
those described herein. Fee schedules for Institutional charge ("CDSC") of 1.00% if you redeem the shares within
Accounts are available upon request from the one year from the date of purchase. The Class III shares
Institutional Investor and are detailed in the also incur distribution and shareholder servicing fees.
agreements by which each client opens an account with an
Institutional Investor. CLASS IV SHARES. Class IV shares are offered to
investors without the imposition of any up-front sales
HOW ARE INVESTMENTS MADE? load; however, Class IV shares are subject to a CDSC of
up to 5.00%. The CDSC is phased out over a period of six
Each Institutional Investor will transmit orders to years. After eight years from the date of purchase,
Boston Financial Data Services (the "Transfer Agent"). Class IV shares automatically convert to Class II
If an order is received by the Transfer Agent prior to shares. Class IV shares also incur distribution fees.
4:00 p.m. Eastern Time on any Business Day (as defined --------------------------------------------------------
in the section "How Are Portfolio Shares Valued?") and
the funds are received by the Transfer Agent that day,
the investment will earn dividends declared, if any, on
the day of purchase. Institutional Investors will wire
funds through the Federal Reserve System. Purchases will
be processed at the net asset value per share ("NAV") next
</TABLE>

7
<PAGE>

calculated after an order is received by the Transfer Agent. The Portfolio
requires advance notification of all wire purchases. To secure same day
acceptance of federal funds (monies transferred from one bank to another through
the Federal Reserve System with same-day availability), an Institutional
Investor must call the Transfer Agent at 1-800-442-1941, (option 2) prior to
4:00 p.m. Eastern Time on any Business Day to advise it of the wire. The Trust
may discontinue offering its shares in any Class of a Portfolio without notice
to shareholders.

MINIMUM INVESTMENT AND ACCOUNT BALANCE. The minimum initial investment for each
Institutional Investor is $750,000. Institutional Investors may satisfy the
minimum investment by aggregating their Institutional Accounts within the
Portfolio. Subsequent investments may be in any amount. If an Institutional
Investor's Class I account falls below $375,000 due to redemption, the Portfolio
may close the account. An Institutional Investor may be notified if the minimum
balance is not being maintained and will be allowed 30 days to make additional
investments before its account is closed. Shares will be redeemed at the NAV on
the day the account is closed, and proceeds will be sent to the address of
record

Should an Institutional Investor or a beneficial owner of Class I shares cease
to be eligible to participate in this Class, Class I shares held in an
Institutional Account may be converted to shares of another Class. Any such
conversion will be made on the basis of the relative NAVs of the two Classes
without the imposition of any sales load, fee or other charge. Institutional
Investors or beneficial owners will receive at least 30 days prior notice of any
proposed conversion.

HOW ARE REDEMPTIONS MADE?

Institutional Investors may make redemptions by wire provided they have
established a wire account with the Transfer Agent. Please call 1-800-442-1941,
(option 2) to advise the Transfer Agent of the wire. If telephone instructions
are received before 4:00 p.m. Eastern Time on any Business Day, proceeds of the
redemption will be wired as federal funds on the next Business Day to the bank
account designated with the Transfer Agent. The Institutional Investor may
change the bank account designated to receive an amount redeemed at any time by
sending a letter of instruction with a signature guarantee to the Transfer Agent
at P.O. Box 8050, Boston, MA 02266. Pursuant to the Investment Company Act of
1940, as amended, if making immediate payment of redemption proceeds could
adversely affect the Portfolio, payments may be made up to seven days later.
Also, when the New York Stock Exchange (NYSE) is closed (or when trading is
restricted) for any reason other than customary weekend or holiday closings, or
under any emergency circumstances as determined by the SEC to merit such action,
the right of redemption may be suspended or the date of payment postponed for a
period of time that may exceed seven days. To the extent Portfolio securities
are traded in other markets on days when either the NYSE or the Federal Reserve
Bank of New York (New York Federal Reserve) is closed, the Portfolio's NAV may
be affected on days when investors do not have access to the Portfolio to
purchase or redeem shares.

ADDITIONAL INFORMATION

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

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

8
<PAGE>

CLASS II, III, AND IV

WHO MAY INVEST?

Class II, III and IV shares are designed for individuals and other investors who
seek mutual fund investment convenience plus a lower investment minimum. These
classes offer investors differing expense and sales load structures to choose
between. See "Fees and Expenses" of the Capital Appreciation Portfolio.

INVESTMENT REQUIREMENTS

If you are an employee of First Tennessee or any of its affiliates and you
participate in the Systematic Investing Program, the minimum initial investment
is $50, and subsequent investments may be in any amount of $25 or greater. If
your balance in the Portfolio falls below the applicable minimum investment
requirement due to redemption, you may be given 30 days' notice to reestablish
the minimum balance. If you do not reestablish the minimum balance, your account
may be closed and the proceeds mailed to you at the address on record. Shares
will be redeemed on the day the account is closed.

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

HOW DO I SET UP AN ACCOUNT?

You may set up an account directly in the Portfolio or you may invest in the
Portfolio through your Investment Professional (see "How Do I Invest Through My
Investment Professional" below). Shares will be purchased based on the NAV next
calculated after the Transfer Agent has received the request in proper form. If
you are investing through an Investment Professional, transactions that your
Investment Professional initiates should be transmitted to the Transfer Agent
before 4:00 p.m. Eastern time in order for you to receive that day's share
price. The Transfer Agent must receive payment within three business days after
an order is placed. Otherwise, the purchase order may be canceled and you could
be held liable for the resulting fees and/or losses. An investor will earn
dividends declared, if any, on the day of purchase if the funds are received by
the Transfer Agent that day.

HOW DO I INVEST DIRECTLY?

When opening a new account directly, you must complete and sign an account
application and send it to First Funds, c/o Boston Financial Data Services, P.O.
Box 8050, Boston, MA 02266-8050. Telephone representatives are available at
1-800-442-1991, (option 2) between the hours of 8:00 a.m. to 4:00 p.m. Central
Time (9:00 a.m. to 5:00 p.m. Eastern Time), Monday through Friday.

Investments may be made in several ways:

BY MAIL: Make your check payable to FIRST FUNDS CAPITAL APPRECIATION PORTFOLIO,
and mail it, along with the application, to the address indicated on the
application. Your account will be credited on the business day that the Transfer
Agent receives your application in good order.

9
<PAGE>

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

State Street Bank and Trust Company
ABA #011000028
First Funds
Account #9905-440-5
(Account Registration)
(Account Number)
(Wire Control Number) *See Below*

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

Your bank may charge you a fee for this service.

HOW DO I REDEEM SHARES WHEN INVESTING DIRECTLY?

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

You may redeem shares in several ways:

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

BY PHONE: Provided you have elected this option in advance, you may request a
redemption of Portfolio shares by calling the Transfer Agent at 1-800-442-1941
(option 2). Your redemption proceeds can be sent to you in the mail or, as more
fully described below, the proceeds can be sent directly to a bank account you
designate by bank transfer or wire. For your protection, all telephone calls are
recorded. Also, neither First Funds, First Tennessee, IAI, nor the Transfer
Agent or any of their agents will be responsible for acting on telephone
instructions they believe are genuine. For more information about telephone
redemptions, please call 1-800-442-1941 (option 2).

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

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

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

10
<PAGE>

HOW DO I INVEST THROUGH MY INVESTMENT PROFESSIONAL?

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

SYSTEMATIC INVESTING PROGRAM

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

SYSTEMATIC WITHDRAWAL PLAN

ADDITIONAL INFORMATION

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

CLASS II

SALES LOADS

The public offering price for Class II shares is the sum of the NAV plus a sales
load. As indicated below, a portion of this load may be reallowed to a
broker-dealer which has entered into an agreement with ALPS, the Portfolio's
Distributor. You may calculate your sales load as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Total Sales Load for Class II Shares
------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
AS A % OF OFFERING BROKER-DEALER
AMOUNT OF TRANSACTION PRICE PER SHARE AS A % OF NAV REALLOWANCE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
- -----------------------------------------------------------------------------------------------------------------------------
$50,000 to $99,999 4.50 4.71 4.00
- -----------------------------------------------------------------------------------------------------------------------------
$100,000 to $249,999 3.50 3.63 3.00
- -----------------------------------------------------------------------------------------------------------------------------
$250,000 to $499,999 2.50 2.56 2.25
- -----------------------------------------------------------------------------------------------------------------------------
$500,000 to $999,999 1.50 1.52 1.25
- -----------------------------------------------------------------------------------------------------------------------------
$1,000,000 and over 0.50 0.50 0.40
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

11
<PAGE>

You may purchase Class II shares without a sales load if the purchase will be:

(B) by registered representatives, directors, advisory directors,
officers and employees (and their immediate families) of First Tennessee or its
affiliates;

(D) by a charitable remainder trust or life income pool established for
the benefit of a charitable organization (as defined in Section 501(c)(3) of the
Internal Revenue Code);

(E) for use in a financial institution or investment adviser managed
account for which a management or investment advisory fee is charged;

(G) through certain promotions where the load is waived for investors.

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

QUANTITY DISCOUNTS

12
<PAGE>

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

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

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

OTHER. Class II shares also incur Shareholder Servicing Fees. See discussion
under "Distribution Plan and Shareholder Servicing Plans."

CLASS III

CLASS IV

Class IV shares are bought without a front-end load; that is, the offering price
for such shares will be their NAV. Class IV shares incur Distribution Fees. See
discussion under "Distribution Plans and Shareholder Servicing Plans."

DEFERRED SALES CHARGES. A CDSC of up to 5.00% is imposed on redemptions of Class
IV shares. The CDSC associated with the Class IV shares is phased out over a
period of six years. Any shares acquired by reinvestment of dividends will be
redeemed without the imposition of any CDSC.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
1 2 3 4 5 6
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5% 4% 3% 3% 2% 1%
- -----------------------------------------------------------------
</TABLE>

AUTOMATIC CONVERSION. After eight years from the date of purchase, Class IV
shares will automatically convert to Class II shares.

ALL CLASSES

HOW ARE PORTFOLIO SHARES VALUED?

13
<PAGE>

The Portfolio is open for business each day that both the NYSE and the New York
Federal Reserve are open (a Business Day). The NAV is calculated at the close of
the Portfolio's business day, which coincides with the close of regular trading
of the NYSE (normally 4:00 p.m. Eastern Time). Share price is not calculated on
the days that the NYSE is closed.

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

WHAT ARE MY DISTRIBUTION OPTIONS?

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

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

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

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

HOW ARE EXCHANGES MADE?

An exchange is the redemption of shares of one Portfolio and the purchase of
shares of another. The exchange privilege is a convenient way to sell and buy
shares of other Portfolios within First Funds. Not all First Funds Portfolios
may be available in your state. Please check with your Investment Professional
or call First Funds at 1-800-442-1941. Except as noted below, the Portfolio's
shares may be exchanged for the same Class shares of other First Funds
Portfolios. The redemption and purchase will be made at the NAV next determined
after the exchange request is received and accepted by the Transfer Agent. You
may execute exchange transactions by calling the Transfer Agent at
1-800-442-1941 (option 2) prior to 4:00 p.m. Eastern Time on any Business Day.

Each exchange may produce a gain or loss for tax purposes. In order to protect
the Portfolio's performance and its shareholders, First Tennessee and IAI
discourage frequent exchange activity by investors in response to short-term
market fluctuations. The Portfolio reserves the right to refuse any specific
purchase order, including certain purchases by exchange if, in IAI's opinion,
the Portfolio would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise be adversely affected.
Exchanges or purchase orders may be restricted or refused if the Portfolio
receives or anticipates individual or simultaneous orders affecting a
significant portion of the Portfolio's assets. Although the Portfolio will
attempt to give prior notice whenever it is reasonably able to do so, it may
impose these restrictions at any time. The Portfolio reserves the right to
modify or withdraw the exchange privilege upon 60 days notice and to suspend the
offering of shares in any Class without notice to shareholders.

14
<PAGE>

You or your Institutional Investor, if you are invested in Class I, will receive
written confirmation of each exchange transaction.

STATEMENTS AND REPORTS

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

FEDERAL TAXES. Distributions of gains from the sale of assets held by the
Portfolio for more than one year generally are taxable to shareholders at the
applicable or long-term capital gains rate, regardless of how long they have
owned their Portfolio shares. Distributions from other sources generally are
taxed as ordinary income. A portion of the Portfolio's dividends may qualify for
the dividends-received deduction for corporations.

Distributions are taxable when they are paid, whether taken in cash or
reinvested in additional shares, except that distributions declared in October,
November or December and paid in January are taxable as if paid on December 31.
The Portfolio will send each investor or, if Class I, each Institutional
Investor, an IRS Form 1099-DIV by January 31 of each year.

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

Institutional Investors and other shareholders should consult their tax advisor
for details and up-to-date information on the tax laws in your state to
determine whether the Portfolio is suitable given your particular tax situation.
It is not anticipated that the Portfolio's distributions will be exempt from
Tennessee personal income tax, except to the extent that any distributions of
income are attributable to interest on bonds or securities of the U.S.
Government or any of its agencies or instrumentalities.

15
<PAGE>

Professional" and collectively "Investment Professionals") as compensation for
selling Class III and IV shares and for providing ongoing sales support
services.

The Trustees also have adopted Shareholder Servicing Plans on behalf of the
Class II and III shares of the Portfolio. Under the Shareholder Servicing Plans,
certain broker-dealers, banks, and other financial institutions (collectively
"Service Organizations") are paid an amount equal to .25% of the average net
assets of the Portfolio that are attributable to each Class of shares as
compensation for shareholder services and account maintenance. These services
include responding to shareholder inquiries, directing shareholder
communications, account balance maintenance, and dividend posting.

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

The Financial Highlights Table is presented to help you understand the
Portfolio's financial performance since inception. Certain information reflects
financial results for a single Portfolio share. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along with the
"Portfolio's" financial statements, is included in the Portfolio's annual
report, which is available upon request by calling First Funds at 1-800-442-1941
(option 1).

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>

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<PAGE>

FINANCIAL HIGHLIGHTS
CAPITAL APPRECIATION PORTFOLIO (CONTINUED)
<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 Class 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.
<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.

17
<PAGE>

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APPENDIX
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ADDITIONAL INFORMATION ABOUT THE PORTFOLIO'S INVESTMENTS

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

objective and policies.

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

RESTRICTED SECURITIES. The Portfolio may purchase securities which cannot be
sold to the public without registration under the Securities Act of 1933
("Restricted Securities"). Unless registered for sale, these securities can only
be sold in privately negotiated transactions or pursuant to an exemption from
registration. Provided that the security has a demand feature of seven days or
less, or a dealer or institutional trading market exists, these Restricted
Securities are not treated as illiquid securities for the purposes of the
Portfolio's investment limitations. Investing in Restricted Securities could
have the effect of increasing the level of Portfolio illiquidity if qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.

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

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

A-1
<PAGE>

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

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

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

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

A-2
<PAGE>

FIRST 370 Seventeenth Street
FUNDS Suite 3100
Denver, Colorado 80202
www.firstfunds.com

If you would like more information about the Portfolio, the following documents
are available free upon request.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

ANNUAL AND SEMI-ANNUAL REPORTS

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

Investment Company Act File No. 811-6589

[LOGO] -----------------------------------------
Investment Adviser FIRST FUNDS

<PAGE>

FIRST
FUNDS

Tennessee Tax-Free Portfolio

Prospectus
Dated July 30, 1999

CLASS I
CLASS II
CLASS III
CLASS IV

[PHOTO]

The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus. Any representation to
the contrary is a criminal offense.

<PAGE>

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
Investment Objective and Primary Risks ........................................1